patrick.net

I wonder if they’ll ever make a movie out of our housing bubble bust, and if so, I wonder who will play the FED?

Huh?

It can also be argued that government spending to be reduced in order to lower taxes. Spending is a means, not an end.

Absolutely --and good luck getting that to happen. We've had a "conservative" Republican-dominated government for nearly 6 years now. So how have those "starve the beast" spending cuts been going so far? Any Congressmen or Senators out there ready to sacrifice YOUR state/district's pork-funded jobs or farm subsidies?

Anyone, anyone.... Bueller?

Hmmm... perhaps a new theory may be in order.

Glen,

I'm with you! I've been pulling for this for years. The way I set up SEP's you can daytrade for all I care. I have ONE rule though, if I get fired b/c you're too distracted I'm gonna make sure YOU get fired first!

You should see some of the stuff on my books! Alternative energy, Canadian mining stocks, pennys you name it. I just remind these guys, "you're the CFO here right?" You're a big boy, right? So there's no crying in baseball and there's no crying on Wall Street, right?

Have at it my friend!

Default kick-backs can be remedied by making the default random. Don't like what you're in? Here's our 1-800 number.

I said:

Taxes should be raised in order to fund government spending.

Then Peter said:

It can also be argued that government speding to be reduced in order to lower taxes. Spending is a means, not an end.

My post may have been ambiguous. When I said "raised" I did not mean "increased." I meant taxes should be collected to fund whatever level of spending is deemed appropriate by the powers that be. I was just trying to make the point that the sole function of the tax system should be to collect money, not to engage in social engineering. A good system of taxation is fair, economically rational and administratively feasible. Our current system fails on all three counts.

It is also weird that if you buy stock which appreciates, you pay cap gains. If you earn dividends, then you pay “dividend rates” (depending on the kind of dividend). If you earn interest income, you pay ordinary income tax. Too many rate structures, too much complexity, in my opinion.

At this point, the incentives are so complicated and nuanced that most taxpayers couldn’t make maximum use of them, even if they tried.

Glen,

We are in 100% total agreement on this. Current tax code is insanely complex and so byzantine precisely beause it attempts to "incentivize" everything to death, and because every business/interest group out there lobbies for its own loopholes/"special status", ultimately defeating the original purpose of special exceptions. This is why I'd much rather see a greatly simplified income & asset-class neutral structure.

I meant taxes should be collected to fund whatever level of spending is deemed appropriate by the powers that be.

I see. :) But that would still mean that tax should be collected to support an arbitrary level of spending. This is dangerous.

I wonder if they’ll ever make a movie out of our housing bubble bust, and if so, I wonder who will play the FED?

There will be such a movie.

I see. But that would still mean that tax should be collected to support an arbitrary level of spending. This is dangerous.

Well, I have my own views on the appropriate level of government spending. But these views are independent of my views on the purpose of the tax code.

My guess is that we could reduce rates meaningfully if we broadened the tax base by eliminating special loopholes, carve-outs, exemptions, credits, deductions, "incentives," etc., etc...

Rates could be reduced further if we actually managed to cut spending. But I think it would be easier to cut spending if all the special tax favors were itemized as line items in a spending bill, instead of being tucked into an obscure tax code provision. It is easier for Joe Public to understand that his money is being collected and distributed to an oil company than it is for him to understand that a special tax break for the oil company invisibly raises taxes on everyone else. Just look at the difference between the press coverage on spending for Halliburton and other war contractors vs. invisible spending in the form of tax "incentives" for, eg, accelerated depreciation, oil well depletion allowances, etc....

HARM,

In 1986 the government radically transformed the tax code by wiping out tons of special rules, loopholes, etc. from the tax code in one fell swoop. It was a victory for bipartisan rationality. Bill Bradley (D, NJ) authored the bill and helped shepherd it through the Senate. Reagan and other Republicans supported it and helped get it through. The '86 tax bill eliminated all kinds of loopholes (eg: unlimited "passive loss" deductions, etc.) which had distorted the code. Naturally, the beneficiaries of these loopholes were pissed.

