I think I can, I think I can

From CNN/Money:

The housing recovery that wasn’t

Over the past few months, a spate of good news about the U.S. housing market has led some to think a recovery is finally on the horizon.

The evidence is compelling. It now costs almost as much to rent as buy. Since the housing bubble burst in 2006, home prices have fallen by 33% nationwide — more than they did during the Great Depression. Waves of foreclosures and tighter lending standards have helped drive a surge in rentals. And during the third quarter, the median monthly mortgage payment totaled $698 compared to the median monthly asking rent of $700, according to Capital Economics, citing data from the National Association of Realtors and the Census Bureau. What’s more, the cost of borrowing has fallen to record lows, with interest rates for 30-year fixed rate mortgages hovering around 4%.

That optimism is well-deserved, right? Not exactly.

Since the housing market imploded, analysts have predicted year after year that prices might at long last bottom out. Will it finally happen this year? Perhaps next? Bottoming necessarily out precedes turning the corner — and until that happens optimists should be cautious. Economists widely cite the short-term obstacles weighing down prices. These factors range from high unemployment and household debt to the so-called “shadow inventory,” or all the properties that have yet to come into the market because of pending foreclosures or skittish homeowners delaying sales until prices improve.

These threats are very real. But there’s a bigger threat — and drag on any future recovery — that doesn’t get nearly the attention it deserves: rising interest rates.

Admittedly, rates probably won’t increase any time soon. In a sign that the economy is recovering slower than expected, the Federal Reserve announced last week that it would keep its record-low rate for another three years. The central bank has already kept its key rate at nearly zero for three years. And last summer, officials launched “operation twist,” whereby the central bank bought $400 billion in long-term bonds in hopes to give the economy a boost and, more specifically, lower the cost of taking out home mortgages.

Problem is, interest rates can’t stay low forever. Eventually they’ll have to rise, which could very well drive home prices down since the cost of taking out a mortgage becomes more expensive. Even if rates rise slowly over several years, prices could either fall much further or, at best, stagnate. This is partly why the Fed has been so obsessed with keeping rates down. “The market will look like a frog in boiling water once rates rise,” says Lance Roberts, CEO of Streettalk Advisors, a Houston, Texas-based investment advisory company. Roberts, who also contributes to Advisor Perspectives, which publishes newsletters and online articles focused on investment strategies, laid out his case in a recent post.

At some point, interest rates will start rising back toward the long-term median of 8.9% from the current 4%. Depending when and how quickly, the jump would make homes much less affordable for the average American family. Roberts notes that, back in 1968, U.S. households on average spent 7% of their real disposable income on their mortgage payment with a down payment typically at 20%. Assuming the same down payment, that share has more than doubled to 15% today or likely higher since many mortgages approved over the last decade required little or no money down. “With real disposable incomes stagnant as inflation pressures rise, that 15% of the budget is becoming much harder to sustain,” he says.

So while the housing market may eventually overcome the immediate bumps of foreclosures, high unemployment and the like, real optimists should be looking at the direction of interest rates before they get their hopes up.

This entry was posted in Economics, Housing Recovery, National Real Estate. Bookmark the permalink.

103 Responses to I think I can, I think I can

  1. Mike says:

    Good Morning New Jersey

  2. grim says:

    From HousingWire:

    Barclays Capital doubts REO rental program will work

    A public-private investment program for renting foreclosed Fannie Mae and Freddie Mac properties proved to be a popular, if esoteric, topic at the latest American Securitization Forum conference.

    In one panel, participants largely supported the idea. In retrospect, Barclays Capital believes such a program, while beneficial to home prices, will be too difficult to implement.

    “Rentals yields (adjusted for vacancies/future vacancies) are much lower than where bonds yields in the non-agency space were when the PPIP was announced,” analysts at the investment bank said. “As a result, the equity yields on such a program would look less attractive.”

    Further, BarCap analysts point out that managing hundreds of bonds from a central location, as Wall Street firms are used to, is simpler than managing thousands of properties across the country.

    Laurie Goodman of Amherst Securities argued at the conference that a ramp up of rental operations across the country would result in a cottage industry devoted to third-party management of these properties.

    Barclays analysts disagree.

    “As a result, this remains difficult to scale effectively and may not draw as much money as envisioned,” they counter, adding “it might be more effective in specific regions with higher rental yields.”

  3. Confused in NJ says:

    Property Taxes in NJ makes the bite out of disposable income go through the roof.

  4. Proud to be an American where at least I know I'm free HEHEHE says:

    The laws of economics for the drinker and banks*

    “Here is a dummies guide to what went wrong in Europe:

    Helga is the proprietor of a bar.
    She realizes that virtually all of her customers are unemployed alcoholics
    and, as such, can no longer afford to patronize her bar.

    To solve this problem, she comes up with a new marketing plan that allows
    her customers to drink now, but pay later.

    Helga keeps track of the drinks consumed on a ledger (thereby granting the
    customers’ loans).

    Word gets around about Helga’s “drink now, pay later” marketing strategy
    and, as a result, increasing numbers of customers flood into Helga’s bar.

