Housing bubble 2.0

[Legacy User]

http://www.nationalreview.com/article/4 ... fannie-mae

What's the difference between a brain damaged gerbil and Washington DC?

The gerbil can still learn from bad experience.

[Kodiak]

Lot of good points in that article, but 20% down on a first home can be tough to save when you consider home prices have been going up but wages haven't. You can afford the mortgage payment - hell you're probably even paying more already in rent each month - but saving $20k or more isn't easy.

I think the bigger problem is interest rates. More mortgages are capped, but many people still can't afford their interest rate doubling from 3% to 6%. Maybe borrowing requirements should be higher for people wanting to do ARM's - people still think or are convinced they'll be making more in 5 years to absorb a significant rate increase, and this is often not true.

[SteelPro]

Lot of good points in that article, but 20% down on a first home can be tough to save when you consider home prices have been going up but wages haven't. You can afford the mortgage payment - hell you're probably even paying more already in rent each month - but saving $20k or more isn't easy.

I think the bigger problem is interest rates. More mortgages are capped, but many people still can't afford their interest rate doubling from 3% to 6%. Maybe borrowing requirements should be higher for people wanting to do ARM's - people still think or are convinced they'll be making more in 5 years to absorb a significant rate increase, and this is often not true.

I believe to get a low down government backed mortgage you have to do a fixed rate loan. The LTV on Fannie and Freddie ARMs are 90%. Those extremely low down 97% LTV products are only for fixed rate mortgages. The other thing to note is mortgage insurance is still required on anything over 80% LTV to help cover the risk. Keep in mind I'm not a mortgage pro but I have consulted in a marketing capacity for mortgage clients.

[Kodiak]

The LTV on Fannie and Freddie ARMs are 90%.

But that's still a problem almost however you look at it. Besides PMI being literally for poor people (buy a cheaper house, you financial dumbass), payment and approved loan amounts should really be based off the higher or max interest rate.

3% to 6% is nothing historically on interest rates, but it nearly doubles the payment and that has to be very tough on anyone who didn't plan around the 6% rate.

There are lots of reasons for doing an ARM, but as is usually the case with finance and economics most people have no business messing around with stuff they are almost completely clueless aboutl

[Legacy User]

Bigger issue is that the historic progressions of college, house, etc simply don't apply anymore...

This is bad advice for most people for a multitude of reasons, but no one wants to talk about it.

[Legacy User]

Because few adults have any other blueprint for success in their arsenal and people are creatures of habit not imagination.

I openly question this and people look at me as I were a religious infidel in Riyadh.

For example, rather than laying out 250K for college, lend your kid that money to buy a duplex and rent out a unit. Or both units and move in at the right time. While studying say, computer programming at a non-college.

While on every level that makes more sense that 7 years of college learning nothing except how to be unhappy from the Melissa Clicks of this world, that conversation gets shut down quickly.

http://www.msn.com/en-us/news/crime/miz ... smsnnews11

BTW, this phenomenon has everything to do with why Mike Tomlin refuses to learn from bad experience.

[SteelPro]

The LTV on Fannie and Freddie ARMs are 90%.

But that's still a problem almost however you look at it. Besides PMI being literally for poor people (buy a cheaper house, you financial dumbass), payment and approved loan amounts should really be based off the higher or max interest rate.

3% to 6% is nothing historically on interest rates, but it nearly doubles the payment and that has to be very tough on anyone who didn't plan around the 6% rate.

There are lots of reasons for doing an ARM, but as is usually the case with finance and economics most people have no business messing around with stuff they are almost completely clueless aboutl

The point I'm making is the ARM isn't really an option unless you are bringing 10% down to the table or going through a non-GSE. So to your earlier point. The requirements are higher for those that want an ARM.

[Legacy User]

The global elite are officially insane:

https://www.businesscycle.com/ecri-news ... ig-to-fail

What person in their right mind would invest in a negative interest bond?

