[powayseller]

According to Dean Baker of the CEPR, “Economists almost never forecast recessions. I happened to get a copy of the “Blue Chip” top 50 forecasters projections for 2001, dated Sept. 2000. Not one forecaster in this group projected a recession. In fact, the lowest growth projected by any of them for 2001 was 2.4 percent. Keep in mind, the stock market had already begun to unravel at that point, so it shouldn’t have been too hard to imagine that there would be some economic impact.”

The above is amazing! We had a 2000-2001 recession, and NOT one of these guys realized it, even though there were already IN the recession! It just blows my mind.

A few economists, as well as Bill Fleckenstein and Barry Ritholtz, are predicting recessions, and the signs are there if you look at the leading indicators (see my thread on leading indicators based on Elliott’s work), but which of the mainstream economists are predicting this recession?

[powayseller]

bmarum, I back up my statements with data, and I wish you would do the same. I’m still waiting for you to list the occupations with 50% salary increases. I will take your punches when I am wrong, and right now the ball is in your court to do so.

[powayseller]

Hybrid Loan Time Bomb. Warning: you need courage to read that link. The ARM problem is big, IT IS 12% of SFH LOANS!

There may not be a way to refinance out of it, because rising defaults and new FDIC regulations will tighten lending standards. Most of the ARM market is sub-prime mortgages, and those people have a high chance of NOT qualifying for a refinance next year, under tighter credit standards.

You all can get mad at me for seeing “black”, but it simply does NOT look good for exotic lending. It’s downright scary, and it is the factor that us bears believe will really pop this bubble.

Some snippets from the above link.

Senior Economist of the Mortgage Bankers Association, senior Michael Fratantoni, says that the five-year adjustables that were issued during the refi craze of 2002-03 are a concern.

“The estimate is that in 2007, more than a trillion dollars worth of hybrids are going to hit their first reset date,” he said.

That one chunk of hybrid loans represents 12 percent of the $8.8 trillion in single-family home loans outstanding nationwide.

“We don’t have enough data to know how big a problem this will be,” said David Berson, chief economist at Fannie Mae, the nation’s largest mortgage packager.

Paul Kasriel, chief economist at Chicago-based Northern Trust, wrote that “Asset bubbles are characterized by cheap credit. Usually what bursts a bubble is higher cost of credit, because that is what inflates the bubble, is cheap credit.”

Making matters worse, it is the the sub-prime lenders issuing the most adjustable-rate mortgages. With those who participate in the survey, 80 percent of their loans were ARMs compared to 55 percent in the broader market.

[powayseller]

SD Realtor, I actually LIKE realtors. But since this is a housing forum, I post the stories I see. I am sorry if this reflects poorly on the profession. Just as the Enron debacle reflected poorly on accountants, although most CPAs are ethical. Those of us on this forum know that you are one of the good ones.

[powayseller]

I again kindly request data on which jobs in San Diego are going up 50% in the next 3 years. Please name the occupation, and how many of those jobs currently exist. Until then, I think most people with exotic loans will default.

Just think about it – people whose loans reset in beginning of ’08 and can’t make their payments, won’t see their NODs until next summer! We are already down 10% on many homes, and some are back to 2004 pricing. What will happen next summer, when we get the first wave of thousands of NODs?

I did an analysis of the impact of ARMs on CA in another thread. CA and FL had the highest ARM useage in the country.

The question is: how many people with ARMs can handle the 30% – 70% increase in payments when their loans resets? I have yet to get any statistics on how many jobs in San Diego have that kind of quick pay increase. It doesn’t matter how MUCH the job pays, but how much the pay INCREASES.

I don’t recall saying EVERY ARM holder will default, just that MOST will do so. I think that makes me gray 🙂

[powayseller]

bmarum – which jobs guarantee 50% salary increases in the next 3 years?

All you need is 30,000 motivated sellers to lower the prices for the other 1 million homeowners. We have 30K sales/year, and these sales set the price for the other homes. We’ve got 80% of mortgages last year taken as “liar’s loans” and “suicide loans”, so named because they were taken by people who use them as affordability, not financial planning products. I am curious why this bothers you so much. I did not create this situation. I am just analyzing and reporting what I see. Why don’t you sell it if you are worried?

I must say, I am always surprised when people get in a huff about my analysis. If you disagree, give me your data. Getting mad at me doesn’t change the looming ARM reset problem, which is widely covered now in the media.

[powayseller]

VCJIM, are you renting now too? You sound like a sensible man. I supposed we will hear back from sdrealtor that we have no idea if these musicians have an inheritance or record deal coming up… It’s almost funny to hear people defending these loans.

