[QUOTE=Airman Doors, USAF]
So the banks are damned if they do and damned if they don’t.
[/QUOTE]
Lord knows the gubmint is always kicking the shit out of the poor banks.
PS-
I got no problems. Bought my dream house 2 years ago got in on a thirty year fixed, plan on dying here. Five beautiful fenced acres in the Sierra foothills an hour from the ski slopes 2 hours from the beach. Wouldn’t live anywhere else, I love California.
California is ok for me too.
It’s probably because I stick to paying off home loans that are 15 year fixed interest, and then I round up the payment (consistently) to pay the principal down further. Even through 2 recessions and an upcoming 3rd one…I only have less than $40K left to pay on my current house.
[QUOTE=Ravenman]
Errr… why do I feel like I’m the one being the libertarian here, and you’re… not? I’m not following where the coercion is happening. Banks are coercing homebuyers to take loans? Consumers are coercing banks to give out those loans? Please help.
[/QUOTE]
The coercion came from Congress, not banks. Coercion takes two forms: (1) physical force, and (2) deception. Both are a means to the same end — to cause a man to act against his own volition. The 1999 deregulation legislation was authored by the insurance, banking, and securities industries, a privilege for which they paid more than $300 million dollars (a lot of money back then), including more than $1.5 million to Phil Gramm himself (chairman of the Senate Banking Committee).
[QUOTE=Algher]
Are you arguing that the inflation numbers are poppycock?
What part of the CPI do you disagree with?
[/QUOTE]
I disagree that the CPI numbers from the last ten years accurately reflect increases in the cost of goods and services. Seeking to reduce the COLA for growing entitlement programs, the “basket” of fixed goods traditionally used to calculate CPI was made rather more nebulous in the early 90s. The new basket allows for product substitution (so you’re taking always the least expensive of “equivalent” products), has geometric instead of arithmetic weighting (so you’re no longer taking a straight average of price increases, you’re taking the n[sup]th[/sup] root of a product; this effectively gives the lowest numbers in a list more clout), and allows officials to actually lower the prices of goods in the basket to less than what you or I would pay for them if there have been improvements over previous versions (so a car or a TV that was 10% more expensive than last year might be put in the basket with a make-believe price tag that shows it costs less today, just because it has a new ABS or a glowy remote control.)
You can calculate inflation with the old basket of goods, of course, but that won’t give you rates of 2-3% – more like 5-7% over the last eight years. (Caveat: this is not my calculation, but it correlates better with my experience than the official CPI).
I absolutely agree that, while the government bears some responsibility for setting the stage, the responsible actors in the housing tragicomedy are the borrowers who signed documents they didn’t understand. But with the whole American dream mystique, and the shady real estate “professionals” out there (I had one agent tell me about how 9/11 changed everything and really made people want to settle down; he was so full of this smarmy low cunning that I wanted to mash him up with some chives), and with the trust that people want to put in bankers and financial services professionals, I can imagine it might have been difficult not to seize on that chance.
Did anyone here sell a house at just the right time and make a killing? Would anyone here ever consider refunding some of that to the person who bought your house, if the house price dropped dramatically over the next year and the buyer was struggling? I’ve thought about it, and I don’t know whether I could stand knowing that each little piece in the nice fat lump of my lucky windfall was, in effect, coming out of that poor sucker’s paycheck for the next thirty years.
Askeptic, I’m very jealous that you have acreage in the foothills. I guess I concede that some parts of California are tolerably beautiful and reasonably clean, and where you are is one of 'em. I honestly looked at places up there, but your two hours to the sea is more like four with traffic and I can’t stop working just yet. Congratulations to you, too, Yeticus Rex!
What IS the deal with California real estate? Who can afford to live in these places? How much does the average worker make to justify a 3/4 of a million dollar house? I watch those rehab shows and am continually shocked by how expensive homes are in California:
“The buyers paid $350,000 for this 2 bedroom, 1 bath 1950 craftsman bungalow. After $75,000 in renovations, they are putting it on the market for $699,000.”
:eek:
To be fair, it’s not just California that’s out of whack. Florida, Arizona, and Hawaii have all seen housing prices skyrocket.
We’re just beginning to see the effect of the ARM loans that unscrupulous lenders offered to ignorant home buyers. When we refinanced a few years ago, a loan officer tried to talk my husband into an adjustable rate mortgage loan at a time when interest rates for 15 year fixed loans were under 5%. It was laughable to see the officer squirm when my husband, the financial advisor, asked him what the cap was on the interest rate once it fell out of the introductory rate. “Um, well, we don’t anticipate interest rates to increase dramatically in two years…”
The government of Canada is doing the same thing here, Lowering lending standards, in this case, allowing the state owned mortgage insurance co. to insure 0 down mortgages on investment properties. We were musing around the office about it’s implications, but I suspect another run-up in markets across the country that are already overheated.
