patrick.net

I watched it again on Hulu.com. I still put a lot of blame on the buyers. Taking out loans to put in pools and fancy kitchens? Add to that the over priced cracker boxes they were buying. Did anyone sit down with a calculator to see if they could really afford home ownership?

jvolstad says

Did anyone sit down with a calculator to see if they could really afford home ownership?

By "anyone" do you mean the banks that loaned them the money?

Right on, Landru3000.

jvolstad says

Did anyone sit down with a calculator to see if they could really afford home ownership?

Buyers were certainly idiotic in their own fantasy home/RE valuations regardless what type of loan they had.

Certianly a nice piece by CNBC, but it failed badly in explaining 'normal' home pricing over long term for past decades to its viewers. It failed to explain the buyer mentality in over bidding over paying and finally over borrowing on homes/RE.

I have yet to see a TV/news program that illustrated relationship between household incomes/inflation and normal home prices. It seems anything to do with pre-90s is simple ignored by the media.

Landru3000 says

By “anyone” do you mean the banks that loaned them the money?

Back in 2000, we (here in CA and East Coast) were already in a bubble long before low rates and toxic loans. But trying to explain to someone, prices were disconnected from incomes/inflation, was a losing battle. Banks didn not have any part in that. It was certainly consumer driven madness before any toxi loans. How many people do you see back than, challenge home prices as being unstainable.

I used to go to open houses and think "Who can afford these places?" I have to say that if I was smart enough to think something didn't make sense (and really, I'm not very smart), then certainly bankers and regulators were smart enough.

Landru3000 says

bankers and regulators were smart enough.

Smart enough to screw the taxpayers.

Landru3000 says

I used to go to open houses and think “Who can afford these places?” I have to say that if I was smart enough to think something didn’t make sense (and really, I’m not very smart), then certainly bankers and regulators were smart enough.

Are you asking others to think for you and others ?

I'll admit that the hype was tempting to many. Get a home (not house) for next to nothing...

I don't understand how you got to that question. I didn't participate in the housing bubble. It may be true that some people who did are blaming the banks, and maybe that's silly but it's even more silly to think the bankers and regulators, who are in the business, (and completely control the business), needed someone to protect them from wiley consumers.

Landru3000 says

bankers and regulators, who are in the business, (and completely control the business),

at what point did bankers and regulations state prices should be higher, if they were able to control the business. consumers during the housing bubble just like during the techstock bubble years should have been more resposible. But no... common sense took a vacation.

elliemae says

I’ll admit that the hype was tempting to many. Get a home (not house) for next to nothing…

not to mention the peer pressure, if you wanted to keep up with the Jones were doing!

Landru3000 says

I don’t understand how you got to that question. I didn’t participate in the housing bubble. It may be true that some people who did are blaming the banks, and maybe that’s silly but it’s even more silly to think the bankers and regulators, who are in the business, (and completely control the business), needed someone to protect them from wiley consumers.

amen to this. It was really hard for most people to not jump on the bandwagon, even smart people that knew better. The mania was everywhere, people saw others getting "rich" from their real estate. On every street corner it seems there was someone offering you a "free" house, just hold it for 6 months then sell and make a bundle! I worked with people who were buying half a dozen homes and suddenly they were multi millionaires on paper. We saw friends who we knew did not earn as much as us out buying nice homes, doing full remodels. But at the end of the day my husband and I would go see a house for sale and DO THE MATH. We simply could not really afford it, so we passed, and watched everyone pass us by...or so we thought. Most of those people no longer have their homes, or are now so deep in debt they will never get out.

I have always been a cynic. I have also always been driven by the desire to do the right thing for society before focusing on myself. I have always thought if something seems too good to be true, it is. I have unfortunately passed up a lot of things in my life that would have been good opportunities in one way or another - jobs that pay lots of money, obscenely rich boyfriends that would have married me, getting in on the new bubble early. All of which would have possibly given me money at the risk of my soul and/or doing what is right. The problem is, the majority of the people in America (and the world) could give a shit about doing what is "right", they want money and the perceived power and self-worth that comes with it. They ignore the risks willingly, because no matter what the consequences, they think the payoff, if realized, is worth it.

