Aug212013
The biggest foreclosure myth of the housing bust exposed
The financial mainstream media often tells people what they want to hear. They’ve learned they make more money by providing emotional support to people seeking reassurance rather than providing facts and accurate analysis. This is a shame because people often make important and complex financial decisions based on erroneous or biased information they obtain from the financial press. When these investment decisions go bad, people are often wondering what went wrong. The problem is they trusted the veracity of what they read in the mainstream media.
We’ve seen a great deal of spin and nonsense over the last few years. Barry Ritholtz wrote a post on How to Read National Association of Realtors News Release. I wrote a series of posts on self-serving bullshit from the National Association of realtors. But this goes beyond the NAr. It’s a significant portion of the financial press. For example, watch over the next several months as home prices pull back. Each month, we will read about a month-over-month decline, but the reporter will reassure everyone the market rally is intact by pointing out the year-over-year numbers are still good. Are people so insecure that they need this constant reassurance? And when the assurance causes them to make bad decisions, who is responsible for that?
Today’s featured article contains a quote that outraged me, not just because it’s an inaccurate depiction of reality, but because the motivation for it was purely to make people feel good about something they didn’t do. A collective Kumbaya and fake praise based on a lie people want to believe.
Drop in foreclosure rate “heroic” on part of Americans, expert says
Amanda Cochran — August 15, 2013 11:49 AM
(CBS News) Home foreclosures dropped 31 percent last month, from the same time a year ago, new numbers released from the foreclosure listing firm RealtyTrac Inc show. But more importantly, 2013 is shaping up to have the lowest foreclosure rate in six years.
It’s part of a broader trend economists call “deleveraging,” in which debt is paid down by selling assets, Jon Hilsenrath, chief economics reporter for The Wall Street Journal, explained on “CBS This Morning.” He called the numbers “very significant,” adding, “Americans have done something heroic, really, in the last five years. Faced with all of this debt after the housing boom, they’ve made a lot of progress on paying it down. …
Complete and utter bullshit. I’m shocked he had the nerve to say it. Perhaps he figured nobody would call him out because his bullshit makes everyone feel good.
First, I would like to point out that one of our readers is a hero. Perspective really did pay down his mortgage debt by taking money out of savings. It was a difficult decision that required sacrifice, but he managed to refinance into a 15-year mortgage at a very low rate, and he is quickly retiring his mortgage debt.
That is heroic. That requires sacrifice. That isn’t what Americans have been doing.
Let’s take a look at the trend in deleveraging. The total debt is dropping, that much is true.
However, how do you think this really happened? Did Ponzis suddenly start making more money during the recession and pay it down with wage income. No. Did anyone liquidate their assets to pay off debt. Not very many. So what is the real source of deleveraging?
Bank write offs.
Nearly all the mortgage debt retired over the last several years was written off by banks.
Look at the astronomical charge off rates on credit cards. That’s what happens when millions of Ponzis all implode at once.
The same pattern is evident on all consumer loans (this includes car loans). The charge-off rates were more than double the highest previous rate seen at the end of the last recession.
All loans at all commercial banks. Just as bad.
Americans are some kind of heroes, right?
we’re seeing that in foreclosure rates … the rate of [banks] repossessing homes is coming down because household finances are in better shape than they were a few years ago.”
The layers of bullshit are getting thick. The foreclosure rate is coming down because banks stopped foreclosing on delinquent borrowers. They’ve gone all in on can-kicking loan modifications, and they’re allowing those who won’t agree to a modification to squat. The illusion perpetuated by the mainstream media is that “stuggling borrowers” can’t make their payments due to job loss. There are a few of those people, but many are Ponzis who overborrowed and became accustomed to fresh infusions of debt to sustain their profligate spending.
Different parts of the country will progress and regress at different rates, Hilsenrath said. “What’s interesting to me about the increase is we’re seeing a lot of them in the northeast. New Jersey, New York, Connecticut. So, it looks like that part of the United States is not doing as well in this recovery and in repairing household finances.”
Rather than admit that he has no idea what he’s talking about, he applies the same faulty reasoning to different conditions. The Northeast is suffering because they never did process their housing bubble foreclosures. Many of the states are judicial foreclosure which clogged up the courts, and others are overrun with delinquent mortgage squatters. They are just now processing the foreclosures we pushed through here in the Southwest years ago. Keith Jurow publishes great numbers on the debacle in the Northeast.
