Tuesday, May 03, 2005

"Are We Setting Them Up For Failure?"

The Mortgage Bankers Conference sounds like crack dealers worrying about their customers. "Thomas Lund, at Fannie Mae,'We don't believe the home prices we've seen, in terms of growth, are sustainable.'"

"'One of the things we don't feel good about right now as we look into this marketplace is more home buyers being put into programs that have more risk,' Lund said, noting that some short-term hybrid ARMs come with prepayment penalties that stay in effect longer than the fixed-rate portion of the loan."

"Those are products for more sophisticated borrowers," Lund said.

"For less sophisticated home buyers, 'does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure?'"

"'Three years ago, interest-only mortgages comprised about 2% of the market, today it's up to 15%,' said William Batz, of Federal Home Loan Bank of Pittsburgh."

41 Comments:

At 9:24 AM, Blogger desi dude said...

Ben,

you and the web site rock!

I cant wait to celebrate when the bubble pops!

You comparison is very apt . Mortgage lenders ---- crack dealers.

 
At 9:26 AM, Anonymous Anonymous said...

I dont get the point of this blog.

Greenspan came out and told us that there is no way to identify an asset bubble before it pops.

So all you retards on this board are just guessing, based on no hard evidence whatsoever.

Home prices have reached a permanently high plateau and you people sound like jealous renters who have been priced out of the market forever.

Quit projecting your doom and gloom on honest hardworking homeowners.

 
At 9:33 AM, Anonymous Anonymous said...

Me thinks thee doth protest too much !

Greenspan is an idiot when it comes to bubbles. Don't you remember the dot com crash ?

Tell us what makes you think homes have reached a "permanently high plateau" ?

As far as just guessing, I think that people on this board have done an outstanding job of finding good data, analyzing it and figuring out where the market is going.

I'd love to hear about your RE holdings. Are you under water on mortgages ? How many houses do you "own" ?

 
At 9:35 AM, Anonymous Hellboy said...

"permanently high plateau"

Hmmm...where have I heard that before?

Last time I checked this blog and the people that post on it are entitled to their opinions just as you are Anon. But it seems you would be better suited going to a bullish blog, just a thought.

 
At 9:36 AM, Anonymous Rob said...

Anon 9:26

Two points

1) I like to hear both sides of any issue. If you watch this blog, you will see plenty of interesting evidence suupporting the case that there is a RE bubble. If you have contradicting evidence, please post it.

2) Nobody is projecting from this Blog, it does not splash out of you monitor into your lap without your conscious acceptance.

 
At 9:38 AM, Blogger desi dude said...

anon
Why dont you read this one??

http://www.msnbc.msn.com/id/7720453/

and comment on this instead of latching on to AG. He also told that there was no bubble in the stock market in 1999/2000. IT did not make it true.

There were lot of people who bought stocks during that time. Should I feel pity for them that they lost. I really dont feel bad if people put their retirement money and gambled on webvan/pets.com etc. They should ahve known and made due diligent effort.

My own portfolio is 10% down even now, but that was the collateal damage for being part of the bubble environ ment.

Similarly if some who who cannot afford a home with 30 year fixed rate mortgage goes and buys a maxed out home based on IO or adjustable rate mortgage(0 down) in the hope of appreciation (and flipping), I dont feel too sorry for them.

There is some thing due diligence in every investment decision one makes. esp the one as large as the home which is probably the largest investment ever.

 
At 9:40 AM, Anonymous Anonymous said...

All the self-congratulatory hoo-raw about rising house prices over the last few years has come at the expense of destroying the dream for people who weren't in the game.

Orange County has damned little land left. I would expect prices to remain in the stratosphere at least until interest rates rise to 4%. Houses may sell a bit more slowly, but recently they've been selling insanely fast.

 
At 9:41 AM, Anonymous Anonymous said...

9:26 Anon is playing games with you.

 
At 9:43 AM, Anonymous Anonymous said...

To anon 9:26,

If you’ve taken the time to read some of the comments on this blog, you’d see that many here are not “jealous renters” but in fact people like me who have bought homes a few years ago and have seen the “value” of these homes skyrocket to levels that are simply outrageous.

I purchased my home in 1999 for 230k and the comps in this area have recently gone for 500K. This is for a 1400sq ft. 3bd 1 ba starter home built in the 1930’s. I’m not so sure about your situation, but I know for a fact that my salary hasn’t gone up more than 100% since 1999. And I thought at that time that my house was expensive.

So count me in as your so called retard who’s wishing for a pop! I’d like to move up to a bigger house, but I’m not going to pay 900K for it.

