Real Estate Crash thread

[Benny Profane]

GiBo, your morals died with my father around '91. Commendable, and, you would have been respected by my grandparents. But, bottom line, it's the 21st century, and, the top 1% is sitting pretty after sucking the life out of us for the past 25 years, and they haven't been penalized at all for the party they had over the last decade. As a matter of fact, they had people on the inside who fired up the printing presses to make monopoly money for them and opened the gates of Ft. Knox for their pleasure, instead of hanging them by the fingers and tazing their balls.. We have been so fucked. You're a total fool if you don't retreat, access the situation, reduce all obligations to them, and, in general, wise up to the fact that they won, and, you're on the other side of the gate, and it's a matter of financial survival from now on. Which may mean watching how they make money, of course, because, they're pretty much the only game in town. You gotta make money. Life's expensive.

[cramer]

I still don't get it. I mean I get the numbers, but every one knew the deal going in. Why should the bank eat it? Or the gov?

I was divorced around '04. My ex bought me out of the old house and I had a wad of cash for a down. I needed a house so I bought one. I could afford it then and can now. Yet I still have people telling me I'm stupid for not walking- it's a bussiness decision bla, bla, bla...

I dont think your stupid for not walking. I was just stating my opinion on the matter. If you can afford and want to be the better man then that is great.

[khakis]

It cracks me up to see "1850 sq ft" and "starter home" in the same sentence.

[Brock Landers]

the top 1% is sitting pretty after sucking the life out of us for the past 25 years,

wasnt just the top 1%...everyone benefitted at the time from loose policy and a hot economy. the top 1% going from a BMW to a Maybach may seem a little more obvious then going from a 4 day trip to Orlando to 6 in Myrtle Beach, but the bump "middle America" got and also those at the lower ends, were there too.

And to keep the party going, middle America started borrowing. Against credit cards, against mortgages. Now they dont want to pay? It isnt just a select few or top % who did this, its every tax/income bracket. Those in the top 1% lost a lot more than those in the middle...but they could afford it. Middle America, maybe not.

[Hugh Conway]

It isnt just a select few or top % who did this, its every tax/income bracket. Those in the top 1% lost a lot more than those in the middle...but they could afford it. Middle America, maybe not.

Bullshit. There's plenty in the top % who didn't lose shit. Given that most of middle america's largest asset/investment is their home even those who hadn't borrowed shit saw significant declines.

[Brock Landers]

Like who?

Furthermore, are people in middle america treating a house as an asset or as an investment? If youre treating it as an investment thinking housing values only go up- isnt that part of the problem? Investments can lose money. This contributes to the bubble/problem.

If you bought a house to live there...whats wrong with values going down everywhere? If you needed to move for a job, values are deflated almost everywhere. Find a house for cheap. Sell for cheap.

[Hugh Conway]

Furthermore, are people in middle america treating a house as an asset or as an investment? If youre treating it as an investment thinking housing values only go up- isnt that part of the problem? Investments can lose money. This contributes to the bubble/problem.

So who, exactly, can buy a home in any of the coast megapolises and not view it as an asset genius?

[Brock Landers]

Id view it as an asset. Not an investment. I dont want to be investing in a house. I dont buy it in order to sell it at an appreciated value. Id buy it to live in and sleep and BBQ. Regardless of interest rates or jobs reports or PPIP or the cost of CDS on Greece's debt.

People who did got burned in 2007/2008. Rich, poor, everyone. They also benefitted in 2004, 2005, 2006.

[Hugh Conway]

Id view it as an asset. Not an investment. I dont want to be investing in a house. I dont buy it in order to sell it at an appreciated value. Id buy it to live in and sleep and BBQ. Regardless of interest rates or jobs reports or PPIP or the cost of CDS on Greece's debt.

People who did got burned in 2007/2008. Rich, poor, everyone. They also benefitted in 2004, 2005, 2006.

the "rich" don't invest in houses. I'm not sure what the point of viewing something as an asset that isn't an investment is.... aside from stupid interwebbery

btw: noone is impressed with the acronym dropping

[Brock Landers]

Sorry. Barbecue.

Why dont the rich invest in houses but the poor do? Wouldnt the rich have the spare coin to be able to invest in houses should things go shitty? Like they did?

Still comes to the question of why people invest in houses to sell at an appreciated value. And then claim bloody murder when their investment falls flat, as the bubble burst.

I view a house as an asset. Sure, it is worth money, and I pay for it. Subbing my cash for equity in the house like any asset. But to do this with the expectation that its value is going up and then Im going to sell it and make easy money...that is investing. And too many people (rich, poor, whatever) did this who probably didnt know what they were doing. Values dropped, like they can do with ANY investment. Why is it so surprising?