[955876]

You raise rates to slow down an overheated economy. We do not have that, the opposite is actually true. Especially when you factor the currently low inflation numbers. Especially in energy.

Could be wrong but I believe that rates were raised not for text book reasons but so the current admin can claim how "strong" the economy is heading into elections. Can't make that claim if we don't get the interest rate hikes to support the claim.

And yes I'm aware the executive branch doesn't set monetary policy. Or at least is t supposed to

[jeemie]

People everywhere are slowly waking up to the fact that economic growth in perpetuity is not possible...that there are finite limits to growth that we are now starting to butt up against.

But they will resist that idea for as long as possible because to admit it means admitting a fundamental restructurIng of the economy is in order, and that transition will be painful.

[Legacy User]

"But they will resist that idea for as long as possible because to admit it means admitting a fundamental restructurIng of the economy is in order, and that transition will be painful."

Globalization succeeded for a while because the low cost of everything at WalMart sort of offset the loss of US manufacturing jobs. That process has reached its natural limit.

The investment banks, the multinationals and the Davos crowd will fight any restructuring with everything they have. They won't lay down like the middle class did.

Look for worldwide negative interest rates by the end of the year. The only people I can imagine investing in that shit would be sovereign funds where the agenda is other than ROI.

What Disney did with H1B hiring and firing of American workers ought to be a major campaign issue for anyone who is serious about winning.

You can't encourage teens to go into STEM fields, then cut them off at the knees when they are 23.

Oh, and fuck everything that Mack Zuckerberg stands for.

[Kodiak]

But they will resist that idea for as long as possible because to admit it means admitting a fundamental restructurIng of the economy is in order, and that transition will be painful.

It's mostly demographics - when your population starts aging, growth starts slowing.

Otherwise, globalization has a ton to do with it. Our growth is slower because emerging economies are taking more and more of that global growth.

Those are far and away the two biggest factors, but no one has a solution to them and so they distract us with other "problems" they intend to "fix".

[jeemie]

But they will resist that idea for as long as possible because to admit it means admitting a fundamental restructurIng of the economy is in order, and that transition will be painful.

It's mostly demographics - when your population starts aging, growth starts slowing.

Otherwise, globalization has a ton to do with it. Our growth is slower because emerging economies are taking more and more of that global growth.

Those are far and away the two biggest factors, but no one has a solution to them and so they distract us with other "problems" they intend to "fix".

I wasn't just talking about our economy. I was talking about global economic growth.

[Legacy User]

I agree. I wonder how much of the global debt trap is simply being papered over by sovereign funds buying each other's shit. Not that the Fed didn't do that here to the tune of 4 trillion. Yet we can't have an audit.

[Kodiak]

I wasn't just talking about our economy. I was talking about global economic growth.

In many developed economies, even China and other developing economies, the labor force is aging and shrinking. That's a pretty massive offset to productivity gains. Just saw a study from McKinsey that claims global GDP will decline 40% to 2.1% without productivity improvements.

And people are living longer....they retire and consume (less than when they were working), but also drain social/entitlements while producing nothing.

What happens? Well you had 10 people working to support 15 (including retirees), and now you have 9 working to support 20. Everyone feels poorer. And by the way, 2 more of those jobs go overseas to developing economies. Now you have 7 working to support 20 and everyone feels even poorer (except for those in the developing economy).

Definitely a transition, as well, in the global economy with resources pouring into developing countries. There's a lag, perhaps a generation or more, before those populaces really get cranked up as global consumers driving growth to provide an ROI on all that investment.

[BethlehemSteel]

so this leads into why our food is genetically altered (to make us sick and die), and the big pharma is pushing new meds to cure illness while killing you as a side effect....all to better GNP

that should be a presidenital debate topic.

[Legacy User]

Lot of good points in that article, but 20% down on a first home can be tough to save when you consider home prices have been going up but wages haven't. You can afford the mortgage payment - hell you're probably even paying more already in rent each month - but saving $20k or more isn't easy.

