Mea Culpa for being the housing bubble's slacker blogger. There have been many other time consuming projects at the job that pays me.
Additionally, I just haven't felt that what is happening now is anything unexpected. In fact it is expected, predicted and pretty much yawn material.
We already knew we were right about the last 5 years (at least) of real estate prices being disconnected from fundamentals. We already knew that the housing market was nothing more than Fools and Greater Fools playing pass the potato. We already knew what was going to happen when the Greatest Fools of all found themselves holding the potato and it turned into a big bag of flaming poo right before their eyes.
You know, on that note... why don't the stupid ever know they are stupid?
We knew that without all the toxic financing, jumbo loans, IO, suicide loans and take it in the butt products, this market would never have existed at all. The price run ups never would have happened. The disconnect between incomes of residents and prices of houses would never have happened.
We know that 40-50% of the price of current homes is totally unsupported.
Why didn't the Stupid Bell go off in the heads of the Ponzi participants?
Ah, well, those who fail to learn from history is one of the greatest history lessons for the rest of us.
Did you see this?
The Associated Press. “Wells Fargo & Co. President and Chief Executive John Stumpf said Thursday the housing market is experiencing its worst decline since the Great Depression.”
“Stumpf said…that rapidly declining housing prices are likely to put even more pressure on delinquencies and defaults. ‘I don’t think we’re in the ninth inning of unwinding this,’ Stumpf said, relating the declining housing market to a baseball game. ‘If we are, it’s going to be an extra-inning game.’” “Stumpf said the downturn resulted in part from ‘froth, unscrupulous lenders, (and) borrowers who got too greedy. In 2006 the music stopped.’”
You got that right Johnboy! No, we are not in the 9th inning. First pitch just went out. Game just started. Grab your popcorn and get cozy. It is gonna' be a while.
“‘In so many ways, what we’re seeing today was caused by all this crazy borrowing and lending,’ said economist Christopher Thornberg, who has repeatedly warned of a looming real estate crisis. ‘I can’t emphasize this enough. This was imminently predictable.’”
“No one takes responsibility for the inflated incomes that many borrowers submitted to justify a mortgage, especially in 2005 and 2006 after three years of soaring home prices. One lender’s review of 100 loans made without proof of income found that nine out of 10 applications overstated the borrower’s income.”
“There’s a greater than 50 percent probability that the financial system ‘will come to a grinding halt’ because of losses from mortgages, Gregory Peters, head of credit strategy at Morgan Stanley, said.”
Larry Mizel, CEO of M.D.C. Holdings, put it, ‘Everyone forgot that there are cycles in housing.’ Since builders have ‘borrowed demand from the future,’ says Burns, the industry is in the second year of a 3-to-5-year correction."
"When the downturn ends, he says sales activity will correct back to 1995 levels.
From Bloomberg. "Losses from the falling value of subprime mortgage assets may reach $300 billion to $400 billion worldwide, Deutsche Bank AG analysts said."
From Reuters. "Blackstone Group president and chief operating officer Hamilton James said on Monday that the subprime mess that hit Wall Street banks appears to be getting worse. ‘The subprime black hole is appearing deeper, darker and scarier than they thought,’ James said.
"(**PDF Alert**) This chart shows the resets peaking in March 2008. Guess what is going to happen to the jackholes wishing, hoping and clicking their heels for things to improve in the Spring?
From the report: "2. What happened in 2004? The relationship between Californian house prices and disposable income as a multiple of long rates broke down in 2004; we believe that aggressive sales of ‘affordability products’ (e.g., subprime, option ARMs, home equity loans), which spiked in 2004 (see Exhibit 2), drove Californian home prices well-above levels supported by economic conditions."
"Now that the secondary market for these affordability products has all but evaporated, we expect home prices in California to return to normalized levels (i.e. levels implied by current and forecast disposable income in California as well as U.S. ten-year treasury yields); this implies a 35-40% fall."
Yawn! Yes, that means you Sonoma County. Especially you!
“Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a ‘mess’ left by former Federal Reserve Chairman Alan Greenspan.”
“‘Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time… He encouraged people to take out variable-rate mortgages,’ Stiglitz said in an interview in London today.”
“‘That game is over,’ Stiglitz said. ‘As house prices are going down, people are not going to be able to take more money. We are looking at a major slowdown.’”
“Stiglitz, who stepped down as the World Bank’s chief economist in 2000, and now works as professor of economics at Columbia University, estimated U.S. consumers borrowed up to $950 billion last year against the value of their homes to finance spending.”
Meanwhile in Sonoma County, the median dropped nearly 12 percent.
"Sonoma median price drops to 473K per DQNews. Back to October 2003 levels folks."
