The housing market...

THC · August 2007

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?

spiral out · August 2007

Hasn't the housing market been on a downturn for a while there?

jlew24asu · August 2007

Word of the Year 2007 - subprime

THC · August 2007

jlew24asu wrote:

Word of the Year 2007 - subprime

what does that mean exactly?...i'm a tad confused on how this all works...

Indifference · August 2007

THC wrote:

what does that mean exactly?...i'm a tad confused on how this all works...

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.

even flow? · August 2007

When you lend people you know can't handle the loan amount, you are not only a fucking idiot and your institute should be audited, but you are just asking for trouble.

And it is not the inflated value of the house it is the ground it is built upon.

know1 · August 2007

even flow? wrote:

When you lend people you know can't handle the loan amount, you are not only a fucking idiot and your institute should be audited, but you are just asking for trouble.

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.

even flow? · August 2007

know1 wrote:

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.

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.

Hartydog · August 2007

I think the correction is going to steepen. one thing that has been going on in the market is rates on jumbo loans have gone up about 0.75% in the last couple of weeks. A jumbo loan is anything over $417,000. In a lot of places in the country you can't find a house for less than $417,000. With a jump that big in such a short time some demand is going to dry up quickly.

Pacomc79 · August 2007

I am loving the overinflated housing market coming back just before I'm ready to buy a house.

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.

Pacomc79 · August 2007

spiral out wrote:

Hasn't the housing market been on a downturn for a while there?

not at all, it's been insanely booming in growing areas of the country.

THC · August 2007

Pacomc79 wrote:

I am loving the overinflated housing market coming back just before I'm ready to buy a house.

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.

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!

Abuskedti · August 2007

even flow? wrote:

When you lend people you know can't handle the loan amount, you are not only a fucking idiot and your institute should be audited, but you are just asking for trouble.

And it is not the inflated value of the house it is the ground it is built upon.

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.

given2fly78 · August 2007

even flow? wrote:

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.

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.

inmyrvm · August 2007

adjustible rate's have been hurting people too, causing them to default. and i agree the inflation on housing has been ridiculous.

even flow? · August 2007

given2fly78 wrote:

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.

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.

Pacomc79 · August 2007

THC wrote:

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!

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.

Abuskedti · August 2007

The banks and the real estate agents and the lawyers work together to inflate the values. Its in all of their interests..

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

beachdweller · August 2007

THC wrote:

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 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.

Jeanie · August 2007

Things are much the same here in Australia.

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:

g under p · August 2007

I can tell you where it's not hurting in the playgrounds of the wealthy and rich. I work in Palm Beach, FL 6 months per year and houses/condos there are selling anywhere from 2 mil to 15 mil easy. It goes up every season they call it an investment, they hold unto property and sell it when they're ready and they make a mint of money.

Peace
Earle

The housing market...

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