VOTE: state of the bubble collapse, Worse, OR Better than your expectation?

[stockstradr]

Please post your vote.

Given what the Great Housing Bubble Collapse has morphed into the last three months, and given we are obviously not near a bottom yet…do you rate the unfolding housing collapse as:

A) WORSE than you expected
OR
B) BETTER than you expected

I’m curious what people think, because even for a pessimist I’m a bit stunned at how bad this housing collapse is looking, particularly when the data suggests the market has a lot further to fall down into the abyss.

[brian_in_la]

Deflating faster than I expected. Much faster. LA is actually deflating later and slower than SD, so SD is leading the pack down…still, declines all through what is normally the strong months of the market. Nov. – Jan. are going to be brutal.

[Sandi Egan]

The decline is pretty much what I expected.
The handling of the crisis by those in charge is much worse than it should be. Which again is in line with expectations.

[I would rather be lucky then smart]

BETTER then I expected.

I think there are too many chicken littles. I went through this as a homeowner in the 1990’s and I am not worried. Anybody with a little common sense who can make a decent financial decision in regards to purchasing housing should not be worried either.

[michigoose]

California and Florida are on track with what I expected, but Boston/NY are behind. I guess it will take a while for Wall St. bonuses to get hammered and all of the VC money in Boston’s biotech corridor to dry up.

I live in Michigan, and think we’ve seen the worst of it. Values might continue to decline in some areas – especially in some of the higher end suburbs of Detroit like the Grosse Pointes, and West Bloomfield.

We have been “the economic bellweather of the nation” for nearly a century and our decline started in 2002. The price/square foot values in my local area (Ann Arbor)have crept up about 1 1/2% over the last month and a half. Perhaps, it’s just noise in the system, but I’m hopeful. The higher end here will continue to get hammered as might the condo market, but the median detached homes are steadying out.

Of course, you can do the math. It’s 2007. Our decline has been going on for five years. We aren’t going up; we’re just starting to level out.

[Navydoc]

I think it’s happening a lot more quickly than I expected. The disappearance of creative financing overnight was something I didn’t quite foresee. I was worried that we wouldn’t be anywhere near the bottom in summer 2009 when I’ll be looking to buy, but now I’m not so sure.

It has been a very interesting summer. Can’t wait to see what happens next.

[Rich Toscano]

For me, it’s both. The tightening of lending conditions has happened much more abruptly than I expected (not sooner, but more abruptly once it finally started).

However, the deterioration of sentiment is happening more slowly than I would have expected. I am continually amazed at the level of stubborn denial out there.

Sorry, that wasn’t an A or B vote, but there you have it.

Rich

[one_muggle]

Denial. Isn’t that the river that runs through D.C.?

Well LA–at least the areas anyone want to live in, appears still to be holding up and Boston is actually going up (could be noise). I am surprised how hard and fast FL is dropping, and how slowly LA, Boston, and even parts of DC are holding up.

Durable goods tanked today, so the stock market went up… I wonder if anything short of a good shaker or a truly awful holiday season will perturb the SoCal economy.

-one muggle

[lendingbubblecontinues]

“I went through this as a homeowner in the 1990’s and I am not worried.”

Wrong. Unless you lived through the Great Depression, you’ve never lived through such rampant real estate speculation fed by non-existent lending guidelines.

“Anybody with a little common sense who can make a decent financial decision in regards to purchasing housing should not be worried either.”

Great…find me one, please. I think you’d have better luck finding Bigfoot.

Signed,
Chicken Little #92

…oh yeah, by the way, things are turning out to be just a bit more gloomy than the bird whistling zip-a-dee-doo-dah would like to have you believe, don’tcha think. Good luck with all that.

[HereWeGo]

I did not see the credit crunch coming, but in retrospect, it was obvious. The downturn was moving along about as expected until that development.

