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davelj
ParticipantAre we really at the point where someone who bought a house five years ago is considered a “flipper”? I bought a condo in 2000 that I sold in 2004. Prices got crazy and I decided to sell. Does that mean I was a “flipper”?
But more to the point of your question: Who cares? Just buy the home you’d rather live in at the price that’s best for you. If someone makes money on the transaction (or doesn’t), who cares?
Don’t get me wrong, I’m full of schadenfreude right now watching this housing mess unwind… but I have no problem whatsoever with someone making money on their home after holding it for five years. Maybe I’m just crazy that way.
Some of these discussions I find truly bizarre.
ParticipantThis is a really interesting development. A couple of issues/observations:
(1) If all of the institutions involved (and others more indirectly involved in this rolling disaster) had to mark these positions to observed market values there would be a MAJOR fiasco. Otherwise, they wouldn’t be going through all of these machinations and pledging all of this capital TO AVOID THE REAL ISSUE: PRICE DISCOVERY. This is an admission of huge underlying problems.
(2) The assumption behind the establishment of this “super fund” (this description is so rich in unintentional irony I can hardly stand it) is that current market values for this sludge are not a true reflection of economic values. In other words, the issue is liquidity rather than these securities’ true cash flows. This may or may not be the case. No one knows the answer here. It would take a team of knowledgeable professionals weeks to analyze just a handful of these securities properly, which would involve all sorts of Monte Carlo simulations regarding default rates, prepayment rates, etc. Bottom line: Even the institutions that own this crap don’t really know what it’s worth. This super fund is all about buying time in the hope that things will improve. From these institutions’ standpoint there’s no downside to delaying price discovery. Who knows… maybe the securities will ultimately be worth more than their current market values. And if they’re not, then they’re sunk anyway. So why not delay things?
(3)It will be fascinating to see how the market reacts to this news. The bears will say, “A ha! There are major problems out there that haven’t been acknowledged to the public. Stocks should go down.” But the bulls will say, “Party on, dudes! It’s all under control. The institutions are going to form a totally rad super fund that will make these pesky liquidity issues go away. Buuuuuuuuyyyyyyyyy, Winthorpe, Buuuuuuuyyyyyyyy!!” I have no clue who wins this tug of war.
(4) I suspect that things are much worse than the large institutions are letting on. The real problem – the one that won’t go away merely by delaying price discovery – is that these securities are backed by mortgages that a lot of people aren’t paying on, and the collateral values are plummeting. And the situation is getting worse and will continue to get worse for at least a couple of years. Nothing – and specifically not this super fund – will change this fact. As I like to say when discussing this issue with colleagues: “The loans have been made. You can’t put the genie back in the bottle. In the short term it’s about perception. But in the long term these are just a whole boatload of really ugly mortgages and securities. And nothing will change that fact.”
In summary: This reeks of rearranging the deck chairs in the hopes that a big whale will come along and plug the hole in the ship until help arrives. The problem is that, ultimately, I don’t think help arrives for most of these securities. The loans have already been made…
ParticipantThis is a really interesting development. A couple of issues/observations:
(1) If all of the institutions involved (and others more indirectly involved in this rolling disaster) had to mark these positions to observed market values there would be a MAJOR fiasco. Otherwise, they wouldn’t be going through all of these machinations and pledging all of this capital TO AVOID THE REAL ISSUE: PRICE DISCOVERY. This is an admission of huge underlying problems.
(2) The assumption behind the establishment of this “super fund” (this description is so rich in unintentional irony I can hardly stand it) is that current market values for this sludge are not a true reflection of economic values. In other words, the issue is liquidity rather than these securities’ true cash flows. This may or may not be the case. No one knows the answer here. It would take a team of knowledgeable professionals weeks to analyze just a handful of these securities properly, which would involve all sorts of Monte Carlo simulations regarding default rates, prepayment rates, etc. Bottom line: Even the institutions that own this crap don’t really know what it’s worth. This super fund is all about buying time in the hope that things will improve. From these institutions’ standpoint there’s no downside to delaying price discovery. Who knows… maybe the securities will ultimately be worth more than their current market values. And if they’re not, then they’re sunk anyway. So why not delay things?
(3)It will be fascinating to see how the market reacts to this news. The bears will say, “A ha! There are major problems out there that haven’t been acknowledged to the public. Stocks should go down.” But the bulls will say, “Party on, dudes! It’s all under control. The institutions are going to form a totally rad super fund that will make these pesky liquidity issues go away. Buuuuuuuuyyyyyyyyy, Winthorpe, Buuuuuuuyyyyyyyy!!” I have no clue who wins this tug of war.