I think the bigger problem is interest rates. More mortgages are capped, but many people still can't afford their interest rate doubling from 3% to 6%. Maybe borrowing requirements should be higher for people wanting to do ARM's - people still think or are convinced they'll be making more in 5 years to absorb a significant rate increase, and this is often not true.

Geez a couple can’t put together 20k after say two years. Then there is something wrong going on there. Either the on near min wage jobs and part time (thanks you know who) or they are just into parties and toys a little too much.

28 bucks a day folks and 2 years later you have 20k, comon.

***************************************************

Of course the real problem in '08 was the derivative market. That time the Rating Agencies rated the CMOs AAA which threw off all the actuarial risk numbers on the CMOs. In turn it made the actuarial risk numbers for all the CMO insurance, futures, options, swaps etc wrong. In turn actuarial risk numbers for the futures, options, swaps etc on all the CMO insurance, futures, options, swaps etc. were all wrong. That made the 1.4 quadrillion in gambling debts go all caddywhompus.

Ofc ourse we have teh same large derivative bubble just waiting for someone to make a spark.

Way back when, if the Clinton Administration and the Republican congress didn't kill Glass Steagall (basically Sheriff Andy taking away Barney's bullet) none of this would had happened. Or at the very least if the Gordon Gecko investment banks went tits up it wouldn't have affected the larger economy in anywhere near the way it did in 08.

Oh yeah forcing Freddie and Fanny to force banks to lend to bad risks didn’t help either. It was basically the fuel for the fire.

Of course if they didn’t pass NAFTA along with GATT WTO rework then 1/3 of Mexico’s population wouldn’t had been uprooted and headed north either. Lost of swinging a hammer type jobs went from supporting a family to cash withe undocumented family supported by tax payer funded welfare. In essence profits subsidized by the taxpayer from a shrinking tax base due to losing those millions of paystubs that pay taxes at a working class wage rate.

Today, TPP threatens to move maybe 50 or 100 million people here from for example Asia making $125/wk and replacing millions that make a good middle and upper middle class wage with benefits that currently work in white collar jobs not excluding the entire medical industry which includes your local hospital.

So why would they come here working for below subsistent wages? Well I’ve seen it first hand.

1-They are young (naturally adventerous) so they get to see America
2- They get cost of living which is 4 times or more their regular salary

So they get together, 4 to a one bedroom apartment in a low cost shaky apt complex. Furnished from Goodwill and the dollar store and then pocket as much money as they can. They go home in a few years and elevate their standard of living to upper middle class.

Meanwhile they pay no income tax, soc security, Medicare, Medicaid. Minus the cost of living big corps makes big profits off this.

What about Americans?

Blue Horseshoe Loves Blue Star Airlines? Not this time, Blue Horseshoe Loves the American Middle Class.

So maybe a lot of people cant put it all together but most know something is wrong. So that’s why so many like someone that says he wants to make America great again.

[R_S]

Geez a couple can’t put together 20k after say two years. Then there is something wrong going on there. Either the on near min wage jobs and part time (thanks you know who) or they are just into parties and toys a little too much.

28 bucks a day folks and 2 years later you have 20k, comon.

Dead on the money. People with 10k of credit card debt at 19.99% APR are still out at bars buying 6 dollar beers and 10 dollar cocktails, then financing a $30,000 4wd SUV that gets 15 MPG that will never leave the pavement instead of paying for the 5 year old subcompact for $7500 that drives at 40 mpg. These are some of the same people who complain about how the middle class are being squeezed and they have it so rough...and it's so hard to get ahead. Cry me a river.

[Kodiak]

Dead on the money. People with 10k of credit card debt at 19.99% APR are still out at bars buying 6 dollar beers and 10 dollar cocktails, then financing a $30,000 4wd SUV that gets 15 MPG that will never leave the pavement instead of paying for the 5 year old subcompact for $7500 that drives at 40 mpg. These are some of the same people who complain about how the middle class are being squeezed and they have it so rough...and it's so hard to get ahead. Cry me a river.