Honestly, until that point, I believed that exports to the strong world economy would more than offset the effects of the housing downturn. Unfortunately, the combined effect of the credit crunch and the housing downturn will probably prove to be a bit too much for the US economy.

muggle – This won’t be the first time Wall Street has bull rushed into a downturn.

[nostradamus]

This ain’t the 90’s. Back then, ARM loans were the exception, not the norm. 100% financing in the 90’s? Unheard of.

That being said, I made a sheetload off the SPF stock someone here posted (thanks! After the fed rate cut it went up 18%, I shorted it, it went down 39%) so I’d say this deflation is going GREAT. Depends on your perspective I reckon!

[cr]

I’d have to say it’s been better than I expected, though I must say I expected my area, LA to see at least 10% drops, and it’s been at the most that much.

Then I step back and think, it took 5 years of reckless buying and lending to get here, it’s going to take at least that to get it right, particularly when Congress and the FED step in the try and smooth things over.

However all that does is delay and worsen the inevitable in my opinion.

[PadreBrian]

With the death of the liar loans and zero down, I’m not surprised. It’s what enabled prices to artificially be inflated by people “buying” homes that they didn’t worry about selling because “the value would always rise”. So they tended to buy a house that was too expensive for what they could afford. This enabling the flippers to feed off of them. A vicious circle.

[temeculaguy]

I think Riverside County is worse/faster than I expected and S.D. is slower than I expected. Temecula/Murrieta/Etc is 25% accross the board decline and falling. S.D. seems much more sticky. With the sweeping changes in financing I would have expected more from S.D. since most are priced well into the jumbo range and it was the creative financing/arm/neg am capitol of the world in 04/05. How that house of cards is still standing is beyond me. I guess everyone does wan’t to live there and R/E never goes down on the coast or chowderhead’s Jedi mind tricks are working.

[cashflow]

I have been watching both Riverside and San Diego markets and I have to ditto Tem.Guy’s comments! I am shocked at how sellers are holding out in San Diego, even with days on market going up and up. Some that do decrease the list price do so only by 5-10k increments. What are they thinking?? For a buyer needing to finance a loan the 5-10k decrease doesn’t do much, so this will not get their home sold.

I’m anxious to see Rich’s analysis of the Shiller Price index for Sept/Oct. as I think the credit crunch and after summer sales months will show a sharper decrease in prices even for prime parts of SD.

Temecula/Murr. declines have surprised me a bit on how fast things have gone down there. We were looking at buying in that area and held off, now I’m very glad we did. The values are coming down, and because we really like Temecula, it’s getting tempting again…but I still believe this area will continue to deflate for awhile…too much inventory and more funky loans to reset!

Time will tell for all us bubblesitters!

[stockstradr]

Thanks everyone for posting great responses.

Thing I love about this wacky forum is that it is obscure enough that it attracts a smart, savvy crowd, with opinions worth reading

[bsrsharma]

Actually I consider August 17 as “the” moment. So, it is not yet 3 months in my calender. Now, even @ half time, the game looks interesting enough. The right time for your survey is around Thanksgiving-Christmas-New Year. By then, there will be enough data to extrapolate for next year. So far, I consider the damage is smaller than expected. My scale is rather simple. Less than 5% unemployment = Good, 5 – 6%: Moderately bad; More than 7% = Really bad. On that scale, it is still good time now.

[(former)FormerSanDiegan]

This ain’t the 90’s. Back then, ARM loans were the exception, not the norm. 100% financing in the 90’s? Unheard of.

BUT, they did have 100% financing back then. Also, instead of option ARMs, the killer loan back then were loans with balloon payments. No rate adjustment, nothing, you HAD to refinance after X years or pay it off completely.

[Ex-SD]

It’s pretty much where I thought it would be. Condos would be first to take some hard hits, then the outlying areas of SFR’s…….then it will work it’s way towards the more desirable areas. I think it’s going to take a long time (mid to late 2011 or mid 2012 to hit the bottom). Time will tell.

