U.S. Housing Slump Has ‘Just Begun,’ Says Forecaster Talbott

[Purveyor]

Source: Bloomberg

Feb. 5 (Bloomberg) -- Let’s say you own a $1 million home in Santa Barbara, California.

The house seemed like a steal when you bought it with that adjustable-rate mortgage in 2005. You still love the white beaches and those yachts bobbing up and down in the harbor.

Then you awaken early one morning, troubled that your monthly payments will soon double. You go out to pick up your newspaper and see for-sale signs on five houses on the street. One identical to yours just sold for $500,000.

Are you going to pay the bank $1 million plus interest for your place? John R. Talbott, a former investment banker for Goldman Sachs, poses that hypothetical question in his latest book of financial prophesy, “Contagion.”

His answer: “I don’t think so,” he says. “If I’m right, then this housing decline has only just begun.”

Read more: http://www.bloomberg.com/apps/news?pid=20601213&sid=a8mdg7z0u7Dw&refer=home

[Mari333]

1. no one knows wtf the going on

I was just reading another report saying we are now seeing the housing market beginning to bottom out (on cnn).
no one knows anything, it seems, for sure.

[Phoebe Loosinhouse]

3. How can housing be "bottoming out" while unemployment is increasing at unheard of levels?

Whatever expert said that has their head up their ass. Jobs pay mortgages. No jobs, mortage default.

[serrano2008]

5. The LARGE MAJORITY of Americans still have their jobs and are not worried about losing them.

I think you're the only one who thinks loss of jobs is the cause of the bad housing market.

[Phoebe Loosinhouse]

7. OMG! Do you think there is no correlation between employment and housing?!

It is one of the major determining factors in how robust housing is in different regions. How booming do you think the housing market is right now in Detroit? Check out the housing market in a small town when a major employer goes belly up.

:o

[KurtNYC]

9. There is a correlation but what screwed the housing market was/is

putting people into loans they weren't qualified for and then bundling those "toxic mortgages" into mortgaged backed securities.

If they were still qualifying people for loans that were 4x what they could afford then prices might continue to rise.

[dbonds]

20. Don't forget the greedy ass flippers, They played a huge part.

They kept buying and flipping houses driving up the price artificially till people could not afford to live in the neighborhoods they had been in for 20 years. So they sell and had to then purchase another house also at inflated prices, so they have loans they should not have had. Also, the artificially high price created by the flippers caused the banks to grant more equity loans on the existing houses thus loaning money on something that didn't really exist and quickly disappeared when the housing prices started declining.

[PassingFair]

28. You are correct for areas like Nevada, California and Florida...

the housing market in areas like my Michigan, Ohio, Pennsylvania
and Indiana are being devastated by
unemployment FAR more than by the contagion
of ARM and NODOC loans.

And it's SPREADING.

[FedUpWithIt All]

8. We have 7.1% unemployment in my area.

If i am not mistaken that figure is based on those currently applying for and receiving unemployment. I personally know several people who have had such difficulty finding jobs that their unemployment ran out, cutting them out of the stats.

It is very bad. Even during the Great Depression the majority still had jobs. We all know what a lovely time that was.

[unblock]

17. the LARGE MAJORITY of americans still had jobs during the depression

an unemployment rate of, say, 25% represents a highly troubled economy, as during the great contraction, yet it's still a minority.

so? what's your point? markets are priced based on behaviors at the margin, and 25% unemployment a serious dislocation.

[Phoebe Loosinhouse]

21. Oh, and by the way

I never said that the loss of jobs was the CAUSE of the housing crisis, but I do not see how we can be bottoming when unemployment is increasing - it is an exacerbating factor.

[Xithras]

6. Same way it did in the past

People may be losing jobs left and right, but the overall unemployment level in the U.S. is still lower than it was in the early 80's, when the national numbers passed 10%. Even factoring in the chronically unemployed who don't show up in those numbers, better than 80% of Americans still have jobs. Hopefully it will stay that way.

[ret5hd]

16. You are assuming the formulas to calculate unemployment have remained static since the '80s.

They haven't.

[Hydra]

22. It's not though

Even in my area, where it should be busy season, employers are cutting jobs left and right and the number of jobs listed is roughly 1/8 normal. I got cut during a second round of cuts this season, and unemployment claims in my area are off the charts.

The whole fluff of "things are ok" is incorrect. Our economy is 70% consumer based, and a growing number of people aren't consuming, either because they can't afford it, or they are scared.