When one really sits down and thinks about the culture we have created in this country over the past 30+ years, it all makes perfect sense. Everyone did everything perfectly to plan, it's what we have been trained to do, the education is complete.

jvolstad says

I still put a lot of blame on the buyers. Taking out loans to put in pools and fancy kitchens? Add to that the over priced cracker boxes they were buying. Did anyone sit down with a calculator to see if they could really afford home ownership?

I do too, but think many people must feel very frustrated with thought that they will never accomplish their goal of home ownership any other way. Unfortunately, they don't then think, "Maybe I should just get rid of that goal!" What does that goal really give me? Another, bigger thing to own? Warm fuzzies because I now fit in with everyone(62%) else?

thomas.wong1986 says

Landru3000 says

I used to go to open houses and think “Who can afford these places?” I have to say that if I was smart enough to think something didn’t make sense (and really, I’m not very smart), then certainly bankers and regulators were smart enough.

Are you asking others to think for you and others ?

Yes.
So long as they are asking me to pay taxes to cover the bailouts, I am asking regulators and bankers to exercise restraint for buyers.

thomas.wong1986 says

Landru3000 says

I used to go to open houses and think “Who can afford these places?” I have to say that if I was smart enough to think something didn’t make sense (and really, I’m not very smart), then certainly bankers and regulators were smart enough.

Are you asking others to think for you and others ?

It has nothing to do with thinking for others. Banks need to think for themselves. It was THEIR money. They gambled on real estate and lost.

Given our collective (and selective) memories as well as the "greed factor", I have absolutely no doubt that it WILL happen again

Tude says

It was really hard for most people to not jump on the bandwagon, even smart people that knew better. The mania was everywhere, people saw others getting “rich” from their real estate.

In other words, it was hard to avoid being a moron if someone was greedy and stupid. Agreed. Yet millions of people did not join the fool party, including yourself.

klarek says

Tude says

It was really hard for most people to not jump on the bandwagon, even smart people that knew better. The mania was everywhere, people saw others getting “rich” from their real estate.

In other words, it was hard to avoid being a moron if someone was greedy and stupid. Agreed. Yet millions of people did not join the fool party, including yourself.

Seriously, US education system should teach the young minds in elementary to high school level that NOT everyone can become rich at the same time.

bubblesitter says

klarek says

Tude says

It was really hard for most people to not jump on the bandwagon, even smart people that knew better. The mania was everywhere, people saw others getting “rich” from their real estate.

In other words, it was hard to avoid being a moron if someone was greedy and stupid. Agreed. Yet millions of people did not join the fool party, including yourself.

Seriously, US education system should teach the young minds in elementary to high school level that NOT everyone can become rich at the same time.

You guys are missing the point, people don't care as long as they have a chance. It's just like gambling, you know the house has the advantage, you know you could lose everything, yet you throw the dice. They don't care that NOT everyone can get rich at the same time, they just care about the fact that they MIGHT.

We have created a culture where most people's entire self worth is wrapped up in what they have, and having more than everyone else. It's better the die trying to be that person who does get rich, than to live a simple life.

@Tude,

Herd mentality? I am a strong opposer of that. What is amiss with our culture is that a(I should say all) person starts without a penny from pocket and uses as much as debt as he could to turn out ahead of every one around him. Now, at some point he HAS to pay his debt become clear and move in to profitable area. If it happens that way it is fine, only problem is that is not the case during bubble mentality. If the debt kept piling on people and government,system is destined to be in trouble(I am falling short of saying it may fail in next few generations, but who cares about that?). People just assume that is the way of life. I think most people here know how Roman empire failed.

Just rewatched it again with more appreciation for the inflation, income and sustainable property values relationship.

I'm watching it again on Hulu. Same old story however, what were these buyers thinking? Did they really trust these damn Realtors?

jvolstad says

what were these buyers thinking? Did they really trust these damn Realtors?

hook line and sinker. But we havent even scratched the realtor connection to the bubble. Buy TODAY! there are multiple offers on the home your looking at. Same old story.

anyone got a link to this video?

ChrisLA says

anyone got a link to this video?

http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards

thomas.wong1986 says

jvolstad says

what were these buyers thinking? Did they really trust these damn Realtors?

hook line and sinker. But we havent even scratched the realtor connection to the bubble. Buy TODAY! there are multiple offers on the home your looking at. Same old story.

