Comments on: Don't Be Fooled by the Housing Market's False Bottom

By: gerald d

gerald d — Tue, 26 Jan 2010 13:52:17 +0000

thank you everyone for your comments i have learnt and enjoyed reading all.

By: Chris

Chris — Tue, 12 Jan 2010 15:44:18 +0000

As a 17 yr veteran of the Mortgage Biz. I have seen lending go from one extreme to another.
This entire mess did start back in 1997/1998 when Barney Frank decided Banks were not lending to low income and/or minorities. It was the CRA (community reinvestment act) that mandated banks to lend to certain areas/demographics. Together w/ Fannnie/Freddie the banks built a lending model that allowed for lower/no downpayment, and allowed for more liberal debt to income ratios and employment stability.
Banks were rated on how many loans were closed using this model. A bank could not get approval for expansion or could get penalized if not enough of these loans were being made.

After 9/11 we saw a huge increase in the securitization of MBS using the now defunct model of a CDO. The rating agencies were able to put AAA ratings on CDO's b/c of the something known as 'traunching', slicing/reselling slivers of the debt to 'spread the risk'.

THE ONE PROBLEM WITH THIS MODEL: It made two assumptions

1. Housing prices would go up for perpituity
2. The unemployment rate would remain relatively low

The reason for all the 'failures' on Wall St. was b/c everyone thought they were 'protected' by using Credit Default Swaps and other sophisticated financial instruments.

From 2003-2007 my business was 'dead'. This was b/c I didn't orlginate sub prime loans. I was an A paper retail originator and all the loans being done were sub prime.

So you saw a mix of mostly good loans w/ a few bad ones morph into mostly bad loans w/ a few good ones. But hey! If you can get a AAA rating and a credit default swap and have NO SKIN IN THE GAME, what did it matter. The loans were sold before the ink was dry.
Some loans were already delinquent before they had even been securitized.
We are in a new era and I love it!

By: Marie Saqueton

Marie Saqueton — Wed, 06 Jan 2010 19:24:39 +0000

Don't blame all Mortgage Brokers on the housing foreclosures, because the banks offered the NEGATIVE AMORT. PROGRAMS a couple of months after we close escrows, and replaced the good fully amortized loans with their ARM. Ignorant homeowners, who did not read the fine prints of course took the lower mortgage payments. It was a game the Banks played, because they had the malicious intent to sell the notes overseas on the MARK UP PRICES. They victimized foriegn investors and made a lot of profit. Then they cried WOLF and our Congress gave them the bailout WITHOUT AUDITING WHERE THE PROFITS THEY MADE OVERSEAS WENT? GERNMANY LOST BILLIONS ON THOSE NOTES, AND SO DOES UK, AUSTRALIA, ETC,ETC,… ASK CONGRESS WHY WAS THERE NO AUDITS FIRST????

By: Fred Alexander

Fred Alexander — Wed, 06 Jan 2010 16:14:13 +0000

Correct me if I am wrong but it is my understanding this mess was started over minority rights.
The liberals advised Clinton that lenders were not lending in poor areas because they were racists which was false because the real reason was due to poor credit, etc.
Standards were loosened so there would be no excuse not to lend in these areas and this started the ball rolling.
We need to go back to standards that require a down payment, job and income qualification.

By: Jim Gall

Jim Gall — Wed, 06 Jan 2010 15:43:18 +0000

The equation for a Rent/Buy decision is infiitely simple. If the cost to rent is less than the current rate payment on a 100% of selling price mortgage, plus taxes, H.O.insurance, HOA fees, maintenance and appreciation, RENT! The kicker there is obviously appreciation and how to accurately calculate it. If you are a renter, keep track of proces in your neighborhood or where you want to buy. Do it regularly, not less often than every 3 months and be ready to move when the market does. Also, bank the difference, otherwise you have just used the savings to live on.

By: Dennis Norman

Dennis Norman — Tue, 05 Jan 2010 05:11:48 +0000

I think Mr. Hutchinson makes some very good points in this article…in fact they are consistent with my sentiment in many of my recent articles regarding the housing market and it's "recovery"….Back in late August I published a very good article from Charles Hugh Smith from "Of Two Minds" about the false bottom in housing at:

http://realestateconsumernews.com/real-estate-market/beware-the-false-bottom-in-housing/

By: Peppi

Peppi — Mon, 04 Jan 2010 14:38:03 +0000

Finally a commentary that expresses my thoughts. Well done sir! Our housing market is being artificially inflated. It is less expensive and more politically correct to offer incentives than it is to make tax payers absorb a foreclosed piece of real estate. Things are just so rosy. I see more loan defaults in our future directly caused by the current administrations incentive programs. Our finical system is being urged to free up their loaning policies once more. Another democrat named Clinton set this stage.

