Tuesday, March 13, 2007

'Every Party Has Its Hangover'

From the LA Times:

Easy-money loans from New Century Financial Corp. and other lenders specializing in borrowers with poor credit helped fuel the housing boom, swelling the ranks of homeowners with people who could not have qualified for mortgages in years past.

But many of these borrowers turned out to be bad bets after all and are beginning to default, forcing some lenders out of business and leading others to stiffen their lending standards.

That could hurt the housing market by shrinking the pool of eligible buyers. In addition, many homeowners with high-risk loans whose rates will adjust upward in the next year or two won't be able to refinance into loans with better terms. That could put some into foreclosure.

"If foreclosures continue to mount — and they are already climbing rapidly — we could see a scenario similar to California in the early 1990s, where banks' sales of foreclosed properties pushed home prices down even further," said Zach Gast, an analyst at the Center for Financial Research and Analysis, an investment research firm.

In some parts of the state — including the Central Valley, the Inland Empire and San Diego — foreclosures have gone from rare to plentiful in a little more than a year. Real estate appraisers say home values are beginning to be affected.

George Hatch, a San Diego appraiser, said he surveyed a group of his colleagues last week. Almost all of them reported that they were running across distressed sales or foreclosures. "There is a flip side to exuberance, which is that every party has its hangover," said Hatch, a 22-year veteran of the business. "When your house loses $100,000 in value, that will make you sick all right."

23 comments:

cba said...

The good news is that SF building permits in the four county area in 2006 were 8,834 compared to 15,629 in 2005. Should be lower yet in 2007.

So the question is how long will it take for the sub prime meltdown to run its course through the market??

fishtaco said...

The sub prime meltdown took another 2% chunk out of the market. So it will basically wipe out the folks that shouldn't have gambled on real estate. What I am wondering, is how it effects others that are not considered subprime? Can it bring down prices everwhere and hurt those that were not subprime debtors?

Gwynster said...

The problem is that a lot of A paper people also took out adjustable mortgages to stretch into a bigger house. What happens when they can re-finance or sell and they can't continue to service the debt?

I don't see how this can be confined to just subprime.

chuck said...

1. There aren't enough Hollywood Movie Stars and Larry Ellison's looking around El Dorado Hills and West Sacramento to buy your 1 million dollar stucco heap

2. If one relies on "state workers" then one must live with the consequences...such as lower income homes and apartments

3. Now where would you rather live? Seattle, Palo Alto or Citrus Heights?

4. Thieves, Crooks, Conmen, Flim Flam Realtors, Mortgage Broker Bandits, and downright Sleazeballs drove the speculative market out of sight...so now things will have to CRASH....

5. The Bandits, Whores and Crooks in 4 above drove the market whacko so now the logical progression of home ownership (fixerupper dumps to better fixerupper dumps, to real classy fixerupper dumps in the Fab 40s has been broken)

And that's the way the cookie crumbles

Prepare for 33 to 60 per cent of the "supposed" value of the home in 05 to be coming soon to your neighborhood....unless you live in Carmel

anon1137 said...

Wall St. is already hinting for a short-term rate cut to help them out of this nasty situation. That will help everyone with an ARM, not just subprime.

All the rate cuts after 9/11 is what created this house bubble in the 1st place.

Cmyst said...

The really crazy thing is that I am still seeing 125% of home value loans being pitched by Ditech (GMAC) -- just tonight, on MSNBC. And I've seen others, recently, as well.
It boggles the mind.

ralphk said...

This doesn't just effect housing.

Recoveries on defaulted auto loans are expected to plummet with buyers no longer being able to house refi their way out of a repo.

I still can't believe some lenders are doing 150% LTV on auto loans. Nuts.

I think we're headed for a lending meltdown.

ralphk said...

Now here's a hangover.

From craigslist:

$7500 NO QUALIFY!!!!TAKE OVER PAYMENTS!!

3 bedroom 2 bathroom plus great room; 1,867 sq. ft.;exclusive Cameron Park area; home is 1 years old; great school district; Appraised for $540,000 .Total loan balance is $515,000. $7,500 down and take over monthly payments of $3,800 month.

Gee, only $3800 month. Or I could rent something bigger for around $2000. Tough decision.

fishtaco said...

Here is our government (and our tax dollars) to the rescue (from the Washington Post):

Several lawmakers, including House Financial Services Committee Chairman Barney Frank (D-Mass.), said they would offer legislation to rein in risky mortgages. Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) told reporters that Congress will have to consider providing several billion dollars of aid to at-risk homeowners.

Ah-ha, several billion that the government will have to borrow, since it is running in the red itself. Where does the insanity end?

anon1137 said...

Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) told reporters that Congress will have to consider providing several billion dollars of aid to at-risk homeowners.

Several billion that will go directly into the pockets of those unfortunate investors who bought the securitzed bonds sold by New Century and others, but will only prolong the inevitable for borrowers who got in over their heads.

