An increase from 1.77% to 4.56% is a mighty big jump.....

Maybe so, but it still doesn't sound like a bubble. Bubbles "pop" suddenly. But the air seems to be leaking out of the housing market rather slowly. It's more like a leaky air mattress than a bubble. Tomorrow morning you wake up on the floor, but you never hear a "pop".

Has there been anything specific to trigger this, such as adjustable rates increasing, or is this the result a slow, steady return of chickens to roosts?

countrywide is generally considered to be one of if not the healthiest mortgage lender.

CFC will survive. Some of the others are fucked.

Well, this is the fruit of the corrupt bargain that Alan Greenspan, the incompetent and venal former head of the Fed, made when Bush came in. Bush told Greenspan to connive to give him the fiscal room for huge tax cuts, and Greenspan accomodated him. In the process, he destroyed the housing market for our children, raised property taxes for current residents through the sky, and has worked, along with the incompetents in the HHS Department, to destroy the low-end of the housing market.

This will be much, much, much worse than the S&L scandal, the last venture into economic machinations and tricky sleazy cheating by the Repukeliscum.

What the Democrats MUST, MUST, MUST do is PIN THIS ONE FIRMLY ON BUSH AND THE REPUKELISCUM GREENSPAN.

Just a segment of the overall picture, Kevin, as painstakingly spelled out in the following, remarkably thorough analysis. The looming US economic meltdown is covered towards the end:

"Saving a President"
By Stephen Lenderman
http://www.informationclearinghouse.info/article18064.htm

' With 18 months left in office and his presidency foundering, George Bush is like a cornered animal desperate enough to try anything to survive. Surrounded by a dwindling, but still potent, number of hard liners, this article suggests a disturbing scenario ahead that bodes ill for the nation and world if it happens. It appears the Bush administration's scheme involves changing the subject by scare-mongering that may be followed by staging one or more major home-based terror attacks on the order of 9/11, then waging war with Iran on the phony pretext Tehran threatens US and regional security. Further strikes may also be planned against the tribal areas of Pakistan along with backing Israel's intentions against Syria, Hezbollah, and Hamas. These will be ominous developments if they happen as explained ... In an effort to survive and finish out their term in office, George Bush and Dick Cheney may be willing to gamble everything for what, in the end, can't be achieved. '

The property tax thing is the most deceptive and long-term screw-up in this. Since 2001, my taxes have gone up about 33%. And they will probably go up another notch or two, since the whole property tax thing is a real trailing indicator - it takes about 3 years for all the increases to work their way in. This is all caused by Greenspan's irresponsible and politically motivated reduction of the prime rate to 0 % or .5 % or whatever, to disguise the reality of the Bush Recession. While everyone was busy taking out loans, Bush was busy stealing at the Tax Counter, and now the bill is due.

On top of that, in some markets, the increase in house prices is 50 % or more. That means that this whole program is YET ANOTHER theft of money from OUR CHILDREN to finance the TAX CUTS FOR BILLIONAIRES. It's simply a scandal of the most amazing and terrible sort.

How can the sub-prime meltdown "spread" to the standard housing market? Holders of standard mortgages generally meet much higher qualifications and have greater resources to handle events such as an ARM rate increase. Unless we have suddenly developed a fairly extreme recession I don't see how mortgage failures can spread like a virus.

Cranky

What do you expect when the majority of homes on the market (especially here in OC) seem to have a "Bank Owned" sign on the top of the for sale sign?

Kevin

That is a giant leap. Countrywide is one of the bigger players in the traditional mortgage market.

In related news according to an AP story dated June 27, 2007, "Bankruptcy filings rose by 66 percent nationwide in the first quarter, according to government data that analysts say are partly a reflection of the fallout from the housing market slump and rising household debt."

Remember the new bankruptcy law was intended to make it extremely difficult to file. It has, but as condtitions have worsened people have no alternative but to try. People need someplace to live and they will do anything to save their homes.

Kevin rich white people might not know this but as jobs have moved off shore most lots of lower and lower middle class people have refinanced to convert the equity in their homes to cash to pay for raises that haven't happened. That money has run out.

People who qualified for 'prime' loans in 2004 and 2005 are smart enough to know when they have made bad investments. This knowledge will lead to more and more loan payment delinguencies, because it makes no sense to pay for something whose value has fallen. It is better to default and let the lender foreclose and suffer the finacial burden than to pay for an investment that will lose 30% of its value.

Poilu and POed:

When people use their home equity like an atm machine then it is them, and only them, who are responsible for overdrawing their accounts.

The housing meltdown is not Greenspan's fault. He lowered the interest rates to spur the economy. He did not force people to trade in their fixed rate mortgages for ARM's with huge ballooning rates down the road. He did not force people with limited income to go out and buy a house far more expensive than they could affort. People are greedy, but they have every chance to know what they are getting into - they just need to read the fine print, for themselves. That they choose to be an ignorant consumer is their fault and their's alone.

Everyone knows that if it looks too good to be true, it isn't true.

> This knowledge will lead to more and more loan
> payment delinguencies, because it makes no sense
> to pay for something whose value has fallen. It is
> better to default and let the lender foreclose
> and suffer the finacial burden than to pay for an
> investment that will lose 30% of its value.

Sorry, but with credit ratings now feeding into every decision from being hired to being sent to Gitmo for torture I have to disagree that people with financial sophistication will chose default as a first tactic (or even a strategy).

Cranky

"When people use their home equity like an atm machine then it is them, and only them, who are responsible for overdrawing their accounts."

