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View Full Version : Soft landing? Over to you, embarrassed homeowners



S
04-29-06, 02:46 AM
The government will level the playing field by allowing the individual consumers who bought into this craziness to sink like stones - and for the most part privately, in dire embarrassment at having been used so badly. (Well, the government will also tinker around with just how much inflation they can let bloom to create the 'soft landing' they promise. But that's another story ... )

Essentially, the government used consumer naivete - the real estate 'boom' and resulting equity-suck - to sponsor the recovery from the stock market bust, as Eric points out. Risk moved from your bank right into your bathroom. (Or your 4 1/2 bathrooms.) There's no real third act here to turn to (equity markets and homeowners having given their all for the first two acts), so the government's vested interest at this time is in managing perceptions even if it can't manage the economy.

I predict the government will try to manage a series of stepped 'hard landings' for the victims - spreading the pain and testing awareness as it goes, and adding liberal amounts of exciting distractions in the form of oil price blather and more 'must do' wars, and it will call that a soft landing. Consumers probably will abet this approach: They tend not to round themselves up in groups and issue forecasts about just how hysterical they are about their debt levels, and they don't spend as much time with PowerPoint as bankers and economists.

The damage to individual consumers also is very difficult to track through traditional metrics; it tends to emerge anecdotally and slowly through poorly reported mainstream media stories that are by and large as inaccurate as was the giddy and bleating reportage on real estate nirvana.

The jig will be up when the packaged securities from all these suicide mortgages start ripening, rotting, and falling off the investor tree.

Here in metropolitan Washington, D.C., the bumpy rump of King George's realm, we suddenly have tons of hugely expensive housing for sale ... for a very long time. Why does it not sell? Because owners won't lower their prices because they can't: They now owe well more to the banks than their houses are worth because they stripped the equity like peeling paint on a barn. But are they vocal about it? No. They'red darned red-faced. Some may rent to groups of 30 or so immigrants to try to make future payments. (That would be the new-new non-conforming neighborhood.)

I don't call them 'homeowners' or even 'bank-owers.' I refer to them as renting a house from the bank, and many of their leases are about to expire.
... it's going to get very ugly.

EJ
04-29-06, 10:25 AM
S, good points. Same happened after the stock market crash. Only years later did anyone admit how much money they'd lost. The guys running the game can be pretty certain of the aspect of human nature that no one brags about their losses. Not until recently did I tell anyone that in March 2000 when I wrote the Bankrate.com article essentially telling everyone wh owould listen to get the hell out, I was buying USPIX.

As for not avoiding the Orwellian term "home owner" and using instead "bank ower" about four years ago we were using the term "renting from the bank" but wanted something shorter and more pithy.

"Unlike Internet stocks, you don't own your house. The bank owns your house until you pay off the mortgage. While you're buying your house from the bank by paying off the loan, you get to live in the house. Alternatively you can earn income from the house by renting it for a higher rate than the bank charges you to rent it from them, plus property management costs, to someone who isn't in a position to rent a house from a bank themselves. Either way, it's not your house. This fact is often lost on so-called "home owners" until one of three events happens. The most rare of events is that they pay off the mortgage. Then they truly become Home Owners. A more frequent event occurs when they have to move for some reason -- for a new job, for example. Let's say they have to do this after the real estate market has fallen. Assume the resale price of "their" house is now 20% below the price they paid, a typical modest decline in a housing market downturn. Now they're out part of their deposit and maybe some equity too and they're bummed out. But they're not half as bummed out as the owners of homes purchased with 10% or less down, representing nearly 60% of all homes purchased in the past three years. These folks will have to pay the bank another 10% or more than they got from selling the house just to pay off the mortgage. In the past when groups of home owners with limited equity were faced with this situation they did not sell their homes at a loss and pay the bank off, too. They dropped their keys off at the bank and said, Adios"

http://www.itulip.com/qc082002.htm

The FDIC claims that only 10% of bank-owers are at risk, but that must assume no significant change in unemployment and incomes.

BK
04-29-06, 11:06 AM
Employment declines will cause the Hard landing - because its all about CASH FLOW. The Bureaucrats at FDIC and most home owners know nothing about 'CASH FLOW". The FDIC bureacrats get a Pay check every week and they need not save for Retirement because of any overly generous Pension plan we Tax Payers provide. Meanwhile ....all those Citizens who are not government employees.....
.
Most over indebted home owners parents held jobs with Pensions. So, they never taught their Children to always have ample CASH on hand for a Crisis (or an Asset that can be quickly converted to CASH). Meanwhile they struggle to pay their bills and they count on Real Estate appreciation as part of their Retirement Savings plan. Meanwhile the Cash Flow to maintain the house and pay Property Taxes goes up at double digit rates. Lack of Cash Flow is always what cuases a Hard Landing in Real Estate. - Has a soft landing in Real Estate EVER happened!