By: ARC Fleet

ARC Fleet — Mon, 04 Jan 2010 04:54:27 +0000

Real estate is not the issue. Faulty lending practices to maintain sales of real estate is the problem. When lenders relaxed the rules and qualifications for buyers, they followed in the footsteps of the auto industry.
Soon there were so many people trying to make money on the housing "boom" that there were not enough truly qualified buyers. So the process cycled, until people who had no business being approved for loans were in houses they could not afford.
Now, overspenders and unemployed are crushing the market and modest homeowners like myself are feeling the pressure because we cannot refinance without a 720 empirica or 20% equity yet my taxes will bailout the dirtbags that overbought in the brand new subdivision down the street.

By: Duncan

Duncan — Sun, 03 Jan 2010 18:42:15 +0000

Jonathan, now more than ever if you don't know the local market, don't invest. Where I live, (a "prime" section of LA) the current data available for due diligence is very misleading. I've just gone through this with a would-be investor. He did everything right as an outsider, pulled stats on the local rental market. Problem is, the vacancies stats are not up to date. And what he "thinks" landlords are getting in rents is not what the several property managers I know say. Sure, 2006-7 -- but not anymore. There are at least 40 vacancies on my block, and most due to people not being able to pay the jacked-up rents from the bubble times. Landlords are finally coming down in rent, but it's a slow, slow process. Many of them refinanced and cannot cover their mortgages if they reduce rent. The commercial strip near me is full of empty storefronts, so commercial RE is taking a hit. Sure, you can get stats on what those stores rented for last year, the year before. But I can guarantee you they will not rent for those prices this year. Be very careful right now, and for god's sake don't trust salesmen. Go to the neighborhoods and take a few property managers out for a drink. They know what's really happening.

By: Jonathan

Jonathan — Sun, 03 Jan 2010 08:12:34 +0000

I am just thinking of investing in US real estate market after joining with some international investor. How do the locals see in big cities like LA , New York? Is the house affordable? or the rental market yeild is good?
If not I will be putting the money in US tech stocks like Microsoft, Googles, Apples cos that is more safer.

By: Bill

Bill — Sat, 02 Jan 2010 14:48:25 +0000

the author is dead on!

By: Rich

Rich — Sat, 02 Jan 2010 06:05:59 +0000

OK, so I have been sitting back and not buying for all the reasons stated. But my ques tion is—should I be selling?? I have several properties–single family homes a duplex, condos, & multiple unit properties. Most are still above water and I have cash flow, a couple break even, and a couple I have to feed every year. All are positive aftrer taxes–but back to my question—should I be selling some?

I remember hearing when evaluating your stocks—would you buy it today? Some of these I would not buy I would look for them to go lower. IDEAS??

rICH

By: Mark

Mark — Sat, 02 Jan 2010 04:26:56 +0000

No one is going to ring a bell when we hit bottom.

Buy when it is cheaper than renting which is the case in many markets right now. Renting sucks anyhow.

By: ALF

ALF — Sat, 02 Jan 2010 03:36:56 +0000

At last! Thanks to you thoughtful rational people to impart some intelligence to a discussion. There are so many mindless loudmouths who seed the ether with blatent idiocy – it scares me that our country miight lask the wisdon to reverse our course. I feel better after reading what has been said so far.

By: Michael

Michael — Sat, 02 Jan 2010 02:16:07 +0000

Stocks and housing are going to go south. It will just takes stocks a little longer. I rode the recent uptake, but just switched back to longer term stuff. Common stocks are going to tank. Look a this number and then try to tell anyone that the economy is getting better. Japanese GDP to debt is 237% US GDP to debt is 87% but with Afghan and the healtcare debacle, we will be over 125% by the end fo 2010. Japanaese have salary men working 22 hours a week and they partime at the jobs housewifes and unemployed used to take. The companies we bailed out are making killings with that money while raising our rates, and denying us Credit. (Bank of America and US Bank) have done both to me. I cancelled both accounts, paid one off and well quickly pay off the other. They actually helped me but will screw others who needed the credit. My Bank Of America line was 20K and zero balance and they would not lend me 5K. Always on time and paid off. I just sucked it up and took a little out of savings. US Bank card they raised everyones rates 2% irregardless of credit rating just to get a head of the Federal Law. I will never do business with either again, and will direct my government business elsewhere if the rates are better.

We are headed for some darker economic times. Have some cash saved and be flexible. Pick up another job skill. Keep you network intact and your resume updated. America will never be the same.

Keep the change!!!!

By: Mark`

Mark` — Fri, 01 Jan 2010 23:39:23 +0000

To say real estate is comming back anytime soon is suspect at best,Until we get a handle on the unemployment situation,and the banks start lending again ,things will be stagnent for some time
to come.