My whole point is that it isnt one group or another group(or income)'s fault. Everyone had a hand in it. Did the people who bought houses that they couldnt afford, thereby increasing the supply out there and lowering prices have anything to do with it? Of course. Hyman Minsky wrote about this in the 1980s and 1990s.

[cramer]

It cracks me up to see "1850 sq ft" and "starter home" in the same sentence.

im in suburbia. there are 3200 sq ft houses in my neighborhood. thus the starter home reference.

[GiBo]

Sorry. Barbecue.

That was funneh!

I definitely didn't buy my house as an investment that I expected a large return from. I simply needed a place to live. I figured it may go up a little, but I doubted it would keep going up in value at the same rate it was. And I sure didn't expect it to drop in value like it did. I figured I get some tax benefits form a mortgage vs. rent and maybe get a little profit when I sold in ~10 years.

I dont think your stupid for not walking. I was just stating my opinion on the matter. If you can afford and want to be the better man then that is great.

Ya, I don't mean you specifically. In general, more people seem to think walking is a no-brainer than not. And I'm really surprised at this. It seems a major shift in the way individuals think about financial commitments. And it seems specific to mortgages. You don't hear people talking that way about other debts.

[Dantheman]

And it seems specific to mortgages. You don't hear people talking that way about other debts.

Few people are going to have any other debt that approaches a home mortgage and what other debt they do have is expected to depreciate heavily with no expectation of being able to sell later at equal or greater value (cars, CC purchases, etc.), so mortgages are rather unique. I'll be honest, if I lived in a non-recourse state and was 30+% underwater I'd be damn tempted to walk.

I'm with cramer on this though. It seems like the banks will only lose more money by not modifying loans for these people and having them walk, so why they don't I'm not sure. Maybe it's sweetheart short-sale deals like that IndyMac/OneWest video, or they are just already insolvent and trying to hide it as Spats so often alludes to.

[Brock Landers]

From what Ive heard, the modifying process is pretty screwed up and bottlenecked, thats why there hasnt been a lot more of it. Especially considering the people that havent walked yet are probably more likely to stick around and actually pay off the debt. And the degree of diligence now is much more than earlier- the banks usually know nothing about each property and owner, so its a process for them to figure it out.

I feel like the insovency thing is valid except that if they didnt remodify, wouldnt the banks lose the value those loans do hold in the case of foreclosure and become insolvent anyway?

[cramer]

From what Ive heard, the modifying process is pretty screwed up and bottlenecked, thats why there hasnt been a lot more of it.

It is, ive got my buddy and his brother who are now just walking on their townhouse. They tried for months to get a loan modification and wells did nothing for them. Pretty much endless hours on the phone and getting nowhere.

Whats fucked up about this situation, my friend, brother A. is pretty much getting the shaft. His older brother talked him into buying this place a couple years ago in the first place. Brother B. not only walked from this one, his wife walked from her home and THEY bought a new house with a co-signer (her dad). He did this before they quit paying on the current home. So he was able to get into a new house before his credit was wrecked. Brother A. pretty much got the shaft but doesnt seem to care. I'd be livid personally.

Theres some bullshit right there to feast on.

[liv2ski]

In Utah, strategic defaulting is far more difficult than in California, because the banks can and do pursue post-foreclosure deficiencies on primary residences if the deficiency is large enough.

There you go, the answer to the moral dilemma. We can and will come after your ass and furthermore, we won't make you a new loan for 10 years.

Do this and end of problem.

[Benny Profane]

I'm with cramer on this though. It seems like the banks will only lose more money by not modifying loans for these people and having them walk, so why they don't I'm not sure. Maybe it's sweetheart short-sale deals like that IndyMac/OneWest video, or they are just already insolvent and trying to hide it as Spats so often alludes to.

They are insolvent. It must be plain as day to any insider. They have been lying to us with no mark to market and the utterly corrupt and ridiculous stress tests. In a way, many in that business are scared as shit the the real truth will come out, and the real, catastrophic crash will happen that should have happened in '08. Their only hope is to rape us, the taxpayer, by buying the spread on treasuries and not letting any precious fantasy marked capitol they make claim to out as loans to an economy that they only know too well is in the grips of what well be a long credit crisis triggered depression.This exact same thing happened in Japan, this cronyism keeping the banking sector alive with the people's money. And it didn't work there. It will not work here.
I'm stunned when predictions are still being made that we will pull out of this recession soon, like it's fucking late March in the Northeast. If real estate drops another 10-20%, as many a sane person is predicting, those same banks are even MORE insolvent, if that's possible. Who will lend money?

