US Economy

[Andrikos]

Originally Posted by uclacyc

I agree. Your avatar is incredibly disturbing. I am willing to PayPal you a dollar. If we can get some other people to put money into the "transio-please-change-your-avatar fund," you can stand to make quite a bit of money here.

Nah, just put him on your ignore list.
The avatar is hidden and the baby jesus is not screaming anymore...

[uclacyc]

Originally Posted by TimMullen

No, redo all your calculations, and assume that the value of the house will double in 5 years.

For a house to double in five years, you need something in the neighborhood of an average annual appreciation of 15%. I think that in most markets, this is very very unlikely. 6% is more appropriate.

[Greg]

Originally Posted by serpentor

exactly, a foreclosed house will have a huge affect on neighboring property values.

Banks tend not to have fire-sales for foreclosed properties. They can sit on properties waiting for the price they want a lot longer than a person out of a job. There is a whole section of our economy geared toward handling these properties, and it's not swap-meet-sales.

I had a foreclosed property for sale across the cul-de-sac from my previous house. It took them six months to get it listed after seizure. They brought in stagers and it was marketed largely indistinguishably from the rest of the homes in the neighborhood. My agent told me that they typically price it high, and move way slower on the price-cutting than the market does... because they can. They own the realtors (lawyers) so they don't pay listing costs. The whole chain is managed to minimize losses.

I don't think it's necessarily correct to say that foreclosures will drive prices down dramatically.

'Greg

[Greg]

Originally Posted by Andrikos

That info is public.
It's pretty easy to find out.

No, it's not. The purchase price is public, but you don't know how much cash they put in. Buy a half milliion dollar house, put in $400k and your "mortgage" is $1000 month. Can you rent it for $1000/month? If you rent it for $3000/month, you make $24,000 yr (ignoring lots of stuff) profit. That's 6% profit per year on your $400k investment, better than most mutual funds.

Of course that's fuzzy math, but you get the point. Market valuations don't = mortgages. Not everyone needs to finance 100% to buy a house, even today.

'Greg

[IamBatman]

Originally Posted by Greg

Banks tend not to have fire-sales for foreclosed properties. They can sit on properties waiting for the price they want a lot longer than a person out of a job. There is a whole section of our economy geared toward handling these properties, and it's not swap-meet-sales.

I had a foreclosed property for sale across the cul-de-sac from my previous house. It took them six months to get it listed after seizure. They brought in stagers and it was marketed largely indistinguishably from the rest of the homes in the neighborhood. My agent told me that they typically price it high, and move way slower on the price-cutting than the market does... because they can. They own the realtors (lawyers) so they don't pay listing costs. The whole chain is managed to minimize losses.

I don't think it's necessarily correct to say that foreclosures will drive prices down dramatically.

'Greg

its fine and dandy to sit on one foreclosed house for a while to maximize value. But banks have to answer to the investors and their board. A foreclosed house sits on the balance sheet, incurs cost of maintainance (if you let it sit, pipes freez and bust, swimming pools rot, lawn and plants die...etc. What happens when they start flooding the market?

There was a study on how much a foreclosure affects neighboring property values, and someone actually put a solid number to it, I'll have to look for it when I have time..

These days Banks don't own the mortgage. Mortgages are packaged and sold off to investors and hedge funds. Do a news search on Bear Sterns to see how their hedge fund is doing.

[Murix]

eh. Owning a house is not everything. It can be a negative.

Some people (like me) do not like to stand still. After living on two continents, an island, and multiple climates, I would much rather not be tied down to a house.

With all the rent and cost of moving I have paid, I feel I have a lot to show for it.

For some, quality of life is more important than being rich or grounded. That is why I drive a Lotus as my daily driver.

My solution has always been to keep making more money, which seems to be working for me.

[Greg]

Originally Posted by charliex

Except that i do, one of the benefits of a gf that works at the bank

i know how much they bought it for, what the payment is etc.

Well there you go. If your landlord got their mortgage at your local bank, clearly (s)he's a financial wizard destined for greatness (or identity theft).

Do you also know what the rest of their net worth is? How many other properties they own? What the terms of their loan are? Other loans? Other income?Can you post a copy of their schedule C for the last 5-7 years?

I really doubt you really know their total financial picture. to some people, they maximize losses in 1 year to offset predicted gains in other areas of their life to maximize the overall gain. You just can't say what someone else's real situation is.

'Greg

[IamBatman]

I forgot to add: its economics101 a foreclosed house adds to the supply instantly. when supply goes up price goes down.

