bostonbubble.com

[samz]

[stillRenting]

Can we keep this thread for predictions. I still feel mine will come true:

[john p]

All predictions are based on a set of economic conditions, meaning if certain conditions are in place, the course of events will follow this pattern. My wife and I want to go to Nantucket to go bike riding; that will depend on the rain that they're forecasting this weekend, so our fate will depend on the weather. You're kind of like saying, let's talk about bike riding on Nantucket but view the Hurricane Katrina Storm as off topic.

When you made your prediction what conditions were you thinking about.

Did you have this bailout in mind? If you did you're smarter than Bernanke, Paulson and the CEO's from AIG, Bears Stearns, Washington Mutual, both Presidential Candidates, etc.

This bailout has huge ramifications in housing. It is the 1,000lb gorilla in the room. I can't imagine about making any prediction model on housing without having a position of the impact of this bailout.

Hell, Karl Case, one of the best experts we've got here in the Boston area said this summer that the fundamentals were such that he saw a rebound and he said recently that all bets are off due to this gorilla of an issue (Great Depression potential scale issue).

My house zillow's at $20k more than I paid in Sept. 06 (a trend consistent with my town), and if you look at Plymouth County, it bottomed in the early Spring and has trended slightly upward. Plymouth County was less overvalued than say Essex and certain areas in Suffolk or Middlessex, so they had a bit of a ways to correct, but if the FED continued his reduction in rates, I felt that the mortgage industry wouldn't have been spooked with inflation. The greater the inflation fear, the higher the interest rates, and the higher the interest rates, the less a buyer could afford and offer on a place, and the lower the house prices could be. Further, fewer people could reset into a fixed rate that they could afford. The lower the house prices, the fewer people there would have been who would have sold for a loss and foreclosed. If rates were lower during the Spring Season a significant portion of this would have been avoided. I understand that the FED doesn't set mortgage rates, but by signaling inflation, it spooked banks to raise rates and cause more people to be upside down and fail and the first wave of failures scared the bond market for the morgage back securities and nobody was lending.

Let me also ask you, when you do buy, what do you predict your mortgage rate will be?

[barrys]

John P,

As for being smarter than the people that got us into this.... I think we can all find dozens of examples (including roubini who nailed it) of people that predicted this.. Hell our man Soldatthetop from paper-economy called out Barney Frank in june regarding what he saw was the imminent government bailout of Freddie and Fannie.... so at least one frequent poster is smarter than the individuals you mentioned.

As for certain economic conditions-- there are still certain benchmarks not affected by the current mess-- i.e. income to mortgage, rent to mortgage, etc.

As for case-- you forget the other component of that index-- he did not have as rosey of a view...

As for Plymouth county http://www.city-data.com/county/Plymouth_County-MA.html
Looks like at least a 10% drop in actual sales price sinc 2006... and zillow, we all know that that data is more than a little screwy

and finally, as for mortgage rates--- if they do increase, with the recession we are already in, i would hate to think where the prices would end up....

Good luck to everyone and let us hope this does not get as bad as it could...

my prediction-- i started this post

[john p]

Here's an article about lending as a result of this banking crisis.

http://money.cnn.com/2008/09/26/real_estate/crisis_and_mortgage_markets/index.htm?postversion=2008092606

I just checked out that link you posted; very good site.

I wasn't lying check out this link: (see the data and

http://www.zillow.com/homedetails/charts/57182998_zpid,5years_chartDuration

Maybe you're right, zillow is f-ed up?

Best of luck to you on whatever your strategy is. I'll always try to footnote any source so you can see the basis of my positions so you can filter what you find valuable or not, but I'll try to give you the best of what I see and promise I'll be honest. I apologize if my tone is off, but I'm a bit freaked out and beside myself that some of the people who are part of the problem are actually gaining political capital out of this, and on the one hand I'm afraid of McCain because we might be at war with Iran and Obama could send us in to deep recession/depression with his socialistic proposals (proposing to give millions of people who don't pay taxes free money from the government) and I don't want to end up being a second tier nation like the socialistic nations in Europe. The two recessions in the 90's kept a lot of talented people on the sidelines...

