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Justsomeguy: Thank you for answering, and thank you for posting this thread, I found it very interesting to read the different opinions and information posted here. (This is the first time I’ve even looked at CD forum for several months, and this was exactly the question that was on my mind.) What I was thinking of is when you said the economy as a whole for the last four years has been a house of cards. I don’t know enough about economics to know if that is true or not, but I agree with it anyway!
I have a stockbrokerage account that I pulled my money out of (and put into a much lower paying, but safer CD) because of how sensitive the market is. I had been following the market daily for about a year. Back in February, the market dropped something like 600 points in a couple of days because of a technical error. Then, it rose again about 1,000 pts (NASDAQ) and as far as I know, has kept rising? Haven’t followed it lately. The reason I pulled my money out is because as far as I could see, nothing had changed to create a bull market, and it didn’t look good to me. Plus, those were incredibly sharp rises and drops compared with just the prior year, so it just looked too unsound for me, and an indicator of I don’t know what.
Your previous and above comments about the percentage of those who can afford homes at these prices is absolutely right, though I have seen it estimated as “high” as 16%. So, even if the feds do provide a “bailout” or whatever we want to call it, won’t that just prolong the agony? A real question.
I don’t want to see our economy go into recession, however if it is based on a “house of cards” as you say, won’t it happen anyway? How can I stop it? I’m not one who caused it, I don’t have credit card debt, I only have student loan debt which I pay. I could have plenty of credit card debt if I wanted to be irresponsible, which I don’t. As for the bailout, with the article you linked it said that the FHA was put into place in order to help low- and middle-income earners to buy homes.
And my question is, if instead it helps those whose circumstances didn’t warrant legitimate loans, but now is helping them to keep their loans for awhile longer, won’t that keep the prices artificially high and then the FHA will not be helping those it was intended to help, because the prices will still be too high for us to buy. Instead it is helping those who went alternate routes. Which is another thing I don’t understand, isn’t that federal loan fraud? (I have actually known someone who was convicted of this, and the methods sound exactly the same! Phony employment/income verifications, etc.)
And if it is, why are they being helped out? I wouldn’t commit fraud even to rent an apartment or get a car, why should I want to bail out someone who did that? How is that going to help everyone else? I could have bought a house with my salary before this, now if I do buy a house I will be wasting my money, IMO, because I’ll be paying $300,000 for a house that 4 years ago was worth $150,000 and still looks worth that to me. I didn’t want the houses that were $150,000 as it was, so why should I pay even more for it?
And another question I have. How is this going to be implemented? I mean, to make those mortgages affordable to those buyers, which I assume means to lower the price, won’t that mean the FHA will have to pay off huge portions of their loans to the lenders? For example, to reduce a $500,000 mortgage to $300,000 won’t they have to pay out $200,000 to the lenders? Or am I totally misunderstanding this?
I’m sorry this post is so long, I didn’t realize. But I’m leaving all of it anyway, so maybe these questions can be answered. Thank you. : )
FYI--I'm registered as non-partisan, so this isn't about political polarization. : )
Last edited by it's all good; 09-02-2007 at 10:06 AM..
Reason: forgot to address it to justsomeguy
I think you have me confused with someone else. At any rate, you're misunderstand what I'm saying.
I think a correction will happen - because people can only buy homes that they can afford. Right now 90% can't afford the median home price....obviously either prices will have to drop or incomes will have to rise.
I don't think the "bailout" will have a major impact personally. Just depends on how far the Democrats want to go with this thing.
As for the "bailout", I have conflicting feelings. Of course, it's easy to say "NO WAY, LET THOSE GREEDY HOMEOWNERS GET WHAT THEY DESERVE!" But...on the other hand....there is the chance that if you don't help them, you are going to be sinking along with them. Does anyone really want that?
Actually if it brings the affordability numbers back to somewhat more of a normal alignment I don't think it's a bad thing.
Granted folks who bought at the price peak could feel some pain as they watch house values drop. But if they bought even close to what they could legitimately afford AND with the intention of living in their house long term, they should still be OK.
