The Great Real Estate Bubble

[G-khan]

We have seen one bubble after another burst over the last three years and yet the real estate bubble just keeps bobbing along. This bubble too may be at the end of the line. Investors have been dumping stocks and selling into the rallies. Mutual funds are reporting net outflows again as panicked investors just want out. The wave of high profile corporate bankruptcies of 2002 are just the tip of the iceberg and with most corporations buried under unmanageable debt there are certain to be many more. With each bankruptcy thousands of employees are laid off and end up competing with thousands more desperate unemployed or under employed workers. With each major corporate bankruptcy consumer confidence takes another hit. In this environment fewer are comfortable with taking on new mortgage debt. High end homes are not selling any more and as the stock market crumbles eroding consumer confidence the median range homes are sprouting “for sale” signs. The building glut of homes will drive local home values down.

So far mortgage rates are still quite low but as the short-term rates are slashed down near zero percent why are fixed 30 year rates so much higher? It’s likely due to the fact that the government and large desperate corporations continue to borrow so much long-term money. They appear to be keeping rates high and in turn long-term mortgage rates remain high as well. This situation is about to get worse as the government deficit climbs to record levels (just throw in the cost of a war in Iraq, an occupation army and the resulting Marshall Plan to rebuild the country).

Now what will happen when the government floats hundreds of billions of dollars worth of bonds? To attract investment the interest rates will have to rise and likely rise hard and fast in a deteriorating global economy crashing stock markets while crushing demand for real estate. God have mercy on those with variable rate loans. Those people will find their monthly payments ballooning to unimaginable levels. They will fall behind in their payments and risk foreclosure, put their homes on an already crowded real estate market, or just hand the keys to their mortgage bankers and walk away with their dashed hopes and dreams after selling everything they have in a desperate bid to save the family home.

What will this do the struggle US economy? Think on this – The real estate bubble is four times larger than the speculative tech/dot.com bubble. “Game Over”

- Black Blade
http://www.usagold.com/cpmforum/

[45 ACP]

Originally Posted by G-khan

We have seen one bubble after another burst over the last three years and yet the real estate bubble just keeps bobbing along. This bubble too may be at the end of the line.

We may just be there now.

[Juristic Person]

Originally Posted by G-khan

Those people will find their monthly payments ballooning to unimaginable levels. They will fall behind in their payments and risk foreclosure, put their homes on an already crowded real estate market, or just hand the keys to their mortgage bankers and walk away with their dashed hopes and dreams after selling everything they have in a desperate bid to save the family home.

I don't think it will be as devastating as some speculate. I think the biggest problems be with the sub-prime lenders or first-time home buyers who "got in" for the quick equity. The other people who will be hurt are those who took the equity out of their home to buy worthless "stuff". Anyone who bought a home in the hopes of turning it around in two years and cashing out is simply going to be stuck in that home for a much longer time. As variable interest rates rise, mortgage payments will increase. People will have to budget their money. If they aren't receiving enough income, they will have to get second jobs. You don't see much of that anymore. My father was 28 years old when he bought our first home on Long Island. He worked 3 jobs for almost 4 years to afford that home. That was over 25 years ago. You do what you gotta do.

[DBcooper]

Depends though,cause some areas are already seeing 30 to 50% haircuts off what they paid.
Then there is people who purchased just two years ago, did some remodeling and planned to sale this year i bet.
Subprimes will keep adjusting for a couple years though and as prices keep falling those that did take second loans will be hurt regardless if they took an adjustable loan or if they bought even before 04.

Another interesting note is how this bubble created half of all jobs the last 5 years,Home Depots,Car lots,restaraunts,lending outfits ,realestate agents,dont think its just construction workers that will get hit.

Its already been reported that Mexico and other latin countrys are seeing remittances drop sharply.
So yah people will get second jobs if they can find em.

