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patientrenter
Participant“All of these efforts sound nice and fuzzy, but they don’t address the ultimate bagholders though”.
The ultimate bagholders are:
A. Investors very hungry for yield, and unable to find much because of a wave of “global liquidity” coming from prodigious savings of the Chinese and some oil producers.
B. Future generations of taxpayers who will pay off the additional government debt incurred by the various new guarantee and rescue programs that FNMA, FDIC etc.
are all busily working on right now.C. Chinese and other foreign institutional investors buying dollar-denominated bonds subject to inflation/devaluation losses.
Where do you direct the pain? Igniting inflation sends it to C. Congress can direct it to B. Doing nothing will send it to A. Likely, all parties will be asked to take some. The one place that Congress doesn’t want the pain to go to is the voters, i.e. homeowners, in their district. So which of the above 3 is least likely to hurt current homeowners?
What if the price drop in San Diego never exceeds 20-30%, and the rest of the country dips just 10-15%? Then maybe Congress will just go for A. But if price drops in SD exceed that, other areas of the country are likely to be hit hard too, and that will probably trigger some B and/or C.
Patient renter in OC
Participant“All of these efforts sound nice and fuzzy, but they don’t address the ultimate bagholders though”.
The ultimate bagholders are:
A. Investors very hungry for yield, and unable to find much because of a wave of “global liquidity” coming from prodigious savings of the Chinese and some oil producers.
B. Future generations of taxpayers who will pay off the additional government debt incurred by the various new guarantee and rescue programs that FNMA, FDIC etc.
are all busily working on right now.C. Chinese and other foreign institutional investors buying dollar-denominated bonds subject to inflation/devaluation losses.
Where do you direct the pain? Igniting inflation sends it to C. Congress can direct it to B. Doing nothing will send it to A. Likely, all parties will be asked to take some. The one place that Congress doesn’t want the pain to go to is the voters, i.e. homeowners, in their district. So which of the above 3 is least likely to hurt current homeowners?
What if the price drop in San Diego never exceeds 20-30%, and the rest of the country dips just 10-15%? Then maybe Congress will just go for A. But if price drops in SD exceed that, other areas of the country are likely to be hit hard too, and that will probably trigger some B and/or C.
Patient renter in OC
ParticipantNovice, I think JWM has it right.
Buyers who don’t have enough money saved in the bank to qualify for the loan they need, or to pay other costs, are able to buy, and will often pay lots more than more cautious and solvent buyers, because of cash back. The price increase will exceed the amount of cash back in a lax lending environment. So it’s a net gain for the seller.
Think about it. Let’s suppose the best price you can sell for without cashback is $800,000. The buyers are all Piggingtonians who have a spare 20%, or $160,000, ready in their bank account, and will borrow only $640,000.
Now instead you offer it at $1,000,000 with $100,000 cash back. Buyers who have only $100,000 in their bank account can (and this is the fraudulent/misleading part) get someone (a relative or friend if they’re going the ‘legal’ route, or an agent of the buyer otherwise) to deposit another $100,000 in their bank account, anticipating repayment from the cashback transaction at closing. They qualify for an 80% loan of $800,000 (with cooperation from an appraiser who needs a paycheck). The net result is that the buyer pays $100K, the lender pays $800,00, and you (the seller) net $900K instead of $800K.
Patient renter in OC
ParticipantNovice, I think JWM has it right.
Buyers who don’t have enough money saved in the bank to qualify for the loan they need, or to pay other costs, are able to buy, and will often pay lots more than more cautious and solvent buyers, because of cash back. The price increase will exceed the amount of cash back in a lax lending environment. So it’s a net gain for the seller.
Think about it. Let’s suppose the best price you can sell for without cashback is $800,000. The buyers are all Piggingtonians who have a spare 20%, or $160,000, ready in their bank account, and will borrow only $640,000.
Now instead you offer it at $1,000,000 with $100,000 cash back. Buyers who have only $100,000 in their bank account can (and this is the fraudulent/misleading part) get someone (a relative or friend if they’re going the ‘legal’ route, or an agent of the buyer otherwise) to deposit another $100,000 in their bank account, anticipating repayment from the cashback transaction at closing. They qualify for an 80% loan of $800,000 (with cooperation from an appraiser who needs a paycheck). The net result is that the buyer pays $100K, the lender pays $800,00, and you (the seller) net $900K instead of $800K.
Patient renter in OC
Participant2 more interesting posts from Calculated Risk on stretching mortgages even more…
Contributed by Alternative Reality:
http://www.iht.com/articles/2007/07/05/business/rate.php
In this International Herald Tribune article, there’s a reference to mortgage servicers in England buying homes and renting them back to the original owner. Lenders take a bath on the loan amount, but probably get a better deal than if they sold it on the open market, and it keeps up the values of other properties that do have to be sold. Evidence that ingenuity and a willingness to take on more risk is not scarce yet.