One of the biggest problems with our political discourse these days is the almost unrebuttable presumption that morality or fault is a zero-sum game. More than one person is at fault.

Yes, people who take irresponsible loans are at fault. But so is too-easy lending practices. Can most people really be expected to turn down such seemingly easy money? It's also possible they had reasonable expectations of being able to afford it until some life changing event comes along.

In the last two years, I have, for some reason, been able to finance over $1m of real estate, spread out over three properties. Right now, I can afford them. And I only expect to make more money in the future--but what if I'm wrong?

If I'm wrong, it's my fault, and my credit will take the hit.

BUt just remember, you are paying interest because of, among others, the risk that you will default. It's just business, not personal, yet somehow in the private context, we talk about morality.

What business wouldn't abandon some investment gone awry? I treat my personal finances amorally, like a business. And for that reason, I seem to be doing better than most.

"When people use their home equity like an atm machine then it is them, and only them, who are responsible for overdrawing their accounts."

One of the biggest problems with our political discourse these days is the almost unrebuttable presumption that morality or fault is a zero-sum game. More than one person is at fault.

Yes, people who take irresponsible loans are at fault. But so is too-easy lending practices. Can most people really be expected to turn down such seemingly easy money? It's also possible they had reasonable expectations of being able to afford it until some life changing event comes along.

In the last two years, I have, for some reason, been able to finance over $1m of real estate, spread out over three properties. Right now, I can afford them. And I only expect to make more money in the future--but what if I'm wrong?

If I'm wrong, it's my fault, and my credit will take the hit.

BUt just remember, you are paying interest because of, among others, the risk that you will default. It's just business, not personal, yet somehow in the private context, we talk about morality.

What business wouldn't abandon some investment gone awry? I treat my personal finances amorally, like a business. And for that reason, I seem to be doing better than most.

The housing meltdown is not Greenspan's fault. He lowered the interest rates to spur the economy. He did not force people to trade in their fixed rate mortgages for ARM's with huge ballooning rates down the road.

I really don't agree with you at all. He did it to spur the economy, I agree. But he also did it for a political reason, to disguise and obfuscate the results of the tax cuts. Then, the secondary result is that, as money became cheaper, house prices went higher, since demand had increased. You don't believe that Greenspan would have expected that? Certainly any competent Fed chief would realize that increased demand would increase costs; that's econ 101. So, I am as certain of anything in the world that Greenspan PLANNED the huge run-up in house prices. This is a BACK-DOOR tax cut that people would not blame on Bush. It was a way to give people money NOW that would be paid IN THE FUTURE. It was a despicable scheme, to take money from our children (HIGHER HOUSE PRICES) so that Bush could give tax cuts to billionaires.

" The housing meltdown is not Greenspan's fault. He lowered the interest rates to spur the economy. He did not force people to trade in their fixed rate mortgages for ARM's with huge ballooning rates down the road."

Well, he may not have forced them, but when the top interest-rate watcher (and setter) for the government pushed ARMs as the best thing going, a lot of people took his advice and refinanced. Sorry that I've forgotten how to do the linky thing, but here's just one citation:

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/BlameGreenspanForThisBubbleToo.aspx

No accountability there, either.

eggwipe: All Americans should immdeitatly take to jumping off the nearest cliffs.

Lead the way. Tremble all the way down.

hey! if you're gonna delete troll posts, please delete my responses to them, so I don't look even more like a fool!

Cranky gets it.

As the difficulties with this economy ramp up, now, the bottom-end of the middle class who may have overextended are starting to get caught in the net - money they may be borrowing to get them through tight-times is drying up, etc.

And as the dollar continues it's slide, we may see another rate hike this fall; justified in the press by the DJ14K. And more people will lose their homes, and economists will shrug, and say that it's indicative of the health of our economy.

" The housing meltdown is not Greenspan's fault. He lowered the interest rates to spur the economy. He did not force people to trade in their fixed rate mortgages for ARM's with huge ballooning rates down the road."

What is it with Republicans and finding fault? They always want to blame somebody, probably anybody other than themselves.

If it matters it is probably the fault of a lot of people. The truth is I don't give a damn who is at fault. The real question is what do we do about it.

The bottom line is that the real estate payment meltdown is an income problem. Most people aren't making enough money at their jobs. Salaries haven't improved in a generation. All the money has gone to pay CEO's.

Sorry...

I would say that if the largest borrowed investment of your life just lost 30% of its value, meaning you cannot sell or refinance, the most prudent thing to do is let the lender foreclose.

From here:

"Perhaps, he speculated, it was so easy to get into houses during the boom — many lenders didn't even require down payments — that it's easy to give them up too.

"You walk in with nothing in your pocket, it's easier to walk away from it," Barnard said."

Lets blame all the poor and middle class bozos, who didn’t completely understand the interest escalator clauses in their ARM’s, who didn’t stop to think that if either them or their spouse got laid off they wouldn’t be able to make the payments, or who didn’t realize they would have that major health problem that wouldn’t be covered by their insurance. Meanwhile we can just let the bankers and the loans companies off the hook. I have a jumbo mortgage, and some of the come-ons I get in the mail claim to reduce my monthly payments to a little over $1000 on a $500,000 principle. You have to really read the fine print to realize the real payment is over $4000 (before the interest rate starts increasing!) and the deficit is just being added to the principle. Call me a bleeding hart liberal but I can understand how someone could fall for these things. What I don’t understand is how any banker or mortgage company official wouldn’t realize that such a loan is an extremely bad investment. The answer is they do know, but they hope they can wholesale the mortgages to someone else before the defaults start.