[Juristic Person]

Originally Posted by DBcooper

Depends though,cause some areas are already seeing 30 to 50% haircuts off what they paid.
Then there is people who purchased just two years ago, did some remodeling and planned to sale this year i bet.

It really doesn't matter what happens to home prices. If you bought a home to $250K and your mortgage payment is $2000.00/month, it really doesn't matter if the home value drops to $175K. You are still paying $2000.00/month reguardless. People won't be able to sell but they also won't be force to forclose.

Yeah, it's tough luck if you planned on re-selling and pulling out the equity but those are the breaks. People who bought a home to settle down in will be fine. Those who decided to gamble, did just that.

[DBcooper]

But people whos adjustable can go from 2k a month to 2400 then 2800,then they stop going out to eat or buying stuff.
Small citys and towns that saw large growth will be affected very hard i think cause most of the growth was from this false liquidity.
And lets not forget taxes as home starts and permits go south local countys,citys will have to do cuts as well.

[Juristic Person]

Originally Posted by DBcooper

But people whos adjustable can go from 2k a month to 2400 then 2800,then they stop going out to eat or buying stuff.
Small citys and towns that saw large growth will be affected very hard i think cause most of the growth was from this false liquidity.
And lets not forget taxes as home starts and permits go south local countys,citys will have to do cuts as well.

Yes, you are definately right about that.

But I don't forsee hundreds of thousands of empty homes and an even higher number of people out on the streets. If worst comes to worst, there will be a bailout. However, I do agree that the market will eventually correct itself. Some people will face hardships, but mostly for those who took it upon themselves to live beyond their means. Credit is a double edged sword.

[DBcooper]

Well it remains to be seen how the market will react when more hedge funds and equity firms start having problems and they will.
The market is just as much psychological as it is fundamentals (eh screw fundamentals hehe) so if people start getting scared they do not want to be left when the music stops and no chair.
Bailout will only happen until its too late,and if there is one itl do the same as i said above,itl shake faith,granted some will have a sigh of relief but many wont trust either the market or the housing sector again.
Just like many dont trust the market to this day because of the dotbomb debacle.
And many people who do go bankrupt itl be years before they get on their feet again due to the new laws,family,friends etc will hear their story and itl shake many i believe.

[Juristic Person]

For the most part, I agree with you.

Hopefully, it will serve as a lesson learned for many.

[DBcooper]

Yah i hope it doesnt go as bad as some claim,if lending standards were more inline like they used to be many people would have been prevented from this.
And the fraud that has happened wouldnt have been possible as well.
Which brings me to believe i think it was all intentional and if it was then we have some very bad people in high places that have some explaining to do.

[Juristic Person]

Originally Posted by DBcooper

Which brings me to believe i think it was all intentional and if it was then we have some very bad people in high places that have some explaining to do.

Maybe so...but who do you suppose is going to hold them accountable?

[DBcooper]

Any hearings will take years and looking at the age of some the whole mercy card will be played.
Heh if it as bad as some think we might see pitchforks and burning effigys and some latenight flights to countrys with no extradition to the USA.
Honestly i have no clue,but many fingers will be pointed in all sorts of directions a patsy here and there.

[Brio]

Maybe a bit off topic..

The Mortgage Lender Implode-O-Meter is being sued

http://ml-implode.com/

[gunner]

Originally Posted by DBcooper

Any hearings will take years and looking at the age of some the whole mercy card will be played.
Heh if it as bad as some think we might see pitchforks and burning effigys and some latenight flights to countrys with no extradition to the USA.
Honestly i have no clue,but many fingers will be pointed in all sorts of directions a patsy here and there.

Whomever has control of the military machine will dictate whether or not justice will be served for criminals in high places

[jerry]

Originally Posted by Juristic Person

It really doesn't matter what happens to home prices. If you bought a home to $250K and your mortgage payment is $2000.00/month, it really doesn't matter if the home value drops to $175K. You are still paying $2000.00/month reguardless. People won't be able to sell but they also won't be force to forclose.