(4) I suspect that things are much worse than the large institutions are letting on. The real problem – the one that won’t go away merely by delaying price discovery – is that these securities are backed by mortgages that a lot of people aren’t paying on, and the collateral values are plummeting. And the situation is getting worse and will continue to get worse for at least a couple of years. Nothing – and specifically not this super fund – will change this fact. As I like to say when discussing this issue with colleagues: “The loans have been made. You can’t put the genie back in the bottle. In the short term it’s about perception. But in the long term these are just a whole boatload of really ugly mortgages and securities. And nothing will change that fact.”
In summary: This reeks of rearranging the deck chairs in the hopes that a big whale will come along and plug the hole in the ship until help arrives. The problem is that, ultimately, I don’t think help arrives for most of these securities. The loans have already been made…
ParticipantMy advice – worth exactly what you’re paying for it – is to wait until similar units are down to $350K… and reevaluate again. It’s still way to early. Continue to rent for a couple of years.
ParticipantMy advice – worth exactly what you’re paying for it – is to wait until similar units are down to $350K… and reevaluate again. It’s still way to early. Continue to rent for a couple of years.
October 11, 2007 at 2:11 PM in reply to: So you still think that a 50% correction or more is crazy??? #88172ParticipantI don’t think the median price/sqft will decline by 50% peak to trough here in SD in nominal terms. I think we’re down about 11%-12% now (after almost two years) and I’ve been saying for some time that a 35%ish decline is possible. But I may be too bearish on that prediction. Now, clearly, there will be plenty of individual properties that do decline by 50% and more, but that’s not the “market,” those are anecdotes.
Recall that the government will help (however little) to put a floor on the decline by way of cockamamie bailout schemes and the Fed will fire up the inflation furnaces. In addition, you’ll see plenty of money enter the market once we start seeing larger price declines. Despite its issues, SD is still widely considered one of the more desirable places to live in the U.S.
Clearly, a 50% drop in the median p/sqft isn’t impossible. But it seems HIGHLY unlikely even under the most bearish interpretation of the data. Although I’d welcome it, I just don’t see it happening. Just my two cents.
October 11, 2007 at 2:11 PM in reply to: So you still think that a 50% correction or more is crazy??? #88176ParticipantI don’t think the median price/sqft will decline by 50% peak to trough here in SD in nominal terms. I think we’re down about 11%-12% now (after almost two years) and I’ve been saying for some time that a 35%ish decline is possible. But I may be too bearish on that prediction. Now, clearly, there will be plenty of individual properties that do decline by 50% and more, but that’s not the “market,” those are anecdotes.
Recall that the government will help (however little) to put a floor on the decline by way of cockamamie bailout schemes and the Fed will fire up the inflation furnaces. In addition, you’ll see plenty of money enter the market once we start seeing larger price declines. Despite its issues, SD is still widely considered one of the more desirable places to live in the U.S.
Clearly, a 50% drop in the median p/sqft isn’t impossible. But it seems HIGHLY unlikely even under the most bearish interpretation of the data. Although I’d welcome it, I just don’t see it happening. Just my two cents.
ParticipantBrightside, DaCounselor, et al…
I spoke with the head of my building’s HOA about this (he was also the building’s developer) and he said (I’m paraphrasing):
“In all but the most unusual cases – that is, situations where there might be an issue with the CC&Rs or the property’s title insurance – the institution that forecloses on the property must pay the accrued unpaid HOA dues or else they will not be able to legally transfer the title of the property to a new owner.”
A friend of mine who’s the CEO of a local bank said the same thing in so many words.
Now, they may be wrong; laws may have changed; or whatever else, but the impression I get – and there’s a certain logic to it – is that the owner of the property (whether it’s the original owner or a financial institution) must cure any issues with unpaid HOA dues before legal title will transfer to a new owner. Having said that, maybe the law varies to some degree depending on the circumstances. I’m just reporting what I’ve been told by people who should know about such things.
ParticipantBrightside, DaCounselor, et al…
I spoke with the head of my building’s HOA about this (he was also the building’s developer) and he said (I’m paraphrasing):
“In all but the most unusual cases – that is, situations where there might be an issue with the CC&Rs or the property’s title insurance – the institution that forecloses on the property must pay the accrued unpaid HOA dues or else they will not be able to legally transfer the title of the property to a new owner.”
A friend of mine who’s the CEO of a local bank said the same thing in so many words.