My wife and I decided in mid 2006 that the market at our price point would correct about 20 percent or so, but interest rates would rise and wipe out about 5 or so percent in monthly payment affordability due to increased rates. So we lowballed to just under 14 percent or so and figured that if we had a few/five years in on the overall term, we'd have about 27 to 25 years left. Although we could have saved more living in an apartment, we thought that any gains in investment might get hurt with a turbulent market. Also, we realized that selection was limited and we'd only get something if it was perfect. The town and area hadn't really been discovered and with a new commuter rail line in town, I felt it would turn into a town like Acton or Hopkinton eventually because those towns were sleepy farm towns. I actually preferred this segment because it was closer to the Ocean anyway.

I've followed the market at my price point and can honestly say that I can't easily get the house I have now for the same deal, today. I'm not sure what people are getting off of asking price on the whole, so I'm just stuck with zillow...

We didn't feel comfortable putting down more than 5% as we wanted a little cushion for the unforseeable, and I felt that if prices were to drop significantly, interest rates would rise as well as lending standards, meaning you'd need at least 10 to 15% down payment. If I had 20% to put down, I would be less afraid of the increased lending standards that I saw coming (that we have now). Depending on your financial position, a strategy may be good or bad.

In the end, I thought of somthing like this saying "The market can stay irrational longer than you can remain solvent".

I know some people about 5/6 years older than me that tell me that their college tuition (state school) was about $4,000 a year and their starting salary at their first job was $27,000. This has a price of a year of college to first year of earning's ratio of about 7 times. Today, if people can get 3 times they're lucky. If they go out of state tuition or private, they'd be happy with 2 times and sometimes 1. I don't see how these younger bonded kids are going to be able to save when they're up to their ears with student loans. They don't have cheap rentals like they did back in the late 80's early 90's. The only way I saw these people having a fighting chance was there to be wage inflation to balance things out more, as well as a market correction for housing. In all fairness, I think wage inflation is needed to catch up to find balance. The economy has been set up for trickle down economics and I think we should expect it to manifest itself more or like I've been saying, a socialist will show up and ride in on a wave of discontented people, and will lead them deep into recession. A full blown recession leaves these kids out on the sidelines and they can't build their experience and careers. What I'm rooting for is a correction to make things reasonably affordable while not having a financial catastrophe that will sideline everyone so nobody wins. This bailout could f-up a lot of good people's plans for a long time, so I'm dialed in as best as I can be. Maybe the greedy people have to learn the hard way and get a taste of socialism because they asked for it, but it's not going to be good if you're industrious or ambitious. The deadbeats will love it because they'll get "entitlements". In the potato famine, the poor had rings around their mouths, stains from eating grass. Today, we have "discontented" people with I-Pods, multiple pairs of sneakers, video games, flat screen t.v.'s, cell phones. They all complain that things are awful and that capitalism is awful. Wait until they take a bite out of the shit sandwich of socialism.

This election and this bailout have the potential for having the biggest economic impact that I've seen in my life.

[john p]

I also think extremely highly of all of the regular posters on this site and I'd love to get more about the basis for a few of your positons. Everyone's predictions are based on a set of assumed conditions and it isn't about being right or wrong, it is about putting those assumptions out there for evaluation and updating your evaluation based on improved calculus or updating of those conditions. .

[stillRenting]

John P.

The Forum is about the economic conditions. This thread is about predictions. Can we have at least one thread on this site that sticks to one thing and not a bunch of rants that are way too long for anyone to want to read?

As for your cheap comment about me thinking I am smarter than those people you mentioned, I, and many others, sold our real estate investments a few years back after identifying this bubble. You decided to listen to the weather man.

[showgunx]

I don't think the bottom will be this year, maybe next winter or the winter of 2010. The reason is, rent still far lower then buying expense in Boston. And the recession just started. The 700 Billion bailout will only delay, not pervent the deteriating of wall street and main street. The worst will come after the election.
I belive one day the rental income can cover mortgage PLUS land tax and maintainces.
I belive one day everybody needs 20% down payment and 750+ FICO score to qualify for buying a house.
I belive one day 95% of general public will lose faith in real estate.
Real estate as a good investment is still a fresh memory to everybody, many of us still belive the turn around is right at the corner.
I will remind myself everyday that when one day, even I myself lost faith in real estate as a investment, that is time of bottom and that is time to buy as much property as I can afford.
Until then, I will put my head down and keep saving as much money as possible.

