Scary graph - A History of Home Values - Housing Bubble about to implode?

[VolcanoJen]

Via Atrios... it really is going to be a bumpy ride for all those folks who bought homes they couldn't afford.

I'm surprised that the increase doesn't happen until 2000; I would've thought people bought McMansions in the mid to late 90s when the economy seemed to be booming.

Anyone know for certain when the majority of the interest-only loans flip?

I'm scared... and Atrios is right. This ain't gonna be pretty.

[Zomby Woof]

1. The American Dream

George Carlin said it's called that because you "have to be asleep to believe it."

The chickens will be coming home to roost. And that home will probably be foreclosed.

[VolcanoJen]

2. Not long ago, I was looking at what it would cost to build a new home.

I was shocked at the monthly mortgages they were quoting. Like, you could build a $180,000 home and only pay $600 a month for it.

I was thinking, "There's no freaking way" and examined the small print. Interest-only for the first ten years... then... WHAMMO. A mortgage you couldn't begin to afford.

Who are the boneheads who didn't read what they were signing? I mean, I'm concerned, but at the same time, I feel kind of sorry for their stupidity which is about to bite all these McMansion owners in their collective arses.

PS Go Reds!

[davsand]

6. Don' forget the Property Taxes you'll pay on that Mc Mansion.

The taxes can be a pretty big bite along with that mortgage. Can't TELL you how many folks I have come thru my office who say they had no idea the taxes would be so high on that dream home...

:wow:


Laura

[VolcanoJen]

9. I know a couple living in a McMansion.

He's a super guy. Works hard, makes a decent living selling insurance. She's lovely, a stay-at-home mom doing an amazing job raising their four children.

I remember when they bought that home in 2001. They were living in a modest but really nice bi-level in a great neighborhood, and decided to trade up. They had a housewarming and as I was looking for the address, my jaw dropped when I rolled up the driveway. I couldn't freaking believe my eyes... an absolute McMansion the likes of which I'd never imagined. It was like a castle. They were so proud.

I was pretty uncomfortable at that housewarming. It was like I was the only person there who kept looking around and thinking, "No freaking way. There is no freaking way they can afford this; hell, even I make more than he does."

I'm worried about them... I wonder when reality will smack them in the face? They should've stayed put.

Maybe I should clear out the basement, because when that loan flips, I'll bet they're going to need a roof over their heads. :-(

[Zomby Woof]

7. Interest-only loans

They were designed by the wheeler-and-dealer real estate investor types to make quick cash. It worked - for them.

Of course, wealth, contrary to what Republican "free market" propaganda tells you, is a zero-sum game. Those who made big and fast money turning over property are leaving many in the lurch. The something-for-nothing mentality meets the get-rich-quick mindset, in the subdivision of buy-now-pay-later.

The companies making those types of loans are also facing their bubble bursting. They made a quick profit from those loans. The bigger banks can weather it because they are much more careful on how they lend their money.

GO DODGERS!

[VolcanoJen]

13. Question: What happens when they figure it out?

I mean, let's say you bought that McMansion five years ago, like a damned fool. The loan flips, your mortgage doubles (triples?), and you realize you gotta get out of this house NOW.

You can't really sell it, can you? Because you're going to owe the bank more than that McMansion is worth, right?

How does that work if the bank calls in the note and you owe more than the value of the home? I seriously have no idea...

The Dodgers blow chunks

[Zomby Woof]

14. There's where the foreclosures begin

Hell, auction block. I am hoping it pans out differently, because I am far from an expert on real estate, and the unforeseen is always a factor - but I just can't twist my brain around a rosy outcome. And I don't want to conceive of the worst outcome - homelessness, people living in their cars, etc.

Maybe those McMansions will converted by the banks into apartment complexes, and will be multi-family housing, rented by the former owners and their neighbors...

One of our teams leads their division. The Reds aren't it.

[VolcanoJen]

15. So, bankruptcy, basically?

I can't see any other way out of a financial disaster like that.

Didn't you used to be an AL fan? Turncoat.

[Zomby Woof]

16. But the bankruptcy laws have changed

So... :nuke:


NL fan since we were preschool age. Only one AL team I have liked since adulthood. The NL has always been #1, unlike the Reds. :P

GO DODGERS! The Reds aren't even fit to be their bat boys!

[wicket]

17. What happens when the loan flips?

Is that when the rate resets to a higher rate? Sorry, I'm totally clueless on these things.

[VolcanoJen]

18. I'm pretty sure that when the loan "flips"...

... that means you begin making the actual, realistic mortgage payment on the home. I hear that when the loan flips, your mortgage will probably double, and may very well triple, and that's the point at which many no-money-down interest-only McMansion purchasers realize they're in way over their heads.