"Sonoma County’s housing downturn deepened in October, when sales tumbled to a 16-year low."
"The median resale price fell for the 16th consecutive month returning prices to levels not seen since October 2004." (still HIGH and solidly in bubble mania territory)
"Sales are declining across the Bay Area, but Sonoma County has been among the hardest-hit places in the region." (You ain't seen nothin' yet)
"The housing downturn is worse in Sonoma County and other counties on the Bay Area’s edge largely because more homeowners relied on risky loans to purchase homes around the market’s peak and may be forced to sell. Soaring foreclosures have led to tightened lending requirements that push out some buyers." (edited to remove realtwhore spin)
'“We’re still trying to work through the inventory and the bad loans. said Rick Laws, Santa Rosa manager for Coldwell Banker."
"At the end of October there were 2,597 (this is what realtwhores are claiming. MLS says something different) houses for sale in the county, October’s highest level since 1992, when the county was last in a housing decline."
"The housing market's decline has accelerated as other economic indicators are worsening across Sonoma County, increasing the chances the region will dip into a recession."
"What began as a correction from an eight-year run of record home sales and price increases has been made worse by soaring loan defaults and tighter credit, the consequences of loosened mortgage lending standards."It's becoming a drag. There is a rising risk of recession," said Steve Cochrane, regional economist for Moody's Economy.com."
"Chris Thornberg, a Los Angeles economist, said rising unemployment and housing's tumult are hammering the state's economy, including Sonoma County. There is now a 75 percent chance of recession by early next year, he said."
'"This thing is already in the process of creating a recession in California," he said. "Consumer spending will be the ultimate driver, but consumer spending slows because of housing price declines. It is housing that is the show stopper."
'"Home sales have been falling for more than two years in the county and price declines have kicked in the past 15 months, yet the economic blow is just beginning to hit here." (Right on the money, baby)
"Sinking home sales have triggered layoffs by mortgage and construction companies in the county and real estate agents are leaving the business. Those job losses have helped drive up unemployment to 4.5 percent, up from 3.7 percent a year ago. Moody's estimates unemployment will be 4.3 percent next year."
"The local economy is expected to get worse before it gets better as the housing downturn deepens."
"We are in the heart of the storm. I think there's still more pain to be felt," said Greg Jahn, who tracks the economy as chief investment officer for Exchange Bank. "That leads to less jobs in the housing industry, less consumer confidence in the ability to go out and spend. It's just a vicious cycle."
"Housing markets in regions with higher concentrations of those loans, (read: Toxic Loans) including Sonoma County, already are suffering even deeper defaults and foreclosures. But housing's decline is taking an even broader toll on the economy as falling home values lead even homeowners not facing the loss of their residence to take a closer look at their finances."
"The latest national consumer confidence survey hit a two-year low this month. Conditions are no better in Sonoma County. The region's economy may not bounce back until 2009 because the mortgage mess is expected to extend housing's downturn, Cochrane said."
"Once a symbol of Sonoma County's housing boom, Bellevue Ranch is now emblematic of hard times in neighborhoods across the region.More than 20 of the 35 homes for sale in Bellevue Ranch are on the market either because banks took them back or owners must sell to avoid foreclosure."
"Many homebuyers bet values would continue to rise, allowing them to refinance into more stable, longer-term loans. But the downturn beat some of them."That's one of the biggest risks of this whole mortgage mess, that it can infect house prices broadly in neighborhoods," said Steve Cochrane, regional economist for Moody's Economy.com."
"For Sale" signs on every block and a handful of vacant homes are the only apparent signs of stress in a neighborhood that otherwise looks like any new subdivision in Sonoma County.
Number of purchases made by homebuyers and investors using high-rate subprime loans:
2004: 400 purchases 4.4 percent of all first mortgages
(California rate was 7.2 percent)
2005: 1,657 purchases19.5 percent of all first mortgages
(California rate was 28.9 percent)
2006: 1,148 purchases19.2 percent of all first mortgages
(California rate was 30.1 percent)
Top five subprime purchase lenders in Sonoma County, 2004-2006:
Long Beach Mortgage Co., Anaheim, $232 million
Status: Absorbed by parent Washington Mutual in September
New Century Mortgage Corp., Irvine, $148 million
Status: Chapter 11 in April
Fremont Investment & Loan, Brea, $109 million
Status: Closed subprime arm in March, Massachusetts sued for predatory lending in October
First Franklin Financial,San Jose, $105 million
Status: Sold by parent National City Bank to Merrill Lynch in 2006
WMC Mortgage Corp., Burbank, $72 million
Status: Closed this month
Percent of Latino homebuyers using subprime loans:
2004: 9 percent
2005: 44 percent
2006: 41 percent
Percent of non-Latino buyers using subprime loans:
2004: 3 percent
2005: 10 percent
2006: 12 percent
Subprime homebuyers by ethnic origin
Ethnic origin not listed:
Subprime borrowers in Sonoma County strained their pocketbooks to get a first mortgage. Buyer's loan compared to their income (median spread):
2004: Sonoma County: loan 3.3 times larger than income
(U.S.: 2.3 times larger)
2005: Sonoma County 3.4 times larger
(U.S.: 2.6 times larger)
2006: Sonoma County 3.1 times larger
(U.S. Not available)
bwahahahahaha!!! This one cracks me up and is just as false forthe Alt-A and Prime borrowers too. Remember the auditor above who in auditing the loan documents found the income reported to be false in 9 out of 10 applications?
