US Economy

[smoseley]

Originally Posted by serpentor

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

To be fair, 4 people with income totaling around $80k were contributing to the purchase of that home. But even so, $80k buying a $720k home is insane! The lender that approved that loan deserves what they're gonna get.

[IamBatman]

Originally Posted by transio

To be fair, 4 people with income totaling around $80k were contributing to the purchase of that home. But even so, $80k buying a $720k home is insane! The lender that approved that loan deserves what they're gonna get.

Their real estate agent should go to jail.

[fishguy]

Originally Posted by serpentor

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

agreed.
Which is why your(serpentor) info you are posting is showing to be worthless doom and gloom.
So to use your own words, Its like talking to a brick wall.
I think Mullen posted the bottom line 3 times.

[IamBatman]

Originally Posted by fishguyAZ

agreed.
Which is why your(serpentor) info you are posting is showing to be worthless doom and gloom.
So to use your own words, Its like talking to a brick wall.
I think Mullen posted the bottom line 3 times.

your animosity towards me is really telling of your situation. You are one of those screwed buyers holding the bag, and is now taking your anger out on me, the messenger.

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.

which part of this statement don't you understand?

[smoseley]

Originally Posted by serpentor

Their real estate agent should go to jail.

Right... Because Americans can't be expected to learn how to make responsible decisions with their own money (or in this case, a bank's money).

[fishguy]

Originally Posted by serpentor

your animosity towards me is really telling of your situation. You are one of those screwed buyers holding the bag, and is now taking your anger out on me, the messenger.

Really?
I picked up my house 7 years ago with a fixed 30 year mortgage at %6.
the house has gone up in value %275 in that time. I owe nothing but a mortgage payment in my life. I think I am not the guy "holding the bag" as you say.
I am not angry, rather just tired. I just get tired of hearing the doom and gloomers from the bay area.
I am not looking to buy or sell anytime in the near or distant future, so this disaster you predict doesnt matter to me either way.
The only thing constant in life is change. All markets will change, but its guys like you who get all freaked out and panic that makes money for others who act with thought, not emotions.
Let me clarify something serpentor. I know I am not very tactful in my writing style, and come off like a dick allot of the time(it only happens to me in written communication. I am very direct in person, but also very gentle). Its not intentional, and its not directed at you, I have absolutely nothing against you. I just see your type of fear being the same hype and panic as the global warming crap, and it usually is most prevalant from those in your part of the country, so I guess I generalzed that towards you.
For that I appologize. My best friend used to live in SF before moving to Brazil. He and his friends would always bring politics into everything. We made a deal, keep politics out, and we are the best freinds that we have been since 6 years old.
Both houses I have have owned have been the best investments I have ever made in life so far................................

[Chris Mackey]

Well, the housing market here in Austin seems to be going strong. It kinda sucks, as we're buying right now.

[TheViper]

Maybe someone can explain to me why it is stated that the economy is so robust and healthy. I believe this false definition is because consumer spending is good, which in turn generates manufacturing and service business.
But the bottom line is that this country has a huge deficit with the rest of the world, we spend more than we earn. As and individual, you or I could not live off of credit indefinitely, as the U.S. is doing, eventually it would self destruct.

[Ginetta]

Originally Posted by jordantii

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

I would argue that the DOW is up partially because of the housing issue. People are realizing that real estate isnt going to provide the returns that it has in the past 5 years or so, and equities which had been neglected and were arguably undervalued are now seeing attention again.

The problems in the subprime mortgage market up until now have been related to poor underwriting (giving mortgages to people who were fraudulent, or just flat out shouldnt have a mortgage period), or to weakening housing prices (subprime borrowers depend on equity in their homes to refinance - when this equity is gone, they cannot refi out of a mortgage reset and they default). We really havent seen credit related problems yet as employment has been strong. You also have all the crap loans underwritten in 2006 that will reset next year. These will reset into mortgage underwriting guidelines that have been severely tightened, making it even harder to refi. On top of this you still have a massive glut of housing supply from the homebuilders that needs to be worked through the system before we are anywhere near an equilibrium for demand and supply.

I do think 50-60% of home price depreciation is severe. Around -4% HPA would take GDP down -1% for two years. As such, 50-60% of depreciation would send this country into a MASSIVE recession. The Fed would cut interest rates severely before they would let this happen. However, 10-20% over the next few years is absolutely possible.

