Comments on Doctor Housing Bubble Blog: Why the Housing Market Has Failed You. 5 Major Fai...

Adam SaidGoing into a home with a 'put' option is ...

2007-08-08T11:58:00.000-07:00

Adam Said

Going into a home with a 'put' option is essentially gambling that it will appreciate: the buyer could then gamble without needing to use any of their OWN money. If it appreciates, then fine. If it fails to appreciate, they just walk away, losing only the I/O payments they've mailed in to cover rent (which can be LESS than rent).

So they mail the keys back to the lender, since they have no "skin in the game". So what about damaged credit? In case you haven't noticed, one's FICO or credit score means nothing nowadays

I think a lot of these speculators are going to find out the hard way that it is not that easy to walk away as the IRS will come after them for the difference between their purchase & the REO sale that they speculator will be 1099'd on.

The IRS will quickly garnish any legitimate (ie reported) wages. If these people couldn't do a simple cost benefit analysis in the first place I doubt many are going to run the numbers to find out what is more painful in the short and long term.

Depending on their tax bracket an original 500K purchase price REO'd at 400k will result in a 100k 1099; think they've got 20K to 35K plus the possible interest and penalties laying around to feed Uncle Sam (and we all know how much that obese bastard eats)? In a case like that a short sale might be a less painful option in the long term.

"and this too shall pass"

You got all the info in there for sure. Can't thin...

2007-08-07T11:10:00.000-07:00

You got all the info in there for sure. Can't think of anything to add besides a link to a similar report with a little bit of a spin. I think i now i have my PhD in the housing market.

Home Sales Report: What’s Left?

-Cheers!

What's going on with the real estate market is onl...

2007-07-06T17:46:00.000-07:00

What's going on with the real estate market is only one part of the larger picture.

Because of rampant GREED, corruption, corporations doing anything and everything to increase the bottom line for "shareholders" and HUGE CEO compensation packages .... the U.S. is in a downward freefall.

The hard cold reality is life is only going to get uglier. Most americans are preoccupied with celebrity nonsense, shopping and what's on T.V. Oh well. Enjoy the good things while they last !!!!

To Bear cave, I checked the solar (free) calculat...

2007-06-26T23:43:00.000-07:00

To Bear cave, I checked the solar (free) calculator and found I was wrong. Yes, I put every PENNY I earn (including can recycling) in an interest account or in a conservative NO LOAD investment. My wife actually saves over 75 % of her net and she does the same, collect cans, bottles, etc. (We do have to worry about AMT) I will quit my "main" job as soon as we start getting close to it. That may be in a month or so. Its funny we spend so much time saving, I forget about what we have. Last week I found $15,000 worth of deposits sitting around that I was too cheap to mail (postage stamps are too expensive and the postal service sucks hind booty). No we are not Freegans because WE DO NOT embrace community ( We couldn't give a shit), generosity ( go help yourself), social concern ( only if we can get the Mexicans -illegal aliens out of my town), freedom (YES) , cooperation (hell NO), and sharing (NEVER I would be the first to splash mud on a homeless - I have to work for an asshole- so should they). We are not in opposition to a society based on materialism, moral apathy, competition, conformity, and greed. We don't care. I just don't want Suzie Orman types (BS'ers) getting a penny of any of my money. We just HATE liars, con artists, salesmen, Realtors, CNN, ABC, NBC, CBS, CBN, Bankers, Credit card companies, lawyers, junk mail, SPAM, Bill Gates, Microsoft, politicans, political parties, bean counters, the NAR, preachers, evangelists, hypocrites, illegal aliens, homeless, and whiners. Oh I forget feminazis, feministas, Oprah, Rosie, Bernanke, and Hillary Clinton are also included. WE do LOVE the SAVAGE nation with Michael Savage. Our biggest pleasure is when some smug asshole tries to talk "money" with us and they show off their "toys". We encourage them to spend more, since it only takes away power from them! Last year I encouraged on asshole to "show off" by buying himself a new Viper-custom painted - Later it somehow got scratched by a shopping cart? and the whole front clip went ??? I don't think it looks so good now? Ha It ruined his YEAR! Trash our cars? - who cares? They only eat ARAB gas and cost us insurance - sdcrew cars. OH WE LOVE KRAMER- I'd VOTE FOR HIM FOR PRESIDENT- along with George Costanza as Secretary of State!

