Skip to comments.Housing Bubble — the Sequel: Here we go again
Posted on 08/22/2013 8:14:07 AM PDT by SeekAndFind
Here we go again. Having just recently endured a one-hour phone conversation with my friend Steve, a mortgage broker, Im a little bit confused and somewhat worried. Since most of the houses sold in the past year have been all-cash transactions, combined with the fact that mortgage applications have fallen off the cliff, I asked Steve if that means that the average person is no longer a buyer. Steve replied, Define the average person. I articulated, Its not someone who pays all-cash because I know thats the technique on Wall Street, and I also know its a select few because mortgage applications are few and far between. Steve then pressed me, Define average. I replied, In the past, its always been a young man with a good job, he has a wife and two kids, and hes looking for a nice home. Steve laughed, Really Opie, hows Aunt Bee? Taken slightly aback, I said, Okay, Andy, whos the new buyer? Steve answered with the sound of deep concern in his voice, Think 2006 all over again. The NINJA loan, which had been languishing in the auto sales arena, is starting to get life again. The so-called house flippers are back with a vengeance. And those that walked away with a short-sale are now well rested, theyre alive and well and back in the game. In other words, its déjà vu all over again.
It would appear to me with all political rhetoric aside that the players who benefitted the most from the last housing debacle are definitely back in action. Its a notorious group that includes the brokers, the banks, and of course, Wall Street. This infamous gang is also currently singing the familiar song of this time, its different, and regrettably, it appears that the general public has once again fallen in love with this very memorable tune.
Steves final conclusion was quite simple. The number of people who are buying at these artificially induced price levels are the same people he dealt with several years ago theyre a little older and grayer, but still none the wiser.
If Steve is right, and I have no reason to doubt him, then this most recent ever-increasing housing bubble will result in falling rents, Wall Street IPOs, bank inventory dumping, and then homeowners will be subjected to concern, worry, and outright panic. Oh, wait a minute, isnt that whats happening right now? Yet, after the dust has settled, according to Steve, Maybe the average guy will emerge and all the others who surrounded him will have fallen by the wayside. My response: Yeah, right.
Indeed, for all that to happen, we would need Gomer Pyle to wave his magic wand and shout Shazam!
Housing Bubble Redux...
ANYBODY who believed the White House Crap story on the economy and housing recovery has “thit” for brains!
People need to fully understand what will happen to the equity in their homes when interest rates rise.
I told him it was my understanding the heat up in housing was due largely to investors. He said that was the case up to 3-4 months ago. Now, it's an awful lot of people buying for their primary residence.
Which is, of course, a good sign.
Unless they have an ARM and the Interest Rates go up. DUH!
There was no warning for the people who got killed in the early 90s, nobody had ever lost a dime in Northern Va. real estate prior to that time. I have a much harder time feeling sorry for anybody who's been upside down since then.
Uhhh, yeah. That's always the case, no matter who is purchasing & for what purpose. But you get a gold star today for pointing out the obvious.
I do real estate in Las Vegas. I am gearing up for the rush as investors see the current top and panic so they are on the last musical chair.
I just don’t believe in theories based on anecdotal stories.
This blip of an article is based on a phone call between two people that we have to assume existed. Neither person has full information on what’s happening in the broader economy or even in the next town over.
Our house has been on the market for 15 days now without a serious bite. Supposedly the Phoenix housing market is hot but we have only had one call this week.
Recently a realtor in Central Florida told my BIL (who was selling his house) that 70% of the sales in CF were FHA 3% down.
My nephew, who makes good money but carries a lot of credit card debt & is always two paychecks away from broke, bought a home a few months ago on an FHA 3% down & 3.75% interest 30 year loan.....with a Beacon score of barely 650.
The wife & I have scores over 800 and had to put 20% down when we bought in 2006. Refinanced a few months ago and had to have 20% equity in the house.
Is this Looking Glass Land?
With FHA giving out 3% down mortgages it’s not going to take much of a downturn in housing prices to wreck havoc in Central Florida.
Sales of foreclosed or marginal properties effect the comps and appraisals of homes sold that are in top condition in the same neighborhoods.
That’s not to say that the later sells for the price of the former, but it does cut 5% off the top in my experience recently selling a home.
There is a lot of foreclosed property in some of the bigger markets that has been sat on or rented. As that comes on the market, it will help keep the prices from getting too heated, but yes, we are seeing the flippers again.
Wells Fargo to lay off 2,300 mortgage workers Wells Fargo is laying off workers from its mortgage unit, the latest sign that the mortgage refinancing boom has cooled. The San Francisco-based bank said it sent 60-day notices to about 2,300 mortgage ... Associated Press56 mins ago
Seems to me with interest rates going up 30 year mortgage applications go down ....and everyone jumps on an ARM mortgage.
>>Housing Bubble Redux...<<
In my opinion, the start of the last housing bubble was the passage of the tax law that let people cash in on the sale of their house tax-free after living in it for only two of the past five years. That change in tax law made housing, at the time and at those prices, one of the best investments out there. This was preordained. Changing to a much more favorable tax treatment will nearly always lead to an upward repricing of an asset class.
Unfortunately, it also often leads to a bubble, as more and more people pile into the investment just because “it keeps going up.” And in the case of housing, it nearly always had gone up, so the people who warned of unsustainable prices were simply ignored with a “never happened, never will” sort of comment.
Unfortunately, Congress left the existing law in place, so the same incentives are in place. A house remains one of the most tax-favored investment vehicles in the country, and so people are going to invest in it for reasons beyond simply having a place to live. So, you’re right, it’s “housing bubble redux” time. However, it’s probably way too early in the process to call a top. I suspect it’s really just getting started again.
For info purposes: The old tax law was already favorable in that people got a one-time forgiveness of capital gains tax and could avoid any tax owed on previous sales if they re-invested in a new house at a higher price within a certain period of time. The effect of that law was to have most people defer the tax until retirement when they moved into a smaller residence. This made housing a good long-term investment, but not suitable for the sort of flipping that the present law encourages. Today, you could own several houses simultaneously and eventually avoid the taxes on all of them simply by moving into each for a couple of years before selling them.
If the market is indeed "hot" then you are overpriced. Simple as that.
Selling stuff is easy if you are pragmatic about it. Price it at a dollar and it will sell immediately, price it at a billion dollars it will never sell. Somewhere in between is the sweet spot, and the closer you are to the sweet spot the quicker it will sell. If you are in a hurry to sell lower your price.
Spot on and thanks Bill Clinton. That’s when RE went from a narrow elite investment to a mania.