Mortgage Rates Drop! It Does Not Mean What it Used to
Posted on November 26th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research
First off, Happy Thanksgiving everyone! I really wish you all the best.
Ok, now down to business – I have heard enough of the rampant speculation about how a 50bps drop in conforming mortgage rates are going to save the housing market – I wish it were that simple. There is not a lack of liquidity in the mortgage market. Rather, a lack of qualified borrowers given current lending guidelines; lack of aggressive Jumbo money; major asset devaluation; and terminal negative-equity. These factors make this excitement over a 50bps drop in rates a red herring.
VERY FEW CAN GET 5.5%
For an in-depth look at today’s mortgage rate environment, check out my most recent story Mr Mortgage: An In-Depth Look at Mortgage Rates: 5.5% is Nowhere Near Reality For Most
Remember folks, the rates at 5.5% you are hearing quoted are for the best AAA, high-FICO, low loan-to-value, owner-occupied purchase or rate & term refi. This loan scenario makes up the small minority of all borrowers. The rates for most of us are still well over 6%. The rates for Jumbos are much worse and did not respond anywhere close to conforming.
We can’t even be certain yet these levels will hold. Remember folks, we have seen this happen a few times this year. Each time, rates went right back up after the initial knee jerk lower. It is happening again this time as well. Ever since the initial betterment on Tuesday morning, rates have been increased higher multiple times in just two business days. As of Wednesday afternoon rates have climbed back up to a level that has wiped out half of their initial gains. For example, last week a zero to half point 30-yr fixed was around 6%. On Tuesday is jerked down to 5.25% and is back to about 5.625% now. I am still not convinced that the low rates will last – I talk about in HERE. I bet we see a 6-handle on base-rates again by year-end.
But, for the purpose of this analysis, let’s pretend that conforming base-rates stay at 5.5% (NOTE – Jumbo Agency money is still well above 6%. Jumbos over the Agency Jumbo limit can be as high as 7-10% because these are bank portfolio loans).
‘BACK THEN’
In the good-old days, when rates dropped 50bps in a short period of time, the entire country would refinance for a lower rate, for cash out, to combine a first and second into new first mortgage and then add a new HELOC, etc.
Back then when values went up every month and there were hundreds of lenders with thousands of programs and interest rate structures it was very easy to pump the mortgage money. Back then the refi waves came every 6-8 months and within a few months after a wave began it was noticeable how this injection rejuvenated the consumer.
This can’t happen any longer. Who do you think is out there to take advantage of these low rates? Much fewer than you would think and a lot less than in the past.
REFINANCES
-Negative Equity - Within the states that need to most help, the vast majority can’t refi due to negative-equity - see chart in this LINK. In CA for example, some 60% of all mortgagees are either underwater or ‘near’ underwater and and will not be able to take advantage of the rates. NV, FL and AZ are even worse. The top 10 trouble states in the nation are mostly stuck underwater in their homes, unable to move or refinance.
-Rates are really not that low - The rates you are hearing about at 5.25% were there for a brief period yesterday morning but by the end of the day every lender had re-priced rate higher multiple times. Rates jumped back to the 5.5% level where they sit now.
***Rates are lower than last week for sure, but these ‘low rates’ that are being heralded are ONLY for the best AAA Prime gold borrowers with 80% CLTV’s and 720 scores. This represents a small fraction of borrowers. THE REST STILL GET RATES WELL ABOVE 6%. As a matter of fact, most borrowers with this profile did not participate in the past several years of serial refinancing and many already have low 30-year fixed rates at 5% attained in 2003-2004. These rates are not for anyone less than perfect.
-Steep rate adjustments - Now days, the GSE’s have steep adjustments to the interest rate for less than perfect credit scores, higher loan-to-values, cash-out etc. These steep adjusters carry rates for most well above 6% even at today’s lower rate levels.
-Folks don’t qualify – ‘Back then’ nearly everyone could benefit from a drop in rates because values always went up and because stated income and interest only loans made it so everyone could qualify. Until mid 2007, lenders actually funded 75-80% of all loan applications! Now, lenders are funding 40-50% of applications. That is serious fall out. Now, you must have two years tax returns, a current pay stub, great credit and sizable equity to take advantage of the best rates. This profile represents a small minority of borrowers.
PURCHASES
With respect to purchasing, since over half the market is distressed sales of foreclosure related properties, rate does not matter as much – home price does. 6% or 5.5% will not change things – its about how cheaply they can buy. Everyone wants a ‘deal’ on a foreclosure.
Many ‘investors’ buying distressed properties pay cash. Those that don’t have much tighter qualifying rules and a much higher rate structure anyway because rental properties carry more risk. The GSE’s are now pricing in that risk.
Renters and first time home buyers are a different story and should see some benefit to lower rates if they hold. They will either save money or qualify for slightly more house. But remember, first time home buyers and renters are the weakest portion of the market and have always been. What is missing is the all-important move-up buyer, which lower rates will not help to any great degree. This is because of the gross amount of negative equity already discussed here and because without all of the exotic loan programs and easy qualifying many can’t even afford to re-buy the home they live in now.
MORTGAGE ORIGINATORS ANNOUNCE RECORD VOLUME ON 11-25…NOT SO FAST
I emailed a good friend at a national mortgage bank yesterday and asked…
Mark: Of all your loan locks today, how many were re-locks of loans already in process with other lenders. If it was heavy, it would show that yesterday’s massive mortgage action was not a bunch of new loans but just an aggregation of that past 30-days of production at higher rates that all moved to other lenders on the same day (today) for lower rates? I am trying to validate that on days where rates drop through the floor in a single day, very few new loans are originated. Rather all bank lose their present portfolio as borrowers and brokers go elsewhere to capture the new pricing.
