And it's only going to get worse. Maybe the local governments can lower property taxes (for everyone)as an incentive to keep people from "walking away."
Something needs to be done to get the rent vs. ownership model closer to equilibrium than it is. Otherwise ghost towns are going to become more common.
Peak to trough OT: November 1923
Loaf of Bread Index: 200,000,000,000 marks.
At November 1923, the height of the crisis, one American dollar was worth roughly 4,200,000,000,000* marks.
The horror stories about this hyperinflationary period are true. Menus in restaurants bore no prices because the currency fluctuated so rapidly that a meal could triple in value between ordering it and and paying for it. Paper currency was used to keep fires because the bulk of the currency was greater than the wood that it bought. If our sense of the culinary was higher at the time, we might have made pesto out of it.
Is there a way to figure out what percentage of mortgages are for second homes? Some 40% of mortgages in 2006 were supposedly for second homes. If so, poetic justice has ensued.
The difference between now and other inflationary periods is the absence of wage inflation. This will keep a cap on prices.
In the 1970's, wage inflation got out of control and people anticipated higher prices and thus purchased "in the now" to save money. Now people are cutting back, using credit cards to meet their expenses. Once this gets tapped out...welcome to Japan.
I think the second home market is really going to get hammered. If you are under water on a vacation home, you are much more likely to walk.
A few neighborhoods I follow in Florida are starting to bear this out. Prices are down at least 25% and foreclosures and short sales are rising weekly on very high end properties.
safe_as_apartments writes:
Where's O-Joe with some good news?!
Did you ever read Stephen King's early novella, The Mist?
O-Joe and Sebastian are in the storeroom in the back, having hung themselves with their own belts. Secretly, deep inside, they know what's coming but can't face it.
My concern is that the debt/equity exposure is not a decaying time series from times past when people paid of their mortgages over 30-40 years. A lot of obese borrowers are standing on the scale with their anorexic neighbor, dividing by two and calling themselves average.
Keerist, whoodathunk we would be talking about oil prices falling to $101.84/bbl?!
"Gas and diesel prices are following light, sweet crude oil, which spiked to a new record of $103.05 overnight before falling 75 cents to settle at $101.84 a barrel on New York Mercantile Exchange."
We attribute most of the dramatic rise in foreclosures in 2006 and 2007 in Massachusetts to the decline in house prices that began in the summer of 2005. Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages.
... negative equity is a necessary but not sufficient condition for default, because selling dominates defaulting if a borrower has positive equity.
With a 20% price decline (peak to trough), I calculated 13.6 million homeowners with zero or negative equity; Zandi's updated numbers put that at 13.8 million.
hmmm... That's suspiciously close. Has any one seen CR and Mark Zandi at the same time?
CR where are the Friday graphs? They are quite nice to look at esp. when they can be enlarged. I have a cold one waiting just for this auspicious occasio
Analysis of U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units.
NAR President Thomas M. Stevens from Vienna, Va., said the term "second home" appears to be something of a misnomer. "The fact that so many owners of vacation homes and investment property have additional properties is a bit of a revelation," said Stevens, senior vice president of NRT Inc.
(quote)
An unexpectedly high number of vacation-home owners, 21 percent, own two or more vacation homes. In addition, 34 percent of vacation-home owners report they own two or more investment properties.
More than half of investment property owners, 53 percent, own two or more investment homes and 12 percent own two or more vacation homes.
Analysis of U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units.
(end quote)
So 37% of the house in this report are not primary residences.
What proportion of those will fall on the market as the "investment" value of those properties continues to fall?
Really bad news for the overbuilt, over-sold and vacation areas.
I believe because they tried lots of "economic stimulus" measures during their housing downturn / crash.
Any chance we could learn from their mistakes and not throw outselves out of the pan and into the fire debt wise?
I realize more and more how our government controls our fate and how little control we have over our government. They control the markets and our debt, not us. We're just along for the ride. Decisions to invest in inflation hedges like commodities are all really bets on Fed Board actions on the reserve rate.