[farbet]

ECONOMIC REPORT
New-home sales plunge 8.3% to seven-year low
Median sales price down 7.5% in past year, biggest drop in 37 years
WASHINGTON (MarketWatch) — Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales since June 2000, the Commerce Department estimated Thursday.
Sales are now down 21.2% in the past year, with no sign of a bottom in the crippled housing market. Read the full government report.
August’s sales pace was weaker than the 825,000 expected by economists surveyed by MarketWatch. See Economic Calendar. In addition, sales in May, June and July were revised lower.
The sales figures do not account for canceled sales contracts.
The median sales price fell 7.5% to $225,700 compared with a year earlier, the largest year-over-year decline in 37 years. The median price can be affected by the mix of homes sold between and within regions, and the price does not include nonmonetary incentives, such as upgrades, free vacations and new cars.

http://www.marketwatch.com/news/story/new-home-sales-plunge-83-seven-year/story.aspx?guid=%7B22E1E083%2DBA8B%2D4355%2DAC85%2D57D8B99C1C81%7D

WORSE WORSER WORST.

[bigtrouble]

I expected the credit crunch to start in January of this year, not August. The banks knew it was coming late 2005 (first payment defaults in the pipeline get spotted pretty quick.)

[farbet]

What other bloggers are Saying… read on

http://www.haloscan.com/comments/calculatedrisk/4866976334395776554/

[(former)FormerSanDiegan]

It is happening FASTER than I expected.

As of July we are already down almost 14% from the peak on an inflation adjusted basis
see here …

July Case-Shiller Home Price for San Diego

At the peak we were at a point where one would expect about 45% correction in price + inflation to return to “normal”.
It seems we are just getting started, but are already a third of the way there (not counting the rotten conditions in August-September).

I expect to see another 5% or more taken out by the end of the year in HPI, based on seasonal factors and mortgage turmoil. Combined with another 1-2% of inflation from July to end of 2007, that would put us nearly half-way through the magnitude of decline expected (assuming we were 45% overvalued in real terms).

At the end of 2007, we’ll already be half-way down the hill (or more), in my opinion. Definitely faster than I expected.

[NotCranky]

From a perspective of three years ago it is happening more slowly than I expected.I certainly thought there would be bargains for rehab and rental type deals by now. Things still don’t pencil out for much in the way of detached houses for those purposes. In the last downturn the market was flooded with VA and HUD Repos. This time those two agencies are not holding many SOCAL properties. As we know the holders of distressed properties have been adverse to dumping properties of any type.

From a perspecitve starting 6 months back, which is about when we were having discussions about “big chunks” coming off prices I am satisfied with the pace as compared to my expectations. I expect the holders of distressed properties to continue to capitulate faster and more broadly from here on out. It would be great to know what the inflationary vs deflationary components of the return to affordability will be.

Yours truly is shocked that we basically have a good interest rate situation at this time. I thought that issue would have gone to hell by now. I still expect it too, but would be happy to be wrong.

[farbet]

Rustico Just a matter of time. The rates have to go up. helicopter Ben is “The Great Appeaser” haven’t you noticed.Its election time,dollar plumetting.Must go up.

[Bugs]

In terms of percentages I think we’re about on track for what I expected. Some of you may remember at the very beginning of the year we were speculating that the third quarter of this year was when we thought it would get really interesting and things would start moving more quickly.

However, I was wrong about which of the fundamentals would have the most impact. I thought the foreclosures would go to REO resale more quickly and I didn’t think the financing would dry up as quickly as it did. It’s been a little shocking to see the volumes dry up so quickly, looking in hindsight I should have realized that was the only way it could really go.

Some of you may think it’s moving real slowly but you have to keep some perspective. The bust of the 1990s took 6 years, and the price spike it corrected for was only 1/3 as distorted as this one.

