Investors are again buying alt-a and subprime bonds:

"In early March, rising delinquencies caused a dramatic sell off in the bonds backed by mortgages to the borrowers with poor credit quality. Analysts predicted that the investor distaste for those mortgages would spread into the Alt-A market as well. Indeed, in the past week two New York lenders American Home Mortgage and M&T Bank said they would pull back from making loans to the Alt-A market because investors were willing to pay less for those securities.

But mortgage bond traders say investors, who seemed nervous about the bonds a month ago, in the past few weeks have been coming back to the market. "We are seeing demand for these bonds picking up again," said a bond trader at one of the largest mortgage lenders in the country. He said yields, which rise with investor concerns, on most Alt-A bonds are up less than one tenth of a percent."

Risky loans - alive and well - Apr. 10, 2007

funny money is still out there. see the grapevine and boker outpost. It only cost 450 basde points higher - that is it.

Mozo: Thanks for this : San Diego Source | San Diego Daily Transcript

If you plot in since 1982 you can tell clearly at what stage of the cycle we are in.

I still think that this time it is different (after all the 3 most important things in R/E are: Timing, Timing, Timing) and that what we see now goes beyong the usual biz cycle.

But in most of the country there's no rental housing that would meet the needs and reasonable wants of middle-aged, middle-class people, because the subsidies for "ownership" have led such people to "rent from the bank", and simultaneously have discouraged any professional landlords from dealing in housing appropriate to that market.

A year and a half ago I was seriously considering selling my home and renting while waiting for home prices to fall. But there were hardly any homes of any kind for rent, and none I would want to live in.

Now, there are scores of homes for rent, but all at asking rents as high as the bubble-price mortgage payments crushing their speculator owners. Of course they stand empty, and some of the owners will ultimately give in and rent for less than their cost. But would it be wise to rent from a landlord who's losing his or her shirt on the deal? If they can sell the place out from under you, they will. If they can't they may be foreclosed upon, and the bank will sell it out from under you. And what about repairs?

Robert,

I was being ironic.

Now how is this possible:

New-home sales rise, prices fall | Recordnet.com

home sale in Stockton are up for two years ?????

"Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida. In the Boston and Washington areas, the break-even point is about 4 percent....."

with numbers like this one from phoenix this seems highly unlikely......

Phoenix Home Sales: Worst March in Five Years" / housing doom

Phoenix Home Sales: Worst March in Five Years - Housing Doom

Phoenix Home Sales: Worst March in Five Years - Housing Doom

Tanta, the Washington Post clearly read an article of yours ... check out page 2 ...

Housing Boom Tied To Sham Mortgages - washingtonpost.com

Personally, I think all these people need to buy ESPlanner from whats his name in the article yesterday. It just so happens I'm selling them on Ebay if they're interested.

In fact, if you play around with the numbers, co-ops are about 25% overvalued compared to renting, and condos are even more overvalued. But, before I forget, Manhattan real estate never goes down. I wonder if that will hold true when the rest of the banking world joins Citibank in slashing and burning?

Ponzi,

What's interesting about that poll is that it also warned of a coming recession in December 2000, at a time when economists were still rating it a remote possibility. That is really a damning piece of data...

wcw,

Did you factor in upkeep, periodic remodeling, etc? Check out what it would cost to replace a roof on the average house in San Francisco. I guarantee you, it will cause you to recalculate a little bit. No one who brags about how much their house sold for ever mentions the $5,000 roof three years ago, the $4,500 for painting a year after that, the $300 visits from the plumber, the new furnace...

Plus, don't forget that if you don't own a house and itemize, you still get a $10,000 standard deduction.

If you have a huge income, say $250,000, and buy a $850,000 house in San Francisco, You might have $48,000 in interest decuctions, $15,000 in stat income tax, $5,000 in property tax, right? Wrong. You are in the Alternative Minimum Tax now. Everything over $54,000 will be taxed at 26-28%, you lose the 10% bracket entirely. This person will pay at least $10,000 more than the buy vs. rent calculators tell you...

You were right to rent, give it another year and it will be a no-brainer.

i dunno when i put in my house price and rents, assuming zero appreciation for my house and 3% inflation for rents, buying was better than renting after 4 years.

I was thinking about the whole wealth effect of homeowning last night.

Basically, what it comes down to is the inflation rate minus the appreciation in nominal home prices. If inflation is greater than home appreciation, the homeowner has the advantage of a fixed payment (assuming they took a conforming loan) and an appreciating asset, because sooner or later home prices will most likely catch up with over-all prices. If inflation was 5%/year over 5 years, but home prices averaged only 3%, there's a good chance over the next period home prices will rise faster than inflation. Meanwhile the renter's costs go up every year...

Using that equation, buying a home in 2004-6 was a horrible investment, 2000-2003 was merely awful....

The one thing that would surely prevent a crisis is for the inflation rate to increase to a point where nominal prices go up a little bit or at least hold steady. Inflation would need to be about 10% probably.

That's not likely, but if things turn bad, the pressure to inflate is going to be incredible, and 2008 is an election year...

CR -- When I clicked on your link: Is it Better to Rent or Buy? from the NYT, the article was dated April 18, 2007.

Do you happen to have the link for the business section/stock page of this paper? It would really come in handy...

Thank you.

"Now how is this possible:

http://www.recordnet.com/apps/pb...100308/-1/ A_BIZ

home sale in Stockton are up for two years ?????"

Well, they're up -- but with falling prices.

Stockton has a lot of low-income, not well educated, working-class people, many with "real" jobs that just don't pay that much. You've also got ethnic groups like the Hmong (resettled Cambodians), where an extended family goes into business or buys property together.

Could be that they see the falling prices as "their chance" to get into housing, and the friendly mortgage brokers are offering them what looks like a sweet deal that won't blow up for, oh, at least two years.

I know anecdotally that sales in Modesto, 40 miles or so down the road, are not good. But Modesto was still seen as as a commute location for jobs on the outer rim of the East Bay, and many new developments were created with that in mind. I don't know where you'd commute to from Stockton. Certainly not the Bay Area, unless you loved living in your car.

I commented after an earlier post that the Chinese worker worked no harder than his American counterpart. He certainly works no better.

There is so much I could add - I live in that world, see the results of this daily.

But in most of the country there's no rental housing that would meet the needs and reasonable wants of middle-aged, middle-class people.

The numbers are not great. I've always considered owning SFH as an inflation hedge. I just ran the IRR on our first 10 years owning rental SFH and got 5.2%. We did not buy at the absolute bottom of that market, but it was competitive. Since we just refinanced, I have current appraisals. I assumed realized liquidation value was 90% of the current appraised value. Over the last 10 years, the value of the property has increased about 3%/year. The rent has increased about 1.5%/year. Extrapolating out another 10 years gives us an IRR of 6.4%.

If we could manage the houses ourselves, the IRR would be much better.

Something that just struck me as funny/ironic, for those of you who like that sort of thing.

The implication of the original story (and the tone of most of the responses) is that ordinary people think like...economists! Am I the only one here who lives in a real world and not an artificial ivory-tower world, LOL!?

I have never once bought a home believing that it was going to be a good investment, never once made a dispassionate rent/buy decision based solely on the numbers. I've never yet lived in a place where owning was cheaper than renting (at least initially), and more than once been temporarily "upside down" on my mortgage. And there's an excellent reason for it.

When a couple (typical homeowner) is looking to raise a family or when a family is expanding and needs more space, they aren't thinking OR behaving in the totally rational way that economists always (incorrectly) assume they are. They want a house that they can make into a home, a value not easily quantifiable but it's DEFINITELY part of a home-price.

Sebastia