July 23, 2007

HousingPANIC Stupid Question of the Day

What's stopping you from going out today and buying 10 homes for more than their worth with no money down IndyMac Liar's Loans, negotiating with the seller and corrupt realtors, mortgage brokers and appraisers to suck out massive amounts of cash-back-at-close, then taking the tax-free money and running?

Huh? What's stopping you? Come on! Live the American Dream!

(note, I'm short IndyMac, and I'm pretty darn sure this whole flim-flam game is gonna blow)


Anonymous said...

That was last summer's game. Who wants a depreciating home around their waist now? It's better to be liquid and able buy gold as an inflation hedge or bank/currency collapse.

keyser soze said...

See the resemblance w/ Faye Dunaway?

Anonymous said...

This actually a good question. Wondered that myself? I spoke with a fake realtor (they're all fakes in the end) in Vegas and she said, and I quote,

"I INSIST- ALL my "clients" buy only homes/condos that offer CASH BACK!"

She went on to say (in a thick eastern-euro accent, spare the flame, I'm of Bulgarian descent) that... "Wegas is Wegas, it will turn around. The cash up front enables you to weather the downturn until "things yet back to n-o-r-m-a-l..."

Golly gosh, thanks Natasha! I'll be on the hook for SIXTEEN PERCENT... OVER 2005's "wishing price" but you's schleps TOTALLY SHAFTED the debt market so there is ZERO "fat arb" ( let alone arb. period) so where is it exactly said buyer is supposed to park the "bag money"?

She went on to assure me that "I would get the "guarantee" of said "bag money" IN WRITING... BEFORE the close!"

Can someone PLEASE show me how this is gonna' work? You figure out a way let me know?


Anonymous said...

A sense of decency.

Anonymous said...

I've got to make a play so here it is.
Or currency has already been destroyed, I figure this is a good time to hoard it because it is unpopular. I think when $4 gasoline stets in and interest rates react to globalization cash will be king once again. I see everything EXCEPT incomes going up. This cant be good for asset values in the long run.

BobbyG said...

I hate to the contrarian here, but judging from the continued explosion in the price other hard assets (commodities, PMs, Fine Art, Collectibles), I am beginning to fear that the FED is going to put a floor under the decline in home prices. Let's face it, the FED is desperate to lower interest rates and they are masking the true rate of inflation with their bogus statistics to provide them with a cover to do so.

Even thought the FED knows the dollar will be crushed, it also knows that Foreign CBs will be forced to keep buying are debt in order to keep their own currencies from strenghtening.

If the path of least resistance for the US is hyperinflation engineered by rate cuts to stave off a housing bust induced recession, won't all hard assets, included real estate be bolstered? Especially if the rate cut comes just in time to save ARM borrowers from feeling the pain of their rates resetting.

Anonymous said...

I'm just lazy.

eekamous said...

what stops me;


an ingrained sense of right and wrong

I'm not a christian so I can't mumble something to my imaginary friend and be granted guiltlessness.

Do unto others, yadda yadda.
Any other contingent is just an excuse.

cobra2411 said...

The cash up front enables you to weather the downturn...


Lets look at this. Peak to peak takes at least 10 years, sometimes 15. If I buy a condo for $500k at fixed 7.5% that's $3,500/mo (not counting condo fees, taxes and insurance). That's $42k/ year. Lets say it peaks again in 10 years, that's $420k.

Lets rent then... Ok, rent for $1500/mo. That's still $24k / yr or $240k needed to cover to break even....

Give it 5 years, then I'll think of buying. 20% YOY depreciation for say the next three years puts the condo at about $260k. Interest rates will be up (9%) so it'll cost a little over $2k/mo. Minus rent of 1500 and your cost is 6k/yr or 30k for 5 till appreciation kicks back in and you can sell for $500k. Cost $290, Sell $500, "projected" profit of $210k...

I kept the math simple. Too simple for it to be anything more than an illustration of why you don't want to buy today. Even with cash back... Unless you can buy a $500k condo with $400k cashback.... I'll line up 10 or so of those, burn the banks and go to some country without extradition... Ahhh... The American Dream...

cobra2411 said...

BobbyG, I bet the FED does everything they can to save the dollar.

They're in an interesting pickle right now.