The other thing I think is messing up some people is when you make a distinction between s/w Riverside County and San Diego County. Some of you go beyond that and focus more narrowly on your favorite neighborhoods, which by definition would be among the last to show declines.

Sure, there’s a county line separating the two counties, but economically it’s still basically one region operating off the same employment base. Actually, s/w Riverside is about split between our weaker employment base and the stronger employment base of LA/OC. I have a feeling that if s/w Riverside had to rely solely on SDs employment base it would be doing even worse than it is right now.

The unwinding of this distortion will come from the outskirts in, so I’m not at all surprised to see all the action in s/w Riverside and the outlying areas of SD County and relatively few problems in the central areas. I do think that some of the “coastal will never go down” folks will come to realize differently before this is all over.

[bubba99]

Given I am a glass half empty type of economist, the liquidity meltdown was worse than I ever expected. I did not realize that mortgages were packaged in CMO’s and CDO’s that were then leveraged in REPO’s by “un-educated” hedge fund managers.

I expected prices to fall quicker as interest rates increased, but did not expect financing to all but dry up.

Now I am truly worried about what happens to the dollar – at its lowest level ever – with further interest rate cuts from the FED pending. Could it be that the FED intends to let inflation remedy the mortgage default problem by inflating prices above the “break even” line?

[sdrealtor]

Prices have fallen as I expected but the credit situation defintely happened faster than I expected. We are in for a cold Fall/Winter over the next 3 months but I still believe we will have a relatively good Spring. I agree with FSD that we will be about halfway through the downturn by years end.

[LA_Renter]

I did some research about previous housing downturns as I began observing this market, so I was mentally prepared to watch ice cream melt. The slow process did not surprise me. As many posters have pointed out the credit crunch was probably the most profound event that resembled a true POP. To me that’s the point that it really hit home this was a credit bubble, housing just happened to be the asset of the day. I knew that people couldn’t make these mortgage payments but I hadn’t connected in my mind exactly what that would look like in the financial markets. In that regard the credit bubble is far worse with greater reaching consequences than I had anticipated. We are not at a post mortem on this event just yet.

[AKguy]

Credit explosion took me off-guard–I wasn’t looking for the Wile Coyote moment in the CDO markets. Live and learn, I guess.

As for price declines, these seem to be accelerating in the more marginal areas (spectacularly in some), while more affluent/desirable areas are going down ever so slowly by comparison. I was anticipating an initial fall, followed by years of stagnant nominal prices/real price erosion. Clearly the dynamics of the decline are going to vary by region and within regions, with possible false bottoms here and there. Predicting the bottom for a particular area will take careful analysis of local conditions combined with global conditions. In other words, knowing when next to invest in RE will be obvious only in retrospect.

[SD Realtor]

My sentiment is kind of with Rich’s… The credit collapse was swift but for people to not acknowledge that the secondary market has already loosened is denial. There still are financing vehicles out there that provide easy money. The fundamental sacrificing of traditional limits for FHA will exascerbate the problem.

My biggest miscalculation was the significant reluctance of people in power (both political and economic) to actually let this country endure what it needs to go through to become strong again. In my estimation this will only serve to prolong the current condition rather then let it run the desired and much healthier natural course.

From the housing standpoint I am satisified with the pace of depreciation of speculative areas, condominiums and lower/middle neighborhoods. I am very disappointed with the pace depreciation of the more desireable neighborhoods. My second biggest miscalculation was that even in conditions like this, many people still will buy homes in these areas. Perhaps not as many as there used to be, but way more then I thought would be.

SD Realtor

[VoZangre]

All:

This blog is the single most useful tool in my education about the SD housing market. Though sharp of intellect, matters of money have never been my forte as I have let my mind roam about subjects more esoteric .( see poetry and guitar playing) while renting and travelling….

Now that there is a Lil-Missus-to-be (queue violins) with a firmly formed American Dream, I find myself in the position of needing to rectify my GrandCanyonesque ignorance.