[tandemracer]

One thing that hasn't been brought up is the huge number of people that purchased second homes during the recent real estate boom - the vactaion homes, the beach houses, the rental properties, the speculative investments, the homes to flip. These are the homes that concern me when the market tanks because they really are surplus.
There are a lot of people that bought up property thinking that they would make a killing when they flip it and now they are sitting on it. What happens when they finally realize that they made a losing bet and they have to unload at a loss? It isn't the same as being in over your head for a mortgage on a house that you live in. If there is a big drop in prices it will more likely happen with homes that are not owner occupied.

[Ginetta]

Originally Posted by TheViper

Maybe someone can explain to me why it is stated that the economy is so robust and healthy. I believe this false definition is because consumer spending is good, which in turn generates manufacturing and service business.
But the bottom line is that this country has a huge deficit with the rest of the world, we spend more than we earn. As and individual, you or I could not live off of credit indefinitely, as the U.S. is doing, eventually it would self destruct.

People are usually talking about strong employment when they are talking about a strong economy.

I believe youre talking about the budget deficit? You prob havent heard much about it lately because its improving considerably... at least for now. I agree that it is very dangerous and irresponsible to run a huge deficit like that, but I think most lawmakers realize that too and are trying to narrow it.

[jordantii]

Originally Posted by Ginetta

I would argue that the DOW is up partially because of the housing issue. People are realizing that real estate isnt going to provide the returns that it has in the past 5 years or so, and equities which had been neglected and were arguably undervalued are now seeing attention again.

The problems in the subprime mortgage market up until now have been related to poor underwriting (giving mortgages to people who were fraudulent, or just flat out shouldnt have a mortgage period), or to weakening housing prices (subprime borrowers depend on equity in their homes to refinance - when this equity is gone, they cannot refi out of a mortgage reset and they default). We really havent seen credit related problems yet as employment has been strong. You also have all the crap loans underwritten in 2006 that will reset next year. These will reset into mortgage underwriting guidelines that have been severely tightened, making it even harder to refi. On top of this you still have a massive glut of housing supply from the homebuilders that needs to be worked through the system before we are anywhere near an equilibrium for demand and supply.

I do think 50-60% of home price depreciation is severe. Around -4% HPA would take GDP down -1% for two years. As such, 50-60% of depreciation would send this country into a MASSIVE recession. The Fed would cut interest rates severely before they would let this happen. However, 10-20% over the next few years is absolutely possible.

The dow went down 300 points last week due to housing. I do not think we will see a decline in value in the are of 50-60%. Just not going to happen overall. It has happened in some markets where there was fraud and poor underwriting. I do agree with you assessment of 10-20%.

The bigger problem is what wall street did during the housing boom. They got involved. They bought sub primes hoping to reap the rewards. The problem is they got in too late And now they are suffering. You may not see it yet because they are trying to figure out how to handle the losses. It will all come out in the next few years.

Money being cheap and the demand for housing being high put many people into homes that never should have bought. The underwriting criteria was very loose a few years ago. Banks had to get rid of money. They was a large supply of cash and the demand was not keeping pace. So the opened up the underwriting to allow more people to buy and borrow that otherwise could not.

Much of the problem is not easily seen by the public. But there are signs that there is a far bigger problem than is being put forth.

I am on the ground in the trenches in this business and I know what is going on. I have relationships with bank presidents asking us what they should do.

On many occasions I have told them to hold onto certain notes and to sell others. Many of the notes I tell them to hold onto, I would rather buy but that is not a win for the bank only a win for me and my company.

The housing industry is huge in the US and has falsely grown over the past few years. It was built on speculation and stilts. Well the stilts have broken a bit and the speculators were wrong in so far as how long it would last. Big false sense of security.

My house was appraised last year at 950K now it comes in at 800K one year later. Must mean the 950K was false since that was based on homes sold six months PRIOR to the appraisal. There is no way to look forward as to what the values will be, especially in this market. We tend to forecast a 5% decline in value over the next 6-12 months just to be safe on our margins.

That may not be enough.

[IamBatman]

Originally Posted by transio

Right... Because Americans can't be expected to learn how to make responsible decisions with their own money (or in this case, a bank's money).

I believe they are Mexicans

[Ginetta]

Originally Posted by jordantii

The bigger problem is what wall street did during the housing boom. They got involved. They bought sub primes hoping to reap the rewards. The problem is they got in too late And now they are suffering. You may not see it yet because they are trying to figure out how to handle the losses. It will all come out in the next few years.

