Real Estate Market / Inflation / Recession / Depression (Colorado Springs: mortgage broker, credit, home equity)

[froggin4colorado]

Amen Bob!

I am only 30 myself and hence why I occasionally throw a comment or 2 about Fountain. I think its a good area for young couples/families because of the affordablitity. It isn't the north end, no...and I totally agree with Mike from back East on his love for the north end. However, I will not be moving to the north end soon because I am just 30, just starting my career and wrapping up college. Once I pay off my student loan then I will think about "moving on up". I went to college on my own dime (no assistance from my parents what-so-ever), paid for my car(s), saved for my house, my parents do not babysit my kids, and I don't recieve financial gifts/help.
Guess this is my soap box because I do get annoyed when I listen to young couples talk about financial woes when I know their parents help them watch their kids, helped with their down payment to their "northgate" home, etc... Instead, I feel blessed with all that I have and I know we have everything we need (one another, a warm roof over our head, food in our stomach, and a wonderful church family).

One thing I do appreciate with the forum, or I guess I should say directly to Mike East, thank you for not dogging Fountain and claiming your love for the north end. It is hard to determine everyone's situation (in all aspects) through a forum like this and I think this one does a very good job informing the public well. I credit that to good, open minded posters/moderators.

*****jumping off of soap box, dusting off hands, taking a big drink of water, and crawling back into cave....********

[Mike from back east]

Originally Posted by froggin4colorado

Amen Bob!

I am only 30 myself and hence why I occasionally throw a comment or 2 about Fountain. I think its a good area for young couples/families because of the affordablitity. It isn't the north end, no...and I totally agree with Mike from back East on his love for the north end. However, I will not be moving to the north end soon because I am just 30, just starting my career and wrapping up college. Once I pay off my student loan then I will think about "moving on up". I went to college on my own dime (no assistance from my parents what-so-ever), paid for my car(s), saved for my house, my parents do not babysit my kids, and I don't recieve financial gifts/help.
Guess this is my soap box because I do get annoyed when I listen to young couples talk about financial woes when I know their parents help them watch their kids, helped with their down payment to their "northgate" home, etc... Instead, I feel blessed with all that I have and I know we have everything we need (one another, a warm roof over our head, food in our stomach, and a wonderful church family).

One thing I do appreciate with the forum, or I guess I should say directly to Mike East, thank you for not dogging Fountain and claiming your love for the north end. It is hard to determine everyone's situation (in all aspects) through a forum like this and I think this one does a very good job informing the public well. I credit that to good, open minded posters/moderators.

*****jumping off of soap box, dusting off hands, taking a big drink of water, and crawling back into cave....********

Excellent stuff! I'm 60 and did it on my own, save for good mentors along the way. My family lived in dumpy areas of Baltimore .... done the poverty tour, ain't going back. Spent 40 years "doing the George Jefferson" .... moving on up...

[hello-world]

Originally Posted by Bob from down south

Look, I lived in my share of dumpy apartments and trailers as a college student and as a twenty-something working my way up. Today, too many people expect to buy a nice house while they're just starting out...without those scrappin' years building up the means to do it--that means saving for years like Scrooge incarnate for a down payment, avoiding "stupid-tax" payments for things like new cars, credit card debt etc. The "American Dream" is not to be construed as an automatic birthright, payable on demand upon reaching adulthood.

"Safe and attractive?" A six-figure income is not needed in Colorado Springs for "safe and attractive," unless your expectation meter is laser-locked on the Joneses next door in their overleveraged McMansion, and more than likely they don't own a bit of it anyway.

Bob

i agree it's not to be construed as a birthright. it might also be interesting for you to look at costs of housing in, say, southern california (or even denver metro!), as a fraction of salary now versus 30 years ago. or to contemplate those that may not have the luxury of being able to scrap for years that, 30 years ago (or even 10 years ago), could have bought in and done ok, but cannot now. it's no secret that the cost of housing has skyrocketed for years, while salaries have not. it's not a complicated step to go from that to "well maybe fewer people - some of which may have a debilitating situation of some sort - can afford it directly due to that".

safe and attractive? i agree that people can lock into keeping up with the joneses, while even those that don't are far harder pressed to afford a lower middle-class home in a lower-mimddle class neighborhood in denver. and perhaps some of those people aren't interested in living in exurbia with all those "keeping up with the joneses". a 6 figure income is pretty exceptional. how about buying in at the median household salary of, say, $42000?

