patrick.net

How the frack can this be legal? The govt can't just change the terms of legally binding contracts except under bankruptcy.

the funny thing about US laws is, when the gov needs to break a law, they make a new law to replace the old one.

grywlfbg says

How the frack can this be legal?

yeah, that was what Hoover was saying, in 1930, 1931, 1932 . . .

Nixon froze wages and prices 1971-73.

http://www.econreview.com/events/wageprice1971b.htm

grywlfbg says

How the frack can this be legal? The govt can’t just change the terms of legally binding contracts except under bankruptcy.

I know..I feel the same. The game is so rigged, they just keep changing every possible law until nothing else left.

Today Mish has written an article about this. Very interesting:

http://globaleconomicanalysis.blogspot.com/2010/02/obamas-micro-mismanagement-of-hamp.html

It's pretty obvious the government has a goal. Slow/Prevent/Stop the housing market from crashing. This isn't something new, this isn't a new "rule" per say being dropped on us. The rule was "Do whatever it takes to Slow/Prevent/Stop the housing market from crashing" all side rules are therefore just supporting that. This is a new rule to help with the primary objective.

If you're ignoring that rule and basing all your housing/future economic/savings plans on something else, then obviously it's going to seem like the game is rigged.

I agree with pkennedy. Once Obama was elected, the government position has been "keep people in their houses." This position has been ALL people regardless of whether they've actually paid a single dime of principal. It's a crappy plan in my mind, but that's the reality. My housing view has changed with my understanding of this. I still think housing is overpriced in many parts of the bay area, but my hope that prices will drop to 2000 prices in desirable areas is all but gone. The only way that would have been possible is if foreclosures were allowed to drive the prices down. Clearly that is not going to happen.

WASHINGTON (AP) -- Sales of previously owned homes plunged in January to their lowest level since summer, evidence that high unemployment and tight lending standards are undercutting the government's attempts to prop up the market.

The results Friday, the weakest since June, were far worse than forecast and suggest the housing recovery will sputter without government support. The government has spent billions to keep mortgage rates low and give buyers tax breaks, but both programs are set to end this spring.

"Most of the improvement that we've seen in housing over the past year has been tied to some sort of stimulus program," said Wells Fargo economist Mark Vitner.
"Now that we're seeing those programs wind down, we're seeing that housing is quite a bit weaker than many people had thought."

Nationally, more than a quarter of buyers last month paid all cash, reflecting a surge of investors buying low-priced foreclosures, the Realtors group said. In Orlando, Coldwell Banker agent Cindy Brads says there is tremendous interest among buyers for homes priced at $150,000 and under. For anything below $60,000, it's not strange to get 20 offers for a property, she said, with a large percentage coming from investors.

Nationwide, the median sales price was $164,700, unchanged from a year earlier and down about 3 percent from December. The inventory of unsold homes on the market was down slightly. There is a 7.8 month supply at the current sales pace, up from a recent low of 6.5 months in November.

The bleak report comes after the government reported Wednesday that sales of newly built homes plunged 11 percent to a record low in January. The report, which measures signed contracts to buy homes rather than completed sales, also came as a surprise to economists.

Another question hanging over the housing market this year is whether interest rates will rise, and by how much. The Federal Reserve's $1.25 trillion program to push down mortgage rates is scheduled to expire on March 31.

After that program runs out, mortgage rates should not spike, but rather rise gradually to about 6 percent over the next year, predicts Cameron Findlay, chief economist at LendingTree.com. That will mean homebuyers may have to reduce their price range, and that trend could put downward pressure on prices.

Looks like the investors are about to take a hit once again!

camping says

I still think housing is overpriced in many parts of the bay area, but my hope that prices will drop to 2000 prices in desirable areas is all but gone.

There is no income support for high prices.

I really wouldnt count out further declines in these so called desirable areas. We have seen it before, Beverly Hills/BellAire of early 90s is certainly a good example. Most of the 2000 gains were created by stock options late 90s. But as you can see very little if any new IPOs with rich valuations have surfaced. Given stock options are now expensed on the earnings, there is little reason to recreate late 90s booms.