I am not a fan of realtors, but I think they were drinking the cool-aid more than anybody. I don't think they were lying. They were in the business and were living on their hopes that home prices would increase forever. Realtors, (intelligent?) bankers, the fed, and homebuyers were all parts of the greatest economic group-think in American history. They are all to blame and equally culpable. Many realtors today are not lying, but hanging on to the hope that prices will come along with the lucrative sales. Many people will just not let it go.

Landru3000 says

jvolstad says

Did anyone sit down with a calculator to see if they could really afford home ownership?

By “anyone” do you mean the banks that loaned them the money?

I remember a case a few years ago about a swimmer that wanted to enter the rough ocean surf right after a storm. The life guard told the guy not to, but he ignore the lifeguard and entered the water anyway. The guy ended breaking his back and sued the city claiming the lifeguard should have physically restrain him from doing something stupid. (he won by the way)

While there's plenty of fault on the bank side of things, it's really not the responsibility of the bank to prevent someone from doing something extremely stupid. At what point does personal responsibility kick in? You have to draw the line somewhere between common sense and pure stupidity.

Lots of talk about where we were. But where are we going? Well... I heard on NPR today that there is now a general acceptance that housing is in a double-dip. This could have a number of implications.

1: prices in still-overheated areas like the Bay Area could fall further and possibly come to a point where people with average jobs can actually afford them, which in turn could mean a more stable market. That said- it seems like the Bay Area has only two standards when it comes to housing markets: Either its in a bubble or its in serious decline. The question is what will be the catalyst for another housing bubble? The Bay Area has always had housing bubbles tied to whatever wiz-bang thing is happening- whether its tech or aerospace. Will it be different this time?

2: Since so much of the economy is tied to housing debt the economy could be in a slump for years-possibly for decades. This affects some areas more than others. I suspect the Midwest will continue to lose population while the Southeast will continue its Renaissance. The East and West coasts will probably also continue losing population- but mostly in the form of domestic migrants. This in turn could lead to a sort of brain-drain where younger professionals leave for 2nd tier cities. That could all change if housing prices came down in those areas at which point the economic fortunes of the coasts could reverse. Then again- if they start growing again then a housing bubble could throw them back to where they were.

These are just my uneducated guesses.

As far as what was, well I think what comes to mind is that every city, region, and state all existed in a state of denial. Basically they were all different from one another: California was 'different' in that the cost of living was worth it. Homebuyers ate this up. $600k for a starter home? Of course- because we're not living in Idaho. Or in the case of other states, especially after the bust- like Texas, they made the claim that they were not " as bad" as those 'other' states like Cali and NY.

My ultimate fantasy outcome would be that somehow there comes an overall realization that the only way an economy remains healthy is via invention, entrepreneurial ideas, and actual economic productivity. Not from simply sucking money out of the middle classes pockets in the form of various economic bubbles. These bubbles have more or less crippled the US economically. Until that realization comes we will likely fall back into the same bubble cycle we've been having for the past 20 years.

In that case, what is the next bubble?

It is worrying when a pessimist has to downgrade his/her predictions.

I'm not a gold bug, but the whole purpose of value based on the amount of precious metals backing the means of exchange is actually pretty sound in the long run. It may not be able to keep pace with technological developments, but to just ditch it the way the United States did was a truly risky move. It's set the world on fire in most ways good, but not without consequence.

Most people don't care. It's really that simple. They have no idea that if the Fed lowers rates to near zero and keeps them there for two years that banks will have to CREATE borrowers by lowering the standards for issuing credit. The Fed then makes up a plausible explanation when their controlled fire spreads to other asset classes. In the teledrama, Too Big to Fail, Aaron Sorkin writes that fictional history. The mainstream media buys that from Sorkin and resells it as the truth. It's just a lot better than telling the truth that the world has too much debt and the natural course is to convert that debt into equity and take the haircut.

This means burning your friends, but your friends are your bankers. You can't just burn them without preparing to lose all that you have. So they play it safe and get boned by Aaron Sorkin's short short history of things got f'd up.

I too was shocked when homes around my parents that were worth about 250K to me were getting offers from builders at 500K to tear them down. The "fundamentals" told the builder he could pay 500K for the land, spend 500K to build a mansion and sell it for 1.75 million. My parents didn't sell, but most of their neighbors did. Now the oldest home on the block with 50 year old pipes is the most valuable property on the street because of the grandfathered property tax rates. $5000 per year versus the $50000 per year of the peers.