[Bob from down south]

Originally Posted by hello-world

i agree it's not to be construed as a birthright. it might also be interesting for you to look at costs of housing in, say, southern california (or even denver metro!), as a fraction of salary now versus 30 years ago. or to contemplate those that may not have the luxury of being able to scrap for years that, 30 years ago (or even 10 years ago), could have bought in and done ok, but cannot now. it's no secret that the cost of housing has skyrocketed for years, while salaries have not. it's not a complicated step to go from that to "well maybe fewer people - some of which may have a debilitating situation of some sort - can afford it directly due to that".

safe and attractive? i agree that people can lock into keeping up with the joneses, while even those that don't are far harder pressed to afford a lower middle-class home in a lower-mimddle class neighborhood in denver. and perhaps some of those people aren't interested in living in exurbia with all those "keeping up with the joneses". a 6 figure income is pretty exceptional. how about buying in at the median household salary of, say, $42000?

Well, it appears that we're in violent agreement here.

My first post in the thread was a refutation to a quote of Marianne Wagner's misapplication of statistics implying that things are just peachy in the COS RE market. They are most definitely not. The stats on her blog show average home prices (instead of the more accepted median price metric), which can be (and are) horribly skewed when volume is down and a few expensive properties sell. She shows average days on the market, but only for houses that sell, not for those that languish unsold for 6, 9 or 12 months or more before being taken off the market, and there are many.

But the bottom line, in COS and elsewhere, is that the removal of exotic and excessively risky (to the lender, that is) loan products, and a return to more traditional qualification standards, means that prices are destined to fall until median prices approximate those attainable with median incomes under conservative loan qualification guidelines. A $45K income is not going to buy you a $300K house, but it's going to buy you a lot more house in the next few years than it will today.

I think prices will be in decline for 3-5 years, unless something happens to accelerate things into a full-scale collapse. Those Gen X and Y types should be saving and waiting...

Bob

[jazzlover]

Originally Posted by Bob from down south

Well, it appears that we're in violent agreement here.

My first post in the thread was a refutation to a quote of Marianne Wagner's misapplication of statistics implying that things are just peachy in the COS RE market. They are most definitely not. The stats on her blog show average home prices (instead of the more accepted median price metric), which can be (and are) horribly skewed when volume is down and a few expensive properties sell. She shows average days on the market, but only for houses that sell, not for those that languish unsold for 6, 9 or 12 months or more before being taken off the market, and there are many.

But the bottom line, in COS and elsewhere, is that the removal of exotic and excessively risky (to the lender, that is) loan products, and a return to more traditional qualification standards, means that prices are destined to fall until median prices approximate those attainable with median incomes under conservative loan qualification guidelines. A $45K income is not going to buy you a $300K house, but it's going to buy you a lot more house in the next few years than it will today.

I think prices will be in decline for 3-5 years, unless something happens to accelerate things into a full-scale collapse. Those Gen X and Y types should be saving and waiting...

Bob

I agree with you. Most people in the real estate market today haven't seen an out-and-out crash in real estate before. Some, like me, endured that kind of crash over in western Colorado in the early 1980's after "Black Sunday," when Exxon pulled out of the oil shale project. It took about 10 years for the real estate market over there to recover from that. That was pretty much a local/regional phenomenon caused by a bubble in that market. What's happening now has the potential to be a national event with deep ramifications to the rest of the economy, just like the speculative bubble bursting in the stock market in 1929 sent the entire world economy into the Great Depression. I have said over and over that places like Florida, California, Arizona, Colorado, and others where real estate prices got completely out of sync with local incomes will probably fall the most. Colorado will likely get the double-whammy because so much of its economy is dependent on the real estate/construction/recreation funny money economy that really doesn't produce anything. It's kind of like a chain letter--things go fine until somebody figures out it's a scam and breaks the chain, then all hell breaks loose.

