Should lenders give away houses to delinquent borrowers to stabilize house prices? Would you be happy paying your mortgage knowing that your lender gave your neighbor their house for free?
Irvine Home Address … 23 BOWER TREE Irvine, CA 92603
Resale Home Price …… $705,000
{book1}
Down, down in an earlier round
And Sugar, we're going down swinging
I'll be your number one with a bullet
A loaded God complex, cock it and pull it
Fall Out Boy — Sugar, We're Going Down
In the housing bubble debate, the bears clearly won the first round. People defaulted, banks foreclosed, and prices crashed just as predicted. However, round two has gone to the bulls. Banks stopped foreclosing, people squatted, interest rates went down, and the few buyers that remained pushed prices up slightly. Now we are on to round three: the Great Housing Liquidation.
Distressed sales equal lower prices
The general concept is obvious to everyone including the lenders: distressed sales cause lower prices. Statistical experience over the last several years clearly demonstrates that markets can only absorb about 30% of its sales as distressed inventory. But what happens when more houses are in distress than can be absorbed by the market? Squatting.
As we all know, loan owners have continued to go delinquent at a much faster rate than lenders have been processing their foreclosures. The resulting discrepancy is shadow inventory.
The bulls have been celebrating the recent price stability as a sign that the worst is behind us. It is not.
The floodplain analogy
Imagine you lived on a river in a flooplain after torrential rains. At first, the dam at the reservoir upstream from you was letting this stormwater go and threatening to wash away your property. As an emergency measure, the dam operator closes the floodgates and the waters calm in front of your house. As a homeowner, you might feel safe and believe the problem is resolved. You would be mistaken.
Stopping the flow does nothing to relieve the pressure on the dam, and the reservoir operators don't know what to do. If they let the water go, it will wash away your home, but if they don't, the pressure of the water threatens to destroy the dam and release the water in an uncontrolled manner. One way or another, that water will have to be released and pass by your house. Far from being safe, you are at the mercy of powerful forces under the watchful eye of a group of dam operators who have no idea what they are doing.
Do you believe a cartel of lenders, each with different levels of economic health, can limit the release of shadow inventory to 30% of the overall market? At that rate of sales, will they ever empty the reservoir? When lenders realize they aren't disposing of their REO fast enough, will they continue to be patient and hold properties, or will they succumb to the pressures to sell?
Extend and pretend in US housing is reeeaaally extended
Shadow bank losses – FT Alphaville
US homeownership minus negative equity = 61.6% – FT Alphaville
The slow death of Hamp, the summer of delinquencies – FT Alphaville
Hamp, what is it good for? – FT Alphaville
Squatting works… for now
Banks have given people a large number of homes. Think about it — banks paid for the house when the loan owners purchased, then when these people stopped paying the loan, lenders have done nothing about it. Lenders have given away houses. If you believed your lender would not foreclose if you quit making payments, why would you keep making payments? Morality? Despite the obvious moral hazard created by squatting, lenders are choosing that alternative over the less palatable option of foreclosure in hopes of stabilizing home prices.
Do you think squatting is a viable long-term solution?
Think about the floodplain analogy above. If squatting is not the answer, then these properties will end up being sold; some will be foreclosed, some will be short sales, and a few may hold out for an equity sale, but all struggling, delinquent homeowners will need to be washed through the resale market. With all that product due to hit the market, it doesn't seem likely that house prices have found a stable bottom.
Option ARMs to the rescue
The problem from Option ARMs has already arrived. I have seen some bloggers point to the lull in the Option ARM reset chart as a reason for our temporary lull in foreclosures. That isn't really the case. For one, many Option ARMs have already blown up, and many of these loan owners are squatting in shadow inventory.
I don't foresee a flood of future loan delinquencies caused by Option ARMs because these loan owners are delinquent already. There will certainly be some among the few Option ARM holders who haven't already defaulted, but many of these loans have already stopped making their payments. The flood of foreclosures we would have had in 2011-2013 are squatters today. Only the lenders know when they will get around to foreclosing on these people.