    Soon she has the largest sales volume for any bar in town.
    By providing her customers freedom from immediate payment demands, Helga
    gets no resistance when, at regular intervals, she substantially increases
    her prices for wine and beer, the most consumed beverages. Consequently, Helga’s gross sales volume increases massively.

    A young and dynamic vice-president at the local bank recognizes that these
    customer debts constitute valuable future assets and increases Helga’s
    borrowing limit.

    He sees no reason for any undue concern, since”

    http://reszatonline.wordpress.com/2012/01/25/the-laws-of-economics-for-the-drinker-and-banks/

  5. grim says:

    Taibbi on the Robosigning settlement:

    A Victory for the Public on Foreclosures?

  6. grim says:

    From Newsworks:

    Trenton area posts biggest foreclosure discount rate in U.S.

    A new survey shows the average price of foreclosed homes in Trenton, N.J., is showing the biggest drop in the nation.

    The latest data from housing research company RealtyTrac shows a 68 percent discount in the price of foreclosed homes compared with other homes on the market in the Trenton area.

    “A lot of it has to do typically with these discounts that the properties are not in great condition,” said Daren Blomquist, a RealtyTrac vice president. “So the person who’s buying it is willing to buy it, but they want a discount because they may have to put some repairs into the property.”

  7. freedy says:

    Perhaps Trenton is a Do over

  8. Zack says:

    #9

    same as celebrating St Patricks day or Chinese new year.
    This is a land of immigrants. Accept it or leave the country

  9. freedy says:

    Yes, a wonderful tax base to work from

  10. 3B says:

    I have been talking about what happens when interest rates rise as it relates to housing for over a year now. First time I have seen a media source talk about it. Just saying.

  11. funnelcloud says:

    Morning Mike
    What kind of trouble you going to get us in today

  12. gary says:

    Dear Sellers,

    Feeling a little nervous? Frustrated? That thrust you’re feeling in your side like a daggar is called property taxes. There’s less and less victims who don’t have the means to pay an extra $1000 per month; thus, your asking price will need to be lowered… again… substantially.

    Tick… tick… tick… tick…

  13. gary says:

    At some point, interest rates will start rising back toward the long-term median of 8.9% from the current 4%. Depending when and how quickly, the jump would make homes much less affordable for the average American family.

    Now, add the property taxes in Unicorn County, NJ. Now, I want you to envision a train hitting a tanker truck stuck on the tracks. Get the picture?

  14. JJ says:

    So went to inspect a Bank of America property as an investment. House in pretty good shape, maybe at best needs 10K to make it a good rental. Nothing major at all. Prior owner died and estate found out Dad had more mortgage than property was worth so bank took title. So none of that usual mess.

    Anyhow, so I could get house for 200K, taxes 5K and similar rent is $1,800 a month.

    I am running math in head and house will cost me with insurance at least 6k year, closing maybe 10K if I pay cash.

    So even if I get full market rent with a great tenant. I make $21,600 in rent. Whiich seems great.

    But I am in hole for 26K reno, closing and taxes. Plus I am out 10K a year on bond interest on the 200K. So year one I am out $14,400
    Year two I am out 10K bond interest, 6k taxes and insurance and lets assume nothing breaks at all, ha ha I make $21,600 rent for a profit of $5,600.

    Sounds pretty good. But I can assume something will break. These houses were going for 300K just five years ago. How did someone buy this to rent at 300K, makes no sense.

    One of my kids went with me to look at house as she was stir crazy. Ran the numbers by her and she was like isn’t buying homes to rent out something poor people do like we see on the shows on the home network. I say yea those people are in a tight squeeze which is why they are renting, I am just buy as an investment. She then went still seems like a lot of work for a little money.

    But this is best priced home in town, an REO in good shape, walking distance to elementary school and train and town. But still a residential block. House is small, 1,100 square feet, but that is an attraction to me as it is in the better rent part being near train and less to maintain.

    I could get a mortgage on home but then it means a whole bunch of fees. I might do some in cash and some in margin loan if I want a tax deduction. To get a good rate on the mortgage I have to claim it is my primary or vacation home, not say it is a rental but that is lying on a form and will come back and bite me one day.

    Does this sound like good cash flow or what?

  15. gary says:

    I’m beginning to think that the Occupy movement may have more validity than I originally thought. And perhaps a level of anarchy is now justified. I also think that Romney may suffer the greatest marginal defeat in the history of presidential elections.

  16. freedy says:

    http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold

    I’m confused I though Washington was on the side of the small,little regular American
    Citizen

  17. JJ says:

    Interesting, they had very little equity in first house, near retirement, bought a second home at peak without selling first home and then stuck the bank with a loss on the first home in the short sale and now want to still the tax payers with a loss on a second home.

    Bottom line they can easily refinance. But it involves, getting a job and saving money so they can start pre-paying mortgage each money till they have equity to refinance. or since they have working chilldren just borrow from them.