Then Congress got back to the business of handing out favors. Twenty years later, the code is far worse than it was in '85. But it will take some kind of miracle for bipartisanship and the public interest to prevail over partisanship and special interests in the coming years, I'm afraid.

My guess is that we could reduce rates meaningfully if we broadened the tax base by eliminating special loopholes, carve-outs, exemptions, credits, deductions, “incentives,” etc., etc…

How about merging the "regular" tax with the AMT, so everybody pays the AMT at a slightly higher rate? This would become a slightly progressive "flat" tax.

How about merging the “regular” tax with the AMT, so everybody pays the AMT at a slightly higher rate? This would become a slightly progressive “flat” tax.

Could be a start, but I would go further than that. I believe the AMT still allows a couple of deductions (like mortgage interest). In my view, they either need to phase out the mortgage interest deduction or allow a certain amount of rent to be deductible in order to level the playing field and achieve neutrality between owners and renters. Oh, but I forgot, we need to "encourage home ownership" because so few people own homes in this country and we need more FBs to take the plunge....

SF Woman wrote:

> FAB, What is the legal difference between a coop and
> a TIC. I know that TICs tend to be entry level places,
> and the coop I almost bought had a high down payment
> and an income/asset test and the members voted on
> you, but is there any other difference?

A Tenants In Common aka TIC is a way that any number of people can own Real Estate. From a RE dictionary site:

"Tenants in Common: property owned by two or more persons at the same time. The proportionate interests and right to possess and enjoy the property between the tenants in common do not have to be equal. Upon death, the decedent' s interest passes to his/her heirs named in the will who then become new tenants in common with the surviving tenants in common. Words in the deed such as "Peter, Paul, John and Mary as tenants in common" establishes tenancy in common."

If three TICs own a building with a single loan and one stops paying the other three will have to make the payments or loose the property to the bank.

Ownership of a traditional co-op is not actually ownership of Real Estate. People that "own a co-op" are actually just shareholders of a corporation that owns Real Estate. Traditional Real Estate lenders will not make co-op loans and some of the more exclusive co-ops have "kept out the riff-raff" by prohibiting any pledge of the stock in the co-op as security for a loan (not many people have $5mm cash to buy in to a co-op like that)... The Wikipedia has a lot more info if you search "Housing Cooperative"

Wow.... if Lereah is conceding a hard landing then we are really in for it! Maybe 20% decline nationally and 50% in bubble markets?

SFWoman Says:

I just listened to my telephone messages up in the country (where to meet friends for dinner?) and I got three mortgage people calling.

Interesting. Before we sold, we got tons of mortgage refi cold calls, and enough junk mail about refinancing to fill a McMansion. Now that our mortgage has been reconciled, no more of this crap. Yes, I realize this is just mass marketing, but the funny implication is of course that every mortgage holder is a potential refinancer/equity extractor/FB.

One called, introduced himself as David Clark at 1-888-699-0692 and wanted to talk to me about the 30 year 1.5% mortgage application that he had received from me. He needed to talk to me to get it funded ‘right away’. Yeah, right.

Let me guess... he probably said it was a "30 year fixed 1.5% rate"...as in "30 year loan, fixed until December."

I have heard real estate call-in shows use the term "fixed" to apply to just about any loan that doesn't have a rate that starts floating on the day you close your loan. Is anybody really fooled by this?

Glen Says:

I have heard real estate call-in shows use the term “fixed” to apply to just about any loan that doesn’t have a rate that starts floating on the day you close your loan. Is anybody really fooled by this?

Given this bubble and the FB stories we all hear about, I'd say the answer is resoundingly, YES.

Given this bubble and the FB stories we all hear about, I’d say the answer is resoundingly, YES.

I don't think the FBs were fooled by anyone other than themselves.

BTW, do you think they have fineprints saying something like "loan fixed at various interest rate for the entired 30-year term"? :)

Oh man... we are really in for it.

The "virtuous cycle" for housing will turn into a vicious feedback loop....like dominos...