David: Most were re-locks from other lenders on loans already in process. Some were refi-churns from the past 6 months originations including some of the re-locks. Another problem on days like today is that brokers lock everything in their systems without checking with their clients first because their computer tells them that John Smith can benefit from a refi if rates fall to a certain level. They lock up the loan to protect the rate and then call John Smith to find out he is delinquent, unemployed or the home value has dropped to a level at which he can’t refinance using new guidelines. Days like today feel great when they are happening but end up being costly.
————————————————————————————
This brings me back to a research note I wrote in Jan 2008 about IndyMac that explains the flurry of mortgage activity yesterday, as rates dropped.
1/24/08 IndyMac locks $1 billion in loans in a single day – The Lies Never Stop
Michael Perry is the biggest information fabricator in the industry. Look back through all of your 2007 press releases and you will see how many times he has said such things only to disappoint the shareholders.
The facts are IndyMac sits on Billions of unsalable subprime, Pay Option and second mortgage loans. These three loan types make up 80% of their portfolio and most of it cannot be sold for any price.
All mortgage companies had record locks yesterday. But this is not ‘new’ business necessarily. When rates crash down like they did yesterday, everyone forward locks loans with whoever has the lowest rates. They may have already had these loans locked at a different lender but relocked somewhere else to get the better rate.
IndyMac took a lot of business from other lenders yesterday. But, they lost a lot too. When this happens, portfolios just tend to shift from one lender to another, as borrowers and brokers want to take advantage of the lower rates and the lender at which they are presently locked typically will not roll down rates to market. If you lock it, that is your rate.
So, yes Indy may have locked $1 Billion (3000 loans) but they likely lost 3000 loans at their shop locked previously in the month because the loan officer locked those with a different lender for a better rate. Of the 3000 loans Indy locked yesterday, 2500 likely were already locked and in process at another lender like Countrywide.
Now for the bad news…all of those loans IndyMac already had in their pipeline previously locked at higher rates that were pulled, will cause massive losses. Not, only paper and hedging losses but real operational losses from having staff work loans that will never fund. These loans are the exact ones that they wanted to fund because they carry a higher rate than market rate in most cases.
The new $1 billion (3000 loans) that they locked yesterday at the one-day lowest rates in 5-years are locked at such low rates, funding these could created massive losses since rates shot up so much in the past 24-hours. Rates are up almost 50bps since yesterday morning.
To add insult to injury, chances are IndyMac was not able to hedge these appropriately and/or do not have the forward commitments necessary to handle that much production. In essence, their entire pipeline of loans they worked so hard on over the past month churned elsewhere for lower rates at a COST to Indymac.
This whole deal could ruin them. Sounds counterintuitive, but it is absolutely the facts.
November 26th, 2008 2:44 pm
You know this. I know this. Anyone in the industry knows this. How is it possible that the “Really Smart Guys” at Treasury and the Fed don’t know this??
November 26th, 2008 6:11 pm
MM, thanks again for great analysis work!!! Have a great TG Day.
November 26th, 2008 8:02 pm
Look here, not over there. They know, they are just hoping that the many do not. And they do not…baa baa.
Hedgie, I remember reading this post wayback. LOL How come ‘ole Mike Perry has not faced any charges? I mean, he lied and drove ‘em into the dirt. I wonder what he is doing and has to say about all this?
Thanks for your analysis. Always helps.
November 26th, 2008 8:07 pm
BULL!!! the entire ownership society did not buy homes in 2005-2007. There are PLENTY of well qualified borrowers just waiting for the chance to reduce their higher fixed rate loans and switch out of the 5/1 and 7/1 ARMs they acquired years ago.
Rates are amazingly low compared to just a few days ago, especially “super conforming” loans as low as 5.625% TODAY with 80 LTV and 680 score.
Yes, it will be tougher to get loans approved. Yes, you will be turning down business. Yes, some folks won’t qualify. But, this is every bit the medicine that the real estate and mortgage markets need to begin to stop the bleeding.
November 26th, 2008 8:24 pm
This RE market has been going down forever now. I am exhausted. When will this finally end becuase I’ve had enough.
November 26th, 2008 8:24 pm
I would be a little more optimistic.
only way to get the homebuilders to stop whining for a bailout is to lower mortgage rates.
Rates are not going to shoot right up like you think……no fundamental reason for it.
Had my best week for purchase appraisal orders this year.
Thats my indicator of the strength of the market.
Market decline truly started in 2004. Thats when i first saw things breaking down.
Lets put the doom and gloom in the closet, serves no purpose other than to promote negativity.
There are buyers out there. There is alot of cash on the sidelines.
THE SKY IS NOT FALLING
Lets start thinking positive.
Happy Thanksgiving.
November 26th, 2008 9:02 pm
I am with you dick, but I still cant afford it. Our economy sucks and will suck until they level the field with some tariffs.
November 26th, 2008 9:19 pm
David, by virtue of them having a 5/1 or 7/1 it means they attained financing from 2003-2007. The loan programs were really not around prior to any great degree. In the bubble states were lower rates are suppose to be helping people get out of toxic loans, values are down to 2000-2002 level and worse in some harder hit cities. Therefore, unless those 5/1 and 7/1 borrowers you talk about put a lot down, never took out a second and have full docs, then you are wrong sir. Perhaps 10-20% fall under your assumption – 80-90% fall under my analysis. You know what you do when you make assume, right? You make an ASS out of U and ME.
November 26th, 2008 9:21 pm
By the way David rates were at 5.875 to 6% a few days ago…now they are 5.5 to 5.625% – this is really not that big. When the 10-year was in the low 3′s during the bubble years, 30-year fixed rates got into the 4′s and 5/1 interest only was at 4%. The mortgage spread over UST is still historically wide. Even with .gov’s sort-of implicit, implicit, temporary, permanent, back-stop, promise guaranty.