Though this year is a bright spot in the housing recovery, Hilsenrath said the next step is whether there will be a follow-through in the larger economy. He said, “The stage of the story (is) that Americans have repaired their finances. Are they going to start spending money? There’s this idea of the paradox of thrift. The idea that we’re seeing this from the households is they’re not spending a lot of money, so the economy is growing very slowly. So the big question right now is, do people start feeling better about their finances to start spending a little bit and getting the economy growing faster and creating more jobs? That’s really what we have to start seeing next — a faster growing economy, more job growth. That’s what will keep this recovery going.”
Is there any fallacy this guy doesn’t believe? There is no paradox of thrift.
Under normal conditions, however, the paradox of thrift does not apply:
- If an individual saves they will increase their wealth;
- If the entire nation saves, there is no effect on national income provided savings are channeled through the financial system into new capital investment.
- All that then happens is less consumer goods but more capital goods are produced — spending as a whole does not fall.
- Production, as a result, will also not fall.
National income is, in fact, likely to rise. New capital investment will boost productivity and accelerate growth.
Consider the simple example of a farmer who saves and buys a tractor. His overall spending is unaffected. He merely consumes less and spends the proceeds on something else — in this case a tractor. The income of the store that supplies him with consumer goods will decrease, but the income of the dealer that sells him the tractor will rise; the net effect on national income is so far zero. But the farmer now produces more food with his new tractor; so his income — and the national income — increases.
This misconception that the paradox of thrift applies in normal markets has done immense harm to the economy and eroded the savings of the middle-class and retirees. For three generations, central bankers attacked savers by artificially reducing interest rates — in the belief that lower savings would boost demand and stimulate the economy. Low interest rates simply forced savers to assume more risk, in order to earn a return on their investment, and encouraged speculation. The traditional work hard and save ethic that is the backbone of the capitalist system has been supplanted by the consume, borrow and speculate profligacy that got us into such a mess. High levels of public and private debt, inflation, volatile investment returns and rising income inequality are all consequences of the low-interest policy pursued by the Fed. Today’s giant casino is a far cry from the cautious, prudent investment outlook of our grandparents’ generation.
The economy will improve due to lower debt service levels — not because people become less thrifty, but because once they’ve paid off their debts, they will have more disposable income. An economy doesn’t require consumer debt or other artificial increases in spending to be prosperous. In fact, any expansion of consumer debt ultimately makes everyone poorer. An economy without consumer debt loses nothing to debt service. The money spent on interest and principal repayment on consumer debt is money not spent in the rest of the economy. That’s the dirty little secret bankers don’t want you to know.
A short sale for more than double their purchase price?
How do you think that happened?
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”OC13156890″ showpricehistory=”true”]
332 EVENING CANYON Rd Corona Del Mar, CA 92625
$1,550,000 …….. Asking Price
$780,000 ………. Purchase Price
2/7/1996 ………. Purchase Date
$770,000 ………. Gross Gain (Loss)
($124,000) ………… Commissions and Costs at 8%
============================================
$646,000 ………. Net Gain (Loss)
============================================
98.7% ………. Gross Percent Change
82.8% ………. Net Percent Change
3.9% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,550,000 …….. Asking Price
$310,000 ………… 20% Down Conventional
5.02% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,240,000 …….. Mortgage
$324,813 ………. Income Requirement
$6,672 ………… Monthly Mortgage Payment
$1,343 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$323 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$53 ………… Homeowners Association Fees
============================================
$8,391 ………. Monthly Cash Outlays
($1,943) ………. Tax Savings
($1,484) ………. Principal Amortization
$606 ………….. Opportunity Cost of Down Payment
$214 ………….. Maintenance and Replacement Reserves
============================================
$5,784 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$17,000 ………… Furnishing and Move-In Costs at 1% + $1,500
$17,000 ………… Closing Costs at 1% + $1,500
$12,400 ………… Interest Points at 1%
$310,000 ………… Down Payment
============================================
$356,400 ………. Total Cash Costs
$88,600 ………. Emergency Cash Reserves
============================================
$445,000 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Mortgage applications fall 4.6%
Mortgage application filings continued their downward trend for the week ending Aug. 16, falling 4.6% from the last report, the Mortgage Bankers Association said Wednesday.
Additionally, the refinance index fell 8% from the prior week, while the purchase index edged up 1%.
Overall, the refinance share of mortgage activity edged down to 62% of total applications.
The average contract interest rate for a 30-year, fixed-rate mortgage with a conforming loan rose to 4.68% from 4.56%.
Furthermore, the 30-year, FRM jumbo climbed to 4.74% from 4.57% last week.
The average 30-year, FRM backed by the FHA also jumped to 4.40% from 4.25%.