1. MSM continues stories about the HB...
2. Flippers panic and cancel their next flips, forfeiting their 1-3% deposits en masse (cancellation rates have been huge over the last couple of months...and getting worse)...
3. Builders, who claimed they were safe this time (vs. early '90s) because they don't start building until the contract is signed, realize they haven't reserved nearly enough for contract cancellations...
4. Builders inventory piles up massively and builders forced to take big write-downs on inventory. Some of the aggressive builders find that they are insolvent. They sell off houses and land in bulk at fire sale prices...
5. Builder liquidation sales!....
6. Existing homeowners who still have some equity to salvage realize that they must compete with new home prices and start discounting more aggressively...
7. FBs with negative equity realize they have no hope of selling and send "jingle mail" to the banks...
8. Uh oh... MBS market takes note of the exploding default rate and starts "pricing in" much more risk for MBS securities....
9. Lenders who kept loans on their books find themselves with lots of bad loans and lots of REOs to liquidate and start slashing prices...MORE inventory....
10. Lenders who sold loans in the MBS market face massive lawsuits from pension funds and others who purchased mass quantities of bad loans... MBS's jack up rates and implement extremely strict guidelines on mortgages...
11. Failure of one or more major financial institution (WaMU? Barclays?)...
12. Derivatives meltdown???....
13. Unpredictable fallout...things that seemed safe (like certain money market accounts--not FDIC insured--holding MBS securities) inexplicably fail, leaving conservative investors (among others) holding the bag...
14. Buyers refuse to buy houses because: (1) economy in full blow recession and jobs are scarce; (2) scared s**tless because of horror stories from friends and family; and (3) most importantly, can't qualify for a loan...
15. Articles appear stating that "Sell now! They aren't making any more qualified buyers!"...
16. Lots of hand-wringing...
17. Tons of lawsuits by and against consumers, borrowers, lenders, regulators, buyers, sellers, builders, pension plans, banks, etc., etc...
18. At this point, depending on how apocalyptic you feel, we either have (a) massive dollar crash and massive wealth destruction (bank account? Gone. Brokerage account? Gone. Houses? Burned to the ground.), hyperinflation, riots, massive crime wave, martial law, suspension of civil liberties and the rise of fascism backed by US military might; or (b) resumption of normal market conditions, followed by Congress passing the Omnibus Housing Clearance, Reconciliation and Accounting Procedures act of 2011 (OH CRAP) WAY too late... Or maybe something in between....

hey, what about the fundamentals?

You should buy a home that you can enjoy. It needs not be viewed as an investment.

Of course, you must stay within your confort zone financially.

alien,

have a look at this article in today's SMH (fortuitous timing), which reiterates what a lot of people here have been saying about the nature of the bust, if and when it comes... You could forward your friends the link...

it turns out that Sydney has been slumping for the last 3 years, which is why it infuriates me when the national ABS has the hide to report 2% growth across the nation and 1.4% growth in Sydney so prices can be reported as growing still...

it seems to be the unwinding of irrational exuberance, as negative equity starts to bite... bear in mind that:

"Sydney's experience demonstrates how long property booms take to unwind. Unlike a stockmarket crash, where sellers dive for the exit and fortunes are lost in days, property slumps take years to unfold. This suggests the drama of the rise and fall in the Sydney market is far from over."

Boom and bust on the home front

Since prices have dropped anywhere from 12% to 40% in some instances, depending, it's not an unreasonable time to buy. It could fall further -- I personally think it will, and hope it will, but obviously can't guarantee it. It depends what they are thinking of buying, e.g. an apartment, a house, etc, and in what area - prices could be stickier for houses than apartments, for instance.

Interest rates were just put up in August, and will probably be put up again in November or December -- but not sooner. Clearly your friends have to factor the interest rate picture into their costs.

I would personally prefer to live, work and buy in Melbourne, it's a much more pleasant city, although still large, with better houses, better people, better urban planning, much more affordable, etc.