It's going to be worse. It's going to go on and on and on, as more and more Baby Boomers find their "retirement" was in the CDO/SIV/VRDN markets...) - broward horne
Thier "retirement" was also in real estate "investments" like the oversized houses they stretched to afford with the intention to sell it in a few years and downsize to the condo, with the balance "to live on". They will still be downsizing but perhaps not exactly as they planned.
X writes:
And it's only going to get worse. Maybe the local governments can lower property taxes (for everyone)as an incentive to keep people from "walking away."
Something needs to be done to get the rent vs. ownership model closer to equilibrium than it is. Otherwise ghost towns are going to become more common.
The last four years I've been showing people how insane the price-to-rent ratio had become, and based on that I predicted major drops in house prices. The response was always "no, prices can't fall that much."
This whole "youwalkaway.com" phenomenon is something I never saw coming, but it could go a long way toward bring prices down and bringing the price-to-rent ratio back to historic levels.
That is, unless the government enacts "wewontletyouwalkaway.gov"
Sorry if this has been asked and answered before, but are these calculations based on equity extractable by sale of the property, which would have to be net of transaction costs (say ~6% for commissions and the like), or just balance sheet equity (sales price - outstanding loan balance)?
Are there stats on what percentage of the 13.8 million are close to retirement?
About 3 weeks ago I was at an industry thingie. I was speaking with the woman seated next to me, economy, work these days, concerns about savings for retirement, etc. She said her retirement was in her home. Thank god she couldn't read the thought bubble over my head, "poof."
This is nothing like Japan. We are in for a world of hurt, but Japan was a real estate bubble the likes of which have never been seen in the modern world. There real estate was STILL the most expensive per square foot on earth even AFTER it dropped to 10% of its former value.
I found this # on the web : 2.2 mil foreclosure filings in 2007. So, with 5,636,000 upside down (or even) mortgages ay the end of 07 lets say 1/4 of the 5 .6 mil are ending up in some state of foreclosure. IF we hit a 30% drop in values that would put us with around 5 mil in foreclosure (5 mil in that ONE YEAR that the 30% bottom is reached - totaling up the years surrounding the "bottom" year to get the total number of foreclosed homes out there boggles my mind). ALSO the 5 mil number is probably a great understatement as the AMOUNT these people are upside down will be that much greater causing a higher % to default.
How long will it take to sell off the inventory with that many houses flooding the market? What will that do to prices?
Someone check my math and tell me what I am missing cause I am drinking.
I found this # on the web : 2.2 mil foreclosure filings in 2007. So, with 5,636,000 upside down (or even) mortgages ay the end of 07 lets say 1/4 of the 5 .6 mil are ending up in some state of foreclosure. IF we hit a 30% drop in values that would put us with around 5 mil in foreclosure (5 mil in that ONE YEAR that the 30% bottom is reached - totaling up the years surrounding the "bottom" year to get the total number of foreclosed homes out there boggles my mind). ALSO the 5 mil number is probably a great understatement as the AMOUNT these people are upside down will be that much greater causing a higher % to default.
How long will it take to sell off the inventory with that many houses flooding the market? What will that do to prices?
Someone check my math and tell me what I am missing cause I am drinking
Can I get a bail-out on my Citibank shares? On the shoes I bought which pinch so I don't wear them? On the beer I drank which gave me a hangover? On the losing lottery ticket?
No? The screw the homeowners, lenders, and investors whose greed, ignorance and stupidity created all this.
What? The entire world financial system is about to implode? Oh, sorry, yeah, well, ahem...carry on destroying the dollar and inflating to double digits.
Meanwhile house prices will still drop another 35%. AFFORDABILITY!
Where's O-Joe with some good news?!
The economy's killing me!
Scuba gear might help.