Yeah, it's tough luck if you planned on re-selling and pulling out the equity but those are the breaks. People who bought a home to settle down in will be fine. Those who decided to gamble, did just that.

Take another look through the mortgage that you signed.

Especially study the fine print that says what happens when the value of the collateral supporting your loan drops below the balance of the loan.

There is a reason why so many lenders were more than willing to extend 100% plus financing.

Take another real good look at the contract.

[gunner]

Originally Posted by jerry

Take another look through the mortgage that you signed.

Especially study the fine print that says what happens when the value of the collateral supporting your loan drops below the balance of the loan.

There is a reason why so many lenders were more than willing to extend 100% plus financing.

Take another real good look at the contract.

Just a guess, but are you forced to come up with additional collateral or are you faced with a judgement against you if you let the house go into foreclosure?

[DBcooper]

Mortgage resets: Record bill coming due
Billions in subprime ARMs will be subject to higher payments.
By Les Christie, CNNMoney.com staff writer
July 9 2007: 5:20 PM EDT


NEW YORK (CNNMoney.com) -- More than two million subprime adjustable rate mortgages (ARMs) are poised to reset at much higher rates in coming months, worsening an already suffering housing market.

Borrowers who took out hybrid ARMs in 2004 and 2005 to secure low "teaser" rates for the first two or three years of the loan may see their monthly mortgage payments climb by 35 percent or more.

http://money.cnn.com/2007/07/09/real...ion=2007070914


Odd i thought there was only one million,the number just keeps rising.

[DBcooper]

Gunner you must still respect the principal,the house loan wont be readjusted cause values went down,you could either sell it and swallow the loss or hold on and follow it down,or let it foreclose and walk away but the bank will be speaking to you for a long time.

[DBcooper]

Repo man story on MSN - dig where they're getting their business from these days:

http://articles.moneycentral.msn.com...ttingBusy.aspx

Repossession agents in areas hit by foreclosures say they've been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.

"It is actually stunning the number of cars we're taking from people who are supporting the local real-estate market," said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. "It's almost the type of thing where we see it and you wonder if anyone else sees it. . . . It's like they turned off the spigot."

[TET]

Lending standards?...Commercial banks dont lend money at the request of the consumer...Commercial banks manufacture money at the request of the consumer...

Basically what a commercial bank does is take your income from the future and move it forward into the present for you to have and spend...The banks have been doing this for centuries.

Because almost all the money in existance...past, present, and future belongs to the banks...You all just rent it from them.

"We have seen one bubble after another burst over the last three years and yet the real estate bubble just keeps bobbing along. This bubble too may be at the end of the line."

Below...What the 36 year old Real estate bubble looks like...

[DBcooper]

Uh oh state revenues falling,imagine that.
http://www.azcentral.com/arizonarepu...udget0710.html

[DBcooper]

S&P May Cut Ratings on $12 Billion of Subprime Mortgage Bonds

By Emma Moody
July 10 (Bloomberg) -- Standard & Poor's may cut credit ratings on $12 billion of bonds backed by subprime mortgages, citing expectations that losses will continue.
The bonds are from 612 classes of residential mortgage- backed securities, S&P said today in an e-mailed statement. Ratings on collateralized debt obligations that contain the mortgage bonds are also under review, S&P said.
To contact the reporter on this story: Emma Moody at emoody@bloomberg.net .

[JCarvingblock]

Originally Posted by TET

Because almost all the money in existance...past, present, and future belongs to the banks...You all just rent it from them.

The evidence presented by the ongoing success of Dr Sam Kennedy's "Take No Prisoners bonding and Beneficiaries in Common Payment Technique" suggests that the value of the money is vested in the people under this particular manifestation of the implementation of the fifth plank of the communist manifesto.

But, should this knowledge become widespread, the entire system collapses.

Carver

[TET]

Any system collapses/implodes when it inflates to maximum potential reguardless...