Meanwhile, the 15-year, FRM rose to 3.71% from 3.60%, and the 5/1 ARM inched up to 3.44% from 3.36% a week ago.
Uh.. move along, nothing to see here but holidays
Aug12: Victory Day–Rhode Islnd
Aug16: Statehood Day–Hawaii
Aug16: Bennington Battle Day–Vermont.
LOL +1
Although I imagine MR will point out thaat “the purchase index edged up 1%.”
Uh, no you guys are right. People buy houses when they refinance. It’s a strange new paradigm in mortgage lending.
Could it be that standards are dropping which is why purchase applications are increasing? And you can only drop those standards so far. Plus, the number of ARM loans have doubled since January. I wish history could give us an example of what happens when you credit too easy.
Purchase Loan Share Surpasses Refinances in July
The percentage of purchase loans finally eclipsed the share of refinances in July, according to Ellie Mae’s Origination Insight Report for the month.
The report draws data from a sampling of loan applications flowing through Ellie Mae’s software and network. To get a meaningful view of lender “pull-through,” the company reviewed applications initiated in April.
The data sampled shows the mix of purchase loans to refinances was 53 percent versus 47 percent in July—the largest percentage of purchase loans since Ellie Mae began tracking in August 2011 and also the first time purchase share has crossed the 50 percent threshold in at least two years.
Jonathan Corr, president and COO of Ellie Mae, said the rise in purchase loan share “was a further indication that housing seems to be improving.”
Also notable was an increase in the share of adjustable-rate mortgage (ARM) loans as fixed rates keep climbing. According to Ellie Mae , ARMs represented 5.2 percent of closed loans in July compared to 4.0 percent in June and 2.1 percent in January.
The closing rate for all loans in July was 55.4 percent, an improvement from 54.3 percent in June and the fourth consecutive monthly increase. The closing rate for refinances was 51.3 percent (up from 49.9 percent), while the closing rate for purchases was 61.4 percent (up from 60.4 percent).
The increase in closing rates went hand-in-hand with an easing in credit standards. The average FICO score for a loan closed in July was 737, down from 742 in June and the lowest level since tracking began. The loan-to-value (LTV) ratio for a loan closed in July was 81 percent compared to June’s 80 percent.
Purchase applications aren’t increasing much, the reason the share of purchase applications surpassed refinances is because the refinance business is cratering.
One-Third of California Homeowners Locked Out of Market
The California real estate market continued to experience rising home prices and strong sales in July, but negative equity still remains a significant challenge, according to a report from PropertyRadar.
Out of the 6.8 million California homeowners with a mortgage, 26 percent, or 1.8 million, were underwater as of July.
Another 500,000 are barely managing to stay above water, with no more than 10 percent of equity in their home. When factoring in closing costs for these homeowners, they would still “effectively” be underwater, according to PropertyRadar.
This means about one third, or 2.3 million homeowners, are still unable to sell due to lack of equity.
Even though millions of California homeowners are unable to sell, sales for single-family homes and condominiums saw monthly and yearly increases of 12.1 percent and 12.9 percent, respectively.
“With the exception of the temporary bounce in July 2009 sales from the First-Time Homebuyer Tax Credit, July 2013 sales were the highest since July 2006,” noted Madeline Schnapp, director of economic research for PropertyRadar.
According to the report, a jump in non-distressed sales led to the sharp increase in sales. Over the last year, non-distressed sales increased 63.7 percent, while distressed sales decreased by 39.4 percent.
As rising price releases people from their negative equity prisons, it simultaneously prices out marginal buyers and diminishes demand. Since those with negative equity don’t complete a move-up trade because they have no equity, they don’t contribute to housing demand either. Given these circumstances, as prices go up, housing demand should decline.
Isn’t it just amazing that 5 years into the economic crisis there is still a huge difference between the price sellers need to get and the price that buyers can afford to pay? it seems like buyers are trying to buy a house, but sellers are trying to sell a house plus all the debt they racked up on the house. The only way buyers can afford to buy the house plus the debt is to finance both at really low interest rates.
“The only way buyers can afford to buy the house plus the debt is to finance both at really low interest rates.”
Therein lies the problem of rising interest rates. The only way buyers can afford to finance peak bubble prices is at interest rates under 4%.
That is the exact reason why I am not looking anymore. I refuse ith every fiber of my being to be some irresponsible loan owners personal Bernanke helicopter bailout. Its very different when you are buying nothing with your OWN money. I mean its. YOUR money. That really really changes the way you view a purchase.