The next bubbles are in higher education and health care. Nobody knows the true values of the products and services produced by these sectors. The government has already moved in to "regulate" the sectors even more which about equivalent to locking 12 monkeys in room until they come out with Shakespeare.

The tell tale signs are in the tax writeoffs from losses incurred either by the inability of debtors to pay or the government forcing the providers to service customers that can't pay.

wtfcapinv says

In the teledrama, Too Big to Fail, Aaron Sorkin writes that fictional history. The mainstream media buys that from Sorkin and resells it as the truth.

You mean Andrew Ross Sorkin, the financial writer, not Aaron Sorkin of West Wing and Sports Night.

wtfcapinv says

They have no idea that if the Fed lowers rates to near zero and keeps them there for two years that banks will have to CREATE borrowers by lowering the standards for issuing credit.

Why is that exactly? The banks make money off the spread. They should make the same whether rates are high or low.

tatupu70 says

Why is that exactly? The banks make money off the spread. They should make the same whether rates are high or low.

It's not just about the spread -- banksters can also make money from fees. A lot of the profit from securitization comes from fees.

You also have to talk about which spread. 30-year fixed mortgages are more aligned to the 10-year T-Bill rate as the risk-free rate than the Fed rate.

The other issue is interest-rate risk. In order for the private money to come back into the mortgage market, you need more securitization. In order to have more securitization, you need more people willing to be bond-holders of mortgage-backed securities. However, with the current environment, there is a high risk that interest rates will go up and kill the principal value of the bonds. In order to compensate for the risk, you need to offer a higher interest rate to start off, which means a higher mortgage interest rate. The government isn't allowing this right now, and bond-holders won't be willing to buy these bonds until they get higher return.

corntrollio says

It’s not just about the spread — banksters can also make money from fees. A lot of the profit from securitization comes from fees.

Sure-but low rates are better for fees. Low rates= lots of refis=lots of fees.

corntrollio says

You also have to talk about which spread. 30-year fixed mortgages are more aligned to the 10-year T-Bill rate as the risk-free rate than the Fed rate.

Not sure why that matters. Banks make a spread no matter which interest rate you choose to tie the mortgage to.

corntrollio says

The government isn’t allowing this right now, and bond-holders won’t be willing to buy these bonds until they get higher return.

The government has no control over what rates the banks choose to offer. Uncle Sam can choose to assume some of the risk for lending institutions to encourage them to loan at lower rates, but it has absolutely no control over what rates they choose to offer.

tatupu70 says

The government has no control over what rates the banks choose to offer. Uncle Sam can choose to assume some of the risk for lending institutions to encourage them to loan at lower rates, but it has absolutely no control over what rates they choose to offer.

No, I think you misunderstood me. The government is heavily subsidizing mortgages right now and keeping the risk premiums low. If the government stopped subsidizing mortgages, then banksters would have to charge much higher rates because mortgages would be higher risk assets. The banksters would have to increase their spread over the risk-free rate if the government reduced the level of mortgage guarantees available (FHA, Fannie, Freddie), and this would get bondholders into the market.

tatupu70 says

Banks make a spread no matter which interest rate you choose to tie the mortgage to.

My comment was in response to your response to wtfcapinv, who specifically referenced Fed rates via-a-vis mortgages.

tatupu70 says

Low rates= lots of refis=lots of fees.

My impression is that securitization gave banksters higher fees than refis held on the books.

All a low federal funds rate encourages is for banksters to make easy money off the spread between the overnight rate and Treasury rates. It's a direct subsidy to banksters. But it doesn't necessarily encourage mortgage lending, as wtfcapinv said. It also doesn't inspire confidence in the economy, for that matter.

jvolstad says

ChrisLA says

anyone got a link to this video?

http://www.hulu.com/watch/59026/cnbc-originals-house-of-cards

Thanks jvolstad.

Good special.

Very accurate. Banks were lending improperly and knew it, gambling with the future. Government was encouraging it since they all were in the same bed making money. Stupid borrowers kept on borrowing money they knew they would never pay back.

It wasn't too long ago, so I still have a clear memory of all the idiots in the neighborhood who didn't even speak English all of a sudden were millionaires and thought they were entitled to everything in the world because they lied on the mortgage application. Which is why I don't care for sob stories from neither banks nor the stupid flippers/buyers. They were all gambling greedy.

Sadly the rates are still artificially low, Fed has not learned a damn thing from the bubble.