Michael Olenick: Irrational Exuberance, Housing Edition

By Michael Olenick, creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha). You can follow him on Twitter at @michael_olenick or read his blog, Seeing Through Data

… how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions…
– Alan Greenspan, Dec. 5, 1996

In any context except a Gay Pride parade grown men wearing short skirts and carrying pom-poms look out of place. But if they’re cheering the artificial rise of housing prices we’ve seen lately, they seem to be not only accepted but welcome.

“Broward home prices rise 10 percent in May,” reads a typical headline for the Broward County, FL Sun-Sentinel, ground zero for the housing meltdown. The article itself mentions that the ten-percent increase was year-over-year, not month-over-month, and neighboring Palm Beach County suffered a month-over-month decline by a whopping four-percent, but – whatever – home prices are up; let’s party. In this spirit the article mentions Palm Beach sales volume increased, though a close look shows the increase amounts to 114 additional houses sold, out of 664,549 housing units in the county. This figure is so small that my calculator expresses it in scientific notation when I convert it into a percentage.

It’s not only reporters from areas decimated by the bubble that are looking for signs of a housing bottom. Bill McBride of Calculated Risk (CR) calls a housing bottom like clockwork. CR somehow fails to reconcile data about underwater homeowners being unable to sell with the low inventory levels. There’s fewer houses for sale so all is peachy; never mind that inventory is being manipulated by servicers and regular sellers are locked-out of the market through negative equity.

On the latter subject, last week CR labeled a story about a CA couple who looted $140,000 from their retirement savings to refinance their underwater home “a reasonable option.” At least he didn’t use the word rational, since their decision is anything but. Since the couple’s mortgage had been a purchase-money mortgage, had they walked away from the old loan, their lender (under CA law) could not obtain a deficiency judgment. However, with their new loan – since it is refinanced – that option, their best leverage point when negotiating a modification (say they need one later due to financial setbacks), is gone. It’s one thing to cheer for your team but it’s normally considered bad sportsmanship to purposefully injure the other team.

Yale Prof. Robert Shiller, co-creator of the well-known Case-Shiller house price index, takes a more sober approach. Shiller argues in the New York Times until meaningful principal reductions are put in place that house prices are hosed. Pricing may bump up on artificial scarcity caused by the relatively low number of foreclosures after the robo-signing scandal, but in the long run underwater borrowers are likely to drown. Further, because of sky-high loss severities in foreclosures – my own data shows it is not at all uncommon for investors to lose the entire face value of a mortgage in a foreclosure – principal reductions make good business sense.

Shiller embraces an idea being floated about lately; having municipalities use eminent domain to “take” mortgages at fair market value. Databases like the one I’ve been compiling clearly show the loss severity of similar mortgages in similar ZIP codes, allowing municipalities to ascertain fair market value of the mortgages, as opposed to the houses. In bubble-states, where negative equity issues are most pronounced, fair market value of most mortgage would be no more than 20-percent of the face value of the first mortgages – and oftentimes far less; no more than a few cents on the dollar – while second liens would be worthless.

Assuming this approach is only used with the consent of the homeowner, I’d suspect that one last call the servicer before implementation would magically result in an almost immediate modification: no lost paperwork, no transfers to the offshore call center, no capitalized interest.

Those who advocate a “rip the bandage off” approach through mass foreclosures should embrace this idea since it will lead to the same place, quick resolution of problem mortgages. It won’t be the homeowner who is left bleeding but since their advocacy for quick pain to end the crisis is principled, as opposed to being rooted in greed or malice, they should be enthusiastic supporters .. right? Further, absent amending the Constitution there’s nothing our dysfunctional federal government can do to get in the way. Even trying to interfere would expose Republican hypocrisy on issues of federalism and Democrats hypocrisy on middle-class aid.

While this solution looks like a great idea it remains unclear if local officials could pull it off competently. As the residents of Jefferson County, Alabama can attest to with their new sewage system – that led the county into bankruptcy – when local cronies “work with” Wall Street bankers the result is often barbaric for everybody besides the bankers. There’s a real risk that they’d pay far too much for the mortgages or team up with the same types of sharks that caused the mess in the first place, leading to the same inevitable meltdown. Here’s a hint for success: if the principals in any company offering to “help” have a background originating or securitizing subprime debt keep the idea alive but look elsewhere for partners.