All that data is based on what was reported according to the loan documents in terms of income to loan ratio.
We already KNOW 9 out of 10 of the applications had the income falsely inflated. They were fraudulent. They falsified the income so they would meet the traditional lending standard and stay within the fundamental expectation of housing being 3x income.
The impact of investors on the market, 2004-2006:
15 percent of all purchases, prime and subprime.
3,594 investor purchases,$1.5 billion.
Many home buyers used subprime second mortgages to make their downpayment, consolidate debt or take cash out:
2004: 823 second mortgages, $67 million. Average loan size: $81,510
2005: 1,364 second mortgages, $138 million. Average loan size: $101,060
2006: 1,144 second mortgages, $119 million. Average loan size: $103,881
Number of prime and subprime loans, both first and second mortgages, used to buy a home:
2004: 10,211 prime, 1,223 subprime
2005: 7,867 prime, 3,021 subprime
2006: 5,931 prime, 2,292 subprime
Number of prime and subprime refinances, both first and second mortgages:
2004: 19,579 prime, 882 subprime
2005: 17,312 prime, 1,709 subprime
2006: 12,746 prime, 1,862 subprime*
First mortgages with an annual percentage rate (APR) of at least 3 percentage points over U.S. Treasuries of similar duration, and second mortgages at least 5 percentage points higher.
Sources: Sonoma County Recorder's Office, Traiger & Hinckley LLP, Home Mortgage Disclosure Act records, U.S. Department of Housing and Urban Development, Federal Financial Institutions Examination Council at www.ffiec.gov/hmda/default.htm
Reluctant buyers and tightened mortgage lending combined to drag down home sales in a nine-county region around San Francisco Bay last month to the lowest level in more than 20 years, a real estate research firm said Thursday. It was the slowest October since DataQuick began keeping records in 1988.
Many lenders have tightened underwriting guidelines in recent months amid rising home loan defaults and foreclosures, which rocked the secondary market for mortgage-backed securities.
"Angry disputes are erupting between struggling homeowners, who claim they didn’t understand the terms of their loan or the risk they were taking, and lenders and loan brokers, who say they fully informed all their clients and point with pride to the many homeowners they helped get a loan."
"As stressed borrowers seek help, every link in the chain of loan production is coming under attack, from the borrower, to the real estate agent, to the mortgage broker, to the lender."
"Some say that their broker put them into the risky loan just to earn a higher commission. Latino borrowers say their weak English skills made them particularly vulnerable. Small investors say they followed advice to borrow from their home and buy a rental or two and now they will lose everything."
“Lenders had a fiduciary duty to do the right thing for their people,” said Bob Accornero, a real estate broker with Creative Property Services in Santa Rosa. “Lenders needed to get warm and fuzzy with their people and say, ‘Can you really do this?’ That’s what they didn’t do.”
"The breakdown of trust between borrowers and lenders is already forcing changes to the way home loans are made, and more are on the way. Lenders are tightening standards that once allowed borrowers to get a subprime loan without documenting their income, proving employment, having decent credit and coming up with a down payment."
"Not in dispute, though, is the heartache striking families and small investors across the North Coast and nationwide as they lose homes to foreclosure."
'“In so many ways, what we’re seeing today was caused by all this crazy borrowing and lending,” said economist Christopher Thornberg, who has repeatedly warned of a looming real estate crisis. “I can’t emphasize this enough. This was imminently predictable.”'
"While many Americans benefitted from the loan opportunities, others abused them, an outcome that’s becoming painfully clear in Sonoma County where foreclosures and fingerpointing rile the industry."
“The lenders are trying to make the biggest mortgages they can. It’s up to you to say, ‘Wait a minute. I don’t think that makes sense for me to bite off this much,’” said Harper, whose service has seen a 300 percent increase in demand for housing counseling this year. People don’t ask enough questions, he said.“Simply because a lender tells you that you qualify for a certain amount doesn’t mean you can afford it,” he said.
