Housing market seems to be softening (Boston, Cambridge: real estate market, rental, loans)

[GeoffD]

Originally Posted by massnative71

OR stretch themselves way beyond their means. It's what caused the meltdown in 2008, and it will probably happen again although maybe not as bad. To downplay that large segment, is just being dishonest.

2008 was somewhat different. The Federal government had messed with mortgage qualification criteria. People with lousy credit and poor job prospects were granted mortgages they had zero chance of making payments on. Everyone fed at the trough of the government meddling in the market. Builders. Realtors. Mortgage companies and banks. Appraisers. Goldman Sachs. It created a housing bubble that was really ugly when all those bad mortgages defaulted.

In 2018, the bubble is mostly limited to the high cost of living regions. Those markets are propped up by the stock market and stock options. You don’t buy a $1.25 million shack of a starter home in the sketchy part of Sunnyvale with W-2 money. You’re using stock options or the pile of money your parents made in the market. Assuming the stock market keeps correcting in 2019, there will be a couple of years of very slow market followed by steep price declines as distress sales re-price the market.

I don’t think the towns with the top school systems and easy commute will correct much. The working class towns will get crushed. That’s what happened in the S&L meltdown in 1990. The supply of housing stock in the top 20 suburbs is always going to be in demand.

[timberline742]

Originally Posted by massnative71

OR stretch themselves way beyond their means. It's what caused the meltdown in 2008, and it will probably happen again although maybe not as bad. To downplay that large segment, is just being dishonest.

You mean the deregulation of the financial industry. Just helping you out. The high rate of default on subprime mortgages wouldn't have been much of a problem if it wasn't for the deregulation of the financial industry and said industries reckless and greedy actions.

[massnative71]

Originally Posted by GeoffD

2008 was somewhat different. The Federal government had messed with mortgage qualification criteria. People with lousy credit and poor job prospects were granted mortgages they had zero chance of making payments on. Everyone fed at the trough of the government meddling in the market. Builders. Realtors. Mortgage companies and banks. Appraisers. Goldman Sachs. It created a housing bubble that was really ugly when all those bad mortgages defaulted.

In 2018, the bubble is mostly limited to the high cost of living regions. Those markets are propped up by the stock market and stock options. You don’t buy a $1.25 million shack of a starter home in the sketchy part of Sunnyvale with W-2 money. You’re using stock options or the pile of money your parents made in the market. Assuming the stock market keeps correcting in 2019, there will be a couple of years of very slow market followed by steep price declines as distress sales re-price the market.

I don’t think the towns with the top school systems and easy commute will correct much. The working class towns will get crushed. That’s what happened in the S&L meltdown in 1990. The supply of housing stock in the top 20 suburbs is always going to be in demand.

No we won't be facing the perfect storm we saw 10 years ago. But in addition to the $1.25 million dollar shack purchased by outside investors, there are still a significant number of $80k/yr families stretching themselves to the max to buy that aging $350k or $400k split level in an average town. Even if they are gainfully employed and meet the new higher lending standards; they are one job loss, illness, or boiler quitting on them...away from a financial catastrophe. There is still a large gap between what a bank determines one can afford, and reality. As a rule, I try not to borrow more than 2X my gross annual income. Anything over that, is placing a bet that "life" won't happen.


The whole phenomenon (particularly in high cost areas) of spending not what one's income allows, but what "a home now costs"; is going to eventually catch up with itself.

[massnative71]

Originally Posted by timberline742

You mean the deregulation of the financial industry. Just helping you out. The high rate of default on subprime mortgages wouldn't have been much of a problem if it wasn't for the deregulation of the financial industry and said industries reckless and greedy actions.

Yep, as well as forcing banks to lend to millions of unsuitable "borrowers" (thank you Bawney Fwank)...


Some new for you...yes there were many hands in the game, but nobody held a gun to anyone's head forcing them to "borrow" money they never had the intention or ability of every paying back.

[timberline742]

Originally Posted by massnative71

Yep, as well as forcing banks to lend to millions of unsuitable "borrowers" (thank you Bawney Fwank)...


Some new for you...yes there were many hands in the game, but nobody held a gun to anyone's head forcing them to "borrow" money they never had the intention or ability of every paying back.

I doubt very many people borrowed without the intention of paying it back, and undoubtedly most thought they also had the ability to repay it, based on what they were told.


What did happen, quite a bit, is salespeople in the financial industry misled customers about what they were buying and knowingly sold bad instruments to customers knowing they'd be flipping these mortgages right out the door (often labeled as a better class of debt than it was) and it would be someone else's problem down the road (or many other people's problems since so many were split up). Short term greed nearly collapsed the system... and now, these pro big business centrists and right wingers have been working to deregulate this industry?