Granted, investors could opt for principal reductions out of business sense – that is, they’d rather lose 40-percent of their principal than the 90% that’s become common in foreclosures – but they follow the lead of the Federal Housing Financial Authority, FHFA, and simply lie about this well-known fact. There’s an irony that the FHFA publicly screams that principal reductions are taboo while benefiting from those same principal reductions in the Agency MBS subprime tranches owned by Fannie and Freddie. The dirty secret is that principal mods DO work. DS News quoted a study on this very issue:

For 2011 modifications, the re-default rate after 12 months for principal modifications was 12 percent compared to 23 percent for rate modifications and 30 percent for capitalization modifications, according to the [Amherst] report [by analyst Laurie Goodman].

However, it’s been a long time since anybody has accused either Fannie, Freddie, or their regulator of honesty. Besides, with taxpayers footing the bill there’s no reason to mitigate losses. It’s much easier to be short-sighted and pander to beggar-thy-neighbor sentiment.

I own a home in West Palm Beach, FL. I want home prices to rise. But there are just too many factors that continue to drain the economy, including and especially underwater borrowers who push money into their bubble-era basis mortgages, robbing local economies of this sorely needed stimulus. Further, the dearth of first-time home buyers – caused by young people saddled with staggering amounts of student loan debt – will have long-term, very real repercussions.

We have to deleverage the middle-class, just as we did the banks in 2008, if we are going to put a long-term floor on the housing market. Until then the cheerleaders may inspire a goal or two, but – especially given that inventories are being artificially depressed – no matter how well they wiggle their tuchas or shake their pom-poms we’re never going to rally to overcome this point deficit. Take the Monday housing report that new home sales are higher than they’ve been in years; three years, to be exact, putting new home sales at the third worst for the home-buying season since the US has been keeping statistics. As pundits cheer the “recovery” people will no-doubt be inspired by the news, as long as they don’t hear the chant “We’re number three .. from the bottom.”

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  1. Winslow R.

    Agreed. CR or in this case BM is served.

    Low long – term rates dropped in Oct. and have created a bumpup not a bottom.

  2. Harley Warren

    Floor on housing my ass.

    I saved and saved and saved and didn’t buy an overpriced home that I couldn’t afford. Prices are still crazy in California!

    Let the prices drop to what the market says it should be, not the banks, not some screwed up government agency, not Obummer or Romnoid and defintely not some jack ass economist.

    1. F. Beard

      You would benefit from a universal bailout since it would go equally to non-debtors too.

      1. Mike M

        “You would benefit from a universal bailout since it would go equally to non-debtors too.”

        Say, could I borrow your unicorn for my niece’s birthday party next week?

    2. stripes

      You may not even realize that you sound like a Nazi when you blame the victims…the 99%….who were robbed in the biggest Ponzi Scheme swindle and heist of our wealth in history.

      1. Capo Regime

        Yep, I earn 45k, I get a no doc loan for a 300k condo in miami in hope of fliping in as prices are going, up, up and well it does not go up and viola I am foreclosed. Yes, all black hats and white hats. Nope, lots of your victims were schemers who got in over their heads. Are there victims sure, but there are also various sorts who went in the hopes of making easy money. Nazi–now that is a bit over the top.

        1. Capo Regime

          Yes, the senior citizen in north carolina or mississipi who gets exploited by a loan broker is a victim. Some condo or house flipper in Florida–not so much.

          1. Carla

            “Yes, the senior citizen in north carolina or mississipi who gets exploited by a loan broker is a victim. Some condo or house flipper in Florida–not so much.”

            Oh. And how about the family breadwinner who lost his/her job in Omaha, or Kansas City, or Indianapolis, or Toledo, OH or Erie PA?

            I know, fly-over country. We barely deserve to breathe out here in the hinterlands, let alone own our own homes that we have PAID for. We deserved to be raped by the banksters of Wall Street. NOT.

            1. Capo Regime

              I should have included well pretty much all states save for Florida and Nevada. Certainly the middle west and the heartland hit hard but the bulk of foreclosure mess is in the sand states of Fla, Az, Nevada and parts of Ca. Somehow I don;t recall houses appreciating in easter ohio or western pennsylvania, the issue there is job loss due to deindustrialisation and less real estate ponzi scams.

              1. backwardsevolution

                Almost half the homes purchased during the bubble in Nevada, Arizona, Florida and California were bought by speculators (who bought two, three and four houses with little to nothing down). They did not care what mortgage rates were as they would be flipping the house very shortly. Their game was to capture house “appreciation”.