* disclaimer: not purchasing advice. not schadenfreude. *

Dick Cheney, the battler's friend...

When will the madness end!

How can this be pending already?

http://www.burbed.com/2006/08/22/if-you-like-mold-youll-love-786-5th-ave-in-redwood-city/

Note that Dick Cheney isn't personally betting on interest rates and inflation increasing, his money men are doing all the thinking for him... it's much easier to put it all in a box and give it to other people to worry about. i tihnk it's realistic for anyone to expect interest rates and inflation to continue to creep up, given the present circumstances.

Things are looking grim, keeping interest rates low post-9/11 to 'prevent a recession' seem to have created the housing bubble, which is now bursting, and creating an inflationary recession and a lot of further pain. It was just delaying the inevitable, apparently. This is the problem of Reserve Banks having only one macro lever to attempt to 'manage the economy' (ha) -- really protect the banks interests, in fact -- and putting nothing else in place to moderate the actions of stupid people in unfettered capitalist free markets.

You don't know what they offered though until it is sold, then you might find that it went for below asking (hopefully by a lot).

peak oil again: When oil dries up

apologies if you need a Fairfax Digital subscription for these links...

i'm really serious when i think about how destabilising running out of oil would be -- as with global warming and the seas rising -- this whole fetish about tracking every cent in price rise in housing (and share holdings) will just become a bitter joke and fade into insignificance...

"Oil is close to running out, and chaos will follow, according to a US expert.

RICHARD HEINBERG is an unlikely latter-day Jeremiah. The contrast between this quietly spoken Californian college professor and accomplished classical violinist and his explosive message couldn't be more marked.

If Heinberg is to be believed, the impending dislocation caused by the end of the oil era will be about as bad as it gets. From global resource wars as oil-dependent economies battle for control of remaining resources to widespread famine caused by the slowdown in oil-dependent agribusiness, the picture he paints is nothing short of cataclysmic." ...

Pop! Says:
REAL ESTATE’S CRASH LANDING

that article's pretty well spot on, especially about exhausting the pool of available purchasing power -- can you imagine how pissed off recent young purchasers will be, when the house they bought for X, and which they're paying interest on, is now available down the road for 0.8 X or 0.6 X -- it's like buying something at a store at full price the day before the unadvertised sale begins...

not counting the anxiety of losing tens or hundreds of thousands in ghostly equity in the event of resale, and their huge interest bill, of course...

"With a state election just over six months away, the Premier, Morris Iemma, must also be worried about the potential fallout from the property woes on Sydney's fringes.

Just blocks from the Iemma residence, an imposing four-bedroom, two-bathroom brick home at Beverly Hills sold this year for $510,000, just over the $507,000 lent by the bank. It had sold during the boom time for $580,000. The new price reflected a 12 per cent fall."

see how the bank so cleverly covered its ass? they recovered all their money, leaving a whole 3K for the buyer who is wearing a 70K loss... not forgetting to subtract RE advertising costs, etc, of course

poor banks, always losing money... :cry:

Hmmm, dude at work gave me the number of a broker that has been in the biz for quite a while here in the $anta Barbara area. dude at work said that it took him 6 months to find a house 5 years ago and his broker friend helped him look. Anyhoo, I called Holmes up and he called back today and apologized that he hadn't returned my call sooner and said that he is also a property manager and the rent market is insane. He said that he hasn't seen anything like this in his 15 years in $B. Evidently Holmes posts an ad and has 200 applicants immediately. Hmmm, now why would this be? I commented, "It certainly isn't because of the economy", he didn't address the comment.

Now here's where it gets interesting, soon to be Mrs. X had the following to say, "the FB's that need to get out are bailing in a hurry and need somewhere to live", followed up by "the other FB's that aren't smart enough to get out are vainly attempting to raise rent to match their mortgage". Certainly there isn't a huge upswing jobs here as Senor Cote' can attest. What can it be? Why the huge pressure all of a sudden?