That being said… I’d always an intuitive sense that the insane appreciation was built of flimsy cards… ( How can my exes postage stamp yards and cottage 20 yds from Ted William Park in North Park POSSIBLY be FUNDAMNETALLY worth what it was appraised at??) …

What little I know says this is tardy in arriving and immensely sad for those who wasted their life savings for teaser loans and ARMS and TRUSTED unscrupulous folks in the RE biz. I think the worst is yet to come…

Thank you all-

😉

What matters most
is how well you
walk through the fire…

[Anonymous]

In line with my expectations.

This week marked the first time I have ever looked at listings in neighborhoods that I know well in San Diego and said to myself, “Damn, those prices are dropping fast.” Even the asking prices are low now. EG: A neighborhood I know in Vista and another in San Marcos. 4-5 months ago, list prices still sememed to be at peak levels, and homes were sitting. Now, I am seeing homes priced at approx 2003 levels. EG: 525k at peak, now listed for 440k, 800 at peak, now listed for 575k. Santa Fe Hills in San Marcos…I see homes in the low 400s now that used to be in the 5-600s.

And to think, the foreclosure effect has not kicked in yet! Sales prices for this wave of foreclosures isn’t even factored in yet.

[drunkle]

i hope to see a horse named “housing bust” next year at del mar…

“go, housing bust, go!”

[NotCranky]

It’s housing bust neck and neck with inflation, flanked by joblessness and whoa, baby boomer just flipped over the rail and is down!!! BK speeds past…WAIT!!! It’s bottom feeder coming on strong…Bottom feeder taking the pack…It’s Bottom Feeder!!!

[nostradamus]

What’s bottom feeder?

[drunkle]

Epilogue:

Fed Cuts burned out early in the race followed quickly by Flipper and Mortgage Broker. Rounding out the trifecta is Bottom Feeder in first, Inflation in second and a surprise third place for Doom and Gloom. Boy, I tell ya, that was a heck of a race, a heck of race. We all saw Housing Bust coming, but who could have predicted Bottom Feeder breaking out? Nobody, and I mean nobody had their money on Bottom Feeder… Fed Cuts was everybody’s favorite, but what a dissappointing showing…

[Blissful Ignoramus]

Wasn’t there a poll about this a couple of years ago here? Where people were supposed to predict what the annual year over year price drops would be, IIRC, from 2005 to 2006?

I’m not sure what the parameters were, but it seems to me that I was particularly conservative in that poll calling it in the single digits…

I expected the bubble burst to start slowly and maybe be a slippery slope that would pick up steam, to use three different metaphors in one phrase!

[bobby]

so far the Bay Area (Peninsula) has not been affected by all of this.
I’m getting impatient!

[bob007]

ppl in this blog are way too impatient and self-centered.

high housing prices put a big burden on young couples who want to start families. i notice they are plenty of yuppies in california who postpone marriage or stay single.

while indivduals have the freedom/choice to make their own decisions the end result of these choices are the following

1. low birth rate among upper middle class folks especially in the coastal states and new england.

2. lack of funding for schools especially those of poor/working class kids (a lot of whom happen to be legal/illegal Latinos in California). I vehemently oppose illegal immigration and amnesty. But societal implications of under-educated Latinos youth are not hard to imagine. it does not do any good to housing values come 2025-2030.

3. oblivious to cultural concerns of those parents trying to raise kids
more trash on network and cable television.
more tolerance of alternate lifestyles

[LookoutBelow]

So far…as I expected….I got a feeling its going to be a lot worse than I expected….there is MORE to the equation now than 2 years ago…think sub prime/CDO/MBS….tsunami is a gentle description

[temeculaguy]

Wow, don’t know what to make of that social commentary bob. Just to clarify for those scoring at home, #3 was a joke, right?

