Comments on Doctor Housing Bubble Blog: Irrational Housing: Insiders out Early and The Du...

I agree with Wayne and his comments on the baby-bo...

2007-04-12T13:13:00.000-07:00

I agree with Wayne and his comments on the baby-boomers. I would add to his portrayal of doom the wars we are involved in. The boomer generation is going to face a lot of resentment from people under 40, as the generation that got the good life, at the expnse of younger people,
who are going to be expected to pony up lots of tax money to cover the boomers lack of savings.

This will lead to enormous friction, and political manipulation. Others have mentioned it but its still true,
boomers were counting on their houses for retirement! My mom turns 67 this year and she is right ahead of the boomers. In five years, the exodus begins. This housing bubble is exploding BEFORE the time when the boomers were counting on retiring and the next generation is, I believe, far poorer, in both assets and wages, though they will be paid mightily to keep the machinery running. At some point, the boomers are going to get kicked into the street, and left behind just like after the USSR collapsed. Sorry, grandpa, we cant afford you, now go die somewhere.

Somehow I doubt all these immigrants will be buyin...

2007-04-11T23:03:00.000-07:00

Somehow I doubt all these immigrants will be buying the $500,000 mansions with no-doc mortgages.

No?

You may be surprised to find who the desparate realtors are suckering into buying $500-$800k homes:

http://tinyurl.com/yql2p9

That's right: we have Spanish-speaking real estate agents preying on their own, apparently only worrying about their FAT commissions while pitching the American Dream of Home Debtorship.... I love the section where the Spanish-speaking agents and loan officers troll the San Jose Swap Meet from a rented booth, looking for fresh victims, at least until they're kicked out for being too annoying!

It would be nice to think these types of practices ended after the sub-prime meltdown, but this article from today (4/11/07) suggests otherwise:

http://tinyurl.com/2ctkg5

I'm starting to think that the ONLY way to get these corrupt and greedy loan originators and reasl estate agents to cease and desist from such outrageous behavior is to have the authorities kick down the door and place them in handcuffs....

Thanks Dr HB.I'll wait for awhile. There isn't a n...

2007-04-09T14:33:00.000-07:00

Thanks Dr HB.

I'll wait for awhile. There isn't a need to buy something that just isn't worth it. The value of owning isn't there.

I don't want to be house poor, nor do I want to be a slave to a lender.

Thanks again,
Crazed

NorCal market heating up?The proper analogy would ...

2007-04-09T11:31:00.000-07:00

NorCal market heating up?

The proper analogy would be the heating process in a nuclear power plant once the cooling water has leaked out.

irvinerenter,I appreciate the link. We've talked ...

2007-04-09T08:32:00.000-07:00

irvinerenter,

I appreciate the link. We've talked about this many times in numerous articles but I think we all realize that to a large extent, this market is being driven by psychology as opposed to fundamentals. This coupled with a social epidemic of easy credit and nonchalance toward savings and we have our current environment.

lendingmaestro,

I think your three points are important. However I think that this train wreck may take longer than most of us expect. Imagine the analogy of slowly boiling water with a frog in it. The tightening of credit will have a major impact on this market.

olives,

This is a worldwide credit bubble from Canada, UK, Europe, and even Australia. Once the domain of local authorities and businesses CDos have given the world easy access to speculation anywhere you may live.

wayne,

Especially when many baby boomers will want to downsize. But the demographics are changing drastically. We aren't seeing the typical generational cycles because the large number of immigrants in our country. Not only that, families are opting for one child so we actually aren't funneling a new batch of new home buyers to replace the boomers. Somehow I doubt all these immigrants will be buying the $500,000 mansions with no-doc mortgages.

Anon,

I can understand your frustration. Just look at how many housing bubble blogs are out there. You are not alone. If anything, the trend is heading down. There is no rush for you to purchase right now. If you feel the need, open a MM account and consider that your downpayment fund. If you can reach 10% of the purchase price of the home, you may be ready to buy. Wait until winter of 2008. Prices won't go up, that is a certainty. Too much pressure is sending this market down. If you buy now I hate to say it but you'll lose a lot of equity in the next two years.

anon,

Good link. Let us all jump into N.Cal real estate because of a minor jump in some whacked out numbers. Please.

What do you think about this one?http://cbs5.com/l...

2007-04-09T05:17:00.000-07:00

What do you think about this one?

http://cbs5.com/local/local_story_095213933.html

NorCal Real Estate Market Heating Up. LOL.

Hello Dr. HB,Love your site.I want to own a home, ...

