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What Was Clearly Not The Expectation That People Had, That’s Maybe Part Of What Happened In The End

A report from Wharton. “For most Americans, their home is their most valuable asset, so it makes sense to borrow against the equity to obtain cash. In lean times, that money can be spent on consumption, which keeps the economy humming along. But if housing values and personal incomes don’t rise, borrowers might find themselves struggling to repay the debt.”

“That’s what happened a decade ago when the housing market collapsed. New research from Wharton finance professor Nikolai Roussanov shows that the pattern wasn’t particular to the Great Recession. Looking back 30 years, Roussanov and his co-authors found a cyclical pattern of refinancing before each recessionary period. Roussanov: ‘The idea from the economic standpoint is that if we think that people’s incomes are temporarily depressed, it’s not crazy for them to use cash that they have locked into their home as a temporary kind of buffer spending.'”

“‘It’s not something that people could have foreseen. It’s easy to say after the fact, ‘How could we not have seen it?’ But again, if you go back to 2005, 2006, the economy is humming along. The housing market is on fire. And a lot of people are saying, ‘We know house prices don’t go down. They only go up.’ As economists, we could say this is irrational, but the expectation was that house prices are going up and the incomes will catch up. It wasn’t that house prices got too high relative to incomes and they’re going to collapse, and that’s how the two will meet. That was clearly not the expectation that people had, even though that’s maybe part of what happened in the end.'”

“Roussanov: ‘The big unanswered question is, why did house prices rise as much as they did before they came crashing down? That’s something that our research does not answer…This idea of using your house as an ATM and valuing the house not just as a place to live but also this potential source of rainy day cash could contribute to the demand for homes, particularly in the areas that are seen as attractive. Maybe that’s something that makes people more willing to pay for a house of a certain size right now, even though it may be more expensive than what they think they can afford or what they even need. That’s not an easy question to answer and something that we are working on. But we’ll see when we get there with that.'”

From The M Report. “Redfin Chief Economist Daryl Fairweather appeared on CNBC’s The Exchange and noted fewer risky mortgages by Fannie Mae and Freddie Mac could keep first-time buyers out of the market. ‘During the downturn, Fannie and Freddie wanted to sustain the housing market, keep it strong, and make sure there is enough demand out there,’ Fairweather said. ‘They don’t really need to do that anymore because there are more buyers than there are sellers right now. If anything, we may enter a scenario where home prices accelerate too quickly. So pumping the brakes a bit may be what the housing market needs.'”

“CNBC reported that 60% of homebuyers put less than 6% down when buying a home. Genworth said 88% of purchase loans in 2018 with a 3-5% down payment went to first-time buyers—higher than the 53% who put 5-10% down and the 27% who more than 20% down. The use of conventional mortgages with low down payments, used by private mortgage insurance, have grown from 346,000 to 684,000 first-time buyers from 2014-2018.”

From Arlington Now in Virginia. “Question: I have read articles about the 22202 zip code suggesting everything from extreme appreciation to homes now selling for pre-Amazon prices. Can you shed some light on what’s actually happening in that market?”

“Answer: After months of articles about extreme appreciation in 22202, the Amazon HQ2 zip code making up neighborhoods like Crystal City, Pentagon City, Aurora Highlands/Hills and Arlington Ridge, there was an article published last week by the Washington Business Journal claiming that prices are now below pre-Amazon HQ2 announcement levels. The supporting data was that median sold price in November 2019 was 12% lower than November 2018 prices.”

“First of all, if you use the average sold price instead of median, there was a 2.3% increase in prices from November ’18 to November ’19, not a 12% decrease. Second, with a drop in total sales from 30 in 2018 to just 12 in 2019, with prices ranging from $255,000 to $1,145,000, there’s just not enough data to draw any sort of reliable conclusion on market performance by comparing the two months.”

From Newsday on New York. “The number of closed sales fell by 9.3% in Nassau County and 7.3% in Suffolk County last month, compared with the previous November, the Multiple Listing Service of Long Island reported. ‘It’s still a strong sellers’ market under that $600,000 price range,’ said Angela Prince, owner of Prince & Associates Realty Group in Bay Shore. However, Prince said, ‘In the over-$850,000, $900,000 market, we’re starting to shift into a buyers’ market, believe it or not.'”