Its like the guy who buys the most expensive car on the lot. Of course he is gonna buy the extras. He’s borrowing all that money. Same guy walking in with his cash will haggle over every option and not get more than he can afford. Jesus I’m no finance advisor but I knew this stuff when I was getting $4 for mowing lawns and $2 for washing cars in the neighborhood. You can bet I haggled when I bought my first bike to get to school
Zillow: 30-year mortgage rate rises for 4th week
Real-estate website Zillow Inc. Z +2.61% said its real-time rate for 30-year fixed-rate mortgages increased to its highest level since May 2011 in the latest week.
The 30-year fixed mortgage rate on Zillow Mortgage Marketplace rose to 4.52% from 4.31% a week earlier. Zillow has reported an increase in mortgage rates for four consecutive weeks.
“Mortgage rates hit a two-year high on generally positive domestic economic news and stronger-than-expected European performance,” said Erin Lantz, director of Zillow Mortgage Marketplace. “We expect rates to continue to rise gradually this week, unless Wednesday’s Federal Reserve minutes contradict expectations that the Fed will begin to wind down its stimulus program in September.”
Zillow said the rate for a 15-year fixed home loan is currently 3.48%, up from 3.32% a week earlier. The rate for a 5-1 adjustable-rate mortgage is 3.18%, above last week’s 3.16%. A 5-1 ARM has an initial rate that applies for the first five years of the loan and then adjusts annually.
Zillow’s real-time mortgage rates are based on thousands of custom mortgage quotes submitted daily to anonymous borrowers through the company’s website.
First Mortgage Default Rate Inches Up in July
National default rates inched up in July, with first mortgages showing a slight increase, according to the S&P/Experian Consumer Credit Default Indices.
The national composite for consumer defaults—which cover first and second mortgages, bank cards, and auto loans—ticked up to 1.35 percent in July from 1.34 percent in June.
For the first time this year, the default rate for first mortgages increased. In July, the default rate was 1.25 percent, up slightly from 1.23 percent in June. The first mortgage default rate though is still down compared to July 2012, when it was 1.41 percent.
The second mortgage default rate fell flat at 0.54 percent, but was down from 0.75 percent a year ago.
The default rate for bank cards was the only category to show a decrease, falling to 3.22 percent from 3.41 percent in June.
Even with the increases, David M. Blitzer, managing director and chairman of the index committee at S&P, pointed to the bigger picture.
I know y’all are conectrated on interest rates and how they may affect the Orange County residential real estate market directly, but …
Consider, the ten year hit 2.9% yesterday. That is a 100% increase from January, and in the present financial world interest rate swaps are the most affected by interest rate rises and the effect on those interest rate swaps will have more effect on mortgages, home prices, and everything else than anything else.
Someone is on the winning side of the increase, and somone is on the losing side. Can the losing side pay up?
“concentrated”
Has anyone attempted to measure the counter-party risk in credit default swaps?
Since counterparty default risk doesn’t exist in futures markets due to regulation of equity requirements and broker’s responsibilities (an example of good government regulation, BTW), participants in regulated futures markets don’t have to consider counterparty risk. Since credit default swaps is an unregulated market, the buyer of a credit-default swap must not just evaluate the opportunity, but they must price in the risk of default by the counterparty. This is a risk known to all participants. If they didn’t properly price that risk, too bad. The losers will lose, but the winners will lose too.
Just noticed the CDM listing above; MLS 13165890 @ $1.5m would be the perfect negative cash flow investment for one of the blog’s ‘astute contributors’ –who only invests in beach areas with low traffic flows, close to the beach.
Only $400k down (chump change for a millionaire, but home will actually sell for $2mil due to bidding war) = ~$9700 (PITI) monthly paymnt; ask rent is $12,000 monthly, actual rent is ~$5500 (comp rate) but tenants agree to do the gardening and bi-daily window cleaning required due to damp air enviornment + blowing sand accumulation, but don’t have to cover annual termite inspections.
It will appreciate much more than other properties, so it will be worth $100M in a few years, right?
Oceanside of PCH, that house will rent for $6000 per week over the summertime. About $3500 per week in the off season. It would probably gross around 120k-150k per year. Many of these properties that are walking distance to the beach will actually do much better as vacation rentals. Of course, renting it yourself is a bit of a hassle, so that needs to be factored in. If the ocean view in the master is good, and the OCH noise is not too bad, I would consider buying that house at 1.5 or less. Standard rental comps more at $7000, not $5500. $5500 is Dana Point/San Clemente market, not Corona del Mar.
