Wednesday, September 12, 2007

'An Artificial Economy'

From the Central Valley Business Times:

A total of 9,477 properties – with a total loan value of $3.86 billion – were sold at auction in California last month....Speculator-owned properties (non-owner occupied properties) accounted for $1.71 billion of that total and represented 44.3 percent, or 4,199 of the properties sold at foreclosure auction.
...
The Central Valley holds half of the spots in ForeclosureRadar’s top ten counties for auction sales. San Joaquin County was ranked second in the state, the same position it held in July in ForeclsoureRadar’s figures. Stanislaus County was fourth, Sacramento County fifth, Yuba County sixth, and Merced County ninth. The rankings are based on population per foreclosure sale.
From the Stockton Record:
The California economy's soft landing is turning bumpy - with the housing slump, mortgage credit crunch, high-energy prices and dampened consumer spending providing the pot holes - but forecasters still predict no recession.
...
Sean Snaith, Business Forecasting Center consultant, said housing is the primary drag on the U.S. and state economies. "Housing is worse than I thought it would be and I think it's primarily due to the subprime issue," he said Tuesday, referring to risky mortgages made to borrowers whose credit ratings are less than perfect, or subprime. Hemmed in by rising loan payments, tighter credit and declining housing prices, such borrowers are increasingly falling into foreclosure...Snaith continues to predict an economic "soft landing, but a longer runway before we take off again. That's just the whole burden of the housing correction."
...
[T]here are potential pitfalls to what the Anderson Forecast calls a "near-recession experience." "No. 1 is if something other than real estate starts to turn south at the same time," [UCLA economist Ryan] Ratcliff said Monday. One potential problem would be if layoffs now associated with the mortgage-lending sector cut more deeply than currently expected.
From the Wall Street Journal:
"This recession in housing is more severe than the 1990 and 1991 downturn," Ms. Zelman said in an interview. "It could have a much broader impact on the economy than people realize, and it will be longer in duration." Ms. Zelman...[the former housing analyst at Credit Suisse who warned about trouble in the housing market months before the downturn] says proposals to bail out struggling homeowners might help, but "I don't think it will do enough to forestall the inevitable: that the consumer is going to roll over."
From the Associated Press:
Much of the nation is now in a housing slump, and an Associated Press analysis of new census data provides insight into the reason why: Since 1990, homeowners have faced a growing gap between their incomes and the price of their homes. The widening gap in all but a few of the nation’s 500 largest cities helped make the recent boom in housing prices unsustainable, analysts say. The rising prices were fueled largely by low interest rates and risky borrowing rather than increasing incomes.

“We had an artificial economy,” said Brad Geisen, founder of Foreclosure.com, a Web site that lists foreclosure properties. “There was all this wealth created in real estate, and it wasn’t really created.”
...
Nationally, the median household income grew by about 60 percent from 1990 to 2006, roughly matching inflation. At the same time, the median home value — the point at which half were more and half were less — more than doubled....
From the Stockton Record:
When Louise Wohl bought her one-bedroom, one-bath Lodi condo in August 2005 for $180,000, she was delighted with her first home purchase. She financed the entire purchase price at a 6.25 percent annual interest rate, leaving a monthly payment of less than $1,175 - not easy to make but doable, she said.

Then in July, she got a letter from the lender saying her adjustable-rate loan was jumping after the initial two-year set rate to the going rate of about 8.25 percent. This, she said, was news to her, and bad news at that, because she can't afford the $200 jump in the monthly payment. Plus, she faces another adjustable-rate mortgage boost in six months....

"I talked to three different people, and none of them could help me," she said...[One] said, well, just try to hang in there. "I was like, OK, I guess I could make the payments if I don't buy gas and eat." She isn't sure what will happen now. "I wish I had never bought," she said. "I would have been better off renting."

12 comments:

smf said...

What bright minds! Not...

First it tells you that 'investor' homes make a disproportianal amount of foreclosed homes.