Drop the rate to save the economy and the dollar tanks, carry trade unwinds, foreign investors take off and we see double digit inflation.

Raise rates and the economy stalls and slides into a recession (if we're not there already). BUT raising rates will keep foreign investors happy.

Right now their leaving things alone hoping that something changes for the good.

My bet (and I've got money riding on it) is that rates get raised within about 6 months to save the dollar.

bobby said...

Thanks for responding because that is definitely the alternative outcome I have been considering. But I think that is less likely than the dollar crash/hyperinflation outcome for two key reasons:
- with the 2008 election looming, the FED's Republican Masters will not tolerate any risk of recession and
- I am convinced that the FED believes (correctly) that the foreign CBs have no choice but to continue to finance the US' profligacy, even if the risk losing market value due to a declining dollar or a steepening yield curve. In fact, if the FED lowers short term rates and long term rates rise, the YEN carry trade will stengthen.

The only way to make money in your scenario is to short assets (hard and financial) and remain in cash. I have been so far straddling both outcomes

cobra2411 said...

bobby, I see what you're saying and I believe in the end Benny boy will protect the dollar. He's shown he's willing to take it to the brink (dollars at 80 right now and futures are below that).

I believe the republican agenda is to have all this blowup in the lap of the next president (which will be a democrat). They can't let it get too far out of wack because they'll want to come back in '12 and fix everything and lead people to believe they're the saviors and democrats are the bad guys.

The problem is that we're right on the edge where he'll be forced into doing something. Accounting for people's stupidity they have to wait at least till the results of the election are in (Nov). People will readily buy the story that the democrats killed the economy even if they're not in office for another 3 months. I don't think we have 4 months left before he'll have to do something.

If you drop rates and people pull out of the US and drop the dollar as the universal currency then we have huge problems. Much bigger then the housing collapse; which will go into turbo overdrive...

I also agree that foreign banks will continue to support the US. Up until they can't. Inflation is rising in China in part to all the money they're printing to sent to us. At some point the threat of inflation is worse then the fall of the dollar.

We're backing into a corner here. Best course of action is to bite the bullet and get the recession over with, but the FED so far is refusing to do it. Given the choices I say they raise rates and send us into a recession; and as I've said before I think we're already there.

In either case going to foreign investments, especially in countries that haven't supported the US debt (euro nation) will work and it's what alot of investors have been doing. There's also gold, which if the dollar tanks will rise.


Anonymous said...

Our money supply consists of fractional reserve banks making loans. The act of creating a loan increases the money suppy. It is a private banking cartel that creates and destroys "money". While the Fed can create some money, the bulk of money is created by the commercial banks. All that needs to happen for a deflationary depression to happen is for money supply growth to slow, since money supply growth pays for the interest on the existing loans. Without constantly expanding credit the system implodes. The Fed knows this, and they know they are powerless in a deflationary depression, since if people are not willing to take on loans the money supply will not grow sufficently to service the existing debt. Once a deflationary spiral starts it is impossible to stop. Heli Ben is bluffing and he knows it. If people are not in the mood to borrow, good luck on increasing the money supply.

Implosion of this system is WILL happen, it is just a matter of time. Interest rates will drop to 1%. Gold will probably fly, mainly because the viability of the entire system comes into question.

Anonymous said...

Hey DinOR,
Mitaka says hi !
Any other readers
of Bulgarian descent ?

Anonymous said...

Hey BobbyG,
You got it wrong. The $ can and
has achieved much more than
threats and military might- it
is a more powerful geopolitical
tool than the US Military.
They cant just let it get
slaughtered- if so, the world
will panic- OPEC will demand
Euros and Yen for oil (Iraq did
in 2000, now Iran has), China
will dump $1 Trillion (with T)
and the US will get back to the
Wild West days (literary).
So the FED will try hard to manage
slow decline. At the end though,
the dollar is dead in the water.

Anonymous said...

"If people are not in the mood to borrow, good luck on increasing the money supply."

Sure ! However, few commercials
is all it takes to change the mood
of the sheeple. If by virtue of
a miracle the sheeple turn into
people overnight and refuse to
buy the commercials, thats fine too- King George, with a stroke of
the presidential pen will assign
another $100K of loans to everyone
by virtue of expanding the war
on bullshit to... hm, does it
really matter ? Just pick some
weird oil rich place...