We pay cash and GET the BEST deals on everything. Food shopping (no other shopping - I get toilet paper for free - I like mine with George W's face on it. Last month I bought 70 pounds of bacon because I got it at only 68cents /pound ( Bacon is not my favorite- but I am a MEATATARIAN- IF its red and bloody YUMMO---I like to piss off the Vegans. Today, I bought 3 gallons of fresh (not frozen) Florida orange juice for 33 cents/gal. Three pounds of carrots for 78 cents. I get my fresh roasted Arabica beans for $25 / 120 pounds. NO, we are not optimists, but we HAVE FREEDOM...REAL FREEDOM. I can tell anyone -including my asshole boss to go to hell. I just did, after sucking every penny I could out of 401 K contributions of $15,500 the first few months this year. I found a 5 dollar mistake and warned him I would sue. They sent me $2,800 to shut up! YESS! I do not give a shit! I have three jobs and my wife has three jobs. I try to keep the "in go" going and the "out go" only to us. I JUST DONT WANT THE ASSHOLES to make a profit on it nor touch it! I saw a politician spewing pucky on TV about the "illegal alien bailout -amnesty bill". I immediately called his office and told HIM, if I ever found he supported that bill in any way, I would imnmediately donate big bucks into anyone who opposed him. They listened...they really did! Damn politicians. I have done some muckraking in my day. Several big names- OUT GET A REAL JOB. AND QUIT COSTING ME MONEY! They pissed me off! Thats what we live for ---> FREEDOM from BS.

Excellent blog! Dead-on - thanks for putting ever...

2007-06-26T20:55:00.000-07:00

Excellent blog! Dead-on - thanks for putting everything I've been telling friends and family for many months into a neat 'middle class' vocabulary. They will all (hopefully) be reading this soon!

Ooooo...the lenders are getting desperate for some...

2007-06-26T10:04:00.000-07:00

Ooooo...the lenders are getting desperate for some fresh blood and one of them sent me this URGENT email titled "Housing Facts You Cannot Ignore!"

I can't believe they can use depreciating home values, tightening credit standards and rising inventory as an argument to buy NOW???

Ummm...Joe 6-Pack must be more of a jack@ss than we thought - or more broke and panicked than we thought - if this tact actually works with some people:

________

Dear Valued Client,

When inflation fears recently led central banks in New Zealand and Europe to suddenly increase their short-term interest rates, the repercussions were immediate. Interest rates soared around the globe - especially in the US.

According to the Chicago Tribune, mortgage interest rates have reached their highest levels in nearly a year! In fact, Freddie Mac recently reported the fifth consecutive week of rate increases across the board since May 15th!

If you or someone you know is considering a new home purchase or refinance in the next 12 months, I urge you to investigate all available options now instead of waiting any longer.

Yes, it's true. Mortgage interest rates are currently under 7.00%, but they may not remain there for long. As history has demonstrated, a rapid rise in interest rates is sometimes a precursor to even higher rates in the coming months. In 1993, interest rates on a 30-year fixed rate mortgage jumped from 6.69% to 8.23% in just five months. With this latest surge in interest rates, can you really afford to wait any longer?

Remember, mortgage rates are based on mortgage-backed securities, which investors buy and sell like stocks on the stock market. If returns are more attractive in other countries and other markets, investors and their capital will follow - and rates will likely increase. It's that simple. Combine this with the present turmoil of the post sub-prime housing market, and it really does make sense to at least consider all of your available options now.

Honestly, if this sudden surge in interest rates was the only sign of a changing market, I wouldn't waste your time. But, growing concern about inflation and how the Federal Reserve might respond, combined with increases in housing inventories, decreases in home values in many neighborhoods, and the tightening of credit standards and guidelines is just too much evidence to ignore.

While no one can predict exactly what will happen, including me, experts in the bond arena have expressed concerns that rates will continue to increase throughout the rest of the year. Some believe that the Federal Reserve will be forced to raise interest rates prior to year's end. This would increase interest rates for existing Home Equity loans, credit card loans, and potentially existing ARMs. Find out how these and other changes could affect your financial situation.

If we have not spoken yet, please contact me as soon as possible. I will provide you with a Free, No Cost Analysis of how I can improve your financial position today and save you from a potential increase in monthly payments.

_________

I smell desperation,
MMAB

@ Dr. HoBub: The Economist might send you a cease-...

2007-06-26T07:43:00.000-07:00

@ Dr. HoBub: The Economist might send you a cease-and-desist letter, but they can't send you a cease-and-desist letter if you were to, say, plug their numbers into excel and make a graph and somehow attribute the source. Or outsource that task to someone on Mechanical Turk for 75 cents.

