December 22, 2005

Housing bubble effect #5000: Get out the pink slips: Loan apps fall to 11-month low


Seems I know more than a few people (mainly in their 20's, no career, no direction) who got into recruited into lending business in the past year (and then went out and bought a house with the new job too!).

I think the accounting term for what's about to happen is LIFO (last in, first out).

Even crazy easy credit isn't enough to get people to get new loans. Wonder what the industry can come up with for a last call.

U.S. mortgage applications fell to an 11-month low last week on a drop in demand for loans to buy homes, suggesting a slowdown in the housing market, according to industry data Wednesday.

"Housing has passed its peak," said Robert Brusca, chief economist at Fact and Opinion Economics

In addition to falling loan demand, U.S. home builder optimism fell in December to its lowest since April 2003, according to the National Association of Home Builders.

38 comments:

gd said...

keith - dont know if you follow pimco's mcculley. but here is his latest monthly newsletter:


http://www.pimco.com/LeftNav/Late+Breaking+Commentary/FF/2005/FF+December+2005.htm

Anonymous said...

Keith - absolutely correct.

I know a little more than basic economics, yet my neighbor, who doesn't have any education past high school and worked at Shoe Carnival, is a mortgage broker and told me I'm crazy and that real-estate will never go down. She proceeded to spout out the lines generally reserved for realtors. It's impossible to argue with an idiot so I just smiled and went on my way.

That's okay, at least she can get me a discount on shoes when she's back at the Carnival next year.

Arioch said...

Some friends of ours, whom I simply pity as they have no clue whats coming have themselves painted into a corner.

The husband (over 40) decided on a career change...to loan officer. I said "don't do it", and got the standard "it'll never go down yadda yadda....".

The kicker is: They have created a 1.3 million dollar hole through various financing/refinancing/ bank loans etc.... They've been doing this for years playing it like a ponzi scheme. Using the new loans to pay the snowballing monthly cashflow. I asked the wife, with a stunned look on my face "how can you sleep with this hanging over your head". Her answer "it really just seems surreal".

Now they have taken out more loans (their business has been the collateral for the last 2 loans), bulldozed their house, and are building a custom mcmansion on it's spot.

They have a 1.3 million dollar debt, you have to assume 10k+/month going out the door. He hasn't worked in a year and will now be a loan officer (or thinks he is). She runs their business which grosses 5 to 7k a month (gross, not net!). They now live in a rental while their new house is being built (add 2k a month to tab). Cost of goods, utilities, food etc.... that is probably close to 18k a month NET outflow. And "it just seems surreal!". All their vehicles are leased as well.

They are screwed, done, glazed and baked, fried, finished, dead meat and have no clue.

keith said...

arioch - great post.

this is happening more than the media reports. come here to scottsdale, arizona and you'll find many folks living in $1 Million plus homes, with NO income. Just riding the ponzi scheme up and up.

And then bam, the music stops, and they'll wonder what hit 'em.

I think we'll be amazed at the bankruptcies to come. How could someone living in a $1 Million house, with two Hummer H2's in the driveway, who took great around-the-world cruises, with rolex watches and diamond rings, the epitome of success, go bankrupt?

Well, that's exactly how.

Anonymous said...

Sold my Clinton Township House last summer and moved into a cheaper house in the same town.
Can't cash out completely just yet, so I figured I'd by down to put less equity at risk.

I'm planning on retiring to the NC coast in 3 to 4 years, but still need to live in this town until my son finishes HS this spring.

I remember 1988 and how long the RE market took to recover from that down turn. I don't have the time to wait out another hit like that. I only hope I bought down enough and that the NJ market only flattens. At least so I can keep most of what I still have tied up in this current house.

I still wonder about the southeast as a continuing potential RE hot market. That market seems driven more by Baby Boomer's, from all over the US, buying into areas they want to live in during their retirement. I currently have quite a bit of my NJ equity $ invested in this theory.

So far it has been working.

What's your opinion?

Nathan said...