And it's only going to get worse. Maybe the local governments can lower property taxes (for everyone)as an incentive to keep people from "walking away."
Something needs to be done to get the rent vs. ownership model closer to equilibrium than it is. Otherwise ghost towns are going to become more common.
Peak to trough OT: November 1923
Loaf of Bread Index: 200,000,000,000 marks.
At November 1923, the height of the crisis, one American dollar was worth roughly 4,200,000,000,000* marks.
The horror stories about this hyperinflationary period are true. Menus in restaurants bore no prices because the currency fluctuated so rapidly that a meal could triple in value between ordering it and and paying for it. Paper currency was used to keep fires because the bulk of the currency was greater than the wood that it bought. If our sense of the culinary was higher at the time, we might have made pesto out of it.
Hyperinflation in Weimar Germany
http://everything2.com/index.pl?node_id=1270273
Go look at The Bread Index!!!
Thank God I didn't buy back in 2004, when I started looking, and stopped. Finally in life I learned something.
I was a dotcommer, and watched that all go belly up.
Wooo Hooo!
Is there a way to figure out what percentage of mortgages are for second homes? Some 40% of mortgages in 2006 were supposedly for second homes. If so, poetic justice has ensued.
God Help Us All (SOS)!
The difference between now and other inflationary periods is the absence of wage inflation. This will keep a cap on prices.
In the 1970's, wage inflation got out of control and people anticipated higher prices and thus purchased "in the now" to save money. Now people are cutting back, using credit cards to meet their expenses. Once this gets tapped out...welcome to Japan.
NSA,
I think the second home market is really going to get hammered. If you are under water on a vacation home, you are much more likely to walk.
A few neighborhoods I follow in Florida are starting to bear this out. Prices are down at least 25% and foreclosures and short sales are rising weekly on very high end properties.
Some 40% of mortgages in 2006 were supposedly for second homes.
Do you have a source for this? That is an incredible statistic, if true.
Burning my money on rent never felt so good!
safe_as_apartments writes:
Where's O-Joe with some good news?!
Did you ever read Stephen King's early novella, The Mist?
O-Joe and Sebastian are in the storeroom in the back, having hung themselves with their own belts. Secretly, deep inside, they know what's coming but can't face it.
Love this blog. Let's all have a good w-e!
CR,
Do you know the % of homeowners with zero or neg equity that historically default vs the % currently (or expected to be) defaulting?
So true, X.
I don't know many people who would feel confident asking for a raise due to rising prices. Most are thankful just to have a job right now.
safe_as_apartments -
you know it. It's tough out there. People I know are scared sh*tless.
My buddy in Seattle and I were drinking and he spouted that statistic. Probably not very reliable, but it sounded good after several beers.
Friday is more cowbell day.
MarkIt roundup:
ABX: About 1/3 new lows
CMBX: A skosh under 1/2 new highs
LCDX: looks to be opening up, afternoon closing not yet
CDX: Look to be opening up agai
I was a dotcommer, and watched that all go belly up.
Wooo Hooo!
Tony Shifflett | 02.29.08 - 4:24 p
Don't celebrate too soon, Tony. This one might take us all out - even the innocent bystanders.
Linear distribution? Normalized distribution?
My concern is that the debt/equity exposure is not a decaying time series from times past when people paid of their mortgages over 30-40 years. A lot of obese borrowers are standing on the scale with their anorexic neighbor, dividing by two and calling themselves average.
Keerist, whoodathunk we would be talking about oil prices falling to $101.84/bbl?!
"Gas and diesel prices are following light, sweet crude oil, which spiked to a new record of $103.05 overnight before falling 75 cents to settle at $101.84 a barrel on New York Mercantile Exchange."
CRead, great question. Although I don't have those numbers, here is a related Fed report: Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures
We attribute most of the dramatic rise in foreclosures in 2006 and 2007 in Massachusetts to the decline in house prices that began in the summer of 2005. Subprime lending played a role but that role was in creating a class of homeowners who were particularly sensitive to declining house price appreciation, rather than, as is commonly believed, by placing people in inherently problematic mortgages.