    For instance if my parents were alive and owed 400K on a house with zero equity at 7% and needed to refinance to 4% to survive. I would just loan them the 80k, let them refinance the 32K at 4% and change deed so I have 20% equity in house. Their kids are refusing to help, their brothers and sisters, aunts and uncles, cousins etc. are refusing to help cause they know they are bad with money and any money you give them you will never see again. Why should uncle sam help them? They should short sale again and move in with their kids.

    freedy says:
    January 30, 2012 at 9:24 am
    http://www.propublica.org/article/freddy-mac-mortgage-eisinger-arnold

    I’m confused I though Washington was on the side of the small,little regular American
    Citizen

  18. freedy says:

    http://www.northjersey.com/news/bergen/bergen_news/138307724_Shrinking_tax_base_hurts_county____.html

    Next time you wonder how property taxes go up ,not down . Leaving the room

  19. Juice says:

    re: # 20 – drained their 401k? Morons…..they will be eating cat food.

  20. Barbara says:

    JJ if you can finance most of it and still clear at minimum, 500 a month, it’s a no brainer. That’s all the math you need.

  21. Barbara says:

    Where else are you going to clear 6k a year on a 20 k or less investment?

  22. 3B says:

    #21 freedy: And of all the 77 towns in Bergen County, look at the one town they reference? hint, it is the land of Unicorns. Of course I was talking about this too, how out of control spending would equal high property taxes which in turn would hurt the town, and nobody listened. Why do I always feel I am talking to myself?

  23. Mike says:

    Good Morning Funnel, I’ll try making you laugh with this one, but I’m sure someone will be objective to it. http://www.stevebridges.com/obamavideos-promo-Aug-2011.html

  24. Comrade Nom Deplume says:

    True story.

    My 8YO has developed a sudden fascination with unicorns. Talks about them pretty frequently, so now the 2YO says she sees unicorns.

    Was walking with them through our blue ribbony hood over the weekend and I saw a skittle on the ground. Later another. And another. And another. And so on.

    thought to myself, hmmmm, wonder if the girls have really been seeing unicorns. They seem to be crapping all over my neighborhood.

  25. xolepa says:

    That’s my gut feeling, too, JJ. Least amount of money down works best in these rental situations. Why dissipate your steady bond income? Remember, though, the RE investor locks in the profit at the time the property is purchased, not sold. That means you better buy that under market value.

  26. Barbara says:

    Pardon, 40k not 20 k.

  27. Comrade Nom Deplume says:

    [26] mike

    that was funny and not that stinging. Only a wingnut would be offended, and even then, the true wingnuts have left Barry and now want to hang him in effigy with Romney. So I wouldn’t worry.

    Besides, pissing off wingnuts is a good way to know you are on the right path.

  28. Comrade Nom Deplume says:

    Won’t find folks on MSNBC calling BS on Warren, but it’s about time someone ran with this:

    “Billionaire Berkshire Hathaway CEO Warren Buffett is once again thrilling the political class by volunteering other people to pay higher taxes. Long-time observers recall his opposition to former President George W. Bush’s efforts to reduce the tax rate on dividends. Since Berkshire pays no dividends, Mr. Buffett had little at stake but enjoyed the opportunity to pose as if he were a rich guy eager to cough up more dough to Washington.

    In the current debate, President Obama is pushing the “Buffett Rule” to ensure that high-income earners pay higher tax rates. But even if it’s enacted, don’t expect the Buffett Rule to have much impact on Mr. Buffett. By an amazing coincidence, the sage of Omaha is already positioned to shield most of his rising wealth from such a tax. …

    [T]he Buffett Rule … at its heart is a way to raise taxes on dividends and capital gains. Berkshire still doesn’t pay a dividend, and as for capital gains taxes, well, Mr. Buffett has already made clear that he’ll largely avoid them by transferring his fortune to the Gates Foundation and to charitable trusts controlled by his family.”

  29. JJ says:

    Nowhere, but trouble with financing 180K to make 6k is I am leveraged 30 to 1. My last rental I was at 10 to 1 rental.

    I am going to get pre-approved by BAC anyhow so lets see what they will lend me and at what rate.

    Other issue is banks now only allow one primary rate. Since first house is paid off, if I bought this house cash it allow me to trade up and get a mortgage on new home as primary. Other issue with mortgage is house is in flood zone. I have to pay 1% of mortgage balance for flood insurance. So what every rate I get is actually 1% higher. This house can’t flood as it has a crawlspace, is raised up around five feet and boiler, water heater, washer/dryer all on main floor. Had no damage in recent flood in neighborhood which is good sign.

    Barbara says:
    January 30, 2012 at 9:55 am

    Where else are you going to clear 6k a year on a 20 k or less investment?

  30. Barbara says:

    JJ that’s when you leverage again the remaining 200k and buy addition properties. land lording is tricky when you are small time. I am in the dangerous middle, stuck here due to the bubble. Hope to make some moves in the near future. I do not see big benefits from owning one property and would only do it if I was going to build upon my holdings with profitable rentals.

  31. Barbara says:

    JJ hmm, as of this summer I refied all of properties and bought a new primary. Different rates on rental than on primary. Maybe I’m not understanding what you mean by one primary rate or maybe they changed the rules since.

  32. freedy says:

    Its a sad state of affairs when Bergen County loses money on the public golf courses.