We certainly are not seeing multi year annual growth in revenues 15-20% year over year, if anything cost is being trimmed to increase profits. Salaries/Bonus/other compensationary expenses.
Its a whole different world out there that bearly getting into the minds of more recent home buyers.
LOL! I still meet people who are hoping for a late 90s tech boom to happen again. Keep dreaming, I say.

Even here with the constant mantra of waiting for pricing to drop, it is clear that buying a house is a desperate desire for most Americans. Perhaps this is one of the biggest reasons why housing has still not dropped to a fundamentally affordable price wise. The idea that these carrots are eagerly scooped up by buyers only confirms the desperation of the average would-be buyer. People, you just need to relax. Housing is not- I repeat, housing is not going to explode to the upside. This is going to be going on for years. Financing is going to dry up and interest rates are going to go up. This means buyers are just not going to qualify for nearly as much, especially from private lenders.

I am over 50 and have been reconsidering my desire to buy. If I buy to high it could al least 10 years or more before I get back to breakeven. Maybe even longer. Unless houses become unbelievable cheap, I'll just rent instead. I guess this is what patrick has been suggesting on this site. There are even more alternatives. Hmmm, how about a motor home. Could be fun. The idea of being a slave to a piece of property is losing its appeal as well- especially on a house I have little or no equity in. I am truely losing faith in the housing gospel of wealth. Maybe more people need to feel like me. After all, when demand drops, price is sure to follow, yes?

deanrite says

Perhaps this is one of the biggest reasons why housing has still not dropped to a fundamentally affordable price wise

Housing can never be "affordable" in general. Now that we are a nation of 300 million+ and the government is done handing out 160 acre homesteads, area disposable incomes determine the monthly payment, and there's millions of cash investor real estate pro sharks circling in the low end looking for anything that will cashflow.

Housing will always be bid up to the point of unaffordability. The greatest fool always gets the house, assuming he can get a loan.

I'm really on the fence about buying now. google says 3.875% 15 year FHA loans are available now. . . that's a 2.4% cost of money with the mortgage interest deduction!

Sure, prices will go down when rates go up, but who knows what the future holds. Perhaps we will follow Japan into ever-greater "affordability" lending programs. And cash buyers don't care about rates, they care about rents.

If rents tank here, then buying is premature. If not, not.

camping says

I agree with pkennedy. Once Obama was elected, the government position has been “keep people in their houses.” This position has been ALL people regardless of whether they’ve actually paid a single dime of principal. It’s a crappy plan in my mind, but that’s the reality. My housing view has changed with my understanding of this. I still think housing is overpriced in many parts of the bay area, but my hope that prices will drop to 2000 prices in desirable areas is all but gone. The only way that would have been possible is if foreclosures were allowed to drive the prices down. Clearly that is not going to happen.

Same here, I am getting resigned to the fact that I am going to be a renter forever. I had a slight hope to get a 3/2 under 500K in my area. Now, its all gone.

"Unless houses become unbelievable cheap, I’ll just rent instead."

I don't reavall a single point in time where houses were super cheap. I have never heard soemone say "They are practically giving away houses" or "At these prices we can buy 2 houses." A house is always going to be somewhat expensive because they cost a ton of money to build. If home values fall 50%, construction costs will not do the same.

One of the reasons why foreclosures must be mitigated, even if it pops up prices, is because you cannot have a recovery in the broader economy without a recovery in housing prices. Only when prices bottom and foreclosures decline will you see new jobs being created.

imo, with government intervention, manipulation, and support of the housing market, artificial values on the coasts will continue indefinitely.

Sorry to say, but its not politically popular among homeowners for politicians to allow home prices to fall.

The majority of homeowners (boomers in particular) have made themselves dependent upon their house as their largest financial asset and politicians are going to prop this up with voter blessing even if our nation goes bankrupt and we lose our freedom.

Politicians are not known for doing the right thing. They do what's expedient and what will help them get re-elected.