By: Len

Len — Fri, 01 Jan 2010 23:22:34 +0000

Brandon asked "Why would you want Real Estate to go down? "
Answer- So I can buy a house without committing financial suicide.
I clicked on Brandon's name and it took me to his Real Estate site, no wonder he wants real estate to go up, especially where he is located, in Florida, ground zero in the housing bubble.

Why not admit you have a vested interest in real estate going up Brandon? Afraid it would undermine your credibility as a neutral observer?

BEM's reply
"…another agenda driven report trying to desuade investors from buying real estate"

Where is the agenda? The agenda to save investors from getting wiped out when another wave of housing defaults hit in 2011? If housing were a great investment there would be no need for government intervention. Don't just look at housing in the US, look at housing worldwide. Prices have fallen in most markets all over the planet, banks worldwide are stuck with bad housing loans and shadow inventory, and it was housing/mortgages that led to the global meltdown of 2008. The junk loans are still out there, only now they are owned by the Federal Reserve.
This real estate mess isn't over, not by a long shot, but if you insist on investing in Real estate, by all means do so BEM, just remember what they say about a fool and his money.

By: Jon King

Jon King — Fri, 01 Jan 2010 23:09:34 +0000

Brandon. We only want real estate to come down to where people put 20% down and only pay 2.5 times their verified income. We only want real estate to come down to where it pays to buy instead of rent. Once prices return to those levels, they can feel free to stop dropping.

By: Tom

Tom — Fri, 01 Jan 2010 22:11:04 +0000

could the

By: A Maddy

A Maddy — Fri, 01 Jan 2010 22:09:48 +0000

Newsletter request

By: Bud

Bud — Fri, 01 Jan 2010 21:01:16 +0000

In general, the article is correct, however, in all markets there are a few deals to be found that will not be a "better buy" in two, five, 10 or 20 years. I do expect the overall housing market to have a further, substantial, decline going out five or six more years. If you know a specific R.E. market well and understand value, some properties should be bought when the opportunity arises, including now.

By: Brendan

Brendan — Fri, 01 Jan 2010 20:39:48 +0000

Rick, SRS will always go down in the long run. You need to read up on ETF decay. SRS should not be held overnight, much less until 2011 or 2012.

There's money to be made in SRS, but only on the swings. NEVER hold SRS long term.

By: jim

jim — Fri, 01 Jan 2010 18:44:20 +0000

LOL you are kidding right ! Ive been ivesting for over 30 yrs successfully ! You're a pin head !I guarantee we have an additional 25-40% drop in housing prices !YES THERE MAY BE A FEW EXCEPTIONS . Thats not to say one can't make money investing in this market now ! Im doing it ! YOUR COMMENT ( Once again, another agenda driven report trying to desuade investors from buying real estate ) ONLY SHOWS YOUR IGNORANCE ! YOU MUST BE A REAL ESTATE AGENT AND OR BROKER CAUGHT UP IN THE ( NAR ) PROPAGANDA ! GET A LIFE ….FOOL !

By: Derek

Derek — Fri, 01 Jan 2010 18:23:40 +0000

Martin,

The FHA/HUD requires 3.5% down not 3% down and the rates that have been kept artificially low are the overnight rates that the Fed charges banks. Mortgages are tied to the long bond, not the overnight rate. The reason the Fed has kept rates low was to help business borrow, do well and put people back to work. In turn they help real estate indirectly because if more people are employed, more people avoid foreclosure and stay in their homes. The overnight rate would help adjustable loans but most borrowers want fixed rates today.

As for housing, real estate has been going down since September 2006. This past September was a full three years of declining real estate numbers. It's time for the pendulum to swing the other way. Prior cycles were 8 years up, 2 years down with a 2 year post down cleanup of foreclosures. Since this past cycle was 12 years up, you would think we should be down for 3 years and have a 3 year post down cleanup. That is exactly what is happening. The market is turning back the other way but there is still another 2.5 years of foreclosures to clean out. Since foreclosures keep supply up, prices are on still in check and only mildly improving.

If the government really wanted to help, they might consider allowing cram downs for 30 months where bankruptcy judges could slash mortgage balances, modify loans and keep people in their homes. While I realize this might be very unfair to banks (which is why I proposed a 30 month window after which it expires), it stems the tide of oversupply. Banks shoot themselves in the foot when they foreclose because supply increases hurting their ability to remarket the property for more money. If inventory is kept in check, prices would rise. Say a property is worth $200K and a bank forecloses. Not only is the property going to fetch only $160,000± as a distress sale but it's also one additional unit of inventory driving prices down further. Wouldn't it be better for the bank to just modify the loan to $200K and keep the people in the house? They save $40K that way. The modification could be conditioned by the judge on 5 years of ontime payments or the full balance reverts.

By: Tiffany

Tiffany — Fri, 01 Jan 2010 18:05:06 +0000

Been tracking home prices for the last few years and it's definitely turning for the worst. We're just in the early stages when you look at the data.

http://www.homepricetrend.com