I’m with you on prohibitive cost of housing is affecting young families or families to be, that’s the primary reason it will return to normal. I do disagree that yuppies postpone marriage because of housing costs, being married cuts your housing cost by 50%, I think that people have postponed divorce because of the high cost of housing. I know I did and I know housing a single person in a house half the size is not half the cost, it’s closer to 75% of the cost.

Yuppies are postponing marriage because they want to and they should, marrying young isn’t all it’s cracked up to be.

Back to #3, do you honestly believe that the third component in the decline of western civilization will be the media’s tolerance of alternative lifestyles. I am a straight guy and a parent yet I have no fear that watching Will and Grace or Ellen on T.V. will make my kids gay. Rosie Odonnel might make you puke but it won’t make you gay. I am no expert but I have read a few books and I think the whole gay thing can’t be blamed on the media, scientists believe it has something to do with people being attracted to other people of the same sex, however I could be wrong and until I confirm it we all may want to stay away from the media.

[bonfire]

This bubble is deflating a little faster than I expected. The housing sentiment this fall, compared to last fall, is way more negative. It reminds me a lot of he 90’s, except that there has been a lot more speculation inflating the bubble this time around. The effects of the fact that the real estate “investors” have given up, and are letting their houses be foreclosed upon is just beginning to be felt. This is going to accelerate the slide in prices. I am with the Piggingtons who think that we have only just begun!

[bsrsharma]

TG:

There is much statistical evidence that affordable family formation costs have been a major driver in pushing many “native born U.S. Citizen families” (code word for “White” folks?), especially in the lower middle class and below, from Blue states to Red states. This has created a vacuum for lower wage jobs (the category now labeled “Jobs Americans Won’t Do”) which in turn is sucking illegal immigrants into this country. This is a self-reinforcing cycle that will eventually make majority of Blue States Hispanic. The problem is, they have lower incomes and hence will drag down on tax receipts and lower the quality public services. So, the high housing costs, especially in Blue States, are causing a major National transformation. (To put it harshly, If US should not become another Mexico, housing costs have to come down)

[bob007]

I did not mean to attack gays or blame homosexuals for anything. For example how many serious modern movies can you find without vulgar language ?

Trust me – if all those working on movies had kids/family they would stop to think twice. Right now they are too busy paying off their mortgages.

[eccen in esc]

eccen in esc
my vote
It is a little better than I expected although we can finally see some momentum gaining. I think the psychology of the general public is important and it is that we are just in a slump and things will pick up soon. That is what the mainstream media is telling them so that is all they know. A lot of people in my area took their houses off the market and are renting them out til things pick up. I think they are in for a rude awakening. I don’t think the community of Valley Center knows anything about the bubble. They have over 200 high priced properties and still are listing with outrageous prices even tho they only sold 9 in August. Maybe they don’t have any news out there. That is the area I am waiting for.

[SHILOH]

The foreclosure and credit crunch happened faster than I expected. Price decline rate are happening as expected.
I would say like another poster, 2011 or 2012 might be bottom. For me, one question is what is going to prop up the SD economy from the loss of housing related income?

[nccoastalseller]

A) Worse than I expected.

Two years ago I was under the impression that the bubble was limited to so cal and a few select US metro markets. Now it’s clear that the housing bubble is well distributed throughout US and Europe. Thanks to CR and similar websites it clear to me that the turmoil created by the housing bubble will reach much farther than even the most bearish economists could have predicted. Tsunarmi, perfect storm, don’t even begin to describe the trouble ahead. I think average joe homeowner/taxpayer/investor is still is clueless just like the tsunami victims who watched the water recede and sat there and looked at the ocean bewildered. I guess this puts me in the pessimist club.

[Daniel]

Price declines are about in line with what I expected, and I still think prices will continue slowly drifting down for a number of years (until about 2011). I believe construction and sales will probably start recovering much sooner (as early as late 2008 or 2009).

