Originally Posted By Mr X As an old investment advisor friend of mine on another board LOVES to say, SD..."woulda, coulda, shoulda". p.s. now that I DID, I just hope it doesn't turn around and bite me in the butt. Pretty much the only way (I think) I can sustain real heavy loses with no way to back out quick here is if one of my companies gets bought out (I'd be screwed...and Countrywide DOES have some rumors), or if the Fed quickly lowered rates (maybe push up that May schedule?)...
Originally Posted By mrichmondj << I think that Countrywide, WaMu, GMAC, and many of the other lenders that did sub-prime lending for a portion of their business will eventually come out okay, although there's still probably a lot of room for a temporary dip. They still have plenty of normal business that they do such that the sub-prime problem will not put them out of business. >> The real problem comes when the distress in the sub-prime markets filters over into the broader economy, then all businesses struggle. Automobiles have already taken a hit now that mortgage equity withdrawals are slowing with the decline in housing prices. No more cash out refinancing to buy the Cadillac Escalade is just a small part of the many problems at GM.
Originally Posted By SuperDry <<< p.s. now that I DID, I just hope it doesn't turn around and bite me in the butt. Pretty much the only way (I think) I can sustain real heavy loses with no way to back out quick here is if one of my companies gets bought out (I'd be screwed...and Countrywide DOES have some rumors), or if the Fed quickly lowered rates (maybe push up that May schedule?)... >>> Of course, you can prevent that from happening by closing out your short positions on Monday. The decision you have to make is whether you want to realize the gains you've made so far, or keep them in play on the table, thus putting them at risk for the potential of future gains.
Originally Posted By SuperDry <<< The real problem comes when the distress in the sub-prime markets filters over into the broader economy, then all businesses struggle. Automobiles have already taken a hit now that mortgage equity withdrawals are slowing with the decline in housing prices. No more cash out refinancing to buy the Cadillac Escalade is just a small part of the many problems at GM. >>> I think that most of the discussion on this thread so far has been limited to the real estate loan market, but you definitely make a valid point. How much of the broad economy has been based on wildly-appreciating home values, and now that that has stopped, what will be the broader impact? You mention GM and the Escalade. I find it difficult to have much sympathy for GM, when they based their business on selling products that many buyers probably really couldn't afford to buy.
Originally Posted By Mr X "Innovation has brought about a multitude of new products, such as subprime loans and niche credit programs for immigrants. . . . With these advances in technology, lenders have taken advantage of credit-scoring models and other techniques for efficiently extending credit to a broader spectrum of consumers. . . . Where once more-marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately. These improvements have led to rapid growth in subprime mortgage lending . . . fostering constructive innovation that is both responsive to market demand and beneficial to consumers." (emphasis added) -Remarks by Chairman Alan Greenspan on Consumer Finance At the Federal Reserve System’s Fourth Annual Community Affairs Research Conference, Washington, D.C. April 8, 2005
Originally Posted By Mr X Well, maybe it IS the mortgage companies' fault, but it sure sounds like they had the blessing and the encouragement of the government behind them. Like Jon said...what were they thinking??
Originally Posted By DlandDug No expert here, but as an interested observer, I believe that the "rosy economic forecasts" have been propped up for over a decade. In the Roaring 90s it seemed like everyone was making money, and spending it just as fast. Two stats that nobody wanted to talk about dealt with personal savings and bankruptcy. Personal savings hit an all time low at some point in the early 90s. I have no idea if they have improved, or continued to fall. Personal bankruptcy, on the other hand, hit an all time high. AND, for the first time ever, creditors with "A" ratings began declaring bankruptcy. This was supposed to make lenders more careful, if not downright timid. But from what I read here, all is forgotten in another orgy of wishful thinking. On a higher level, I attribute this all to an inherently selfish generation that believes you can have it all right now, and when things don't work out, there is no sense of personal responsibility. Just my opinion, of course, but Clinton's over arching message was, "The measure of what is right or wrong is what you can get away with." Bush's is, "The measure of what is right and wrong is what you believe it to be." Neither message bodes well in the world of real economics.