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Today's featured property was purchased for about $580,000 in 4/302004. The owners used a $433,200 first mortgage, with the remainder as a down payment.
- On 5/4/2004 they obtained a $78,800 HELOC from Countrywide.
- On 1/30/2006 Countrywide gave this guy a $200,000 HELOC.
- On 12/13/2006 he got a $650,000 Option ARM with a 1% teaser rate.
- On 3/16/2007 JPMorgan Chase thought it wise to add a $178,000 HELOC on the back of a 1% Option ARM. Brilliant!
- The owner quit making payments in late 2008 and squatted for a long time.
- Total property debt is $828,000 plus negative amortization and squatting.
- Total mortgage equity withdrawal is $394,800 plus the down payment.
- Total squatting time was at least 16 months.
Foreclosure Record
Recording Date: 07/29/2009
Document Type: Notice of Sale
Foreclosure Record
Recording Date: 03/31/2009
Document Type: Notice of Default
Irvine Home Address … 23 BOWER TREE Irvine, CA 92603 
Resale Home Price … $705,000
Home Purchase Price … $648,000
Home Purchase Date …. 5/6/2010
Net Gain (Loss) ………. $14,700
Percent Change ………. 2.3%
Annual Appreciation … 51.7%
Cost of Ownership
————————————————-
$705,000 ………. Asking Price
$141,000 ………. 20% Down Conventional
4.84% …………… Mortgage Interest Rate
$564,000 ………. 30-Year Mortgage
$143,330 ………. Income Requirement
$2,973 ………. Monthly Mortgage Payment
$611 ………. Property Tax
$183 ………. Special Taxes and Levies (Mello Roos)
$59 ………. Homeowners Insurance
$184 ………. Homeowners Association Fees
============================================
$4,010 ………. Monthly Cash Outlays
-$721 ………. Tax Savings (% of Interest and Property Tax)
-$698 ………. Equity Hidden in Payment
$262 ………. Lost Income to Down Payment (net of taxes)
$88 ………. Maintenance and Replacement Reserves
============================================
$2,940 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$7,050 ………. Furnishing and Move In @1%
$7,050 ………. Closing Costs @1%
$5,640 ………… Interest Points @1% of Loan
$141,000 ………. Down Payment
============================================
$160,740 ………. Total Cash Costs
$45,000 ………… Emergency Cash Reserves
============================================
$205,740 ………. Total Savings Needed
Property Details for 23 BOWER TREE Irvine, CA 92603
——————————————————————————
Beds: 3
Baths: 2 full 1 part baths
Home size: 1,410 sq ft
($500 / sq ft)
Lot Size: 3,900 sq ft
Year Built: 2004
Days on Market: 37
Listing Updated: 40303
MLS Number: S616075
Property Type: Condominium, Residential
Community: Turtle Ridge
Tract: Arbl
——————————————————————————
According to the listing agent, this listing is a bank owned (foreclosed) property.
WOW !Bank Owned and in Turn Key condition, gated communinty, beautifully upgraded with granite counters, Hardwood floors, custom paint, custom shutters, ceiling fans in every room, all into this beautiful three bedroom home. All bedrooms are upstairs with formal living, formal dining and a large kitchen downstairs. Patio off the kitchen, easy access for entertainment and a barbeque. This home won't last, a rare find, if serious don't wait come and see this beauty.
communinty?
.
I would add to your note on option-arms that they have either already defaulted, or have refinanced. If you could afford the full-am payment, but wanted a sort-of monthly loan, AND you’re not in an area that had significant price declines, you’ve probably refi’d. Maybe there’s one homeowner in this situation. Nearly everywhere has had some decline, and to refi this op-arm would require repaying the heloc, the amortized interest, and another 50k-100k in cash. Are there people who had option-arms, but who also have levels of savings that would have been required to get the LTV to the point where it could be refi’d.
The option-arm shouldn’t really be legal. Your loan is not just between you and your bank, as your actions have significant impact on housing & credit markets. You could get one from a loan shark, but not from a fdic institution. I’d rather see more PMI-like loans where your interest rate lowers as you show timely payments.