                AND when everything started to slide, THE FIRST PEOPLE WHO WALKED were the speculators. They forced house prices up for everyone (as they bought in bulk). Even realtors were holding multiple houses, and they talked up the market in order to gain themselves.

                Moral#1: Don’t get caught up in these frenzies. Ponzis don’t get started and are not sustained unless everyone jumps in.

                Moral #2: You don’t get something for nothing. If you had saved real hard and had a good down payment, my hunch is you would have actually thought twice about risking your hard-earned money in a Ponzi. But since many had nothing down, they had no stake in the game, how much have they lost? Get out of the house, hand the keys back, and move on.

                But now we want to save the banks and we want to save the homeowners. Perhaps the poor sucker who did not partake in the fun should have joined in, put nothing down, stopped paying, continued to live in the house for years, for free, and then had his principal reduced, but no, he has been paying his way.

                1. Alex Morfesis

                  easy on carlo ponzi…at least his investors got back 30 cents on the dollar…better than investors in enron, worldcom and lehman…and that return was in the middle of the depression…his receiver milked it for about 14 years…
                  and where can you find this mystery stat that “half” of all home purchases were from speculators…last I checked…there was no 50% loan loss ratio on loan pools…these losses are made up…a loan pool has at worst a 15% non payment problem, of which, even if they took a 50% loss on those properties with problems, which is silly since most people would stay in their homes and live to fight another day if their payments were adjusted for five or six years…but accepting the notion that there would be a 7.5% capital loss…how does that get us to the mess we have today…the excess yield to cost of funds is 350 basis points a year for the last two years…and last I checked…350 basis points times two years is just about 7%…leaving us with a loss of one half of one percent…so where are these “mystery losses” coming from…its all in your fears…this is really a great example of how easy it is to mesmerize people…do the math…it will take away your fears…in the last four years there has basically been no new homes built…and yet…there are 12 million individuals who have “come of age”…and another 3 million each and every year for the next 20 years…since there wont be any massive construction starts for the next two years…means we will have about 18 million people for whom no housing has been built…at a certain point…it gets dull living at home…and if none of the baby boomers move to florida, there will still be 20 million people in florida by 2015, passing new york state and being the third largest state in the USA…the world has about 10 million millionaires globally, and to secure their money holdings, a percentage are moving their money TO the USA…for those of you fools looking to move your money out of the USA…duh, everyone else is trying to get their money into the US…about ten percent will eventually invest in the USA and buy a home…and Florida has some magical homestead exemptions…and although there are other states that have exemptions that seem to keep up with the exemptions in Florida…they aint got the nice easy feeling of the gulf of mexico…with no oil rigs over the horizon…so…keep trashing Florida real estate so those who know how to read demographics can purchase a few more homes before you folks snap out of the fear factory caused by the alumni of the mighty wurlitzer school of reality…pleae keep trashing Florida…makes for some easy pickins…just a quick little note for those of you who are math challenged…in the old days, when there was only one bread winner in the household…having 8 percent unemployment was a disaster…but with the average home having 2.5 jobs per household…is it the end of the world if there is an overall unemployment rate of even 12 percent in the US ??? what is the actual “household” unemployment rate…meaning households with zero income coming in…about 3.5%…between unemployment, alimony, disability, IRA and 401k money, pensions and social security…there are very few homes that are truly “unemployed” in the manner which would suggest being destitute…look around you…other than those who bought in brand new developments in the middle of nowhere…are there really that many empty homes around you…and for those who quote the “unoccupied homes” factor…in that stat..how many are second homes that were not occupied during the boom times…at least 10 million homes ??? maybe 15 million ??? How come no one puts together an analysis of Utility company meter utilizations from 2002 to 2012, year by year…probably because that real time number would show the economy is no where near as in trouble as we are being led to think…look around you…when you drive around…is there less traffic…are there less lines at the store…honestly ??? sears and kmart are only dead because the guy who bought them was interested in managing the giant pension moneys the company had…the free float…buffett style capitalism…the last time someone tried to tie a currency to gold was winston churchill when he was the clown at the exchequor…and that drove the world into a depression…the big oops…gold is for those who have no faith in themselves…sell the gold and buy a small house…the phony crash of 2007-2013 is over…magically, europe is now unified…those who voted against drawing closer in 2003-2008 now find themselves begging for unification…mesmerized…hook, line and sinker…

              2. Carla

                Tons of mortgage fraud in Ohio, PA, and Michigan, Capo. TONS. This was not fundamentally about flippers, because as you noted, real estate never really bubbled here.