When I call housing an "investment," I mean that in the sense that you're dumping a lot of money for the long-run so do it wisely and in an informed matter to ensure that you do actually perserve the equity dropped into it, rather than trying to be turning money out of it on another episode of "Flip That House". I mean, god bless you if you could pull that Casey Serin crap off successfully, but all Ponzi schemes leave someone holding the bag at the end and if you look around the table and don't know who the sucker is, it's you.

It would be fine to even maybe lose money *after adjusting sale price for inflation* **if** renting was as or more expensive, but sadly for a nation of credit-card-saddled morons, it's not. I'm just preaching to the choir.

@anon 11:25--I remember the rice and beans days. But you save 100% of your net? Are you one of those dumpster-diving "Freegans" and also have a 401k, because that would make you my hero (except for the part about Jim Kramer).

Realty FUN. I am so tired of lying cheating RE pe...

2007-06-25T19:38:00.000-07:00

Realty FUN. I am so tired of lying cheating RE people that I have a new hobby. I ask for assistance to visit "open Houses". Ahh Fun. I lead them on and on, talk money let them see some of my financials to let them know I am super qualified. When they start salivating and kissing my A@@ I ask them why they haven't bought the property. They look dumbfounded. Well, If I were you I would buy it, why didn't you? They choke gag and don't want me to leave hoping that I will buy their lies. I leave them a telephone number of another idiot salesman and an email address to nowhere. Its fun to flash a lot of cash during the meetings! Yes they are tempted again to believe their own crap. A few weeks later I call them and tell them I found another house for 100K lower in a nicer neighborhood. That makes them put the pressure on their sellers to get realistic. AND it makes them realize that they are the losers they are afraid of being. I like to drop a few hints like the Robert Allen seminar I went to, and read the new book "the Secret" where I "wished" for my dream house and found it...why don't you try to "wish" for your next house? HA ! I love to drive these idiots crazy! I am renting and love to watch these greed merchants squirm. I know that they only average 4-5 sales a year and I want them to feel terrible and waste their time! LOSER! ha ha Go drive you Cadillac to the unemployment office! I'll pay rent while you choke on you mortgage payments.

See below for the Economist terms and conditions. ...

2007-06-25T19:25:00.000-07:00

See below for the Economist terms and conditions. They do not allow you to reproduce, transmit, or use for commercial purpose any of their content. Their recourse would be to block you from their site.

Legally, the "Fair Use" concept is intended to let people use small portions of copyrighted material for the purpose of reviewing the material or for satire/parody, etc. (neither of which describes your use)
Non-commercial use is given more leeway--yours is not non-commercial, as you profit from ads on your site.

The information used for the analysis may be public domain, but the analysis itself--and certainly the graphic--is not. A great deal of research and analysis may have gone into that chart. I didn't look for the source data, but it may be difficult to find and/or difficult to massage into shape to be used as it was in that article.

As for whether people realize they aren't your graphs, note the 2nd comment (anonymous 4:14 pm June 23) "Bravo! Very well written. Excellent graphs." That person seems not to have realized that they are lifted from someone else's work.

Your argument that all bloggers use other's work without attribution is just silly. I just read a similar argument on iamfacingforeclosure.com justifying the decision to lie about income on a "liar's loan" mortgage application. Not that the two infringements are at ALL comparable in degree, but both are silly arguments.

I find it puzzling that you and anonymous 5:04 assume I have some sort of vested interest in keeping people from learning about real estate finance. You have absolutely no idea who I am or what I do for a living--or what my politics are. (BTW, I am Anonymous 3:39, 3:40, and 5:31) I am not a mortgage broker or real estate agent (nor is anyone in my family); I don't own any real estate, nor have I ever made or lost any money in real estate (unless you count the REIT mutual fund I have in my 401K).

Enough of the conspiracy theories, kids! Just cite your damned sources. Sheesh.

From the Economist website: "Terms and Conditions" (edited for pertinent points, not in a way that changes any meanings)
__________________________
2. Use of Economist Content

You may retrieve and display the Economist Content on a computer screen or (if expressly authorised) mobile telephone, print individual pages on paper (but not photocopy them) and store such pages in electronic form on your mobile telephone for your personal, non-commercial use. Except as expressly set out above, you may not reproduce, modify or in any way commercially exploit any of the Content.

In particular, but without limiting the general application of the restrictions contained in the preceding sentence, you may not do any of the following without prior written permission from The Economist:

1. reproduce or store in or transmit to any other web site, newsgroup, mailing list, electronic bulletin board, server or other storage device connected to a network . . . all or any part of the Economist Content, or
2. modify, publish, transmit, participate in the transfer or sale of, reproduce, create derivative works from, distribute, perform, display, or in any way exploit all or any part of the Economist Content . . . without the prior written consent of The Economist,
. . .
Any use of the Economist Content not specifically permitted above is expressly prohibited.
_____________

To Scott- Get out your calculator. Why should any...

