The housing market...
THC
Posts: 525
There has been some discussion about the economy in the cramer thread. But what i wanted to talk about is the falling housing market. its hurting the economy...and my own take on it is that it is too inflated. The price of homes has gone up excessively high the last several years...and I think the market is just adjusting to that. A home that was $200,000 5 years ago is now $450,000. I just don't think these homes are really worth that. And I think it is beginning to show. People are defaulting on their massive mortgages...and banks are being left w/ a house they don't know what to do with. I think this is really the basis for a lot of the scare...and the market going into somewhat of a downturn.
I'm not an expert by any means...but it is clear the housing market is hurting...what are people's thoughts?
I'm not an expert by any means...but it is clear the housing market is hurting...what are people's thoughts?
“Kept in a small bowl, the goldfish will remain small. With more space, the fish can grow double, triple, or quadruple its size.”
-Big Fish
-Big Fish
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The economy has polarized to the point where the wealthiest 10% now own 85% of the nation’s wealth. Never before have the bottom 90% been so highly indebted, so dependent on the wealthy.
what does that mean exactly?...i'm a tad confused on how this all works...
-Big Fish
Subprime lending, also called "B-Paper", "near-prime" or "second chance" lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history. Subprime loans or mortgages are risky for both creditors and debtors because of the combination of high interest rates, bad credit history, and murky financial situations often associated with subprime applicants. A subprime loan is one that is offered at a rate higher than A-paper loans due to the increased risk.
Subprime lending encompasses a variety of credit instruments, including subprime mortgages, subprime car loans, and subprime credit cards, among others.
Subprime lending is typically defined by the status of borrowers. A subprime loan is, by definition, a loan made to someone who could not qualify for a more favorable rate. Subprime borrowers typically have low credit scores and either a limited credit history, or histories of payment delinquencies, charge-offs, or bankruptcies. Because subprime borrowers are considered at higher risk to default, subprime loans typically have less favorable terms than their traditional counterparts. These terms may include higher interest rates, regular fees or an up-front charge.
Proponents of the subprime lending in the United States have championed the role it plays in extending credit to consumers who would otherwise not have access to the credit market. [1] But opponents have criticized the subprime lending industry for predatory practices such as targeting borrowers who did not have the resources to meet the terms of their loans over the long term. These criticisms have increased since 2006 in response to the growing crisis in the U.S. subprime mortgage industry, wherein hundreds of thousands of borrowers have been forced to default and several major subprime lenders have filed for bankruptcy.
SHOW COUNT: (164) 1990's=3, 2000's=53, 2010/20's=108, US=118, CAN=15, Europe=20 ,New Zealand=4, Australia=5
Mexico=1, Colombia=1
And it is not the inflated value of the house it is the ground it is built upon.
I tend to think the responsibility is more on the consumer than the lender. If the lender makes a bad loan, they are going to be punished for it financially. There's really no need to audit them.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
How are they going to be punished? Stuck with the property? Do you really think that a bank or down there one of the fly by night institutions that pop up on any street corner actually loses when they lend to somebody who they know is a risk. Come on know1. If you are lending to somebody you know probably is going to not be able to pay, why would they lend in the first place. The banks never lose. Ever! Funny that they are one of, if not the best stocks year in and year out.
Okay an audit is a little harsh.
Ft Worth 9-15-23
Hartford 5-13-06, 6-27-08, 10-25-13
Mansfield, MA 6-30-08, 6-28-08, 7-2-03, 7-3-03, 7-11-03, 8-29-00, 8-30-00, 9-15-98, 9-16-98
Worcester 10-15-13, 10-16-13
The ridiculous interest only loans and predatory lenders out there have brought this on themselves. Too many people buying houses they can't remotely afford, many because a loan salesman talked them into it.
There are a great many 600,000+ dollar homes in this area that are built like shite.
not at all, it's been insanely booming in growing areas of the country.
totally agree....These $600,000 homes are nothing but sheetrock and vinal siding...whipty doo....not remotely close to worth that much. I'd much rather go for an older, better built home...that costs a hell of a lot less...
and I agree...all of a sudden...everybody and their mother's were buying 3/4 of a million dollar homes..and they were not millionaire's...bubble..was bound to burst!
-Big Fish
this is amerca.. they average it out... estimate the percentage of forfeitures and their costs - vs the benefits of the loans that are paid off - or sold.
They use the data that is available at the time... When things change - the individual granting the loan and those not paying are protected by bankrupcy laws.
Our entire economy is reported based on information available at the time they are created. Sadly, much of that information can change dramatically. our economic picture is painted with yesterdays paintbrush.
Anything can happen.
Absolutely they lose. Just look at America Home Mortgage that just went under. They lost big time. And they are a BIG LENDER! Lots of Mortgage Companies are hurting right now. The blame isn't just on the mortgage companies, but the realtors who upsell and most importantly THE CUSTOMERS!