BTW, you wouldn’t happen to be the person who bought the house down my street last month for 490K with no money down, I/O and 103% financing would you?

 
At 9:48 AM, Blogger desi dude said...

9:40 AM, Anon

"Orange county has very little land left"

I guess you are from a different plant.

Drive along 405/241/91/55/5/ I see lots and lots empty land. they may not have been zoned for residential builds right now. But it is there if the city decides to so!

I knwo this 9:40 AM, Anon is a flame bait, I wouldnt respond again!

 
At 9:48 AM, Anonymous Anonymous said...

i'm the original commentor.

1) they aren't making any more land, especially in california

2) people will always want to live where the weather is nice, like california

3) home prices have never declined on a national basis, EVER. there have only been pockets that slowed down and stayed flat for a while, before shooting straight up again

4) unlike a dot.com stock, you can actually live in, and enjoy, a home.

why are you people so negative? over 70% of americans now own their own home. the american dream. there's no price too high for that satisfaction.

5) i hope this blog is shut down. you people need to get a life and take your chicken-little "the sky is falling" whining elsewhere.

 
At 9:51 AM, Anonymous Anonymous said...

My feeling is that RE flippers are like daytraders in the stock markets. Those flippers are highly leveraged at this point in order to hold a few properties on hand. Similarly, the highly leveraged method being used can be viewed as using margins to purchase stocks.

There's no margins call in RE. However, if you miss a couple of payments while holding the properties, foreclosure will come.

IMHO, flipping RE is probably more dangerous than daytrading stocks. Liquidity in RE is much slower than stocks. It will take longer to execute a transaction. And the leverage is much higher than stock. For stocks, you can only margin up to 50% of the stock value. On the other hand, RE allows you to margin up to 100% (Zero down).

For flippers or non-income property holders, your mortgage payment is equivalent to margin interest.

Of course, the higher the leverage, the bigger gain you can reap...but also, the bigger loss you will feel.

 
At 9:53 AM, Blogger John Law said...

(Hmmm...where have I heard that before?)

perhaps you read galbraith's "the great crash."

 
At 9:57 AM, Blogger Melody said...

5) i hope this blog is shut down. you people need to get a life and take your chicken-little "the sky is falling" whining elsewhere.

So why are you here? I feel that this blogs brings out all concepts and scenarios regarding real estate. You must be an interest only buyer. So sad my friend.

 
At 9:59 AM, Anonymous Anonymous said...

Anon 9:40

I think I sense a bit of buyers remorse coming from you. If you were that confident in your current position as a homeowner you wouldn't have even come across this blog in the first place.

 
At 10:00 AM, Anonymous Anonymous said...

Unlike you sad little men, my husband just purchased a home with a fixed rate mortgage.

no matter what happens to interest rates, we are fine.

and people who moan about new creative mortgage financing options are just bitter losers who wish they could afford to get in on the action.

here's a hint- marry someone who actually makes a decent living.

 
At 10:00 AM, Blogger Ben Jones said...

This blog gets shut down every day, for an hour or two, because there are thousands of people logging on.

 
At 10:00 AM, Blogger deb said...

I am just finishing up "The Great Crash" right now. It always amazes me how the same thing (bubble-type speculation) can happen over and over. The number of very intellegent people that can't or won't see it is mind boggling. That people actually have the nerve to use phrases like "new paradigm", "permanently high plateau", and the like, leaves me speechless.

 
At 10:05 AM, Anonymous Rob said...

Original commentor:

(This is really Ben shaking things up huh?) Anyway this is fun, so by the numbers....

1) "they aren't making any more land, especially in california"

Last I heard, they wern'tmaking any more in Japan either.

2) "people will always want to live where the weather is nice, like california"

What people want is not necessarily what they can afford.

3) "home prices have never declined on a national basis, EVER. there have only been pockets that slowed down and stayed flat for a while, before shooting straight up again"

I'll give you that one for the most part. They have declined, but you are right for a short time.

4) "unlike a dot.com stock, you can actually live in, and enjoy, a home."

Also, true.

"why are you people so negative? over 70% of americans now own their own home. the american dream. there's no price too high for that satisfaction."

I don't think it is a matter of being negative, just as it would not necessarily be negative to sell a stock becasue you thought the P/E was too high, just prudent.

And I am a proponent of homeownership, I own my future retirement home but am renting where I live. As for the 70% number, I would be happy about it if it were based on sound financial footings.


5) "i hope this blog is shut down. you people need to get a life and take your chicken-little "the sky is falling" whining elsewhere."