I don’t really get the moral outrage myself. I won’t buy a house because it’s too expensive. I decide how much I want to pay, and I’m perfectly happy renting. It’s just another part of the American entitlement complex that they are pissed off that houses are too expensive - who cares? If some sucker wants to pay x amount for that shit pit, let them. I guess since I work in real estate, they’re all just stucco boxes to me.
[QUOTE=Throatwarbler Mangrove]
I don’t really get the moral outrage myself. I won’t buy a house because it’s too expensive. I decide how much I want to pay, and I’m perfectly happy renting.
[/QUOTE]
Whether you rent or own, if housing prices are not matched by rising wages, then it becomes more difficult to put food on your table and clothes on your back. Surely you can see the problem with that. When exacerbated by skyrocketing fuel costs, people who are suffering the most are the people with the least. Hence the moral outrage.
[Quote = throatwarbler mangrove]
It’s just another part of the American entitlement complex that they are pissed off that houses are too expensive - who cares? If some sucker wants to pay x amount for that shit pit, let them. I guess since I work in real estate, they’re all just stucco boxes to me.
[/quote]
It’s just another part of the real estate broker entitlement process that they don’t care that houses are too expensive. More money in their pocket!
[QUOTE=Throatwarbler Mangrove]
The government of Canada is doing the same thing here, Lowering lending standards, in this case, allowing the state owned mortgage insurance co. to insure 0 down mortgages on investment properties. We were musing around the office about it’s implications, but I suspect another run-up in markets across the country that are already overheated.
[/QUOTE]
Uh-oh. I thought we were going to avoid the worst of the American Disease, but now I wonder.
[QUOTE=illoe]
Fuck you, Ben Bernanke. You too, Alan. In fact, frogging fuck the whole fucking Federal reserve and all its past and future associates. Way to punish the prudent with another interest rate cut, jams-for-brains…
…I saved diligently, thinking “some day, sanity will return to the housing market, and on that day, I will be able to settle down and be part of a neighborhood and maybe have a family.” That day is a lot farther off now that my savings are worth shit.
[/QUOTE]
In fact, Bernanke had you in mind when making the rate cut. There is tremendous concern over just how deep the sub-prime problem goes; it seems that every day now we hear of new billions lost to investors. The Fed is trying to ease concerns in the marketplace. The mortgage market is only as good as the investors who are willing to trust it. If no one invests, then good luck getting your mortgage in the future unless you have either sterling credit, or pay a huge interest rate to offset investors fear of risk. Or both.
[QUOTE=Plynck]
In fact, Bernanke had you in mind when making the rate cut. There is tremendous concern over just how deep the sub-prime problem goes; it seems that every day now we hear of new billions lost to investors. The Fed is trying to ease concerns in the marketplace. The mortgage market is only as good as the investors who are willing to trust it. If no one invests, then good luck getting your mortgage in the future unless you have either sterling credit, or pay a huge interest rate to offset investors fear of risk. Or both.
[/QUOTE]
Yeah, lord knows Banks and Savings&Loans never used to finance homeloans prior to wallstreet jumping into the secondary mortgage market…
Not really, no. You seem to be assuming that there exists a parity between rents and house prices. In a reasonable, healthy market, this would be true - it should be marginally more expensive to rent than to own, since asset ownership entails greater risk. Markets where the capitalization rates for residential rental properties approach 4% or 5% are clearly in store for a correction, and rents are much more elastic than prices. If the market WAS healthy, that is, incomes supported valuations, well, big deal. Neither scenario particularly concerns me.
Try telling that to someone on the street today.
Why should a real estate broker give two hoots about the price of houses?
[QUOTE=askeptic]
Yeah, lord knows Banks and Savings&Loans never used to finance homeloans prior to wallstreet jumping into the secondary mortgage market…
[/QUOTE]
Of course they did, ya goof. I forget exactly when it changed (Michael Lewis talked about it from the Salomon Bros. end of things in Liar’s Poker), but probably late '70s/early '80s. Packaging mortgages (with specific guidelines) into securities helped to smooth out risk for investors. Before that you could just about forget getting a home without having 20% down payment. Banks only want to lend to people who don’t need the money. The creation of the secondary market opened things up to people (like me) with good credit who wanted to get into a home.
Banks and S&Ls aren’t prepared any more to handle these operations. Even the most scrupulous just want to broker the loan, and sell it as fast as possible to avoid risk. If they do get back into this, they’ll want to cover themselves by charging more interest.
There is nothing wrong with the secondary market per se, just with the bizarre instruments that have been created over the last several years where all the guidelines and restrictions were thrown out the window.
[QUOTE=Plynck]
There is nothing wrong with the secondary market per se,
[/QUOTE]
Seems to me that there is something inherently wrong with seperating loan originators from risk. There was nothing wrong with requiring 20% down when house prices were not artificialy high due to unrealistically low interest rates. It was precisely these new “products” that were offered by people who bore no risk that has driven up the price of homes. Many people are screwed and the market will go through an adjustment. Fortunately I was able to get into my dream home at a very good fixed interest rate, at this point inflation only helps me. So I have no dog in this fight.