2007-06-25T19:23:00.000-07:00

To Scott- Get out your calculator. Why should anyone pay $300/ sq foot for an OLD house (1930) made of wood, when you can build a new house with all amenities and meets the latest codes for electric and plumbing for no more than $110/ sq foot!. Hey, why don't you write me a check for $250/sq foot and I can have a builder have it ready for you in 6 months. I get to keep the difference of $140/sq foot. Okay? It is absolutely brainless to buy ticky tacky crap fro three times what it costs to build the ticky tacky crap. I just came back from a trip to Texas where I found NEW beautiful custom homes with all the amentiies with a view lot, nice neighborhoiod for less than any price in Los Angeles for a pile of crap that wasn't fit to park my car in. Don't listen to Realtors- THEY ARE LOSERS and are not interested in anything but separating you from your money. I know a lot of General Contractors who will build for almost cost just to jeep busy building. WAKE UP - the get rick quick fairy tale IS OVER.

this is an interesting blog. it would be great if ...

2007-06-25T18:40:00.000-07:00

this is an interesting blog. it would be great if we could get some housing bulls to explain their rationales for why housing prices won't go down in socal. those i know cite limited available land in oc and la counties, a rising population and a tight labor market. They say demand is outstripping supply and socal is a wealthy place. So, as long as people have jobs and are willing to put a high percentage of their income to a home payment, or buy a house with friends or other family members, then prices will stay high. any thoughts? will all of us middle classers be forced to move to the IE or out of state? what would the lack of affordable housing mean for the california economy?

@make mine a bubble,Excellent post. I enjoy the a...

2007-06-25T17:57:00.000-07:00

@make mine a bubble,

Excellent post. I enjoy the ability to use psychological references to the market going down but not attributing the same factors to paying 25% over a fair market value. Are these people trained mental health professionals? Consumer psychology to these pundits only works when it fits their criteria of the world.

@scott,

Thank you for your comments. You said:

“There has not been any real appreciation for the last couple of years in the US because of the dollar's decline in value. Why 2009? Because my guess is as good as anyones. However, you can chart this through many cycles and see that all of the bad news is out now. Is anyone saying anything positive about real estate? Nothing goes up forever, but nothing goes down forever either.”

No appreciation in the US? We must be living in two different worlds. And the dollar has declined but I don't see Europeans buying up Real Estate in Lawndale or South Gage. Is anyone saying anything positive about real estate? You are. And so am I. That is whenever, it is fairly priced. It is not at the moment. What does that archaic term mean? It means when the population of the immediate area has an income to support the current price of a home without using suicidal exotic loans. Like you say, nothing goes up forever. You’re already calling a bottom when we’ve barely reached the peak.

Your quote about Will Rogers is slightly off, he actually said “Buy land. They ain't making any more of the stuff.” Thankfully with modern technology, you can see that there is plenty of land open even in California. Take a look:

No land open here

Need we take a look at Oklahoma, Kansas, or even Arizona? There is plenty of land. If people are willing to pay $500,000 with a 30 year fixed for a 500 square foot box, they should go right ahead. Does it make sense? No. And now we have more transparency in the industry. With sites like Zillow, ZipRealty, and Redfin most consumers can investigate a house on their own. The MLS isn’t so secretive as it once was. It’ll go the way of travel agents. A few select will remain but information is power and armed with these things, people can judge for themselves if we are running out of land.

@john,

It think what you are talking about is building community. Some people have large families and want to stay in a certain area. Others, are so busy working two jobs to make the mortgage, that they don’t have time to build a community or even see friends and family. I’ve notice that in California it is more prevalent than in many states I’ve traveled to. But California has the earning potential for professionals so people do stay here. It is a juggle.

Anon 11:17,

Appreciate the response. You should be able to find some solid deals next year in RC. In addition, with your family income you are in the drivers seat especially if you can save 10 to 20 percent. It’ll put you in a major negotiating position when buying your first place. Common sense isn’t so common right now is it?

@bear cave,

I agree that housing in the last few years HAS been used as an investment vehicle. Not only an investment but a rapid investment in speculation. And your comment regarding high density affordable housing is exactly right. California doesn’t need more housing. It needs more affordable housing. Just look at the median income of the state.