There is no system that has ever existed where Inflation was stopped...slowed down...but never stopped.

Imagine working day in and day out for decades for the same pay and never being able to get more reguardless of how hard you work...Then you are told that your existance is no longer required...and are liquidated.

That is the system the fixed exchange rate crowd is working towards...

It's been tried many times...It has the same logical conclusion everytime...

What you need are robots not human Beings...Sure you could attempt to turn human beings into robots...But all it takes is one robot to reject the programing to wake up all the others and the whole control hierarchy crumbles into anarchy...

Like all the times before...

You all become tired after years of existance and age takes it's toll...You will invest massive effort into remaining asleep...

But when maximum potential inflation is reached...You all wake up from the daydream into the nightmare reguardless...

The investment of effort into remaining asleep past that point becomes infinite...So it's impossible to remain asleep...and you will be forced to wake up.

Until then you will spend your days attempting to dream up alternate solutions to equations that have logical conclusions you don't like.

[messianicdruid]

Originally Posted by TET

Any system collapses/implodes when it inflates to maximum potential reguardless...

There is no system that has ever existed where Inflation was stopped...slowed down...but never stopped.

Imagine working day in and day out for decades for the same pay and never being able to get more reguardless of how hard you work...

You are assuming that all "system"s will exploit the worker by not compensating him for his production. If worker's exchange their production with one another, with no middle man providing a "store of value" or a "medium of exchange", then no inflation would occur since the involuntary element of exchange {the tender} is eliminated. No system = no inflation.

[TET]

A male and a female meet and reproduce...and create 3 more human beings...They exchange their production with one another, with no middle man/woman providing a "store of value" or a "medium of exchange"

It started out 2 and now there are 5...Looks like the reproduction system inflates pretty good...

Human beings have the ability to reproduce quicker than they reach maximum potential and implode...Good thing too...Or we would not exist...

I would expect challenges/tests like this from my 11 year old daughter...

It could be you are all children that are just older but not really much wiser than children and at sometime way back before you were born someone came up with an idea that around 18-21 years of existance from birth you all could start calling yourselves adults...

Your physical bodies have aged a great deal but your minds don't appear to have kept pace.

[DBcooper]

Well what if you had a stable growth rate?
Wouldnt that throw a wrench in your theory?
Afterall as you claim human production is what causes inflation then would a stable population growth,aside from a declining enrich people?
And you never mentioned any tests that im aware of.

[DBcooper]

ROOF CAVES IN

MARTS TUMBLE ON SUBPRIME-BOND CARNAGE


By PAUL THARP and RODDY BOYD



July 11, 2007 -- Wall Street is bracing for a nearly $2 trillion washout over the collapse of hollow and shaky mortgage bonds, triggering fears of a recession worse than the dot-com bubble bursting.
A stunning first step in that grim outlook came yesterday when two credit rating agencies - Standard & Poor's and Moody's Investors Service - abruptly pulled the plug for the first time on a protective layer of respectable ratings that have cloaked the underlying, deep weaknesses of mortgage securities awash in the economy.
S&P slammed only a chunk of the half-trillion in mortgage bonds it monitors - about 2.1 percent or $12 billion - but said housing prices could crash by 8 percent this year to make matters worse. Moody's downgraded $5.2 billion of mortgage securities.
It sent shock waves through the market, triggering worry among investors that a domino effect could spread in the coming weeks throughout the nearly $2 trillion in mortgage securities.
Wall Street reacted by dumping shares, with the Dow Jones industrial average tumbling 148.27, or 1.09 percent, to 13,501.70. Other markets also had their worst sessions in weeks. Investors parked cash in the safety of U.S. Treasury securities, which jumped to their highest prices in six months.
Some economists are alarmed that shaky mortgage paper - which could be exposed to be worth barely 60 percent of current purported values - are parked throughout the investment world in mutual funds, hedge funds, financial institutions and other investment pools around the world.
Analysts say that there could be a wholesale stampede to unload any newly tainted securities, causing a scramble for capital and forcing hedge funds to give back billions to rich investors.
"This is a disaster," said Peter Schiff, CEO of Euro-Pacific Capital, who predicted the mortgage meltdown and slowdown a year ago. "I fear that this is going to be worse than the dot-com bubble. That was just a warm-up. This is the main event."
Meanwhile, the market for the new securities and their recycled derivatives, called collateralized debt obligations, is quickly collapsing, closing the window for underwriters to earn back their money. But when the credit rating agencies formally downgrade their mortgage securities later this week, it will force many of CDOs in limbo to be reevaluated for realistic prices that could be as much as 40 percent lower than on the books. paul.tharp@nypost.com