People who borrow more than they can really afford have mostly themselves to blame if, at some point, they can no longer foot the bill.

Greenspan did not cut rates so that Bush could cut taxes. He cut rates to avoid what he saw as a deflationary spiral caused by the market bust of 2000-2002.

Poed Liberal,

You can't blame Greenspan for your property taxes. The blame lies entirely on the back of your state and/or local governments and the people who vote for the budgets. Rising property values just give them a convenient scapegoat for their own profligacy.

Chickens, may I introduce you to Mr. Roost?

I would say that if the largest borrowed investment of your life just lost 30% of its value, meaning you cannot sell or refinance, the most prudent thing to do is let the lender foreclose.

From here:

"Perhaps, he speculated, it was so easy to get into houses during the boom — many lenders didn't even require down payments — that it's easy to give them up too.

"You walk in with nothing in your pocket, it's easier to walk away from it," Barnard said."
Posted by: Brojo on July 24, 2007 at 3:05 PM |

The problem with that logic is that everybody has to live some place. A home isn't an ordinary investment. People will move heaven and earth to stay in their home.

I know, I do consumer bankruptcies. Trust me, real people aren't casual about their home being forclosed.

Kevin:

For more about the housing bubble, and the burst that's already underway, check out fellow OC-er Calculated Risk.

In particular, pay attention to his latest post about the Chrysler LBO and the "subprime containment"

Some folks would say that it is good news that over 95% of us pay our mortgages on time.

Certainly everyone is responsible for their own financial choices, but how can you blame someone for choosing an ARM when the celebrated Chairman of the Fed encouraged him or her to eschew conventional mortgages because they were just wasting money?

WASHINGTON — Federal Reserve Chairman Alan Greenspan said Monday that Americans' preference for long-term, fixed-rate mortgages means many are paying more than necessary for their homes and suggested consumers would benefit if lenders offered more alternatives.

He said a Fed study suggested many homeowners could have saved tens of thousands of dollars in the last decade if they had ARMs. Those savings would not have been realized, however, had interest rates shot up.

"American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage," Greenspan said.

trex;
That was possibly true, when he said it.

I was brought up to NEVER even consider any kind of adjustable rate, under any circumstances.

However - when Greenspan said this, interest rates were at an historic low, they'd never really been that low before (and probably never will be again) - in fact, it was probably not even reasonable for them to be that low at that time. (I completely agree with the thesis that he lowered them for political purposes; to support tax cuts for the rich).

NOW, or even 3 years ago, it would be stupid to say such a thing. In a rate-increase environment, you don't want an ARM - that's a no brainer. You want to re-fi to a fixed.

Here's where I went wrong.

Despite what my mom and dad taught me - I got an ARM. (in 2000) - and I kept my ear to the tracks for the slightest hint of a rate increase. My plan was to refi to a fixed at some point where it started to make sense.

The problem was; my employer downsized. Dot-bomb. I eventually pulled out of it, and I came out okay. I could have lost everything. I could have done a LOT better. As long as I keep my current job, which seems pretty stable, I'll be okay. But most of the people I know, are on similarly shaky ground. Some haven't refied yet, and are just waiting for the next reset to kill them. There's no escape for these people, you either pull more capital out of your butt to leverage the refi, or you're dead.

Some haven't refied yet, and are just waiting for the next reset to kill them. There's no escape for these people, you either pull more capital out of your butt to leverage the refi, or you're dead.

And there is no way of selling a property right now at anywhere near what you paid, so many are truly screwed. We bought in 1997, refied at a fixed 4.9 or something, and bought a vastly undervalued property anyway.

"You can't blame Greenspan for your property taxes. The blame lies entirely on the back of your state and/or local governments and the people who vote for the budgets. Rising property values just give them a convenient scapegoat for their own profligacy."

What a total boob you are, moron. Property taxes, you total moron, are based ON COMPARABLE PROPERTIES, you absolute idiot. WhEN THE COMPARABLES GO UP, so do your taxes, you cretinous bloviator. And that's what happened.

A rising tide in housing lifts property taxes, you absolutely stupid person. And Greenspan created the situation in which prices went up, raising property taxes.

Osama,

As long as you haven't tapped the equity in your home with a HELOC or something similar, you should have no problem refinancing. Even after the coming correction, your house has got to be worth a bunch more than you paid for in seven years ago.

Plus, if you refi back to a 30 year loan, your payments should drop some.

POed Lib,

Talk about someone being a cretin. Your tax rates are set by your state and/or local governments, or do you really not know this? And even the evaluations on your property are done by your state and local governments. It is entirely within their power to adjust the mill rates and the evaluations of property to keep the tax due from rising. Again, your complaint isn't with Greenspan, or even rising property values, but with the tax-rate setting authorities.

It simply amazes me how stupid Repukeliscum dead-enders like Yancey have gotten in the last 6 years. Repukeliscum used to be republicans, and they often were good economists. Today's repukeliscum are all about religious wack-jobs like James Dobson screening their every word, and the intelligence and a simple ability to discern reality are just absent.

How can the sub-prime meltdown "spread" to the standard housing market? Holders of standard mortgages generally meet much higher qualifications and have greater resources to handle events such as an ARM rate increase. Unless we have suddenly developed a fairly extreme recession I don't see how mortgage failures can spread like a virus.

Increased subprime foreclosures, combined with the tightened lending policies resulting therefrom, puts more units on the market with less buyers, reducing market-clearing prices. The longer this is sustained, the more it reduces the values of existing properties no matter the credit-worthiness of owners of those properties.