Insanity.

[johngolf]

Originally Posted by timberline742

I doubt very many people borrowed without the intention of paying it back, and undoubtedly most thought they also had the ability to repay it, based on what they were told.


What did happen, quite a bit, is salespeople in the financial industry misled customers about what they were buying and knowingly sold bad instruments to customers knowing they'd be flipping these mortgages right out the door (often labeled as a better class of debt than it was) and it would be someone else's problem down the road (or many other people's problems since so many were split up). Short term greed nearly collapsed the system... and now, these pro big business centrists and right wingers have been working to deregulate this industry?


Insanity.

I agree. It was not a greedy borrower problem. It was a greedy lender problem.

[chicagoliz]

Originally Posted by massnative71

Yep, as well as forcing banks to lend to millions of unsuitable "borrowers" (thank you Bawney Fwank)...


Some new for you...yes there were many hands in the game, but nobody held a gun to anyone's head forcing them to "borrow" money they never had the intention or ability of every paying back.

They were in no way forced to lend money to unsuitable borrowers. They lent money because they MADE MONEY.

Back in the olden days, local banks lent money to local people to buy local homes. They only had so much money to lend, though. Eventually, there emerged a market for these loans -- which wasn't a bad idea, in and of itself. This enabled banks to sell these loans, so they'd then have cash for other purposes. These loans were bundled and sold as a package to other investors. Again, this is not bad, in and of itself. BUT, this made the initial risk of lending the money cut off from the initial approving of the loan. Lenders knew they would make money because they sold these loans immediately. Mortgage brokers knew this and they got paid for each mortgage customer they found. They never had any risk -- they got paid no matter what. First payment default? Didn't matter. The mortgage broker already had their money. The original lender most likely already had sold the loan.

The most ridiculous part of all of this, is that the lending requirements got looser and looser. Lenders were making loans with zero evidence of salary, assets, or anything that showed any ability to pay back a loan. This became evident as default rates increased, and even the documents filed with the SEC showed a change in language -- to the point that the disclosure language indicated that there was no guarantee of the value of the underlying collateral (i.e. the value of the house connected to the mortgage) or to the ability of the borrowers to repay. But, no one bothered to read the language in any of these prospectuses and they continued to buy them.

The cause of the meltdown wasn't some big bad government holding a gun to the head of the banks and forcing them to lend money to poor people who clearly could not repay. The cause was sheer laziness on the part of most investors, financial advisors, market analysts, financial reporters, and government regulators.

[massnative71]

Originally Posted by chicagoliz

They were in no way forced to lend money to unsuitable borrowers. They lent money because they MADE MONEY.

Uh, ever hear of the Community Reinvestment Act? Thankfully, they are trying to tweak it again so as to reverse the disastrous consequences of the Clinton era changes.

[Guineas]

Originally Posted by GeoffD

2008 was somewhat different. The Federal government had messed with mortgage qualification criteria. People with lousy credit and poor job prospects were granted mortgages they had zero chance of making payments on. Everyone fed at the trough of the government meddling in the market. Builders. Realtors. Mortgage companies and banks. Appraisers. Goldman Sachs. It created a housing bubble that was really ugly when all those bad mortgages defaulted.

The problem in 2018 is that in many coastal markets, including the one in Boston, the housing prices are at least double that of the 2006 bubble at its peak. I think nationally, we are not in as much trouble as in 2008 (my folks' house in Chicago finally caught up to 2006 prices just this year), but Boston isn't representative of the national housing market.

You don't need to replicate the same circumstances for a recession and crash. In fact every recession in the past century was triggered by different series of events. The last one was subprime loans. This one could be a tech bubble bursting, disappearance of foreign speculation and money laundering from China, or loss of the lucrative China manufacturing margin (which benefits many local companies here).

[Guineas]

Originally Posted by massnative71

It's still very bleh, especially from an outside perspective.

Haha welcome to New England. Coming from Chicago when I moved here to get closer to my wife's family, I know exactly what you mean. The commute is horrific, the houses are old and needs work, and half of them aren't even built to withstand the winter here and actually ice dams every time it blizzards. The strip malls with pastel-colored vinyl siding and "Village" in their names are still strip malls. Town centers are quaint for about two visits until you realize none of the 4 stores offer anything you would ever buy or eat. Even the local schools are only good relative to the rest of the country because of the demographics, not that the schools are actually that much better.

But if that's all there is within a 1 hour commute and under $1 million, well that's what you're going to have to get used to.