    I wonder how much they are losing on the Brand new park in Leonia . You know ,the
    one where the entrance was never finished .

  33. Barbara says:

    JJ I am a good real estate investor but am envious of your market savvy. I don’t know about you but I stick to what I know, keeps me out of trouble. Although if you were my brother in law I would probably let you manage my cash.

  34. JJ says:

    New Jersey’s property taxes, the highest in the nation, climbed 2.4 percent to an average $7,759 in 2011, according to data posted on a state website.

    The gain follows a 4.1 percent jump in real estate taxes, the prime funding source for schools and local governments, in 2010. Governor Chris Christie, a first-term Republican, enacted a 2 percent cap on the levies that took effect in January 2011.

    Christie’s measure reduced the 4 percent limit enacted by his predecessor, Democrat Jon Corzine. It also cut the number of exemptions to four from 14.

    Lisa Ryan, a spokeswoman for the state Community Affairs department, which tracks the property-tax data, declined to immediately comment on the figures.

    Property taxes in New Jersey have increased 66 percent since 2001, when they averaged $4,661, the data show.

  35. jj (32)-

    Flood zone should be a deal-killer. Unless, that is, you go with the slumlord business model. Rent to illegal, SRO occupants, charge well over market rents, exceed the occupancy limit, make no improvements, do not maintain the property…and accept cash only.

  36. Houses in flood zones flood. Sooner, rather than later.

  37. gary says:

    Property taxes in New Jersey have increased 66 percent since 2001, when they averaged $4,661, the data show.

    That’s dead accurate.

  38. JJ says:

    Not that I am a great investor. But lots of people only invest in one asset class or believe they have to make back their loss in the same asset class. I also in general like to buy out of favor asset classes constantly. l only bought properties twice. One from Resolution Trust Company in Late 1991 and in December 1999, Christmas time around Y2K. I feel it is getting near buying time again.

    Most real estate investors who get wiped out bought at or near peak with leverage. The same crowd who would never buy a stock or bond on margin which my law can only be up to 50% of the value of the collateral bought houses at 3% down.

    We are at the end of a 30 year bond bubble, stocks will most likely have a pop once Europe is resolved and election time comes near, but come 2013 stocks and bonds will be slowing down as a place to make money, RE will be bouncing around bottom so money will flow there. I just want to get there first. That and expiration of 15% cap gain rates and higher tax rates on corporate bond interest plus extremely low muni bond and treasury bonds rates may be good for RE. Only issue is last four years have been a deleveraging one. I for one have zero debt. Also has been a big move from stock to fixed income. However, unlike Apple or Bershire stock where it pays zero dividend. People heavily buying Junk, Investment Grade and Munis since 2009 now have a significant interest stream flowing in. Can re-invest stream in bonds as coupons are too low. I have close to $10,000 a month interest coming in now. It needs to go somewhere. Remember, not that long ago we had 7% munis, 9% investment grade and 16% junk bonds. Someone who locked in long term bonds in thebond sale which lasted from October 2008 all the way to November 20111 is in a good pickle with cash to invest.

    Barbara says:
    January 30, 2012 at 10:35 am
    JJ I am a good real estate investor but am envious of your market savvy. I don’t know about you but I stick to what I know, keeps me out of trouble. Although if you were my brother in law I would probably let you manage my cash.

  39. The Original NJ Expat says:

    Do yourself a favor and find 30 minutes to listen to this interview without interruption:

    http://billmoyers.com/segment/john-reed-on-big-banks-power-and-influence/

  40. JJ says:

    My house is in a flood zone. In fact on LI all the good homes are pretty much in a flood zone. Waterfront, Waterview, etc. Only issue is the flood insurance. Since it has to be equal to the amount of mortgage the bigger the mortgage the bigger the cost.

    There Went Meat says:
    January 30, 2012 at 10:51 am
    jj (32)-

    Flood zone should be a deal-killer. Unless, that is, you go with the slumlord business model. Rent to illegal, SRO occupants, charge well over market rents, exceed the occupancy limit, make no improvements, do not maintain the property…and accept cash only.

  41. The Original NJ Expat says:

    [43] JJ – In fact on LI all the good homes are pretty much in a flood zone.

    There’s a few in Sands Point that aren’t.

  42. Barbara says:

    I am not in that crowd but would still not buy stocks on margin, mainly because I do not know what I am doing, but I don’t think it’s a fair comparison. Rents have remained steady and keeping pace with property taxes even when real estate crashed and it’s still going strong. Stocks have had no such steady history.

    41 JJ.
    Most real estate investors who get wiped out bought at or near peak with leverage. The same crowd who would never buy a stock or bond on margin which my law can only be up to 50% of the value of the collateral bought houses at 3% down.

  43. Barbara says:

    JJ However….if you have a good handle on the markets and can read the data and have a history of making the right predictions, I can understand why you think the comparison holds water. You know what you know.

