Slow decline or is a big chunk about to be ripped out?

[Tone]

I think it all depends on the lenders.

For example, because of rumblings from the sub-prime market during the past couple of months, lenders have recently put the screws on 100% financing. What will happen once the bulk of foreclosures hit later this year and into next? Lenders could really tighten up standards in response. Furthermore, if investors are not willing to take on the risk of packaged mortgages, this could further push lenders back to the lending standards of yesteryear (20% down anyone?)

A change in lending standards could seriously dry up the pool of buyers and crash the market quickly as REOs and those who must sell race to the bottom to attract a shrunken pool of buyers. At least that’s a scenario I could see play out.

[Anonymous]

Tone, I agree, what allowed this bubble to inflate beyond historical proportions was the loosening of lending standards.

I believe eventually we’ll get back to the traditional standards of 30 years, fixed rate, good credit, having to qualify according to your income, etc. Once that happens, how many people can really afford a home for $500,000? As more lenders get burned, they will tighten standards, further decreasing the buying pool. It’s happening now, and will continue.

Years from now people will look back on all of this, at no doc, stated income, teaser rates, neg am, to anyone (yes, ANYONE!) getting a loan, and ask what the hell were we thinking?

[Anonymous]

Tone, I agree, what allowed this bubble to inflate beyond historical proportions was the loosening of lending standards.

I believe eventually we’ll get back to the traditional standards of 30 years, fixed rate, good credit, having to qualify according to your income, etc. Once that happens, how many people can really afford a home for $500,000? As more lenders get burned, they will tighten standards, further decreasing the buying pool. It’s happening now, and will continue.

Years from now people will look back on all of this, at no doc, stated income, teaser rates, neg am, to anyone (yes, ANYONE!) getting a loan, and ask what the hell were we thinking?

[NotCranky]

You guys actually have me on the fence more than you know. I still think the macaroni is about to hit the fan.
The myth of the spring bounce is pretty much shattered. Latent downside tension from seller’s who believed the spring bounce theory and price accordingly.Inventory likely to go up. I don’t need to repeat everything else being said.
I don’t expect sustained good news, on interest rates, jobs or any of the other potential economic drivers.

My sales pitch to buyer’s is still the same. Wait six months and if things look better, for buying, wait another six months. Time is on your side. That said , I think there will soon be deals out there for the right kind of bargain hunter. The Temecula guys are having their day more or less. I think they are just getting the chain reaction going that will drive down comps but they arent idiots either. Maybe the first bargains will be the best? I think the chain reacton is coming to a zip code near us soon. However, the deals may be the exception and in the eye of the beholder and all. Maybe the real trend will move slower and more real than nominal.I am not clarvoyant nor do I know how to spell it.

Am I backtracking ? No! I am just trying to debate reasonably. If I understand bugs, he is in the big chunk camp. As a very good appraiser who has shown detachment from the debate and even his own opinion, I think he has the best perpective to analyze the question. In any case to paraphrase him…since the appreciation happend in big chunks especially 2003-2004 I don’t see why it can’t be taken off in big chunks. Do we need a similiar but opposite catalyst to the easy lending of those days? Or can the precarious way the cards are stacked be enough? I think either will do. In shaky times the probability that the catalyst surfaces is too high for yours truly to recommend anything but caution in our local market.

[NotCranky]

You guys actually have me on the fence more than you know. I still think the macaroni is about to hit the fan.
The myth of the spring bounce is pretty much shattered. Latent downside tension from seller’s who believed the spring bounce theory and price accordingly.Inventory likely to go up. I don’t need to repeat everything else being said.
I don’t expect sustained good news, on interest rates, jobs or any of the other potential economic drivers.

My sales pitch to buyer’s is still the same. Wait six months and if things look better, for buying, wait another six months. Time is on your side. That said , I think there will soon be deals out there for the right kind of bargain hunter. The Temecula guys are having their day more or less. I think they are just getting the chain reaction going that will drive down comps but they arent idiots either. Maybe the first bargains will be the best? I think the chain reacton is coming to a zip code near us soon. However, the deals may be the exception and in the eye of the beholder and all. Maybe the real trend will move slower and more real than nominal.I am not clarvoyant nor do I know how to spell it.

Am I backtracking ? No! I am just trying to debate reasonably. If I understand bugs, he is in the big chunk camp. As a very good appraiser who has shown detachment from the debate and even his own opinion, I think he has the best perpective to analyze the question. In any case to paraphrase him…since the appreciation happend in big chunks especially 2003-2004 I don’t see why it can’t be taken off in big chunks. Do we need a similiar but opposite catalyst to the easy lending of those days? Or can the precarious way the cards are stacked be enough? I think either will do. In shaky times the probability that the catalyst surfaces is too high for yours truly to recommend anything but caution in our local market.