As my friend put it, "We're just swirling the drain..."

[The Backlash Cometh]

15. It's free market, baby!

The negative side that continually got down-played.

[SlipperySlope]

23. Lots of people know exactly WTF is going on

There are plenty of economists and observers who predicted all this would happen, and can explain exactly WTF is going on.

They are all ignored, because if you listen to them you understand that:

1: There is no going back to what we had circa 2007.
2: There is no solution that keeps the current distribution of wealth in place.
3: There is no solution that keeps the current distribution of power in place.

Since decisions are being made by people who currently have wealth and power, they have no interest in learning that things can't be fixed while they hold onto their wealth and power. Therefore you see the policies of the Bush administration, and the basically identical policies of the Obama administration, which are all an attempt to keep the game going instead of facing the new reality.

[closeupready]

24. Bingo. You win. Wish I could recommend a single post.

Because I would.

[CrispyQ]

25. That's it in a nutshell. --nt

[progressivebydesign]

31. Our county prices have bottomed out AND pendings are UP 26% this past month.

There are two houses for sale on our street and the traffic by the houses has increased 5 fold in the past few weeks.

[Phoebe Loosinhouse]

2. Good article.

He says that house prices need to get back to 1997 levels before the bubble set in. I agree because wages and salaries for the worker bees did not bubble along with real estate.

[Xithras]

4. He may be right on the price levels

In the northern SJV in California, home prices are already at 2001 levels on average, and in some areas have lost all gains since 1999. The market in those worst hit areas, interestingly, has pretty much bottomed out.

[MannyGoldstein]

10. Accounting For Inflation, Prices Are *Still* More Than Double Since 1970

relative to an average income.

In 1970, an average house cost 1-2 years average salary. Now it's still up at 4-5 years average salary. If things go back to 1970 levels, we still have a long, long way to go.

[Phoebe Loosinhouse]

11. The underwriting standards that worked for decades said no more

than 28%-30% of gross income for mortgage,interest,insurance and taxes.

[Lucky Luciano]

12. The population is substantially higher than in 1970 meaning

that there is more demand for homes...I think 1997 might be fair.

[MannyGoldstein]

14. But There's New Supply Commensurate With The New Demand

Not in older established cities such as Boston or NY - but in the country as a whole.

[Javaman]

13. Oh there is still so much more to come, this one is my personal favorite...

http://www.msnbc.msn.com/id/28035238/

(this is the thing that gives me night terrors)

‘Pay option’ mortgages could swell foreclosures
New wave of defaults likely as risky loans reset to sharply higher payments

Some time after Sharren McGarry went to work as a mortgage consultant at Wachovia’s Stuart, Fla., branch in July 2007, she and her colleagues were directed to market a mortgage called the “Pick A Pay” loan. Sales commissions on the product were double the rates for conventional mortgages, and she was required to make sure nearly half the loans she sold were "Pick A Pay," she said.

These “pay option” adjustable-rate mortgages gave borrowers a choice of payments each month. They also carried a feature that came as a nasty surprise to some borrowers, called "negative amortization." If the homeowner opted to pay less than the full monthly amount, the difference was tacked onto the principal. When the loan automatically “recasted” in five or 10 years, the owner would be locked into a new, much higher, set monthly payment.

>snip<

“The next wave (of foreclosures) is coming next year and in 2010, and that is primarily due to these pay-option ARMS and the five-year, adjustable-rate hybrid ARMS that are coming up for reset,” said William Longbrake, retired vice chairman of Washington Mutual. The giant Seattle-based bank, which collapsed this year under the weight of its bad mortgage loans, was one of the biggest originators of pay-option ARMs during the lending boom.

>snip<

Her job description included a requirement that she meet a monthly quota of Pick A Pay mortgages, something she said wasn’t spelled out when she was hired. Still, she said, she continued to steer her customers to conventional loans, even though her manager “frequently reminded me that my job requirement was that I do 45 percent of my volume in the Pick A Pay loan.”

(but don't worry wachovia is looking out for us!! that is of course after the horse has left the barn, the barn was hit by lightning, then was swept away in a tornado)

Wachovia quits offering risky mortgage payment option

http://www.usatoday.com/money/economy/housing/2008-06-30-wachovia-loans_N.htm

CHARLOTTE — Wachovia said Monday it will quit offering a mortgage payment option that allows borrowers to pay less each month than the bank charges in interest.

