Friday, August 24, 2007

Where did the punchbowl go?


Having personally lost a small fortune in the stock market in 1999 and 2000. I can tell you that markets can stay irrational for a very long time. Any seller that has had his/her property on the market for 60-90 days and hasn't received a reasonable offer is nuts. They need to drop their price or sit out the credit crunch. The credit crunch could last many years.

The big problem I see and I speak to dozens of realtors a week; is that sellers feel that their "equity" is real money. I always have to remind people that something is worth only what another person is willing and able to pay. The ability of people to pay irrational prices for homes in bubble areas is gone for the middle class market. Remember the rich are different. Working class vs asset class. The loose financing is gone. Stated loans are on life support. Real income for middle class Americans has barely kept pace with inflation the last few years. At the end of the day Wall St can create the wildest financing known to man but it has to be repaid some day. Investors don't give money away. The market for ALT A and subprime mortgages is DEAD. In addition, a knee jerk reaction has occured in large prime loans as well requiring extreme levels of documentation and big down payments on the order of 20-25%. No stated income loans unless you are putting 20% down and have a 720 FICO. That is a generalization of course as every loan scenario is unique.
I am a very optimistic person by nature so negative views are seldom heard from my lips. I am sorry to say that we are in for a very long period of recession or stagflation(low growth with inflation i.e. late 70's). If you need a broader clue as to how bad our nation is currently behind the eight ball check our dollar vs major currencies and you will see what the world thinks of our prospects. Too much governement and household debt. The world's appetite for our excess is over. It's time to save and be prudent. Back to reality. The punch bowl of easy money is gone. Parties over it's time to sober up.

10 comments:

IrvineRenter said...

I really like your blog. I just discovered it the other day when I saw your previous post with the Option ARM video. Keep up the good work.

Anonymous said...

Please say no to a bailout!

http://www.petitiononline.com/bailout/petition.html

Anonymous said...

I continually read the doom and gloom that is passed off as an objective and realistic evaluation of our present condition. Now, I am never one to say it could not happen, but I sure as heck do not see it yet. Recessions are very hard to forcast 2 quarters away and as such I am not going to go there yet. While I do recognize the troubled present, I believe we can work our way thru it and avoid the R or D word.

TrentPatrick said...

Wow, someone that is right on. I have been saying this for the last 2 years. The only item that you did not touch on is the way this is going to affect values. I think that we could loose over 50% of our values and yes even on the west side. Just this last Friday, B of A and Countrywide had all mortgage brokers lock their stated loans because of an upcoming change that we will know about tomorrow. Without ALT and stated loans we will lose 75 to 80% of our buyers. This will take away most of the demand and drive up supply. Sounds like a college business class for supply / demand.

Anonymous said...

if demand can make housing go up, why not bring it down.Only investors are crying foul,forgetting that they have made fortune in the process.
Please....
If someone need to sell house,they will because they bought it for fair price,lived and want to move. That is when price will fall,since he have no problem in selling at real price,not like next guy who bought it for investment,and want make money.
LOL
SH*** will fly deep.

Anonymous said...

may I ask a simple question.Are we planning to pay the mortgage with salaries we earn or with hope of windfall from sky. Lets run a survey of post tax dollars we take home,and average price of home. I bet you none can make payment.Housing need to come to point that we can afford.
this is irrational when we still want to make money of someone else. I predict the housing prices to settle down to 2000.
Houses were selling before and will be selling in future,YUN is right about increasing sales, but he didnot comment on prices.It is commisson ,higher the price more for agent ,so why not keep it high.
We do have to keep running economy,if we lock our money into desd mortgage and have none left, we canot dine out,buy milk,gas,simple day to day things .
So solid prediction,feds will let housin correct to its natural numbers.
Only investors are crying loud,they the the folks who reaped billions during boom and now crying foul for losing. I have least sympathy.
I alsohave theory, if I want to sell my home I will at price that i sell. I mean i bought it 20 year

Anonymous said...

Lets do math,to make sense,no statistic involved.
Avergae house price 600,000.(using round numbers for calculation.
Down payment 20%.
mortgage 500,000
Interest 6%
monthly mortgage payment 3000.
yearly 36,000.
taxes 1%= 5000
total=41,000.
assuming salary 80,000
married, some deductions
monthly salary after tax 2600 per 2 weeks=5200 per month average
total post tax dollars=5200x12= 64,000.
64-41=13/12= 1000 bucks per month.
30 bucks per day.
We can live,dine

Anonymous said...

Okay, $1,000 per month left over over paying mortgage. How does that pay for health insurance and medical costs, car insurance, gasoline, food, kids' clothes--for starters? It doesn't. That is why prices must come down.

Anonymous said...

*** "Lets run a survey of post tax dollars we take home,and average price of home. I bet you none can make payment." ***

From an affordability perspective, the price of your home is irrelevant and immaterial, it's your monthly carrying cost that matters. My post-tax income is just over $9,500 per month. My monthly P.I.T.I. house payment is $2,092. Sounds reasonable to me. This is for a fully-amortizing 30-year fixed rate mortgage @ 5.625%. I have $200,000 of equity in my home.

Had I told you that my post-tax income was $9,500 per month and my home recently appraised for $540,000 (about $90 per square foot of heated/cooled living area, plus 11 acres) in a non-bubble area of the country (not near any major city), you might have assumed that my payment was too high (i.e., $3,575 at 6.5% mortgage using 5% down on $540,000).

Anonymous said...

We are not talking about you, you are in top 1%,we are talking about normal person not you.You stay put in your tax dollars,mansion,we looking for people average joe