Saw one survey estimating 75% of people live paycheck-to-paycheck....INCLUDING 1/3 of households with earnings over $75k.

People just don't live within their means, nor do they have basic financial sense. It's criminal that one can go through high school and college without even one course in personal finance/economics.

But, and it's related to the above, take a couple that might have $200k in student loans, and socking away $6k each into a 401k to get a company match (not that many people are smart enough and disciplined to do that). That's a huge chunk of disposable income.

You're right, of course. People buy too much car, buy or rent too much house....whip out the plastic for major purchases rather than saving the money. I CANNOT BELIEVE the people I see cry about smartphone subsidies or payment plans - if you don't have $600 cash for a smartphone YOU CANNOT AFFORD IT, and probably many other things.

On the other hand, I think locking up tens of thousands of dollars in a house is dumb and risky. Interest-only mortgages are great IF one is financially prudent and disciplined. Why would I want all that money tied-up in my house - what if I'm out of work for 12 months or have unexpected medical bills? But why miss out on an appreciating asset (over the long-run) when I could be paying the same IO mortgage as I would in rent (after-tax)?

[Kodiak]

Of course the real problem in '08 was the derivative market.

Yes and no. It was a major contributing factor, as were the ratings agencies you mentioned....along with Fannie and Freddie and a govt "mandate" for home ownership far in excess of what is stable. The easy money from the Fed was really the gasoline on the fire, though.

Still, despite all that the slide would have been stopped dead by insurance. Problem was the contagion stemming from cross-default risk. The infamous counter-party risk, which the banks should have been and probably were aware of. If AIG doesn't fail I don't think we have a meltdown (of course, they had to fail because Party A failed meaning AIG didn't have the money to pay Party C).

[Legacy User]

Global debt/GDP is something like 350%.

There is no "nice" way out of that.

[Kodiak]

Global debt/GDP is something like 350%.

There is no "nice" way out of that.

286%, but total govt debt is "only" 58% of global GDP. But 45% is financial debt, which I believe is basically deposits.

Total debt has increased @ 225% since 2000, but that's kind of to be expected with where rates are. What's scary is with that much debt, rates might continue to be artificially depressed....and that punishes savers.

We're living in a world now of pumped/inflated asset prices. Govts can't kick-start price inflation because it's all funneling into assets. So expect more stock and housing and other asset bubbles.

[R_S]

Dead on the money. People with 10k of credit card debt at 19.99% APR are still out at bars buying 6 dollar beers and 10 dollar cocktails, then financing a $30,000 4wd SUV that gets 15 MPG that will never leave the pavement instead of paying for the 5 year old subcompact for $7500 that drives at 40 mpg. These are some of the same people who complain about how the middle class are being squeezed and they have it so rough...and it's so hard to get ahead. Cry me a river.

Saw one survey estimating 75% of people live paycheck-to-paycheck....INCLUDING 1/3 of households with earnings over $75k.

People just don't live within their means, nor do they have basic financial sense. It's criminal that one can go through high school and college without even one course in personal finance/economics.

But, and it's related to the above, take a couple that might have $200k in student loans, and socking away $6k each into a 401k to get a company match (not that many people are smart enough and disciplined to do that). That's a huge chunk of disposable income.

You're right, of course. People buy too much car, buy or rent too much house....whip out the plastic for major purchases rather than saving the money. I CANNOT BELIEVE the people I see cry about smartphone subsidies or payment plans - if you don't have $600 cash for a smartphone YOU CANNOT AFFORD IT, and probably many other things.

On the other hand, I think locking up tens of thousands of dollars in a house is dumb and risky. Interest-only mortgages are great IF one is financially prudent and disciplined. Why would I want all that money tied-up in my house - what if I'm out of work for 12 months or have unexpected medical bills? But why miss out on an appreciating asset (over the long-run) when I could be paying the same IO mortgage as I would in rent (after-tax)?