Yes, the sub prime, really creative financing, way over anything they could afford group could be in trouble... unless they can cash in on the bailout. But those are the folks I feel no sympathy for, sorry.
Folks who bought prior to the unprecedented price run-ups really only had paper gains anyway... so as long as they didn't fall into the equity bandit trap, again they should be OK.
The September issue of the Los Feliz Ledger was plopped on my doorstep a few days ago with the above story on the front page. I can't link the article yet, they still have August on their site. Basically it says the number of home sales in June 2007 is up 46% from June 2006. I posted previously about Echo Park being price increase king but I didn't know sales over last year had risen this much. It goes on to say that a huge chunk are first time homebuyers, attracted to the "culture and psychology of the area", that sellers are pricing fairly compared to other areas and that they get more for their money. Homes are still getting multiple offers over asking price.
They laid out some graphs that I wouldn't dare try to replicate with a narrative.
The article underscores a lot of what I said in my previous gargantuan posts in this thread.
When a big newspaper like the LA Times reports it, it's usually bad. And when the article is written by Diane Wedner, a person whose outlook on the RE market has always been rosy, reality has really sunk in. I don't agree with the part about letting house flippers stay in the homes and the banks become landlords though. Now don't misunderstand. I am not cheering this on. However, this inflated market has to correct to the level where prices match fundamentals.
Bad outlook for homeowners - Los Angeles Times (broken link)
Davidt1 (and anyone else who can translate this quote from the article "Bad Outlook for Homeowners" : ) ):
Can someone explain this? It doesn't make sense to me at all:
Quote, Dean Baker: Change the rules of foreclosure. Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser. And they can stay indefinitely. The bank will own the house. This isn't a windfall for the homeowner. But they're not on the street. Whoever buys the house would have to deal with the renters, letting them stay. People have made mistakes and got bad mortgages; this could help them out.
What is he talking about?
Thank you, and if anyone else can answer the other questions I asked, please do. : )
When a big newspaper like the LA Times reports it, it's usually bad. And when the article is written by Diane Wedner, a person whose outlook on the RE market has always been rosy, reality has really sunk in. I don't agree with the part about letting house flippers stay in the homes and the banks become landlords though. Now don't misunderstand. I am not cheering this on. However, this inflated market has to correct to the level where prices match fundamentals.
Bad outlook for homeowners - Los Angeles Times (broken link)
I am having different thoughts about this and similar articles now. I think dire predictions are made to goad people into accepting bailout policies the government has down the road.
Davidt1 (and anyone else who can translate this quote from the article "Bad Outlook for Homeowners" : ) ):
Can someone explain this? It doesn't make sense to me at all:
Quote, Dean Baker: Change the rules of foreclosure. Instead of banks beginning the foreclosure process, owners should have the option to rent their house, at a fair-market rate determined by an independent appraiser. And they can stay indefinitely. The bank will own the house. This isn't a windfall for the homeowner. But they're not on the street. Whoever buys the house would have to deal with the renters, letting them stay. People have made mistakes and got bad mortgages; this could help them out.
What is he talking about?
Thank you, and if anyone else can answer the other questions I asked, please do. : )
Actually if it brings the affordability numbers back to somewhat more of a normal alignment I don't think it's a bad thing.
Granted folks who bought at the price peak could feel some pain as they watch house values drop. But if they bought even close to what they could legitimately afford AND with the intention of living in their house long term, they should still be OK.
Yes, the sub prime, really creative financing, way over anything they could afford group could be in trouble... unless they can cash in on the bailout. But those are the folks I feel no sympathy for, sorry.
Folks who bought prior to the unprecedented price run-ups really only had paper gains anyway... so as long as they didn't fall into the equity bandit trap, again they should be OK.
I don't think you fully understand the economic fallout from this. It creates trouble in the financial markets, the construction industry (which is rather far reaching), the labor markets, and consumer spending. In other words it will have a ripple effect that will resonate throughout the entire economy.
If people don't have jobs, they don't spend money. If they don't spend money, GDP shrinks. When GDP shrinks, you have recession, and soon the job and the house that will be in trouble WILL BE YOUR OWN. Understand?