[sdrealtor]

Rustico
You are not backtracking, you are taking a look at your opinions and it is healthy to challenge them. That is something I constantly do. I’m still stuck on this slow and steady thing. Regarding the big chunks of gains and consequently big chunks of losses, my feeling is that greed is a much more powerful and actionable emotion than fear. IMHO, greed compells people to chase risky opportunities while fear paralyzes them from making good decisions. I think you are onto something with the idea of a catalyst. Something that we dont see coming could certainly send the system in disarray.

sdr

[sdrealtor]

Rustico
You are not backtracking, you are taking a look at your opinions and it is healthy to challenge them. That is something I constantly do. I’m still stuck on this slow and steady thing. Regarding the big chunks of gains and consequently big chunks of losses, my feeling is that greed is a much more powerful and actionable emotion than fear. IMHO, greed compells people to chase risky opportunities while fear paralyzes them from making good decisions. I think you are onto something with the idea of a catalyst. Something that we dont see coming could certainly send the system in disarray.

sdr

[JWM in SD]

Bugs,

Do you know Todd Lackner?? The appraiser noted in the NC Times article who cooperating with the FBI on cash back mortgage schemes in SD??

[JWM in SD]

Bugs,

Do you know Todd Lackner?? The appraiser noted in the NC Times article who cooperating with the FBI on cash back mortgage schemes in SD??

[NotCranky]

Greed is actually self preservation gone awry. I think it is just as possible that self preservation is going to lead sellers to go more in the CYA direction. If there truly is a scarcity of buyers willing to bail them out and they are also also playing CYA , which seems apparent, there is the potential “Rush for the exits” right there. Add any other catalyst, maybe even just foreclosures finally getting priced like foreclosure and we got a stampede. Of course an unforseen catalyst could work the other way too. The only one really being considered seriously at all is a bail out. I think that could help the market find support earlier but that still might be after some serious depreciation?

[NotCranky]

Greed is actually self preservation gone awry. I think it is just as possible that self preservation is going to lead sellers to go more in the CYA direction. If there truly is a scarcity of buyers willing to bail them out and they are also also playing CYA , which seems apparent, there is the potential “Rush for the exits” right there. Add any other catalyst, maybe even just foreclosures finally getting priced like foreclosure and we got a stampede. Of course an unforseen catalyst could work the other way too. The only one really being considered seriously at all is a bail out. I think that could help the market find support earlier but that still might be after some serious depreciation?

[SD Realtor]

I think the catalyst could be the treasury yield. If we do not see any bond market rally and the yield keeps creeping up then we certainly may see the catalyst that will result in a depreciation notch down rather then a slow slide. Right now we are near 5 and the selloff has been going on for 2 months give or take. If the 10 year hits 6 or 7? Then yep for sure we will see the housing market get pounded good and hard and it will be fast.

SD Realtor

[SD Realtor]

I think the catalyst could be the treasury yield. If we do not see any bond market rally and the yield keeps creeping up then we certainly may see the catalyst that will result in a depreciation notch down rather then a slow slide. Right now we are near 5 and the selloff has been going on for 2 months give or take. If the 10 year hits 6 or 7? Then yep for sure we will see the housing market get pounded good and hard and it will be fast.

SD Realtor

[PerryChase]

I’m a bugs fan. His posts are always to the point in a “big picture” way.

Now, lenders and the MSM are talking about giving homeowners reprieve by developing new “affordability” products.

I don’t see how payments can be reduced anymore than Interest Only and Option ARM loans (which are forever loans). They’re saying that owners with exotic loans should refinance into fixed rates loans. Yeah, sure! How are buyers who can’t afford payments on Interest Only and Option ARMs going to afford payments with fully amortized 30 year loans?

The existing loan products have stretched out repayment as much as possible already. There’s no way they can make the monthly nut anymore “affordable.”

The can can’t be kicked down the road any further. Even a stagnant or slightly declining market in 2007 will cause sellers to go under water (with selling costs and carrying costs). That will feed on itself and cause further depreciation in 2008.

[PerryChase]

I’m a bugs fan. His posts are always to the point in a “big picture” way.

Now, lenders and the MSM are talking about giving homeowners reprieve by developing new “affordability” products.

I don’t see how payments can be reduced anymore than Interest Only and Option ARM loans (which are forever loans). They’re saying that owners with exotic loans should refinance into fixed rates loans. Yeah, sure! How are buyers who can’t afford payments on Interest Only and Option ARMs going to afford payments with fully amortized 30 year loans?

The existing loan products have stretched out repayment as much as possible already. There’s no way they can make the monthly nut anymore “affordable.”

The can can’t be kicked down the road any further. Even a stagnant or slightly declining market in 2007 will cause sellers to go under water (with selling costs and carrying costs). That will feed on itself and cause further depreciation in 2008.

[Author]

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