This limits the freedom of borrowers to refinance out of existing adjustable rate loans (those aren't just held by subprime borrowers, after all), because it affects LTV ratios. It limits the ability of those formerly-prime borrowers to deal with unexpected household, small-business, or other expenses through home-equity credit lines, etc., for the same reason, making insolvency more likely. And so on.

Unless we have suddenly developed a fairly extreme recession I don't see how mortgage failures can spread like a virus.

"Recession" is a description of aggregate results; it is quite possible for most of the people in the country to be doing worse off, while a small number do fantastically better, without a recession. Clearly, a spreading mortgage failure crisis is a widespread economic ill, but it does not require a recession.

OBF,

That was my point. If someone as sensible and forewarned as yourself took a chance while yet knowing the risks, it's hard to assign blame to the millions who thought the word of the very expert and demigod-like Alan Greenspan was good (didn't George Bush peer into his soul too?)

I live in SE Michigan and we are ground zero for the housing bubble in this country, which here is actually a mushroom cloud. Near-continual layoffs in the auto industry and the consequent carnage it has caused to local automotive supply businesses has gutted home values here. We're seeing drops in value now of a few percent a month and accelerating. The Detroit metro area is leading the nation in foreclosures and move-out rate. There is a glut of homes on the market, and the best deals are corporate- and bank-owned homes, leaving Joe Seller stuck in his house, probably upside down in his mortgages, likely making less household income than he did last year, and with no job security.

This place is headed for a housing disaster of biblical proportions; rivers and seas boiling, forty years of darkness, the dead rising from the grave...dogs and cats living together....

Lifting the burden of health care costs to the manufacturers by implementing universal health care would go a long way toward diminishing the bloodshed locally. I'm surprised the automakers don't push for it.

So we're in a analogous situation to the dot com bust. Glad you landed on your feet.

If you are upside down 30% on a mortgage with no equity that cannot be sold or refinanced, it might be best to stop making payments and let the lender foreclose. Many people who purchased mortgages in 2004 and 2005 are making this calculation.

From here:

One worried resident is Tony Pira. A photography student about to graduate from Arizona State, he lives with his partner, a flight attendant, in a 838-square-foot unit that he considered a good investment two years ago. But even with his partner's salary and Pira's stipend from the Air Force, they can't keep up with mounting costs.

"We felt like this would be a very comfortable living situation for us," Pira says. "We wouldn't be rich, but we wouldn't be at the point where we were eating Top Ramen, either."

They're at that point now. And with $305,000 left on their mortgage, it's disconcerting to see a bigger unit, one floor below, selling for $240,000.

"There's no way they can add another $30,000 mortgage for a parking space, Pira says. And there's also no way they can sell without guaranteed parking.

"We love this building," Pira says. "But the reality is, we've accepted the fact that we're going to go into foreclosure."

Yet another leg of the Ownership Society proves to be a bummer. The Republicans with vision looked at the numbers and noticed that homeowners voted Republican, so they thought that providing easy mortgages for cash-strapped Americans would create the 30-year majority Mr. Rove promised. Remember it is not just about getting Republicans to vote for you but creating new ones. But they didn’t pay attention to the synergistic effects of already high levels of debt for school and health care, and the predatory credit card industry, and stagnant wages at a time of increased productivity, and the effects of global labor arbitrage, deindustrialization, the thinning safety net and the decline of the dollar due to mounting national debt (brought about by war in a time of tax cuts for the rich- always tax cuts for the rich).

What we have in the property tax situation is a general rate setting mechanism (rising costs of properties) which affects every property in the country. This is a dead hand if there ever was one. So, millions and millions of properties have been evaluated upward, due to the politically motivated reduction in the prime engineered by Greenspan to cut the taxes of fat cat dead-ender repukeliscum like Yancey.

Now how to respond. Of course, local governments are happy with this. The mill rates are set on a multi-year basis and are difficult to modify. The home owner like myself is faced with a tax bill that is not even appealable in the year of issue.

So, yes, this is an issue I blame on Greenspan. He knew exactly what was going to happen, and did it deliberately. This is an issue which will have great consequences, as Repukeliscum will be blamed for the higher property taxes, and will lose their offices.

Kevin,

Corpus Juris just called me a Republican!
Snort!!!!!
I think I'll just cancel my subscription to Washington Monthly, remove myself as a registered Democrat, and while I am still at it I will email Newt and tell him I'll vote for him in 2008.

Countrywide announced that the delinquencies were in prime home equity loans. To Cranky's point above, it's not the subprime spillover, it's a relative of the subprime market. People who pulled the equity out of their homes are facing the combination of 1st and 2nd mortgage payments.
Markets all over are weakening, particularly those that have an admixture of second home buyers. Phoenix is a good example where There’s a record 45,175 single-family homes for sale in this bedroom community of Phoenix. When sales peaked in Scottsdale in March 2005, there were only about 2,900 homes on the market.�

POed Libs,

That your mill rates are set multi-year, and that your tax bill is not appealable in the year it is raised is still not Greenspan's fault. These laws are your locality's responsibility- in part, they are your responsibility.

You can go on another temper tantrum if you like, it really is quite amusing, but your complaints are misdirected, as it is becoming apparent that you knew all along.

There’s a record 45,175 single-family homes for sale in this bedroom community of Phoenix. When sales peaked in Scottsdale in March 2005, there were only about 2,900 homes on the market.

We need a name for this market. I think we should call it the Greenspan Backlash market.

