CNN has had several articles like this over the past few weeks.
I began thinking, what is the purpose of us being inundated with news of foreclosures? Who’s behind this? Is this a push by the Fed to get people to buy homes so they don’t have the lower the interest rates again?
I just strikes me as odd as I’m currently looking to buy a home in one of the most overinflated housing markets, and I’m not really seeing a lot of foreclosures. There are lots of shitty houses out there with high asking prices, though.
If I were thinking about buying a home, news of rising foreclosures would not propel me out into the housing market. In fact, I would delay any purchase, if I could. Housing prices go up a lot faster than they come down, at least in my experience.
I dunno, DG, I’ve been paying attention to housing bubble news for about two years and I’m surprised it took the mainstream media so long to recognize the size and scope of this mess. I live in the Southwest corner of Bubble Central™ and, among the property listings that my search spits out and sends me every day, I see 2 or 3 foreclosures each week. Most of them are in sorry shape and, so far, none of them look like much of a good deal.
If you really want to be alarmed, go to RealtyTrac and search your zip code for foreclosures, pre-foreclosures, auctions and bank owned houses (they don’t give you much other useful information unless you buy their service, though). Mine’s got 143 for auction and 43 bank owned.
Holy Toledo, my area has:
754 in pre-forclosure
109 in auction
212 Bank
and yet a 3 bedroom house will cost you 400 thou or better. It looks to me that the mortgage companies’ bubbles may be bursting but no such thing is happening to the housing prices.
While there will be people who try to make this looks like Bush’s fault; I’m having a hard time linking any of Bush’s policies to making this possible.
Isn’t this more the blame of those people who made poor decisions in their mortgage process? Variable rate mortgages look nice in the beginning, but since we were at a low point in the interest rate cycle, everyone should have been able to figure out that at some point it would go up.
It was all over the news (CNN, NPR, local TV, Fox all ran articles about the bull market for months). Everyone was being told that the market was the “bestest evar” from 2001-2005.
The financial markets didn’t help, with predatory lending practices, potential over-inflation of housing values and Wall Street investors backing subprime mortgage securities beyond their potential to recover the investment.
Just compare the median income in an area with the median asking price, and notice that, in a lot of places, that median family would have to spend 80+% of their pre-tax income on mortgage payments (using a standard fixed mortgage). Now that the silly, absurd subprime mortgages are no more to be found, it means that there is a vanishingly small pool of buyers who could even potentially pay as much as the houses are listed at.
And most of those people aren’t stupid enough to buy right now, when things are obviously overpriced.
Sellers are either delusional and think it’s still 2005, or they figure they can’t sell for less because they have to pay off their 0% down liar loan for more than the house is now worth. Going by foreclosure prices around here, I don’t think banks have gotten the memo yet, either.
There’s more than enough blame to go around - but it may come to rest on the bond raters. These were the guys who rated bonds composed of the poorest or risks as the same AAA rating as US T bills. (Of course, they had a financial stake in rating bonds higher than they should - something that helped out). So big brokers/hedge funds etc. took these “safe” bonds off the hands of the guys who put them together. In their heart of hearts they probably knew better, but these bonds were rated as safe as could be so why not buy a bundle.
Since the original lenders sold them right away they bore no risk - so why not print money in their basement by giving low interest loans to anyone with a pulse and then selling those loans immediately to suckers who would get stuck when the mortgage holders defaulted.
One thing that is interesting is that - just like the Irag war - for the past 2 years the “experts” on Wall St. have proclaimed that we’ve seen the end of the slump and that things will turn around by the next quarter only to find that in the next quarter things have gotten even worse. Just like the Iraq war - the higher up and more expert the person, the more wishful thinking has taken the place of analysis or realistic assessment.
Real estate is a local business. That means newspapers in your city more than likely derives a major percentage of their advertising revenue from real estate related industries. The same goes for car dealerships, if you’ve never noticed. That means there’s always a reluctance in local media to post bad news about local real estate, although national figures are fair game.
When they DO have to report, they will bend over backwards to report anything BUT lower prices - the market would be “slow”, or “dead”, or “cooling”. Anyone who thinks about that for a moment would realize that’s the same as saying “that house that sold for $400k isn’t really worth $400k”, but reporters loath having to come out straight and say it.
Real estate prices are generally “sticky” on their way down. To take the example of bank foreclosures, the banks are loathed to lower prices, because if they end up selling a house they paid $400k for for $150k, that’s a loss that has to be registered immediately, where as if they hang on to it in the hopes of finding “that one buyer who doesn’t know what’s going on”, they can forestall registering the loss for a little longer. It doesn’t sound like much, but if you multiply that inertia up and down a big organization, it makes prices sticky. A useful figure to keep track of would be inventories compared to historical inventories. Like Walrus said, if inventories are huge and prices are so far out of whack with income, either everyone is suddenly going to get a 300% raise to afford the ridiculous asking prices, or the sellers are going to blink.
Not everything is ‘‘controlled’’ by any group/person/etc.
How anyone could propose this has anything to do with Bush or anyone else (like those who ain’t in his camp) befuddles me.
Mortgage companies set aside their best practices, ratcheted up their risk and lowered the credit score requirements (partly because bashing credit reporting became vogue). Golly gee, whatya know - - credit history can predict future ability to satisfy loans and it helps lenders evaluate risk! DUH!
Consumers and mortgage companies went in dangerous waters and got into danger: shocking! No person or political party or media conglomerate had a hand in it.
::dusts off Journalism 101 textbook, approaches podium, sighs, begins::
Journalism is the chronicling and analysis of events that affect the human condition. If it affects people, it’s news and it is to be reported. We don’t question whether the reporting of news is generally useful or useless to particular people; it it has the potential to affect people’s decisions about how they vote, how they spend their money and how they live their lives, we not only have the right to report it, we have the duty to report it.
Tomorrow’s lesson: The difference between information and news.