@adam,

Great point about those really owning their home free and clear. What does homeownership really mean? A family paying back $400,000 over 30 years dumping 60 to 70 percent of their disposable income in housing? How is that for pressure? Now say these folks lose their job during a recession and the market is going down? Not exactly a true sense of ownership. If anything, you’ll carry that albatross around your neck.

@anon 12:45,

Puts a person in a Catch-22 doesn’t it. Either you are living in a dream world or a doomsayer. Doesn’t seem like we have a middle ground in this country anymore. Maybe a house is just too damn expensive and even if prices decline significantly, the world will still turn and the sun will still rise. How’s that for a dichotomy?

@anon 3:39,

Here are the 3 images from where they were referenced:

CNN Money

Real Estate Decline

The Economist

These images include data that is public knowledge and the picture is actually used from Federal Reserve data. You are wrong about the net worth chart by the way, it is from CNN Money. In addition, all this data is public knowledge. Unless you are a copyright attorney, here are a few guidelines regarding internet image usage:

: Whether you need to obtain permission from the copyright holder depends on whether your use falls within the "fair use" exception to the copyright law. The law identifies four factors to be considered in making this determination:
• the nature of the use (not for profit educational uses are favored),
• the nature of the work being copied (creative works receive more protection than factual works and new reporting),
• the amount of the work (e.g. journal article, photograph, illustration) copied (fair use usually involves the copying of a small portion of the original works; under certain exceptional circumstances the entire work can be copied under "fair use";
• and the impact on the potential market for the original work (courts treat this as the most important factor - if your use will result in a reduction in sales of the original, it is unlikely to be found to be a fair use). This is a fact-specific case-by-case analysis.

I will make sure to put a source on each picture on my main post. I’ll run this by with a few attorneys. Does any attorney have a definite answer regarding this?

@anon 4:19 and 5:04,

Thank for the comments. I’ll update the main post to reflect this since it seems fair to credit the source - I'm sure most readers realized that the images were not used as a representation of my own work. Otherwise every blogger out there is stealing images left and right. I've seen some of my images on other sites and that is fine.

All,

Interesting things this bubble is bringing up isn't it? People getting pretty defensive about certain things while they could careless about billions of dollars being squandered away via irresponsible credit and lending. Some folks would rather the public be dumbed down and live in the dark. After all, if you can keep someone from going into foreclosure with some basic finance and advice, I'm sure the public would agree this is for the overall good.

But such is the society we live in. A litigious society where a woman trying to commit suicide on a NY subway station actually sued and won because the train injured her. You mean laying on the tracks was going to hurt you? Hence we see labels on irons say, "do not iron with clothes on body."

Somehow the reason I think this blog strikes a cord with many (not all obviously) is because the middle is being squeezed like a turnip. Our voices aren't being represented in the mainstream media. We either have Pollyanna agents promising the world or slanted statistics by a government funded by a strong real estate industry. Where is the sanity and the use of good judgment?

Nope, not a real estate agent, not losing money on...

2007-06-25T17:31:00.000-07:00

Nope, not a real estate agent, not losing money on any houses, not a jackass either.

The graphic and analysis behind it are stolen from the Economist magazine. He didn't even include an attribution--not that that would make it okay (also against the Economist's terms of use and copyright), but it would at least show that he was using it in good faith. He has ads on his blog, so he is using someone else's work for his own commercial gain.

I'm not sure how pointing that out makes me a jackass.

Anon 339PMSeriously...dont be such a JACKASS!Somet...

2007-06-25T17:04:00.000-07:00

Anon 339PM

Seriously...dont be such a JACKASS!

Something tells me that you are either a realtor or banker that is suffering tremendously from the recent housing correction. Are you upset that you actually will have to work instead of lie to earn a living?

Great post Dr.

Yeah, there probably should have been a credit giv...

2007-06-25T16:19:00.000-07:00

Yeah, there probably should have been a credit given if the graphs were lifted from somewhere else.

I still really, really like this blog, though.

Sorry, that's the "Withdrawal Symptoms" graph that...

2007-06-25T15:40:00.000-07:00

Sorry, that's the "Withdrawal Symptoms" graph that's stolen.

Speaking of things that are illegal, it's also ill...

2007-06-25T15:39:00.000-07:00

Speaking of things that are illegal, it's also illegal to steal graphics from the Economist, like your graph of housing and personal income.

Jen is correct:"SELL WHEN IT IS THE TIME TO BUYBUY...

