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

[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.

[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.

[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

[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.

[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.

[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

 

[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…

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