Tuesday, March 18, 2008

I guess housing doesn't always go UP!!

Yes, I know, it has been way too long. But at least we are starting to see some signs that we were in a real estate bubble...right?!?!? I guess when major a major Wall Street investment firm gets bought for $2 a share, something bad happened. But more on that later...

I don't even know where to start right now. So many 'experts' said so much 'crap' during those booming 5-8 years (depending on where you lived), that I can't even begin to wipe the egg of all of their faces. Remember the SoCal real estate experts that said 'soft landing' and worst case things will 'stay flat' for a year or two then take off again? Remember all the big financial guru's on Wall Street using mathematical equations and fancy derivatives to make crap loans look like 'gold bars' as they sold them to everybody who would listen? Remember when 70% 'home ownership' was a good thing? Remember when you could just refi every year and never have to worry about paying off your house because it always went up? Remember when 'everybody' was a real estate investor, agent, or mortgage broker? Remember when all was right in the world?

Come on people, as big of a mess as this is, it is REALLY very simple. By lowering the standards and using the stupid 'American Dream' tagline, millions of people who should not have been able to buy a home, entered the marketplace. These people had to use 'creative' financing (I/O, stated income, NINA, Option-ARM, I/O ARM, SISA, etc.) to 'afford' their property. This had the effect of pushing property prices higher which is 'good' for the people already in the game, but bad for families and others that had to 'stretch' to be able to purchase a home they otherwise would have been able to afford. Once we hit that '70% home ownership' (don't get me started...more like '70% home mortgageship'), the standards couldn't really be lowered ANY further to accommodate any more borrowers.

Personally, I could care less what percentage of the population 'owns' a home. Just like not everybody has the ability to be a doctor, not everybody has the ability to own a home. What if medical schools applied the same 'ownership' logic to med school??? I know they might want more doctors, but how far are you willing to lower the standards to allow 70% of the population to enter medical school???

Sounds crazy doesn't it. But this country did the exact same thing, just with home ownership. They lowered the standards and let MILLIONS of people buy homes when they didn't 'deserve' that privilege. So you have a millions of homeowners playing in a game that a few years ago they would not have been allowed to play in. They used their creative financing and depended on annual price increases to 'save them' when they sold for profit when those payments adjusted beyond their reach. The only problem is that real estate did NOT continue to appreciate on an annual basis. In fact, it did something it 'never' does...it went down!!!! (insert big gasp here)

With refinancing out of the question (Got Equity?), and selling for a loss not an option, people started foreclosing. So as fast as many of these people entered the market, they started to leave. Now we are seeing foreclosure rates up 400% in many 'untouchable' areas. Moody's has said there are almost 9 million homeowners that have mortgage balances equal to or greater than the value of their property. I see that number growing every month for at least the next few years. Property values are still NOT in line with income. Based on the lack of savings by the 'average joe', I don't see many having the typical 10-20% down payments that are going to be required to purchase homes in the future as 'risk assessment' has returned to the market.

Another nasty little side effect of all that 'easy credit' can be seen in the auto industry. Here is a good article that covers the amount of people 'foreclosing' on their cars by just 'giving the keys back.

Here is another gem for Gary 'In the Bag' Watts and the rest of the California ASSociation of Realtwhores. Looks like SoCal is down 17.9% from last year, and even the Bay area is down in the double digits as well. Since the median income in California is about 48k, does it suck when your clients property loses 80-100k or more in a year? Inquiring minds want to know. Do you just give them old copies of your newsletters, and tell them it will come back in the 'summer'? After all, I wasn't so fortunate to own property that appreciated more in a year than I made from working. Who knew condos and tract homes wouldn't continue to go up 50-100k per year forever?? Ok, maybe I did...but bloggers didn't know what they were talking about.

Not really much I need to say about Bear Stearns. They were the life of the party...while it was still going on. Now they are like the life of the party that drove drunk into a tree and got killed, and everybody at the party is 'wondering' how it happened. Duh...

A quick side note: lowering interest rates is NOT going to save housing. Housing rates were where they were because the banks quit pricing in risk. By pricing in the risk according to a borrowers ability to pay, interest rates could be zero, but the banks will have to charge a premium for the risk they are accepting by making the loan. It might feel good and help some people out, but all it is doing in the mean time is devaluing the US Dollar in the international market place.

I have more to talk about, but that will have to wait a bit longer. I have been terribly remiss in making new posts as I have been extremely busy, and this blog isn't the priority or money maker it once was. This blog served it's purpose for millions of readers BEFORE this collapse in housing started. Based on the thousands of e-mails I have received, it seems I helped out a LOT of people. I was upfront and honest the whole time. I didn't get rich, but I sleep well at night. I don't have the guilt of lying to property owners, investors, hedge fund managers, rating agencies, or the media so that I could make a buck. Heck, I guess some of them got so rich they probably don't care. Guess I will never know.

Stay Tuned...


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