By whom, the Blog police?

 
At 10:27 AM, Anonymous Anonymous said...

original anon, Do happen to the the hamburger engineer at Carls Jr. I talked to last night?
He said he just bought 2 houses in Santa Barbara with ARMs and no money down.


1) they aren't making any more land, especially in california

Millions of Californians are moving out of California, You can keep all the space to yourself. Just hope the state and cities get enough tax from you guys to survive the account deficit. You're going to pay up to $20K a year property tax on a no-so-impressive million dollar house.

2) people will always want to live where the weather is nice, like california

and live in a crampy million dollar home and pay 10% state income tax?

3) home prices have never declined on a national basis, EVER. there have only been pockets that slowed down and stayed flat for a while, before shooting straight up again

Even the FDIC reports show nation wide decline in 89 and 90.

4) unlike a dot.com stock, you can actually live in, and enjoy, a home.

why are you people so negative? over 70% of americans now own their own home. the american dream. there's no price too high for that satisfaction.


Lots of us here are home owners or just sold our homes. Isn't it ridiculous to see mortgage and property tax payments double or triple just to upgrade a from 3-bedroom to a bit larger 4-bedroom one when you family grows?



5) i hope this blog is shut down. you people need to get a life and take your chicken-little "the sky is falling" whining elsewhere.

You should be grateful we are warning you beforehand.

 
At 10:33 AM, Anonymous Anonymous said...

"Unlike you sad little men, my husband just purchased a home with a fixed rate mortgage."

Sometimes people that are concerned about their financial situation can't handle discussions like this because they don't want to let the facts interfere with their pre-conceived opinions. So sad that you are going to lose your butt when the bubble pops.

Besides, if you want only happy news about how great the housing market is, all you have to do is listen to the cabal of mainstream media who are all parrots of the RE/Mortgage machine. At least this blog offers a contrary opinion. But, being a Stalinist, you don't like contrary opinions.

And another thing: you are a complete idiot for believing anything that Greenspan says. He is the master of double-speak, and even has his own language called "Greenspeak".

 
At 10:34 AM, Anonymous djb said...

Although I assume that our anonymous commenter is simply attempting to provoke controversy, I think it's worthwhile pointing out what I think is a misconception. Namely:

"home prices have never declined on a national basis, EVER. there have only been pockets that slowed down and stayed flat for a while, before shooting straight up again"

Robert Schiller's index for real (inflation-corrected) housing prices actually shows a decline in the national market from 1890-1940. (see p. 13 of the 2nd ed. of Irrational Exuberance). That's 50 years of decline!!! It's clear that modern economies are not immune to such prolonged periods of decline-- look at Japan over the last 15 years. So, it can happen.

 
At 10:37 AM, Anonymous Anonymous said...

Ben,

Be careful who let post on this blog - based on writing style I would venture that you've been invaded by a bullish real estate pumper that I've read comments from on other forums.

This person is notorious for belittling renting and pumping real estate no matter what. They also do a great job of insulting others. Sort of like implying that a man without a house, is not going to get women (See a post above).

Removing such posts would be a welcome change from other boards that allow such nonsense.

 
At 10:39 AM, Blogger SoldAtThePeak said...

I appreciate the (mostly) civilized discussion on this blog, especially when our viewpoint is challenged. It is good to hear from an "outsider" because in this microcosm of housing bubble blog readers the distortions are so obvious! Posts such as that from the "desparate housewife" (9:26, 9:48, 10:00 anon) help give perspective as to why this has gone on so long.

 
At 10:40 AM, Anonymous Anonymous said...

To Anon at 10am who said

"Unlike you sad little men, my husband just purchased a home with a fixed rate mortgage. no matter what happens to interest rates, we are fine."

You may be fine but how will you feel about the value of your house dropping like a stone if interest rates rise - best of luck

 
At 10:41 AM, Blogger The Original Anon said...

10AM anon writes: "Unlike you sad little men, my husband just purchased a home with a fixed rate mortgage."

Unlike you sad little wife, some of us have marriages that will survive the next few years.

 
At 10:53 AM, Blogger Ben Jones said...

(Removing such posts would be a welcome change from other boards that allow such nonsense)

I want to avoid that if possible. I have only deleted one post, ever. In a way, the frustration of homeowners is to be expected and we can probably expect more. It is the price to pay for having the freedom of anon. posts, etc. We can track the "angry, fearful" post index, starting today.

If it gets ridiculous, I can delete a post faster than one can type boo!

 
At 10:56 AM, Anonymous Anonymous said...