                No matter, the organized crime we refer to as a banking system preyed on barely-making-it working people and picked the carcass clean.

                But we wouldn’t expect folks on the coasts to notice this, or to include it in the “national” conversation.

  3. roaring mouse

    Given the government’s manipulation of the ‘risk-free’ rate and efforts to inflate via the printing press, it’s difficult to assign a dollar figure to a home (or corporate bond or equity).

    Rather than untangling the mess, ‘extend, pretend, and reflate’ marches us further on the road to social, financial, and political instability.

  4. psychohistorian

    Nice look past the cheer leading from the sidelines….thanks

    I think we need to tear the bandage off the fetid FIRE sections of our economy, not just their bastard child of the moment.

  5. Aaron Layman

    Great points Michael. While BM provides some awesome charts to make his points, I can’t help but get the sense he’s a wee bit optimistic. I think your ability to see through the data is a refreshing reminder that a long-term perspective is key here.

    Having recently become a landlord, I also enjoyed Charles Smith’s article on the distortions affecting the rental market. Caveat Emptor!


  6. Max424

    “We have to deleverage the middle-class … if we are going to put a long-term floor on the housing market.”

    Agree. The problem is, the middle-class has dug itself into a 13 trillion dollar hole.

    And whereas it took only 35 years for the middle-class to dig this giant hole, it seems likely a century or two will pass before these middle-class hole dwellers are able to claw their way out, and declare themselves, mostly debt free.

    So looking at the symbiotic relationship of household debt and housing, and with a couple of hundred years of household deleveraging ahead, I’ve come the conclusion that the bar –on the long-term housing market floor– cannot be set too low.

    1. Carla

      Bank owners and financial innovators(along with their aiders and abettors in local, state and federal government) dug that hole. While a few in the middle class jumped in, most were pushed over the edge by the fraudsters and crooks who continue to profit from the misery of millions.

  7. Mike M

    “I own a home in West Palm Beach, FL. I want home prices to rise.”

    These should have been the first two sentences of the essay. Thanks, at least, for mentioning the fact. But, forget about home prices rising, especially in a place where old people go to die, there are few jobs, and a major storm comes sweeping into the area every decade to destroy the housing stock. The prices you see today are where they should be, according to long term trends, and are still too high in many parts of the country. Don’t saddle the taxpayer with this problem. We already have enough.

    1. Capo Regime

      Mike is on to something here. Challenges are everywhere but the excesses are particularly stark in the sand states of Florida, Nevada and Arizona. Here it was not just the predatory lenders but alas many essentially borrowing to buy options on appreciation rather than a house per se. Florida never had much of an economy–it was somewhat akin to the old saw of the resdients of a town making a precarious living taking in each others laundry. Besides old people going to die florida was founded on real estate scams, resort hotels and no income tas–thin stuff upon which to assume could support mean prices of $250k. Some warm weather sure but somehow the plight of floridians does not enender too much pity as thousands thanks to David Stern have been living for years without paying a mortgage–years and the servicers picking up the property tax. Beware what you wish for, price appreciation will provide an incentive to clear up the forecosures of the essentially hundreds of thousands of floridian sqwatters. Ever wonder why this did not occur on such a scale in Texas or say GA–thats right the Florida sleaze factor.

      1. Mike M

        My barometer for the state of national housing has been Florida since, oh, ’09 or so, when I seriously thought of buying something down there and told others I know to do the same, because it was so cheap, and, hey, I’m going to die someday, too. It’s so cheap to live down there with no heating bills, minimal clothes, a warm weather car, no state income tax, and the early bird specials. Good end of life medical care, too. But, more importantly, here we are and were on the leading edge of 73 million Boomers turning 65 (since 01.01.11, 10,000 a day turn 65), and, of course, I thought, Florida RE is the best investment, because, if only a fraction of said old Boomers start moving down there after they cash in at northern RE values, well, hello another boom. Hasn’t happened. Yeah, Miami condos are selling to South Americans, but, the rest of the state, besides 2 million dollar on the water palaces, is still dead. Amazing. Everyone up north is just stuck, underwater, and working until the last breath.

        1. jake chase

          Same story in North Carolina. Every golf course house and lot is for sale. No buyers except for those not needing to sell elsewhere. Your golf crazed 1%. At our world famous resort the dues keep going month after month but the courses are largely empty. Wife and I can play any day at 7:30 with nobody in front or behind. Anybody play golf recently in 3 hrs 10 minutes? We do, twice a week. Now if I could just get another 20 yards.