MANY Home Owners regularly vote for Property Tax increases that will increase their future CASH FLOW needs. THIS IS INSANE!

I don't know any businessman that would choose to increase in short term cash needs without a corresponding increase in Cash Flow.

I think the best current measure of Infaltion is the increase in Property Tax rate in the last four years - most Owner-Bank renters happily have voted to increase the money they pay in Property Taxes to Enhance the Value of their property!
So, lets not just blame President George Bush - there is plenty of over spending at a local town level that will create a hard landing. Because "My Child deserves the Best Education possible"-

PS: I am a fiscally conservative Parent of a four year old.

Jim Nickerson
04-29-06, 03:22 PM
I'm 64 and I don't know if I am done with being stupid. When I try to fathom the mess in which this country has gotten itself, I blame most of it on the stupidity or better, ignorance, of our populace.

I have been fortunate to have traveled the US in the past 5-6 years by driving around it. The only billboard that sticks in my mind, I wish I had stopped and photographed it, was "Go to the mall and buy Stuff."

I wish I could claim I was never guilty of buying stuff because for a moment I wanted it. Only when I quit work and downsized, at age 50, did it begin to dawn on me how much STUFF I had bought that I did not need. How for most of my life till then as a wage earner, I NEVER differentiated between "needs" and "wants."

I have thus far lived to see some amazing things: the high interest rates of the 70's, the 87 crash, the advent of the computer, 9/11, the market mania that began to end in 2000, and the lowest interest rates during my adult life.

At 64, the only "interesting" thing to which I have not been exposed is a depression. I perhaps am fully documenting my stupidity by thinking I really want to see the US suffer a depression. I do not know if I can survive it or not, but this country and its people need something like a "reset" button on an electronic programmable device, and perhaps a depression would be like pushing a reset button.

We need to re-order our thinking about what is valuable besides obtaining and storing stuff. If there is anything certain about the US, it is that it cannot continue as it has gotten itself to this point. I welcome any argument that it can continue.




Jim

Jim Nickerson
04-29-06, 03:39 PM
One other point that applies not only to the US, but to the world .

We need many fewer people on this planet. I do not have the least idea economically what a negative birthrate would do to the future of the US, but something, perhaps another flu pandemic, needs to occur all over the world.

The only reason to send monies to Africa is so that some people will survive to produce future generations of children who do not have food, water, shelter, medical care, prospects for educations and work, so that they can in turn produce similar offspring so that hand-wringing organizations can appeal to the rest of the world to send money in future years when the rest of the world is exposed pictures of the poor children

We are only slightly better off in this country, producing way too many kids that have only prospects of poverty, little education, no health care, no job prospects, abusive drug exposure, and no welfare if there is no means by which the government can provide it.

Jim

S
04-29-06, 04:24 PM
Employment, Incomes and Cash Flow, Oh My!

So, the soft/hard landing is dependent on employment, incomes and cash flow. Huh. What is that I hear? The distant, silent scream of dawning awareness? No, wait, it’s snoring.

Let’s take 10 of my best friends, all of whom are highly educated, savvy, and currently good earners. Heck, some of them (including me) are even former millionaires! Let’s do a brief market research analysis on their perceptions of the economy and their own financial situation:

Number of my 10 friends who:

Took a job paying half (or less) of their pre-2000 incomes without reducing demand for cash flow: 5

Think it’s still all about domestic growth stocks and have packed those 401Ks to ‘maximize growth’, baby: 7

Have ever spent five hot minutes thinking about risk mitigation: 1

Have converted any of their investment assets to pure liquidity and refuse to even enter into a cell-phone contract: 1

Have replaced full-time, benefit-rich jobs with ‘outsourced’ forms of employment: 3

Said to hell with it and decided raising their kids was a better investment: 1

Went from two-earner households to one-earner households without being able to reduce their cost basis: 4

Refinanced their mortgage at least twice to add ‘outdoor living spaces,’ mega-kitchens, sauna bathrooms with an average of 8 shower heads, tiled the garage with slate, or just blew the money on one last Boxster: 6

Think their real estate agent and mortgage banker are still their friends: 6

Are currently having panic attacks over the price of their gasoline, heating supplies, organic food, health insurance and co-payments, prescription medical costs, etc., or are in shock over the increase in their property taxes, and have lost some significant level of pension assurance: 8