2007-06-25T12:54:00.000-07:00

Jen is correct:

"SELL WHEN IT IS THE TIME TO BUY
BUY WHEN EVERYONE IS SELLING"

But, if you are buying now, you are violating your own rule.
Buy when everyone is truly selling. Haven't you read the statistics everywhere? No one is selling. There are countless listings, but almost no one is actually selling because their houses are not properly priced to generate a sale.
Wait until sales pick up before even thinking about buying - that will mean that prices have dropped closer to equilibrium.

Scott wrote:As to sub prime mortgages, no doubt th...

2007-06-25T12:21:00.000-07:00

Scott wrote:

As to sub prime mortgages, no doubt there were abuses, but they allowed 2 million people to have a chance at owning their own home that would never have had that opportunity.

Pure BS.

For one, the problem is not the FICO score or credit-worthiness of the buyer, as much as it was the investment DEVICES and TERMS that these buyers were offered.

Prime buyers can use I/O loans as easily as a sub-prime or alt-A buyer can, and were offered the same "zero down" and "stated income" loans as anyone else. Brokers were spiffed to offer such devices to EVERY buyer, getting greater kick-backs for it; many prime borrowers were upsold into these devices, too, for the same reason. So let's get THAT straight: it wasn't the buyer per se.

But I guess it all depends on how loosely you want to define what "a chance" at owning a home is.

If you think it includes putting a migrant lettuce picker (who earns $15k a year) into a $750k home, with zero down (and I/O) payments, where the monthly 'nut' is already stretching their budget, then I'd have to argue there's no chance of "free and clear" ownership in the future for them.

Ever heard of saving $ for a rainy day? How are they going to make it, hoping NOTHING goes awry in the next 30 years?

And unfortunately, it's NOT an isolated incident: I've seen MANY more examples where buyers are pushed to their limit, EVEN WITH the exotic mortgage devices.

Well, duh! That WAS the intent of such loan devices: they were called "affordability" loans, as a Classic example of Orwellian double-speak.

These devices actually ALLOWED prices to CONTINUE to ramp higher and higher, as a means to supposedly address the lack of affordability. Of course, the problem is such devices only FUELED the fire of rising prices, allowing them to drive up higher and higher!

Prices and loan terms are NOT isolated; in this bubble, it wasn't interest rates that effected affordability, but the TERMS of such loans.

So Mr. Lettuce Picker buys a house with a speculative loan device in 2006. Such buyers are simply "bag holders", providing the real estate agent and mortgage broker a last opportunity to earn THEIR fat commission off a dying market. The "straw" buyer, whether he understands it or not, is also providing the seller with an opportunity to bail out of a hyper-inflated market at peak, and now the seller is converting the artifically-inflated run-up in price into cold-hard cash so he can be declared as one 'winner' in the Great Housing Bubble of 2000-2006.

The straw buyer is the classic 'greater fool', clueless that they're paying for the privilege of holding a stinking bag of poo, watching the real estate market prices decline in the following years. Hopefully they're learning an expensive lesson first-hand that real estate prices can and DO correct, sometimes kicking in with a vengeance.

I'd say the warning that prices ran UP so quick SHOULD'VE given some buyers cause to consider the same might occur in REVERSE, too. Haven't these people ever been to the ocean, witnessing that tides go both in AND out? They didn't notice the sun rises AND sets?

But anyway, let's go easy on the "allowing Americans to buy their own homes" hyperbole (at least on this site: this site is not frequented by those who just fell off the turnip truck!).

I doubt anyone here falls for such rhetoric, as simply living in an over-priced home for a few months while making minimal (I/O or option ARM) payments does not begin to constitute "buying" a home. The buyer has less chance of EVER owning the home "free and clear", and telling them it does is a complete travesty of the real meaning of the phrase, "home ownership".

Even the Mortgage Banker's Association admits that TRUE "free and clear" homeownership is not "almost 70%" (as is so often hear bandied about), but is about 33%.

From John Robbin's testimony before Congress this year:

"More than a third of all homeowners own their homes free and clear of any lien. Of the remaining two-thirds of homeowners who do have mortgages, three-quarters have fixed rate mortgages. Only one quarter of these borrowers, or about a sixth of all homeowners, have adjustable rate mortgages (ARMs)."

Translated, 16% of homes you see on a given street are being bought with some form of a speculative loan (ARM). However, realize this is NOT the case in high-cost bubble areas like California or Florida: in some areas of these bubble areas, the percentage is MUCH higher, more like 50%. Why? Well, duh: prices are higher, and people use these loans to get in.

FWIW, for those familiar with buying stocks, many of these mortgage "divestment devices" are more analogous to buying stocks on spec.