Seasonal rentals typically have very high vacancy rates, often north of 50%. It’s a good plan for people who want to own a beach property as a consumption item and defray their costs, but as a pure investment, they usually don’t meet the owner’s expectations.
Prime (walk to Beach) Corona del Mar and Laguna Beach seasonal rentals do not have 50% vacancy rates if marketed properly. Vacancy rates are more in the range of 20-30%. The yearly numbers I offered are from years of experience in vacation rentals. These two beach cities are exceptional and not the rule. (Huntington Beach, Dana Point, San Clemente, have much lower occupancy rates).
KC, what type of cap rate assuming conservative vacancy ratios along with management and expenses that come with high frequency turnover?
Thanks for the boots on the ground insight.
Summer typically will have a 0-10% vacancy so this will be when the most money comes in. Vacation Rentals will usually have high management fees in the 20% range. Here is an approximation:
rent: $130,000
commissions: $26,000
utilities/maintenance: $12,000
property tax/Insurance: $17,000
Net Income: $75,000
Cap Rate: roughly 5%, if self managed(easy to do if you are local) it will be more like 6.5%
Hooray!
Uber-realtor Bill McBride just came out with new (Happy) figures on existing homes sales for July and they are up, up, UP!
Here’s a clip from cheery Bill : Existing Home Sales in July: 5.39 million SAAR, 5.1 months of supply:
Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 6.5 percent to a seasonally adjusted annual rate of 5.39 million in July”
Read more at http://www.calculatedriskblog.com/#brtYOdEbVdQEW2Iw.99
5.39 million sales! WOW! That puts us back to, let’s see, January 2003 numbers.
Hmmm, I wonder what happened in 2003? Could it be that that’s when the last colossal housing bubble started inflating bigtime?
Sure, it is, but no mention of that from Cheery Bill. Just the happy news reported on Calculated Risk, my friend. America’s favorite economics blog, don’t you know?
Here’s more from Bill:
“Inventory decreased 5.0% year-over-year in July compared to July 2012.”
Wow. Inventory decreased?? We must be running out of houses! Better buy one fast before they all get sold.
Maybe Bill should have pointed out that conservative estimates of backlog “shadow” inventory is in the neighborhood of 5 million homes all kept off market so the banks can shaft “we the people” one more time.
But why would McBride want to do that, and ruin a perfectly good fairytale about the “robust housing rebound.”
The guy makes me sick.
Someone Is Lying
Existing home sales beat expectations by the most since February 2010 surging 6.5% MoM to its highest SAAR level since March 2007.
Sound right? Of course, this is defended by the ever-honest NAR by a sudden panic surge of buyers as rates rose. However, we just wonder how sustainable this is (given the chart below). Judging by the NAR’s history of revisionism, we suspect we know who is not telling the truth, the whole truth, and nothing but the truth.
So nothing to worry about… part-time jobs will soak up the excess costs of the mortgage as rates soar and banks will ease standards to make credit available to any muppet that can make an ‘X’ – great…
http://www.zerohedge.com/news/2013-08-21/someone-lying
It doesn’t make any sense for mortgage applications to collapse (I know some are re-fi’s), and existing home sales to hit the turbo chargers. However, housing is “sticky” … very sticky.
Closings lag applications by 30 to 60 days. The sales collapse is coming unless all-cash buyers bought all those homes.
I think you’re absolutely right. This is happening as mortgage rates are melting up. If rates continue to climb and they get into the mid to high 5’s, the OC housing market will likely turn from one of the hottest to one of the coldest. Even after rates hit the mid 5’s, they’re still 200+ basis points below their 20 year averages.
It’s going to become very interesting.
I can’t help but believe it’s all being orchestrated by powerful entities.
“If rates continue to climb and they get into the mid to high 5′s, the OC housing market will likely turn from one of the hottest to one of the coldest.”
This will be the first blow to the market, but I think the second blow will come much much later and it will slower. It will come when banks start to pay interest again. I’m guessing greater 3%. This will shake out a lot cash buyers.
Existing-home sales not reflective of current market
The impressive growth in existing-home sales would seem to suggest a continually improving housing market. But David Berson, chief economist at Nationwide, believes it may be premature to assume this report is directly correlated with the current housing market.
Existing-home sales data tends to lag what’s happening in the market to some extent because the data takes into account when a buyer actually closes on the home.
The lag time for existing-home sales is typically 60-90 days, said Berson, meaning the report on July sales is actually more reflective of the housing market between April and June, when mortgage rates were significantly lower than they are today.
The latest report reflects ongoing concerns about interest rate fluctuations, Berson noted.