  44. Spanish youth UE tops 50%. What could possibly go wrong here?

    “Because the real question is if there is no hope for tomorrow, what is the opportunity cost of doing something stupid and quite irrational today?”

    http://www.zerohedge.com/news/europes-scariest-chart

  45. JJ says:

    Long term stocks have outperformed real estate 3-1. Real Estate by its very nature involves leverage. Which is why you have outsized gains and outsized losses. RE over the long term only averages 3% annual gain which is puny. But we have years such as 1993 to 2006 that lull people into RE as a can’t lose investment. RE has another issue very hard to diversify. Most people tie up entire savings and RE has extreme liquidity issue. You can’t push a button and sell. RE however, is an excelent inflation hedge and we all need a place to live and if priced correctly at a good interest rate you are set. RE like stocks and bonds all have their place. RE for instance does very well when there is inflation and bonds do not. It would be a good hedge for someone like me who owns a lot of bonds.

    RE should at most be maybe 40% of portfolio. Most people are way beyond that just with primary home. I need some more RE.

    Barbara says:
    January 30, 2012 at 11:06 am
    I am not in that crowd but would still not buy stocks on margin, mainly because I do not know what I am doing, but I don’t think it’s a fair comparison. Rents have remained steady and keeping pace with property taxes even when real estate crashed and it’s still going strong. Stocks have had no such steady history.

  46. Comrade Nom Deplume says:

    Coming to an in-box near you (very near you):

    Lawyers allowed to advertise on Groupon

    http://www.nysba.org/Content/ContentFolders/EthicsOpinions/Opinions825present/EO_897.pdf

    So this is how I can get Captain Cheapo’s legal business!

  47. JJ says:

    Funny as more and more younger pretty women work in the world of finance I think we need to change the names of our meetings. Three girls all aged 23-27 and pretty and single who are wrapping up a big project just scheduled a “de-briefing” meeting with me.

  48. NJGator says:

    Barbara – How much equity did you need to have in your rental properties in order to refi? We are keeping our eyes on the rates to see when it makes sense, but we have not refi-ed since we moved out. Am curious how much more stringent the requirements are when you are not owner occupied.

  49. 3B says:

    #47 Generalissimo Francisco Franco?

  50. JJ says:

    Jennifer Love Hewitt was spotted shopping for toys at the Hustler store the other night on Sunset Boulevard in Los Angeles. Hewitt was solo and, according to our spy, “had a few pairs of thongs in her hand and was perusing the ‘toys’ section before making a purchase.” Perhaps the actress was doing some research for her new role in the Lifetime series “The Client List,” in which she plays a Texas mom- turned-prostitute. Her rep didn’t get back to us.

  51. Anon E. Moose says:

    3B [52];

    Subbornly clinging to death?

  52. NJGator says:

    Will Tebowing help sell a West Orange home for $200k?

    http://montclair.patch.com/blog_posts/tebowing-for-real-estate

  53. homeboken says:

    55 Gator – Can I Tebow in front of the assessors office as well? Taxes > 4.5% of the asking price. Makes perfect sense for prestigious WO.

  54. NJGator says:

    homeboken 56 – Place was last purchased in 2006 for $400k. Ouch!

  55. Anon E. Moose says:

    Gator [55];

    http://stjosephstatue.com/

    One born every minute…

  56. Anon E. Moose says:

    Con’t [58];

    Snopes has this to say:

    >Everything doesn’t always go as planned. One impatient man moved his statute from his front yard to his back yard to the side of the house and finally threw it in the trash. A few days later the frustrated seller opened the newspaper and saw the headline “Local Dump Has Been Sold”<

    Snopes obviously didn't consider the possibility that the 'Local Dump' was just another house for sale. :-D

  57. The Original NJ Expat says:

    Did you ever work backwards from a listing and figure out what’s going on with the owners? I saw a listing for condo in Vernon, NJ, very recently and aggressively priced at $70K. Look up the owners, it’s owner occupied and they bought at $140K near the peak, must be a short sale, right? Nope. They put $38K down, took out a $102K mortgage in 2004 and somehow paid it off probably right at the peak in 2006. Fast forward to 2012, they’re in their mid 30’s and probably want to start a family. They put it on the market correctly priced and will probably walk away with a $65K down payment on their next place. Sure they lost $70K, but they’re not letting it hold them back and they’re not costing anyone else any money.

  58. Brian says:

    Interesting article on Stan Humphries and Zillow’s thoughts on solving the housing crisis:

    http://agbeat.com/real-estate-mortgage-economy/zillow-says-obama-picks-up-their-idea-on-housing/?tw_p=twt

    Zillow says Obama picks up their idea on housing
    Tara Steele | 2012/01/24 |
    Obama’s State of the Union address
    During President Obama’s State of the Union address tonight, the President exerted the most efforts on jobs and the economy and while not much was said about housing, he did state that he was sending a plan to Congress to help responsible homeowners to find relief without having to wait for the market to hit bottom, potentially saving each homeowner $3,000 per year. The President noted that the government cannot save housing alone.

    Additionally, the President asserted that we need “smart regulations” to prevent irresponsible lending, especially to homeowners that “knew they couldn’t afford” their mortgage.