  8. Eleanor

    Mike M — I’d say the depressed housing market and the depressed economy is a problem for all of us. I’m afraid right now I’m going to live out my life in a second Long Depression and in a world of increasingly violence, as governments struggle to control unhappy populations. I figure it would a lot cheaper for the tax payer to solve these problems before they destroy the US and the world.

    1. Mike M

      Well, first, not all of us. Some of us never bought homes during the bubble, because prices were too high. We saved our money, and avoided this mess.

      And, second, lighten up with that end of the world stuff. That’s the same sad scenario that the powers that be rationalized TARP, and already saddled the taxpayer with enormous debts transferred from the banks, just as the citizenry of Europe is receiving their bills from their bankers at the moment. I say, sting all the bankers up by the toes, and pay off their debts with the sale of all of their assets. Speaking as a taxpayer, I don’t want to pay another cent for their crimes. Although, I probably will.

      1. Capo Regime

        Hear, hear. You are on target. Two sides to a trade as they say. Lets assume that bankers and brokers are all equally corrupt across the 50 states. Why such a mess in Florida and Az and not Texas? Yes bad economy but have to agree with mike, lots of people were buying into a fantasy in places like florida where the economy was always week and the place was a scam from the get go. West palm….ughhhhh…Again, in FLA a price appreciation would generate a lot of pain on the hundreds of thousands enjoying essentially mortgage and rent free living……

        1. Alex Morfesis

          proud members of the bad math club…


          250k is an awful price to pay for being ten minutes from the beach…and imagine working for a living…I mean…two adults working full time, making 500 per week gross…that is just too much to ask for in this day and age…seems when you plug that into an amortization sched a 250k mtg..30 yrs…4 percent…after taxes…and including 5k per year for txs and insurance…seems that all you need is 500/wk gross each…two adults actually working instead of skulking for a living…so it is not the income that is the problem…one third of all homes in florida have zero mortgage or less than 10 cents on the CURRENT value in terms of debt…lots of seniors paid cash along the way…and their social security checks push down the actual incomes in Florida…not that it is any better in new jersey or new york…phd-eez at starbux in east rutherford…and anything less than 50,000(and there are plenty of homes available in florida for less than 50K) is a joke as one person working for minimum wage will qualify for a 50k mortgage…so…this crash is about people accepting nonsense for data…case-shiller is a joke as much as the NAR data is a joke…all based on estimates when real time information is available to be compressed into real numbers…

          got smacked by some friends verbally here in florida on my last comments so will not engage a direct response to the irrational dark cloud lovers club member and his wonderful datasite…

          Florida has more people per square mile than California…


          sorry for that reality for those who still think Florida has only 7 million people in it…

          keep looking at your 401k accounts and keep praying…the rest of us will move forward…its a bit hard to eat gold and if I have food and you have gold…how much do you think I will charge you for my food…how about one gold coin…

          and for those who think the end is near…

          there are 2 billion people in asia who would love to have your problems…

          as soon as americans start paying 50k to illegally enter china is when I will start to worry…till then…carry on…

      2. Carla

        Mike, I didn’t buy in the bubble, either. My house is fully paid for and worth less in today’s market than when I bought it in ’86, thanks to all the vacant and foreclosed properties in my community.

        Mortgage fraud hurts everyone. Everyone, that is, except the very wealthy, who never lose in this system. Perhaps you are in the 1 percent and don’t care.

        1. Mike M

          ’86?? Do you live in Detroit?

          And, no, I’m not of the 1%. I just didn’t buy a home after I got divorced in ’00. Prices were too high then, and they are still too high no in my neighborhood. Mortgage Fraud doesn’t hurt renters at all, from what I can see.

          1. Michael Olenick

            Rents were driven up during the housing bubble, and have remained up as people lose their homes. One person left a post on a prior post I wrote that their rent in AZ had only gone up 8% over years, which sounds great except property has gone down 60%. Mortgage and foreclosure fraud has been bad for renters, worse for home buyers, and awful for MBS investors, though many of the latter were bailed-out mitigating the pain.

          2. Carla

            @Mike M — No, I do not live in Detroit.

            But I’ll bet you live on either the East or the West coast.

          3. Mike M

            Than, I’m afraid that you’re not quite telling me the truth, because I can’t imagine where in America besides Detroit (or some other god forsaken old industrial rust belt city) where a house is worth less today than ’86.