The only thing renters can take heart in is that most homeowners are not going to be able to get credit or loans as in the past. Many of them are in severe financial distress and will be for the foreseeable future.

HousingWatcher says

Only when prices bottom and foreclosures decline will you see new jobs being created.

Oh..really, would you care to explain? Housing has nothing to do with the economy. If the 780bn has been spent on something useful, like infrastructure, nuclear power, R&D, we would've had much more jobs.

RE is the single biggest investment people own. WHen peopel see the value of their house go down, they feel poorer so they cut back on spending. Consumer speding is 70% of the economy. You do the math.

HousingWatcher says

RE is the single biggest investment people own. WHen peopel see the value of their house go down, they feel poorer so they cut back on spending. Consumer speding is 70% of the economy. You do the math.

No, actually, I would argue otherwise. Now, these people are so stuck in deep water, they are not going to spend anything. It will be painful to let the house go down, but the people who get foreclosed will move on to rent, and new prudent buyers will buy home, which in turn will start the spending cycle.

HousingWatcher says

Only when prices bottom and foreclosures decline will you see new jobs being created.

I think you've got a cart/horse problem here.

Low Interest rates and credit fund jobs. High rates, less credit, less monetary expansion, less economic activity.
Low Interest rates also drive home prices. All things equal, higher rates will eventually drive excess valuation (above what they cashflow now) out of home prices.

Can rates go any lower from here? Nobody knows.

Unemployment might start to reverse but this is still the mother of all job recessions right now.

Rising interest rates also increase the cost of money that the government is rolling over. AFAIK the Chinese have kept us on a tight leash, rolling over their $800B in bills not bonds, essentially giving us a free ride on that part of the debt. The interest paid on the debt could easily double to $300B, or quadruple if things start spinning out of control.

We need wage inflation, but it's tough to get that when 20% or more of the labor force is underemployed.

I don't have any solutions, but I certainly admire the problem.

dont_getit says

and new prudent buyers will buy home, which in turn will start the spending cycle

Don't new, prudent buyers already HAVE their homes?

Renting is not positive economic activity, it is simply wealth transfer from laborer to rentier. Completely zero-sum.

HousingWatcher says

RE is the single biggest investment people own. WHen peopel see the value of their house go down, they feel poorer so they cut back on spending. Consumer speding is 70% of the economy. You do the math.

That is why this nations is so financially illiterate.

Actually, housing was very affordable price-wise until 1970 or so. That is mostly because banks only used strict standards for qualifying and down payments. 20% down and to qualify no the house could cost more than 3 times income, period. Most people could afford to buy something. My dad was in auto repair and mom was a waitress together making $250 a week in 1965. They bought a brand new 4 bd 2 ba 1800 sq ft Shapell home for 21000. Lots of older homes could be bought for 5 to 10 thousand dollars. Houses WERE cheap relative to income then because there were no "innovative mortgage products" then. Up until the late 90s qualifying wasn't a major obsticle for most of us. As far as making monthly payments 'affordable' this is basically what caused the high prices and the current financial mess we're in to begin with. How can we make the payments more affordable- 40 year loans? how about 50? Hell, if you went 100 years maybe you could buy that million dollar place on your 70k salary. No, I think price is the most important and unless I see a house in decent shape in a decent neighborhood at a price I legitimatey qualify for I'm just not interested. I'm just not going to stretch for an overpriced brokendown crackerbox. It just really isn't all that important.

HousingWatcher says

I don’t reavall a single point in time where houses were super cheap. I have never heard soemone say “They are practically giving away houses” or “At these prices we can buy 2 houses.” A house is always going to be somewhat expensive because they cost a ton of money to build. If home values fall 50%, construction costs will not do the same.

What? The house costs the same to build whether you're buying or renting. And construction costs have fallen w/ the downturn. And in expensive areas the land is much more of a factor than the house (just look at what 60-year-old falling down shacks in the Bay Area go for. The house is worth almost nothing.