Originally Posted By mrichmondj Incomes aren't keeping up with inflation. In general, our population can't afford the same things that were affordable 10 years ago or 20 years ago. The only way to make up the difference is easy credit. Folks like Alan Greenspan understand this. What happens when the electorate wakes up one morning and realizes that their standard of living doesn't add up to what they had in the past? I expect it will be a bad period of time for the U.S. government when Americans realize that they have been pacified for the past 20 years on cheap and easy credit while we continued to ship more our industrial wealth and economic strength overseas.
Originally Posted By SuperDry <<< Remarks by Chairman Alan Greenspan on Consumer Finance ... Well, maybe it IS the mortgage companies' fault, but it sure sounds like they had the blessing and the encouragement of the government behind them. >>> You do know that the Federal Reserve is privately owned and is technically not part of the government, don't you? (Note that I've already put on my tinfoil hat and have ducked and covered)
Originally Posted By mrichmondj The Federal Reserve Chairman is a political appointee, nominated by the President.
Originally Posted By SuperDry <<< The Federal Reserve Chairman is a political appointee, nominated by the President. >>> This is true, but doesn't address what I said in #29 one way or the other. Having said that, please note that I don't have any problem with the way things are with the Fed, and certainly don't subscribe to any conspiracy theories regarding the Fed. I was responding only to what X said.
Originally Posted By DouglasDubh <Incomes aren't keeping up with inflation.> I don't think that's true. I know wages weren't keeping up with inflation earlier in this decade, but that was due in large part to spiraling health costs, so total benefits to employees was keeping up with inflation. However, I believe that has changed in the last year or so, as wages have been going up faster.
Originally Posted By vbdad55 <Sub-prime and other creative financing have been key in the current housing price run up we have been seeing across the country. And its not just deadbeats. People with good credit have been buying homes in expensive markets using crazy ARM loans that had teaser rates that are starting to expire. With dropping prices and tightening requirements, many of these borrowers are unable to refi their ARMs (which are currently more expensive than fixed rate loans. I think that we are seeing the tip of the iceberg.< lots of issues I believe just at the tip of the iceberg. 1. People with 0 interest loans on homes that have depreciated 15%-20% and now are worth less than they owe 2. ARM's coming due - and let's face it, home mortgage loans really haven't escalated much yet - only about 1% from 24 months ago on fixed rates -- if theose people haven't refinanced their ARM's yet before inflationary pressures force prime up ( and quickly) - they likely aren't smart enough to own a home 3. Same people who have upside down mortgages likely have huge credit card debt that has increased significantly in the last 24 months Now the irony of some of this - some of the same banks that are goin to get bit in the butt on mortgage defaults, are going to do so to people they have issued multiple - high limit credit cards to -- so when they default - the banks will lose twice -- and maybe rightfully so
Originally Posted By DouglasDubh <So has inflation.> Not according to this article. <a href="http://www.ohio.com/mld/ohio/2007/01/16/business/16488897.htm" target="_blank">http://www.ohio.com/mld/ohio/2 007/01/16/business/16488897.htm</a>
Originally Posted By DouglasDubh <People with 0 interest loans on homes that have depreciated 15%-20% and now are worth less than they owe> This is only a problem if they overspeculated, or if they lose income. Otherwise, they can continue to make their payments until the worth of their house bounces back.