[IamBatman]

Originally Posted by Greg

No, it's not. The purchase price is public, but you don't know how much cash they put in. Buy a half milliion dollar house, put in $400k and your "mortgage" is $1000 month. Can you rent it for $1000/month? If you rent it for $3000/month, you make $24,000 yr (ignoring lots of stuff) profit. That's 6% profit per year on your $400k investment, better than most mutual funds.

Of course that's fuzzy math, but you get the point. Market valuations don't = mortgages. Not everyone needs to finance 100% to buy a house, even today.

'Greg

That is REALLY FUZZY math. you take out the expenses and count the profit?

This reminds me of the underwear gnomes from South Park: Step 1 steal undewear, Step 2... Step 3: Profit!

[jordantii]

Originally Posted by Greg

Banks tend not to have fire-sales for foreclosed properties. They can sit on properties waiting for the price they want a lot longer than a person out of a job. There is a whole section of our economy geared toward handling these properties, and it's not swap-meet-sales.

I had a foreclosed property for sale across the cul-de-sac from my previous house. It took them six months to get it listed after seizure. They brought in stagers and it was marketed largely indistinguishably from the rest of the homes in the neighborhood. My agent told me that they typically price it high, and move way slower on the price-cutting than the market does... because they can. They own the realtors (lawyers) so they don't pay listing costs. The whole chain is managed to minimize losses.

I don't think it's necessarily correct to say that foreclosures will drive prices down dramatically.

'Greg

Unfortunately this is not entirely true. Banks in the past 6 years have not had fire sales on the properties they take back at the foreclosure sales. Many times the banks would not have to take them back because they were bought by investors at the sales. This has now changed. banks are taking back more properties now than they have in the last 10 years.

Banks DO NOT have the luxury of holding on to property just to hold out for the right price. They are regulated as to how much repo'ed property they can have on their books along with how much bad debt they can have as well.

I am in the bad debt business. I deal directly with many of the major lending institutions in the US. You have to remember that they move very slow. The guy on the street knows more and can act faster than they can.

I will give you an example of what a bank will do to prevent a mortgage/deed of trust going in to foreclosure:

Lets say you stop paying your first mortgage for 6 months. The bank would typically file a notice of default or a LiS Pendens. Now what they are doing is modifying the terms of the loan all the way down to ZERO. Yes, 0. That means you will be paying just the principal with no interest. They will also adjust the term to fit the borrowers needs.

Banks are not in the property business. The last thing they want is a portfolio of REO's (real estate owned). This is bad for their books and their investors will not stand for it as it effects the bottom line.

I have seen a huge shift in what banks are willing to sell and what they expect to get for it. They want out and they will do what it takes to get out even if it means a 30-60% loss.

I do this everyday. I have seen all the reports from CSFB and they are right on the money.

There are over half a million foreclosures happening right now in the US and that # is on the rise.

This has a huge effect on housing not just from an inventory stand point but from a demand stand point. If all of those homes get to the auction and the banks take them back you will see a hug rise in supply and an additional decrease in demand. All those people that lost their houses do not jump back into the buying pool. They become renters.

Another reason you do not see houses selling and prices coming down further is simply because the seller is over encumbered and can not lower the price of the house to cover the debt, commissions and closing costs.

Banks are doing more short sales (discounted pay offs) than ever before.

The market will not "crash". There will be a point where investors will come in and start to buy up these houses and rent them out to the very people that lost them.

The housing market has a much larger effect on the economy than most people realize. It is not just buying and selling houses but everything that has to do with housing in general:

Home Depot, Lowes, Lumber, Steel, Concrete, all building supplies, appliances, fuel. The loss of jobs due to the reduction of homes being build and or remodeled. The list goes on and on. Look at Lanar and KB homes and see what the stock is doing. Look at all the mortgages they had to buy back because the buyer would not close on the house that was just built for them because it is not worth the original contract price.

Look at the incredible amount of insurance Floridians have to pay in addition to their property taxes. I pay 17K per year in taxes and insurance. This alone with price many out of the market.

It is much bigger than you may think.

All the 3/1 arms that are adjusting now all the 5/1 that will adjust in the next 2 years all with unfavorable margins based against prime and not the LIBOR or the 11th district. Those people will be in a world of hurt.

It has now entered the Prime market and is no longer a Sub Prime problem. When Wall Street started buying up Sub Primes is when people should have taken notice. They are getting killed now and everything is leveraged.They have no way out but to liquidate. There is now way for them to securitize what is no longer secure. Sure the Dow is up. But it may not stay that way for long.