    This fall, real estate media site, Zillow offered Six ideas to revive housing that Congress might actually support, penned by Dr. Stan Humphries, Zillow’s Chief Economist. Of the six suggestions, one looks somewhat similar to Obama’s suggestion above:

    “Go bigger on refinancing Fannie/Freddie mortgages. In a speech in Las Vegas on October 24, President Obama promised that the Federal Housing Finance Agency would prod banks to give homeowners who are under water with their Fannie and Freddie mortgages an opportunity to refinance. I don’t object to the President’s plan. I’m just afraid it doesn’t go far enough. Instead of helping only one million homeowners refinance their homes, we should try to help out the 16.5 million homeowners who are under water with their mortgages.

    Columbia University professor Christopher Mayer proposes that the government consider giving homeowners who are current on their mortgages permission to refinance, regardless of their credit score. These folks are current on their house payments and the loans are secured by real estate. What difference does it really make if elsewhere in their lives, they’ve missed a credit-card payment or paid late on their electric bills?

    Nor is there need to get an appraisal of the house or verify income. Charge them a few hundred dollars to alter the paperwork to reflect the lower interest rate and be done with it. “Reward the people who’ve been really good credits throughout the crisis and have struggled to make it,” says Mayer. The number of households that fit into this category is in the tens of millions.”

    .The similarities
    Although the President’s proposal sounds like a conservative, less in-depth option than what has been suggested by Zillow, the similarity is obvious. While Zillow is not taking credit for the similarity, Dr. Humphries tweeted shortly after the State of the Union:

    Zillow still believes there are five additional moves Congress would approve of. In their own words:

    1.Facilitate more bulk sales of distressed mortgages backed by Fannie, Freddie, and the FHA to the private sector.
    2.Let Fannie and Freddie make more than 10 loans to small real estate investors.
    3.Grant visas to immigrants who buy U.S. homes.
    4.Allow people to set aside a portion of their retirement funds for down payments.
    5.Give the market foreclosure clarity.

  59. Barbara says:

    51. gator

    I do not know because we had so much equity that the subject never came up. Today I’m talking to a local small bank about a refi on our recent purchase. This should be interesting since I’m not sure where we are at comp and appraisal wise, small town with few sales.

  60. Brian says:

    What about a down payment protection plan for buyers sitting on the sidelines?

    http://www.nytimes.com/2012/01/25/opinion/down-payment-insurance-for-homebuyers.html?_r=1&src=recg&tw_p=twt

  61. Barbara says:

    JJ this only applies to the equity game. You omit rental income. What you leverage should be for the 30 year haul. No one is going to do a margin call unless you die or start callin g realtors. Now for 30 years you are making 6k on a one time 40k investment. Now do 6k x 30 plus the sale of the house at the end of the haul and tell me how stocks out preform real estate. Why worry about what the mortgage company makes in interest? The tenants pay the interest.

    JJ 48.
    Long term stocks have outperformed real estate 3-1. Real Estate by its very nature involves leverage. Which is why you have outsized gains and outsized losses. RE over the long term only averages 3% annual gain which is puny

  62. The Original NJ Expat says:

    $83,000 per student for public school, but you can’t beat the student-teacher ratio:

    http://www.nytimes.com/2012/01/30/education/one-room-montana-school-is-also-a-one-student-school.html?src=recg

  63. 3B says:

    #61 Brian: There is no housing crisis, the matter will be resolved when prices fall to a level that make sense. Some will be hurt, but that is nothing new. I bought in the bubble in the late 80’s could not sell it when I wanted, stayed and paid it off than moved on. There was no crying about people losing money back than.

  64. JJ says:

    I guess. But timing is everything. RE is an asset you can’t always invest in. 1986, 1987, 1988, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011. There are often periods of time where either the underlying asset is overpriced or mortgage rates are too high to make it work. Old rule of thumb used to be purchase price has to less than 10x rent roll. For most of last decade not the case.

    Also 2005, 2006, 2007, 2008, 2009, 2010, 2011 you would be better off just buying ten year treasuries than real estate. People brag about refinancing etc. but it all takes money and time.

    If I buy cash in end same thing as mortgage. If I buy cash I have 1,000 free cash flow each month. I can take the 1K and put it in a mutual fund every month for 30 years. Mortgage main advantage is you are forced to pay it and it is forced savings. For instance when I paid off my mortgage it worked out great. Since I paid if off around August 2008 I took that monthly savings and invested it. Fortunately the market rose 80% since then. Real Estate as a sold investment strategy is flawed by the irrational nature of real estate. I need other asset classes. I thought RE was overpriced starting in 2003, now I think it is approaching fair value. I can’t stay in cash for nine years. My money has to keep working.

    Barbara says:
    January 30, 2012 at 1:46 pm
    JJ this only applies to the equity game. You omit rental income. What you leverage should be for the 30 year haul. No one is going to do a margin call unless you die or start callin g realtors. Now for 30 years you are making 6k on a one time 40k investment. Now do 6k x 30 plus the sale of the house at the end of the haul and tell me how stocks out preform real estate. Why worry about what the mortgage company makes in interest? The tenants pay the interest.

