6 ms·

That's not really what happened in the last crash though. The people who bought, held. The only people who got hurt were home owners who go underwater and then

by danjoc 8y ago

That's not really what happened in the last crash though. The people who bought, held. The only people who got hurt were home owners who go underwater and then lose a job. They can't afford to wait it out, they can't afford to make the payment, so they end up in foreclosure. Then the bank holds and it ends up as a zombie home.[1] The zombie falls to pieces, so the bank gets a bail out, the home is written off, and the market is just as tight as it ever was. All the flippers are going to do is rent the places out while they hold on for the next run up. At least, that's what I witnessed in the last crash. https://newyork.cbslocal.com/2014/07/25/zombie-homes-without-owners-forgotten-by-banks/ https://newyork.cbslocal.com/2014/07/25/zombie-homes-without...

ChuckMcM 8y ago
All true, I was thinking about the 'home price recessions' that happen periodically as opposed to the mortgage crisis which was precipitated in part by synthetic CDOs masking poor lending processes.
- danjoc 8y ago
  Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point.
  - toast0 8y ago
    I bought in Feb 2009. Almost everything we looked at was bank owned; some of them were pretty terrible, most were ok, the one we made an offer on was accepted the day after, but the bank did run our credit to confirm we were financiable. I purchased a new home out of the area recently, it's a lot different looking at homes that aren't vacant, and dealing with the previous owner not getting all their stuff out on time.
  - AnthonyMouse 8y ago
    > Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point. Yeah, the sort of unspoken ethos after 2008 was that people had to be saved from all the underwater mortgages. But the only way to do that is to not pop the bubble. So we got a slew of policies from the banks and the government designed to shore up housing prices, and now they've rebounded to above the pre-crash prices. But those prices are bubble prices. We didn't pop the bubble which means we're still in it. All we did was kick the can down the road. The prices are still unsustainable and have to come down. The best thing they did in the interim was to print a bunch of money. If you can't lower nominal housing costs because people can't have underwater mortgages then lower real housing costs by keeping nominal housing costs the same and causing sustained moderate inflation of everything else. Also very effective for devaluing other existing debt (student loans, credit cards, public debt). It's possible that we're now at the point of needing more of that.
seanmcdirmid 8y ago
Flippers are like canaries in the mine. They are usually leveraged like crazy on short term loans, not flipping the house quickly can be fatal to them. Rental won’t let them pay off there loans when they come due in a couple of months.
- r00fus 8y ago
  Cant rental (ie, passive) income be used to secure additional funding? I know that was the case when I considered buying property to rent back before the 2008 crash (I ended up not doing that, luckily).
  - EvilEndures 8y ago
    Conventional financing isn't available to heavily leveraged flippers as the loans aren't profitable. They usually use non-conventional loans with higher interest rates. Now, they could re-finance the property into a conventional rental property but none of them can afford to do it for all of their properties. Flippers tend to do 4-5 at a time, not just one.
    - deleted 8y ago
      [deleted]
  - raincom 8y ago
    Yes, 75% of rent can be used. It is called "market rent", according to Fannie Mae. Remaining 25% is used for Vacancies, etc. In California markets, rental properties are not profitable, when you consider 20% downpayment, 75% rent, etc. There are 4 kinds of buyers in this market: 1. First home buyers: renters becoming buyers. 2. Second home buyers: thanks to the appreciation of their primary residence, people have bought second homes for "retirement nest egg", "return on equity", etc. Borrow 80% at 4.5%, expect 15% return. 3. Moving Up: same like (2), but they sell primary residences. 4. Flippers It is kind of hard of flippers to get conventional loans; they have to use portfolio banks, banks that keep loans on their books. A bank I know of, offers 6% fixed first year, variable rate for the next five years. Flippers get these deals, after putting 20 to 30% down.
akira2501 8y ago
> The only people who got hurt were home owners who go underwater and then lose a job. Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes.
- dragonwriter 8y ago
  > Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes. Or those with interest-only periods, same effect.
deleted 8y ago
[deleted]
jsoc815 8y ago
> Then the bank holds... gets a bail out, the home is written off, and the market is just as tight as it ever was. This! I've been talking to people about this for years. Most don't believe me when I say it. In fact, I've only had one person, a banking official, acknowledge that this was standard practice, but he assured me that it was coming to an end (two years ago). But yes, what you've written is totally the case. In fact, I just checked on a house that I know to have been abandoned by its "owners" in early 2011, but is still recorded as in their possession. Those folks sent the bank jingle mail, which the bank kindly sent back! (LOL) [edit 1: I also don't think that many of the low- & no-money down portfolio sales that Fannie and Freddie did to clear their books helped matters.] It's almost like Japan (from the little that I've read) was a blueprint for the U.S. etc., and the U.S., I suspect, will be an further example for other markets. [edit 2: Book recommendation Chain of Title by David Dayen]
- jsoc815 8y ago
  What exactly is the problem w/this post? As someone already mentioned, "zombie houses," which as far as I'm concerned qualify as shadow inventory, have existed for some time. The portfolio sales did not help the average person buy a house. They did provide the GSEs an out with respect to clearing their books. The terms of sale that I've seen for a few of those transactions were incredibly generous; basically "pay us if, and when, you can." Please do correct me where I'm wrong.
anonymous5133 8y ago
In my area, the home prices dropped 50% from the peak in a matter of months.
- ksec 8y ago
  Where is that? 50% is A LOT.
ianai 8y ago
It’s depressing to see no one talk about mortgage backed securities. The Great Recession happened after large swaths of wealth were held in MBSes backed by ARM mortgages. As the ARMs came due people could no longer afford their homes. Normally the underwriting bank would default the loan and resell the property. But the initiating bank sold the mortgage off soon after minting the deal. The values of the MBSes and related goods and services were priced using a Gaussian copala (sp) function fitted to ever increasing property values from the 80s S&L boom. Ie their model had no conception of normal, average price growth. Society had calculated something like 72$ trillion in MBS capitalization and “realized” a much smaller fraction of that wealth. Article: https://www.wired.com/2009/02/wp-quant/ https://www.wired.com/2009/02/wp-quant/