Now, they may be wrong; laws may have changed; or whatever else, but the impression I get – and there’s a certain logic to it – is that the owner of the property (whether it’s the original owner or a financial institution) must cure any issues with unpaid HOA dues before legal title will transfer to a new owner. Having said that, maybe the law varies to some degree depending on the circumstances. I’m just reporting what I’ve been told by people who should know about such things.
ParticipantThere were four fewer business days in September versus August. If you remove that factor, Trustee Deeds in September were 3% below August figures. Also, as mentioned above, these numbers jump around a good bit. You’ll notice that Trustee Deeds declined from 457 to 408 between Jan and Feb of this year, and from 738 to 686 between June and July. It looks as though we’re on track to average over 1,000/month next year considering all the dynamics in the market (mainly more ARM re-sets through next year). Bottom line: one month does not a trend make.
ParticipantThere were four fewer business days in September versus August. If you remove that factor, Trustee Deeds in September were 3% below August figures. Also, as mentioned above, these numbers jump around a good bit. You’ll notice that Trustee Deeds declined from 457 to 408 between Jan and Feb of this year, and from 738 to 686 between June and July. It looks as though we’re on track to average over 1,000/month next year considering all the dynamics in the market (mainly more ARM re-sets through next year). Bottom line: one month does not a trend make.
ParticipantEx-SD has it right. The unpaid HOA fees accrue until the unit is sold. Once the unit is sold, the unpaid HOA fees are paid to the HOA. The lender keeps the rest (assuming there’s no equity left). The problem for HOAs, though, is that this is a long process. In addition, the HOA’s management company is going to charge additional fees to keep track of this stuff.
Participantsdsundevil, you stated that “I have always failed to see the purpose of this site as it has predicted a fall in housing prices since ’03 I believe. Well, it took 3 years, but things eventually got there.”
Where to begin… First of all, the purpose of this site is to discuss SD (and elsewhere) housing. Good, bad and other. I thought that was obvious. Logically, given its nature, most of the people here are housing bears to some degree or other. Yes, it took another two years (’03 to ’05) for prices to level off and begin to fall. Likewise, many stock market bears were complaining about the Nasdaq in ’97… it took another three years for valuations to start falling. Does that mean the early bears were wrong? Does it mean that their viewpoint was invalid? Does it mean that they were to be ignored? I think you see my point. Your argument here is a version of the Straw Man Fallacy.
Rents have been discussed here on many threads. Your statement, “I have always stated that rents never go down” is most unfortunate because it’s 100% incorrect. And to read this statement should logically make one question the validity of anything else you have to say, fairly or unfairly. In fact during the early 90s SD rents did fall – I can’t remember the peak-to-trough number (Rich, you know this number) – but I think I recall it being in the mid-single digit percentage range (maybe 4%-6%). Far less than house prices fell, to be sure, but they fell nonetheless.
Regarding the use of “bubble” and “bursting” this is all a matter of semantics. I could argue that prices falling by 20% over a 2-3 year period is a bursting and you could argue that it’s not. This is a tomato/tomahto issue. It’s probably not worth discussing. I will say this however… if you talk to the average person who bought a house in 2005 for $500K and asked them 3 years later after their house was appraised at $420K whether or not they felt a “bubble had burst” I’m going to bet they would say, “yes.”
ParticipantHLS, I think we have some confusion regarding terms. When you say, “I don’t think that there are many institutions that hold these loans,” I think you mean many “depository institutions.” Correct me if I’m wrong. (Otherwise, you point out correctly that pension funds, insurance companies, hedge funds, etc. own lots of these mortgages via CDOs, CMOs, etc. – these are undoubtedly “institutions.”)
While it’s true that most of these funky loans are wrapped up in securitizations and are not owned by depositories, a HUGE amount – in the hundreds of billions – are still sitting on the balance sheets of traditional depositories like Downey, First Fed, WAMU, Wachovia (formerly Golden West), Countrywide Bank, etc. Believe me: the thrifts and thrift-like banks are sweating this situation – they’ve got boatloads of direct exposure to the dreck.
Regarding bank money market funds, yes, technically you’re correct that “A bank money market account that is NOT FDIC insured could also have exposure.” But this is a bit misleading. The exposure here is largely to the money market fund “breaking the buck,” so to speak, because some portion of its short-term investments go sour. I defy you to find a single “bank money market fund” that is not FDIC insured.
There may be a very VERY small handful of traditional banks in the United States that don’t carry FDIC insurance. But their numbers are so small as to be inconsequential. FDIC insurance is a sine qua non of operating a traditional bank.
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