November 26th, 2008 9:24 pm
There are purchases but from the foreclosure stock. In the states that need the most help, organic sales are at an all-time low down 75% from 2-3 years ago. This says a) home owners are underwater and can’t sell b) home owners are near underwater and can’t sell for what the new down payment will be c) with lending back to where it was before the exotic years, there are no move-up home buyers because people can’t even afford to rebuy the home they live in now!
Happy Thanksgiving to you too!
November 26th, 2008 9:51 pm
david:
No.
Actually, what’s necessary for the RE market to get moving again is home prices decreasing to 3 x gross income, with 20% downpayments, and interest rates price risk acceptably. Like 9-11%.
Everything else is smoke and mirrors.
I cannot *wait* until rates are up over 12%. That will drive prices to affordability very quickly.
November 26th, 2008 10:25 pm
Well houses are moving when you knock 50% or more from price peaks as we are witnessing in Riverside etc. I would assume that pre bubble years price ratios of Riverside to whatever area would return. Dataquick mentioned that only around 13% of loans were jumbos so it appears that upper end is skimpy. Dr. Housing Bubble thinks sometime in mid 2011 the market will bottom and I tend to agree with that based on loan blowups expecting to end.
Except for one thing. When we look at other great moments in history such as the great depression and the Japanese asset bubble, we find that prices drop for prolonged periods much further out. So while we can look at specific types of loans that are set to bust and set a time in stone, there may be other factors at play that override what appears to be obvious to the naked eye.
When we look at our current credit flop and see that Bloomberg has the US at 7 trillion and counting (which I consider to be a state of emergency) and we are only about 3 months into fessing up, who knows exactly what kind of dollars we are talking about here.
Unfortunately we are not likely to be told the real size of the problem until well after the fact and the current situation is developing an ongoing basis. The current reported CDS positions are over 50 trillion which is about equal to world GDP.
If all the government does is remod current bad loans into pushed out bad loans with a high failure rate it would make for a bottom out there somewhere. Historically all markets over correct and don’t see why this one should be special.
People looking for bottoms this early in the game will likely buy way in advance of a true bottom.
November 26th, 2008 10:29 pm
I left San Diego in (sold actually) 3/2004. Bought in Phoenix in 5/2004.
I knew there was a problem when ANYONE could get a loan so I thought I’d take the money and run. I bought in Phoenix right before the big blast off, my house went from 530K up to 830ish had an offer at 715K but it fell out of escrow and now just closed for 525K.
Now….I want to go back to California. I just got back and prices in the ZIP where I sold are just a hair HIGHER than when I left!
My point? Prices have a long way to go. Yes, you can get 2002 prices in undesirable areas but if you want a decent area, those areas are only about 10% from the bubble peak!
I have a half million dollars and if I want to buy a house outright in S.Diego I need to live amongst the illegals. No thank you, I will wait until the bottom arrives and that for me is no more than 30% above 2000 prices IN THE GOOD NEIGHBORHOODS.
Of Course if all this money printing stokes the fires of inflation all bets are off. In that case in stead of my cash being king my Gold and Silver will be King and Queen.
Everyone I know seems to think you need to catch this “falling knife” because as soon as real estate hits bottom it will start flying back to the moon.
November 26th, 2008 10:59 pm
Anyone who has tracked CA RE will notice an extremely strong correlation between unemployment and home prices. When it jumps over 7% in unemployment, the system starts to break down quickly. We just recorded 8.2% unemployment in CA. CoreLogic estimates that 30% of all CA home with a mortgage are now in a negative equity position. Anyone that thinks we’re in the bottom for CA real estate should take a closer look at the data.
November 26th, 2008 11:08 pm
MM said
“Rates are lower than last week for sure, but these ‘low rates’ that are being heralded are ONLY for the best AAA Prime gold borrowers with 80% CLTV’s and 720 scores. This represents a small fraction of borrowers. As a matter of fact, most borrowers with this profile did not participate in the past several years of serial refinancing and many already have low 30-year fixed rates at 5% attained in 2003-2004.”
Exactly! I am one of those. I have a fixed 15 yr mortgage at 4% (for the privilege I had to pay 2 points).
The equity I am building is the real kind – by paying off the goddam loan. Do these stupid-ass people think I am going to refi with worse terms in order to get deeper into mortgage debt? I want what they are smoking!
November 27th, 2008 12:02 am
david, Mr. Mortgage is right. I know a white collar couple who bought at just about the peak in San Carlos (Bay Area peninsula) with a 10/1 interest only. With help from the in-laws they managed to put 20% down, but they’ve already lost 15% or so since the peak. They cannot refinance, because they had to stretch just to get the I.O. loan. They’re screwed, yet act like nothing is wrong, and continue to spend (new baby, new SUV, new roof, etc, etc.) If they don’t figure it out by fall of 2016, they certainly will then, as their 10 year I.O. loan will recast to a fully amoritizing loan (to be fully paid off in the remaining 20 years). They’ll likely lose the house at that point, as it will likely be worth approx 30% less than they paid.
November 27th, 2008 12:06 am
I just cannot believe the heists that occur by the day now, EACH and EVERY DAY, and our elected leaders SAY NOTHING, and do even less!!
Here’s a post on HP a year ago, on how Countrywide was robbing the Federal Home Loan Bank. And then yesterday, the Fed covered up crime
Man, this one really pisses me off.
Countrywide (and Indymac) had the monkey-run FHLB buy up their toxic mortgage-fraud garbage, to the tune of over $100 billion. We couldn’t believe it at the time, wondering just how corrupt or stupid the people at the FHLB had to be.