Moreover, at what point does my boomer landlord, who owns the house free and clear say fuck it and jack the rent? (note, this will correspond with Surfer-X purchasing a 24" chainsaw and 3-6 bags of redi-mix, and no I'm not a lumberjack or a paver).

Dang.

0.8 X or 0.6 X

Still a lot of X ;)

I missed most of the tax discussions. Damn. All I can say is that, after reading through all the fine arguments, I still see nothing that isn't remedied by eliminating all income, capital gains, payroll and arbitrary transfer taxation and replacing it with a uniform national consumption/use tax. Now "rich" people can't hide behind cap gains as income. Now everyone pays the same rate for the same things, regardless. And for those things which burden the poor; we just don't tax them, or tax them at a very low rate -- the lowest common denominator rate. So less tax on milk than caviar. If a poor person wants to eat caviar and a rich person wants to drink milk, then so be it. If there is going to be income redistribution then at least make people responsible for redistributing their own incomes by their behaviors.

Hey SactoSassyPants, how to close out old threads?

Randal H Esq. Blog party?

FormerAptBroker Says:
The only brokers that make 5% (five points) are the hard money guys who get money for people with bad credit.

hmmm, fair enough, she's sub-prime. doesn't seem to be hurting her revenues, does it?

what happens if the market tanks by 50%, including exhausting re-fis? (admittedly not many people will be refinancing as interest rates go up...) she'll only be making $125K a year, except she will have set up her new office with permanent loan officers by then to take their 40% en masse... seems to be no shortage of hard-luck borrowers with bad credit out there... there will always be property sales -- as interest rates go up, prices will go down -- but sales will continue...

besides her perks of buying tons of cheap property just before the boom, buying ex-VA places for $10K, buying places owned by blacks 5 minutes before white gentrification in DC, etc...

but our armenian friend may have been projecting his future hypothetical earnings or his bosses earnings or some overheard earnings in claiming to be making 250K...

that's a good article, that should go into the Flippers Museum archives -- it's looking increasingly ridiculous. funnily enough, there is a suburb here called Tempe, altho it's a post-industrial inner-city hell-hole...

Riding the Boom - May 30, 2005

"Tahmassebian? What the hell kind of a name is Tahmassebian?"
"It's Tahmassebian's name, sir"

hmm, that's it for today, didn't mean to be so verbose...

Moreover, at what point does my boomer landlord, who owns the house free and clear say fuck it and jack the rent? (note, this will correspond with Surfer-X purchasing a 24″chainsaw and 3-6 bags of redi-mix, and no I’m not a lumberjack or a paver).

heh. the interesting thing is that people who owned free and clear years ago have no reason to jack rents except for pure greed (and perhaps allowing for wage inflation...) however, the flow-on effect for recent FB 'investors' is that they are hurting and the seminar conman told them they will have to jack rents every year as part of their inevitable path to RE glory... this will eventually lead to global wage and CPI inflation effects as the whole sorry saga plays out... unless a major bust or oil apocalypse occurs first...

Regarding fear....I wonder if any of our sellers realize that if they made 100% appreciate on a 500K house, it only takes a 50% drop in nominal prices to bring them back to square 1. Thus being said, a 10% softening in prices doesn't sound like much but the absolute value is pretty significant.

On an unrelated matter, I've been watching the Tahoe market for months, there is an insane amount of inventory right now, and prices are being lopped by 50 to 100 k in many instances. Found one listing of a fairly nice house for $750k but in the body of the text it claimed "all this for only $850k!" Looks like our realtor friends are getting sloppy with hiding the price depreciation out there.

DS,

Oh come on! You made a broadly misleading and unqualified statement about mortgage broker's take. Just admit for once that someone (FAB, who has hands on experience in getting American mortgages) corrected you, rather than let your original statement stand.

I'm just a bit sick of you referring to you mortgage brokering "mate" all the time. You already have a girlfriend, you've evidently never travelled to America (where she could give you a free tour on her dime) and you're constantly decrying this "mate" of yours as ignorant and corrupt.