[hello-world]

Originally Posted by jazzlover

I agree with you. Most people in the real estate market today haven't seen an out-and-out crash in real estate before. Some, like me, endured that kind of crash over in western Colorado in the early 1980's after "Black Sunday," when Exxon pulled out of the oil shale project. It took about 10 years for the real estate market over there to recover from that. That was pretty much a local/regional phenomenon caused by a bubble in that market. What's happening now has the potential to be a national event with deep ramifications to the rest of the economy, just like the speculative bubble bursting in the stock market in 1929 sent the entire world economy into the Great Depression. I have said over and over that places like Florida, California, Arizona, Colorado, and others where real estate prices got completely out of sync with local incomes will probably fall the most. Colorado will likely get the double-whammy because so much of its economy is dependent on the real estate/construction/recreation funny money economy that really doesn't produce anything. It's kind of like a chain letter--things go fine until somebody figures out it's a scam and breaks the chain, then all hell breaks loose.

bob, jazzlover -

i agree. and, out of curiosity, it might be enlightening if you share your views on parallels between now and other "national economic events" you allude to. e.g., jazzlover has commented on parallels (and differences) between colorado of now and co of the 80's. what do you know about the 1920's relative to now? e.g., banking behavior, consumer credit, "economic bases", etc. then (or times "like" then) and now. how is the housing market woven into that then and now?

it sounds like you 2 have hunches that something like "more than just a recession" might be looming?

[Charles]

Originally Posted by hello-world

bob, jazzlover -

i agree. and, out of curiosity, it might be enlightening if you share your views on parallels between now and other "national economic events" you allude to. e.g., jazzlover has commented on parallels (and differences) between colorado of now and co of the 80's. what do you know about the 1920's relative to now? e.g., banking behavior, consumer credit, "economic bases", etc. then (or times "like" then) and now. how is the housing market woven into that then and now?

it sounds like you 2 have hunches that something like "more than just a recession" might be looming?

There was an outstanding article in today's Los Angeles Times and one in today's Denver Post that echoes a couple of these posts:

The new bubble-prone economy - Los Angeles Times

The Denver Post - Efforts to spark economy may be too little, too late

If you need a login and password for the LA Times (or many other online news sources) go to

Bugmenot.com - login with these free web passwords to bypass compulsory registration

[jazzlover]

Originally Posted by Charles

There was an outstanding article in today's Los Angeles Times and one in today's Denver Post that echoes a couple of these posts:

The new bubble-prone economy - Los Angeles Times

The Denver Post - Efforts to spark economy may be too little, too late

If you need a login and password for the LA Times (or many other online news sources) go to

Bugmenot.com - login with these free web passwords to bypass compulsory registration

Speculative "bubbles" aren't new. The most devastating of recent history was the stock market bubble that led to the Great Depression. Stocks became totally detached from reality in the 1920's, fueled by the ability of the "average Joe" to buy stock on margin--essentially using large amounts of debt to finance a speculative investment (sound familiar?). When the market finally became so overvalued that subsantial price declines began as large numbers of people began to sell out, margin calls on over-leveraged investors (sort of like foreclosure notices now) led to panic selling, which effectively sent the markets into collapse. It became a self-feeding collapse, which led to financial panic crippling the banks, a collapse in consumer confidence and spending, and a general depression. As the LA Times article intimates, trying to stimulate an economy in such a funk is no easy task. The New Deal tried to do that, with some success, along with regulation of the stock markets to try to prevent another such panic (including much greater limitations on margin buying of stock), but it really took World War II to bring the economy out of depression. Of course, a few million people died in the war, and the US is still saddled with some of the national debt generated from it. A strong argument can be made that the Depression helped bring Hitler to power in Germany, and resource scarcity in Japan led it to its imperialist conquests in the Pacific that eventually precipitated World War II. You have to wonder what the US might do if it were to be confronted with BOTH a national depression and resource (oil, for starters) scarcity in the next few years.

Another such "bubble" was the silver price bubble in the 1880's, that caused by the federal government essentially guaranteeing to buy every ounce of silver that could be produced at a very lucrative price. That is what led to the initial growth and development boom in Colorado. When the fed figured out that those silver purchases would eventually bankrupt the treasury and debase the dollar, the Sherman Silver Purchase Act that authorized such purchases was repealed in 1893. The Colorado economy largely collapsed, and it took many areas of the state until after World War II to recover (about 50 years, if anyone is counting).