Originally Posted By vbdad55 ^^^^ true, but if there is a change in income - and regardless of the gov's numbers on unemployment, there is still a lot of lay off activity going on - there will be no borrowing against the equity to carry them over
Originally Posted By mrichmondj << Not according to this article. <a href="http://www.ohio.com/mld/ohio/2" target="_blank">http://www.ohio.com/mld/ohio/2</a> 007/01/16/business/16488897.htm >> Thanks for the link, Doug. Some interesting information here. For example: "The Labor Department reported Thursday that the Consumer Price Index climbed by 2.5 percent last year, the best showing since 2003 and nearly a full percentage point lower than the 3.4 percent jump in 2005." I guess this means that you believe the CPI is an accurate gage of inflation. I don't. I recommend you read the following link to educate yourself on how the Labor Department's figures don't reflect the actual cost of goods at all. <a href="http://bigpicture.typepad.com/comments/2007/01/your_personal_i.html#comments" target="_blank">http://bigpicture.typepad.com/ comments/2007/01/your_personal_i.html#comments</a> "Gasoline pump prices did jump again in December, helping push up the CPI by 0.5 percent for the month. But analysts said gasoline costs should fall again in coming months, reflecting recent declines in crude oil, which closed Thursday at $50.48 per barrel in New York trading, far below the $77-plus record set in July." Oops, so much for gasoline prices falling further this year. We're above $3 a gallon here in California, with no relief in sight. I guess those smart economists interviewed for this news article are going to have to recalculate their 2007 forecast! "That combination of lower inflation and faster wage growth translated into an increase in inflation-adjusted weekly wages of 2.1 percent for the 80 percent of the work force in nonsupervisory positions. The increase was the biggest gain since 1997 and followed three straight years in which wages, after adjusting for inflation, had fallen even as many businesses posted record profits." Great news for 2006! We'll need about six more years of that to make up for the abysmal wage advances during the past 6 years! Good thing wages did sneak up a bit in 2006, because ExxonMobil needs consumers to have cash to pay for that $3 gasoline. "The CPI report showed that core inflation, which excludes energy and food costs, rose 2.6 percent last year, compared with 2.2 percent gains in both 2004 and 2005. It was highest increase since a 2.7 percent jump in 2001." Wow! So, the headline number is that CPI was the best in 3 years, but when you drill down to the actual data that counts -- core inflation -- it was the worst in five years! What point are you trying to make here, Doug? I guess you agree with me now! Good to know we're on the same page! Anyone who thinks inflation hasn't advanced more than wages needs to have their head examined. You can trot out pages of government data that supports just about every economic theory on the planet. I read these articles everyday. Of course, maybe you could also trot out the bogus news clippings from the National Association of Realtors which have pretty much claimed the housing "bottom" during every month of the past year -- only to be followed by more bad news in subsequent months.
Originally Posted By SuperDry <<< <People with 0 interest loans on homes that have depreciated 15%-20% and now are worth less than they owe> This is only a problem if they overspeculated, or if they lose income. Otherwise, they can continue to make their payments until the worth of their house bounces back. >>> I'm not sure how carefully you chose the word "overspeculated." There are a great many people that bought more house than they could afford in recent years, especially in places like California. Whether it be for speculation or just to have a place to live, a great many people in CA cannot afford their mortgage payments using traditional rules. I don't know how else to put it when the median home price is 10x the median income. People by the millions have purchased homes where the payments necessitate that they put all other expenses on credit cards (which was fine while housing prices continued to escalate and they could refi every 18-24 months and roll their credit card balances back into a new mortgage), and/or where their mortgage payments were artificially low due to an ARM teaser rate that cannot now be renewed because of tightened lending practices. I think that a great many people in these situations have yet had the other shoe drop, but will over the next couple of years. It shall be interesting to see.
Originally Posted By hopemax So, your best guess, how long and how bad do you guys think things are going to get? Mostly interested in how long. We aren't currently homebuyers but we want to be. The way prices of homes have climbed and the thought of a 20% down payment...We are living in Phoenix, but we didn't want to buy here because we knew we wouldn't be here permanently. Our plan is to either go back to Seattle or to Denver. Of course the market is very different (median single family home at $440K vs $235K). Now, we should have been saving instead of traveling to be ready to enter the market soon, but DL is only 6 hours away . Anyway, so if we buckle down and commit to saving to buy in 2-3 years...what are the odds we will have missed the boat?