The Miami Herald in Florida. “Will 2020 bring a buyer’s market to Miami residential real estate? Here’s what the experts have to say. Mike Pappas, CEO, Keyes Company: ‘I think it will be a stronger year for luxury condo and single-family home sales than this year. We’ve seen a strong pick-up in the northeast buyer in the third and fourth quarters. The state and local tax deductions, SALT, will play a in favor to Florida. [And] sellers are making adjustments in prices. You’re seeing price breaks and that bodes well for buyers.'”

“Rose Sklar, team leader of The Sklar Team, affiliated with Coldwell Banker Residential Real Estate: ‘What’s doing better in Broward is the $1 million- to $2 million market. The prices are coming down for any single-family homes in Broward that are over 20 years old. There’s an oversupply of big houses.'”

From Socket Site in California. “With roughly 29 percent of the homes currently listed for sale in San Francisco have been reduced at least once, which is three percentage points higher than at the same time last year, we turn our attention to the various verbiage and positioning now in play. There’s the straightforward ‘Price Reduced,’ along with escalating variants of the same, including exclamation points (‘Price Reduced!’), qualifiers (‘Major price reduction!’), multipliers (‘Another Price Reduction’) and big numbers (‘$500,000 PRICE REDUCTION’).”

From Realtor.com on California. “The home belonging to the late, great San Diego Padres star Tony Gwynn has finally sold for $1,429,500. About four years after the Hall of Famer’s death in 2014 from cancer, his Poway, CA, mansion went into foreclosure. His widow owed approximately $2.5 million on the property, which was valued at about $2 million at the time, according to the San Diego Union Tribune. The property went up for auction in 2018, but failed to find a buyer, so the lender took ownership of the home.”

“With the home vacant, neighbors had complained that a squatter was reportedly inhabiting the space. The bank took control and placed the home on the market for $2.12 million in May. The price dropped steadily over the summer months, with no interest. In September, the bank cut the price to $1.581 million, the price reduction needed to coax a buyer to step up to the plate.”

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This Post Has 84 Comments

  1. ‘claiming that prices are now below pre-Amazon HQ2 announcement levels. The supporting data was that median sold price in November 2019 was 12% lower than November 2018 prices’

    ‘First of all, if you use the average sold price instead of median, there was a 2.3% increase in prices from November ’18 to November ’19, not a 12% decrease’

    See, easy peasy, you just change the numbers until you get something the hack can sell to suckers!

    ‘Second, with a drop in total sales from 30 in 2018 to just 12 in 2019, with prices ranging from $255,000 to $1,145,000, there’s just not enough data to draw any sort of reliable conclusion on market performance by comparing the two months’

    Uh, if true, doesn’t this mean your average numbers are horse-hockey too?

    2. It’s just as easy peasy to hack the numbers to get something you can sell as a bubble pop too. It’s a shouting match of “My metric is better than yours.”
      Knock yourselves out.

        1. It’s hard to estimate the market value of homes whose owners decide to HODL until prices go back up.

        2. It’s hard to estimate the market value of homes whose owners decide to HODL, rather than lower the asking price to market value in order to sell.

        3. Sorry for the nearly identical posts…didn’t think the first had gone through before posting the second version.

          Despite similar language, they raise distinct points:

          1) People who believe that real estate always goes up may decide to HODL for as long as necessary for the market value to go up to their own price point, for many years in some cases, as Ben has amply demonstrated.

          2) Owners who wish to sell currently may fail to ever do so if the true market value is below their ask price. If the market value recently dropped, there may be many wannabe sellers in this position, upwardly the Case-Shiller repeat sales index as a measure of current market value. (Maybe that’s why used home salespeople like it so much!)

          2. The key is people who have to sell. Which we expected to be the big trigger last time. It started to be and then the Fed stepped in. Can and will they do it again this time? I expect the answer is yes, but it won’t work quite as well…but I could be wrong on that because people are so well trained to buy the dip now.

          3. “The key is people who have to sell.”

            Just a pink slip away, and according to the press the average Joe doesn’t even have $400 lying around.

  2. ‘In the over-$850,000, $900,000 market, we’re starting to shift into a buyers’ market, believe it or not’

    It never stops. LI has been sinking like a turd in a well for maybe two years. The only US market down more than NYC is Miami.