2007-04-09T05:04:00.000-07:00

Hello Dr. HB,
Love your site.

I want to own a home, however paying $700,000 for a fixer just doesn't seem right. The house needed lot of work. Maybe over $100,000. My husband and I liked the neighborhood, but that was it.

We almost bought a house for $560,000 about 3 years ago, but we backed out because we would of had to borrow some money to make 20% down payment.(Maybe we should of bought it.)

However, instead of buying a big house, we choose to invest in income properties, and they are working out fine for us. Positive cash flow(not great but positive). We also bought them with 30 year fixed interest rate.

After waiting for three years, we saved some more money, and we were ready to buy. The most we were willing to pay for a home was $700,000. However it just wasn't enough for a nice house in Glendale. I'm only talking about 1600 square feet home in a nice neighborhood.

The problem I have is that I don't get much for $700,000, and to own it would cost us 50% of our net income. I can't justify buying a fixer for that price. In fact there is no gain in quality of life or living space. In fact I get less by owning a home compared to what I'm renting. I'm not counting having to pay 3 or 4 x what I pay in rent.

What is going on? Am I crazy?
Don't understand why the price is still going up. Who is buying $800,000 + homes?

One realtor told me there are lots of people with equity who are trading up or down. I also heard of company giving people forgivable loans. I guess lots of people are making $200,000+ in Glendale.

I feel priced out. I can't justify the cost of owning a home to staying where I am. I'll wait because that's the only thing I can do.

Crazed

When you overlay onto the housing bubble the econo...

2007-04-08T17:30:00.000-07:00

When you overlay onto the housing bubble the economics of the baby boom approaching retirement, the situation begins to look pretty ugly. You could argue that stagflation in the 1970s was the price government chose to pay to shoehorn all those boomer college graduates with their high expectations into gainful employment. Now the boomers are beginning to retire with $60k in the 401(k), $9,200 in credit card debt, Social Security and Medicare benefits that are $50 trillion underfunded, and negative equity in an oversized McMansion - because the interest on the mortgage was, you know, tax deductible.

Under the best of circumstances, there would be a dearth of buyers for these empty nests based on simple demographics. Add to this falling home prices, a credit crunch, skyrocketing energy prices and a collapsing dollar, and you the makings of a full-blown disaster.

I thought it was 85 percent of Canadian exports we...

2007-04-08T14:31:00.000-07:00

I thought it was 85 percent of Canadian exports went to U.S. Either way, I'd call that "dependent". I recently read that Canada suffered much worse during the Great Depression due to our dependency on U.S. purchasing our commodities.

Robert Schiller called Vancouver, Canada "the bubbliest city in the world".

I believe our lending standards are almost, if not as bad as in the U.S., although we are "behind" in our "crash" by about a year or so apparently.

I'd say we are all in the same sinking north american/global boat.

Dr. Housing Bubble, I linked to you in my latest p...

2007-04-08T09:30:00.000-07:00

Dr. Housing Bubble,

I linked to you in my latest post: Southern California’s Cultural Pathology.

http://www.irvinehousingblog.com/2007/04/08/southern-californias-cultural-pathology/

http://tinyurl.com/2ofb2u

Come check it out.

I'm up in Canada and I think we will be hit hard t...

2007-04-08T00:14:00.000-07:00

I'm up in Canada and I think we will be hit hard too, although it may take a few months to work it's way through the pipeline. Our forestry industry is shutting down as US homebuilders slow. About 77% of out exports go to the US so if you guys crash, we follow. We will have pockets of prosperity like the energy and metals but our forestry and manufacturing industries will be hammered.

The bloodbath that is coming will shock even us.1....

2007-04-07T10:01:00.000-07:00

The bloodbath that is coming will shock even us.

1.) 1/5th of all mortgages originated in 2006 were sub prime. (80/20 refis and purchases are considered sub prime loans by most lenders.) Those are all 2/28's or 3/27's which means they won't start adjusting until 2008 and 2009. By that time enough equity will have evaporated and they won't be able to refi

2.) A siginificant portion of prime/alt-a loans originated are neg am loans, and a large portion of the public didn't know that when they signed. I talk to at least 3 people a day, no exaggeration, who are in this situation. They also couldn't resist taking out that extra cash on a HELOC because their 1st mortgage payment was so low. Even if they know the loan is neg am they most likely don't know that their "five year fixed payment" will actually recast once the loan balance reaches 110%. Say bye bye minimum payment and say hello to your full PITI payment. You are now going to be sub prime.

