The piggy bank is tapped out

From the Wall Street Journal:

Home Equity Stalls
As Housing Market Cools and Rates Rise, Owners Grow Wary Of Tapping Lines of Credit; How Banks Are Courting Borrowers
April 26, 2007; Page D1

After years of piling debt on their homes, Americans are becoming more cautious about using them as a piggy bank.

A cooling housing market and higher interest rates have made homeowners more reluctant to tap the equity they may have built up in their residences. The amount borrowers owe on their home-equity lines of credit has slipped in the past six months, to $561 billion at the end of March, the first such decline since 1999, according to new data from Equifax Inc. and Moody’s Inc. Although that decline was partly offset by a pickup in fixed-rate home-equity loans, total home-equity borrowing rose just 9% in the 12 months through March, well below the 21% average annual growth rate of the past five years.

“People are feeling uncertain about the value of their home and are feeling tapped out,” says Doreen Woo Ho, president of Wells Fargo & Co.’s consumer-credit group.

Some homeowners have decided to “wait and see what happens to real estate,” says David Rupp, Bank of America Corp.’s home-equity executive, “or they may view themselves as not needing to borrow.”

During the housing boom, demand for home-equity lines of credit climbed sharply as property values rose, interest rates fell and lenders made it easy for borrowers to tap their equity for everything from home improvements to vacations. Borrowing against home equity freed up roughly $187 billion in cash per year between 2001 and 2005 that was used to pay off other debts and for new spending, according to a recent paper by former Federal Reserve Chairman Alan Greenspan and Fed economist James Kennedy.

Now, the slowdown in home-equity borrowing is leading to weaker sales in some markets for autos, building materials and electronics, says Mark Zandi, chief economist of The slowdown has been particularly notable in parts of the country that are suffering most from housing and mortgage corrections, including Boston, Minneapolis, Miami, Las Vegas and Washington.

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182 Responses to The piggy bank is tapped out

  1. James Bednar says:

    Looks like OceanFirst wants out of the subprime buisiness fast…

    OceanFirst hopes to sell money-losing subsidiary

    “That’s not the business we want to be in.”

    “We want to put this behind us as fast as possible.”

    “There is no denying the fact that our subprime lending activities were too aggressive.”

    – OceanFirst CEO John R. Garbarino

  2. pesche22 says:

    Does this mean that the caddy has to go

  3. njrebear says:

    Dow Chemical Profit Falls 20% as Housing Crimps Plastics Sales

    “Housing construction is going to be weak for Dow for the next couple quarters,” Gene Pisasale, who helps manage $25 billion, including Dow shares, at Mercantile Bankshares in Baltimore, said yesterday in an interview. “The stock has been up recently on takeover rumors that aren’t going to happen.”

  4. James Bednar says:

    From MarketWatch:

    Countrywide Financial 1Q EPS 72c Vs EPS $1.10

    Countrywide Financial Corp.’s first-quarter net income fell 37% to $434 million, or 72 cents a share, from $683.5 million, or $1.10 a share, a year earlier. Earnings for the current quarter were hurt in part the company’s subprime activities and increases to its loss reserves and related asset valuation adjustments stemming from higher delinquencies and softer housing markets. A Thomson Financial survey of analysts, on average, expected earnings of 77 cents a share for the quarter. Analysts’ estimates usually exclude items. The Calabasas, Calif., mortgage company’s revenue slid to $2.41 billion from $2.84 billion a year ago.

  5. BC Bob says:

    I know it’s true, I just can’t comprehend it. The largest damn investment that the majority will ever make and they are clueless. Bailout?? Forget that, make it mandatory that anybody buying a house can understand the difference between cash flow positive/negative. Maybe throw is a class regarding compound interest and the time value of $. Clot, say what you may about the resilience of the US consumer. If they were a stock, I would take out a hel and short the s*it out of them.

    “After all, in a recent survey commissioned by, 34 percent of homeowners with mortgages didn’t have a clue what type of loan they had.”

  6. James Bednar says:

    From Bloomberg:

    Friedman Billings Has First-Quarter Loss on Mortgage Writedowns

    Friedman, Billings, Ramsey Group Inc., the investment bank that’s trying to sell its money-losing subprime mortgage unit, posted a first-quarter loss because of writedowns tied to home loans.

    The loss, the Arlington, Virginia-based company’s third in four quarters, was $185.9 million, or $1.08 a share, compared with a profit of $26.6 million, or 16 cents a share, in the year- earlier period, Friedman Billings said today in a statement distributed by PRNewswire.

    Friedman Billings said its First NLC mortgage unit lost $124.2 million after writing down the value of goodwill, stakes in other “nonprime” mortgage companies and its own home-loan investments. Friedman Billings also recorded $5.2 million of “restructuring and other costs.”

  7. James Bednar says:

    Damn subprime loans are getting expensive, and fast..

    Would be high 8´s on the first and 12.2 on the second….

    2/28 or 3/27 with 2 or 3 yr PPP respectively

    8.15% par

    add. 35 for 5 yr ARM
    add .5 for 1 ysp

    9.6 3yr arm i.o option available

  8. James Bednar says:

    From the Record:

    Middle class faces a ticking tax bomb

    The alternative minimum tax is a ticking time bomb that needs to be defused, Democrats and Republicans representing North Jersey in Congress agree.