And why not? Several $B is chump change - less than a week's worth of spending on the Iraq war.

Patient Renter said...

Dodd is starting to piss me off now by even daring to consider a bailout. For god's sake, LEAVE IT ALONE!!!! It's ironic that the GSEs which were created to help make home ownership available for the common man have instead ended up subsidizing ridiculous loans and driving up prices out of reach of the common man. The more the govt. interferes with the market, the bigger the mess.

wimpyVO2max said...

Patient Renter: it was the lack of government oversight that led to the R/E bubble. If the gov't had some reasonable regulations on LTV, minimum down payment, etc., this whole mess wouldn't have happened.

Just like 1929, when government has a hands-off attitude and lets the "free market" run rampant, the excesses invariably turn into crashes.

Dvo said...

Great find, RalphK.
And you're right about endless Sac Valley Huge Mcmansion rentals in the 2000ish range. The wife and I keeping considering it...but at what price your soul, huh?

...speaking of losing one's soul, you really need the pix of this beast/eyesore/monstrosity to get the Pathos of it all.

http://tinyurl.com/26fus7

My favorite:
"Appraised for $540,000"

Ahhhhh...HA HA HA...wiping eyes...HA HA HA HA...oh, the schadenfreude...HA HA HAAAAA...

Dvo said...

Great find, RalphK.
And you're right about endless Sac Valley Huge Mcmansion rentals in the 2000ish range. The wife and I keeping considering it...but at what price your soul, huh?

...speaking of losing one's soul, you really need the pix of this beast/eyesore/monstrosity to get the Pathos of it all.

http://tinyurl.com/26fus7

My favorite:
"Appraised for $540,000"

Ahhhhh...HA HA HA...wiping eyes...HA HA HA HA...oh, the schadenfreude...HA HA HAAAAA...

fishtaco said...

Who is that guy in the picture peaking in the front window. Having him in photo of the house sort of adds to the sad desperation of the ad. scary.

Patient Renter said...

"Patient Renter: it was the lack of government oversight that led to the R/E bubble. If the gov't had some reasonable regulations on LTV, minimum down payment, etc., this whole mess wouldn't have happened."

On the surface, government oversight always seems like an idea, but in relieving one problem it almost surely creates another. Asset bubbles occur from time to time and they always pop eventually. Having the government get involved in the mix just further throws things out of whack, IMO.

In this case, having the govt. get involved at this point either by lowering interest rates to relieve the pain or by attempting to bailout homeowners somehow is just going to keep prices artificially inflated, causing more people to buy into the inflated prices setting themselves up for an eventual fall. The resulting pain is worse.

fishtaco said...
This comment has been removed by the author.
Patient Renter said...

Exclusive cameron park, hahahahahaha. Tell that to my drug dealer neighbors back when I lived there. Granted, I'd move back there, but fancy realtor terms like "exclusive" and "prestigious" are just pathetic nowadays.

buying soon said...

anon1137 Said"And why not? Several $B is chump change - less than a week's worth of spending on the Iraq war."
Yes, lets not fund the war. I remember the joy of 9-11. I can't wait until they release all of the Guantanamo prisoners. Maybe these misunderstood people can stay at your house. I like the fact that we haven't had any terrorist attacks since then. So I will keep paying my $30k per year in taxes to keep our freedom from there attempted reign of terror. OUT

paranoid renter said...

Government bailout is the reason why I'm paranoid. This is perhaps the single biggest factor that could keep the market from falling to a point where I would feel comfortable buying. Looks like I may be priced out forever (or at least until I'm really old!).

ralphk said...

Every time gas prices soar, the government is outraged and promises to hold hearings to get to the bottom of the abuses by oil companies.

This is no different. Smoke and mirrors. By the time they ever got around to actually doing something, the crisis will be over and the homes will have been long foreclosed.

Diggin Deeper said...

anon1137 said...

"Wall St. is already hinting for a short-term rate cut to help them out of this nasty situation. That will help everyone with an ARM, not just subprime."

Could help but its not necessarilly the case. A rate cut will drive the costs down for a new loan, but it won't help those that bought and have no equity to back the LTV requirements. If the home is even or upside down, no one's lending without collateral equity or money added to the deal. The financial industry has knee-jerked qualifications such that even prime borrowers will have a difficult time qualifying to the new standards. A rate cut would eventually force down the interest rates on our beloved treasury bonds that finance our trade deficit. With China setting up an investment fund to diversify some (reports are $200-400 Billion) of the Trillion dollars they hold, a cut would could force them to re-evaluate their return on that investment vehicle. They would be able to get much higher returns diversifying into other currencies. Europe and others are raising their rates to offset perceived inflation. Also a rate cut would further damage the dollar, and threaten the economy with deflation which the Fed desperately wants to avoid.

This whole lending situation is delicately interwoven with complications and it might be best if the fed did nothing at all.

Happy Sam said...

"Appraised at $540,000"...In the summer of 2005!