It is going to be an interesting next 3-5 years.

Jordan

[Andrikos]

Originally Posted by jordantii

Unfortunately this is not entirely true. Banks in the past 6 years have not had fire sales on the properties they take back at the foreclosure sales. Many times the banks would not have to take them back because they were bought by investors at the sales. This has now changed. banks are taking back more properties now than they have in the last 10 years.

Banks DO NOT have the luxury of holding on to property just to hold out for the right price. They are regulated as to how much repo'ed property they can have on their books along with how much bad debt they can have as well.

I am in the bad debt business. I deal directly with many of the major lending institutions in the US. You have to remember that they move very slow. The guy on the street knows more and can act faster than they can.

I will give you an example of what a bank will do to prevent a mortgage/deed of trust going in to foreclosure:

Lets say you stop paying your first mortgage for 6 months. The bank would typically file a notice of default or a LiS Pendens. Now what they are doing is modifying the terms of the loan all the way down to ZERO. Yes, 0. That means you will be paying just the principal with no interest. They will also adjust the term to fit the borrowers needs.

Banks are not in the property business. The last thing they want is a portfolio of REO's (real estate owned). This is bad for their books and their investors will not stand for it as it effects the bottom line.

I have seen a huge shift in what banks are willing to sell and what they expect to get for it. They want out and they will do what it takes to get out even if it means a 30-60% loss.

I do this everyday. I have seen all the reports from CSFB and they are right on the money.

There are over half a million foreclosures happening right now in the US and that # is on the rise.

This has a huge effect on housing not just from an inventory stand point but from a demand stand point. If all of those homes get to the auction and the banks take them back you will see a hug rise in supply and an additional decrease in demand. All those people that lost their houses do not jump back into the buying pool. They become renters.

Another reason you do not see houses selling and prices coming down further is simply because the seller is over encumbered and can not lower the price of the house to cover the debt, commissions and closing costs.

Banks are doing more short sales (discounted pay offs) than ever before.

The market will not "crash". There will be a point where investors will come in and start to buy up these houses and rent them out to the very people that lost them.

The housing market has a much larger effect on the economy than most people realize. It is not just buying and selling houses but everything that has to do with housing in general:

Home Depot, Lowes, Lumber, Steel, Concrete, all building supplies, appliances, fuel. The loss of jobs due to the reduction of homes being build and or remodeled. The list goes on and on. Look at Lanar and KB homes and see what the stock is doing. Look at all the mortgages they had to buy back because the buyer would not close on the house that was just built for them because it is not worth the original contract price.

Look at the incredible amount of insurance Floridians have to pay in addition to their property taxes. I pay 17K per year in taxes and insurance. This alone with price many out of the market.

It is much bigger than you may think.

All the 3/1 arms that are adjusting now all the 5/1 that will adjust in the next 2 years all with unfavorable margins based against prime and not the LIBOR or the 11th district. Those people will be in a world of hurt.

It has now entered the Prime market and is no longer a Sub Prime problem. When Wall Street started buying up Sub Primes is when people should have taken notice. They are getting killed now and everything is leveraged.They have no way out but to liquidate. There is now way for them to securitize what is no longer secure. Sure the Dow is up. But it may not stay that way for long.

It is going to be an interesting next 3-5 years.

Jordan

Excellent post.
Nice to hear from somebody who knows what he's talking about.

[smoseley]

The simple solution to the forthcoming housing crisis, as I see it, is to ease up on immigration standards. That'll increase demand for housing straight-away.

[Greg]

Originally Posted by serpentor

That is REALLY FUZZY math. you take out the expenses and count the profit?

This reminds me of the underwear gnomes from South Park: Step 1 steal undewear, Step 2... Step 3: Profit!

Beefcake! It was just an illustration. Home valuation != the mortgage note. Also unrealized gain evaporation is not a loss.

A 35% correction will not adjust your graph all the way down to your 2012 projection. There is too much collusion to prop up the prices.

This reminds me of the global warming debate. Lies and statistics (and dicey models).

I agree with you that there will be a significant correction. I still think buying a house in the bay area is a lot safer than Vegas or Dallas.

Buy where you want to live for a long time, and make sure you can pay the mortgage, and all will be well.

'Greg

[Greg]

Mods,

Can we ban Transio until he changes his avatar? Isn't that a 1-trick pony?

'Greg

[fishguy]

Originally Posted by Greg

Mods,

Can we ban Transio until he changes his avatar? Isn't that a 1-trick pony?

