LA Times: Bad Outlook for homeowners

[kev374]

Looks like the mainstream media is finally telling it like it is…

http://www.latimes.com/classified/realestate/news/la-re-qa2sep02,0,5257007.story?track=rss

[bsrsharma]

Finally the unmentionable words are being spoken!

It’s going to be very bad news. People will see large drops in the prices of their homes…..This is worse than the 1990s’ recession — Losing $150,000 on a home will affect their living standards for a long, long time.—-California is very vulnerable.—I don’t know how we can avoid recession—

[LA_Renter]

The interesting thing about this article is that it was written by Diane (hurry up and buy now or you will be priced out forever, Cal RE never goes down) Wedner. Most of her reporting has had very permabullish themes. Interesting that the format was in a question…answer form. This is probably one of the hardest hitting straight forward pieces I’ve seen from the Times and it came from Diane. Way to go Diane…welcome to reality.

[JWM in SD]

From Diane Wednar to me circa June 2006:

from “Wedner, Diane” hide details 6/5/06
to
date Jun 5, 2006 12:18 PM
subject RE: Purchased any Resisdential Real Estate Lately??
mailed-by latimes.com

Mr. Moss,

Thank you for your obviously strongly felt letter. I’m afraid you’re mistaken on all accounts, though. I wouldn’t publish census statistics without spending hours poring over them, which I did, of course. With the Times’ key census tracker. There are, indeed, more Southern California residents leaving the area for other states than are coming in from other states. And I mention that clearly in the story. But the number of births, compared with deaths, has added significantly to our ranks, as well as international immigration (they’re not all “from the south of the border,” either, as it turns out). Our population is growing, not shrinking. And I compare statistics in the story from 2000, not “the last couple of years.”

I stand firmly by my story and its findings, which were well-researched and triple-sourced, as always.

Sincerely,
Diane Wedner

What a difference a year makes. 🙂

[SD Realtor]

The article was okay but I did NOT like the suggestion of allowing the homeowners to stay in the home and the banks become landlords. If anything all that would do is prevent REO properties from hitting the market and bringing prices down which is the natural progression needed to pop the bubble. In fact even though the homeowner essentially loses the home, they in essence get a reprieve because they now get to live in the home. So they lost the home, big deal… what if they financed 100%?

They should move out and go find a rental just like everyone else.

SD Realtor

[JWM in SD]

“They should move out and go find a rental just like everyone else.”

Agreed.

[bsrsharma]

What is the difference SD? Bank owns the REO and the ex-owner now rents at $1000 per month instead of paying $3000 per month mortgage. Banks/dumbvestors get stiffed. No bill to taxpayers. Housing for ex-owners. Everybody wins (well, almost). Banks/dumbvestors take a bath. What is there NOT to like. Once bitten, the lenders will demand upwards of 40% down payment for any purchase. Debt bubble completely cured. Time to celebrate!

[NotCranky]

….. which is the natural progression needed to pop the bubble. In fact even though the homeowner essentially loses the home…
SDR
Besides this comment I have seen some post about how various bail out schemes are apparently causing you some distress.
There is no way that affordability is not coming back. All this stuff about helping debtors isn’t going to change that, perhaps it modifies the course slightly but that’s it.

IMO the important thing is how is affordability going to return.

[Sandi Egan]

There is no way to avoid the huge burst and 50%+ price correction. There was a bubble, it is exploding, and somebody will pay for it. The only question is: Who?
Possible answers:

– Borrowers
– Lenders
– MBS holders
– Government a.k.a Taxpayers

The right answer, of course, is that all of them will chip in.

As long as the taxpayers’ share is small, I am fine with it. And that share will be small, insignificant compared to the size of the bubble. The government needs budget money for its own pet projects. There is no way they are going to waste it to help average greedy homeowners or greedier investors. Moreover, the government does not have nearly enough money to bail everyone out, so they can’t do that, even if they really wanted to.

Thus, any government activity will end up redistributing responsibility one way or another. In the worst case, they will drug the process for a couple of years longer. But nobody can change the net outcome.

The more noise there is around housing issue, the worse the panic is going to be. And panic is the one thing that can quickly bring the prices down and below reasonable levels. Every time a politician with a grave face talks about housing crisis, I just feel the panic growing nationwide…

[Fearful]

“Change the rules of foreclosure. Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser. And they can stay indefinitely. The bank will own the house. This isn’t a windfall for the homeowner. But they’re not on the street. Whoever buys the house would have to deal with the renters, letting them stay.”

I see this as accelerating the price declines and double punishing the banks. One, they are forced to write off the loan, and two, they are forced to try to sell the REO with unhappy renters – worse, folks who probably feel some sense of entitlement to the house – attached. Furthermore, these houses would only sell to investors, not for owner occupied. Hard to quantify but I bet the discount would be substantial.

Man this whole thing is gonna get ugly. Thank god I am a renter; my only fear is that our government hyperinflates itself out of this situation … on top of how sour the public sentiment will become.

[NotCranky]

“my only fear is that our government hyperinflates itself out of this situation”

This is my concern too.
Feel free to help me understand:
What I believe happens in the hypothetical “hyperinflation” is that savings get slammed. House prices will become affordable with inflation catching up to them. The rest of the world is really pissed because of the dollar being reserve currency. Imports go up. Everything goes up.

Thanks in advance for any clarification.

This is what a very old(experienced) RE investor, friend of mine, thinks is going to happen. For what it is worth he was an adolescent during the depression and doesn’t think we are going to have one.

[Anonymous]

The worst is probably 18 months out or more…when the forecloser-generated 1099 pop tens of thousands in tax bills and penalties on a huge number of people.

It has the potential to create a class of serfs indentured to the federal government for years.

[JWM in SD]

No Rustico, that can only happen if inflation makes its way into wages. That is the key and will not happen unless you really believe that we will all get a 100% raise virtually overnight. I assert that your job will be quickly outsourced if it suddenly requires that you need twice the salary to meet living expenses.

This is called pushing on a string because the Fed cannot control where the excess liquidity will go.

Deflation is where we are headed. The hyperinflation in a sense has already happened in the form of M3 credit resulting in the .com and RE bubbles.

[sdrealtor]

Who says we need 100% raises overnight? In a hyperflation scenario played out over 4 to 5 years, wages could increases 5 to 10% per year and it would go a long way toward rebalancing if accompanied by modest declines.

[bsrsharma]

government hyperinflates

Can't happen without FED becoming a pimp. FED knows that will be the end of $ and with that we will become another ex-Soviet Union. Don't start losing sleep (as yet) over it. If you have to worry about something, start worrying about the entitlement Tsunami that will start hitting around 2011.

 

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