Justsomeguy: Thank you for answering, and thank you for posting this thread, I found it very interesting to read the different opinions and information posted here. (This is the first time I’ve even looked at CD forum for several months, and this was exactly the question that was on my mind.) What I was thinking of is when you said the economy as a whole for the last four years has been a house of cards. I don’t know enough about economics to know if that is true or not, but I agree with it anyway!
I have a stockbrokerage account that I pulled my money out of (and put into a much lower paying, but safer CD) because of how sensitive the market is. I had been following the market daily for about a year. Back in February, the market dropped something like 600 points in a couple of days because of a technical error. Then, it rose again about 1,000 pts (NASDAQ) and as far as I know, has kept rising? Haven’t followed it lately. The reason I pulled my money out is because as far as I could see, nothing had changed to create a bull market, and it didn’t look good to me. Plus, those were incredibly sharp rises and drops compared with just the prior year, so it just looked too unsound for me, and an indicator of I don’t know what.
Your previous and above comments about the percentage of those who can afford homes at these prices is absolutely right, though I have seen it estimated as “high” as 16%. So, even if the feds do provide a “bailout” or whatever we want to call it, won’t that just prolong the agony? A real question.
I don’t want to see our economy go into recession, however if it is based on a “house of cards” as you say, won’t it happen anyway? How can I stop it? I’m not one who caused it, I don’t have credit card debt, I only have student loan debt which I pay. I could have plenty of credit card debt if I wanted to be irresponsible, which I don’t. As for the bailout, with the article you linked it said that the FHA was put into place in order to help low- and middle-income earners to buy homes.
And my question is, if instead it helps those whose circumstances didn’t warrant legitimate loans, but now is helping them to keep their loans for awhile longer, won’t that keep the prices artificially high and then the FHA will not be helping those it was intended to help, because the prices will still be too high for us to buy. Instead it is helping those who went alternate routes. Which is another thing I don’t understand, isn’t that federal loan fraud? (I have actually known someone who was convicted of this, and the methods sound exactly the same! Phony employment/income verifications, etc.)
And if it is, why are they being helped out? I wouldn’t commit fraud even to rent an apartment or get a car, why should I want to bail out someone who did that? How is that going to help everyone else? I could have bought a house with my salary before this, now if I do buy a house I will be wasting my money, IMO, because I’ll be paying $300,000 for a house that 4 years ago was worth $150,000 and still looks worth that to me. I didn’t want the houses that were $150,000 as it was, so why should I pay even more for it?
And another question I have. How is this going to be implemented? I mean, to make those mortgages affordable to those buyers, which I assume means to lower the price, won’t that mean the FHA will have to pay off huge portions of their loans to the lenders? For example, to reduce a $500,000 mortgage to $300,000 won’t they have to pay out $200,000 to the lenders? Or am I totally misunderstanding this?
I’m sorry this post is so long, I didn’t realize. But I’m leaving all of it anyway, so maybe these questions can be answered. Thank you. : )
FYI--I'm registered as non-partisan, so this isn't about political polarization. : )
The number of people that will be helped should be limited - maybe around 80,000 people nationwide. Speculators or people that lied on their loan app. probably won't qualify. In fact I imagine it will be very difficult to qualify for this "bailout" program. I don't think they are going to reduce any mortgages - they are just going to reduce the interest paid on the mortgage - that is why the "price" of the mortgage will be lowered. So an ARM mortgage that resets to say, 10% or something next year will instead be re-financed at a low-fixed rate, maybe 5 or 6% or something I'm guessing.
It shouldn't keep prices artificially high, but it will create a "soft landing" most likely rather than a hard drop - by keeping a lot of homes from being foreclosed on and put out on the market. Even without those homes foreclosed on, there is still a glutton of homes inventory on the market and demand is still low b/c of credit problems, overpriced homes, and market psychology. Supply still outstrips demand so prices will still lower. Hope this answers your question.
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But those are the folks I feel no sympathy for, sorry.
90026: Hot Spot in Cooling Market