Well, we got our answer yesterday, as Hank Paulson and Ben Bernanke put the US taxpayer (again) on the hook for Angelo Mozilo’s crimes, thanks to a tweak they had Congress make that allowed them to buy up unlimited FHLB debt. Unlimited. At any price they feel like.
No investigation. No oversight. No regulator. No mainstream media outrage. Nothing. Just $800 billion more pissed away yesterday. On top of the $6 trillion already gone out the door. And the trillions more to come.
I quit.
They win.
The US taxpayer loses.
Man, these grifters are good.
November 27th, 2008 12:16 am
Just thought I’d mention a condo next to mine went on the market about 90 days ago and just closed. This is in the NYC area.
Here is what took place. The first buyer got cold feet and backed out. The second buyer came in and accpeted offer of $275k. The bank appraiser came and said it was only worth $255k and that’s it if you want the loan. The seller gave in and said “okay let’s do it for $255k.”
The buyer bought this property 6 years ago for $230k. The town’s assessed value of the property as of 10/1/07 was $295k.
This is trajic. Total wealth destruction.
November 27th, 2008 1:41 am
Mr. M
Thanks for the AAA rated post. My SD realtor just mailed me asking when I plan to move (and buy).
Not just yet.
JAllen
November 27th, 2008 3:05 am
Suggest no more discussion of Refis.
This is nothing to do with the real estate market.
The Fed etc don’t care at all about the refi market and rightly so.
if all refis were stopped, that would help the real estate market !!
Howabout some focus on variable rate mortgages. after all, that is where the real rate reductions are happening.
November 27th, 2008 4:39 am
Expecting a first-time buyer to buy a house because he/she can get 5.5% on an FHA 30 year fixed versus 6.0% on an FHA 30 year fixed (FHA is the only loan nowadays for first-timers) is like expecting people to buy a car because they can get a 2.9% rate rather than a 6.9% rate. People buy a car when they need a car. People buy a house when they need a home, when the payment will not much exceed that of rent AND when they aren’t worried about either a job loss or a further drop in home values. Rates falling into the 4′s would have more impact. How do we get rates in the 4′s, though, when everything the Fed is doing portends much future inflation?
November 27th, 2008 12:12 pm
NO INFLATION. RATES WILL MOVE LOWER ON THE 30YR. HOUSING BOTTOM WILL BOTTOM AND STABILIZE IN Q1 2009. Here is why:
I’ve been reading and watching all the media about the bailout and how we are all screwed for the next couple of years. I had agreed with everything that was said and I believed the doomed outcome for our economy.
That was until just recently. Let me run this by Mr. M and the rest of the folks here (Mr. M pls reply). Isn’t the world different now? Specifically, the Berlin wall is down and we have the BRIK countries who all have capitalism economies. This is tremendous. Everyone I shocked about how our debt is growing out of control. But, wait a minute. Everything grows larger over time. This of a cup of coffee you bought in 1980 vs. a cup of coffee you would buy today. The price went up. So too has our debt. It should GROW. We are not just the U.S. anymore but a global economy. Also, many other emerging economies that have moved to capitalism are also issueing debt and also run a deficit.
I also hear things like “we don’t produce anything” and therefore were are screwed. We do produce things but the U.S. has evolved to a service economy, which is a reflection of a sophisticated labor force. We have Dr., Consultants, Tax and accounting professionals and I hate to say it bankers. All much more higher educated then a person in China building a toy for a 2 year old. This back to the 1800s when the U.S. was all industrial and we “made things.” We moved away from this 150 years ago and my question to you is, “are we better off more today or back in the 1800s when we made things?”
The U.S. is an economic powerhouse. Other countries come to us for things that no other country has. Ther ewill also be no inflation due to the size of the debt increasing. We are issuing debt right now and gold prices should be at $2,000 Oz. They are nowhere near that level and if anything have been staying flat. I watch CNBC discussions on gold and all are puzzeled why were aren’t higher. Also markets tend to move ahead of time by about 6 mo or so.
So, relax people and give all of us a break on the doom and gloom thing. We ran the debt up before and we managed to get it under control. The same will happen again.
November 27th, 2008 12:46 pm
All you need to is read about the manipulation of the COMEX and you will understand why GOld and Silver have yet to respond. They have responded but with just a few billion dollars they can control the COMEX, but not forever. The explosion is coming. Those bimbos on CNBC scratch there heads and say “manipulation, impossible”. They don’t even propose the possibility.
Yes, we turned into a service economy. Our largest service sector is financial. We literally screwed the rest of the world with our financial products. How long does a customer stay with you who feels screwed? Ask GM or FOrd.
We are still living off of our good name, but that past reputation is quickly fading into history.
Think about this. ZIMBABWE, if given the worlds reserve currency, could build its economy, export its excessive money creation and live off the labor and resources of the world just as easily as the U.S. can. Their citizens would be happy to buy big screen tvs, finance Mcmansions with foreign capital.
THat said, I don’t know WTF is going to happen so I am in both cash and metals. As far as real estate, it is still way over priced in some of the bubble markets. The easy lending which created those bubbles are gone so they will revert to the MEAN and it aint there yet. If the fires of inflation are stoked, yes realestate could bottom, but metals and interest rates would surge.
November 27th, 2008 2:26 pm
Manipulation? Give me a break. The spot gold market is much larger then COMEX gold and the spot leads COMEX. Years ago the Hunt brothers tried to take over and manipulate the silver market. The price of silver collapsed and they went BK. Back in the 1990s all the central banks were selling their reserve gold. You think 10+ years alter they are all going to buy it back? Doesn’t make sense.
We live in a different world now. You think we are going back to the stone ages and I am going to lug around and burry my life’s savings in the ground in gold? If I am really concerned I could put it in a FDIC savings account. Or if I am really paranoid I’ll buy CHF and put it in a Swiss bank account.