    JJ 48.
    Long term stocks have outperformed real estate 3-1. Real Estate by its very nature involves leverage. Which is why you have outsized gains and outsized losses. RE over the long term only averages 3% annual gain which is puny

  65. Wendy says:

    JJ, how would closing costs be $10K for a cash sale? I pulled up my HUD-1 from my ’09 sale to a cash buyer and their only real costs shown were under $3k for title insurance and related costs (plus some pro-rated taxes, but that’s not a real fee or cost, it’s part of the tax bill, which you are already counting). They also had inspection costs, what’s that, around $500? What other costs? I am curious as I intend to do a cash purchase myself.

  66. JJ says:

    The more the starter home falls the better. Lets say a couple dreamt of a one million dollar NJ home in 2006 but could only afford a 100K small coop apt. Now lets say home prices fall 90% and they sell their coop for 10K. Great, they can buy their one million dollar home for 100K. Their loss of 90K is nothing next to their 900K savings on their dream house.

    The Original NJ Expat says:
    January 30, 2012 at 1:15 pm
    Did you ever work backwards from a listing and figure out what’s going on with the owners? I saw a listing for condo in Vernon, NJ, very recently and aggressively priced at $70K. Look up the owners, it’s owner occupied and they bought at $140K near the peak, must be a short sale, right? Nope. They put $38K down, took out a $102K mortgage in 2004 and somehow paid it off probably right at the peak in 2006. Fast forward to 2012, they’re in their mid 30′s and probably want to start a family. They put it on the market correctly priced and will probably walk away with a $65K down payment on their next place. Sure they lost $70K, but they’re not letting it hold them back and they’re not costing anyone else any money.

  67. JJ says:

    On a cash deal with bank it says Buyer Pays Transfer Taxes, I guess that would increase cost.

  68. Anon E. Moose says:

    Brian [63];

    Who’s going to write the policy, and at what premiums? I heard/tell of a case once where a commercial property owner needed a $1MM mezzanine policy before an existing excess policy would kick in — could not live without it. The price for $1MM in coverage? $1,000,000

    http://www.wavlist.com/movies/329/cpd-deposit.wav

  69. Brian says:

    True and that’s pretty much what my wife and I are doing (I bought in 2006 after we were married). I’d like to refinance one more time, to get the mortgage to the point where I have the extra cash to either pay down some more principle or put the money to work JJ style. Right now, paying the mortgage, 401k plan, two NJBest 529 plans and expenses (including 2 kids in diapers) there isn’t alot of extra money left over. My wife and I sacrifice going out a lot and she left her job and stays home with the kids too so, we don’t have her income anymore either. But we’re doing it…at a time when they say there are no jobs, the economy is in the crapper, and in NJ.

    It stung watching our equity slip away but we know we just have to dig out and get our footing again. Once the kids are old enough to go to school, she can get a part time job and we can accelerate the savings.

    I posted the article because I enjoy reading how people propose to “fix” things from a macro perspective but, my wife and I have always felt when it comes to money, we’re happiest if we just accept that we can’t count on anyone except ourselves. Gotta be a maker not a taker right?

    I’ll admit, I’m jealous of Barbara and JJ talking of buying a second or investment home. I’d love to be in the position to buy a place down the shore. My uncles bought 3 different super run down crappy houses in Seaside Park at sherrif’s sales in the late 70’s. They rented them in the summers and turned them all into businesses and I have some of the best memories spending a few weeks of my summers down there when I was young. I wish I could afford a place down there now or maybe in the Wildwood area. Last time I was in Wildwood they were STILL building tons of condos and town houses there. They’ve gotta be bargains right now.

    66.3B says:
    January 30, 2012 at 2:28 pm
    #61 Brian: There is no housing crisis, the matter will be resolved when prices fall to a level that make sense. Some will be hurt, but that is nothing new. I bought in the bubble in the late 80′s could not sell it when I wanted, stayed and paid it off than moved on. There was no crying about people losing money back than.

  70. JJ says:

    Brian, I have three kids the oldest is 11, stay at home wife, max out 401k, max out flex spending, etc. Having no mortgage is great. So much dead money in paying of a mortgage each month. It eats into your ability to save. I went a little crazy in saving money the last few years. So much so my Fidelity calculator now says my estimated retirement day is today every day. Ten years ago I was broke. BTW the economy is just fine. People will pay for talent. This is not the depression. A young guy, stay at home wife two kids to support you are what some bosses want. Stabile and had whole rock on his back so you will do what it takes. A corner office with a waterview is like five years away.

    Brian says:
    January 30, 2012 at 2:52 pm
    True and that’s pretty much what my wife and I are doing (I bought in 2006 after we were married). I’d like to refinance one more time, to get the mortgage to the point where I have the extra cash to either pay down some more principle or put the money to work JJ style. Right

  71. xolepa says:

    Barbara,
    Very important question:
    Who owns the loan(s) you are trying to refinance? FNMA,Freddie,etc.

  72. JJ says:

    Most likely I own them. Babs stop refinancing already, you are hurting my income stream.

    xolepa says:
    January 30, 2012 at 4:01 pm
    Barbara,
    Very important question:
    Who owns the loan(s) you are trying to refinance? FNMA,Freddie,etc.

