Tuesday, December 04, 2007

'We really just need to let it wash through'

A look at Sacramento real estate market numbers for November:

From the Wall Street Journal:
A government-led plan to freeze interest rates on certain troubled subprime home loans drew criticism both from investors who foresee losses and from some analysts warning that it will merely prolong the pain of the mortgage crisis...Alan Fournier, a fund manager at Pennant Capital Management LLC, Chatham, N.J., predicted that the plan being pushed by the Treasury Department will prolong the pain of the housing slump. He said it would merely delay inevitable foreclosures for some people who can't afford their homes, while allowing holders of mortgage-backed securities to put off marking down their assets. "This reduces the pressure short-term to bring everything to a clearing price," Mr. Fournier says. "We really just need to let it wash through."
From the New York Times:
The Bush administration’s effort to help at least some people in danger of defaulting on their subprime mortgages could affect only a small share of those who took out such loans during the final two years of the housing bubble, industry analysts said today. Though administration officials have yet to agree on crucial details with mortgage lenders and the securities industry, a broadly similar effort by the state of California is likely to help only about 12 percent of borrowers in the state with adjustable-rate subprime loans, according to estimates by Barclays Research.
Average Buyer posts some suggestions for dealing with the housing mess.


Diggin Deeper said...
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Diggin Deeper said...

Hello Japan? Can you tell us how long it took your country to get out of real estate deflation, once your Feds got involved?

Hilliary wants freeze rates and bail out EVERYONE in subprime hell. And just for good measure she wants to set aside $5 Billion to prop up the worst areas.
Hello, New Orleans? Got any singlewides you can spare?

All we need is some half baked idea that will prolong the agony. Somebody launch an explosive into the center of this thing and let's get it over with.

Tyrone said...

Famous last words from Elite:
March 2006:
Well, it appears we have some good news for Sacramento home owners, and bad news for Dr. Lee, who’s waiting to stop renting, and the naysayers at Sacramento Land(ing), who are hoping to be those who told you so when we all go to hell in a handbasket.

Prices rose again in February. Darn, aren’t they supposed to keep falling? Isn’t Sacramento Land(ing) begging for us to call them price drops instead of price corrections?

For those wishing it would do something bad, bummer. For the rest of us, reporting what it’s actually doing, there it is. There’s more of heaven and earth than is dreampt of in your philosophy, Horatio. And come to think of it, even when dropping that was a pretty smooth curve compared to a bursting bubble, wasn’t it? And now it’s on the rise again.

Awww… and just when Sacramento Landing was reporting Central Valley “Bubble Appears to be Bursting”, we had to go screw it up with a price increase.
What a moron. These Realtors are SO incapable of thinking for themselves. The bubble was obvious, and they are obviously idiots. Hell is here, and so is the handbasket.

SacramentoCrash said...

Who is Elite?

A real estate whore?

FYI, prices are down about 30% in some parts of Lincoln, Natomas and Elk Grove

Jacob said...

For the rest of us, reporting what it’s actually doing, there it is.

Except when what actually is happening is bad for reic then they blame the media...


SheWrestles said...

You absolutely have to let this thing run a natural course if the desire is to end the 'crisis' sooner rather than later.

Let things play out as they're supposed to and we'll see sensible pricing more quickly. And when the sensible prices return, people will begin to buy again and maybe we'll see some growth in the area.

Perfect Storm said...

Hey Lander,

Is realtor whore acceptable verbage for this blog again?

KTM 300 said...

I don’t see so many victims. Many of these arm chair specuvestors knew exactly what they were doing. And now they want to cry and claim to be victims. Many of these people bought, and planed to stay in the place maybe a year or two, and then flip up to something else. They would do this three times and become a millionaire after the third move. Let them rot in these houses. If the government comes in with some kind of plan, just watch how much more fraud is committed by people customizing their finances to qualify for the program.

G Spot1 said...

diggin deeper and shewrestles, you both are absolutely right you need to let this thing work itself out.

Sadly, people who bought homes they couldn't afford need to lose them. Rather than try to keep people in their homes, we need to focus on making things easier in the transition.

First, as Buying Time over at Average Buyer suggested, we should forgive the tax normally associated with debt forgiveness. Normally we tax that because people got to enjoy the cash they borrowed. But here, all people did was buy an overpriced home and live in it for a couple of years. Not a huge benefit (yeah, I know, its a benefit compared to those sensible people who rented, but look where they are now). Of course, those who didn't buy the home as a primary residence shouldn't qualify. Flippers and speculators can suck it.

Second, we should find ways to help people through the financial fallout that normally results from the credit rating hit. Frankly, I'm not sure what they best solution here is, but at a minimum we should figure out how to help these people get into decent rentals that they otherwise might not be able to get into because of their newly lowered credit rating. Of course, the market may work itself out on this one with all the vacancies and new renters with lower credit ratings....