Are excited to take part in the new trend toward ‘consumer directed health plans’: 2

Recognize that the above means they have suffered a horrific loss of ‘income’ even if their paycheck stayed level: 6

Bought an overpriced house since 2001 and are inclined to say, “Well, it will still go up in the long run”: 4

Unloaded an overpriced house and banked the proceeds: 2

Walked away from an overpriced, over-leveraged house and said, “This is going to hurt like hell for a while but at least I’m leading the trend”: 1

Understand that consolidation in the telecommunications, energy and financial services sector – as well as the ‘revised’ bankruptcy laws -- will truly screw them in short order: 3

Are enjoying the low-low price of designer clothes via China but have a poor understanding of what the import/export imbalance is doing to our economy right now: 7

Think that the U.S. still manufactures anything domestically that can be used to leverage our economy against emerging nation economies and production: 7

Actually believe that the 'Knowledge Economy' has enough deliverables to make us competitive: 9

Can explain why their future health and welfare are far more dependent on the Chinese central bank’s investment policies than whatever nitwit we elect president when we’re done with George: 1

Think the biggest problem they face with gasoline is price rather than supply: 8

See no connection between long-term Republican political strategy, the “No Child Left Alone to Read” act and local property tax increases: 9

Still think the Consumer Price Index actually reflects what they need to worry about: 9

Believe every word that the Fed says: 9

Rent storage space for all their extra stuff: 3

Are smart enough to read iTulip: 1 (but I’m working on it)

roscoe
05-03-06, 08:03 PM
"I'm 64 and I don't know if I am done with being stupid."

Hmmm, lets expose that thought to the light of your following comments.


"I wish I could claim I was never guilty of buying stuff because for a
moment I wanted it."
"Only when I quit work and downsized, at age 50, did it begin to
dawn on me how much STUFF I had bought that I did not need."
"We need to re-order our thinking about what is valuable besides
obtaining and storing stuff. "

In other words, you have and your fun, and now that you are in the last quarter of your life, you will tell others not to do as you did.



"The only reason to send monies to Africa is so that some people will
survive to produce future generations of children who do not have
food, water, shelter, medical care, prospects for educations and
work, so that they can in turn produce similar offspring so that
hand-wringing organizations can appeal to the rest of the world to
send money in future years when the rest of the world is exposed
pictures of the poor children"

Environmentalists do a bit of hand wringing as well it seems.





"We are only slightly better off in this country,

Slightly? Can I get some of what you are smoking?




"........producing way too many kids "

We don't need the bird flu, hell, we are killing them by the millions in the womb. You should be extremely encouraged.




"......and no welfare if there is no means by which the
government can provide it.

The government never has, never will provide anything.





"We need many fewer people on this planet."

You first.





"but something, perhaps another flu pandemic, needs to occur
all over the world."

Nice. Your logic being, I assume, that hopefully something horrible will happen, so as to prevent something horrible from happening.

Jim Nickerson
05-04-06, 02:51 AM
I'm 64 and I don't know if I am done with being stupid.

Hmmm, lets expose that thought to the light of your following comments.


I wish I could claim I was never guilty of buying stuff because for a
moment I wanted it.
Only when I quit work and downsized, at age 50, did it begin to
dawn on me how much STUFF I had bought that I did not need.
We need to re-order our thinking about what is valuable besides
obtaining and storing stuff.

In other words, you have and your fun, and now that you are in the last quarter of your life, you will tell others not to do as you did.

Jim response. No, I did not have my fun, I went through 25 years of prodigality which in retrospect was a period that I look back on as having behaved stupidly. Others can do as they please, which is what most Americans attempt to do--not necessarily to their long term benefit. I quit wasting a lot of stuff at age 50, hopefully that was about half way through my life. Having spent four years in a residency as a mentor, it seems that only about 80% of the students may have benefitted from attempts to teach them things NOT TO DO. Seemingly the most impressive learning experiences come from committing all the errors oneself, errors that experience has taught wiser people not to continue to make. A wise dictum is: good judgement comes from experience, and experience comes from bad judgement.



The only reason to send monies to Africa is so that some people will
survive to produce future generations of children who do not have
food, water, shelter, medical care, prospects for educations and
work, so that they can in turn produce similar offspring so that
hand-wringing organizations can appeal to the rest of the world to
send money in future years when the rest of the world is exposed
pictures of the poor children

Environmentalists do a bit of hand wringing as well it seems.

Jim response. I fail to get your point.





We are only slightly better off in this country,

Slightly? Can I get some of what you are smoking?