The Financial Services sector might have been the largest portion of the economy until just recently. I recall it being a major portion of the S&P 500. However, the sector has indeed declined BUT the other remaining sectors are still there and have and will take their place. It is call a rotation. We experienced this with tech stocks in 2000. We also rotated with the pharmaceutical sector in the 1990s.
Zimbabwe is a really terrible example. People please think about this. Think about having a brain tumor. Think about going to your hospital. You are treated with a catscan made by GE. You get medication made by Merk. At your house you turn on the facet and can drink clean water. Zimbabwe produces none of this and their economy reflects this.
Everything comes to a conclusion. And the conclusion of this housing market, financial crisis and (no offense) Mr. M’s website is about done. Whether it is a TV series or a fad like Jordash jeans. It is over. This has been going on since 2005 and it has been 4 long years of turning on my TV and hearing about housing. It is ending.
Cycles usually turn at the turn of new year. It happens quite frequently in currencies and other financial instruments. We are entering 2009 and have a brand new President and admistration. I am sorry, but I am ready to move on live my life w/o worry or hearing Mr. M’s negative anaysis. It is almost like having the flu. It comes out both ends until everything is purged. That purge has taken place with the massive Citigroup rescue which is the U.S. largest bank which to me is like a supernova event. And the end of year and new administration coming in.
For those who disagree go turn on your TV and watch The Brady Bunch or Threes Company and you can live in the past. Do you think Mr. M’s site will still be popular in June 2009? Janaury 2010. November 2012?
It has been an exhausting 4 years. Let’s all move on people. I have a headace and I want to go home.
November 27th, 2008 2:53 pm
Move on where, Dick? The next two years will be as bad as this year, albeit in somewhat different ways.
November 27th, 2008 3:05 pm
Mr. Gaede,
Yep. At the concusion of all the other recessions everyone thought it would be bad for the next 2 years as well. I also remember how 9/11 was the end of the world. How Enron and MCI was the end of the world. Give it enought time and it does recover. 4 years is enought time.
I really feel sorry for you. Live your life. Be with your familly. The doom and gloom is over.
Dick
November 27th, 2008 3:37 pm
In 2002 I remember being at a Wall St mortgage banker party and all joking around saying ‘this is not your father’s recession…now days it just means rates are super low and everyone makes a ton of money’.
November 27th, 2008 3:37 pm
Mr. Mortgage,
Now is the time to start revamping your site. The doom and gloom is about to end. Perhaps you should focus on how now is a good buying opportunity for the public. Perhaps make it inot an educational website showing how to get mortgages and advocating how not to get over one’s head when financing a house.
Like I said, after 4 long years, the doom and gloom is not going to go on forever. It all comes to a conclusion. You and the media should be using your energy to work on the next big thing. There is more meritt getting in early than doing something post meltdown like this website.
Dick
November 27th, 2008 3:40 pm
Dick, the problem with your thesis is that the recession has just begun. Four years? Housing peaked only three years ago. 14 months ago stock prices were nearing their all time high. Etc. Now the federal government is fighting the business cycle with stimulus packages of many trillions of dollars. Most people don’t even know yet that that won’t work. It’s like putting the economy on a respirator while stabbing it with deflationary then inflationary forces. This is global but the US is at the very heart of the basic problem: the destruction of capital by consumption (debt).
November 27th, 2008 3:45 pm
As long as the mainstream press lies and tries to spin the truth I will be here to tell the real story. That is my contribution. Call it doom and gloom I call it saving people’s ass.
November 27th, 2008 3:51 pm
Mr. Gaede,
Don’t you get it. That’s what EVERYONE thinks. It makes sense. And that EXACTLY why it won’t happen.
Dick
November 27th, 2008 3:57 pm
Mr. M, With all due respect, the mainstream press has now switched from cheerleader to that of doom and gloom.
My suggestion to you if you want to save people’s asses is to look for signals of a bottom. However small they will be. Is you goal to point out the same for 1, 4 or 10 of the next years. Or, is your logic a bottom will never occur until after we are all dead.
This is like a board game or playing chess. You have to think 5 steps ahead of your oponent. Or for that matter 100% faith in God when you have been struck down so many times in the past.
Dick
November 27th, 2008 4:33 pm
Dick, what “everyone” thinks is that the economy needs to be stimulated. The truth is debt needs to be destroyed or retired. Bad companies need to fail so good ones can pick up the pieces and carry on. Government spending, programs, taxes and regulations need to be drastically cut back, the Federal Reserve eliminated. Not going to happen anytime soon.
November 27th, 2008 5:13 pm
God bless you, Mr. Mortgage
Happy Thanksgiving to you and your family.
November 27th, 2008 6:13 pm
things will be GETTING ALOT worse from here, just read the COMMERCIAL market , is the next BIG CRISIS coming up ….keep on telling it like it is Mr. Mortgage, the criminals who are trying to cover their tracks never will …..the bottom is not even close and this doesnt even take into account the next terroist attack on this soil will probably make 9-11 look small and could be the final knockout punch..
November 27th, 2008 6:36 pm
Look people. Beneke was saying early on “the housing market was contained” and showed the data to prove this. The smart people got out it time. Now, they are telling us it is going to be really bad and once again they have the data to show for it. Even after $700B of stimulus.
Go ahead. Believe them in both cases. If you believed them early on you would have lost $500k by not getting out in time. If you believe them now, hang around and buy that house for $500k more than you can buy it for now when you feel more “comfortable” with the data.
Personally, I do not trade like this because it is not the way to make money.
Interesting, Mr. M posted a story on how Home Depot earnings beat expectations recently. He was the only media to really do a story on this. Funny how no one pays attention to the positive story on this posting. But, then again everyone here are lemmings wanting to feel “comfortable” with positive data and wants to pay $500k more in a housing market that turned months ago. This is the type of thinking that created the mess in the first place.