          4. Mike M

            “Rents were driven up during the housing bubble, and have remained up as people lose their homes. One person left a post on a prior post I wrote that their rent in AZ had only gone up 8% over years, which sounds great except property has gone down 60%. Mortgage and foreclosure fraud has been bad for renters, worse for home buyers, and awful for MBS investors, though many of the latter were bailed-out mitigating the pain.”

            No, you don’t get it. Here’s the thing. I’m turning 60 soon, a true Boomer, and I am SO happy I don’t have the financial ball and chain of an illiquid house on my ankle. And, I’ve been renting in one of the most expensive metro areas for a decade, but I haven’t seen much in the way of inflation. True, rents haven’t dropped much, but, I’m free to pack my bags at most any time and move to a cheaper place somewhere soon, probably one of these places where “investors” are flooding the market with …… rentals. They’re going down in Vegas because of too many homes for rent. I’m not moving to that hellhole, but, probably some other place that has a bunch of “investors” chasing yield, and competing for my money. That sort of freedom is an asset I value dearly.

  9. ella

    This is far larger than deleveraging the mortgages of the middle class because housing only addresses a portion of the problem. The fundamental problem with this economy is simple. The cost of living is so much greater than our earnings we have substituted debt for income. A problem that resulted from 30 years of supply side trickle down economics, detaxation and wage suppression.

    The solution is simple we must rebalance earnings and the cost of living so that what we earn can support the cost of living. The author is only looking at housing when in fact the problem is with our entire economic structure. It ranges from health care costs, to energy, to housing, to food and given the FED policies of devaluation those costs continue to rise.

    I have written on this topic before. The discharge of debt and an increase in earnings is the only way to deleverage the middle class. Deleveraging is important to the housing market and to all costs. Currently, my health insurance premiums are greater than my mortgage. These costs mean there is little left for discretionary spending. My neighbor works two jobs just to barely afford the house payment and the house is under water.

    We have a blue print for solving the mortgage crisis. It would be a place to start because modification of the old system is necessary for today’s crises. A similar program with principle reduction may well be the answer.

    “The Home Owners’ Loan Corporation (HOLC) was a New Deal agency established in 1933 by the Home Owners’ Loan Corporation Act under President Franklin D. Roosevelt.[2] Its purpose was to refinance home mortgages currently in default to prevent foreclosure. This was accomplished by selling bonds to lenders in exchange for the home mortgages.[3] It was used to extend loans from shorter loans to fully amortized, longer term loans (typically 20–25 years). Through its work it granted long term mortgages to over a million people facing the loss of their homes.

    The HOLC stopped lending c. 1935, once all the available capital had been spent, and began the process of liquidating its assets.[4] HOLC officially ceased operations in 1951, when its last assets were sold to private lenders.[4] HOLC was only applicable to nonfarm homes, worth less than $20,000. HOLC also assisted mortgage lenders by refinancing problematic loans and increasing the institutions liquidity. When its last assets were sold in 1951, HOLC turned a small profit.[5][6]” http://en.wikipedia.org/wiki/Home_Owners%27_Loan_Corporation

    In summary incomes must go up and the cost of living must go down. Debts need to be discharged. Debt must not be a substitute for income unless there is a short term emergency in the household.

    1. James

      Spot on description of the underlying cause of our current predicament, but good luck with getting a sympathetic ear among the powers that be to actually implement any of that. Debt peonage is the new economic paradigm, and only a systemic collapse is gonna address that. Looks like extend and pretend has a few more good years left in it, at least here in the land of eternal optimism.

  10. dirtbagger

    On a nationwide scale housing is bottoming or at least potential buyers perceive a bottom. In our local market (prices down more than 50% from peak) the bottoming began about a year ago. IMO buyers that compared replacement costs for new housing with existing housing inventory found a very attractive arbitrage situation. Investors and buyers entered the market and have been quickly absorbing the underpriced housing, with multiple bids on listed properties.

    I would take issue with the author regarding Calculated Risk. Overall, they have had a pretty good record on analyzing the housing market. The few predictions they have made are relatively conservative, without exuberance. CR also posts many excellent charts to augment their positions.

    For business reasons, I follow many US and Foreign housing blogs. Many of the Housing Blog founders tend to be uber negative as are most of the posters. For some reason, the “world is ending” scenario has a strange allure and a constant stream of followers. Markets do bottom, supply/demand becomes more balanced, and debt is eventually repayed or written off.