[DBcooper]

Bond Risk Soars Most in Three Years on Subprime Debt Downgrades

By Hamish Risk
July 11 (Bloomberg) -- Corporate bond risk soared in Europe by the most in at least three years as debt rating downgrades on U.S. subprime securities triggered a worldwide selloff, according to traders of credit-default swaps.
Europe's iTraxx Crossover Index of 50 companies from Italian automaker Fiat SpA to betting group Ladbrokes Plc in London jumped as much as 41,500 euros to 308,000 euros, the biggest daily move since the index was created three years ago, according to JPMorgan Chase & Co. The CDX North America Investment-Grade Index of credit-default swaps on 125 companies increased $2,500 to $50,750, the highest in 19 months, Deutsche Bank AG prices show.
Moody's Investors Service cut ratings on $5.2 billion of subprime-related debt yesterday and Standard & Poor's said it's preparing to downgrade $12 billion of mortgage bonds as delinquencies by homeowners with poor or meager credit soar to the highest in a decade. Investors in collateralized debt obligations that pool the securities are likely to lose $52 billion, according to Credit Suisse Group in Zurich, while Deutsche Bank AG in Frankfurt estimates as much as $90 billion.
``More pain will come,'' said Willem Sels, head of credit strategy at Dresdner Kleinwort in London. ``There are signs its spreading to emerging markets, equities and the yen.''
European stocks dropped for a second day and Asian shares fell for the first time in three days. Investors seeking less risky assets sent benchmark 10-year Treasury notes and German bunds higher for a third day and Japanese government bonds rose the most in more than 10 months.
`Subprimemania'
Credit-default swaps are used to speculate on the ability of companies to repay debt and an increase indicates worsening perceptions of credit quality. The Crossover index may rise as high as 400,000 euros because of ``subprimemania,'' as well as concern about falling corporate earnings and rising oil prices, Jochen Felsenheimer, head of credit strategy at Italy's biggest bank Unicredit Group, said in a note to investors today.
``The Goldilocks scenario for credit markets is definitely over,'' Munich-based Felsenheimer said. ``These rating actions, the biggest ever in the subprime market, have the potential to trigger an even more substantial move in credit markets.''
The credit quality of subprime mortgage bonds fell to a record yesterday in New York. The ABX-HE-BBB- 07-1 index that tracks securities rated BBB- fell 7.4 percent to 51.42, according to London-based Markit Group Ltd., the index administrator. The index has declined by almost half since January, reflecting the increased likelihood of default on the underlying securities, which have the lowest investment-grade ratings.
``People are very nervous,'' said Alex Moss, who helps manage $94 billion of fixed-income assets at Insight Investment Management in London, in a telephone interview. ``There's a lot of concern the selloff in subprime will feed through to the wider market. Until the market finds a floor, it's difficult to see where the buys are going to come from.''

[DBcooper]

State taking aim at sub-prime mortgage brokers


By Rob Varnon
STAFF WRITER

HARTFORD -- William Gonzalez of Bridgeport said he started with a dream to buy his first home. He told the brokers and lenders he used he could afford a monthly payment of $1,200 to $1,800.