In my studies of war, I have found wars end not because of some event but because both sides just got tired of fighting and quit. Mark this post. We are now at that stage in the housing market.
November 27th, 2008 6:59 pm
hmmm, i could sworn WW2 ended because of some BIG ATOMIC event
November 28th, 2008 1:57 am
Dick, a bottom will occur when is more demand than suply. Right now you’ve got plenty of suply and less demand.
Everybody is broke, a lot of pp upside down, and a lot lost their primary home, or investment homes. PP that have cash, are not jumping in yet, becase it’s still a down trend, and it should be after 10 year going up.
The bailouts will only slow the down speed, but will not be the cure.. time is the fix, or as I’ve suggested before, help all now.
We can start inflation now by helping all.. or we can continue deflating couple more years, and then start inflation..
The decision has been made already, and it is to help, however they’re not helping all, so it’s not a fix.. by the time it does turn around due to TIME, we’re going to have a bigger inflation problem!
Happy Thanksgiving!
November 28th, 2008 2:03 am
btw.. the 1930 gloom and doom.. how long did it last dick?
November 28th, 2008 2:05 am
Good article, BUT. No one seems to factor in people like me. We saw the bubble growing in 1999 and sold ata profit. We have always been 20% + down type borrowers, at never more than 20% of monthly gross income. WE ARE WAITING FOR VALUE. We rent a house and have saved enough to pay cash for TWO houses. We don’t need a loan, but we DEMAND VALUE! The Realtors can keep urinating into the wind as they are dropping like flies. Its about VALUE VALUE VALUE. I know exactly what it costs to build, and thats THE MAXIMUM we will pay. Why pay more for a deprecreating asset? Look at a car. Its man made from stuff and starts falling apart immediately, JUST LIKE A HOUSE. With a car, you can drive away. With a house, if you get some new neighbors who like to roast goats in their front yard (it really happened), you are now a hostage to then house. I guess you can pay them a few thousand to hide the goat and paint the lawn green as they do here in California? It’s all about PRICE PRICE AND PRICE. A friend just built a CUSTOM 4,000 sq foot house on an acre for a TOTAL price (incl lot) of $350,000–in Contra Costa County!
November 28th, 2008 3:19 am
I think Dick is focusing too much on this site and a few others like it. If you go out and talk to the average person who does not follow this, they tend to think we’ve bottomed. Try it, ask friends and family what they think of the last 6 months of our world economy. I am amazed how many think that we’ve purged the worst of it and it’s now all about growth. This alone, to me, is a pretty strong indicator that we’re not at the bottom. But the data tells me that unemployment in CA is 8.2% and rising while foreclosures are increasing as well as defaults. Even if this were a bottom, it could stay here quite a while before ever begining to rise. We need some critical economic factors to at least stabilize first, let alone go positive.
November 28th, 2008 4:18 am
The “sideline cash” theory is always amusing. Where is this magical cash, other than on blank paper waiting to be printed by the government. Even if we suppose that there the wealthy have sideline cash, will they be buying three bedroom homes in OC or Florida? En masse? Hardly likely.
We are nowhere near the bottom of this recession. Stock markets have bounced off their lows but this means nothing. The people evaluating stocks are the same geniuses who got us into this mess in the first place, the same geniuses who were also buying the Dow Jones at fourteen thousand.
Housing has a long way to go. The median house price in the US just hit $183k which is a nice drop but still nowhere near where it will be. Median household income in the US is about $48k and falling. Long-term (very, very long-term) affordability ratios show that households cannot afford to pay more than 2.5 to 3.0 times income for a house. Given the economic conditions and the recent bubble, it seems more than reasonable to project a price/income ratio of 2.5, if not lower. This means the median price will fall to $120k, representing a further thirty percent drop.
Yeah, yeah, yeah, your house, your neighborhood, your county, your state, your half of the country are different. Whatever, as my niece would say. That is what they said in Socal, Nevada and Florida. Now they are down forty to fifty percent across the board.
Oh, and did I mention that the recession has just barely begun? Up until now we have really only seen the crisis hit Wall Street and the banks. Main Street has some foreclosure worries, but wait until unemployment (real unemployment, not the BLS magical numbers) approaches 15 to 20 percent. Tell me then where house prices will be. Tell me then why the S&P won’t be closer to 500 than 800.
And the beautiful thing is, once this recession is over in five to seven years, the cumulative printing and injections of liquidity will lead to massive consumer price inflation. Unfortunately for the consumer unemployment will remain high so wages will not follow. Ha, ha. More doom for years to come.
And before you whine and bitch to Congress, remember whose fault this is. It’s yours. Yes, yours. You, you, you. Your fault. You got the 100% mortgage. You ran up your credit cards. You bought the new plasma tv. You demanded granite countertops. You drank two lattes a day. You allowed your elected representatives to get away with all this. You thought you were rich. Yes, you. You are an idiot. And now you and your children and your children’s children and their children will pay the price for your greed and stupidity. Oh, and you are statistically probably ugly as well.
Good luck.
November 28th, 2008 9:37 am
DICK…
Where do you get this “we have been in a housing drop for 4 years”?
Perhaps you can point to one particular market but generally speaking this is only 2 years old.
November 28th, 2008 9:47 am
DICK,
PAPER GOLD AND SILVER RULE. When you can sell unlimited paper gold and silver, all you need is cash (plunge protection team), the result will be downward pressure.
Now, if you go out to your local coin dealer you will not find ANY silver available. You will not find ANY gold available. You will be told you will be put on the waiting list.
If you want Gold or Silver TODAY, you must go to EBAY. Silver on Ebay is 60% more epensive for units smaller than 100 ounces and about 30% more expensive for 100 or above. Gold is about 20% more expensive than COMEX spot.