    1. However, Prince said, ‘In the over-$850,000, $900,000 market, we’re starting to shift into a buyers’ market, believe it or not.’”

      I wouldn’t want to have to shoulder the property taxes on a $900,000 Long Island home.

  3. A report from Wharton. “For most Americans, their home is their most valuable asset, so it makes sense to pay off any mortgage as soon as possible so as to eliminate the risk of losing it.”

    Oh, wait; That’s not what it says. Instead it says …

    “For most Americans, their home is their most valuable asset, so it makes sense to borrow against the equity to obtain cash.”

    There.

    1. You’ve put your finger on it. In the old days, people scrimped and saved to make that mortgage payment, and hoped to pay it off sooner if at all possible. You tapped the equity only in the most dire of circumstances, because the worst thing in the world would be to lose your house.

      Nowadays, it seems nearly as soon as they’ve closed on the property, the new owners are looking to refi or take out a HELOC. And for what? All too often, toys or vacations or similar ephemera.

      It is true that life is much less stable nowadays. You probably won’t stay in a job for more than a few years, and the same will go for the house. So the former goal of retiring with the house paid off won’t work for most people anymore. So maybe we’ve raised up a generation of grasshoppers instead of ants.

      1. goal of retiring with the house paid off

        A paid off house might be wonderful in retirement, but it probably won’t be the one you raised kids in and commuted to a job from.

        1. “So the former goal of retiring with the house paid off won’t work for most people anymore.”

          That was never a goal from the outset.

          Acquiring shelter at the least cost was though and still is irrespective of the DebtDonkey braying.

      2. That’s it, the Nation was turned into a grasshopper Nation instead of ant Nation. Going into debt and being a speculator using housing that’s a basic need is the grasshoppers new ATM machine. Never mind working, get rich quick by driving up price of homes with faulty lending in support of such Insanity.

        People don’t feel secure or stable, and once the winter comes the grasshopper will want to be bailed out like before. I’m all for the grasshopper dying once and for all in the cold.

          1. Maybe. But I think I’m noticing a pattern recently where the collectivists think that they are the ants.

        3. the Nation was turned into a grasshopper Nation

          Ants do not turn into grasshoppers usually. We may have witnessed a population explosion of grasshoppers, but don’t underestimate the winter kill.

          1. The Fed hates ants and loves grasshoppers.

            The Fed routinely steals from ants to feed its grasshoppers.

            The Fed engineered the population explosion of grasshoppers.

            The Fed will not accept responsibility for the next wave of grasshopper die-off that its policies precipitated.

            The Fed WILL go to whatever lengths necessary to bail out its grasshopper horde, primarily by stealing from the ants.

      3. My parents bought our house in the 60’s. Later, after years of inflation, the fixed rate mortgage payment looked small. So they started making double payments andgot the mortgage paid off early.

        I’m sure they would have never even considered something like a HELOC except in the most extreme circumstances.

        I’m quite grateful to have had depression-era Parents. I still have the same frugal habits.

        However, sometimes I feel a bit out of place in today’s world. Or when comparing my situation to my debt-donkey older brothers. In their case, the apples did fall far from the tree.

    2. “For most Americans, their home is their most valuable asset, so it makes sense to pay off any mortgage as soon as possible so as to eliminate the risk of losing it.”

      I’m bettin’ Tony Gwynn’s widow missed that memo too.

          2. I’m not exactly sure if/how this might impact the price of the property in which I’m interested; it has a smaller house and lot as well as a worse elementary school.

          6. “$2,226,000 to $1,429,500 is 35.8% off.“

            My math rounds up 😉 800k off in a little over a year is still not bueno for any FB

  4. “With the home vacant, neighbors had complained that a squatter was reportedly inhabiting the space. The bank took control and placed the home on the market for $2.12 million in May. The price dropped steadily over the summer months, with no interest. In September, the bank cut the price to $1.581 million, the price reduction needed to coax a buyer to step up to the plate.”

    ABC! Gots to be closing realtor, COAX them FBS!

    1. I was at a foreclosure auction the other day and was talking with the auctioneer. We discussed reserve prices, etc. He said “they aren’t ever going to accept less than what’s owed.” I didn’t say anything as about third of what he put up failed to sell and went back to the lender. They will schedule 90 shacks and only auction 10, the rest get rolled into the future.

