March 26, 2007

Manias, Panics and Crashes... And Housing Crash Reality

Loyal HP'ers know we've been following the "Manias, Panics and Crashes" playbook perfectly. And when I say perfectly, I MEAN ABSOLUTELY INCREDIBLY HILARIOUSLY PERFECTLY.


So there are no surprises (for HP'ers), here's another check-in with the HP bible...

Here's where we are today:

* Ultimately, the markets stop rising and people who have borrowed heavily find themselves overstretched. This is 'distress', which generates unexpected failures, followed by 'revulsion' or 'discredit'.

Here's where we'll be soon:

* The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

23 comments:

Anonymous said...

http://www.youtube.com/watch?v=KlkOPAa4Mao

Anonymous said...

I still have my Beanie Babies and Cabbage Patch Kids.

Anonymous said...

Wonder how many people will not be paying their property taxes due next week. I know alot of people were counting on refinancing and cashing out to payoff property taxes since that's what their idiot brokers told them to do when the bought the house. Funny how quickly equity can disappear...

Anonymous said...

Housing Bubbles don't pop; they deflate slowly

http://www.youtube.com/watch?v=tkzb5cmmma8

Anonymous said...

I don't see any panic yet, or signs of it.

Real estate is still far more expensive than it was a few years ago.

There is a build up of inventory, yes, but maybe that will go on for two more years. Or five. I mean, who knows?

Houses are still INSANELY expensive, and, yes, I'm a renter.

I'd love the prices to melt down; they may be drifting a bit, but I see no meltdown.

Anonymous said...

Since when is it an option to escrow your taxes if you have over 80% LTV? Or did this die in the great irresponsibility bubble that is modern lending. I actually remember that they said my mortgage was harder to get in the late eighties BECAUSE they had to sell it on the open market. I think anyone who can remember those times has a good benchmark for evaluating how far things have fallen. As usual, young people don't know what they don't know.

Also: looking at the handy, dandy chart on resets. Does anyone have a guess when the crash/credit crunch will hit the MSM and the stock market based on that table. It looks as though most of the resets come to roost over July - October, but the data always lags. But a significant amount of homebuilders should be out of work by summer IF the banks tighten credit (why stop building houses as long as you can use OPM?)

Eric said...

don't forget Pogs.

Anonymous said...

I love the new housing bubble shirts!

Anonymous said...

hey, how about my original starwars collectables

Finally Got out said...

After 8 months of trying, I finally sold my home in Las Vegas. But I am having seller's remorse this morning.

I bought it for $278,000 in 2003 and sold it for $403,000. So on paper I made out pretty well. Had I sold it in 2005, probably could have sold for $50K, $60K more. Zillow prices the house at $428,000 so I feel as if I let the buyer have it for a damn good price.

My thinking was, it's been on the market for 8 months, this might be as good an offer as I get. There are 6 other homes for sale on my street and there have ben 4 foreclosures recently in my neighborhood.

But on the other hand if I rent the same house, it will cost me the same as what I pay now in PITI less tax break less principle bayback, in both cases around $1700 a month. So as far as monthly cost goes, rent vs. own is a wash.

My fear is that I sold at the bottom and all the doom and gloom talk was really just that, talk. Maybe if I just rode it out for another year or two it would have been better. In the meantime I have $135,000 in various CDs.

Oh well, can't undo it now, all I can do is hope I made the right decision and cheer on that collapse. But I have this feeling deep down in the pit of my stomach that I made a mistake.

Tell me I did the right thing.

Mark said...

Finally Got out said...

You're lucky to have gotten that deal---you're correct in your assessment of the market, and believe me, that 50-60K you "could" have gotten won't mean anything next to the 70-90K you might have lost hanging on to your desert box.

Corey said...

Today's new home sales report: Demand down 1/2 million. Contractor bankruptcies loom. More at http://infohype.blogspot.com

john_law_the_II said...

Finally Got out said...

I think you'd have to ask yourself this question. what will most likely go up? the CDs I bought(as in how much money I'll make off the yield) or the house you sold. from the description of the state of your neighborhood, it seems like you picked the CDs.

Anonymous said...

Are people really this clueless? I know it's easy to blame lenders for hoodwinking people into negative option arms. But at the end of the day it is the person't responsibility to know what they hell they're signing up for. I have no sympathy for these clueless morons.

From bankrate.com
In the survey conducted by Gfk Roper, homeowners with mortgages were asked what type of mortgage they had. A stunning 34 percent of the homeowners had no idea.

"That's a symptom of the complexity of the mortgage market today," says Ken Wade, chief executive officer of NeighborWorks America, a nonprofit organization that provides financing and training to neighborhood-based housing organizations.

A generation ago, mortgages were made primarily through banks. Today there are many more types of organizations making mortgage loans, some of which are less regulated than banks. Adding to the confusion is the variety of loans now available to borrowers. "There is a proliferation of new products that come on line just about every week, and I think it creates confusion among consumers," says Wade.

Younger borrowers, and those with less experience as investors, can find the array of loan choices particularly confusing. Anthony LaGiglia, managing director of J.J. Burns & Co., a financial advisory firm in Melville, N.Y., says such borrowers have fewer benchmarks against which they can judge loan products. "They don't know what the market can be paying them in interest, and they don't know how much they should be paying on loans, either. That's a situation ripe for abuse by unscrupulous mortgage people."

finally got out said...