Is there no incentive for people to accurately assess mortgage risk? I guess in the world of always increasing home prices, you just sell the home to make the loan good. I saw a Fannie economist wave off default risk as non-existent because of either the situation I mentioned, or the GSE guarantee. About the risk-v-rate issue, shouldn’t some borrowers get lower rates – lower DTI, lower LTV – than those with other situations? Why were we obsessed with FICO score?
Friends of mine put down 10% when they bought in 2004 and went with an I/O 5 year loan. When things started to head south they started paying at the amoritizing rate (to decrease the payment shock by decreasing the principal), and by putting in another 5% lump sum they were able to refi into an 95% LTV FHA loan that’s a 30-yr fixed with a rate that will be 5% once the PMI is gone.
So that’s at least one homeowner. But they had gotten a good deal for the time when they bought, did buy 2 years before peak here, and the overall price collapse from peak was “only” 25-30% here.
Other friends of mine still have a 10/20 I/O ARM, that they’re paying back at the amoritizing rate, but despite putting 20% down haven’t been able to refinance because they don’t have another 10-20% on hand to bring to the table to refinance and aren’t willing to pay PMI just because their equity has vanished. But they’re not techinically underwater either, just only have the paid down equity not their down-payment.
I was being somewhat facetious, but your friends are probably on the cautious end of the I/O borrower spectrum. Also, there’s a big difference between an I/O loan, and a 1% teaser rate.
Is a 10/20, 10 years I/O, then amortizing over 20 years?
10 I/O then a balloon payment of the principal that would have been paid under the 30 year amortitization schedule, after which it reverts to a 1-yr ARM amoritizing over the following 20 years. So, they have more incentive than most to keep up with the normal amoritization schedule.
I guess the idea behind the loan was just that you’d refinance with appreciation equity at some point before the balloon payment. But that was never their plan, he just has a heavy overtime/ bonus oriented job such that flexibility seemed good.
If prices stay where they are now (down 16% from where they bought) and my friends are being honest about actually making the amoritizing payments, and about how much they put down (over 20% but not by much) they’ll be back at 80% LTV in 2013. By which time I doubt rates will still be around 5%, so maybe I should talk to her again about paying the PMI and refinancing now… Last year with no sales at all in her complex banks wouldn’t even talk to them. With 4 this spring, things might go more smoothly…
You wanna see one where the squatters are still living in the property, … even after it has become bank owned? For more than a year?
6 Via Presea 92679
Check it out.
The bank foreclosed on these owners then let them stay there? Are they at least paying rent?
We have one of those in our neighborhood. Multiple sources show it as bank owned, having gone to auction and receiving no bids, and yet the “owners” remain in the house. It’s never even been put on the market for sale. Not sure what’s happening in this scenario.
I dunno. The only thing I could figure for sure is that the former owner was in the mortgage and finance biz. Didja see all the owners on the deed at particular points in time? Wierd, eh? Some type of family trust?
Anywhooz, the same cars have been parking there since before the trustee sale. It makes me want to contact BoNY and make an offer and see what gets stirred up. he-he
An old neighbor of mine has been avoiding eviction for well over two years. Mortgaged to the hilt. Almost 60 years old. Total idiot, with no likely source of good future income. Screwed lots of people and has zero friends. In one of the more interesting ploys I have heard about, he is going back to college, to become a physician. It must have something to do with student loans.
Let’s look at the house in high FICO neighborhood Turtle Ridge: 23 BOWER TREE Irvine, CA 92603 with resale price of $705,000 which is $500/sq foot.
Redfin reports that homes in Turtle Ridge sell for $500/sq foot. Trulia reports $473. So the price seems marked to market; it is not listed at the FASB 157 mark to fantasy pricing.
Perhaps this home will be one that washes through the resale market at $705,000, but it may not as I believe there is coming soon a black swan event where there will be a liquidity evaporation in the stock and bond market places accompanied by ”custodial default” where investors will not be able to have full access to funds in money market and brokerage accounts. The result will be a tremendous fall in the equity of banks, traded by the ETF KBE and ETF RWW, and the net result will be REOs and banks leasing rather than selling properties.