What he ended up with was a $2,400-a-month mortgage for a house he's going to lose in a month.
Tuesday at the state Capitol, Gonzalez told the Governor's Task Force on Sub-Prime Mortgage Lending about a baffling process involving real estate agents, brokers, lenders -- and even a lawyer -- none of whom was representing his interests.
He said negotiations started with him saying what he could afford, and brokers showing him a $315,000, three-bedroom house and telling him he could afford it.
He qualified for the loan, which they found for him. He agreed, made a down payment, and when all the paperwork was done, he discovered he was buying a $324,000 house.
Later, he learned his income had been adjusted to qualify him for the loan. He used a lawyer the lender and real estate broker provided.
Gonzalez lost his job shortly after moving into the house a year ago. He's never made a payment, he told the committee. Gov. M. Jodi Rell created the task force to find out what the state should do as it faces a rising tide of foreclosures.



Like the rest of the nation, Connecticut has seen an increase in foreclosures, especially among sub-prime borrowers.
Sub-prime, simply stated, is a designation for borrowers whose credit scores do not qualify them for the best loan rates. But some committee members noted it is difficult to define exactly what a sub-prime loan is.
Generally, though, the sub-prime loans that are the problem come with adjustable interest rates, which start out lower than the prime rate and then rise dramatically through the years.
Howard Pitkin, state Department of Banking commissioner, is the co-chair of the task force. It is his hope, he said, that the committee will recommend regulatory changes and the state will develop educational resources for buyers.
There are 32 members of the committee, which includes regulators, lawmakers, lenders and housing advocates.
What's at stake in Connecticut, according to the most recent data, is "$12 billion in loans and many thousands of homes," Pitkin said. "The tragedy is families will lose homes and neighborhoods will be eroded."
The good news is that 85 percent of sub-prime borrowers in Connecticut are up to date with their mortgage payments, Pitkin said. The bad news is that people with adjustable-rate mortgages will see large rate increases in September, October and November, he said.
Andrew Pizor, an attorney with Consumer Law Group in Rocky Hill, said his practice has seen hundreds of cases similar to Gonzalez's. Pizor said a major problem is what happens to the mortgage after it is issued.
The originator sells it as soon as it can to make a quick profit. So it's in the interest of the originator to lend more money.
The real estate agent is interested in making a big sale as well.
And the one person who is supposed to be representing the buyer, a lawyer, is often not there or is provided by the broker.
Pizor said consumers are negotiating prices and terms throughout the process, but are offered different terms when they actually sign.
He noted this is not a problem with honest brokers and lenders.
Connecticut Fair Housing executive director Erin Kemple confirmed Pizor's findings. She said people are basically being told, 'Don't read the document, just sign it.'"
They don't get lawyers because many are concerned about the cost.
Kemple also said race is an issue in the sub-prime market, noting the maps of where sub-prime loans are issued and where blacks and other minorities live are nearly identical.
She and Pizor advocate regulatory action, with Pizor saying buyers should be given a new escape clause. Kemple said Connecticut lacks many of the consumer protections other states have.
Attorney General Richard Blumenthal added his voice to the call for reform Tuesday. He said his office is fielding more and more complaints, and there are several active investigations of fraud.
What all this will mean for Connecticut's economy remains unclear.
"In Connecticut it's not worse than the nation, probably," Fairfield University economics professor Edward Deak said in a phone interview. "But it's not better."
Deak said he still thinks this is a problem for the housing industry, but not an economy buster. But the state will have to deal with people losing their homes and others barely making ends meet.
Deak said the task force needs to look at how sub-prime mortgage lenders qualified customers.
"Mortgage lenders saw an opportunity to make a lot of money off of people who are less sophisticated when it comes to loans," he said.
The clients were told they could handle the loans and refinance later. What they were not told is if the home they bought lost value, it would be nearly impossible to refinance. The task force is expected to generate a report and recommendations sometime in late summer or early fall.