by danjoc 8y ago

ChuckMcM 8y ago

All true, I was thinking about the 'home price recessions' that happen periodically as opposed to the mortgage crisis which was precipitated in part by synthetic CDOs masking poor lending processes.

danjoc 8y ago
Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point.
- toast0 8y ago
  I bought in Feb 2009. Almost everything we looked at was bank owned; some of them were pretty terrible, most were ok, the one we made an offer on was accepted the day after, but the bank did run our credit to confirm we were financiable. I purchased a new home out of the area recently, it's a lot different looking at homes that aren't vacant, and dealing with the previous owner not getting all their stuff out on time.
- AnthonyMouse 8y ago
  > Ah, understood. I remember shopping for houses after the crash, and it seemed everything was either a trash heap, or in foreclosure. The bank wouldn't take an offer, preferring to cash auction to investors at the starting price of the highest offer they had. No cash, no house, no matter how good the credit rating. The cheap house thing was basically a myth from my vantage point. Yeah, the sort of unspoken ethos after 2008 was that people had to be saved from all the underwater mortgages. But the only way to do that is to not pop the bubble. So we got a slew of policies from the banks and the government designed to shore up housing prices, and now they've rebounded to above the pre-crash prices. But those prices are bubble prices. We didn't pop the bubble which means we're still in it. All we did was kick the can down the road. The prices are still unsustainable and have to come down. The best thing they did in the interim was to print a bunch of money. If you can't lower nominal housing costs because people can't have underwater mortgages then lower real housing costs by keeping nominal housing costs the same and causing sustained moderate inflation of everything else. Also very effective for devaluing other existing debt (student loans, credit cards, public debt). It's possible that we're now at the point of needing more of that.