      1. “they aren’t ever going to accept less than what’s owed”

        Well why would they! Have to keep the comps up, keep the taxes up, keep the monopoly money ponzi market chugging along FOREVER! makes more sense for them to sit on a depreciating asset than to get it off their books. Lots of “influence” coming down from the top of the ladder so selling at a loss is not within their deck of cards.

        1. It’s a bit more complex. They could be qualifying for the GSE guarantee, or a PMI payout. Then hand it off to Fannie/FHA and let them take the a$$-pounding. Whatever is going on, this is nothing like how the foreclosure biz worked when I got involved in 2008. We got the property taken care of. There was none of this “shacks sit around abandoned for years” stuff.

          When people stop making payments, they usually let everything go to hell.

          2. i agree it is more complex and I have a hard time rationalizing what really going on behind the doors but I also think looking at it as a beneficiary of a broader picture, it makes sense to keep a chit ton of shadow inventory and the current inflated prices, inflated. Tax revenues for the gov and huge profits for the lenders.

          3. I remember back during the Reagan Recession, the banks (hereabouts, at least) moved quite briskly to divest themselves of repossessed assets. Not just houses, but cars, motorcycles, boats, etc as well. Good deals were to be found, especially if you knew someone who worked in the bank and could tip you off first about the nicer repos.

            Companies back then took the hits, wrote off the assets, and just dealt with it. The company I worked for had to write off a LOT of unrecoverable debts from farmers who’d gone bankrupt. We also wrote off a lot of odds and ends of equipment and merchandise that we were no longer going to be in the business of selling. Again, it meant some good deals were had for those in the know.

          4. Companies back then took the hits, wrote off the assets, and just dealt with it.

            And the really stupid ones went out of business. That’s how it’s supposed to work.

      1. Shirley you jest! I was in Shirley last month. Nice, bucolic town…with no traffic about an hours drive from Boston. With traffic? Oy.

  6. “Roussanov: ‘The big unanswered question is, why did house prices rise as much as they did before they came crashing down? That’s something that our research does not answer…'”

    Bahahahahahahaha. What a bunch of dummies.

    1. Why did stock prices rise in 1929 ,only to crash. It’s was based on faulty lending and the notion that people could get rich quick by overvalued stocks and a frenzy that knew no bounds.

      The housing market has Wall Street written all over it. Housing is a stock now and no longer is it simply a basic need that should track with average wages.

      When all greater fools are exhausted than reality will happen.

    1. LOL.

      I have some rainy day money, but it is cash, not a line of credit against my house. When I pull that out of my wallet, it is very reluctantly because of the work that it took to put it there.

  8. I can shake the feeling that the MSM has reshaped the narrative of what happened in to 2000s to obfuscate the deeper structural problems and downplay the role of Wall Street, the Fed and other connected at that level.

    Or perhaps I should say “They never really got the story right in the first place, and now they are glossing that over to make smaller, more digestible sound bites, without any nutritional value whatsoever”

    1. ‘As economists, we could say this is irrational, but the expectation was that house prices are going up and the incomes will catch up. It wasn’t that house prices got too high relative to incomes and they’re going to collapse, and that’s how the two will meet’

      See, shack prices can never be too high, according to the “experts”. They’ve been building that narrative for well over a decade. They never publish price to income ratios anymore. The central banks never mention moral hazard anymore.

      1. “QE for the Homeowner”?
        mhanson.com (mortgage guy)
        On Twitter (Dec. 16th), he re-posted these October 21 comments:
        https://twitter.com/MrMarkHanson/with_replies
        Mark Hanson – Dec 16
        Posted this in Oct. Today’s HB Sentiment is rooted in reality.

        Mark Hanson – Oct 21
        HOUSING: Thinking the 2018/19 hard hit to house demand & prices — high-flyer CS-10 metros have been hit hardest — has run its course and next spring the market will come out of the gate hot as hell as historic low rates kick in and foreign capital starts to flow again.

        Mike Parsons – Oct 21 (Replying to Mark Hanson)
        How low do you think rates (30 yr mortgage) might go? High 2’s?

