Bottom of Market will be in 2011 or later

[powayseller]

As much as we all want this downturn to bottom in 3 years, I have to remind myself that the last one took 5-7 years.

The exotic loans are just as popular today as they were in 2004 and 2005, according to the media reports. Although loan applications are down 30% from last year (Calculated Risk), the dollar volume of MEW is just as high as last year. We’re still seeing most purchases made with exotic loans.

On SoCalMtgGuy’s forum, one lender wrote, “I am doing two no-doc pay option arms right now. Can you believe that, a true no-doc pay option arm? ”

With MEW and exotic lending still high, we’re continuing to create loans that will go bad in 5 years. If we have a large crop of loans going bad in 2011, then the trough couldn’t be any earlier.

[anxvariety]

This seems like it could be alot more serious than the 80s… does the “shock” add a few years?

In the 18-25 bracket there will be some serious consequence.. think about all the kids that opted out of school to go into real estate.. what are they going to do? Go back to school?

[4plexowner]

There are two economic factors that will play into the real estate bottom:

1. In 2008 the leading edge of the 78 million baby boomers will be 62 yrs old and eligible for early Social Security benefits.

2. In 2010 the boomers will be 65 and eligible for full SS bennies. They will also be eligible for Medicare and the prescription drug benefit.

The Social Security ‘Trust Fund’ is empty. Mr Bush admitted that to us in a 2005 speech at the Univ of West Virginia where he said, “There is no trust fund – just IOUs.” (he was trying to sell us on the ‘privatize SS’ idea at the time)

The boomer retirement will have a huge financial impact on this country.

Remember that many boomers are counting on the equity in their homes to fund their retirement.

It is possible that another glut of houses could come on the market in 2008 / 2010 as the boomers try to retire. The boomers could be dumping houses for the whole decade.

All we can do is wait and see how everything shakes out.

I am telling my friends and family that 2009/2010 is the earliest that I will be buying anymore real estate.

[powayseller]

4plexowner, if the consider that boomers will sell their large homes in favor of smaller homes and condos, couldn’t it take decades to absorb the glut of larger homes? Wouldn’t that have a downward pricing pressure on real estate for decades?

One of the first questions I asked my financial advisor in my 20’s, which she dismissed was, “if the stock market prices go up due to demand, and demand is greater due to boomers putting money into the stock market, what happens in early 2000’s when the boomers take their money out: wouldn’t that make the stock market prices go down? So in my prime working years, as I am putting money into the stock market, boomers are taking it out and lowering the price?” I still think it’s a valid question.

Your dumping-houses statement reminds me of the dumping-stocks question. How much will the boomer retirement affect the real estate and stock markets? Perhaps not much; perhaps they will need to keep working. I wonder how many boomers will truly retire like the previous generation did. According to the Frontline story, the new trend is for boomers to keep working, even part-time, long into retirement, since they lost their pension funds and too much in the 2000 stock market crash

[4plexowner]

Wall street is looking for a new supply of suckers (oops, I mean money) to replace the money that the boomers will be pulling out.

This, IMO, is the biggest push behind the ‘privatize social security’ idea.

If they can sell the American sheeple on this idea, some or all of the new money going into Social Security will go directly to Wall Street and equities.

Another way of replacing the money that boomers are going to pull out of the markets is by offering amnesty to the 30 million illegal (oops, I mean undocumented) aliens currently in this country.

The push towards amnesty is going on right now.

From what I have read, all of the legislation currently being planned to address the illegal immigration issue includes some form of amnesty for these criminals (that’s right, criminals!).

30 million new people who can be sucked into the social security game, coerced to pay income taxes, etc.

~

What are we going to do with all of these 3500+ sqft houses?

Now that’s a good question.

Matt Simmons is predicting that the current production of 84 million barrels of oil per day will drop to 20 million by the year 2020.

How much will energy cost at that point?

How many Americans will be able to afford the heat and A/C for 3500 sqft of housing?

Maybe the tree-huggers will do us all a favor and start burning down any house over 2000 sqft.

Now that would be creative destruction!

Some of the 3500+ sqft houses will be ready for tear-down before they are 20 years old. Talk about low quality trash! And people are paying $800K to $2 mil for this stuff! It’s mind-boggling!!!

[PerryChase]

4plexowner, if undocumented immigrants, if legalized can earn enough to start investing in the stock market and housing, would they not be a plus to our society and economy? At least they would help feed the retiring baby boomers.

“Tree Huggers” have supported higher density urban developments and mass transit for a long time. Are you saying this strategy is good in a world of scarce oil and increasing polution?

[4plexowner]

Unfortunately, anyone that becomes an American citizen is eligible for Social Security, Medicare, Aid for Dependent Children, food stamps, etc.

We also don’t let anyone die on the curbs in America so all of these people would have access to free healthcare by showing up in a hospital emergency room. (this may already be true – can illegals go to the emergency room? – how do they have their babies in our country?)

I don’t have a problem with hard working people coming to America LEGALLY and contributing to our society – but that is not what the current push for amnesty is about IMO.

~

Yes on high density and mass transit.

I was in Vancouver recently. Lots of high-rise apartment and condo buildings and almost no freeways!

[carlislematthew]

Unfortunately, anyone that becomes an American citizen is eligible for Social Security, Medicare, Aid for Dependent Children, food stamps, etc.

True, but only AFTER you’ve contributed 40 quarters of work (and taxes) into the system.