Anon:

Depends on where in the SE. If you are thinking Florida, the number of housing units coming onto the scene(especially condos) is going to create a huge glut of supply, driving down prices. Also, condo-conversions are rampant down there, especially in Miami. Other places like Atlanta have not seen anywhere near that appreciation, and neither has Charlotte for that matter, but then again, the job growth in those two markets hasn't matched Florida's either. I am not familiar with other parts of North Carolina, or whats going in S. Carolina, but I think the owner market in Florida is going to be hurting, just based on affordability issues. For instance, in Miami, which by most statistics I've seen has a similar income to Phoenix, AZ, but housing prices are nearly 50% higher, with more construction, and they aren't seeing the same level of immigration... do the math.... and it seems like trouble.

Arioch said...

Annon,

My strategy for the last few years is as follows.

Sold my OC house and walked away with a bag of money. Moved to vegas and bought a distressed property (3000 sq ft, superb property. Got it for about 98/ft. Gambling got them into trouble and they had to unload) and dropped 30% (100K cash) down from my previous sale. That way I avoid PMI, plus my mortgage is less then renting. I ignored the broker & RE agent and did not get any form or ARM. I went fixed/30 (I'm conservative with $$$). This way, I pay the same as renting (or a bit less), plus get the sched A benefit (this way it truely is a benefit). I openned a fixed rate HELOC at the top of the bubble, and left it untapped. That is only for dire ememergencies (medical or other catastrophic event). As it is fixed, it is a known entity in case of anything horrendous. It is not used as an ATM (still driving the old nissan).

The market here can take a 40% nosedive and I can still make a buck on the place if I sold it.

Market is running 250-270/ft now. I see it leveling off at 150/ft after the crash. I'll still be 50/ft ahead.

I plan on sitting on this place for 10+ yrs so the market can do what it wants, doesn't affect me.

For anyone who does this professionally, did I play it smart or was that a bad way to manage the house through this period? Just want to make sure I am setup properly to ride the storm out.

cereal said...

"They are screwed, done, glazed and baked, fried, finished, dead meat and have no clue."

oh my gawsh - my ulcers churn just thinking about this. let me add to your list

6 feet under, pushing up daisies, the fat lady's singing, eggs are cold and the lights are out

AmazingRuss said...

...and...

They are at Death's Door, knocking loudly.


Serously sounds to me like their creditors are the ones that are screwed though...I don't see them earning anywhere near 1.3 mil in the life remaining to them.

moonvalley said...

"They are screwed, done, glazed and baked, fried, finished, dead meat and have no clue."
Sir, that Parrot is deceased!

Moman said...

Depends on where in the SE. If you are thinking Florida, the number of housing units coming onto the scene(especially condos) is going to create a huge glut of supply, driving down prices. Also, condo-conversions are rampant down there, especially in Miami. Other places like Atlanta have not seen anywhere near that appreciation, and neither has Charlotte for that matter, but then again, the job growth in those two markets hasn't matched Florida's either. I am not familiar with other parts of North Carolina, or whats going in S. Carolina, but I think the owner market in Florida is going to be hurting, just based on affordability issues. For instance, in Miami, which by most statistics I've seen has a similar income to Phoenix, AZ, but housing prices are nearly 50% higher, with more construction, and they aren't seeing the same level of immigration... do the math.... and it seems like trouble.

You will see in my blog ( www.economicviewpoint.com ) that I'm very bearish on Florida housing. Primarily it's because people here have let the sun get to their brains and have lost coherent thought.

Florida is a great place, don't get me wrong. It's just not worth living here if one is going to pay double or triple for a house what it cost 5 years ago while wages have been largely static otherwise.

Another New Renter said...

It's clear the refi boom is dead, even as rates fall, because homeowners (technically people who rent money from the mortgage banks that hold the notes to their homes) realize their inflated equity is evaporating: http://money.cnn.com/2005/12/28/real_estate/mortgage_applications.reut/index.htm

With refi activity dead, the RE "wealth effect" will die and the mortgage industry will tank. The number of people borrowing against stock portfolios in 2000 wasn't anything close to the number who've borrowed against inflated RE and spent during the past 3 years. The 2006 housing wreck could even be the final nail in Bu$hco's coffin, even though Bu$hco had virtually nothing to do with it! It's going to be big, much bigger than anybody is admitting. Once foreclosures dot every block in Southern California, I predict foreign buyers (emerging markets are booming and Japan is coming back now) will start moving in.