... negative equity is a necessary but not sufficient condition for default, because selling dominates defaulting if a borrower has positive equity.
Best Wishes.
With a 20% price decline (peak to trough), I calculated 13.6 million homeowners with zero or negative equity; Zandi's updated numbers put that at 13.8 million.
hmmm... That's suspiciously close. Has any one seen CR and Mark Zandi at the same time?
energyecon - gosh no graphs?
CR where are the Friday graphs? They are quite nice to look at esp. when they can be enlarged. I have a cold one waiting just for this auspicious occasio
Analysis of U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units.
NAR President Thomas M. Stevens from Vienna, Va., said the term "second home" appears to be something of a misnomer. "The fact that so many owners of vacation homes and investment property have additional properties is a bit of a revelation," said Stevens, senior vice president of NRT Inc.
Real Estate Data, Statistics, Demographics, & Trends: NAR Current News
Going to be a lot more than 13%--according my latest property tax valuation, house prices around me fell by 6%.
I can eat 50 eggs.
Ya' mullethead!
The sulphur alone...stay upwind.
From the rport referenced by NSA:
(quote)
An unexpectedly high number of vacation-home owners, 21 percent, own two or more vacation homes. In addition, 34 percent of vacation-home owners report they own two or more investment properties.
More than half of investment property owners, 53 percent, own two or more investment homes and 12 percent own two or more vacation homes.
Analysis of U.S. Census Bureau data shows there are 6.8 million vacation homes in the United States and 37.4 million investment units in addition to 74.6 million owner-occupied units.
(end quote)
So 37% of the house in this report are not primary residences.
What proportion of those will fall on the market as the "investment" value of those properties continues to fall?
Really bad news for the overbuilt, over-sold and vacation areas.
House prices have much further to fall.
WSJ:
Berkshire Hathaway profit fell 18% in the fourth quarter. Full article to follow shortly.
Damn, who was it who said they were buying AIG yesterday. Big ouch.
And the freaking homebuilders are claiming about the 14th round of people trying to time the bottom.
Do we have any estimates for the number (or percentage) of peak "negative equity" owners in the 1990-1995 housing crash?
It sounds like most here are expecting The Rapture any day now.
US 67% Debt/GDP ratio
Japan 160% Debt/GDP ratio
I believe because they tried lots of "economic stimulus" measures during their housing downturn / crash.
Any chance we could learn from their mistakes and not throw outselves out of the pan and into the fire debt wise?
I realize more and more how our government controls our fate and how little control we have over our government. They control the markets and our debt, not us. We're just along for the ride. Decisions to invest in inflation hedges like commodities are all really bets on Fed Board actions on the reserve rate.
There's no free market.
But what does Conjure bag expect?
Though I have to say, the posts on hoarding are a bit overwrought.
I think all Americans should be allowed to put their retirement money into the stock market, instead of Social Security.
Oh, yeah...and go shopping.
stealthwii writes:
US 67% Debt/GDP ratio
Japan 160% Debt/GDP ratio
Hell, we can beat that with our arms tied behind our backs! If we can get GDP down about 30%, it will be a lot easier.
Must be 'Fruitcake Friday'.
There's won't be a Rapture.
It's going to be worse. It's going to go on and on and on, as more and more Baby Boomers find out their "retirement" was in the CDO/SIV/VRDN markets.
Shnaps writes:
u r a psycho
I can eat 50 fruitcakes.
Bloomberg: Berkshire's Net Falls 18% on Lower Insurance Prices
I think all Americans should be allowed to put their retirement money into the stock commodity market, instead of Social Security.
It's going to be worse. It's going to go on and on and on, as more and more Baby Boomers find their "retirement" was in the CDO/SIV/VRDN markets...) - broward horne
Thier "retirement" was also in real estate "investments" like the oversized houses they stretched to afford with the intention to sell it in a few years and downsize to the condo, with the balance "to live on". They will still be downsizing but perhaps not exactly as they planned.