seanmcdirmid 8y ago

Flippers are like canaries in the mine. They are usually leveraged like crazy on short term loans, not flipping the house quickly can be fatal to them. Rental won’t let them pay off there loans when they come due in a couple of months.

r00fus 8y ago
Cant rental (ie, passive) income be used to secure additional funding? I know that was the case when I considered buying property to rent back before the 2008 crash (I ended up not doing that, luckily).
- EvilEndures 8y ago
  Conventional financing isn't available to heavily leveraged flippers as the loans aren't profitable. They usually use non-conventional loans with higher interest rates. Now, they could re-finance the property into a conventional rental property but none of them can afford to do it for all of their properties. Flippers tend to do 4-5 at a time, not just one.
  - deleted 8y ago
    [deleted]
- raincom 8y ago
  Yes, 75% of rent can be used. It is called "market rent", according to Fannie Mae. Remaining 25% is used for Vacancies, etc. In California markets, rental properties are not profitable, when you consider 20% downpayment, 75% rent, etc. There are 4 kinds of buyers in this market: 1. First home buyers: renters becoming buyers. 2. Second home buyers: thanks to the appreciation of their primary residence, people have bought second homes for "retirement nest egg", "return on equity", etc. Borrow 80% at 4.5%, expect 15% return. 3. Moving Up: same like (2), but they sell primary residences. 4. Flippers It is kind of hard of flippers to get conventional loans; they have to use portfolio banks, banks that keep loans on their books. A bank I know of, offers 6% fixed first year, variable rate for the next five years. Flippers get these deals, after putting 20 to 30% down.

akira2501 8y ago

> The only people who got hurt were home owners who go underwater and then lose a job. Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes.

dragonwriter 8y ago
> Or those with Adjustable Rate Mortgages that popped and then got priced out of their homes. Or those with interest-only periods, same effect.

deleted 8y ago

[deleted]

jsoc815 8y ago

> Then the bank holds... gets a bail out, the home is written off, and the market is just as tight as it ever was. This! I've been talking to people about this for years. Most don't believe me when I say it. In fact, I've only had one person, a banking official, acknowledge that this was standard practice, but he assured me that it was coming to an end (two years ago). But yes, what you've written is totally the case. In fact, I just checked on a house that I know to have been abandoned by its "owners" in early 2011, but is still recorded as in their possession. Those folks sent the bank jingle mail, which the bank kindly sent back! (LOL) [edit 1: I also don't think that many of the low- & no-money down portfolio sales that Fannie and Freddie did to clear their books helped matters.] It's almost like Japan (from the little that I've read) was a blueprint for the U.S. etc., and the U.S., I suspect, will be an further example for other markets. [edit 2: Book recommendation Chain of Title by David Dayen]

jsoc815 8y ago
What exactly is the problem w/this post? As someone already mentioned, "zombie houses," which as far as I'm concerned qualify as shadow inventory, have existed for some time. The portfolio sales did not help the average person buy a house. They did provide the GSEs an out with respect to clearing their books. The terms of sale that I've seen for a few of those transactions were incredibly generous; basically "pay us if, and when, you can." Please do correct me where I'm wrong.

anonymous5133 8y ago

In my area, the home prices dropped 50% from the peak in a matter of months.

ksec 8y ago
Where is that? 50% is A LOT.

ianai 8y ago

It’s depressing to see no one talk about mortgage backed securities. The Great Recession happened after large swaths of wealth were held in MBSes backed by ARM mortgages. As the ARMs came due people could no longer afford their homes. Normally the underwriting bank would default the loan and resell the property. But the initiating bank sold the mortgage off soon after minting the deal. The values of the MBSes and related goods and services were priced using a Gaussian copala (sp) function fitted to ever increasing property values from the 80s S&L boom. Ie their model had no conception of normal, average price growth. Society had calculated something like 72$ trillion in MBS capitalization and “realized” a much smaller fraction of that wealth. Article: https://www.wired.com/2009/02/wp-quant/ https://www.wired.com/2009/02/wp-quant/