Especially when it comes to the subprime. Clients can't WAIT! They don't want to clean up their credit so they can go A paper - that takes WORK! They want instant gratification. They want to buy more than they can afford! People need to be responsible for their actions - this "oh the bank said it was OK" is BS. A person should know whether or not they can afford their mortgage payment. You have some responsibility before you go to closing to know exactly what you are getting yourself into.
I mean, a lot of the subprime borrowers want 100% financing, have bad credit, need the seller to pay closing costs & taxes and buy more than they can afford.
They are out of their mind!
We all knew that the housing market would slow down. It's cyclical, just like everything else. And it should come down to "realistic" values. A starter home at $300,000 is crazy. It's unaffordable. Especially, when you consider taxes and insurance into your payment.
But banks lose and so do the A paper customers. Guidelines are changing, tightening up, programs are being pulled, the ability to do Grant Programs and things of the like are going to be very tough.
I find this whole situation to be very interesting, but very sad. Because it was preventable to a certain extent.
Albert Einstein (1879-1955)
I saw Hard To Imagine LIVE at MSG!
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I like the fact that you lend money down there to people who can't afford a down payment. That leads to problems and should never be done. You can't tell me with a straight face or type that the lenders actually care. If they did and your government surely did there would need to at least 5% down to prove you got some money. Being from north of the border, I have only started to see the no down payment bs up here. They better learn quick from the huge mistake down there before we go down the same path.
Just goes to show that too much freedom ie: any schmo can lend money will just lead to a problem.
Nothing like going to a house that is 3500 sq/ft or more and seeing no furniture.
That's what I'm saying, I'm relagating my self to the fact that I'm just going to have to do a ton of work. I make respectable money, I've saved for a down payment and I'm just looking for a decent place on a half acre or so to spend 150-200K on. I'd prefer around the 160's that way whatever my payment is I can have plenty of extra money for work on the house without taking out another loan, then later, after I sell my improved house, then I can afford a lot nicer place if I want.
When these 600K places look like larger versions of the 150K townhomes I was living in, (sheetrock, no level walls, crappy cheap tile, aluminum fire places etc) what the hell. Does no one care about value???
Give me 1200-1800 SQ feet of solid, anything else is too much to heat and cool anyway.
Real Estate Agents are a drain on our economy - they produce nothing.
We deliberately complicate lives to secure a way to squeeze money from the big pie..
its one of the millions of underground governments
silly really
I agree that some major adjustment is needed. The market is looking scarey, but isn't busted yet, not sure which way it will go. The problem is after 9/11 there was a mega surge in adjustable morgages, and after 5 yrs, if you haven't sold, your morgage payment can get ugly, and it's at the same time as this lull in housing sales, or even worse, in ability for many to get a morgage, keeping housing sales from going through.
It has started, not sure how bad it will get, but a huge jump in people losing their houses is happening cause they can't sell them in time, and can't make their payments due to the rise in their adjustable morgage rate...I have a few friends in the morgage industry, and they are really worried.
I think the next 90 days could tell a lot about where this might go over a longer period.
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And I saw a report on the tele the other night that said that housing has become so scarce and so expensive in Japan that people are buying homes and the debt/mortgage is now being passed on to the grandchildren to pay off. :rolleyes:
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though at a much cheaper investment, this is a problem in Silicon Valley. the rich buy houses at a higher price than the surrounding homes, rent them at a high price, and the whole neighborhood is a mess because of it. High rate of homes as an investment in my area.
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And it kills me to read these articles with people boo-hooing about how their payments are increasing, they can't afford it, ect. Don't think I'm not sympathetic because it sucks, but where were you during your mortgage process? Were you not paying attention? Did you not realize it was interest only? That each month you were not paying down your principal balance? That your interest rate would change after the fixed period was up? You are given a lot of information and paperwork - do you not read it? Do you just sign blank? It's a HUGE transaction!
Rates were super low and you didn't go into a fixed rate? You were looking at the super low rate of an ARM and didn't think about the future? Just about how much home you could afford? Customers have a responsibility to know what they are getting themselves into. Just like a car loan, credit cards, warranties, ANY PURCHASE!
And don't get me wrong, there are horrible mortgage consultants out there - who are just in it to close the deal. Who are looking to please their business partners (IE Realtors, Lawyers, referral sources) and make the customers happy. But suprisingly enough, there are consultants that DO stop clients and have them THINK about what they are getting themsleves into.
Sometimes what you can afford on paper and in reality are two different things. Eating Ramen Noodles in your unfurnished McMansion isn't the way to live.