Jim response: 45-48 million people in the US do not have health insurance coverage, which says to me some significant proportion of that number are not receiving what should be one of the major benefits of a developed and vastly rich society. Many of those live in poverty, eat poorly, are poorly educated, participate in crime, are recipients of criminal acts, and are unemployed. In this country they are at the bottom of the heap. You are right, they probably are in many ways better off than many others on the planet, but I can imagine they are no less chagrinned than poor people everywhere, perhaps even a bit more when they look about themselves at all the excesses and wastes in our society. The poor in this country are a blot on any notion that the democratic capitalistic society in which we live is good for everyone.




........producing way too many kids

We don't need the bird flu, hell, we are killing them by the millions in the womb. You should be extremely encouraged.

Jim response: I am not encouraged at all by whatever number of fetuses are aborted or that have never been allowed to be conceived in this country. I think our country would be worse off than it is if there were NO birth control available. Despite whatever I see as beneficial to birth control here, it is of no value in most poor countries, where too many lives have not been made better by foreign aid during my last 50 years. What you descibe as killing them by the millions, I see as womens' rights to control their own destinies. The notion of killing fetuses seems to be a religious one. All theistic religions I know about are faith-based. It seems highly characteristic of Christianity and Islam, just to site examples, that the fact of faith-based is forgotten, as is the possiblilty of what is accepted on faith my turn our not to be fact. Despite there being in this country freedom of religion, which to me means freedom from religion if one so chooses, it seems a certainty that the 80% or so of Christians in this country would in a moment impose their notions of morality on the population as a whole, and that would be just dandy with them.



......and no welfare if there is no means by which the
government can provide it.

The government never has, never will provide anything.

Jim response. Here, you are just not correct.




We need many fewer people on this planet.

You first.

Jim response. All of our times will come soon enough through one manner or another. If my demise tomorrow would make a real dent in the problems of too many people, too many poor people, then I would shoot my brain out now. My death would amount to nothing with direct regard to solving the problem.





but something, perhaps another flu pandemic, needs to occur
all over the world.

Nice. Your logic being, I assume, that hopefully something horrible will happen, so as to prevent something horrible from happening.

Jim response: What exists right now in the world is bad, really bad, unfortunate with regard to the unchecked population growth. It may well continue until it reaches what most people will come to describe as horrible. I am saddened when peoples' lives are ended prematurely by earthquakes, volcano eruptions, floods, droughts, tsunamis, hurricanes. Most of these devastations would take fewer lives if there were fewer people, but most societies do not have the will to engage in mandated population control, mainly because of one or another religious lobby. If Africa serves as an example, then it seems that the people in societies lack the self-discipline that would limit bringing newborn into the world when there is absolutely no way in which they can be provided those things that would make life the fantastic experience it should hopefully be for all humans--and I am not inferring a life-style of the rich and famous or even whatever might be the average American life style. The bottom line as I see it is that most societies are not going to curb population growth, and because there is a limit to how many people this planet can support, population control will only come about by something like a serious influenze pandemic, which if I am alive to see it I will be the first to say it is horrible even if it gets me too. Warren Brussee in a book on a coming second depression theorizes that in this country life could get to be so bleak that people with any sense will refrain from bringing new children into such a bleak period, thus bringing about a period of zero population growth, but if that were to happen here, it might or might not have any world wide implication.

Thank you for your thoughts.













Jim

jeffolie
05-05-06, 03:21 PM
This year, no less than 22 percent of Americans' $8.7 trillion in mortgages will reset rates - and the extra burden will be big.

A typical three-year ARM will go from 3.6 percent to 5.6 percent, forcing a borrower with a $500,000 mortgage to pay an extra $800 a month in interest. Delinquencies are already rising rapidly.


THE REAL ESTATE JOBS ARE STARTING TO TERMINATE - 4100 GONE THIS WEEK

The problems at Merit are peaking just two days after Ameriquest, one of the country's largest lenders to people with blemished credit, announced the elimination of about a third of its work force — 3,800 people.

Kirkland-based mortgage company Merit Financial will meet with its 300 employees this morning to let most of them go as executives decide whether to file for bankruptcy, according to two people familiar with the company's plans.

Merit Financial will keep a skeleton staff to process loans in progress, but otherwise will be working to liquidate the company, said the sources.

Merit was founded in 2001, making residential loans during a hot real-estate market. It grew quickly from a company with 12 employees and $50 million in loan volume its first year to passing the $2 billion mark in cumulative loans last May, after just four years in business, according to the company's Web site. At that time, it had 430 employees and planned to hire more.