I am expecting a tremendous bubble in US Treasuries to burst; I expect IEF, TLT, and ZROZ, that is the US Ten Year Note, the 30 Year US Government Bond and the US Government Zero Debt Obligations to massively collapse in value. The chart of these government debt “securities”, shows that they peaked out June 7, 2010. The money for lending will not be available for lending; and borrowers will not be able to quality due to higher interest rates, poor credit scores and no jobs. The result will be REOs and leasing of homes.
Tyler Durden warns of the danger of liquidity evaporation and treasury auction failures in article US Treasury Rolls $284 Billion In Bills, $316 Billion In Total Debt In First 10 Days Of June, Cash Balance Down To $4 Billion, stating that the US Treasury is once again running on cash fumes, with total US Treasury cash down to $4.3 billion in the Treasury’s Federal Reserve account. The reason: the US Treasury has now rolled $320 billion in total treasuries in the first ten days of the month, or over $11 trillion annualized. All those paying attention to interest paid on US debt are focusing on the wrong thing: the monthly scheduled amortization of principal are now by far a much greater threat to the US Treasury than a couple of percent increase in rates. The short-date sides of the curve is getting progressively larger, contrary to the UST’s previously announced plan to extend the average duration of Treasury debt. After all, why issue 10 Year+ debt and take on auction and interest risk, when courtesy of everybody rushing away from the equity market, the interest in zero interest overnight maturities is virtually infinite. .. Unless, of course, you are Spain, where the interest is the opposite of infinite.
The bottom line is that debt deflation will force the lenders to foreclose and lease the properties.
“Would you be happy paying your mortgage knowing that your lender gave your neighbor their house for free?”
That’s a good question. Let me see if I can answer it.
I would try to get FHA mortgage with 3% down. And I would set a “stop mortgage payment” limit price on the house (say 10% drop). Sure, I would be happy to pay my mortgage if I were given this type of choice. It’s no different from renting except for that 3% down.
Are you certain?
A 1400sf condo in Irvine can be rented for ~$2200/mo. A REALLY nice one for $2400.
with the FHA, your expenses for this unit would be closer to $3300/mo, and you still have the ~6% down risk (3.5% FHA down + closing costs + points+misc).
And if the “down risk” materializes, and you follow through with the “stop mortgage payment”, your credit is trashed.
Hardly seems “no different from renting” to me.
We rented this house starting in May 2007 to foreclosure. The owner wasn’t squatting – they were collecting rent from us. BTW, these people own a nice rebuild and drive nice cars. I would assume the bank’s money was used to help finance the rebuild.
Another SoCal land baron no doubt…
Correction – we started renting in May 2008.
did you know they were in foreclosure during the rental period?
And in general, is there a reasonably easy way to find out if your prospective landlord is on the verge of defaulting?
(yes, I am now in the market looking for a 3br/2ba rental.)
We learned about the foreclosure when the Notice of Trustee sale was posted on our door. We continued to pay rent (but only after the Trustee sale was continued each month). We also deduct a lillte of our security deposit each month.
I would use Shevy at IHB to help find a rental. He can make sure it is not in the foreclosure process. He can also see how underwater the owner is. Plus, he’s a nice guy.
From said article regarding increasing the size of down payments:
“FHA Commissioner David Stevens told a House Financial Services panel in March that the Obama administration ‘determined after extensive evaluation that such a proposal would adversely impact the housing market recovery.'”
In other words, lower home prices are not part of the recovery equation of this administration.
What a country. Amazing.
Just rent from the Fed. I hear they have over a trillion in property that you’re paying for. They would never screw over a good tenant.
FHA Reform Defeated by realtors
Down payments to remain at a pathetic 3.5%. NAR plays the race card stating that blacks and mexicans cannot afford 5% down payments.
Exit strategy to reduce FHA participation to 10% market share by 2012 also defeated. Realtors to remain on gravy train indefinitely.
Attempt to lower FHA loan limits below the current 729K also defeated. Taxpayers to continue insuring McMansions.