The choice to pay less was one of the options of Wachovia's (WB) controversial Pick-A-Payment mortgages, which offer customers four payment options each month. Wachovia told the Associated Press that it will no longer offer the less-than-full interest payment option on all new home loans.

>snip<

Critics have said paying less than the amount of interest charged can lead to negative amortization. That means the borrower owes more than the value of their home, increasing the chance of foreclosure.

>snip<

Like many of the nation's leading financial institutions, Wacchovia has been hit hard by a widespread slump in the nation's housing market and ongoing credit crunch. The bank forced out CEO Ken Thompson amid rising loan losses and a series of miscues, including the decision to buy Golden West for roughly $25 billion at the height of the nation's housing boom.

(so are they doing this to help the little guy or to help themselves? I think we know the answer to that one)

[Baby Snooks]

18. Don't forget the tax base...

Even if things have bottomed out and remain stable for four to five years more and more are fighting their tax district appraisals and so the tax base is being eroded. Which means many tax districts will have to raise taxes to maintain the income.

Most in the real estate industry will tell you things are just wonderful but they were telling you that a year ago. They were and are still trying to sell the million dollar homes. Hoping no one notices they are only worth half a million dollars.

And of course if the homeowner walks away from the mortgage in disgust the bank is left with a half million dollar loss. And some with good credit will do just that and risk a lawsuit or a 1099 on the half million. They will buy a "second home" for half a million and then walk away from the "first home" and stiff the bank for the half million. They end up with a home which in their mind saved them the price of the home. The bank ends up getting stiffed. Works both ways. Ain't wheeling and dealing in real estate grand?

[Phoebe Loosinhouse]

19. Lots of info in this relatively brief analysis

http://www.centralvalleybusinesstimes.com/stories/001/?ID=10327

Nationally, over 7.5 million mortgages or 18 percent of all properties with a mortgage were in a negative equity position as of the end of September. There are an additional 2.1 million mortgages that are approaching negative equity, the report says. These are defined as mortgages within 5 percent of being in a negative equity position. Negative-equity and near-negative equity mortgages combined account for over 23 percent of all properties with a mortgage.


The distribution of negative equity is heavily skewed to a small number of states. Nevada and Michigan have the highest percentages of negative equity with Nevada leading the nation with an estimated 48 percent and Michigan was second with 39 percent. Five other states have negative equity shares in excess of 20 percent: Florida (29 percent), Arizona (29 percent), California (27 percent), Georgia (23 percent), and Ohio (22 percent).

It's all about the negative equity. When you are upside down, you are a bug in amber. You cannot refinance and selling is difficult.

Someone, somewhere somehow has to find a way to deal with the vaporized equity. There was a thread yesterday with a suggestion that I thought made sense, I'll see if I can find it.

[Gin]

26. that scenario may be the next shoe to drop....if I had an upside down

mortgage...I would walk away from that no win situation.....a lot of good customers are being screwed with that upside down turn of events....I never hear of help for that group.

[slackmaster]

27. I can't think of a way to help those people without hurting someone else

Any ideas?

[KakistocracyHater]

29. I see no housing slump, I see an opening 4 veterans' housing

needs to get met, quickly, easily, & legally. Uncle Sam takes the mortgages/deeds from "banks" & resets the value of said house: gives it to veterans, call it G.I. Bill v2.0

[progressivebydesign]

30. Yawn. Everyone has an opinion, and the more these eggheads keep talking the worse it gets.

What part of CONSUMER CONFIDENCE do these eggheads and the media not get???

Sheesh. I'm on a list with 50k other people that gets requests for sources, for media people working on stories. I am getting so freaking tired of the same damn story ideas peddled over and over:

Are you putting off having a baby because of the economy? Have you scaled back your wedding because of the economy? What are you doing for Prom in this economy? Looking for foreclosure horror stories!! How to talk to your kids about THIS economy, etc. etc. etc.

Yeah, it's bad out there, but just like the bird flu and shark attacks, the media is so fucking obsessed with overwhelming us all with tales of woe. There are good things happening out there, but people are being scared shitless to make any move or purchase. I know people who have not been affected at all by "this economy", and really no chance of it affecting them, and they're scared to spend a penny.

Oddly enough, in our County, January home prices STABILIZED AND pending sales are UP 26%. But you talking heads.. you just keep selling doom and gloom from your million dollar houses.

[llmart]

32. Thank you for that!

Our media is ridiculous. They all jump on the same bandwagon and beat the subject to death. It's all fear, fear, fear. People need to stop dwelling on this and live their lives the best they can under the circumstances. This too shall pass.