    1. Mike M

      “Markets do bottom, supply/demand becomes more balanced, and debt is eventually repayed or written off.”

      Of course. It’s just a matter of timing. I agree that housing will come back to ’05 levels. Just, not in my or your lifetimes. re: Japan, as always. They were way ahead of us.

      1. Capo Regime

        Yep prices may go back to 05 levels in 2055 and a big mac and fries will set you back $46.00. Spot on Mike.

    2. MacCruiskeen

      The difference is the CR likes to work with quantifiable data, whereas the number of underwater homeowners who would put their homes on the market if they could is largely guesswork. I mean, you can make some estimates of the number of underwater homeowners, but how many of them actually want to sell? That’s ambiguous, pulling-it-out-of-your-ass territory.

      1. Wat Tyler

        Agreed. CR and his late co-blogger Tanta were one of the best sources of data and education about the RE and securities markets before and during the crash. A highlight was reading yet another Tanta critique of a Gretchen Morgenstern attempt at “explaining” the crisis. BM is data driven and most definitely is NOT a housing cheerleader – in fact he rarely makes any forecasts and then only very cautiously and understated. BM typically presents both bull and bear cases and frequently is critical of NAR forecasts and spin.

        Concerning the couple who added $140K to their equity in order to refinance which BM stated as “reasonable” and this post criticizes;

        – The couple strongly intended to stay in the house.
        – They could afford the payment.

        What we don’t know is what $140K meant to these people. If 90% of savings then probably not a good idea to shift to an illiquid asset but if 10% then ,given the low ROI available elsewhere, a refinance makes sense – we don’t know in this case.

        Bottom line, Calculated Risk is a great source of data and explanation but not opinion which suits me just fine.


      2. Michael Olenick

        Relying on NAR data that’s revised every month, or counting want-ad’s, is pulling it out of your ass territory. I count delinquencies of MBS from Reg AB investor reports cross-referenced to property records. That’s data. I checked w/ the NAR and know how they get their data; they don’t. They get summaries from every territory. You can’t buy the raw data without calling every member organization. Relying on lists from the insanely conflicted NAR is not “quantifiable data” anymore than counting the turds my dog leaves and plotting it w/ red and blue charts is. It’s guesswork, packaged to look like “quantifiable data,” which makes it that much more dangerous.

        1. charles sereno

          Michael, this is off topic. It’s about your loose mouth. You open with a bad Greek joke you picked up a couple days ago (I saw it too). Then you end up(no pun intended) not knowing bupkis (a bean or goat turd) about how to spell tokhes. Stick to what you’re good at.

        2. Michael Olenick

          :) Data, especially primary data, is what I do for a living … writing is for fun. Data feeds me and my family — I sell it — but even if I wanted to publish my data for free, last I checked my remit database had 380 million records in it; it’d be a really long web page.

          You’re right that reliance on NAR data personally annoys me because they’re using what’s essentially secondary research — culled from non-accountable member organizations — and people treat it like primary research. It’s exponentially harder to manage enormous sets of data than summaries, but the devil is in the details, pretty much literally, with housing data. Lowering the bar towards the superficial not only prolongs the crisis but is bad for me, personally, and other data vendors who take the time and cost to carefully and accurately collect primary data.

          I like that CR relies on data, but I wish he’d rely on better data. It’s out there; just more difficult to get at.

  11. Ron

    Coastal Calif is basically built out little but infill projects remain. The age of endless urban sprawl created by converting rural property into housing tracts is over as fuel prices and road congestion along with poorjob market have made long commutes unattractive. New housing created much of the INVENTORY by generating larger expensive homes for move up buyers thereby creating inventory in established neighborhoods. Its over, the employment center neighborhoods have little or no alternatives so remodel and staying put become the new norm.
    Markets change but economic data miners continue to look at
    old data models expecting predicative outcomes, but its over and time for the RE economic community to recognize the changed landscape.

    1. Boomer

      “remodel and staying put become the new norm.”

      Unless you lose an income and can’t make your nut and have to sell, if you’re not underwater. There’s a certain amount of that around on the Central Coast.

      Coastal CAlifornia has had a lot of housing churn in recent decades: people with money coming in to buy, long-time homeowners cashing out to retire, and low-middle-income families leaving to follow jobs elsewhere (and lower RE prices). That churn will continue, but a key component will be people who cannot keep their homes. Anecdotals suggest that the current “shortage” of homes for sale in this area is at best, misleading.

