Foreclosures

[metta]

home prices may fall as much as 30 percent from their peak in 2006 and not hit bottom until 2010, with greater drops still in subprime mortgage debt markets

http://news.yahoo.com/s/nm/usa_housing_jpmorgan_junkbonds_dc;_ylt=AslABdhVswcA7QlwH1Yge8IDW7oF


2011 would make sense as a peak to me and still look bad in 2012. But I'm not sure how many of these Option ARM's are out there compared to the rest of the mortgage market and how much hundreds of thousands of loans will affect the market:

http://calculatedrisk.blogspot.com/2008/06/option-arms-moving-from-negam-to-fully.html

[T]he next wave of foreclosures will begin accelerating in April, 2009. ...

 

[Lube]

Eeekkk...It makes me angry that we all have to suffer because of mortgage companies wanting to make a quick buck at any expense: neg am loans

Well, anyone who's renting now (or living at home) and is looking to buy a house in 2 years is in great shape.

If you own a home, just stay put. Home values will increase eventually.

If your job forces you to move, make your company pay for your losses. Otherwise, yeah, you're screwed.

 

[Lube]

In the city that I live in, some of the homes have dropped $400k. A new home that had a base price of $1.3 million is now under $900k. I'm sure that must upset some of the people that bought and put in upgrades that ended up costing over $2 million for them. A 4500 square foot brand new home with granite counters and tons of upgrades can be purchased for just under $900k..

It's hard for Joe Sixpack to feel sorry for someone who can afford (or, well, can't afford) a 4500 square foot home. People at that income level presumably were enriched by their stock in banks and other lenders that flew up for a number of years.

This is really a sad story, and there's plenty of blame to spread around: Greenspan did nothing, Bush did nothing, the banks were out of control, and homeowners were greedy and/or ignorant.

No one is at 100% fault here. Everyone contributed at least a little.

 

[metta]

It depends on your need to refinance and if the cost of it is worth it on refinancing a home. Right now with a mid score of 680 which is the starting point for excellent credit, PAR rate on a 30yr fixed 200,000.00 loan is 6.5%, as of 5 min ago. So if you can't lower your rate by at least a point, or if you are not looking to get equity out of it, I wouldn't do anything. The best time to refiance was back in feb, and march. Rates had dropped for "A" paper customers to 4.75 on 15yr and 5.2 on a 30 fix.

Dang...I wish that I could have gotten those lower rates. I didn't realize they went down like that.

The fixed part of my morgage is ending in October. I think that I will be fine even if the loan goes to the maximum rate (which can only happen over a period of years, according to my loan) but I don't want to waste money.

If interest rates look like they will climb over the next couple of years, it might be better for me to take a higher rate now (than my 5.25% which is ending in Oct.) than to deal with much higher interest rates later. But if interest rates may drop in the next year or so from what they are not, it might be better for me to wait and refinance then. I think that my current loan can only go up to a maximum of up to something like 11% and go up a maximum of 2%/year (I think??), depending on some type of interest rate.

 

[drhladnjak]

Keep in mind that even just a few months ago, it was much more difficult to get a loan at all. Rates may have been low, but lenders have been very stingy with their money ever since the market for mortgage backed securities disintegrated last year.

Also, if you're in an adjustable rate mortgage right now I'd recommend refinancing into a fixed rate one ASAP if at all possible. Sure, you might save some money if rates remain low but mortgage rates right now are still historically very low. The chance they'll drop substantially is basically nil. Regardless of what the Fed sets its various rates to, mortgage lenders will only go so low because they need to provide a return on their investment after the costs of processing and servicing your loan. That figure is somewhere around 5% right now but that's under the assumption of inflation running 2-3% a year. If inflation goes up (it's at 4% or so and trending upwards), lenders will demand higher rates to make up for that.

Economic volatility has been much higher as of late. It's hard to predict where things will be in a year. Moreover, if prices keep dropping you may find yourself unable refinance when your house is worth less than you owe on it. If interest rates do spike up, that will apply even more pressure to lower prices since people will be able to borrow less money for the same monthly payment.

 

[ejbonk]

For God's Sake!
What are you waiting for??? Run,Don't Walk to the Bank and get a 30 Year fixed Now!!!

 

[metta]

G7 Weekly Economic Perspectives for Next Week:

The Fed will hold the line on rates next week for the first time since September 2007, officially bringing an end to an extremely aggressive easing cycle that saw the fed funds target cut 325 basis points to just 2.00%.