(Don't buy stuff you can't afford, Stupid!)
"Nearly one out of five homes sold in Sonoma County during the easy-money years of 2005 and 2006 was bought with a high-risk loan, triggering a chain reaction of financial misery that has rippled through the county’s housing market all the way to Wall Street."
"For many, the American dream of owning a home has turned into a nightmare of sinking home values, forced sales, empty houses and ruined credit. A growing number of homeowners are locked into rising mortgage payments they can no longer afford and trapped in a home worth less than they paid."
"Already, lenders have seized 630(cq) houses this year, up from 129 in all of 2006, guaranteeing that 2007 will be the bitterest year for homeowners since the county began keeping computer records in 1964."
"Another 400 troubled properties are on the market, and lenders are threatening 300 homeowners a month with foreclosure if they can’t bring their loans current. Last year lenders averaged 93 foreclosure threats a month."
"Nor is there any hope that the shakeout will soon be over."
"Next year interest rates will adjust upward for the first time on many of the 1,148 properties bought with risky loans in 2006. One-fourth of these homeowners could lose their homes, the U.S. Department of Housing and Urban Development said." (See PDF for reset schedule)
“We are going to have waves of foreclosures,” said economist Christopher Thornberg, who tracks the Sonoma County economy and predicted the current real estate crunch. “This thing has a long ways to go before it shakes out.”
"Most high-rate borrowers in 2005 and 2006 said they had annual incomes between $100,000 and $200,000."
"However, many borrowers exaggerated their incomes to qualify for loans, sometimes at the direction of their brokers and lenders. During the housing boom, many lenders did not require borrowers to submit documents proving they earned enough to afford the monthly payments."
(so we know those who lied, which is 9 out of 10, could not afford the home they were buying. As their toxic loans reset they will be even less able to feed their alligator.)
"Rippling outward, hundreds of mortgage and real estate workers in Sonoma County are losing their jobs. Dozens of lenders nationwide are bankrupt, or laying off thousands of people, and those that remain have stopped lending except to the most creditworthy borrowers. Meanwhile, pensions, 401(k) plans, mutual funds and banks are losing billions of dollars, as the mortgages they hold lose value."
(oops... all these lost jobs can't be good. people without jobs might find it hard to pay their mortgage.)
"In Sonoma County in 2005 and 2006, prices jumped 69 percent in three years." (again... due to lax lending standards, the madness of crowds, and fools and greater fools anxious to play the musical chairs ponzi scheme where debt = wealth. How you like me now, huh?)
"Many people, with good credit and bad, grabbed whatever loan terms they could get just to snag a house before prices and interest rates escalated beyond their reach. Many took adjustable-rate loans, even though interest rates were rising."
"Their plan was that home values would keep going up and they would refinance out of the high-rate loan in a couple of years."
"They were helped by sales people who raked in six-figure incomes getting borrowers to accept high-rate loans, and by lenders who made a bundle selling the high-yield loans to Wall Street investors unaware of the risk. Interest rates on these loans have turned out to be 2 percent to 3 percent higher than a conventional loan."
"Some buyers dearly wanted to own their own home. Others simply wanted to get rich quick. Some didn’t understand the terms of their loan or the risk they were taking. Others just hoped they could get in and get out before the bubble burst."
"The unraveling of years of easy money, fueled by record low interest rates and promiscuous lending, has begun."
'“A lot of people were gambling, playing the revolving refinance game. Now that the music has stopped playing, all sorts of people are standing with no chair. These people are in big, big trouble,” said economist Thornberg, who is the founding partner of Beacon Economics in San Rafael and Los Angeles."
Something I have noticed that will only add to the pain and the time it takes for reality to set in here in Sonoma County... is the realtwhore PR engine, the Press Democrat seems to take the position that the bubble was really confined to 2005- 2006 and caused really by the Latinos and a few others taking out Subprime loans.
Oh my, but they do like perpetuating stereotypes here don't they? As long as they keep reporting like that, the Boobus Sonomanus will pretend it is not happening to them. It is. It is happening all over the county because fundamentally the high majority of people buying were playing a ponzi scheme where they bought houses they could not afford. Indeed, my prediction is the subprime components are going to turn out to be but a drop in the bucket here in Sonoma County.
It will turn out that the biggest boobs, fools and greatest fools will be the stupid people who had good credit scores, but still made stupid decisions to take out loans for more than they could afford to repay. Those will be the ones that bring it all crashing down. Of course, they will even then, try to blame it on someone with tanner skin than their own. Such is the way of Sonoma County.