Contributed by Jim:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/06/BUGHQQRLUC1.DTL
In this San Francisco Chronicle article, there’s a reference to the lender accepting a share of future home appreciation as payment. This form of loan was widely offered in England years ago. Yet more evidence that many lenders are ready to rely heavily on risky future appreciation, even from very high prices today, and that still enables the industry to use creative ways to “get you into the house” at any price, no matter how high.
Patient renter in OC
Participant2 more interesting posts from Calculated Risk on stretching mortgages even more…
Contributed by Alternative Reality:
http://www.iht.com/articles/2007/07/05/business/rate.php
In this International Herald Tribune article, there’s a reference to mortgage servicers in England buying homes and renting them back to the original owner. Lenders take a bath on the loan amount, but probably get a better deal than if they sold it on the open market, and it keeps up the values of other properties that do have to be sold. Evidence that ingenuity and a willingness to take on more risk is not scarce yet.
Contributed by Jim:
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/07/06/BUGHQQRLUC1.DTL
In this San Francisco Chronicle article, there’s a reference to the lender accepting a share of future home appreciation as payment. This form of loan was widely offered in England years ago. Yet more evidence that many lenders are ready to rely heavily on risky future appreciation, even from very high prices today, and that still enables the industry to use creative ways to “get you into the house” at any price, no matter how high.
Patient renter in OC
ParticipantNeighborhoods: Costa Mesa, Huntington Beach, Irvine, Mission Viejo, Laguna Niguel, Aliso Viejo, Lake Forest
Condo/House: Condo
Price Range: $190K now, $300K next year
Size Range: 800-1200 sq ft, 2bd + garage
Currently (Rent/Own): Rent
Shopping the Market?: Just internet and newspaper. Real places and prices are still too depressing.Patient renter in OC
ParticipantNeighborhoods: Costa Mesa, Huntington Beach, Irvine, Mission Viejo, Laguna Niguel, Aliso Viejo, Lake Forest
Condo/House: Condo
Price Range: $190K now, $300K next year
Size Range: 800-1200 sq ft, 2bd + garage
Currently (Rent/Own): Rent
Shopping the Market?: Just internet and newspaper. Real places and prices are still too depressing.Patient renter in OC
ParticipantI don’t think there’s a bottom to the market, radelow, over limited periods.
Over longer periods, existing homes have to compete with the option of buying land and building on it. So home prices converge to the price of land plus the cost of building. But the bottom to land prices is just about… zero. It doesn’t happen often, but 1996 was pretty close, at least by today’s standards.
Patient renter in OC
ParticipantI don’t think there’s a bottom to the market, radelow, over limited periods.
Over longer periods, existing homes have to compete with the option of buying land and building on it. So home prices converge to the price of land plus the cost of building. But the bottom to land prices is just about… zero. It doesn’t happen often, but 1996 was pretty close, at least by today’s standards.
Patient renter in OC
ParticipantThanks, Rich.
Patient renter in OC
ParticipantThanks, Rich.
Patient renter in OC
ParticipantI am constantly questioning others here who believe a big price drop (>30%) is in the bag. Nevertheless, I have seen very recent prices on a few properties that truly surprised me. For the last 5 or more years, there wasn’t any such thing as a property with no major problems being offered for more than 20% less than all the others. Now we’re seeing one or two of those in several places at once, and it seems it’s becoming more common very quickly. We know it’s just a sprinkling in the better areas now, and it’s anecdotal.
So do the standard broad price measures show double-digit price drops? Not yet, but it does seem more likely than before. If it happens, it’ll be at the low end first, where inability to pay for loans is most severe. Mortgage investors are beginning to realize repayment of the loan with full interest is a problem, and one no one else will fully take care of for them. A spreading from there to more expensive or desirable markets is not assured, but it makes the higher end markets more vulnerable, and we’ll just have to see how that plays out in 2008 and later.
I don’t see stbh as a troll. His mixture of conviction and evidence is not all that different from many others here, if in a different direction. While we are looking to provide mutual emotional and other support for our position that prices will drop a lot, we should also be challenging group-think, and stbh and others can help serve that purpose.
Patient renter in OC
ParticipantI am constantly questioning others here who believe a big price drop (>30%) is in the bag. Nevertheless, I have seen very recent prices on a few properties that truly surprised me. For the last 5 or more years, there wasn’t any such thing as a property with no major problems being offered for more than 20% less than all the others. Now we’re seeing one or two of those in several places at once, and it seems it’s becoming more common very quickly. We know it’s just a sprinkling in the better areas now, and it’s anecdotal.
So do the standard broad price measures show double-digit price drops? Not yet, but it does seem more likely than before. If it happens, it’ll be at the low end first, where inability to pay for loans is most severe. Mortgage investors are beginning to realize repayment of the loan with full interest is a problem, and one no one else will fully take care of for them. A spreading from there to more expensive or desirable markets is not assured, but it makes the higher end markets more vulnerable, and we’ll just have to see how that plays out in 2008 and later.
I don’t see stbh as a troll. His mixture of conviction and evidence is not all that different from many others here, if in a different direction. While we are looking to provide mutual emotional and other support for our position that prices will drop a lot, we should also be challenging group-think, and stbh and others can help serve that purpose.
Patient renter in OC
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