[cyphire]

Somewhat on track, perhaps a little less.

I am most concerned about buyer psychology. As Rich states, I am in agreement that the level of denial out there is amazing. I wonder if the Fed actually has something as too a reasonable goal out there… If they keep interest rates low they keep the economy propped up (even with the damage to inflation, etc.), but as far as the real estate market goes, it’s all about employment and interest rates. If they can keep the numbers in check, the seller / buyer psychology won’t take over too harshly.

This is why we don’t have too many rental conversions or sales right now. The buyers are in denial, and the fundamentals are getting hammered, with a long, long painful way to go. Consumer confidence is so low, but imagine if San Diego starts resembling Detroit… Wow will the landscape start changing.

The news media which was totally on the side of the advertisers (Realtors), has now shifted to the bear side, but still downplays the forecasting of many real bears – the recovery is always around the corner, now they are talking about the end of 08, till 09. Of course many smart folks (I hope I am one of them!) think that we could have years of price declines, all taking the economy along for a ride. I don’t think the panicking will be until late 08, and if interest rates aren’t at least 1% lower by this time next year, we could have a calamity on our hands.

Who is holding the bag? Ultimately the homeowners and the people who hold the mortgages (are these the hedgefunds?) – because the banks don’t seem to own the paper anymore.

When we are at 1998 prices, we will have some small measure of normalcy in the market, but now I forecast that it will be sub 1998 pricing.

We haven’t seen a tumble in actual prices which comes close to the rate of increase up till 2005. I think that this is the mother of all bubbles, and as homes are VERY VERY illiquid, it will take a long time for the prices to come down, sort of like what happened in Japan. But if the economy keeps pace (It won’t), and interest rates go down (for every .25 percent the fed lowers the rate, the banks won’t give back .1 percent to the consumer as the risk spread will just profit the bank – to protect their own previous and current portfolio downsides) we could expect sellers to hold their positions.

If the economy starts to tank – remember folks – this is the U.S. and we have been fed a diet of ‘capitalism is best, socialism is horrible, taxes should be cut’, rampant capitalism. The execs and shareholders will easily start firing people to protect their bottom lines and executive compensation. When profits start dipping because of the housing market and the paper losses, the people will get fired, the economy will go into a bigger tailspin, and whatever the Fed does will only be a salve for the financial institutions, not the middle/lower class of taxpayers.

Did I answer the question??? LOL… About on track, will depend on the mob psychology, employment and wage movement, and of course interest rates.

[eccen in esc]

eccen in esc
I keep seeing people post the year 2011 in relation to the “bottom” of the market. How do you come up with this year? What is the basis of this prediction? Just curious.

[bsrsharma]

year 2011

Actually, that is a bad year! That is when baby boomers start suckling into Social Security & Medicare. By then, they will also be liquidating 401(k)s for living expenses, there will be strain on the few surviving pension funds, the indigent baby boomers will be taxing SSI/Medicaid/Medical. Many will be downsizing by selling their larger family homes for smaller retirement homes. In other words, that is when all hell breaks loose!

Compared to that, subprime seems to me like horse de vours before a banquet

 

[temeculaguy]

because it is easy to guess at something father away and not have to own up to being wrong. Another reason is the industry leaders (KB homes CEO, Fannie and Freddie’s CEO’s) just came out and said 2008 will be crappy too. That puts 2009 as the earliest recovery according to industry people, add a year or two and that is propbably where they think the truth is, voila 2011. Personally I think there isn’t a time frame that is required to hit bottom, it’s fundamentals, if the market crashes 25-55% next month, recovery will start by Christmas. The problem is that history has shown housing moves downward slowly and the powers that be are doing everything they can to put the brakes on the slide. I think they should just face the inevitable and let it crash then Home Depot, Realtors, Mort companies, et al, can get back to making money and keep the economy moving, this slow death has a lot of negative side effects with the application of the brakes (dollar losing value) being the worst of them.