X writes:
And it's only going to get worse. Maybe the local governments can lower property taxes (for everyone)as an incentive to keep people from "walking away."
Something needs to be done to get the rent vs. ownership model closer to equilibrium than it is. Otherwise ghost towns are going to become more common.
The last four years I've been showing people how insane the price-to-rent ratio had become, and based on that I predicted major drops in house prices. The response was always "no, prices can't fall that much."
This whole "youwalkaway.com" phenomenon is something I never saw coming, but it could go a long way toward bring prices down and bringing the price-to-rent ratio back to historic levels.
That is, unless the government enacts "wewontletyouwalkaway.gov"
That is, unless the government enacts "wewontletyouwalkaway.gov"
that's good man.
It sounds like most here are expecting The Rapture any day now.
i'm beginning to think, mp, that we've been "left behind"
Sorry if this has been asked and answered before, but are these calculations based on equity extractable by sale of the property, which would have to be net of transaction costs (say ~6% for commissions and the like), or just balance sheet equity (sales price - outstanding loan balance)?
Are there stats on what percentage of the 13.8 million are close to retirement?
About 3 weeks ago I was at an industry thingie. I was speaking with the woman seated next to me, economy, work these days, concerns about savings for retirement, etc. She said her retirement was in her home. Thank god she couldn't read the thought bubble over my head, "poof."
peterbob - I think I beat you to that prediction.
This is nothing like Japan. We are in for a world of hurt, but Japan was a real estate bubble the likes of which have never been seen in the modern world. There real estate was STILL the most expensive per square foot on earth even AFTER it dropped to 10% of its former value.
Also, I can eat 50 jalapenos.
I found this # on the web : 2.2 mil foreclosure filings in 2007. So, with 5,636,000 upside down (or even) mortgages ay the end of 07 lets say 1/4 of the 5 .6 mil are ending up in some state of foreclosure. IF we hit a 30% drop in values that would put us with around 5 mil in foreclosure (5 mil in that ONE YEAR that the 30% bottom is reached - totaling up the years surrounding the "bottom" year to get the total number of foreclosed homes out there boggles my mind). ALSO the 5 mil number is probably a great understatement as the AMOUNT these people are upside down will be that much greater causing a higher % to default.
How long will it take to sell off the inventory with that many houses flooding the market? What will that do to prices?
Someone check my math and tell me what I am missing cause I am drinking.
I found this # on the web : 2.2 mil foreclosure filings in 2007. So, with 5,636,000 upside down (or even) mortgages ay the end of 07 lets say 1/4 of the 5 .6 mil are ending up in some state of foreclosure. IF we hit a 30% drop in values that would put us with around 5 mil in foreclosure (5 mil in that ONE YEAR that the 30% bottom is reached - totaling up the years surrounding the "bottom" year to get the total number of foreclosed homes out there boggles my mind). ALSO the 5 mil number is probably a great understatement as the AMOUNT these people are upside down will be that much greater causing a higher % to default.
How long will it take to sell off the inventory with that many houses flooding the market? What will that do to prices?
Someone check my math and tell me what I am missing cause I am drinking
Can I get a bail-out on my Citibank shares? On the shoes I bought which pinch so I don't wear them? On the beer I drank which gave me a hangover? On the losing lottery ticket?
No? The screw the homeowners, lenders, and investors whose greed, ignorance and stupidity created all this.
What? The entire world financial system is about to implode? Oh, sorry, yeah, well, ahem...carry on destroying the dollar and inflating to double digits.
Meanwhile house prices will still drop another 35%. AFFORDABILITY!
cr, have you run the numbers on 40-90% price declines.
I realize more and more how our government controls our fate and how little control we have over our government.
rc helicopter
Tactical Flashlights
video game