Mortgage Center said...

Hi thanks for your blog, I liked it! I also have a blog/site about mortgage payments
that covers mortgage payments
related stuff. Please feel free to visit.

Joe Berenguer said...

Hi, Fellow! I like your blog!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a rockland trust
site. It pretty much covers rockland trust related subjects.
Come and check it out if you get time :-)
Best regards!

KphmQzTh said...

Nice blog do you want to trade links?

raspberry-koolaide said...

Unusual blog. I liked the site its from so much I
have to visit it again! I surf the web for blogs like
yours in my spare time.
Everyday of the month you need to peep my cash advance san diego blog.

Anonymous said...

Hi, I was looking for information in reguards to the new bankruptcy laws
on and read your site. Not exactly what I needed but it
drew my attention. Many people get into trouble with and the new
laws may not help them the way they expect. Anyway thanks for the read.

James Baker said...

Congratulations Friend for your excellent blog on loans center!Keep up the good work!
If you have a moment, please visit my site:
loans center
I send you my warm regards and wish you continued success.
Have a nice day! :-)

arizona morgtgage rates said...

Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my arizona morgtgage rates site.
Good luck!

arkansas bad credit loan personal said...

Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my arkansas bad credit loan personal site.
Have a great week!

art students league said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my art students league site.
Good luck in your endeavors!

art students league said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my art students league site.
Good luck in your endeavors!

art students league said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my art students league site.
Good luck in your endeavors!

blogme said...

Hi, I see your blog is talking about Hummers. Are you looking for anything related to Hummers or Humvees? Hummers, or Hummer parts & accessories? And the best part, every item can be had at auction prices. Just wanted to pass this tidbit of info along. Thanks.

assured credit counseling said...

I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my assured credit counseling site.
Have a good day!

assured credit counseling said...

I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my assured credit counseling site.
Have a good day!

assured credit counseling said...

I was searching blogs,and I found yours.Please,
accept my congratulations for your excellent work!
If you have a moment, please visit my assured credit counseling site.
Have a good day!

atlanta bankruptcy filing said...

Hello Friend! I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
Keep up the great work, you are providing a great resource on the Internet here!
If you have a moment, please make a visit to my atlanta bankruptcy filing site.
Good luck in your endeavors!

atlanta bankruptcy exemptions said...

Hi Friend! You have a great blog over here!
Please accept my compliments and wishes for your happiness and success!
If you have a moment, please take a look at my atlanta bankruptcy exemptions site.
Have a great day!

atlanta home mortgage loans said...

Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my atlanta home mortgage loans site.
Have a great week!

bad check credit counseling said...

This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my bad check credit counseling site.
Have a great week!

bad check credit counseling said...

This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my bad check credit counseling site.
Have a great week!

bad credit laptop financing said...

Your blog I found to be very interesting!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a bad credit laptop financing
site.
Come and check it out if you get time :-)
Best regards!

remodeling home loans said...

Projects..Projects..Projects.. If you are like me it seems like there is never enough time in the day.. You get home late and leave early.. then the weekends thats another story by itself. My wife has found it easier to hire somebody if you we need help with remodeling home loans. She fond a great site for remodeling home loans at http://remodelinghelp4u.com and wanted to share it with you.. Im glad to find help when I need it.. I hope you have great luck remodeling your home...

bad credit mortgage company xxasdf said...

This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my bad credit mortgage company xxasdf site.
Have a great week!

Debt Consolidation Refinance said...

I enjoyed this blog. I like to find odd blogs about all kinds of topics. I even found one at California refinance which took me to http:\\thehomefinanceguide.com. What do you suppose I found there? I got some real good info on how to get a bad credit home motgage since I already own real estate in California. You may want to see what you can find there if this is something you are interested in.

Meg Taylor said...

A fantastic blog yours. Keep it up.
If you have a moment, please visit my credit counseling site.
I send you warm regards and wish you continued success.

Meg Taylor said...

Hey, you have a great blog here! I'm definitely going to bookmark you!
I have a attorney bail bond site.
Come and check it out if you get time :-)
Greetings.