        Mark Hanson – Oct 21 (Replying to Mike Parsons)
        After 2021 all bets are off. “QE for the Homeowner” could involve mass streamlined refinancing of all those GSE and FHA loans made over the past 8 years down to the 1%’s or less in the next 5 years. Lots of levers to pull when the GSE’s & FHA own 90% of mortgage market.

      2. ‘As economists, we could say this is irrational, but the expectation was that house prices are going up and the incomes will catch up. It wasn’t that house prices got too high relative to incomes and they’re going to collapse, and that’s how the two will meet’

        ‘It’s not something that people could have foreseen. It’s easy to say after the fact, ‘How could we not have seen it?’

        – Always remember this equation:
        Economists = Experts! 😉

        – “A report from Wharton.” – This from a Business school…

        “Suppose you were an idiot, and suppose you were an economist; but I repeat myself.” – Mark Twain (paraphrased)

  9. “Redfin Chief Economist Daryl Fairweather appeared on CNBC’s The Exchange and noted fewer risky mortgages by Fannie Mae and Freddie Mac could keep first-time buyers out of the market.”

    Unless prices fall to something closer to what they can afford without ending up essentially in slavery.

    1. Yes, having unworthy borrowers get in over their heads and foreclose would be better, because Redfin would still be raking in money anyway.

      I guess conflicts of interest don’t matter to the media.

    2. Why would you want to attract buyers who are unlikely to be able to repay their loans into taking out a mortgage to begin with? The notion violates all established principles of banking and insurance, although it agrees to a large extent with communism and socialism, especially if bailouts are offered to remedy the inability to pay off the mortgages.

  12. “For most Americans, their home is their most valuable asset, so it makes sense to borrow against the equity to obtain cash. In lean times, that money can be spent on consumption, which keeps the economy humming along. But if housing values and personal incomes don’t rise, borrowers might find themselves struggling to repay the debt.”

    Have American households always treated their homes as home equity piggy banks, or is this an artifact of the mania currently underway?

    1. “‘It’s not something that people could have foreseen. It’s easy to say after the fact, ‘How could we not have seen it?’ But again, if you go back to 2005, 2006, the economy is humming along. The housing market is on fire. And a lot of people are saying, ‘We know house prices don’t go down. They only go up.’”

      Evidently mania-type thinking is alive and well in 2019.

      1. People seem to be prone to being induced into get rich quick or easy money schemes. That’s why
        qualifying in lending was necessary. That’s why the Glass/Steagal Act was necessary, but they got rid of it in 1998. Didn’t take long for all hell to break loose, followed by a unjust bail out of the culprits of the lending fraud.

        Maybe one day common sense will prevail again .

        1. “…prone to being induced into get rich quick or easy money schemes…”

          One if these easy money schemes was the automation of HELOC’s (starting in the early 1980’s) made possible by computer / software technology.

          In the olden days, a homeowner had to go to the bank and apply for a 2nd trust deed. Lots of paperwork. Someone from the bank would actually visit your house and knock on the stucco.

          Also, IIRC there was a certain social stigma to getting a 2nd.

          1. In the good old days lenders didn’t make bad loans.

            People bought property to gain slowly by paying off the note . Jobs were stable so you could make a plan to pay off the note for retirement.

            A mortgage was a tax write off as well as a slight hedge
            against inflation. You came out ahead by the purchase of a house held long term.
            The prices tracked with wages and if you needed to sell you could.

            To bad they messed with real estate

        2. Shirley The Jester says:

          “Maybe one day common sense will prevail again.”

          LOL!

          Keep ’em coming, Shirley. Your successful Stand Up career awaits and is but one more joke away.

        3. Maybe one day common sense will prevail again .

          Common sense isn’t common at all when confronted by the possibility of easy money.

    2. Growing up, I remember television commercials for HFC that had a jingle that started out with “Never borrow money needlessly…”

      And then they apparently eventually got in trouble for predatory lending.

    3. I first noticed it during the 2000s-era bubble, when most of my neighbors began sprucing up their homes and acquiring some very nice new vehicles. For the first year or two I was convinced that everyone was getting big raises except for me. Then I found out they weren’t getting paid more, they were “liberating their home’s equity”, to use the phrase used by local lends.

      I thought they’d all lost their minds.

        1. Since you’re getting all Regional about this, today we finished a job bid at $2,300 to repair damage by thieves / vandals who got away with less than $5 of copper.