So what's attraction?

sorry?

she's sub-prime, but she's told me she can legally take up to 7%. i've not questioned it, because i assume she knows what she's talking about...

she's attracted to me, mostly...

what's your problem?

i think i detect some angst about the lost opportinuty of becoming a sub-prime mortgage broker here... as i said, if you can't beat 'em, join 'em... america, the land of opportunity...

a friend of hers is a 28 year old laywer in DC who makes 500K PA with bonuses and has a house and yacht -- why don't you query that one as well...

"what’s your problem?"

Huh, that you infer waaaaay too much about Americans from way too small of a sample set, and without bothering to qualify your statements given the problematic nature of that sample set.

My problem was that you made yet another misleading (arguably erroneous) generalization about Americans, was corrected by someone who knew better, and then you refused to acknowledge the problems in the at best problematically worded original statement.

It's also that you're bragging about leading on an ignorant woman for whom you've shown considerable disdain in your comments here. I just find that pretty distasteful, especially after your 10th or 20th reiteration of those facts.

Huh, that you infer waaaaay too much about Americans from way too small of a sample set, and without bothering to qualify your statements given the problematic nature of that sample set.

Huh?

My problem was that you made yet another misleading (arguably erroneous) generalization about Americans, was corrected by someone who knew better, and then you refused to acknowledge the problems in the at best problematically worded original statement.

you are disputing that sub-prime mortgage brokers can make $250K? you should go and sort out my friends tax returns then, she must be paying way too much tax....

why don't you arguably argue with someone else about nothing...

i fully accept that 'prime' brokers might only make 1%, but they might be better off in sub-prime at that rate...

It’s also that you’re bragging about leading on an ignorant woman for whom you’ve shown considerable disdain in your comments here. I just find that pretty distasteful, especially after your 10th or 20th reiteration of those facts.

you said, how does someone make 250K, and i pointed out it's quite possible in the mortgage business, and in finance generally, without too much 'formal' education or a college degree. you've used a lot of inflammatory words there that i haven't said, such as disdain, etc. why don't you apply your highly refined extrapolating and inferring abilities somewhere else where they might possibly be useful to someone.

DS,

You stated in your last comment: "you said, how does someone make 250K, and i pointed out it’s quite possible in the mortgage business, and in finance generally, without too much ‘formal’ education or a college degree."

Let me remind you that I originally said: "Wow, a job that pays a 22 year old high school graduate with no training $250K a year. Where was this job all my life?" and followed up with "Well, damn me for knowing better… I’m still quite impressed. $250K is quite a lot of commission for a 22 yr old broker (presumably one who does not have an assistant and must pay a large portion of his commission to his office)."

Both of which clarified that I'm merely surprised about the existence of a particular subset of (1) high school graduates (2) with few years of work experience (3) making $250K a year. I also explained why I thought the scenario was unlikely, because a 22 year old is likely to work by himself and share commissions with a head broker, which requires him to do a lot of work, gross.

You replied after my two comments with: "how many times have i said this before? my broker mate in DC pays herself $250K out of the business, works from home, employs loan officers and takes 40% of their commissions as well.

she didn’t bother completing her arts degree in college…

brokers in Oz only make 0.7% on a transaction, whereas in US it’s flexible, but around 5% (!). That’s about 7x the pay for doing the same work, i.e. filling out a few forms. "

You said "but around 5%" with no specification of prime or non-prime. Indeed, your use of the word "around" creates the impression that 5% is the norm, when in reality the majority of the mortgage business does not receive that level of compensation. With your unqualified statement on the matter, you held yourself out to be an expert. Expect to get called for confusing and misleading statements like that.

There's also the fact that your comment failed to explain my original query because your example was different from that of the 22 year old mortgage broker. I never said that mortgage brokers or undertrained mortgage brokers can make $250K, you just extrapolated that all by yourself.

As for how I chose to waste my time. (eye roll). It's my time, not yours! Though I've usually found time spent debating with you to be quite futile for reasons I've already explained numbers of times, I commented on your comments because they were in response to my query. If you don't like my responses to you, don't respond to me.