HOw is that possible DICK? Silver fell from 20 to 9 and shortages developed across the globe. Usually when prices plunge it is because there is too much supply.
Why does the Plunge Protection Team care about gold and silver? Because they measure the health of the FIAT system.
As far as “Zimbabwe can’t have the worlds reserve currency because they don’t have fresh running water”……….Gee whiz……All they need do is spend a trillion dollars and they can have fresh water AND LOW FLOW TOILETS TO BOOT! Any country living off the sweat, labor and resources of others can have a shiny home land.
November 28th, 2008 10:31 am
You just don’t get it. I have saved all my life. I also have worked on Wall St. for over 20 years in NYC. On July 13, 2007 I was watching CNBC as I always do. I noticed every newscaster or story was extremely bullish. This took place every single day. I would get home from work and watch HGTV and see some flipper buy a house in CA put new paint and carpet in and sell in 2 weeks for a $150k net profit. Everyone was leaving their jobs to become flippers.
On July 13th, I sold every mutual fund that I owned and bought an ultra inverse of the stock market. I made over $1M and it was all long-term gains. I sold all of it on October 10, 2008 and went into cash. Lately, I have been buying small amounts of blue chip stocks.
Like I said, if you want to see good data like lower unemployment rate and other better data you will have missed the boat. EVERYONE is watching that data. Go ahead and pay an extra $500k on a house you could have bought today for a much lower price. Maybe you won’t pay it and say to yourself you missed the boat. Well, go wait another 50 years for a time like this. #0yr rates ago going to 5.00% and first time buyers get a tax break of $7,500.
How do I know? Do you feel exhausted from all this housing stuff? Are sites like Mr. M making you sick? Are you sick of hearing about it? If you said yes, we have reached the very bottom. Exhaustion.
After January 1, 2009 housing recovers.
November 28th, 2008 10:46 am
You’re right.
November 28th, 2008 10:47 am
Dick,
May I ask you what you do for a living? Your age?
November 28th, 2008 11:11 am
Martin
There is no shortage of silver, just a shortage of fabricated silver in coin and small bar form. While it is true that every coin dealer was out during the rush, one I checked with seems to have stock back on most items. Coin premiums are still high but that will likely settle down once demand normalizes back to production levels. You can get 1,000 ounce bars at .59 per ounce, generic rounds at $2.99 over spot and US 2008 rounds at $4.99 over spot, shipping included.
November 28th, 2008 1:02 pm
Dick, you’ve said: “Well, go wait another 50 years for a time like this.”
That’s exactly the point here.. if this problem is once or twice a century… what makes you think, that the market hit bottom, and the turnaround is now??
No one believes to wait another 50 years.. but I think 3 years at least is the normal assumption.
November 28th, 2008 1:07 pm
Dick, do us ALL a favor and revist Mr Mtg’s site in early 09′ and we’ll see if your predictions are right. I’m certainly no expert and I’m no economist…however I’ve felt from the start this is a much bigger mess than anyone ever imagined….and my guess is still….it’s far from over. next shoe to drop is commercial…..stay tuned.
November 28th, 2008 1:09 pm
Dick, you’ve said “Do you feel exhausted from all this housing stuff? Are sites like Mr. M making you sick? Are you sick of hearing about it? If you said yes, we have reached the very bottom. Exhaustion. ”
No, I’m not sick of those sites, I welcome MM’s input and others, and happy to have the service.. even thought I don’t fully agree, I respect their service. I wished I read more before I bought a home in 2006!
So, we agree then.. that we’re not at a bottom.
You sold before the crash..hmm, r u into investment banking? Did u have inside information?
November 28th, 2008 1:20 pm
Dick, glad you sold when you did. Don’t give it back. It’s hard to believe you need the money now. We might be soon getting a Bear Market rally. Don’t get sucked in too deep.
November 28th, 2008 1:30 pm
You don’t get it.
First of all, I welcome Mr. M’s site. I use it more as a guage then for its content. What I mean by that is the more pesism I read, especially all the FUTURE pessism that he posts, the more I sense it is the bottom. As I posted 5x now, we are at that point. EXHAUSTON.
Ex-owner, go back an re-read my posts. It clearly says why I think we are at a bottom.
I have the same info you guys have. If naything, I have less of an advantage becuase I have to work for clients and be distracted 12 hours per day.
Maybe someone will pull up this post in Aug. 2009 when the is full well into a strong recovery. But, I don’t know.
This is the end of my replies. Good luck
November 28th, 2008 1:33 pm
[...] Not a Reality for Most on Fed Buying Agency MBS – Still No ‘Explicit’ GuarantyDick on Mortgage Rates Drop! It Does Not Mean What it Used toBrant Gaede on Mortgage Rates Drop! It Does Not Mean What it Used toex_owner_now_renter on Mortgage [...]
November 28th, 2008 1:51 pm
Dick, some home owners still don’t admit their value has gone down, especially high end markets. Does the velocity of speed going down, and desperation of government to do something tells you something?
oh yeah..we’ve hit bottom.. personally I’m looking for your comments in Aug 2009!!
November 28th, 2008 2:48 pm
Dick,
Are you saying if I don’t get into the housing market now I will be locked out forever?
Are you implying that housing is like stocks, you need to jump before they blast off?
In a healthy housing market there is no rush WHAT SO EVER. In a bubble there is a Rush.
It is possible the Fed revives the housing bubble temporarily but as soon as interest rates sky rocket form all this monetary inflation the rest of the correction will occur.
That said, I will admit there are certain areas of certain markets that are probably safe to buy in.