“The increase in existing-home sales in July suggests that the rise in mortgage rates prompted some buyers to rush through with a home sale before rates became higher still. This stimulatory effect will only be temporary,” analysts at Capital Economics added.
It must be the OSC all cash buyers who don’t need to borrow. ;-}
That’s why sales are flying through the roof and loan applications are down.
I also have a bridge that’s for sale. ;-}
IR’s quote with the lag explanation makes more sense that an uptick in buyers. — one month of fear motivated purchase/borrowing.
CNBC’s Rick Santelli explains how to spot a real housing bubble amid artificially low interest rates.
Where are the first time homebuyers?
This is a bad idea on so many levels…
Here’s a Way to Flood the US Housing Market with One Trillion Dollars
Members of the millennial generation – born between 1982 and 2003 – carry a student debt burden of close to one trillion dollars. This is the group that includes many just entering the stage in life when people tend to settle down and start families. Even though Millennials are marrying later than previous generations, they would still be the prime market for sales of single family starter homes, if only they could afford them. As interest rates rise along with home prices, the only way this key consumer segment will be able to afford to buy a house is if the nation, out of its own self-interest, finds a way to relieve Millennials of their crushing student loan obligations.
How is this going to help the housing market? Who in their right mind would loan money to a Millennial generation that just defaulted on a Trillion dollars? I think it makes more sense to refund the money these students paid to these “Institutes of Higher Learning” since they clearly didn’t learn ANYTHING there.
Oh they learned a few things: beer pong, entitlement 101, Keynesian economics 101, the worst of all – social democracy 101.
I rent to some of these kids – $25K annual tuition paid by their parents and these kids are morons and fodder.
Coworker, who is also looking for a home like me, just came up to me this morning and wanted my opinion on what his college buddy told him. His college buddy is a mortgage broker and told him that prices are expected to increase by 11% next year.
Hope my response was okay but I basically said prices are already high now and to expect another 11% increase in one year is tough to believe. Then I tried my best to regurgitate this website’s info, I think house prices should be increasing at the same pace as wages so 3% should be the norm if any increase is expected. Then I said I can’t predict the future and maybe it will go up 11% since banks are controlling the inventory. But finally I said I read in the news mortgage apps are decreasing significantly so your buddy may be dieing for work.
I feel so smart!
Over the very long term, house prices track wages, but due to the cyclical nature of housing, short term price swings are much greater. After a 40% price drop from 2006 to 2009, followed by several years of bouncing along the bottom, and then a couple years of double digit price increases, it shouldn’t be surprising to anybody that houses don’t appreciate 3% year after year. Likewise, nobody should be surprised if the next couple of years continue to exceed short term income growth as the current bubble runs its course.
If you draw a smooth curve through these peaks and valleys over several decades, then yes, prices tend to follow nominal income growth.
Mellowruse forgets to mention that prices outpaced wages over the last 3 decades because interest rates were falling.
The opposite will be true as we segue into a rising interest rate environment for the next couple decades.
Rising interest rates compound the problem because every sector of the economy is currently goosed by artificially cheap money. It will be worse than Mellowruse’s crystal ball foresees.
However, None of this shit matters once the currency crisis is in full swing. Those who own physical assets will do OK, and those who own paper will lose big.
we have not seen the blood running in the streets for real estate yet. Bearish sentiment was quickly forgotten and that is a huge red flag that we are in a faux recovery.
We are in the eye of the hurricane.
Not in Orange County, no. Also not in New York and D.C., which may explain how responses to the crisis have unfolded in the last 5 years.
In places like Las Vegas and Phoenix, and even the low-end areas of LA and San Francisco, like-for-like price declines definitely met “blood running in the streets for real estate” criteria.
Real estate is a physical asset and mortgage notes are paper assets. If you truly believed in a pending currency crisis, you would be leveraging up to buy as much real estate as possible.
Decent point, however – the physical asset is the paper’s collateral. Those overleveraging into real estate will have a tougher time weathering the storm, keeping vacancies filled, repairs, and servicing debt. It won’t be the cake walk you envision.
Are tenants going to have an easier time paying rent or a tougher time paying rent in the event of a sizeable economic contraction/currency crisis?
Try this again.
So why aren’t you if you’ve go this all figured out?
Do you even understand what leverage is?
Is this the Tom that used complain about the lack of high paying jobs on the Lansner blog all the time?
I bought a second property in late 2010 as my primary residence, and I was hoping to buy a condo this year to rent out, but prices have moved too quickly. While I could still afford to pick something up, I don’t think the value is there unless you go inland or out of state. Absentee ownership isn’t my style. Without economies of scale like Irvine Renter has, I don’t know that it makes sense financially.