      1. Ron

        No reason to expect the rate of churn to continue as much of the churn was related to new housing whether move up or first time buyers. New housing construction has little room for expansion within coastal employment areas and infill projects tend to be dominated by an odd mixture of very high end/low income and all tend to be of limited quantity. Market dynamics change and Calif is entering a period where the RE residential market is mature. Selling and buying each others used home will do little for California’s economy and as the reality finally hits that most of the used homes inventory for sale are fixtures with endless problems the industry as a whole will continue to decline as title companies,mortgage lenders,inspectors and RE agents all fight over a smaller and smaller slice of market share.

  12. Capo Regime

    Michael you note: I own a home in West Palm Beach, FL. I want home prices to rise. But there are just too many factors that continue to drain the economy, including and especially underwater borrowers who push money into their bubble-era basis mortgages, robbing local economies of this sorely needed stimulus

    Aren’t there thousands upon thousands of people in PB, Broward and Dade who have been living without paying a cent on their mortgage for years given a.) the mess of the courts and b.) the David Stern Fiasco. Forget accumuplation, in S Florida the best strategy is not paying getting foreclosed and having free housing for at least two to three years–700 days for the proceeding to take place.

    1. Michael Olenick

      There was just an article about a church that went from notice of foreclosure to final judgment in 90-days. An enormous number of cases are dismissed voluntarily by the banks, and an even larger number delayed by the banks. I took a reporter to foreclosure court and a borrower thought that the bank lawyer was his because “she keeps arguing with the judge to keep me in my house.”

      They’re not doing it out of court dysfunction or goodwill: they don’t want to take the write-off’s and flood the market. As for David J. Stern and his ilk, they hired him. I was one of the one’s that called him out based on my data that proved he was lying to his investors; courts didn’t care but investors did, and when they realized he was lying to them his book magically vaporized. Personal responsibility cuts both ways: if banks decided to hire a known scumbag like Stern they have no room to whine after he predictably botches their cases.

  13. rps

    The first thing I thought when I read housing prices are on the rise; the banks are playing housing roulette selling and buying each others foreclosed properties to create an artificial exuberance hoping that Jane and Joe Six Pack will jump onboard for another round of bend and grab your ankles mortgage fraudster screw-overs. As Ella pointed out, earnings need to rise. People are scared off from a diet of debt, especially the 20 and 30 somethings ball and chained to college debt.

  14. Bob

    Funny I thought Jobs was the number one concern but lets make a living buying and selling real estate. Not that we manufacture anything in this country any more but our children have to slave away in $8.00 burger flipping jobs. They’ve paying that rate for nearly 15 years, and it hasn’t moved up with inflation, although the prices we pay move up.

    House prices need to move down, 50 years ago it was unheard of to get a 30 year mortgage. House prices have moved up with the ease and expansion of credit. So has our national and local debt. If we start forgiving a portion of the debt, its gets lumped onto more bailouts as banks become insolvent. Their balance sheets so far escape mark to market accounting but if they write the properties down, their balance sheets will go into the red. They’ll fail the stress test. No more mark to imagination.

    Whatever happened to home of the free and the brave ? What ever happened to free market capitalism that they preached in the 90’s? If you’re a sore loser you still get to walk away with the prize? Thats just un-American but then again so is this fascist government.

    Let the collapse happen, Americans will stop buying Chinese made goods and perhaps we’ll learn how to work again. “When you give up liberty for security, you deserve neither ” Benjamin Franklin. While that quote might seem out of place for a real estate article it seems like we all fear a collapse, so we talk bailouts. We look for the easy way out of our problems, so we give up our security. We ask the government for help. Whatever happened to the nine most terrifying words in the english language ” I’m from the government and I’m here to help.” ? Government can only help if they take away something. They take away liberties or money by throwing it on the taxpayers back.

    Lets learn to work again, flipping houses and the “Service Economy” were social experiments. We need to bring back good paying manufacturing jobs to this country.

  15. Tom Lawler

    It is tough when you are wrong on a near term forecast, and you spout drivel to explain why you were so wrong. It’s most embarrassing from one side, but from another side it’s actually most entertaining. Drivel is actually a good read.

  16. Tom Lawler

    Amusiong that you “diss” calculated risk which actually shows data, but don’t show any data whatsoever to support an alternative view. It’s sad to see how your near-term outlook has been so wrong, but it is amusing to see you explain, not at all convincinglu, why.

    But your posts are an amusing, if wrong-headed read, so don’t stop.

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