[Anonymous]

In my area, prices haven’t dropped that much but activity has dried up, so it’s a just a matter of time before prices will drop more significatly. So at this point, it’s not as bad as I thought.

I think the banks could limit the meltdown by stepping up loan modifications. I work with a company that facilitates loan modifications for homeowners 2-3 payments behind. From my perspective it’s lip service–I see very few significant modifications. In addition, banks could do a much better job assisting homeowners selling at a loss to the bank in short sales. For example, they could eliminate the prepayment penalties from the payoff.

I think next year the banks will deeply regret that they didn’t try to do more. They have no idea what the true value of their assets are–you can see it in the way they initially price their REO properties at the high end of the market.

[patientlywaiting]

Shari, if the servicer iliminates the prepayment penalty, would the loan originator not be on the hook to the holder of the debt? The originator of the note sold it off with the prepayment penalty to guarantee a certain amount of interest to the investor.

I can image that there’s a lot of backroom posturing among the originiators and the MBS/CDO holders as to which party is responsible for what.

Perhaps the banks are not trying to limit the meltdown but simply trying to limit their own losses.

What kind of modifications have you been able to negotiate. Can you give us some examples of what you’ve been able/not able to do for your customers?

[Anonymous]

The best one I’ve seen is one that brought the interest rate down 1%, completely wiped out the delinquent balance (as I recall it was a couple of payments) and reset the loan to 30 years. The borrower took it and guess what? It’s now about 3 months later he’s got another one at slightly lower interest rate.

One loan “modification” actually increased their monthly payment because the penalty was amoratized into the loan. Upon acceptance, they had to pay 100% of their back payments and penalties immediately. I was able to cut their penalties in half. Ironically, this was the mod from the lender on the first; the lender on the second wouldn’t do anything so the property foreclosed on.

As I said in my first post, a bank wouldn’t even forgive the pre-pay penalty. I don’t know what happens when the property goes into foreclosure with a pre-pay. Who has to pay who?

I’m sure there are many meetings among various departments about whether or not it’s better to do loan modifications, do short sales or deal with foreclosures. I think one problem in the loan modification effort is that some of the borrowers couldn’t afford the homes to begin with. I wish I knew the statistic for the percentage of homeowner who made less than 1 year of payments prior to going into default.

There is such a mixture of fraud (cash back deals and inflated appraisals), genuine job loss, adjustable loans, equity lines of credit maxed out, hardships like medical problems, etc. that one solution does not fit all but I think loan mods are a good place to start.

[cyphire]

Ultimately, nothing – nothing the banks can do will actually help the in trouble homeowner. The banks can’t drop the rates to teaser levels (that would be as bad as the ‘investors’ who are losing money each month renting out their properties at below carrying costs), interest rates are too high.

Most everyone in trouble, isn’t in trouble because they have an extra 100-300 payment. They are in trouble because they cannot reasonably pay back any amount that would come close to the dollars they were funded to buy their home. In a world of sinking home values, they have even less reason to stick around.

I think that by propping up the homeowners in default, will only lengthen the time that housing is in the dumps. On the other hand there isn’t really much they can do to fix it anyway.

The defaults are going to happen, people are better off pulling the plug now, before they rack up huge debts trying to service their liar loan estates.

Everyone I know who bought an investment property are trying to rent them. They would rather lose 1-3K per month renting than try to sell at a substantial loss. I don’t blame them, I think it will just keep housing down in the dumps.

As prices slowly sink, more and more of them will sell for whatever they can get. There are still deals out there, there hasn’t been a baseline of price declines yet. When the general public sees how long it is going south, and they are trying to service that debt, they will try to sell out.

[VoZangre]

Mo’ Better

My education continues!
Thanks all… now I need a stiff drink to relax my clenched up cerebellum… learning a new language is tough!

What matters most
is how well you
walk through the fire…

[Author]

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