[cramer]

They are insolvent. It must be plain as day to any insider. They have been lying to us with no mark to market and the utterly corrupt and ridiculous stress tests. In a way, many in that business are scared as shit the the real truth will come out, and the real, catastrophic crash will happen that should have happened in '08. Their only hope is to rape us, the taxpayer, by buying the spread on treasuries and not letting any precious fantasy marked capitol they make claim to out as loans to an economy that they only know too well is in the grips of what well be a long credit crisis triggered depression.This exact same thing happened in Japan, this cronyism keeping the banking sector alive with the people's money. And it didn't work there. It will not work here.
I'm stunned when predictions are still being made that we will pull out of this recession soon, like it's fucking late March in the Northeast. If real estate drops another 10-20%, as many a sane person is predicting, those same banks are even MORE insolvent, if that's possible. Who will lend money?

Real estate isnt going to drop another 20-30% in the low end. In the middle to higher end (400K-1mil+) i think is going to take a drubbing. If people arent getting new jobs, making more money, etc, those housing values arent going to last. Any suburbia neighborhood outside the main cities 30-50 miles have already dropped to values less than it cost to rebuild the house. I dont see them dropping more than another 5-10% tops. The job market is whats going to hold everything status quo low end and keep the higher end houses dropping. Us peons on the low end cant upgrade if we cant get a new better paying job. The richie riches already have 5 houses, so they arent going to buy any new ones if the higher end keeps dropping. Its a pretty vicious cycle right now. If i were president, id offer tax cuts to companies who bring all their jobs back on shore. That would add a fuckload of jobs for starters. Get more money pumping into the economy and a lot of people looking to buy a house in the next couple of years. Thats where i'd start. Offshoring killed us. We are really starting to see the effects its had in the IT job market. Which is what boosted our economy and housing prices in the first place.

When you send millions of jobs oversees that were paying 50-150K a year here, your economy is going to be fucked. That is a shitload of money not being spent anymore.

[liv2ski]

If i were president, id offer tax cuts to companies who bring all their jobs back on shore. That would add a fuckload of jobs for starters. Get more money pumping into the economy and a lot of people looking to buy a house in the next couple of years. Thats where i'd start. Offshoring killed us. We are really starting to see the effects its had in the IT job market. Which is what boosted our economy and housing prices in the first place.

When you send millions of jobs oversees that were paying 50-150K a year here, your economy is going to be fucked. That is a shitload of money not being spent anymore.

I like this idea but, if the company off shored a $75k job and is paying a dood in India $20k to do it, there is no way a tax break to the company makes up the $55k difference unless you also tax the shit out of the company for off shored earnings. I honestly think the only way to create jobs, is not to try and bring the old ones back, but to create incentives for entirely new ones and industries. Ex: First company out with a commercially viable hydrogen car pays no taxes until their R&D costs have been recouped and then a lower tax base for say 10 years to make the risk further worth it.
The guberment needs to support industries that manufacture stuff and tell the banks to fuck themselves.

[khakis]

Maybe I'm just missing something, but how does unloading real estate at a loss expose or exacerbate a bank's insolvency? Seems to me that they would be less solvent to have their capital tied up in depreciated RE?

[Dantheman]

I'm no expert in this, but I think perception is a major concern. Like a couple that stays married to keep up appearances, but both partners have been out getting strange ass for a long time. They are going to cling to business-as-usual for a long as they can, hoping to ride it out and make it to the other side intact and proclaiming "See, we were fine all along!"

[Brock Landers]

I like this idea but, if the company off shored a $75k job and is paying a dood in India $20k to do it,

maybe the american wants to do the job for $20k rahter than sit on his/her ass collecting $20K in unemployment? People bitch and moan about banks and businesses getting bailouts when everyone is getting a bailout through unemployment payments. This is more polyass than real estate...but if a lot of these companies dont get bailouts, there are a lot more unemployed getting even more money in the form of unemployment checks.

[Toadman]

I'm no expert in this, but I think perception is a major concern. Like a couple that stays married to keeps up appearances, but both partners have been out getting strange ass for a long time. They are going to cling to business-as-usual for a long as they can, hoping to ride it out and make it to the other side intact and proclaiming "See, we were fine all along!"

It's like unrealized losses/gains on a stock trade. But there is still a mentality by sellers that they can get more for the house than what a buyer is willing to pay. And like others have said, until the job market improves, there will be a continued errosion in home prices. The fact that it requires gov't tax credits to help prop up the housing market should be a red flag to anyone thinking of buying a house these days.

[Brock Landers]

Im in the camp that RE isnt dropping another 20-30%. The economy isnt fantastic right now by any stretch but it has seemed to bottom out. Unemployment is still waiting to hit the 20% levels some were preaching earlier in 2009. Its actually leveled out at roughly 10%. 10% isnt good times...but another 20-30% drop in real estate? Are things going to get that much worse? And many of the people who walked from loans (which have already been marked down, by the way) wont get to do it again. Its going to be tougher for values to drop again just due to the people who still pay their mortgages still having jobs.

Im not going to pretend there arent huge changes in the banking industry to be had, but another 20-30%?

[DougW]

Then why is it the the US res. real estate stock I follow is going through the roof lately?