As late as the mid-90's it was equal or cheaper to buy than rent. This is because owning has costs that renting doesn't (taxes, repairs, transaction costs to buy/sell, etc.). It's only this recent change from "housing is shelter" to "housing is an investment" did the paradigm change. We won't be at the bottom until people go back to buying a house as a place to live instead of an "investment".

grywlfbg says

We won’t be at the bottom until people go back to buying a house as a place to live instead of an “investment”.

Never gonna happen unless we get Japan's deflationary spiral. Entirely possible, but in my 40 years each decade has seen housing go up to the next $100K level.

"It will be painful to let the house go down, but the people who get foreclosed will move on to rent, and new prudent buyers will buy home, which in turn will start the spending cycle."

If all these houses go into foreclosure, nobody will be buying aything since the banks won't lend since they will suffer massive losses.

HousingWatcher says

If all these houses go into foreclosure, nobody will be buying aything since the banks won’t lend since they will suffer massive losses

If a homeprisoner pays almost 3/4th of his earnings like here in bay area, how do you think he will have money to spend in discretionary spending. OTOH, if he finds a rental home in half that cost, now he has suddenly has a bounty of cash, he can save 70% and still it would be a lot left to spend.

Our laws are most complex in the world. Most laws are made to override the prior laws. At some time in future we will hit a dead end where we have to start reducing number of laws.

thomas.wong1986 says

camping says

I still think housing is overpriced in many parts of the bay area, but my hope that prices will drop to 2000 prices in desirable areas is all but gone.

There is no income support for high prices.

When you say this do you base your comment on stats, theory or just hope? I wish it were true, but someone keeps offering list or above list on the houses we are looking at. Most houses we've looked at recently haven't lasted 2 weeks on the market.

camping says

Most houses we’ve looked at recently haven’t lasted 2 weeks on the market.

There may be no income support for high prices but there is certainly low cost-of-money support.

I was the biggest housing bear around in 2006 but I think we're in a bottoming pattern now.

Here's a house I'm pretty familiar with:

http://www.redfin.com/CA/Santa-Cruz/1215-Sanders-Ct-95062/home/2256235

It's basically representative of the median for this nice-ish area and now it's back to its pre-bubble pricing of 2002 or so, and that's WITH the $8000 tax credit and still real low interest rates.

With the money supply DOUBLE what it was in 2001-2002 it's really quite astounding that home prices are fully back there, now.

If & when interest rates go back to 2000 levels (7%), we'll see 2000 prices again, unless we get a job recovery in the interim.

Troy says

camping says

Most houses we’ve looked at recently haven’t lasted 2 weeks on the market.

There may be no income support for high prices but there is certainly low cost-of-money support.

Yes, you are right.
I'm not confident in the precipitous drop with higher interest rates though. I think if there are signs of trouble when rates get to 6%, the gov't/fed will step in again.

The Fed has already stated they will go back to buying MBS if rates spike.

Troy says

If & when interest rates go back to 2000 levels (7%), we’ll see 2000 prices again, unless we get a job recovery in the interim.

But why would rates ever go up to 7% if the US economy isn't recovering and adding jobs? I don't see how that could happen...

For those of us interested in Sunnyvale:
http://realestate.yahoo.com/promo/where-home-prices-are-rising

Greaaaaat!

I just checked the shadow inventory on Foreclosureradar.com in my target areas of Tiburon, Lamorinda, Alamo, and Mill Valley. Each of these areas has over 3 pages of preforclosure, auction, and bank owned properties with the majority being auction. This is between 60-80 homes per area...which is almost as many homes that are actually for sale in each area currently.

What is going on with all these homes going up for auction? Does anyone know?? I doubt someone with a 900-1M loan on a house would qualify for any government sponsored program or do these people get bailed out too?

tatupu70 says

I don’t see how that could happen…

If we need to attract global capital into the USD we need to raise the rates we pay for it.

There's actually some slack between the 10-year treasury and interest rates -- 200 basis points -- but once that goes higher over 5% it will push up mortgage rates unless there is some sort of government intervention.

http://finance.yahoo.com/q/bc?s=%5ETNX&t=my