I saw one description of controlling (notice I didn't use the word "purchasing") a house with a 'zero-down' I/O mortgage as obtaining a stock with a 'put' option: some cynically refer to these types of home loans as "put ARMs'. Very analogous, IMO.

Going into a home with a 'put' option is essentially gambling that it will appreciate: the buyer could then gamble without needing to use any of their OWN money. If it appreciates, then fine. If it fails to appreciate, they just walk away, losing only the I/O payments they've mailed in to cover rent (which can be LESS than rent).

So they mail the keys back to the lender, since they have no "skin in the game". So what about damaged credit? In case you haven't noticed, one's FICO or credit score means nothing nowadays.

So if you think of it in those terms, and don't try to delude yourself with thinking anyone's "owning" the home, but simply "gambling" with it, then it helps explain how the mentality of today's "home buyer" is truly unprecedented and why we're in the current mess we're in.

Of course, one cause of the Great Depression was because many people who had no business gambling on Wall Street were able to do so, with easy credit and buying stocks on puts. Then when values starting sliding, many investors paniced, and the sell-off began.

So now we have a housing market crash underway, with average people gambling with not just ONE $500k house, but with 6-8 houses (talk about leverage!) How can this NOT end badly? Unless the 'winners' are willing to put their money back into circulation, how can the economy NOT slow? The same greed that fueled the investment on the way up will ultimately kill the market once it reverses.

So who's going to cover all that FAKE money that was created and lost?

@ scott:1. Those "two million" suckers trying to p...

2007-06-25T11:33:00.000-07:00

@ scott:

1. Those "two million" suckers trying to put "their foot in the door" were suckers playing a con game. Real estate brokers and agents played the part of the con men and abandoned their fiduciary duties--which they have, mind you, there's this bullshit sentiment that all the burden rests with the sucker even though the agent is legally obligated not to make shit loans that to the best of his professional knowledge and experience will fail--and pimped loans. Alan Greenspan pimped loans; Bush talked about an "ownership society": you had the Fed and the gov't playing the part of the shill in this Three Card Monty. There was a nation-wide project to sell RE loans, with government support, creating a serious lesson in financial hazards. Those people signing loans they could never repay weren't "taking a risk," they and their brokers were dumping toxic waste to turn some quick property and money.

2. A house *is* an investment--more specificially, it is a vehicle for wealth preservation. The problem is that for the past six years they've been treated in many areas as speculative vehicles, and hence rates have risen at 10-20% in some areas, well and above the 300-year national trend of 6%. However, money *invested* in an index fund (which is a pretty safe investment) returns at 9% over the long-term. It's not as safe as owning but it'll compound significantly more and securities are just as transferable as a home. Keep in mind that you can get 5% on cash right now, and it's a hell of a lot easier to buy something with cash than with a house!

Every single bubble always returns to the trend, and right now, prices *are* stagnating. The tables are turning, but it will be months before buying makes sense. Dr. HoBub here has documented this well, what with sellers posting ridiculous prices, some more than 100% what you'd expect for normal appreciation.

Once sellers' moods sour--and they have not--then buy, and buy with both hands.

I also don't believe "all the bad news is out there" yet. Bear Sterns just got hit with a five billion dollar margin call over "financial toxic waste" laregely from housing debt related notes. This is going to get bad.

On the other hand, your call about US real estate having appeal to foreign investors with the fall in the USD is a good call. But you could also say the same about GM automobiles, Boeing planes, and munitions.

3. "They aren't making more land" but you know what they could make? High density affordable urban housing, if the goddamn community boards and zoning regulators would back the fuck off and let developers exercise their property rights.

It's really fun reading this blog. So many people...

2007-06-25T11:17:00.000-07:00

It's really fun reading this blog. So many people just like my family: We like living in So. Cal. for the most part. We love the weather here on Christmas Day. We have kids that need a backyard. We have kids that need a good education. Daily we struggle with questions regarding housing, private vs public schools, and weather or now we want to sacrifice nice family vacations/memories just so WE can pick what color the walls are painted.

Both my wife and I work very hard and will gross about 300K this year. We are renting and don't feel like we will EVER be able to afford a decent house where we want to live in the IE.

I'm renting, dumping as much money as I can into 401K and other investments. I love Jim Cramer (Mad Money TV show on CNBC) and he has helped me learn some of the basics of the markets. And he has helped me make a few thousand dollars over the past few years.

I empathize with you if you are a frustrated potential buyer like me. Yes, psychology plays a HUGE role in real estate, but so SHOULD common sense. Common sense dictates that we rent now and for the next year at least, until the inevitable occurs.