Chalk one up for the REIC. Isn’t it amazing how these self serving pigs manage to get their way under the big canard of helping people?
From said article regarding increasing the size of down payments:
“FHA Commissioner David Stevens told a House Financial Services panel in March that the Obama administration ‘determined after extensive evaluation that such a proposal would adversely impact the housing market recovery.’”
In other words, lower home prices are not part of the recovery equation of this administration.
What a country. Amazing.
(Sorry for the double-post).
You can bet that the next election is going to be all about the budget and soaring national debt. It is going to come down to all of the voters who are dependent on government welfare programs who will vote to keep the current impotent regime and then there will be the sustainability crowd who wants the government to stop the damn spending sprees. Obama better hope that he can get enough voters on the welfare gravy train in order to continue the charade because that tea party sure is making a lot of noise. He has also lost points with the border security crowd after stupidly speaking out against the AZ immigration law when 70% of the people appear to support it.
I think they can expect a formidable challenge coming up.
same as always, deficits will not be a problem w/a republican in the white house.
Let’s get all the professionals together and stop going to work for a month or so. See what these welfare leeches and the corrupted official parasites would last. Of course, assume the professionals would have saved enough money to last for more than one month.
The United States is absolutely the most corrupted country in the world.
http://dunwalke.com/introduction.htm
IR,
from yesterday’s post(There are 36,000+ Distressed Properties in Orange County) you mentioned:
“To hold prices steady, no more than a third of these properties can be distressed sales.”
i’m curious. how did you arrive at this conclusion? was it through your own analysis?
or from another source? i think the line of reasoning to arrive at this conclusion will be interesting for most of us reading your blog.
thanks, mike
today’s post seems to hint a bit further at how this number was reached:
“Statistical experience over the last several years clearly demonstrates that markets can only absorb about 30% of its sales as distressed inventory”
Mike23W,
The chart in the post today titled Exhibit 8 shows this phenomenon nicely. I have also noted a number of news reports over the last couple of years reporting percentage of distressed sales by market, and whenever this number is reported at over 50%, prices have cratered. I have long suspected that lenders have been managing their inventory release to keep the distressed inventory to a manageable number, and the report from the NAR confirms this.
thanks for the explanation!
IrvineRenter,
You wrote that the banks can not hold back the flood water indefinately. That’s correct, but the game is not to hold them back indefinately.
Most of the banks are public. They are owned by shareholder, pension plans, etc. The group that controls those banks may not even own 5% of the shares, but control and keep most of the profits (take their cut even before the profits are calculated). The banksters just need to keep the corp. going while converting the assets to their personal pay and bonus and transferring the defective loans to the taxpayers. If the bank implodes, the liabilities are transfers to the FDIC or other banks. The banksters may even get a big retention bonus to stay on and “restructure the company.” If the banks recover, it’s a big bonus and options set at the destressed prices will pay off big. Either way, the banksters wins. The taypayers will loss big or medium. The shareholders will loss in the long-term. Short-term traders’ outcomes are unknown. Only sure losers are the taxpayers with the Bush/Obama plan.
I thought TRidge kids do NOT go to either of the TurtleRock elementary schools. There was a huge uproar about this years ago when TRidge was built and their kids were supposed to go to TR Elementary.
The UCI kids were going to be bumped.
I thought the TRidge kids go to the Elementary School in UP.
Perhaps the Realtor screwed up with the listing?
@tonye:
TRidge kids go to Vista Verde Elementary… built brand-new for TRidge.
ROTFLOL…
“Built brand new”… I don’t think so. That school was there well before TRidge.
When TRidge was being built, the Irvine Co. assumed that the kids would go to Bonita Canyon and TR Elementary schools. However, there was a revolt at those elementary schools because the local parents (us included) didn’t want to see our kids shuffled and the UCI parents went ballistic.
So, IUSD refused to accept TRidge kids at Bonita/TR elementaries and busses them down the hill. There was talk about IUSD building a new school up in TRidge but I guess that has gone nowhere.
I guess too the realtor that did this listing is clueless.