[QUOTE=Throatwarbler Mangrove]
Not really, no. You seem to be assuming that there exists a parity between rents and house prices.
[/QUOTE]
There is a correlation between rents and house prices because the homeowner must cover his expenses, including energy costs (heating/air conditioning) and increased real estate taxes due to the appreciation of the property. He will either absorb the increase or, more likely, pass those increased costs onto his renters.
[QUOTE=Throatwarbler Mangrove]
Why should a real estate broker give two hoots about the price of houses?
[/QUOTE]
When houses don’t sell, brokers don’t make commission. Then the can’t pay their rent.
Did you read the thread, or even my entire post? The whole point of an asset BUBBLE is that the price of the asset is inflated to far beyond it’s ability to generate income. If those dotcom companies were all making the profits that they theoretically needed to justify their valuations, there would have been no dotcom bubble, would there?
Why should a real estate broker give two hoots about the price of houses?
[QUOTE=askeptic]
Seems to me that there is something inherently wrong with seperating loan originators from risk. There was nothing wrong with requiring 20% down when house prices were not artificialy high due to unrealistically low interest rates. It was precisely these new “products” that were offered by people who bore no risk that has driven up the price of homes. Many people are screwed and the market will go through an adjustment. Fortunately I was able to get into my dream home at a very good fixed interest rate, at this point inflation only helps me. So I have no dog in this fight.
[/QUOTE]
There is nothing wrong, the problem is that when they started bundling up those loans - the Investment Banks did not do a good job of checking up on the loan originators. Instead, as soon as defaults started rise they started claiming that “We never knew that you guys were writing loans to just about anybody! You bastards, we want all of our money back.”
Then the mortgage orgination firms started going under.
I had no problem with the Investment Banks refusing to buy any more mortgages (or putting more of a risk discount onto the price), but the I-banks certaily didn’t seem to want to play Caveat Emptor, so the lending institutions got nailed.
Please note - I have no sympathy for the lenders either. They played fast and loose as well. I just think that a lot of the guys bundling up loans chose NOT to look to closely at the data making up the bundles, and their expressions of outrage that some of the borrowers were not quite what they seemed sounds like they were channeling Captain Renault.
[QUOTE=illoe]
I disagree that the CPI numbers from the last ten years accurately reflect increases in the cost of goods and services. Seeking to reduce the COLA for growing entitlement programs, the “basket” of fixed goods traditionally used to calculate CPI was made rather more nebulous in the early 90s. The new basket allows for product substitution (so you’re taking always the least expensive of “equivalent” products), has geometric instead of arithmetic weighting (so you’re no longer taking a straight average of price increases, you’re taking the n[sup]th[/sup] root of a product; this effectively gives the lowest numbers in a list more clout), and allows officials to actually lower the prices of goods in the basket to less than what you or I would pay for them if there have been improvements over previous versions (so a car or a TV that was 10% more expensive than last year might be put in the basket with a make-believe price tag that shows it costs less today, just because it has a new ABS or a glowy remote control.)
You can calculate inflation with the old basket of goods, of course, but that won’t give you rates of 2-3% – more like 5-7% over the last eight years. (Caveat: this is not my calculation, but it correlates better with my experience than the official CPI).
[/QUOTE]
Sure, but if you ignore the growth of Wal Mart type cheap products, you OVERstate inflation. You also have to adjust to note that tires last longer, more services are available, etc. If you don’t like CPI, use PPI and other factors if you like. You can build a hybrid model to track (and many economists do just that).
[QUOTE=Throatwarbler Mangrove]
Why should a real estate broker give two hoots about the price of houses?
[/QUOTE]
Because the price of houses directly affects how hard they have to work to make a living. My dad sells houses in Bethany Beach DE, where a single house one block from the ocean can go for $1M-$2M depending on its age, condition, and features. With a single sale, he can earn as much as an elementary school teacher makes in a year. Five miles inland, a real estate broker has to sell between ten and twenty houses to make the same amount of commission.
One sale per year vs. one sale per month is a big difference in effort expended to get the same reward.
No, it doesn’t, not in a reasonably efficient market. 1) Broker commissions are negotiable. Hell, we’re talking about big business and big money here - everything is fuckin’ negotiable. 2) Generally speaking, brokers are payed what they are worth, just like anyone else. Do you think someone buying a $50,000 property pays the same rate of commission as someone buying a $20,000,000 property? More to the point, do you think the guy selling the $20m property just pays the same commission without question?
Now, in a rapidly rising market, yeah, even shitty realtors can make money somehow, but it’s due to the VOLUME of transactions, not the absolute price.
Now, the VOLUME of transactions is another matter entirely, but it isn’t necessarily correlated with absolute prices. For example, in my city of Calgary, downtown office space is some of the most expensive in North America. The reason being that everything is already leased up, and there’s nothing left to lease. As a broker, that sudden appreciation in rental rates(price) hasn’t really been a good thing - There’s no money to be made if no one has anything left to buy/sell/rent, even if the few transactions that do occur occur at higher absolute prices.