  73. Barbara says:

    76 ha

    75 they are FHA, I have to recheck the papers which are currently in boxes (still moving in ).

  74. xolepa says:

    Are you sure FHA? Go to the FNMA and FMAC web sites where you type in the property address and it will tell you if you have a hit or not. If the loan is FNMA or FMAC, you may have your wish come true.

  75. Barbara says:

    Will do that later tonight, thanks.

  76. schabadoo says:

    Anybody think NJ has a problem?

    Wait, now Indians are bad? When did this happen?

  77. JJ says:

    The song goes one little, two little, three little indians and then stops. Anymore than that, it is time to sell.

    schabadoo says:
    January 30, 2012 at 4:26 pm

    Anybody think NJ has a problem?

    Wait, now Indians are bad? When did this happen?

  78. 1987 Condo Buyer says:

    #60, sounds like what we did a generation ago, need to move on….now have no mortgage on my house..but had to work hard to make up for that initial loss.

  79. 1987 Condo Buyer says:

    #66..Exactly, I guess we were a minority back then…no everyone gets to feel our pain….

  80. 1987 Condo Buyer says:

    no= now

  81. JJ says:

    Bottom line is people don’t want to open wallet take out check book and pay down an underwater mortgage enought to refinance as long as the prez keeps suggesting their will be principal writedowns and mortgage forgiveness. He should say pay up deadbeats.

  82. brian (61)-

    Great. The idiotic website, Zillow, takes credit for giving Bojangles an idiotic idea.

    It is the end of days.

  83. jj (85)-

    My consistent, and final, advice to anyone- who in all other areas of their lives don’t require the availability of credit- is to default on their mortgage if it’s at or near underwater. In fact, I think it’s stupid to pay under such circumstances. If you can run your life on a cash basis for three years after you eventually drag out your strategic default (before short selling at the 11th hour, natch), default is a no-brainer.

    Honor, schmonor. Obligation? Most likely the banks and servicers who get the payments are the biggest corporate welfare deadbeats of all. They defaulted on skyscrapers and malls, then got handed free money at 0% interest.

    In the end, the only way out of this rabbit hole is to hit the “reset” button (aka universal write-offs/write-downs). All the programs, bailouts, kick-the-can schemes, etc are no more than a diversionary paper-over of the death of money, death of credit, death of fractional reserve lending and death of the economy in macro.

    It is the end of days.

  84. Nothing will get better anywhere until all the bad/unpayable debt is acknowledged and written down. The reset button WILL get hit…either sooner, or later. If the US doesn’t hit it voluntarily, the vigilantes (you know, the ones about to kill shot the Euro, then Japan) will be here soon enough. And, YIELD MUST BE PAID, MF’ER!

    Nothing. Anywhere. Ever.

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  87. Barbara says:

    Brian, jersey shore, especially wildwood, is a bloated market with a very limited summer rental season. If it’s not twi blocks off the beach or less, it’s not worth owning in my experience with shore properties. Plus, like the Poconos, the construction is shite.

  88. njescapee says:

    10 states struggling to pay bills

    guess what number Jersey is:

    http://money.msn.com/investing/10-states-struggling-to-pay-bills

  89. Confused in NJ says:

    NEW YORK (Reuters) – Ratings agency Standard & Poor’s warned it may downgrade “a number of highly rated” Group of 20 countries as of 2015 if their governments fail to enact reforms to curb rising health-care spending and other costs related to aging populations.

    Developed nations in Europe, as well as Japan and the United States, are likely to suffer the largest deterioration in their public finances in the next four decades as aging populations strain social safety nets, S&P said in a report published on Monday.

    “Steadily rising health-care spending will pull heavily on public purse strings in the coming decades,” S&P analyst Marko Mrsnik wrote in the report. “If governments do not change their social protection systems, they will likely become unsustainable.”

    If no reforms are adopted, health-care-related credit downgrades would likely start within three years, eventually leading to an increase in the number of junk-rated countries as of 2020, the study showed.

  90. Shore Guy says:

    Yes we can, over-pay in taxes. Yes we can, over-pay for real estate. Yes we can tie millstones around our necks; after all, everyone else is doing it. You don’t want to be left out like a loser, do you?

  91. SX says:

    89. Meat is right….JJ is right. How we live right now depends on your POV. Both strategies — saving and retiring….defaulting and surviving. Should and could be employed at any given time. I’m watching a pharma meltdown right now that has the potential to change our lifestyle. What is my response? I consistently tell my wife (of 18 years) to simply be ready for anything. Would I squat for a while and then simply leave the keys in the mailbox? Sure. Would I struggled to ‘hang on’ to a depreciating asset that is worth roughly what I paid for it 11 years ago? Not a chance. I figure wtf. there is nothing of a material nature that I cannot live without. My community ( a highly taxed gulag in Essex County) is simply not worth staying in and being a taxpayer. Now, if “I” feel this way and can simply dump the house, rent something like we did in Morris County for five years, before we bought, I would. And this is from what would be considered a high income family. I cannot imagine how folks make it on less than $200k here. Just boggles the mind.

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