This is Greenspan's great plan, to take the money from the future and use it to bribe the credulous sheeple in the present to accept Bush's tax cuts, in return for mythical and wholly imaginary increases in their housing values. As I have discussed at length, this led to huge incrase in property taxes, and to a lot of second mortgages.

The Greenspan Backlash will be terrible.

Ok Optical Weenie, why do you worry about fault? When you are still bleeding from a cut, it doesn't do any good to assess blame.

Maybe it helps after the bleeding stops, but in the middle of the crisis what good does it do to assign blame? Greenspan, the duplicitous old fool, probably deserves some blame, but so do the people who took out ARMs thinking times would never change. On the other hand, most mortgages are in trouble through no fault of anyone in particular, other than our elected leaders who continue to think it is peachy keen to send all our jobs overseas and generally piss on the middle class.

He did not force people with limited income to go out and buy a house far more expensive than they could afford.

The banks were not forced to make bad loans to people who may not be able to pay them back either.

Everyone loses when markets have burst bubbles. Guess which side of these bad transactions will receive the bulk of government bail out money?

> Increased subprime foreclosures, combined with
> the tightened lending policies resulting
> therefrom, puts more units on the market with
> less buyers, reducing market-clearing prices.

Sure. But prices have gone up a ridiculous amount in the last 5 years. My house has gained almost 20% in "market value" for no particular reason that I can see. Similarly there was no fundamental reason for all those tract homes between Ontario and Riverside CA to be going up 10%/year (!) from 2000 through 2007. If they fall back to 2003 prices I don't think that is a terrible thing.

Now, if the owners of these houses took out home equity loans on that meaningless inflated paper value, especially ARM home equity loans, and now can't repay or sell, then I agree they are in a bad spot. But the housing stock doesn't turn over fast enough to allow an actual crisis to develop in the traditional mortgage world.

I don't want to be cruel, and I agree that the actions of many of the subprime lenders were immoral and should be illegal (I too throw away a ton of their junk mail every week). But I think what is happening here is that people are getting a very small dose of what happened in the 1970s and are learning the meaning of the word "risk". Maybe next time they won't tune out when such "eyeglazing" topics are discussed (say at their annual 401(k) meeting).

The problem of what happens to our overall economy when we turn the last corner on the baby boom / exurbanification and stop building 10% more houses per year is a serious one. But not driving this situation IMHO.

Cranky

"Maybe so, but it still doesn't sound like a bubble. Bubbles "pop" suddenly."

The speed of bubble popping seems to be highly correlated with the liquidity of the asset in which there is a bubble. Typically a housing bubble will takes several years to a decade to pop, while a stock market bubble takes more like 1-2 years. I believe currency bubbles pop even faster, in months (see recent currency collapses in asia and south america).

Corpus,
It is my personal opinion that when one considers buying a house one should treat it like any other investment. Like stocks, for example. If you walk in blind, without doing a realistic assessment of the pros and cons, ups and downs, risks and rewards, then when you lose money you can only blame yourself.
People lose money on the stock market. People gain money too. Same with real estate.

Buying a house with a mortgage that either in the near term or far term doesn't fit in with your current and near future financial situation (including the potential for being laid off, suffering health problems, etc.)just doesn't make good investment sense.

Not all areas in the country are suffering a collapsing housing market. Some of us live in "boring zones" where the prices are stable, go up maybe a modest 2 - 3% per year. Yeah we don't make the killing that would come if we owned a house in San Diego or OC and sold before the bubble sprung a leak. Alternatively, we don't carry the risk of substantial loss because people went nuts trying to keep up with the Joneses.

"Similarly there was no fundamental reason for all those tract homes between Ontario and Riverside CA to be going up 10%/year (!) from 2000 through 2007."

Well, there is one possible reason I can think of: Those prices are in dollars which are considerably less valuable internationally today than in 2000. Calculate it in euro's and the prices might even have dropped.

Yancey, you are still a moron. If the local municipality does nothing and the Greenspan boom jacks up the housing prices then an individual will see their taxes spike. Sure, their house is "worth" more, right up to the point that the Greenspan bubble bursts, but that does nothing to ameliorate their taxes. So, here we see something called "causation." You should look it up.

In addition, tax cuts at the Federal level and increased mandates from the Republican "borrow and spend" Congress have led to the smaller governmental pieces having to increase their revenue - now leading to higher local tax rates. Again, the rate games played by Greenspan are used as an excuse for lower Federal taxes and the short term benefits derived from those games are touted as benefits from the tax cuts.

You have failed to address any of these issues in your simpleminded attacks on those who have raised these issues. Perhaps because you already know that you can't win if you are forced to address the facts.

' Poilu and POed:

' When people use their home equity like an atm machine then it is them, and only them, who are responsible for overdrawing their accounts. ...'

Easy to say by someone who's obviously not in any "dire straits" financially. But for the rest of the country, "hard times" have been omnipresent for several years now.

The price of milk in my area is projected to reach $5 per gallon in the near furure. In the exceedinly brief period since it was strictly price-controlled at around $2.65 per gallon, real wages have actually DECLINED somewhat for the average worker, and there's no promise in the foreseable future of their rebounding significantly.

Do you REALLY want to "cast judgment" on those who are clearly FAR less fortunate than yourself, some of whom are now struggling just to feed their kids?? Grow a little humility, chum!

YOU might "sail on" just splendidly. But others are facing the financial equivalent of a shipwreck. To those who, however "foolishly", followed the traditional realtor advice to "buy as much house as you can possibly afford", such rate increases are completely devastating, allowing no "wiggle room" whatsoever.