Also, while I don’t know what constitutes a currency crisis in Matt’s mind, I do expect that higher 70’s style inflation is possible. Leveraged real estate is a good hedge against that, but I don’t want to overpay for that hedge.
Reminder: SFR’s are a fixed target.
Enjoy!
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EGG HARBOR TOWNSHIP – Mayor James “Sonny” McCullough has a great house to sell you: his.
“I can’t afford the taxes,” McCullough explained.
McCullough said he has been taxed out of his home by the local rates and by last year’s township-wide revaluation, which caused his property taxes to shoot up nearly 60 percent, to $31,056.
“It’s more than what I can afford,” McCullough said. “It’s kind of disappointing. I thought I would be able to live and die in my home, but it’s gotten to the point where it’s gotten up so high.”
http://www.pressofatlanticcity.com/news/press/atlantic/egg-harbor-township-mayor-priced-out-of-home-by-taxes/article_4948e656-3046-5d84-a08c-c45a5c8b4b0a.html
Look at the 10-year US Treasury Note again…
http://finance.yahoo.com/q?s=^tnx
In finance, convexity is a measure of the sensitivity of the duration of a bond to changes in interest rates, the second derivative of the price of the bond with respect to interest rates (duration is the first derivative). In general, the higher the convexity, the more sensitive the bond price is to the change in interest rates. Bond convexity is one of the most basic and widely-used forms of convexity in finance.
Yowza… a bunch of 30YR FNMA 3.0 muppets just got blowtorched…
http://www.mortgagenewsdaily.com/mbs/?Product=FNMA30
Good employment numbers tomorrow and the US 10-year yield breaks 3.00% tomorrow.
From 2.88 right now, that’s still a big one day jump.
Yes, but maybe the Fed is losing control
10 year went past 2.90% in after the market.
Now 2.92%
At this rate, we might hit 3% tomorrow.
2.94% Good Night.
If they don’t Taper they will just blame economic data.
Participants remain cautiously optimistic on QE3 tapering
Nearly all Federal Open Market Committee members confirmed they are ‘broadly comfortable’ with the timeline Federal Reserve chairman Ben Bernanke put into action for tapering its bond-buying program later this year if the economy continues to improve, according to minutes of the latest meeting.
Nonetheless, there was still division on when the appropriate time to begin winding down the central bank’s open-ended third round of quantitative easing would be – with a few urging patience in the economic recovery and others favoring tapering its asset purchases.
“While a range of views were expressed regarding the cumulative improvement in the labor market since last fall, almost all committee members agreed that a change in the purchase program was not yet appropriate,” the minutes revealed.
Federal Reserve Bank of Kansas City president Esther George was the only dissenting member of the FOMC’s action, explaining that she favored including in the policy statement a more explicit signal that the pace of the current asset purchases would be reduced in the near term.
Overall, the FOMC minutes were large in line with the market’s expectation that the central bank would begin wind down QE by the fall, explained Zillow Mortgage Marketplace director Erin Lantz.
“The minutes did not provide much insight to the Fed’s thinking beyond what already had been discussed,” Lantz said.
She continued to say that she expects the Fed “would begin scaling backs its stimulus program in September, provided upcoming data continues to indicated a sustained economic recovery.”
Housing braces for looming QE3 tapering consequences
there is one risk that could turn the housing upswing on its side, the reduction in the Federal Reserve’s asset purchases, argued Fannie Mae chief economist Doug Duncan.
The uncertainty and eventual tapering of the central bank’s bond-buying program is likely to put additional upward pressure on interest rates and lead to some volatility in capital markets.
“Although the nature and timing of the tapering are still to be determined, we continue to expect the Fed will scale back its asset purchases and end the program by spring,” Duncan stated.
The Fed has been signaling their intention to alter its open-ended third round of quantitative easing by slowing purchases later this year. And while the market awaits details — such as timing — investors remain on edge.
It’s silly to think that the gains in the equity market, bond market and housing market have anything to do other than QE. This country cannot have a recovery without a legit growing economy. The FED’s influence is becoming less everyday now. The real question is, if the FED delays the taper, will it have much of an impact on bond yields?
A gut-wrenching day for MBS – Down big, back up to even, then down deeper??
I know it’s kinda like SEX:
down
up
down … deeper!
I’ve watched the 1% mortgage rate increase crush the active-to-pending velocity on my house watch list and 5 of the 15 have now had a price decrease.
A few new listings have come up way over the current market…and now sit.