'Greg

+1
but I also think its a double edged sword here. With the mind of transio at work, we actually might get something worse in his next avatar.
It is really disturbing though, and thus extremely funny.

[smoseley]

Ok, so ban threats work, too. Happy?

[ivan1]

my eyes my eyes!!!!!








yes thank you

[IamBatman]

Originally Posted by transio

Ok, so ban threats work, too. Happy?

Good god thank you dear lord baby Jesus.

Originally Posted by Greg

Beefcake! It was just an illustration. Home valuation != the mortgage note. Also unrealized gain evaporation is not a loss.

A 35% correction will not adjust your graph all the way down to your 2012 projection. There is too much collusion to prop up the prices.

for the third time, the graph is inflation adjusted. Math quiz, what is inflation 3% increase over 5 years? man its like talking to a brick wall with some people.

Originally Posted by Greg

This reminds me of the global warming debate. Lies and statistics (and dicey models).

Whoa there, hello Pot, meet Kettle. Which parts of my statements are lies? Who's the one that omitted costs, taxes and insurance in their calculations?

[IamBatman]

Originally Posted by jordantii

Unfortunately this is not entirely true. Banks in the past 6 years have not had fire sales on the properties they take back at the foreclosure sales. Many times the banks would not have to take them back because they were bought by investors at the sales. This has now changed. banks are taking back more properties now than they have in the last 10 years.

Banks DO NOT have the luxury of holding on to property just to hold out for the right price. They are regulated as to how much repo'ed property they can have on their books along with how much bad debt they can have as well.

I am in the bad debt business. I deal directly with many of the major lending institutions in the US. You have to remember that they move very slow. The guy on the street knows more and can act faster than they can.

I will give you an example of what a bank will do to prevent a mortgage/deed of trust going in to foreclosure:

Lets say you stop paying your first mortgage for 6 months. The bank would typically file a notice of default or a LiS Pendens. Now what they are doing is modifying the terms of the loan all the way down to ZERO. Yes, 0. That means you will be paying just the principal with no interest. They will also adjust the term to fit the borrowers needs.

Banks are not in the property business. The last thing they want is a portfolio of REO's (real estate owned). This is bad for their books and their investors will not stand for it as it effects the bottom line.

I have seen a huge shift in what banks are willing to sell and what they expect to get for it. They want out and they will do what it takes to get out even if it means a 30-60% loss.

I do this everyday. I have seen all the reports from CSFB and they are right on the money.

There are over half a million foreclosures happening right now in the US and that # is on the rise.

This has a huge effect on housing not just from an inventory stand point but from a demand stand point. If all of those homes get to the auction and the banks take them back you will see a hug rise in supply and an additional decrease in demand. All those people that lost their houses do not jump back into the buying pool. They become renters.

Another reason you do not see houses selling and prices coming down further is simply because the seller is over encumbered and can not lower the price of the house to cover the debt, commissions and closing costs.

Banks are doing more short sales (discounted pay offs) than ever before.

The market will not "crash". There will be a point where investors will come in and start to buy up these houses and rent them out to the very people that lost them.

The housing market has a much larger effect on the economy than most people realize. It is not just buying and selling houses but everything that has to do with housing in general:

Home Depot, Lowes, Lumber, Steel, Concrete, all building supplies, appliances, fuel. The loss of jobs due to the reduction of homes being build and or remodeled. The list goes on and on. Look at Lanar and KB homes and see what the stock is doing. Look at all the mortgages they had to buy back because the buyer would not close on the house that was just built for them because it is not worth the original contract price.

Look at the incredible amount of insurance Floridians have to pay in addition to their property taxes. I pay 17K per year in taxes and insurance. This alone with price many out of the market.

It is much bigger than you may think.

All the 3/1 arms that are adjusting now all the 5/1 that will adjust in the next 2 years all with unfavorable margins based against prime and not the LIBOR or the 11th district. Those people will be in a world of hurt.

It has now entered the Prime market and is no longer a Sub Prime problem. When Wall Street started buying up Sub Primes is when people should have taken notice. They are getting killed now and everything is leveraged.They have no way out but to liquidate. There is now way for them to securitize what is no longer secure. Sure the Dow is up. But it may not stay that way for long.

It is going to be an interesting next 3-5 years.

Jordan

Thanks Jordan, its always great to get info and opinion from someone directly involved in the field.

[IamBatman]

Originally Posted by transio

The simple solution to the forthcoming housing crisis, as I see it, is to ease up on immigration standards. That'll increase demand for housing straight-away.

They are already buying houses. Strawberry Picker Buys $720,000 House on $15,000/year Income