The current location of the school did not exist before Turtle Ridge. It [b]WAS[/b] “built brand new” in 2006.
http://en.wikipedia.org/wiki/Vista_Verde_School
I think you’ve been out of the loop for a while. The Vista Verde you might have in mind (off Michelson) was moved to Turtle Ridge (across from the JCC) – a brand new campus.
Hmmmm, Vista Verde is one of those year-round schools that serves the entire city of Irvine. I think there’s some sort of pecking order, though, like UP, Turtle Rock, Turtle Ridge, sibs of existing students, all get priority over the rest of Irvine. That being said, my kids go there and there are kids there from Oak Creek, Westpark and even Newport Beach! There are plenty of kids from Turtle Ridge, University Park and University Hills, though, too. Bus serves UP and UH only, not even TR or UCI.
Then you’re right. The Vista Verde I remember was the year ’round school on Michelson. I used to drive by it when my kids were at Rancho.
My daughter moved to Uni in the fall of ’07. I thought Vista Verde was still there then, though.
@tonye:
Just in case you feel like ROTFLOLing again…
Westwood Basics Plus -> Stonegate Elementary
El Camino Real Elementary -> Woodbury Elementary
Alderwood Basics Plus Woodbridge -> Alderwood Basics Plus Quail Hill
Is squatting the option?
Hmm… is your credit trashed when you stop payment or when the house is foreclosed?
If a squatter stops paying but is foreclosed two years later, is the impact to their credit score extended for two more years (negative impact while they squat and more when the bank forecloses).
I suppose that access to credit might be a huge issue for a squatter then.
We just borrowed some money for my son’s college at a good rate. We got the money but would rather pay a little bit of interest and make our payments (and keep building the 401Ks) instead of taking money from savings.
It was a very painless process since our credit rating is sterling.
I suppose that if you were squatting you’ll be forced into a pure money economy.
Which sucks… because those of us who least need credit have the access. Those of them who won’t have access to credit are the ones that need it the most.
Oh, about the Gov crashing… nope, I think they’ll just print massive money and push interest rates up. I think we’re facing inflation.
Tonye,
So are you saying now is the time to buy or face higher interest rates later (who knows when) with no assurance about how fast banks might unload the properties?
Neither.
I was just wondering what the impact on a FICO score is by squatting on a property.
Does it extend the pain on your score? I assume the hit on your score starts the day you go past due.
Does the seven year countdown on clearing your score start the day the you stop paying or the day you get foreclosed?
However, this might be the time for those who have access to credit to take money out at cheap rates and try to invest it on something that won’t depreciate.
Maybe buy rental properties in the Inland Empire or a nice wad of mexican pesos.
Who gives a fuck about FICA scores? Given the choice, I would squat for a number of years and trash my own FICA score. I have always bought things including houses and cars with all cash. If I can sell my FICA score for money, I would.
Ps. I still cannot forgive tonye for supporting the bail-out thus more corruptions in our government.
http://dunwalke.com/introduction.htm
Agreed food. Some comments by posters here are a great example of one of those wonderful Irvine residents that won’t return a smile and basically looks at everyone around them who wasn’t as FORTUNATE in TIMING as themselves…as lesser.
I have experienced this smug attitude many thousands of times in my 23 years of working in Nirvine. The only difference I see nowadays….many of the newer residents aren’t even familiar with basic Irvine culture of unfriendliness/selfishness and will actually return a smile and a wave.
@swiller:
I guess it depends on where you live. In my 20+ years in Irvine, I’ve always found the residents quite friendly and helpful.
There is always 2 sides to a coin… would you prefer the kind of neighbors who are very nosy and won’t stop talking to you?
I would prefer REAL, friendly, open, and honest people, not the ones who look at you like your a rapist for making eye contact and smiling. I would prefer people who don’t rank themselves and their worth based on THINGS. I would prefer people to not claim to be christians and then turn around and do worse actions than those whom do not even claim to believe.
The two sides of the coin are thus….those whom are approved by the self implied elite and live here, and those servants who just happen to work in Irvine. So yea, I’ve been on both sides of the coin, there was even a time when I could have afforded to buy in the Bio-sphere, but I didn’t want to EVEN THEN.