Jay … go tell those new listings to drop the asking price.
From a card carrying member of the unrecovery crowded
Wells Fargo Said to Eliminate 2,300 Mortgage Jobs
Aug. 21 (Bloomberg) — Wells Fargo & Co., the biggest U.S. home lender, is cutting 2,300 jobs from its mortgage-production unit because higher interest rates are cutting demand for refinancings, according to people with knowledge of the matter.
Other smaller cuts had been made in the past few weeks around the country, according to the people, who asked not to be identified because the changes haven’t been publicly disclosed. The cuts would equal about 20 percent of the 11,406 mortgage loan officers employed by the San Francisco-based company at the end of March, according to a presentation.
Enlarge image Wells Fargo Said to Eliminate 2,300 Mortgage Production Jobs
Wells Fargo & Co. signage is displayed in front of a bank branch in New York. Photographer: Peter Foley/Bloomberg
Wells Fargo has said mortgage lending will slow for the rest of this year as higher interest rates make refinancing less attractive. Those loans, which made up 70 percent of the mortgage market during the first half, slid to about 50 percent of applications recently and could fall further in the months ahead, according to a staff memo from Franklin Codel, the bank’s head of mortgage production.
“We’ve had to recalibrate our business to meet customers’ needs — and to ensure we’re operating as efficiently and effectively as possible,” Codel wrote. “Unfortunately, displacements within our team are necessary.”
What do fewer refinances have to do with a recovery or lack thereof?
I think it’s the elimination of 2,300 jobs that Mike feels will impact the economy. We aren’t officially in recession, so we should be seeing fewer stories like this one and more about the resurgent job market.
These job cuts are the direct result of improving conditions, so I can’t agree with him on that one.
If the conditions were really improving they would need to retain these people to help process increasing number of purchase mortgages.
Improving conditions. LMMFAO
Discretionary household spending comes to mind. Dropping monthly mortgage payments increases consumer spending. This is one of the untold stories of the post-crash economy. Incomes have been rising slowly, but when combined with falling monthly mortgage nuts the discretionary household income has been rising moderately.
Also, cash-out refinances, HELOCs and HELs help fuel the economy when rates are falling and prices are rising. And, if you refinance into a lower rate you increase the amortization rate since more goes to principal each month, so there is more equity to borrow against. If you refinance into a shorter term, the amortization rate really jumps, and equity builds even faster. This is important because many mortgage companies have maximum LTV ceilings which limit the number of households that can qualify for these programs.
Rising rates have effectively damned the rising income stream from lowered monthly payments, cash-out refinancings, HELOCs, and HELs. Not to mention all of the professionals put out of work who earned their daily bread by facilitating these transactions.
So why aren’t you if you’ve go this all figured out?
Do you even understand what leverage is?
Just as a reminder, do the Debt to Incomes ratios need to change? Is 45% now too much? Remember this is hitting the HIGHER income employees.
UPS to End Insurance Coverage for 15,000 Working Spouses
United Parcel Service Inc. (UPS), one of the biggest U.S. employers, plans to drop health insurance coverage for about 15,000 working spouses of white-collar employees to curtail rising costs.
Many spouses in the U.S. workforce will have access to employer-provided insurance under President Barack Obama’s health care-system overhaul, and UPS will remove them from its coverage, according to a copy of a memo to employees first published online by Kaiser Health News. Spouses who don’t work or lack employer-provided benefits will still be eligible at Atlanta-based UPS, according to the memo.
Enlarge image UPS to End Coverage for 15,000 Working Spouses Citing Health Law
United Parcel Service Inc., the world’s largest package delivery company, had about 399,000 employees at the end of 2012, according to a filing. Photographer: Andrew Harrer/Bloomberg
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In its memo, UPS said the coverage shift is a response to expenses from the 2010 Affordable Care Act and “the rising cost of health care in general.” U.S. businesses have been increasing premiums to cover working spouses for years, said Paul Fronstin, a director at the Washington-based Employee Benefit Research Institute. Still, he said the total exclusion by UPS may be a first for a company its size.
“Is it a harbinger of things to come? Possibly,” Fronstin said in a telephone interview. “Once a major employer like UPS takes a step, all of the others will at least start looking at it.”
UPS, the world’s largest package-delivery company, had about 399,000 employees at the end of 2012, according to a filing. Of 33,000 spouses on UPS’s health plan, about 15,000 are eligible for coverage through their own employers and won’t be covered by UPS starting next year, according to the memo. The insurance change doesn’t apply to 250,000 Teamsters union workers or to employees outside the U.S., according to the memo.
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