I agree with you on the healthcare issue though – that one’s difficult to solve without letting people die on the streets. Hardly something a civilized society would want to happen, but a problem all the same.

[powayseller]

4plexowner, could you elaborate on your knowledge of trashy construction.

[PerryChase]

I also love Vancouver. The drive up to Whistler ski resort is beautiful.

Did you know that Vancouver revived its economy thanks to well-to-do Chinese immigrants in the late 1990s right around the time Hong Kong was being returned to China? I beleive that anyone who brings $100,000 into Canada can have legal residency and eventual citizenship. Canada has a policy of welcoming prosperous immigrants, especially from the Commonwealth.

America has a similar program also but the investor must bring in $1 million and create 10 new jobs. Investing in the stock market won’t do.

We maybe able to solve our retiring boomer problem by welcoming rich immigrants. The Chinese are very hard working. In one generation, they built HK and Singapore to a higher per capita GDP than Britain, their former colonial masters. That will also bring in tons of willing and able home buyers.

Yes, anyone can show up at an emergency room and be treated. There’s a federal law requiring treating all emergency room patients regardless of ability to pay. That’s only a one time treatment, there’s no follow-up to chronic diseases at the doctor’s office.

[4plexowner]

Here are some links inre defective new homes:

http://www.defectivehomes.info/

http://extra.orlandosentinel.com/buildingproblems/

http://www.houseorapt.com/tollbrotherstruth1.html

http://www.consumerreports.org/cro/personal-finance/shoddy-home-construction-104/overview/index.htm

http://www.complaints.com/directory/2005/january/5/35.htm

~

I don’t have personal experience with construction defect issues.

I do have lots of experience dealing with plumbers, handymen, painters, carpet installers, window installers, etc – all the services needed to keep rental property in tip-top shape.

I was continually frustrated and amazed at the low quality workmanship I got for my money. Even more amazing to me was that nobody cared whether I had one unit or twenty – I still got the same half-ass work.

I have to assume that the same thing occurs in new housing construction.

~

One of my properties was near NTC / Liberty Station so I kept a close eye on the development there.

Navy records show 50-60 toxic hot spots on the property and there are questions about how well these sites were cleaned up.

The most telling point to me is that McMillan trucked in six feet of clean topsoil before building on the home sites. Wouldn’t want anyone to test the soil in their front yard now would we?

McMillan told the city that he needed the extra height so the sewage would drain which is interesting since none of the historic buildings are being raised but I assume they will have bathrooms in them???

Here’s a website that tracks ongoing issues at Liberty Station: http://www.ntcsd.org/ – spend some time at this site if you want to see how badly the city and McMillan are screwing the public on this deal.

~

I think there is a bigger issue that ties into poor workmanship and low quality construction and that is that Americans have developed a sense of entitlement.

Many people seem to think that they are entitled to a middle-class (or better) lifestyle without working or certainly without working very hard.

I’m not sure how we address this issue. I think it will take another depression like the 1930’s to wake people up.

If I was in charge of this country I would institute a “No Work-y, No Eat-y” program. “You no work-y, you no eat-y.”

[sdduuuude]

4plexowner – haven’t seen you here in a while, and I only check in occasionally now. Glad you are back! You are crazy, amusing and insightful.

I am soooooooooo with you on this one:

“Americans have developed a sense of entitlement.”

[bgates]

Perry – “There’s a federal law requiring treating all emergency room patients regardless of ability to pay. That’s only a one time treatment, there’s no follow-up to chronic diseases at the doctor’s office.”

What prevents the uninsured from coming back to the ER for treatment of the chronic disease?

[PerryChase]

“What prevents the uninsured from coming back to the ER for treatment of the chronic disease?”

Because emergency room is for emergencies. Say that you have cancer but no current symptoms. You need ongoing medication. If you showed up at the emergency room, they would tell you, sorry, but you need to make an appointment with at a doctor’s office. Also, say that you have sexually transmitted disease of some kind with no current symptoms but you need medication to control it. They would also tell you, sorry, no can do. If you have an infection, they’ll give me meds to control that infection but subsequent follow up until your next infection.

The emergency room is for treating obvious symptoms that need to be taken care of right away. No current symptoms = no treatment.

The end result is that we have millions of people in this country walking around with who knows what kinds of diseases. Those diseases are incubating unchecked in those people, waiting for the opportunity to spread. The people affected are not just illegals but legals and citizens alike (all those with no health insurance).

[powayseller]

Excerpts from today’s NYT:

“In San Francisco, Marc Geshekter, a broker with Residential Pacific Mortgage, said of his ARM customers: “A lot of them are just taking out a new five-year ARM at 6 or 6.25 percent rather than taking a chance on the current loan adjusting upward. Maybe they had a three-year ARM before, so they’re opting for a slightly longer-term loan because they’re wishing they had a few extra years now.”
[So some borrowers are able to prolong the inevitable…]

[…while others are stuck in depreciated homes]
“Mr. Parnell used an example of buyers who had used ARM’s to buy homes in new developments last year, only to be facing payments they cannot afford. They would sell their houses to rid themselves of the loan, but the builders in those developments are selling off the last of their new homes for much less than what buyers paid last year, leaving the buyers with ARM’s little choice but to drop their resale prices sharply to compete.” They give an example of a homeowners whose $410K house (purchased 4/05) is now sold by the builder for $325K!

The story describes one borrower who refinanced into a fixed rate loan, erasing all the savings she had from her ARM for 3 years.

– NYT, 9/26/06

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