[john p]

Still Renting:

If you don't offer any context or basis points around your predictions they are meaningless.

Do you think for a f-ing minute someone would believe a guy named "Still Renting" on the internet if they didn't outline any fundamentals or sources or thoughts to back up his positions? I'd write less if you'd offer more substance. In a way it is a bit selfish to just come and benefit from others research and time to develop and articulate thoughts and not leave a little value and basis for your positions.

This is a discussion thread, not a survey, set up a survey. How is it valuable if "RockStar4297" thinks housing will go down 10% more and bottom in 2010? We had a guy named "Condo" who was offering data about condo values and it was people like me that would pepper him for substance and backup to support his positions. Robert Shiller talked about "Irrational Exuberance" I'm asking for support and a positon regarding context because it grounds predictions to rationality.

I've read more articles and offered the best written and most substantive ones for this community. Ask any of your friends if they know what the Community Reinvestment Act is.

Here's my prediciton: If the people who f-ed this up are going to be allowed to be the authors of the bailout we are screwed and we elect a socialist, houses will remain flat for two years, and some of the overpriced counties will drop up to 10 percent more, and the economy will tank for a few years.

Think about it, we're asking for a hanging on some of these CEO's but the politicians who crafted the Community Reinvestment Act and set this into motion will walk out like heros in the eyes of the lazy people who don't do their homework, the dumb lemmings that caused this by putting the irrational in irrational exuberance.

How about Barney Frank's predictions regarding Fannie Mae and Freddie Mac? Does that not qualify in a "predictions" thread? When government plays too strong a role in any business they screw it up. The way it works is like this: Politicans put in political hacks who are beholding to them. The hacks line their campaign chests i.e. Harold Raines and Barack Obama (again, who got the second most campaign contributions from Freddie Mac and Fannie Mae). This will run it's course until they fail because they are incompetent and corrupt. When it crashes we expect the Press to cover the Community Reinvestment Act and how it allowed the securitization of subprime loans and blew away the fundamental boundaries and limits to what was fundamentally rational. Basically, the Government mandated that banks lend to deadbeats. Now, the Press is hog-tied because they are commited to Barack Obama and they can't report that he got the second most campaign contributions from Fannie Mae and Freddie Mac and it is even more hypocritical that he's using the line that corporate lobbyists are controlling Washington, and then the biggest problem produced by Washington, Obama was in the front of the line of the political piggies. It is absurd that people believe his rhetoric when he is caught red handed in the biggest f-up in as long as I can remember. This is like making your own Hurricane Katrina.

Now, it gets better, this group ACORN, another political hack pseudogovernment organization might get a sizeable amount of money in this bailout.

A structural engineer designs their foundation based on the structural capacity of the soil. They drill borings to find out what the soil is, but when they actually excavate they can see the reality. The load bearing capacity here are the dumb money, the smart money and the political leadership. In order for our society to take on more load and be able to support growth we need smart individuals who do their homework and strong leadership and a Press that can admit they made a mistake. When people ask how on earth the Community Reinvestment Act was created and how on earth Fannie Mae and Freddie Mac got so screwed up, they'll be behind the curve on the new hack and corrupt organization ACORN.

[barry]

my goal with this is to not write a post longer than johnp's-- but it is long-- most legislation cut and paste

if you judge this legislation on who is pushing it-- we are all F#%^ed....
Barney Frank= Sank freddie and fannie
Chris Dodd= received a "suspect mortgage"
President Bush== Super Genius
Bella Pelosi = Socialist...
Bernanke= Great job thus far
Hank the Tank= My net worth is 500 mil, and i need to help my friends so they still have there maserati's

My issue is that this group of people did not foresee this issue, but are sure they can fix it? bull sheet. I am a market contrarian, and feel this is a needed correction-- sure some stimulus is needed to ensure credit markets do not freeze, but watching the market drop down to 9500 will just help us get back to fundementals... remember when a good P/E was under 10-- good luck finding that.

That being said: as you can see from the following this is a very politically minded document--- is it going to stagnate the housing market-- i think so-- and the (current) subsequent recession will drop prices by 5-10% due to standard economic cycles.