Then another idiot tells us that the problem is the subprime mortgages that were made.

???

if the level of speculation was low, then I could agree with the subprime mortgage issue. But with low speculation, the prices would have never gone so high as to necessitate exotic mortgages to finance them.

The problem was that housing became a commodity, and was traded as such. This completely unbalanced the whole market, leading to the current problems.

patient renter said...

"The California economy's soft landing"

150+ mortgage lenders gone, a dozen hedge funds and counting, the nation's biggest home lender tapping emergency credit and striking bailout deals to continue operations, the nation's biggest banks retrieving money from the Fed's credit window, major investment firms showing serious signs of weakness, unemployment starting to rise... and this is soft? As Mish would say, maybe, on Mars.

patient renter said...

oh, and I also should have mentioned, the insane numbers of layoffs in financial services, lending, and housing related industries. Soft? Tell it to the people in the unemployment line.

SacramentoCrash said...

"I'm not a real estate bum,"

"I wear diamonds, Rolexes and necklaces. I'm a classy Realtor."

ROTF LMFAO!

http://tinyurl.com/29d3bg

Lander said...

From the Palm Beach Post:

While most everyone now agrees that 2005 was a bubble, Snaith still sticks to his “housing soufflé” analogy.

“The credit crunch in mortgage markets is a new twist and an unexpected ingredient in the housing soufflé,” he writes. “It will weight the soufflé down and likely cause more of a decline in prices than otherwise would have been the case.”

Anonymous said...

"I'm a classy Realtor."

OMG that was a riot

RMB said...

Wow, I'm not really sure I would want to take any type of forecast from an economist that missed what what is happening in the housing market and then dismissed it as "no one could see this coming". I've said it before, Snaith is a moron and god help those that took his advise (mainly Stockton)

Cmyst said...

It's such horse hockey that we aren't in a recession.
A year ago, I was saving hundreds of dollars a month, and now I'm barely breaking even.
And I'm not the only one. An elderly client confessed to me a few days ago that she had been subsidizing some grown children and grandchildren. She was rightfully getting irked, though, because they live in a $500k home and have multiple new vehicles, and they also own their own businesses which she says have been losing money like water through a sieve. She told me that she isn't going to give them any more money and that she believes that they need to sell their home and some of their cars, and rent an apartment! (And this lady and her family have lived comfortable lives for generations.)

sb322 said...
This comment has been removed by a blog administrator.
HOUSE2008 said...

Um ok then. From homes to nukes. Have a general question concerning the housing implosion. Maybe there are some financial people here that could explain to me how the gov't would be able to put this off till the next election cylce? Some general ideas? Like extending the 2/28 loans to a 4/28 loan? Would banks do that? What threats or leverage could this White house use to silence or "bring into line" the big banks to stave off an implosion?

You know this President is looking more like Nero of Rome than I care to like. Except he's burning this country from the inside out from Moral ineptness ( Habeus Corpus, Constitutions), to economic negligence (New Orleans, housings market, & now Financial institutions, Enron, Countrywide), to well blaming the burning of Rome on the Christians(Al-Queda). Seems I've read this in history before...The U.S. IS burning except this type of burn is "smokeless". But thank goodness Mr. Presidents oil fields are making $80 a barell! All hail the Thief..Ops, Chief.

Cmyst said...

I don't think they'll be able to push off economic disaster past December.
At this point, no matter what they do, it's a done deal. Raise interest rates and Wall St., which is exhibiting all the signs of bipolar disorder already, will go straight into panic. Lower the interest rate, and the dollar, which is dropping like a lead balloon, will edge ever closer to toilet paper status.

HOUSE2008 said...

cmyst..
and the dollar, which is dropping like a lead balloon, will edge ever closer to toilet paper status.

Actually I did see a 4 rolls of toilet paper on sale at a store for a dollar....The roll is the better deal..:)But wait, it was made in China eh, what's a little lead in the arse....