> Yancey, you are still a moron. If the local
> municipality does nothing and the Greenspan boom
> jacks up the housing prices then an individual
> will see their taxes spike.

Keep in mind that there are 87,000 taxing jurisdictions in the US and 87,000 cubed (or higher) sets of tax rules. What you say is true in Illinois; it is not true in Missouri for example where property taxes can only go up by a maximum (4% per year IIRC) until the house is sold.

Cranky

Simple facts of the US economy (fundementally the post-Reagan complex)

1) Structural over-consumption is a fundemental pillar of our economy.

2) Structural over-consumption is funded by consumer debt.

3) Post-Reagan consumer debt is funded by channeled-inflation bubbles instead of wages. (1999 it was stocks, 2002+ it is housing).

Pop goes #3, and bang! there goes #2... then crash! goodbye #1.

Fasten your seatbelts.

"Corpus Juris just called me a Republican!"

Optical Weenie: Undoubtedly, that's attributable to all the Holier-than-thou rhetoric you're spouting here while vainly strutting your vastly "superior" financial savvy, which so conveniently ignores the grim realities of many other peoples' existence.

It must be nice to be so removed from the plight of your fellow Americans. Perhaps gratitude would be a far more dignified attitude than your expressed condescension under such conditions of glaring diparity.

Remember: ''There but for the grace of God go you.'

We need a name for this market. I think we should call it the Greenspan Backlash market.

Encouraging people to pile into ARMs when rates are at historical lows and your board adjusts them? Greensight! (It's always 20/20--you're just looking at it wrong.)

Oh, and (to nobody in particular) does personal responsibility only rest with borrowers, not with lenders? Cos I got this deadbeat second cousin living out of his old van, and I want to be absolved of any moral failing for loaning him $2000, rather than my sister-in-law law student (who just made partner). How was I to know his prospects weren't as good as hers ;-)?

Housing prices did not shoot up "for no good reason".

They shot up because the value of the currency they're priced in, in real terms, is dropping. Same reason oil prices are going up, food prices are going up, and yes, same reason why George W Bush's very stubborn DJIA that sat FLAT for 5 years finally started going up.

We're experiencing a devaluation of our currency. It has been well-hidden, and only a few "internet whackos" have decried it so far. But soon, it's going to be very hard for them to hide. I'm certain the Republicans will use the accompanying price inflation as proof that Minimum Wage Hikes cause inflation (though this has been in the works forstalled, for decades).

I have blogged extensively on this issue (see my blog and labels) as well as in my day job, at my previous newspaper, covering a Dallas suburb that had the highest default rate in Dallas County.

The peak in rate resets for subprimes isn't even going to get here for another year. (See this post on my blog.) An initial peak is supposed to hit this December, then another next summer.) We're headed for a recession, in my guesstimate, and, with all the seriousness of Iraq, remember what Bill Clinton said 15 years ago:

"It's the economy, stupid."

Poilu,
You need to calm down. I too have felt hard times. I learned during the telecom bust of 2002 and 6 months unemployment after that that it would be wise for me to be fiscally prudent in all future ventures.

Thresherk,
I'll trade you my sister for your second cousin. 2K is cheap in comparison. Is that Greensight? (That was good)

The lenders give out bigger loans,
So the prices people 'can' pay are higher
So the prices are competing between larger bids
and the valuation goes up.

Skeezy 1100sqft apartments for half a million dollars in so-so neighborhoods.

Fancy townhouses going up wanting three quarters of a million dollars for 1500sqft of vertically oriented, trailer-house view, in an industrial area, facing two freeways and the only railway without sound barriers.

People falling for the lie that 'land inventory won't increase!' ...It increases every day. Reclaimed, cleaned, deforested, filled, released...

Of course, according to last year's formula, that 1100sqft should have gone for a million dollars.

But prices have gone up a ridiculous amount in the last 5 years.

So? The foreclosure spike is over the last year or so.

. My house has gained almost 20% in "market value" for no particular reason that I can see.

"Market value" is often subject to positive feedback effects. The existence of an upward trend itself exerts upward pressure on prices, as people see the ability to make money based on the perceived future value. Similarly, the recent downturn in prices in many markets, could accelerate and spread as the perceived future values of homes drops.

Similarly there was no fundamental reason for all those tract homes between Ontario and Riverside CA to be going up 10%/year (!) from 2000 through 2007.

"Value" is almost entirely subjective, there is no "fundamental reason" for value of most things that aren't immediate survival necessaries.

If they fall back to 2003 prices I don't think that is a terrible thing.

Its a terrible thing for everyone who bought at 2004-2007 prices, and everyone whose income depends on the ability of those millions of people to continue to spend money.

For other people, if the "correction" is only to 2003 prices and then levelling off and returning to a more normal gentle increase, perhaps not that bad.

Now, if the owners of these houses took out home equity loans on that meaningless inflated paper value, especially ARM home equity loans, and now can't repay or sell, then I agree they are in a bad spot.

Or if they just took out ARM loans, or loans with balloon payments, to purchase in the first place. Which, you know, plenty of them did.

The problem of what happens to our overall economy when we turn the last corner on the baby boom / exurbanification and stop building 10% more houses per year is a serious one. But not driving this situation IMHO.

That's true. What's driving this situation is that the accelerating concentration of wealth whose deleterious effects have been masked by (1) rapid economic growth which saw all groups gaining, though the poor generally slower, under Clinton, and (2) freewheeling credit and the housing boom that let people keep their lifestyle by piling on debt and milking paper value in houses in the last few years, is no longer being masked by those effects, and the distributional faults of the current economic system are coming to the fore.