Agree on the smartphone....not to mention there are a dozen MNVO's now that allows someone to pay 20/month or less for unliminited talk and text with there very own smart phone that can be had used for $100 or less if one can suffer through the shame and embarrassment of using a 2-3 year old model.....gasp!

Anyway, the old buying vs renting question I think we can agree that it 98% depends on where you live. If you live in small or medium town america and don't have your head up your ass, it's absolutely feasible and intelligent to buy a home even with 50k combined income. If you live in DC or within a 20 mile radius and it cost 400k for a 3 bedroom 2 1/2 bath townhouse with 1300 sq ft and a $100/month HOA, well, in many cases renting is the more prudent financial decision.

But for those that might complain about the cost of living (most Americans). It's a free country. Do your research, start applying for jobs and move your ass somewhere where you can get ahead!

[Legacy User]

Another thing people (especially sub-40s) forget when making these home purchases is that it will seriously inhibit your career mobility.....and don't think for a moment employers don't know when someone potentially on the move/wanting salary increase is pinned down by a house.

People want to believe their decision will work out and their new position will be everything they ever wanted. Maybe it will be, wait 5 years to find out. I see this mistake ALL the time.....

[R_S]

great point superk. when I was 27-28, single, and fairly new to my position, I got a lot of the "are you going to buy a house" "it's a buyers market" "you'll never get prices like this again" etc. But the last thing I wanted to do at that point was dig roots that deep. Even if you get lucky and are able to sell your house fairly quickly, any equity achieved is up in smoke with realtor fees and moving expenses.

[Thrillsseeker]

^^^^^ I left a global company to a very small company for a promotion.

No relo. (so I negotiated a whopping 5,000 sign on bonus)

Lived with my mother inlaw until I couldn't fucking stand it any more and had to get out. Found a house I'm on a land contract with. I had put into the deal with the stipulation of selling my home where I moved from.

After going months with no sale and no renters- two mortgages was/is fucking killing me.

Now I have a renter in their but god forbid she pays her rent on time.

Never again will I take a job without an all out relocation package.

Years of renting was way worth it. Two fucking mortgages is horrible.

[Legacy User]

And don't forget, RS, that if you are not a homeowner, you are cheaper for the company to assign to a sweet out of town deal than your competitor who is demanding relocation costs.

These are the things we should be taught in high school but are not.

Dirty little secret employers know but will never say...they want single healthy 30 year old white males (can't sue if fired) who are not tied down.

The ironic result of decades of (age and race and disability) antidiscrimination law.

[R_S]

True,

I'm now officially ready for some roots, and as a biz owner the thought of relocating makes my stomach turn. I'm actually actively looking at houses now and hopefully within a week or two of making an offer. My fear of commitment over the last 5-6 years has allowed me more time to save for a large down payment. The 15 yr fixed rate is your friend. I'm hoping to have it paid in 10 with a big middle finger to the bank and interest. Anyway, I stumbled upon this blog in the last year via a unrelated google search. I highly recommend. It's entertaining and informative. Especially if you're in your 20's and 30's. Read the first couple posts. This is one of my favorites.

http://www.mrmoneymustache.com/2011/09/ ... revisited/

[Legacy User]

http://www.bloomberg.com/news/articles/ ... st-in-2016

Well ain't that a bitch.

[Old School Steeler]

Been in RE for half century, done and seen it all. We ourselves are on a bubble, a caldera that could take it all down or quite the opposite. The elite globalists which include our current royal ruling class have intentionally stifled everything, even public education. If those crushed forces are allowed to flourish the improvements and innovations will be amazing. I've seen giant 3D printers that can build concrete structures in hours.

Been a RE contrarian. The development money now is allocated to apartments, I'll always believe in ownership. Practice discipline and purpose and you can still do it. It's amazing how much money people spend on stupid wasteful meaningless crap. I hope and pray we turn our current direction around.