          Commerce City, Region VIII.

    4. “Have American households always treated their homes as home equity piggy banks, or is this an artifact of the mania currently underway?”

      Get ” hip” dear Prof. It’$ about the decade$ long “creation” of financial “tool$” & thee di$tribution to the ma$$es.

      Think: “Home equitie$ loan$” & “Rever$e Mortgage loan$” & … & … & …

  13. Homeowners should read the fine print on their mortgage documents:

    A retired North Side homeowner living on a fixed income was shocked when he learned his mortgage payment was being increased by $268 a month starting October 1.

    Seven years ago, in October 2012, he refinanced his home loan with an adjustable-rate mortgage at a very affordable 3.625 percent interest rate. However, in October 2019, the ARM loan matured, or popped, and the lender increased the interest rate to 4.75 percent, boosting the monthly payment by $268.51, or $3,222.12 per year.

    According to terms of the loan agreement, the original seven-year ARM had quietly converted to a one-year adjustable-rate mortgage indexed to the Federal Reserve’s one-year weekly average on United States Treasury Securities, currently 1.97 percent. Then the lender tacked on a “profit margin” of 2.75 percent to jack the interest rate 1.125 percent to a hefty 4.75 percent.

    What’s worse, apparently the borrower never read the fine print on “rate limits” of the loan agreement which in fine print spelled out “realtors are liars”

  16. “It would have been even nicer,” “if you had also reported how friendly and competently you were taken care of by our team in your seat in first class.”

    HOW DARE YOU! 🙂

    Greta Thunberg Trolled By German Transportation Company After Complaining Of Crowded Trains

    By Emily Zanotti
    DECEMBER 16TH, 2019
    DailyWire.com

    Thunberg tweeted a photo of herself, clearly tired and perhaps bored, staring out the window of a German train while sitting on the floor among her bags. The Tweet read, “Traveling on overcrowded trains through Germany. And I’m finally on my way home!”

    But then things took a turn. See, Thunberg’s name appeared on a passenger registry, and her seat wasn’t on the floor.

    “It would have been even nicer,” Deutsche Bahn added, “if you had also reported how friendly and competently you were taken care of by our team in your seat in first class.”

    https://www.dailywire.com/news/greta-thunberg-trolled-by-german-transportation-officials-after-complaining-of-crowded-trains

    1. You need no further proof that anything and everything involving her is absolutely fake, and is all being orchestrated by the Hollywood left. They’re already planning a movie.

    1. The Financial Times
      Sveriges Riksbank
      Sweden ends negative rates regime over side-effects concern
      Riksbank increases main rate to highest level in almost 5 years
      Richard Milne, Nordic and Baltic Correspondent an hour ago

      Sweden’s central bank ended its five-year experiment with negative rates amid growing concern about the implications for the economy, businesses and investors from sub-zero monetary policy.

      The Riksbank raised its main repo rate on Thursday by a quarter percentage point to zero, a level it was last at in February 2015.

      The Swedish central bank indicated that interest rates would remain at zero for years to come and added that it could be forced to cut them again if the economy worsens.

      The world’s oldest central bank has been under heavy scrutiny for its monetary policy ever since the 2008 global financial crisis. It raised rates in 2010 and 2011 leading to accusations of “sadomonetarism” from Nobel laureate Paul Krugman before consistently cutting rates down to a record low of minus 0.5 per cent, which was in place for almost three years from 2016 until the start of this year.

      The Riksbank on Thursday repeated its warning from October that if negative rates continued for too long “the behaviour of economic agents may change and negative effects may arise”.

      Its proposed rise to zero had already been criticised by economists and companies, who questioned the wisdom of tightening monetary policy as the Swedish economy weakens.

      The Swedish central bank had kept rates below zero for so long in an attempt to reach its inflation target of 2 per cent after years of coming close to disinflation.

      It addressed the potential criticism of its rate increase head-on in its latest monetary policy report. “That the repo rate is being raised from the very lowest levels when the economy is weakening from a strong level does not mean that the inflation target is in jeopardy,” it said.

      The Riksbank added that monetary policy would remain “expansionary” with the current real repo rate, adjusted for inflation, close to minus 2 per cent for the next two years and beyond. The real repo rate was last positive in 2012 in Sweden.
      …

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