Anon 10:00

"here's a hint- marry someone who actually makes a decent living."

Alas, now I understand how you are qualified to form your opinion, you attend the "Soccer Mom" school of economics, where you chat with the other Mom's about how much your home is worth now. Fast forward 1-2 years, same Soccer Mom's talking about how much less their home is worth.

BTW: I own 6 rental properties and love the concept of owning real estate, I am currently looking to buy more rental properties, just not in the overheated areas. I am also a Realtor who sees things from the front lines and I have seen this situation before, it will reverse and values will go down.

 
At 10:57 AM, Blogger dwr said...

This comment has been removed by a blog administrator.

 
At 11:00 AM, Blogger dwr said...

"there's no price too high for that satisfaction."

If price truly is no object, wanna buy my house?

 
At 11:02 AM, Anonymous Anonymous said...

Hello, fellow housing bloggers.
You all jumped on "hurray positive guy", but I want to jump on the first comment in this topic. I, too, wait for bubble to blow up in the face of "hurray public" but celebrating it, is simply over the edge. I think someone who cherish these kind of feelings making himself and people around him a lot of disservice. I have no any joy in seeing agony of misinform public.
And on diffrent note.
70 % of homeownership of nation is a great thing, if it is the result of sound economic policies, increased wages and savings. But at this moment it is the trap. Nothing else. Many of those owners may very soon realize that they have no job or wages supporting payments, then no equity or home and , even worst, their credit history is ruined for years to come.
Disclosure. I am real estate broker and investor for 10 years now, and I rent.
Mike C., Chicago

 
At 11:05 AM, Anonymous Anonymous said...

Anon 9:48

You forgot to throw in

6) Demographics have changed.

7) The huge pool of Baby Boomers are driving the market.

LOL

 
At 11:08 AM, Anonymous Anonymous said...

"retards" and "sad little men"???
Debts and loans may break your bones, but names will never hurt me.

 
At 11:30 AM, Blogger Thomas said...

Price of 3-bedroom crackerbox ranch house in the cheapest area of Newport Beach (the Harbor Highlands "girl streets") in 1998 = $399,000.

Price of same house in 2005 = $1.4 million.

Is there any precedent at all for any asset, let alone one that hasn't increased in productivity, tripling in value in seven years, and remaining at that high level?

 
At 11:31 AM, Anonymous Anonymous said...

"Home prices have reached a permanently high plateau and you people sound like jealous renters who have been priced out of the market forever."

Stock prices have reached what looks like a permanently high plateau. - Irving Fisher, Yale economist, 1929.

Few days later, stock market crashed, never to recover for at least a decade.

 
At 11:36 AM, Anonymous nostradamus said...

Anyone who uses the term "retard" is likely quite young. I assume this young flamer, who has apparently married into money, has never known economic hardship. I predict she will have the opportunity to learn about it firsthand.

 
At 11:36 AM, Blogger realist said...

until this blog, most of the bloggers on this site wrote rationally and were above name calling. i hope that this thread is an anomaly.

when there is a bust, no one will be celebrating for long. this will have national and international ramifications. the only thing this country seems to produce, anymore, is housing. the unemployment will be devastating. most local economies center around home building and real estate sales.

the idea that a bust will lower prices, so that those who have been sitting on the sidelines can become home owners, is flawed. when the bust happened in colorado springs in 1988, renters lost jobs and fled the city. lenders redlined the area, and home purchases, even at lower prices, were difficult.

 
At 11:38 AM, Anonymous Anonymous said...

I thought that the market didn't really pass its 1929 high until the 50's??

 
At 11:52 AM, Anonymous Anonymous said...

DONT -- FEED -- THE -- TROLLS!

Clearly, there's a 13-year-old troll on this website. "Retards" is the first clue. Maybe it's a coincidence, but I was also flamed on another housing-related board today.

 
At 12:08 PM, Blogger HAVOC said...

Anon 11:52

What is the other housing board you are reading? I'm always looking for more info.

 
At 3:01 PM, Anonymous bob r said...

...some short-term hybrid ARMs come with prepayment penalties that stay in effect longer than the fixed-rate portion of the loan."

"Those are products for more sophisticated borrowers," Lund said.


Aha! This is certainly news to me. Have many of you out there heard about this? So, they've got you either way...pay the pre-payment penalty or else pay the higher interest rate. Heads they win, tails you lose.

Sophisticated borrowers? Gimme a break. They push these loans on anyone they think they can sucker. Now they're trying to cover their butts. Don't blame them for any trouble down the road!

 

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