This housing issue really bugs me - where I live I don't think it's going to affect us very badly. We don't have a very high house price (taxes are out of control, but that's another issue) but it's definately becoming a buyers market. I'm still seeing people out bidding one another and homes selling within a few days of being listed. But the bigger markets will and have been directly affected. And it will hurt all of us in the end. Especially first time homebuyers who sometimes need the extra help getting into a home and it may not be available due to the tightening of guidelines.
Albert Einstein (1879-1955)
I saw Hard To Imagine LIVE at MSG!
Option arms are bad in pretty much any and all possible situation (with very few exceptions). A couple companies have a more secure option arm program, which is a little better.
The problem is these mortgages were given to first time home buyers, depreciating areas, or people with bad credit. Its not the loans- its who they were given to. I think the Subprime issues play a much greater role in this problem than adjustable rates.
And its also been touched on in this thread a little... but ill expand a bit. I blame the builders for this mess more than anyone else. I live in the detroit area, which has been in recession for about 7 years now... The problem is, they dont build new small homes anymore. EVER. I cant remember the last 1 story, 900-1200 sq foot house i have seen built around here. Its all the 3500 2 story homes with breakfast nooks and "great rooms." that cost between 350-600K. No new homes are built for the 75-150K that most kids can afford when they get out of school, so they overextend their incomes to buy these insanely large homes, because frankly, finding a decent smaller one is a pain in the ass.
I completely agree with the fact that there is a time and place for an ARM. If you are being relocated or don't plan on being in the home for X amount of time than yes, a ARM is the perfect option for you. If you can be dedicated and put money towards your principal balance each month especially, it's worth while. If you are in a position where you KNOW you will be making more money in X amount of years - (residents, engineers, apprentiances) it's a great alternative to a fixed rate because the payments will be lower. But a mortgage needs to be looked at as a financial tool, not just a way to get into a home.
Of course, the subprime market has affected this badly, but so has the Interest Only/Low payment option/Option ARM stuff. It's just as bad. A lot of the subprime borrowers were put into 2 or 3 year Adjustables and NOW they are being hit with huge increases and can't afford the payments - hence the forclosure rates going through the roof.
I will say the margin of income for builders in my area is not what it used to be years ago from what I understand. I do see your point as I live in a declining market myself (Central New York). As a matter of fact, right by my house is a new development of "starter" homes for $150k and up and they are of shoddy quality and the resale is terrible for this particular builder. But again, it comes down to the buyers doing their research. They see New Construction cheap and are pumped. You pay for what you get.
I just see a lot of times people live beyond their means, push to qualify for more, get upset when they can't afford the big house of their dreams, don't think beyond the moment or take pride in their finances. Get caught up in "keeping up with the Joneses" or whatever. Whether it be the house, BMW, Vacation, ect.
Especially the refi boom, cash-out, cash-out, cash-out. I think we're going to see a lot of sellers going to closings with checks because they owe more than they can sell their house for. That's scary too!
Albert Einstein (1879-1955)
I saw Hard To Imagine LIVE at MSG!
I agree, but good marketing overcomes intelligence in this country far to often. Also, I think an adjustable rate situation allows many people who couldn't get a mortgage approved, get one approved with less down, lower credit etc...they don't think the whole thing out. If you can get a house, with this market the way it was, then you look at selling at 4 or 5 years before the adjustable rate kicks in, at what 5 yrs?, and then with the equity you take from the sale, you are in a better position to buy a home with a fixed rate. That's how it has been marketed to some people, and they jump at the chance.
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Oh, and I'm still trying to figure out what a real estate agent does to get 6%? Anyone know?
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LOL, 6% is sick, isn't it? It's usually about 7% here. See if your agent will do broker opens (sponsor a luncheon where just agents come to look at the house to show their clients).
Open Houses on weekends? Ads in the paper? Showcase on their website? Do an open house and throw a BBQ.
Offer some creative stuff. Like a seller credit? Say $2,000 towards closing costs. Or get a home inspection done for a potential buyer to save them the money & time. (plus, you will see what a home inspector may call out on your home and you can avoid haggling price or things to fix)
See what comparable homes are in your area and look for "special" perks sellers are offering. Maybe they aren't offering anything and that will make your home or offer stand out more!
Albert Einstein (1879-1955)
I saw Hard To Imagine LIVE at MSG!
They sign the contract along with the seller who agrees to give them that much. If you don't want to give them 6%, don't.
...are those who've helped us.
Right 'round the corner could be bigger than ourselves.
If the market was different and they sold your house in a weekend you would be saying the same thing. Someone else already pointed out if you don't believe in the services don't use them. As a real estate agent I have no problem turning down listings of people who cannot see the value in using a broker. Fortunately, here in NYC I don't have to worry about the market (now or anytime in the near future) as it is as strong as ever even with the recent mortgage crisis. I could list why I'm worth 6% to you and what I do for the money, but it would be best for you to ask your own agent if you're having trouble understanding the value of their services. BTW I sometimes charge 8%
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