> "Value" is almost entirely subjective, there
> is no "fundamental reason" for value of most
> things that aren't immediate survival
> necessaries.

Which is what a house is. All this talk about how a house is a financial investment that you have to maximize: un uh. A house is a place to live. It has some characteristics of a finanical investment, but those characteristics need to be managed to ensure that you and your family have a reasonably secure place to live in times of reasonably forseeable periodic financial hardship. Not managed to maximize value.

>> If they fall back to 2003 prices I don't think
>> that is a terrible thing.

> Its a terrible thing for everyone who bought at
> 2004-2007 prices, and everyone whose income
> depends on the ability of those millions of
> people to continue to spend money.

Tough. Maybe I was scarred by my family's experiences in the 1970s, but people need to be _careful_ with their primary shelter decisions. And they very much need to not buy pricey houses in upswelling markets under the assumption that the price (not the value) will continue to rise. At the height of the boom I could have shown you quite nice places to live in Chicago available for a reasonable price - and which today have not lost much if any of that reasonable price. They just weren't in fancy or "hot" areas.

Cranky

Bush always crowed about the "record high rate of home ownership" during his presidency. That's because unscrupulous lenders like Countrywide were making loans to anyone who could fog a mirror. That high rate of ownership is about to change, isn't it? Who is going to "own" all of that bad debt???

...and Pira's stipend from the Air Force..."We love this building," Pira says. "But the reality is, we've accepted the fact that we're going to go into foreclosure."
Posted by: Brojo

USAF guy? Probably kiss his security clearance good bye for a real long time.

Cranky;
The real problem is; (and I experienced this myself) is that, no matter how well our parents raised us, no matter how smart we are, we still have spouses, and we still have social lives, and - dammit, I *knew* that everything above the asking price for my house in 2000 (maybe +5% a year) was just speculative hype.

But your wife sees that; and now you're defending a decisions to not take out a 2nd to build a pool or an addition or landscape (or even more foolhardy things). And if you survive that; being accused of being "negative" or a "conspiracy theorist" - you have to then suffer as her friends wave expensive cars and vacations in your face. You can smugly say that it's a bad move, but if the chickens don't come home to roost until 3-5 years later, you *do* end up taking a lot of heat.

It's only been the last year or so, when the lifestyles of our social circle have come to a screeching halt, that I stopped looking like a whacko. I know I was irresponsible as hell for a while (and I'm still paying for that, 7 years later) - but I feel damn lucky that I kept it under as much control as I did. I'm in a 30yr fixed, for less than the mortgage my parents had on the house I grew up in. I didn't lose my house, and I still have a ton of equity.

All I need to do now, is:
Not get laid off or fired.
Not get sick with some un-covered illness.
Not use any credit cards.
Not buy any new cars.
Not take any lavish vacations.
. . .

Oh wait - my kids both need braces. . .

"Who is going to "own" all of that bad debt???"

Eh? You must not be old enough to remember the last time around... (the S&L Scandals and the great taxpayer funded bailout of the 1980's)

Which is what a house is.

Having basic shelter is a survival necessity, or close enough, true, but the value, particularly the additional value beyond that as basic shelter, of modern homes is almost entirely social rather than somehow fundamentally intrinsic in what the house is.

> Its a terrible thing for everyone who bought at > 2004-2007 prices, and everyone whose income > depends on the ability of those millions of > people to continue to spend money.

Tough.

Yeah, tough for everyone.

Maybe I was scarred by my family's experiences in the 1970s, but people need to be _careful_ with their primary shelter decisions.

You know, I know you're getting off and showing how hardened you are here, but you seem to be missing the point here. The people who suffer from a downturn aren't just the people who have, in your description, failed to be adequately careful with their "primary shelter decisions".

And they very much need to not buy pricey houses in upswelling markets under the assumption that the price (not the value) will continue to rise.

Whether or not people "need" not to do that is kind of irrelevant to dealing with the effects on the economy of the fact that a bunch of people have done it, that the engine that made that temporary viable is stalling, at that a lot of people including people who didn't do what you condemn now face the prospect of potentially serious economic repercussions.

(Though, again, the housing market isn't the principal cause, just a symptom of the broader problem.)

At the height of the boom I could have shown you quite nice places to live in Chicago available for a reasonable price - and which today have not lost much if any of that reasonable price. They just weren't in fancy or "hot" areas.

Um, so what? Yes, any aggregate trend in the overall housing market will, when you zoom in closer, show some areas where the local trend was more mild, or contrary to the wider trend. But what significance are you trying to ascribe to this?

Optical Weenie: What makes you think I WASN'T quite calm in those responses? Getting a bit "defensive"?

Obviously, we have an appreciably different perspective on what constitutes genuine "hard times", what many victims of this lending scam (and other usurious ploys) are currently faced with. Nevertheless, you've just admitted learning from your own mistakes. So clearly, "everybody" DOESN'T recognize the pitfalls ahead of time, including yourself. You had to learn them the hard way, but apparently had the resources to bounce back. A great many others are not in any position to be so judicious about their outlays, nor is their "recuperative" ability so assured.

Interesting item from the macro blog-(bigpicture.typepad.com)
"-Surprising comment regarding the prime portfolio: so far what they have seen in delinquencies is due to people losing job, losing health, lost marriage, more so than any resets. Stated that the "definition of prime may not be as high as some people think.""