The Fed’s rate setting Federal Open Market Committee is in action next week, but for the first time since September 2007 it will pass on any rate move. [FONT=Arial,Arial][FONT=Arial,Arial]Recall that since the end of last summer, the Fed has cut rates seven times a total of 325 basis points, dropping the fed funds target to 2.00% at the last meeting on April 30. This extremely aggressive easing cycle, along with the innovative liquidity programs to foster financial system stability, are intended to "promote moderate growth over time and mitigate risks to economic activity." As a result of this policy, Fed Chairman Bernanke now feels comfortable arguing that "the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so." Moreover, the upside risks to inflation and inflation expectations have been rising because of surging energy prices. Thus, to "strongly resist an erosion of longer-term inflation expectations," the Fed cannot risk overstimulating the economy by cutting rates further. Markets have gone so far to assume that the Fed’s apparent shifting of focus to inflation risks means that the Fed will actually start hiking rates soon—at one point in the last couple of weeks, futures were pricing in a hike as soon as August with funds possible rising to 3.50% one year out (Chart 5, page 7). We believe these expectations are premature. Stagnant economic conditions and still fragile financial markets should keep the Fed on the sidelines for some time.
[/FONT][/FONT]

In addition to the FOMC meeting, a busy [FONT=Arial,Arial][FONT=Arial,Arial]US economic calendar [/FONT][/FONT]offers the final [FONT=Arial,Arial][FONT=Arial,Arial]GDP revision [/FONT][/FONT]for Q1 (expect another uptick to 1.0%), May [FONT=Arial,Arial][FONT=Arial,Arial]durable goods orders [/FONT][/FONT](the consensus expects another weak print), and May [FONT=Arial,Arial][FONT=Arial,Arial]personal consumer spending [/FONT][/FONT](based on the good retail sales, it should be a solid print). Most interesting though will be the [FONT=Arial,Arial][FONT=Arial,Arial]housing market data [/FONT][/FONT]out this week as we look for any signs of stabilizing market conditions. To be sure, the strong April print for pending home sales does bode well for sales of existing structures in the late spring—indeed, the consensus expects a rise in the sales volume in May. Meanwhile, less upbeat signals from homebuilders suggest sales of new structures aren’t looking as good (the consensus expects a decline for May). In any case, the massive inventory overhang (both existing and new structures) keeps the overall tone of the market overwhelmingly downbeat and should keep downward pressure on home prices for some time. Look to the April Case-Shiller and OFHEO home price indexes for some sign that the pace of decline is at least moderating. Alas, we aren’t optimistic than any stabilization in prices will yet be apparent (Chart 6).

 

[metta]

Chris Thornberg: Possible 50% House Price Declines in SoCal

From Jon Lansner at the O.C. Register: SoCal home woes could mean 50% price drop

[Economist Chris] Thornberg, founding partner at Beacon Economics and former UCLA economics professor, said home prices would have to fall about 40% from peak to trough to return to the historical norm. But add in the impact of rising gasoline prices, the subprime mortgage meltdown and rising foreclosures, and it’s likely prices will fall 50% peak to trough.

The S&P/Case-Shiller index shows that prices for the L.A./O.C. area are down 24% from the peak, so the region is about halfway to the bottom, Thornberg said.

In Orange County, price declines will be more severe at the bottom of the price spectrum than the top end, but “the top end is going to get hit, (too),” he said.

That will be a rude awakening for many homeowners suffering from what he called “homallucinations,” or the ability to convince oneself that while the price of everyone else’s home will fall, your neighborhood is clearly different.​

I think Dr. Thornberg is optimistic on the timing (he sees the price bottom in mid-to-late 2009). This might be true for low end areas, but I expect prices in the mid-to-higher end areas to be a little more sticky - so the price declines might take a few more years.

I hope it does not drop that much. That wouild be way below what I paid for my home in 2002.

 

[drhladnjak]

If it's any consolation metta, those 40% or 50% figures usually thrown around by people are not inflation adjusted. So if inflation were to get really out of control, the actual price of your house might drop very little (or not at all) while just about everything else got more expensive. In general though, by most affordability measures (price vs. income, rent vs. price, etc.), house prices in markets like LA are still almost twice what they historically have been.

Hope you won't need to move any time soon...