The big problem with Paulson's plan is obvious - it just keeps prices artificially inflated. Of course, these banks are going along with it because they think they can better mitigate their losses - i.e., get 80 cents on the dollar via a frozen rate than 50 cents on the dollar through foreclosure and taking possession of an asset declining in value....

Wadin' In said...

Just when I think it is safe to go back into the water, this happens:

Over 357 homes going to trustee's sales in Placer County this week. That must exceed the number transactions for the last month or two. The foreclosure wave is swamping the market.


Simply overwhelming....

Diggin Deeper said...

Tyrone...What a laugher! This blog has been spot on from the very beginning. Powerful orgs with powerful agendas cannot manipulate the truth or the market...

To be a bit bold...in a free market system, history has proven that price controls won't work and NEVER have produced intended results without creating some other risk element that ends up consuming the intended benefits.

It's naive to believe that banks will cap rates and accept artifically low payments because its the benevolent thing to do. They either profit or they cease to exist. They must offset these losses.

Mortgage holders are betting that people will save their homes regardless of how indebted they'll become during the extension. We'll see.

An earlier blog discussed the consumer's ability to withstand mounting debt. At what point does one look at the bottom line and determine they're far better off opting out than accepting the negative equity that's on the books at the end of the term? I'm not sure if I buy the thought, yet, but I can see the point.

wrong moves said...

G "Flippers and speculators can suck it." Oh, this can fit into sooo many scenarios....

Diggin "Mortgage holders are betting that people will save their homes regardless of how indebted they'll become during the extension. We'll see. "

I can't remember where I saw it reported, but it seems the people are more interested in saving their EscaHarleySkiboating credit card than saving their "investment" that they may or may not be living in.

Just an observation, SBUX, Starbucks opened today at 22.60, down 3 dollars from a month ago, down from a 52 week high of 37.14. Maybe the people are giving up something.


ukhousingbubble said...

Check this story out:

Revealed: how UK banks exploit charity tax laws .

UK Banks have been using "charitable status" to offload mortgage debt from their balance sheets. Moreover, the amounts are huge.

Where is the outrage?

UK Housing Bubble .

G Spot1 said...

"I can't remember where I saw it reported, but it seems the people are more interested in saving their EscaHarleySkiboating credit card than saving their "investment" that they may or may not be living in."

I read that people were paying off credit cards because they can no longer jettison that debt in bankruptcy since they changed the laws a couple of years ago. In other words, the big banks lobbying for changes in the bankruptcy laws saved themselves 10 or 20 grand in credit card debt at the cost of $400,000 in uncollectable mortgage debt. Nice work.

Diggin Deeper said...

"Just an observation, SBUX, Starbucks opened today at 22.60, down 3 dollars from a month ago, down from a 52 week high of 37.14. Maybe the people are giving up something."

Could it be they're beginning to back off because they have no choice and that inflation is beginning to take hold? I think Starbucks is an excellent leading indicator as it applies to discretionary spending. A great way to retain more of your income is to avoid spending it daily on something so simple as coffee products. Might get you an extra tank of gas over the course of a month...

PeonInChief said...

Let's assume that The Plan goes into effect. What would that really mean? Mostly it would mean that these folks will be trapped in these houses for years. While they may have a mortgage payment they can handle, more or less, they can't sell the house, they couldn't rent it for anything close to the mortgage payment.

Banks and investors might be willing to accept the plan because then the mortgage stays on the books at the inflated price (it's still performing), so banks don't have to write down the value of the assets.

It might support prices a bit, but if buyers can't or won't pay inflated prices, house prices will still fall a lot.

HOUSE2008 said...

ukhousingbubble ...

That's dispicable! ARGHHH! I just want to shoot some of those Ivy league A$$!&*Es! If ANYONE from the street attempted to do that-solicite money from people using a charity as a front, & not give a penny, then, they would go to jail. In fact, I saw an article in the Sacramento Bee sometime last year someone doing this. He's hire people to go in front of malls to solicite money & turn it into him & the charity wouldn't see a penny of it. You have to by LAW fill out tons of forms clear it with the city, notify the charity, file with the IRS ect. Ther's no way around it. Well, the long & short of it is the ringleader went to jail for tax fraud. Banks/hedge funds are just slime!

Diggin Deeper said...

The success of any plan rests on the backs of the consumer, or in this case the morgagee. As the Fed steps in and does their part by lowering the Fed fund rates, the dollar weakens. As it falls, non-discretionary daily needs (fuel, food, medical costs, heating and cooling costs, electricity, insurance, transportation, etc)have to be compensated for the dollar flood.