One other thing to point out to you all...it was my wife who was the catalyst for getting out. I have read a lot of woman bashing on this blog with women portrayed as scatterbrained. impulsive buyers who demand the McMansion, etc.

Not my wife. She saw what was happening and was gung ho about getting out. I knew I kept her around for a reason :)

sinis said...

>>Finally Got out said...

I bought it for $278,000 in 2003 and sold it for $403,000. So on paper I made out pretty well. Had I sold it in 2005, probably could have sold for $50K, $60K more. Zillow prices the house at $428,000 so I feel as if I let the buyer have it for a damn good price.



Well, ~30 grand profit ain't bad for 4 years. Might have done better in the stock market...

Anonymous said...

"Well, ~30 grand profit ain't bad for 4 years. Might have done better in the stock market... "

403 - 278 = 30?

No wonder you freaks think renting's a good deal, you can't even do basic math.

time2buy said...

Houses in Compton are being given away for $500,000

Who would be stupid enough to throw away money on rent when you could grab an 1100sqft 1950's house in the middle of the Crips-Bloods battleground for only half a million? This proves that buying is always better.

Anonymous said...

Speaking of manias, I saw a picture that showed San Francisco harbor during the Gold Rush. The picture showed the Bay filled with 100's of ships that had been abandoned by their crews who left to seek their gold fortune in the California foothills.

Of course, only a few miners actually "struck it rich" in the hills, whereas the ones who made their fortunes those businessmen who catered to the needs of miners, e.g. suppliers, cooks, clothes manufacturers, etc.

Fast-forward 150 years later, and we have people like Casey Serin who've abandoned their jobs to make their 'fortune' in the latest version of the Gold Rush, the real estate Rush. Instead of panning for gold, we've now got people flipping for gold. Same mentality of 'get rich quick'.

But who made the $$$ here? Mostly, the members of the REIC (lenders/brokers, real estate agents, appraisers, etc). Basically, it was the people who helped support a commodity driven red-hot by legends of riches and wealth, with the whole "it only goes up" mentality.

sinis said...

Anonymous said...
"Well, ~30 grand profit ain't bad for 4 years. Might have done better in the stock market... "

403 - 278 = 30?

No wonder you freaks think renting's a good deal, you can't even do basic math.


No, it looks like YOU cannot do simple math douche!!!! Deduct his monthly mortgage of around $1700 for 4 years along with maintenance (~20k) = (~100K). If he had a thirty year fixed then over the course of the 4 years he paid mostly into interest so his purchase price of 278K minus any negligable equity, plus what he paid into the mortgage (mostly interest) would put you around 378K. I assume he made some upgrades or maintained the property for the 4 years so I calculated a generous 20K back into the 48 months X $1700 = ~378K - 403K = ~20K

Anonymous said...

the fed has to inflate in order to meet its obligations. Intelligence not stinky feet is rated on the distance one has come?

Anonymous said...

can not wait to see the craters on the side of the foreign owned interstates, used to mine natural resourses, as a method of debt releif, or is that minings ala bombs

Anonymous said...

No, it looks like YOU cannot do simple math douche!!!! Deduct his monthly mortgage of around $1700 for 4 years along with maintenance (~20k) = (~100K). If he had a thirty year fixed then over the course of the 4 years he paid mostly into interest so his purchase price of 278K minus any negligable equity, plus what he paid into the mortgage (mostly interest) would put you around 378K. I assume he made some upgrades or maintained the property for the 4 years so I calculated a generous 20K back into the 48 months X $1700 = ~378K - 403K = ~20K

-----------------
It amazes me how financially illiterate you people are.

You are saying his cost was $278K AND on top of that interest? You're a complete moron. If his cost was $278 he would have no interest payments. And $1700 a month mortgage payment on a loan taken out in 2003? Bwa ha ha ha!! That's a good one consideering rates were in the 5% range back then.

His only costs were this:

1. the foregone interest earned on his downpayment (if any)

2. the after tax cost of interest less what he would have paid in rent

3. the difference between what he would have paid in rent vs. what he paid in mortgage

4. the foregone interest he could have earned on #3

In 2003 mortgage rates for 30 years were 5.5%. Assume he put down 20% (big if) and his costs are as follows:

1. 4 years of lost interest on $56K, say at 4% = $9500 = $7134 after tax

2. Total interest payments over 4 years at 5.5% is $48,000, $36,000 after tax deduction. Assume $1000 in rent for 48 months it's a negative cost of $12,000.

3. Mortgage payment would be $1260. Say rent would be $1000 for same home. 48*260 = $12,480

4. 4% over 4 years for $12,480 is $2119, $1600 after tax.

So his total costs for owning a home as a grand total of $9500. Add it $5000 for maintenance and you get $15,000.

His profit was 403-278 = $125K. Take out the $15K in costs = $110K.

His investment was his down payment of $56K. His return on that investment was $110K which works out to 239% over 4 years or about 31% a year.

Once again....you prove your doucheness.