Money being cheap and the demand for housing being high put many people into homes that never should have bought. The underwriting criteria was very loose a few years ago. Banks had to get rid of money. They was a large supply of cash and the demand was not keeping pace. So the opened up the underwriting to allow more people to buy and borrow that otherwise could not.

I think the results are definitely showing themselves.....Look at this chart.. Oops!

I dont think you can just blame wall street.. Everyone has been greedy, from lenders to borrowers to brokers.

[jordantii]

I agree everyone got greedy. But wall street had no business getting involved in an area where they did not belong. They saw a profit center and wanted to get in on the action. Yet when the market was not doing so well they were saying that Real estate is not where people should put their money. They should put their money in the stock market. They in effect cut their own throats.

Now everyone is going to pay the price. Greed is always the problem. When is it enough? Ask anyone who is aggressive and they will give you a simple answer....NEVER.

[Ginetta]

Originally Posted by jordantii

I agree everyone got greedy. But wall street had no business getting involved in an area where they did not belong. They saw a profit center and wanted to get in on the action. Yet when the market was not doing so well they were saying that Real estate is not where people should put their money. They should put their money in the stock market. They in effect cut their own throats.

Now everyone is going to pay the price. Greed is always the problem. When is it enough? Ask anyone who is aggressive and they will give you a simple answer....NEVER.

I dont want to argue with you, but Wall Street provides the liquidity for lenders to even make loans in the first place...

The lenders like countrywide etc, they dont make a loan out of their own pocket - they underwrite a loan and wall street investment banks provide intermediate financing for them (called warehouse lines of credit) until the loan can be securitized into a mortgage backed security and sold to investors.

The reason why the mortgage market is in such shambles at the current moment is because the banks are now pulling these lines of credit and there is no liquidity in the system. There were definitely excesses... but without wall street banks providing the financing and investors like pension funds etc buying the bonds, the housing boom wouldnt have happened and a lot less people would be enjoying the fruits of the massive amount of real estate appreciation we have had.

[jordantii]

I am not arguing with you. I am agreeing with you. I am fully aware of how it works. many loans are "investor" backed. However the amount of investor backed loans has risen. And when you get firms like Lynch buying sub primes you get increased risk. This was overlooked due to the amount of perceived profit.

They did not realize that sup prime was not safe and much more risky than the prime market. There was no foresight as to "what could happen" if borrowers could not meet their obligations.

I can send you lists of thousands of mortgages gone bad with borrowers that had 700+ credit scores. Both prime and sub prime.

You mention countrywide. They are one of the most active lenders trying to keep their mortgages on their books by re-writing the thousands of loans they originated. They have to answer to their investors.

Funny thing is that there are still many banks that fund in house and simply turn over servicing to a third party. The investor backed loans are the most difficult to resolve due to the fact that the lender has to "check" with the investor before they can make any changes to the loans.

This creates a lag in time since the system was not and is not geared towards what is happing now.

You will see billions in bad debt hit the market in the next 18 months. That does not include credit cards and automobiles.

If you want I can email you a report from CSFB that goes over the housing problem.

Jordan

[IamBatman]

for those of you thats been living in a cave the last few days... some major developments in the financial world. To ease the credit crunch, the governments are printing money like its going out of style...

Credit crunch spreading not only to US financial institutions, but European banks as well.
Subprime fallout deepens in Germany

Subprime loss hits Dutch bank NIBC

I may have to re-think my strategy of investing in global market stocks...

for those living in high priced areas, this is of interest to you:
http://www.sfgate.com/cgi-bin/articl.../BU3IREG2E.DTL

Jumbo loans (loans over the $417k) rates just went up 1.5points to 7.5-8 percent. This is a significant increase in monthly payment and basically puts most houses in the expensive areas (like Bay Area, LA, SD and Miami) out of reach for non-google employees. Worst yet, the secondary mortgage market is pretty much vaporized.



october is the month when 500 Billion (yes 500 Billion in 1 month) worth of ARMs rate reset...

[25psi_Elise_Killer]

I bought a lot of put options on IAI (iShares Dow Jones US Broker-Dealers)

Working good so far!

[rraicu]

Hey 25,

Why are you short the broker dealers? What's the insight you have? What about exchanges like CME or ICE?