3.) elimination of 100% financing and tightening of credit will eliminate the only life raft that these people have in sight. We are going to see a foreclosure epidemic that the world has never known. There are many renter friendly states like CA, MA, that make it hard to kick out a tenant. This makes the foreclosure/short sale process drag on. Many flippers are holding out because they have neg ams right now and can still afford the minimum payment.

The train is starting to roll, but it won't reach terminal velocity until well into 2008-2009

I have heard Canada considers itself lucky because...

2007-04-07T07:38:00.000-07:00

I have heard Canada considers itself lucky because they do not build American homes. I have also heard that Ottawa is experiencing a RE bubble and is expected to be 18 months behind the U.S. in the bubble rupture. How hard of a hit does anyone expect Canada to take? If the U.S. goes into a total economic meltdown, how bad up North can we expect it to get? Any hope that CA can disconnect from the meltdown?

Great Ad!!!! The ad looks real. I guess he's sel...

2007-04-06T20:06:00.000-07:00

Great Ad!!!!

The ad looks real. I guess he's selling mortgages, not a kit to buy mortgages, so it's fantastic to see the Visa and Master Card logos at the end. Let's see, I'll "buy" my house with my visa card, then as the value goes up, I'll borrow on the house to pay the Visa card. Hence, I get the house for free! Awesome. Now I finally understand the whole thing.

$548,400 - $178,160 = $370,240370,240/178,160 = 20...

2007-04-06T18:02:00.000-07:00

$548,400 - $178,160 = $370,240

370,240/178,160 = 207.8%

Eric,It is 207%. You can verify it online with pe...

2007-04-06T17:12:00.000-07:00

Eric,

It is 207%. You can verify it online with percentage calculators.

All of you need to check out this mortgage ad:

mortgage ad

The content is mature but talk about using talent to sell mortgages.

California Median: 1999 California Median: 2005 Gr...

2007-04-06T15:44:00.000-07:00

California Median: 1999
California Median: 2005
Growth in Percent $178,160 to $548,400 = 207%

Shouldn't that be 307%

I remember in 2001 that, here in SoCal, houses wer...

2007-04-06T13:28:00.000-07:00

I remember in 2001 that, here in SoCal, houses were being bid on with prices of 50 to 75K over the asking price. I was talking to some RE people on the golf course and we all agreed that those people were fools. Little did we know that they were the "insiders".
That said I have a few friends that "invested" in RE in 2005. They are "lazy" investors that don't have the time to follow the economy or markets but expect large returns. They also believe in the mantra of "RE never goes down". I think they'll be getting some schooling soon.

A lighter side of the housing bubble:http://tinyur...

2007-04-06T11:18:00.000-07:00

A lighter side of the housing bubble:

http://tinyurl.com/2vnnqb

Sometimes you have to maintain perspective.

sed,It will be global. Take a look at housing pri...

2007-04-06T10:59:00.000-07:00

sed,

It will be global. Take a look at housing prices in Australia and the UK. China and Japan are reliant on the credit bubble to keep going so they can grow their US Treasury reserves. We're all interconnected on this one.

irvinerenter,

I think your acquaintance is right. The story of the tortoise and the hare comes to mind right now. The spending public used up all its financial resources in the 15 mile of the marathon, now they are spent. What people need to be doing is hedging their bets for a downturn. I've told this to people and they respond "why would I go for 12% returns when I can get 25%+ returns in real estate?" Even if they have real estate you should always diversify; but a large number of our population have the majority of their net worth connected directly to housing. Doesn't take a genius to know what will happen when prices go down.

The Duesenberry Effect is alive and well in my opi...

2007-04-06T10:41:00.000-07:00

The Duesenberry Effect is alive and well in my opinion. An acquaintance of mine is a financial planner, and he believes Southern California is due for a bloodbath. He says 90% or more of his clients are hopelessly overextended. The housing ATM has largely been shut off, and they are all maxing out their credit cards waiting for next year when house prices start going back up again so they can pay down the credit cards with their HELOCs again. He said this is way more common than anyone suspects. He foresees an avalanche of foreclosures and bankruptcies. He said "you can't believe how frustrating it is to explain to people what they need to do in order to get their finances in order, and they simply won't do it." I guess you can only lead a horse to water.

One big question for me is whether this will be a ...

2007-04-06T09:46:00.000-07:00

One big question for me is whether this will be a US-only recession/depression or whether it will turn into a global one. Is the US debt/non-production economy actually decoupled from the world's producing economies (China, India, etc). With savings, they may have built up sufficient steam to operate without us. They hold all our debt (dollars). Or will they just panic like we will.