[powayseller]

Yes, I trusted the bank on my first purchases too. I asked the lender, “How much can I afford to borrow?”, because I really had no idea. I trusted that they would lend me only what I could afford, because they have a vested interest in making sure I make my payments. The general rule of thumb, iwth interest rates at 7-8%, was you could afford a house that was 3-3.5 x gross income.

Each time, the lender said, 28% of monthly income can go to housing. My husband and I ALWAYS got a lower loan amount than that, because 28% mortgage plus student loans plus 401(k) plus car repairs or car payments, would be too much money. With our 2nd house, we got a 15 year mortgage, opting to get a house 50% less than what we qualified for. So am the opposite of my new friend, who health care guy, who maxed out on his I/O loan. The guy has kids in high school; he’d old enought to know better.

[powayseller]

The other day, a lady was crying on a radio talk-show, saying that she and her husband lost everything in Arizona, and had moved in with her parents. Her husband was having a very difficult time adjusting to being supported by his in-laws, so he avoided the situation by going out a lot with his friends. I almost wondered if they had a NOD, and could picture that many NODs will end up moving back home with their parents.

Realtors and loan officers tend to defend these loans, but I know realtors who hate them. That’s why these loans are called suicide loans, and the professionals who track these loans, are very concerned about how our country will handle $2 tril resetting by end 08.

[powayseller]

My guess is that a seller who rejects the first -10% offer, would take the second -10% offer. The second low offer might force acceptance that the market has indeed gone down. Any experience with this happening?

[powayseller]

I am not against the oil companies at all. They should charge market value for their oil. I just wanted to explain why they are making record profits, and why their profits are up 3x more than their revenue. They are earning more on the domestic oil, because they benefit from the higher futures market pricing. I don’t know if it’s more expensive to extract – they get government subsidies for drilling/exploration.

[powayseller]

I don’t believe this guy that he is unconcerned. If you ask someone, “Hey, does it bother you that you overpaid for this house by $25K because the seller doubled the commission instead of dropping the price?”, how many people would admit they were a fool, i.e. “Yes, I feel really stupid about now, so I will stop this interview”. How did the appraiser justify this one anyway?

[powayseller]

The stock market lost over $7 trillion, and the Fed “let” people lost all that money.

So far, Ben is still saying we’re in for a soft landing, but the buyer psychology has seriously shifted. What would it take to shift the psychology back, to get people excited about housing?

Another thought: even if interest rates had stayed at 1%, there is a limit to how high housing prices can go with flat wages. There would have been a ceiling anyway. Irrational exuberance usually pops with one event which reverses psychology. Then the downward momentum is as strong as the upward momentum was a few years prior. It is difficult to shift this investor psychology. What would it take for buyers to come out in full force again, i.e. for all of us fence sitters to jump back in and buy?

[powayseller]

This man got the loan in 2004, so I assume he has a 4% IO loan, making his payments $20K/year or $1666/month. The realtors who emphasize now is a good time to buy because we have historically low interest rates, forgot that people like this technician CANNOT afford a fixed rate loan even at today’s low sub-7% rates. This is a concern. He is gambling with his house. What if rates are higher in 3 years? What if they are double his 4% intro rate, i.e. 8%? This is a big gamble, and he could lose his house. If he could afford the 6.75% rate, he would take it, I think. Since he CANNOT afford it, he is taking the gamble in waiting.

I think the “these loans serve a purpose” argument is poorly served up. 80% of San Diego mortgages last year were of this type, because people could not afford a fixed rate loan, not because they have alternative investments for all their money. There is too much data showing flat wages, increasing household debt, and bankruptcies, NODs, foreclosures. Even the FDIC is now concerned about these loans and are changing the lending guidelines.

He told me that last year they considered leaving SD for a cheaper state. He thought a $200K house in Texas would suit him, but his kids are still in high school, so he didn’t want to move yet. Now he feels he missed the boat. He was concerned about the high property taxes in Texas.

As far as me saying that a 50% drop in RE is irresponsible, I disagree. I can say anything I want. I can say that I think GDP will be 2% next year, interest rates will be 8%, housing will fall 50% over 5 years.

A realtor has a fiduciary duty, and saying that RE in CA only goes up is historically false. That is a lie. Saying that we are running out of land is misleading, because if you look at Japan, you would know that scarcity of land does not correlate with a new permanently higher plateu.

[powayseller]

An I/O loan is interest only, so he is not paying any principal. When will he EVER pay the principal on this loan? He told me his original loan was $500K, but did not deny or say if he has any HELOCs.

In a market of rising interest rates, anyone who is not converting to a loan that is FIXED and PAYING PRINCIPAL, is in over their heads.

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