Today's real estate bubble looks an awful lot like the stock bubble of the 1920's: millions of Americans invested in speculative assets (real estate) financed ("margined") with borrowed money. People will say that this is different because real estate has underlying value. Those stocks in 1929 also had underlying value, too, but it was something far less than the price the speculators had bid those stocks up to. I think the same is true of real estate now. Then, as now, the problem is that far too many people leveraged the speculative "paper" value of an asset with a quite "real" absolute liability--loans. While the paper value of the asset may evaporate, that liability just lays there and stinks--for somebody--the borrower, the bank, the investor. That is the "wretched excess" that a depression squeezes out of the economy. And I think the "squeeze" is beginning.

[Bob from down south]

Yes, I have a hunch...but not sure you can call seeing a torpedo already in the water streaking your way a "hunch." More like a leading indicator of a really bad day.

We have a wave of failing subprime and Alt-A loans coming at us, and behind that, a wave of doomed prime pay option ARM resets that will prove that this isn't just a subprime problem. Those doomed loans are like the torpedo...they are a fact and are already in the water coming our way now. The combination of the two is only beginning to be appreciated in its immensity, and could keep the mortgage/banking industries on their knees with as much as $1 trillion in losses through 2012. The ripple effects of these losses and a steep drop in home values are going to be staggering as well...job losses in the tens or hundreds of thousands, failures of housing/banking related businesses, and economic disaster for millions who will lose their homes, have their reputations wrecked, or otherwise be displaced from the life they were expecting. Those ripples are already being seen and felt today.

Commercial real estate right now appears to be backing up to the edge of the cliff, and consumer credit could well be lining up to be the next shoe to drop. Or not, what do I know. Those are more in the realm of hunches.

But those who do not remember history are doomed to repeat it.

Consider this telling discussion of excerpts from a letter posted in "Gentlemen, the Corn Belt!" Harper's Magazine, July 1933 pp. 200-206:

Doctor Housing Bubble Blog: Personal Story by a Lawyer from a Previous Asset Bubble. Can we Learn from the Past and How will the Housing Decline Impact You?

I really don't intend to spread gloom and doom, and I'm a cautious but not normally pessimistic person...but the potential for an economic shock much, much larger than a small manageable recession is quite real.

Bob

[hello-world]

Originally Posted by Bob from down south

Yes, I have a hunch...but not sure you can call seeing a torpedo already in the water streaking your way a "hunch." More like a leading indicator of a really bad day.

We have a wave of bad subprime and Alt-A loans coming at us, and behind that, a wave of prime pay option ARM resets that will prove that this isn't just a subprime problem. Those doomed loans are like the torpedo...they are a fact and are already in the water coming our way now. The combination of the two are only beginning to be appreciated in their immensity, and could keep the mortgage industry on its knees with as much as $1 trillion in losses through 2012.

Commercial real estate right now appears to be backing up to the edge of the cliff, and consumer credit could well be lining up to be the next shoe to drop. Or not, what do I know. Those are more in the realm of hunches.

But those who do not remember history are doomed to repeat it.

Consider this telling discussion of excerpts from a letter posted in "Gentlemen, the Corn Belt!" Harper's Magazine, July 1933 pp. 200-206:

Doctor Housing Bubble Blog: Personal Story by a Lawyer from a Previous Asset Bubble. Can we Learn from the Past and How will the Housing Decline Impact You?

I really don't intend to spread gloom and doom, and I'm a cautious but not normally pessimistic person...but the potential for an economic shock much, much larger than a small manageable recession is quite real.

Bob

LOL re the torpedo analogy.

otherwise, do you think that the scenario you envision can be helped by buoyed consumer confidence? (continued spending, e.g.) i imagine one contention you might harbor could be "well, look at how overextended people are regarding credit - credit cards, auto loan credit, etc., so there's only so much credit overextended people/markets can grab, and we're at the end of the rope". but are we at the end of the rope, in your view? are there other "buoys", in your view? increases in exports and tourism due to weak dollar, e.g.?