I'd certainly welcome a more definite definition... I'm learning myself.

UPDATE: Here's a handy link on how dangerous these kinds of mortgages are:

http://www.forbes.com/home/services/2005/06/06/cx_lm_0606mortgage.html

There's a shocking stat in that article... during the second half of 2004, 63% of home loans were adjustable-rate, interest-only.

Think about that, and think about the graph in my original post. The crash ain't gonna be pretty.

[wicket]

24. Thanks for the info

:hi:

[Horse with no Name]

23. I have no doubts

that very soon in our future, debtors prisons will be back in vogue.
There was a reason they changed the bankruptcy laws.

[VolcanoJen]

25. Thanks for my Daily Freak-Out, Horse.

:scared:

Dammit! And I was in a good mood today... but I think you're right, and I was very disturbed when they changed the bankruptcy laws.

[wicket]

3. Oh my god.

:wow:

[VolcanoJen]

4. I'm sayin'!!!!

That's exactly what I did when I saw it. :wow:


That's crazy, and it ought to be all over the news. Somethin' big is comin'...

[wicket]

8. It's times like this I'm glad to still be a renter

It's so sad that so many people are going to be hurt though :(

I tried to talk some friends of mine out of getting one of those interest-only-no-money-down loans a few months ago, but they did it any way. :shakes head:

[WA98070]

11. Watch out--when people loose their homes they become renters and

will drive rents up.

[wicket]

12. Our rent is already being driven up by rising property taxes

Call it "the Bush tax". But thanks for the warning :hi:

[NickB79]

27. Our rent went up and tenants have to pay for heating and garbage now

We renewed our lease a week before the new changes went into effect, so we will still recieve free heating and garbage services until next April, but new tenants at our complex now have to pay for their own heating and garbage. We were quoted that if we renew again next year, we should expect to pay $40-$50/mo in heating alone during the winter (which is LONG and COLD in Minnesota), and $10/mo garbage disposal. That's in addition to the $10-$20 rent hike we're expecting. A $70/mo increase is significant when the average American's takehome pay is declining.

Unfortunately, all the other apartments in the area are going this route as well, so moving would make no difference.

[MissB]

22. One of the big three had a news story the other night.

I think it was NBC. They were talking about interest-only mortgages and ARMs and the effects being seen now in some California counties, where defaults were up close to or over 100% versus the year prior. They even had a snip of a woman doing the courthouse sale thing on the steps (house in foreclosure, being sold at auction on the courthouse steps).

The problem with so many of the interest only or ARMs is that the people who have those may have a hard time finding a lender that will convert it to a fixed-rate mortgage.

[The Cleaner]

5. I was WARNING people back in 2000

but nobody listened.

Bubble is an undersatement. The crash will be UGLY.

[WA98070]

10. I once heard that Ward Cleaver could have bought his house for

less than his yearly salary (something like 2/3) but today that house would cost him 4 times his yearly salary. Does anybody have any idea where I would find figures to support this?

[InkAddict]

26. Ward Cleaver's home

was in MAYFIELD, modeled after housing in the bedroom community of 1950-60 Mayfield, OHIO!

Persons could afford those same homes fine before Ray-Gun's exploitation/deregulation. Many are still holding on there by the skin of their teeth, and as many have been "selected out" through unemployment/outsourcing. When Millionaire Row owners skipped town, they took the fortune(s) of the population along w/them.

[Yavin4]

19. That Chart Goes Hand in Hand with Greenspan's Interest Rate Policies

from 2001 through 2004. I have posted this a 1,000 times. Greenspan deliberately kept interest rates at historically low levels in order to help Bush get re-elected. Interest rates were underneath 2% from 2002 right through election day in 2004. By contrast, the lowest rate that Clinton got was only 3% and that was in his very first year. Clinton averaged about 4.5% rates. In fact, Greenspan boosted rates like crazy from 1999 to 2000 in order to kill off the boom in time for the 2000 election.

The problem with this kind of manipulation is that it leads to high levels of inflation and over-heated asset values like housing. Millions of Americans were literally living off of the equity from their homes. It became easier to borrow $50K than it was to earn it.

[VolcanoJen]

20. And, doesn't Greenspan continue to support and suggest...

... interest-only, ARM loans??? I read the other day that in a recent speech, he said Americans are "paying dearly" for refinancing options when they choose Fixed Rate Mortgages.

He is freaking crazy.

[wicket]

21. kick

:kick:

[meganmonkey]

28. What would that look like if they took Southern Cali out of the picture?

Don't get me wrong - I believe that the situation is dire, but I am under the impression that the HUGE housing market boom specifically in the LA/San Diego area has skewed the national figures. I wish I could remember where I read that and I would post a link...I wonder what that graph would look like with Southern California numbers taken out?