Yes, my household makes a good amount of money, but I don't feel like I can afford one of the new houses in North Rancho Cucamonga. I drove up there yesterday and looked at some of the housing that exists. I also looked at some of the people that live there. I can't help but wonder how the heck they were able to afford their million dollar home. I also can't help but wonder how many of them will have the same address in 2008.

Dr. HB. If you ever are interviewed on the air, let us know when it will be broadcast in the evening. Would like to hear what you have to say.

Real estate is so much about a network, which take...

2007-06-25T11:12:00.000-07:00

Real estate is so much about a network, which takes time to develop. I think if you're new to buying property to start small and begin with friends or family to engage deals.

Overall, I'm wondering how much lower the market can go and if it's a good time for a savvy buyer to come in and buy property. But again, I think it's key to buy in areas you know or have family and friends. I grew up in Idaho and now live in the Bay area, but have been thinking about buying property outside of Boise.

All of your comments have merit except for the fac...

2007-06-25T10:55:00.000-07:00

All of your comments have merit except for the fact that owning a home was first and foremost not intended as an investmnent, but as a place to live, to raise a family, and call your own instead of having to deal with a landlord who could move you out. You could build equity over time, maybe pass it on to your family.
It sounds like most of you don't own a home for whatever reason. Those 2 million folks that wanted a home of their own were willing to take the chance to get their foot in the door.
You also forget that while real estate is "local", we are now a world economy that is not immune from whatever is going on in the rest of the world. US real estate looks "cheap" to foriegn investors, especially when taken in the context that the dollar has fallen in value against many of the world's currencies. There has not been any real appreciation for the last couple of years in the US because of the dollar's decline in value.
Why 2009? Because my guess is as good as anyones. However, you can chart this through many cycles and see that all of the bad news is out now. Is anyone saying anything positive about real estate? Nothing goes up forever, but nothing goes down forever either. With interest rates rising, those people waiting for prices to drop before they buy, a rise in interest rates will negate most price declines as far affordabilty goes, do the math. As Will Rogers said about real estate "They aint making any more of it".

OMG....classic! The hubby just forwarded this to m...

2007-06-25T10:46:00.000-07:00

OMG....classic! The hubby just forwarded this to me from Salon.com:

No One Wants To Buy A Home. Whose Fault Is It?

At the end of May, 4.43 million "existing homes" were available for sale in the United States . That's the largest such number ever recorded. At May's existing home sales rate, it would take 8.9 months to burn off the excess inventory. That's the highest figure for "months of supply" since 1992, at the tail end of the last big housing downturn.

The immediate import of the numbers is unarguable. The median sales price for existing homes has declined for ten straight months and will continue to do so. This is good news for buyers still waiting in the wings, but may not be the best tidings for the larger economy.

But what about those would-be buyers, cautiously watching the carnage from the sideline?

Lawrence Yun, the staff economist for the National Association of Realtors who has replaced our favorite whipping boy, David Lereah, as the Man Who Must Be Quoted in all stories about the real estate market, complained that the housing market was "under performing," given what he considered the general overall health of the economy.

"Psychological factors," he said, explained buyer reluctance to jump into the market at the present time.

How Yun and his ilk are able to cite "psychological factors" as the reason for anything is an exercise in tautological meaninglessness that continues to baffle How the World Works. If you're going to blame consumer psychology when the market is headed down, then in all fairness you should blame it when the market is going up. But, back in the go-go days, we never heard anyone from the National Association of Realtors say anything along the lines of: "The real estate market over performed this month, as home buyers, irrationally convinced that home prices would continue to appreciate beyond all rhyme or reason, stepped up their splurging on new and existing homes, rashly confident that they would be able to sell their purchases at a 25 percent markup in just one year."

Psychological factors are always in play, whether a market is going up or down. We've been giving Yun a chance to establish some street cred, but with each whine about buyer psychology, our willingness to give him the benefit of the doubt takes another hit.

-- Andrew Leonard, Salon.com

All,I was contacted by Talk of the Nation, a show ...

2007-06-25T10:06:00.000-07:00

All,

I was contacted by Talk of the Nation, a show on NPR to discuss the issue of "should I buy today?" Unfortunately, they must have contacted several other housing bloggers and I was a few minutes too late and another blogger beat me to it. Either way, I encourage you to listen in today at noon: NPR Talk of The Nation

It'll be interesting to see which blogger they put on the air. Glad to see more of the media reaching out to different sources for housing news. Given that many people are questioning buying right now, I think this may provide some useful information.