November 28th, 2008 3:20 pm
Buying real estate is a highly leveraged purchase. Why would anyone risk trying to buy at the bottom when real estate moves so slowly that you could wait until there are more clear signs of a recovery and still get in to the market and realize very nice price growth. It’s not like the stock market. The average real estate transaction at least 30 days. Now if you were looking to flip on propeery that was purchased very low from REO, that’s a different story. But buying and holding now is extremely risky and not needed.
November 28th, 2008 4:05 pm
Dick, as far as a bottom goes, we will have one when everyone is convinced that “You cannot make money in real estate anymore”, which is the far extreme. Looking at California, the unemployment rate is just starting a climb which I expect to be even more significant in the first quarter.
Seeing that the Fed has amassed trillions in assets, one has to assume that in these times that those trillions are yet to be defaulted mortgage paper. Now I am not going to claim what the default rate is going to be on that paper but I will claim that the Fed Holding is the equivalent of a giant seller in the market.
Back to your 20 years Wall Street experience, what did you do when you knew that their was a large entity divesting themselves of a holding? My guess is that you just stood back out of the way until the seller was done.
With the banks giving bad assets to the Fed in exchange for treasuries, we might see banks holding off on filing notices of defaults but that only extends inventory out to some point in the future.
I see a Fed inventory chart performing two functions. One is when they start to run out of inventory and two and more importantly, when banks will ease up on lending standards again.
November 29th, 2008 7:08 pm
Dick,
Your exhaustion does not signal a bottom. Your reasoning? Remember, an alpine climber who is exhausted does not magically get beamed back to base camp…he probably dies.
Anyhoo…in Tucson: median asking price still 7-8x median income, massive layoffs imminent, and I rent for 1/3 the cost of owning same home, even after a 20% drop. Bottom??? heheheheheheh…no.
November 29th, 2008 8:28 pm
I have cash and credit. Im not paying these prices. Seller, ya gotta come off, your house ain’t worth that anymore. Sorry bout your bad luck..
November 29th, 2008 9:58 pm
Dick,
Lets make a bet . I say the housing market does not recover. If you just made a million this year a 25k bet should be nothing for you . The housing market is not going to recover for years.
November 30th, 2008 1:57 am
>> Maybe someone will pull up this post in Aug. 2009 when the is full well into a strong recovery.
Click.
November 30th, 2008 2:15 am
Not sure what Mr M’s point is. Are low rates not a good thing? Perhaps not as many people qualify for them as before but for those who do it is a good thing, right??!! Mr M does this constantly,, and tells us why the “good news” isn’t as good as it needs to be. Rates going down are good..sales up, no matter the reason, is a good thing..Dick is right…things are going to get better but in the meantime I am sure we will get another blog by Mr M why the increase in spending on Black Friday doesn’t mean anything and we should go back to building our bomb shelters.
November 30th, 2008 4:26 pm
[...] Full Analysis Here [...]
November 30th, 2008 11:14 pm
No, low rates are not a good thing. They serve to delay the inevitable repricing of housing in relation to the all-important wage levels that must ultimately support house prices before stability can be achieved, and they ignore the real risk premium, which entails transfer of a sizeable amount of expensive risk to someone else…in this case, the taxpayer.
Low rates might be a good thing for a starving realtor, but as MM points out, these lower rates are not a direct input to the supply-demand relationship, since demand is now being stringently filtered on the basis of qualification. The population of willing and qualified potential buyers is likely to prove quite underwhelming.
And Dick, you just don’t think big enough. Don’t think Enron. Don’t think 9/11. Think 1933. And not 1933 America. 1933 Germany.
cd
December 1st, 2008 12:36 am
So cd, how do they delay “re-pricing”? Obviously, major re-pricing is occuring as we speak even with these “low” rates and will continue to. Also, as it relates to wages, say home prices keep going down but the rates go up, isn’t that six of one, half dozen of the other as it relates to the mortgage payment itself and the wages needed to afford the payment? In terms of risk to the taxpayer, no matter what happens,that ship has sailed. Either way that is going to occur but not sure how offering low rates to extremely qualified is going to hurt the taxpayers. In fact, if that had been happening all this time, much of this could have been avoided.
1933 Germany or the 1870 America situation that was posted in another link, all ignore today’s enviroment, the fact that we are already along this curve as Dick points out and that the world, not just the USA, is taking unprecedented action in these areas.
December 1st, 2008 1:42 am
michaelphelps
Here is the problem. In typical recessionary times they would lower interest rates to spur the economy. This would result in refi activity and consumers had a way to utilize this interest rate reduction to lower a house payment and achieve a higher monthly disposable income. Or they could do a cash out or whatever.
In the current environment even if they do lower interest rates it is not much help since in most cases the existing mortgage underwater. Credit card rates are already jacked up and consumers are reluctant to increase balances due to uncertainty and CC interest rates.
As Susan points out, we need to save more, however that would come at a price against economic activity. In essence saving more on a national level is putting yourself or your neighbor out of work in a consumer based economy during a recession. In addition, if we are to save, banks need to pay an interest rate to make it worth while. We cannot have both high rates to savers and low rates on mortgages. The Japanese model says savers will lose.
“During Japan’s long years of economic darkness, one member of the board of the Bank of Japan—the only woman—complained bitterly about the nation’s zero-interest rate policy. “You are taking money from my people—the elderly savers—to support those bad bankers whose greed and mismanagement drove the nation into this recession. Families have to be very rich to survive on interest rates of less than one-half per cent.”
Other than dropping money out of helicopters, there does not appear to be a way to put money in the hands of the consumer. The result will likely be taxpayer funded government jobs and projects.
Sadly, our government has passed laws favoring unions and making it more expensive for a non union company to bid on government work than a union contractor. Since union rates are significantly higher than real world pricing, it forces our government to pay the highest price possible for construction work. But hey, what does billions matter when you are spending trillions of money you don’t have.