IOW, we may be seeing twin devils, here. (If this pattern for delinquencies persists) One being the lax standards and oversight of and in the subprime market and the other being an economy which is increasingly leaving people (prime borrowers) on tenuous financial footing.

cmdicely, Poilu (e.g.):

Why is it offensive that people bring their life experiences into the discussion? If someone here got it right, if someone here got it wrong, etc., that is the template for the lessons people are learning or going to learn on a massive scale. What makes this topic mysterious, interesting, and scary, is the behavioral aspect of people's home-buying mentalities. Censor out people's chutzpah, humility, fear, relief, and you have a discussion utterly disconnected from its topic.

And cmdicely, you first shout down complaints about the predicaments of homeowners in foreclosure by carping about the innocent victims of the bad general economy, followed immediately by an admission that

Though, again, the housing market isn't the principal cause, just a symptom of the broader problem.

Huh? Seems to me that bad economic conditions have a certain multifacted effect on your household's situation, foreclosure quite another more singular and drastic one.

Such is my off the cuff reaction.

Click here for an article about who will be paying for all of these bad mortgages.

I'm going to throw a bit of a bomb in the tail end of the comments here.

Aren't people with smaller-than-ever families buying bigger-than-ever houses to blame for their own defaults?

Many subprime defaults are NOT due to lower-middle-class single-income parents defaulting on 1,800-square-foot houses, but solidly middle-class married couples defaulting on 3,200-square-foot houses instead of buying (or staying in) 1,800-square-foot houses in the first place.

Those state-level bailouts? Like putting a Band-Aid on the gash in the Titanic's hull.

Why is it offensive that people bring their life experiences into the discussion?

When did I say it was offensive that people bring their life experiences into the discussion? When did I say anything was offensive?

If someone here got it right, if someone here got it wrong, etc., that is the template for the lessons people are learning or going to learn on a massive scale.

Er, no, that doesn't follow. Anyhow, the important thing about this issue for most people isn't fortune-cookie lessons about personal finance, IMO.

What makes this topic mysterious, interesting, and scary, is the behavioral aspect of people's home-buying mentalities.

There's nothing really mysterious, novel, etc., about the fact that people don't account for risk very well, nor is anything particular surprising about the effects resulting from that in combination with broader economic trends to anyone who have been paying attention to distributional effects of recent policy and economic performance rather than just aggregate numbers like per capita GDP or average tax burdens.

Censor out people's chutzpah, humility, fear, relief, and you have a discussion utterly disconnected from its topic.

The topic here is not "what might be the personal reasons why some people are more likely to experience foreclosure than others", but the cause and consequences of the change in the magnitude of that problem. Human nature and behavior hasn't changed radically in the last few years, but elements of the economic environment has. The interesting things are in what has changed, not what is constant.

And cmdicely, you first shout down complaints about the predicaments of homeowners in foreclosure by carping about the innocent victims of the bad general economy

Um, no, I didn't.

followed immediately by an admission that

Though, again, the housing market isn't the principal cause, just a symptom of the broader problem.

Huh? Seems to me that bad economic conditions have a certain multifacted effect on your household's situation, foreclosure quite another more singular and drastic one.

Sure. So how does that contradict anything I said?

...Since a 1100 sqft home is $500,000 and up here...

I daresay it'll not be people defaulting on homes larger than ever.

> but the cause and consequences of the change
> in the magnitude of that problem. Human nature
> and behavior hasn't changed radically in the last
> few years

I agree, but perhaps not in the way you think. This sort of boom-and-bust cycle in real estate has been going on for thousands of years. After experiencing the pain of 22% interest rates in the 1970s followed by the savings & loan crisis the house-buying public learned to be conservative in its purchases. When the memory of those times wore off we entered into another boom time where hundreds of thousands of individual decisions were made to either increase the tolerable risk level or just ignore risk althogether. Surprise! Another bust.

So I am not sure where you are going with this cm: it is in fact the aggregate of the individual choices that created the situation (setting aside the behavior of many of the subprime lenders which I stated above was immmoral and should be illegal). We are now going through the period of painful learning that follows every bust.

And yes, I do think that Americans need to know that (1) trees don't grow to the sky (2) rent until you can afford to buy (3) buy well below your means and stay there as you trade up (4) if you want your house to appreciate as a capital investment be aware that you will have to hold it for at least 7 years.

Cranky

Booms and busts are a normal part of the business cycle, but only liberals cheer for the busts.

The federal government has been cosuming 23% of the economy for the nearly eight years of conservative rule, less than the nominal 19% we got under Clinton.

This bill is coming due on the middle class, and the housing collapse ultimately represents the future cost of this expanded government.

Booms and busts are a normal part of the business cycle, but only liberals cheer for the busts.

That's because we realize that a bust often means that the cause of the bust, some conseraturd Repukeliscum, will be going to jail. We liberals like that.

I only wish we had the death penalty for certain levels of white collar crime.

The way our political economy works, only those who cannot pay back bad loans are condemned as bad credit risks and scofflaws. The banks who make the bad loans are not condemned and are not punished similarly as the loan takers.

It does not have to be this way. The market should be changed so that borrowers of bad loans can foreclose on the bank, cancelling their loans and sending the mortgaged property back to the bank, without penalty. If we did not live in a capitalist dictatorship, the consumer would be able to designate banks as bad credit risks and punish them, but no mainstream political party in the US will allow capital to take responsibility for its poor decision making.

Al said: "Booms and busts are a normal part of the business cycle, but only liberals cheer for the busts."

And only hypercapitalists cheer for "booms" that are made by people getting fleeced.

Say goodnight, Al.