Eventually, non-discretionary spending must win out. If the consumer has to juggle spending in order for their families to live, the simplest choices they'll make will be based on a survival hierarchy. And frankly, an up to date mortgage probably won't be very high on their list.

alba said...

I'm certainly not for any sort of mass bail-outs, but the root of this issue has nothing to do with a free market system.

As we uncover the real manipulation, strategies, and exploitations that have impacted the housing industry, beyond its normal cycle, we find government, not normal market conditions.

Government had to allow for the Fed and/or Treasury to concoct a plan to stimulate the economy by spawning a secondary financial market based on equity in homes.

This is Greenspan's contribution to our economy, and it backfired. So the victims, exploiters, and scum should take their lumps for being too greedy, while the architects, and their government front-runners, retire flushed with cash? Sounds like a free market system with no checks and balances.

Diggin Deeper said...

alba...I believe that to a point especially concerning checks and balances. However the root issues will be addressed, and the solutions to those problemes will be provided, by open and free market forces. It is already correcting for the misgivings and tampering that was done long ago, and that's why more tampering is occurring, as future results don't look too appealing. Imho, we will end up wherever the markets tells us we end up.

Unless of course we adopt the market controls that Zimbabwe has placed on their markets. Today we'd be chewing on 8000% inflation per year.

SheWrestles said...

One thing MANY people have fallen victim to is the fact that so many of these predators were licensed by the state and there were no whistleblowers out there while the bubble was growing.

Unless one has been previously burned by a state-licensed professional, then a person is likely to consider these people trustworthy.

alba said...

If you accept that homeowners were exploited for their equity hidden in their homes, there must be an architect in creating the flawed cycle of abuse. When Paulson speaks, he can only be representing the financial markets, and the firms that could potentially hav an effect on a tailspin of our economy. He doesn't care about an individual who may lose a home; that's not his job. He does care if money is not invested in the US markets, and he does care if this money is not protected. When we see Citi, Countrywide, BearStearns, and the like, fold up shop, then we'll have free markets.

Of course, that won't happen to any great extent, because this is what will drive the US economy to its knees. They'll need to be propped up by the government.

This will come under the guise of helping the individual with their mortgage. And truly, most indivuduals in a financial predicament will not be helped, no matter what the government does.

ian said...

I do agree that chances are that it will just prolong the inevitable pain of home owners who are in shaky ground. But I give them the benefit of a doubt (it's worth giving this plan a shot). We'll never know what can actually happen after they postpone the dreaded rate adjustments. Let's wait and see.


alba said...

Pumping money into the markets, liquidity, because these large firms are stuck with bad paper doesn't sound like a free market economy to me.

This "money" is printed by the government, once Treasury bonds are sold to the highest bidders.

There's nothing free about this process. This is central control of financial markets.

Responding to my own thoughts, this is a free market, and it clearly has checks and balances, but for whom?

Diggin Deeper said...
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Diggin Deeper said...

Not only is it free but its rational and delivers consistent results based on true value. You can tweek it, fool it, renege on it, try to dictate outcome, or insert other irrational forces. We continue to to do all of these. In the end free markets will deliver exactly what is perceived as true value. You want to print more money? No problem, the market will deliver you less value for more dollars. You want to extend artificailly low interest rates? Fine, the market will give you higher rates somewhere else.

Trying to fool free markets into doing anything that doesn't deliver true intrinsic value is fruitless and comes with added cost. The question becomes how much more are we willing to bear?

alba said...

Printing money and extending artificial rates are not instruments of a free market. They are instruments of a government controlling a quasi-free market. Let's face it, it is absolutely warranted and needed to control a truly free market. Government intervention happens period. Espousing that it shouldn't interject at the end of a cycle, for those at the end of the food chain is missing the point. They are responsible for participating in the development of this particular bad idea (sucking out equity); and they need to be involved in correcting their mistakes.

Here's something that ought to initially be hair-raising.


Hillary speaking today with Maria. I really expect this to be a pivotal point in addressing the real issues. I don't have much thought on the remedies offered, but there is a clear understanding and articulation of the problem, FROM HILLARY, that I have never heard before. I have issues with both folks mentioned above, but this interview has moved the markets, and will be the catalyst for others to speak on the real issues.

Diggin Deeper said...

"Printing money and extending artificial rates are not instruments of a free market. They are instruments of a government controlling a quasi-free market"

If we're splitting hair, I'll agree. The point is the economy and free market will deal with any govt. controls in an efficient and proper manner. You push on a balloon, like it or not, you accept the bulges. You push too hard, the balloon breaks.
You want to keep the ruse going, extend the problem out far enough and let someone else deal with it. It does not take away the problem, and at some point, you do get the bill.

norcaljeff said...

PS, a spade is a spade. And who really cares?