 

[metta]

If it's any consolation metta, those 40% or 50% figures usually thrown around by people are not inflation adjusted. So if inflation were to get really out of control, the actual price of your house might drop very little (or not at all) while just about everything else got more expensive. In general though, by most affordability measures (price vs. income, rent vs. price, etc.), house prices in markets like LA are still almost twice what they historically have been.

Hope you won't need to move any time soon...

Yeah, I don't need to move. And my loan to value would be fine even if it did go down that low. It is just that I was looking at my home, long term wise, as possibly a big chunk of my retirement savings...and it is sad to see it disapear.

 

[metta]

Foreclosure Rage

 

[ejbonk]

Foreclosure Rage

What,He is doing is really stupid.To destroy the home is not the answer. Also the fact he owns 2 other homes makes you wonder ,if he's a flipper in a downward market. When the market turned on him,he should have made the other homes section 8 rentals and re-finance at a lower rate of interest. No,Excuses for stupidity.

 

[Aaron]

The housing market in BC is finally starting to soften. The market has been climbing without precedent for months here. The Kootenays and the Okanagan are seeing a huge drop in the number of sales, mostly due to a lack of consumer confidence. Most economists in BC were hoping that the Olympics would serve as some sort of protection until they were over - no one was expecting this drop until early next year.

 

[drhladnjak]

Yeah, I don't need to move. And my loan to value would be fine even if it did go down that low. It is just that I was looking at my home, long term wise, as possibly a big chunk of my retirement savings...and it is sad to see it disapear.

Losing a home to foreclosure isn't the worst thing that could happen to somebody. Yes, they have to move and it will be several years before a bank will lend to them again, but it's not the end of the world in and of itself. If somebody's so bad up that they have to let the bank take the house, they're probably going to need to save money for many years to buy someday anyways.

What you touch on here is a more dangerous and telling trend. Many people in the boomer generation have come to rely on their house as the primary means of retirement. I know my parents bought the most expensive house they could afford, largely because they felt real estate would be a good investment for their golden years. They were certainly not alone in doing that in southern California. Collapsing house prices mean those people that were relying on home equity for retirement will be retiring later than originally planned or in many cases not at all. Many of them will be in trouble when they can no longer work because of health issues.

 

[metta]

more details to destroying the home....

 

[metta]

Fed leaves rates steady, citing inflation worries
http://news.yahoo.com/s/ap/20080625/ap_on_bi_ge/fed_interest_rates

Some Wall Street investors and economists think the Fed, to fend off inflation, might be forced to start boosting rates as early as its next meeting on Aug. 5 or toward the end of this year — possibly at the Dec. 16 meeting.

Others, however, think that's a situation the Fed would like to avoid — especially given that the housing market is stuck in a deep slump, foreclosures are at record highs and jobs are harder to find. Raising rates too soon could hurt housing and deal a setback to the national economy. Those analysts believe the Fed won't start to push up rates until next year.

Mortgage rates are rising — spurred by investors' concerns about inflation. Those higher rates spell yet more headaches for the flailing housing market.

 

[metta]

For God's Sake!
What are you waiting for??? Run,Don't Walk to the Bank and get a 30 Year fixed Now!!!

I contacted my loan guy today. I had to wait for my accountant to get back from Europe. (***Crossing my fingers***)

 

[metta]

Wow...the housing market in the UK looks really bad as well...


UK: "House prices won't recover until 2015"

From Edmund Conway at the Telegraph: House prices won't recover until 2015, ex-MPC expert warns

Families must wait until 2015 for the property market to start booming again, according to Stephen Nickell, who heads up the unit which advises the Prime Minister on housing planning.
...
"The housing market - in terms of the price of houses - will not look much the same as it did before the credit crunch until after six or seven years."​

It's probably too early to be talking about when house prices will return to pre-credit crunch levels, but at least Gordon Brown is hearing that it will take years.

Also from the Telegraph: British household debt is highest in history

Families in the UK now owe a record 173pc of their incomes in debts, official figures have shown. The ratio of debt to income is higher than any other country in the Group of Seven leading industrialised economies, and is sharply higher than the 129pc of incomes it was five years ago.
...
Michael Saunders of Citigroup warned that - at 173pc of household incomes - the debt burden is higher even than Japan's when it peaked in 1990, before more than a decade of deflation.

"Not only are we the highest in the G7, we are the highest a G7 country has ever seen," he said.​

 

[ejbonk]

No Surprises there. The UK is just as bad off right now as We are in the USA.

 

[tommyj]

Metta - the 50% figure is off the peak. Which was 2005 or 2006 in most areas.