The purposes of this Act are—
(1) to immediately provide authority and facilities that the Secretary of the Treasury can use to restore liquidity and stability to the financial system of the United States; and
(2) to ensure that such authority and such facilities are used in a manner that—
(A) protects home values, college funds, retirement accounts, and life savings;
(B) preserves home ownership and promotes jobs and economic growth;
(C) maximizes overall returns to the taxpayers of the United States; and
(D) provides public accountability for the exercise of such authority.

and what they plan to do with foreclosure-- what is avoidable-- the guy with a 3k mortgage and a 4k income? or something else?

SEC. 109. FORECLOSURE MITIGATION EFFORTS.
2 (a) RESIDENTIAL MORTGAGE LOAN SERVICING
3 STANDARDS.—To the extent that the Secretary acquires
4 mortgages, mortgage backed securities, and other assets
5 secured by residential real estate, including multifamily
6 housing, the Secretary shall implement a plan that seeks
7 to maximize assistance for homeowners and use the au8
thority of the Secretary to encourage the servicers of the
9 underlying mortgages, considering net present value to the
10 taxpayer, to take advantage of the HOPE for Home11
owners Program under section 257 of the National Hous12
ing Act or other available programs to minimize fore13
closures. In addition, the Secretary may use loan guaran14
tees and credit enhancements to facilitate loan modifica15
tions to prevent avoidable foreclosures.

and the final kick in the nuts--- and it is a big one that makes me wish i was as irresponsible as some of these mother humpers--

2) MODIFICATIONS.—In the case of a residen14
tial mortgage loan, modifications made under para15
graph (1) may include—
16 (A) reduction in interest rates;
17 (B) reduction of loan principal; and
18 (C) other similar modifications.

[StallionMang]

>> Can we have at least one thread on this site that sticks to one thing and not a bunch of rants that are way too long for anyone to want to read?

A-men.

[john p]

I am trying to help guys; always have.

The subject here is the housing bubble right? Politics should be aside right? Ask yourself if that is reality. Does the reality separate politics from the market?

The Community Reinvestment Act inserted politics with the housing market because it allowed the securitization of subprime loans. The banks wouldn't have accepted these mortgages if they couldn't slice and dice them and sell them off. So a significant portion of this was caused by the interjection of politics and government intervention in to the housing market. Politics are part of the reality in the housing market and to ignore them and categorize them as outside the scope of this market will give you a blind spot. Further, this is a Presidential General Election that has taken on a different dispostion than any other in that because districts have been gerrymandered you get very concentrated viewpoints, the same way cable television has created polar viewpoints to tap into certain segments. Before, the two party system moderated and tempered politicians, the "tone" of Washington has not been tempered, and in fact has been amped up in each party. This is important because our reality, our future in the real estate market will depend on which candidate gets elected. Making a prediction about real estate in 2008 needs to have scenario 1: Obama Wins, and scenario 2: McCain wins. Given Real Estate, the Democrats in the late 90's pushed the Community Reinvestment Act and since have blocked reform attempts on Fannie Mae and Freddie Mac in 2003 and 2005. Dodd and Obama were paid off more than any other politician by Fannie Mae and Freddie Mac. Obama's rhetoric states politicans being paid off by lobbyists is the prime reason why Washington is messed up, and in reality, the biggest mess up is Fannie Mae and Freddie Mac and he took from them and his close economic advisors actually ran Freddie Mac and Fannie Mae. In their proposed "Bailout" the Democrats wanted to give money to this ACORN organization. Sorry, but from my perspective, the more government intervention, the more irrationality you inflate into the bubble. Market forces are trying to deflate the bubble and people are becoming more rational, I don't want to see that backslide so I am trying to inform, that is all.

I am sorry I write so long, I honestly want people to factor in everthing that surrounds the decision to purchase real estate and hopefully people might be one step ahead of the curve. Please don't let my meathead tone or longwindedness distract from the issues and research I've found.

You have to admit, this current event is a big deal, and I amp up when things get amped up. I am a self admitted meathead, so please don't think I'm trying to diss anyone.

[stillRenting]

[balor123]

My prediction: stats will keep saying how far housing prices have fallen but it won't make a difference to me. All the houses that I would consider buying in the (not so small) area that I follow will continue asking and selling for the same unaffordable prices.

I'm hoping that housing continues to decrease. I hate being at the base of the housing pyramid scheme.

[JCK]