I prefer the Irvine of the 1980’s, when it was more inclined to be a middle-class america, with some ROOTS of where Irvine came from still in existence. When Don Bren took over, everything changed, and he was successful in the TYPES of people he wanted to attract to live here. Hence, why Irvine is the way it is now.
We need an OC Housewives Irvine program to just highlight how ridiculous the whole city has become. Good choice in mayor too!!!! LMFAO!!! How many more millions will we waste on the Great PArking Lot? Rewind me a few years and I would campaign for an airport. At least that would have brought in money and not just politicians suckling up to the nipple of Agran’s public funds.
WAIT A FRICKIN” MINUTE
Who said I was a smug resident of The Fascist Police State of Irvine?
So what if I got equity? I could have easily done what many did and treated the whole thing as paper gains.
And I do pay make my payments on time.
If you got a problem with people, then I suggest you look at the damn mirror before you throw rocks at anyone.
And if you are going to throw rocks at me, you better be wearing asbestos underwear because you got the wrong guy here.
I think you’re just damn jealous.
I’ll make you even more jealous, I loaded the wagon with Cisco stock from 97 through 97. Sold it all early in Y2K.
And, BTW, I worked my ass off to get my house when I was young. I was working two jobs, 70 hours a week for years to buy my house in TR back in the late 80s. I wasn’t lucky, I wasn’t gifted by the Gods.. I worked my ass off for what I got. So I suggest you get off your ass and do something meaningful instead of blaming me for your shortcomings.
jeez…
Hi IR,
Long time no see! So in a nutshell the shadow inventory problem is growing like the dam example. When this problem will implode or whether it will implode is anybody’s guess?
Wife and I have been debating a home purchase on the sidelines for a while now. But as things are going right now it seems like she might have a point that banks have an indefinite time horizon to extend and pretend. I am torn between logic and fact 🙂
If you want to buy at the bottom of the interest rate cycle then have at it.
Interest Rates To Stay Low Until 2012
I suspect that by the time 2012 rolls around, much of this bubble wealth will have burned itself off. Increasing borrowing costs will do nothing but bring down the prices of houses across the board. It’s going to happen – only a matter of time. I’m going to let the knife catchers finish rushing the market and wait for flipping houses to fall out of fashion and save money in the meantime. To me, the premium right now is in being mobile. If I lost my job today, I could pick up and go anywhere in the country instantly without having to unload a house first.
It’s not just the interest rates. It’s the underwriting terms. Higher downpayments and guarantee fees will make a difference.
I’ve said this before, this game has a limited time horizon because of implications that could literally take down the entire loan system.
Now that it is front page news that one can default on a mortgage and remain in the house for up to 2 years, we are starting to see what is turning into massive increases in strategic defaults.
The banks have backed themselves into a corner by providing an incentive to millions of underwater homeowners and when the tipping point comes in the volume of strategic defaults due to widespread social acceptance, all hell will break loose and the banks will be forced to play catch up on foreclosures.
This is all happening in slow motion right now and it cannot go on for longer than say 6-12 more months.
The market always wins and house prices will go to their fair market value and the banks that have created this problem by rewarding those who choose this will again seek bailouts in 2011.
Nick
GO LAKERS!
Tax Credit Lemmings Bid Up Southern California House Prices
With prices in many areas outside of Irvine getting massive haircuts, I’d guess that many people assume that it’s a bottom in pricing so they want to get in and buy something to catch the next housing bubble mania. Unfortunately that’s not going to happen again during this next cycle. 3.5% down FHA financing and $8000 handout from Uncle Barack make getting in easier than ever, with NO risk whatsoever.
I had people telling me all the time that I should buy while I could still get the tax credit, and that I should get in now while prices are low so I can sell/refi/cash out when prices go back up to where they were. Too many people believe in the history of real estate and thing that everything is the same this time, and that another massive price spike is just around the corner! Fortunately for me I know that things are different, and history is meaningless in this current environment.
When do you expect to see a meaningful decline in prices accompanied by a surge in listings?