    Originally designed to catch a handful of the super-rich using shelters to avoid income taxes entirely, the AMT has grown to the point that it hit more than 3.1 million taxpayers, including 1,900 in Bergen County whose incomes were less than $100,000, a Record analysis of Internal Revenue Service data for 2004 found.

    Statewide, 7.6 percent of all taxpayers paid the more expensive AMT in 2004, up from 4.4 percent the year before. New Jersey now has the highest percentage of AMT payers in the nation, largely because of its high state income and property taxes.

    If Congress does nothing this year, the AMT will explode to hit more than 34 percent of New Jersey taxpayers, according to the Senate Finance Committee, because a series of one-year stopgap fixes has expired. That will include more than 530,000 taxpayers making less than $100,000, and one expert said the average taxpayer’s bill could grow by $4,000.

  9. BC Bob says:

    JB [7],

    It doesn’t matter what the rate is. The only concern is the monthly payment “now”. The car leasing mentality has engulfed the housing industry. A great business venture; provide gap insurance to anybody buying a house/condo. By signing the dotted line, they should understand that they are now approx 50K underwatwer, [closing costs, both sides, and realtor comm upon selling]. What better comfort than gap ins.

  10. James Bednar says:

    The problem is that the monthly payment for an equivalent property just got pushed way up. Not to mention borrowers actually have to cough up a downpayment now.

    Take a look at the most recent Countrywide subprime ratesheet:


  11. James Bednar says:

    A 680+ FICO looking for a 100% loan is going to have to pay 11.5% for it.

    A $350,000 loan at 6.5% (30y amortz.) is about $2,200. At 10% that payment almost reaches $3,100.

    In order to drop the payment amount to where it was before, the loan amount needs to drop to $250,000.


  12. BC Bob says:

    JB [10],

    Yes, the choke is on. A dp? What a revolutionary idea. Save for a dp? I’d rather watch American Idol/Hollywood whatever on my plasma.

  13. RentL0rd says:

    Has anyone received the ‘new format’ emails from Agents in E. or S. brunswick (Is it Middlesex MLS or GSML?)?

    The monthly payments “based on 10% down, 5% interest over a period of 30 years.”

    Tell me who is giving 5% interest (not counting PMI) for 30yrs?! The spin machine still rages..

  14. James Bednar says:


    I would send an email to the NJ Real Estate Commission and NJ Department of Banking and Insurance Commissioner Steven Goldman.


  15. bergenbubbleburst says:

    #5 BC: Resilience of the consumer, or stupidity of the consumer?

  16. RentL0rd says:

    searching for Mr. Goldman’s email..

  17. Richie says:

    The monthly payments “based on 10% down, 5% interest over a period of 30 years.”

    I’d call them up and say you’re interested in the house with the 5% 30yr loan, where can I apply?

  18. James Bednar says:


    Can you forward me the email? I have a number of media contacts that would be very interested in this information.


  19. James Bednar says:

    From Bloomberg:

    Homebuilders Pulte, Beazer, Ryland Report Losses on Writedowns

    Pulte Homes Inc., Beazer Homes USA Inc. and Ryland Group Inc. reported quarterly losses as the deteriorating housing market forced them to write down the value of property and abandon land purchases.

    Citing uncertain demand for new homes, Beazer and Ryland withdrew their earnings forecasts for 2007 and Pulte declined to provide an outlook for the rest of the year.

    “This is a much weaker year than in the peak year of 2005 and the prospects are still pretty cloudy as to 2008,” Robert Curran, an analyst at Fitch Ratings in New York, said before the earnings were issued.

    “Overall, the homebuilding environment remained challenging during the first quarter of 2007, as elevated inventory levels combined with weak consumer confidence for housing continue to place pressure on results,” Pulte Chief Executive Officer Richard Dugas said in the statement.

    “We continued to experience extremely challenging operating conditions during our second quarter,” Chief Executive Officer Ian McCarthy said in the statement. “At this point in the traditional spring selling season we still have yet to see any meaningful evidence of a sustainable recovery.”

  20. James Bednar says:

    From MarketWatch:

    Countrywide Financial earnings down 22%

    Woes in the subprime market amid the overall housing slowdown subtracted 22% from Countrywide Financial Corp.’s first-quarter earnings, the mortgage giant said Thursday.

    “While the company’s core operations delivered what was otherwise a strong quarter, earnings were impacted by charges relating to our subprime activities as well as increases to our loss reserves and related asset valuation adjustments stemming from higher delinquencies and softer housing markets” Chairman and Chief Executive Officer Angelo Mozilo said.

    The company has made policy and product guideline changes to reduce exposure to future subprime losses, “and as a result management anticipates that both subprime production and investments will return to profitability in subsequent quarters, absent a material worsening of market conditions.”

  21. Richard says:

    >>It doesn’t matter what the rate is. The only concern is the monthly payment “now”. The car leasing mentality has engulfed the housing industry

    i’m forced to agree with you bc. this is why i think prices can continue to defy historical relationships of income to house price. there are many ways to ‘get into’ that house you want via funky financing. availability of credit is what decide the future of the RE market.

  22. RentL0rd says:

    JB, not sure if the MLS email links for everyone. So, I took a screenshot of the new format MLS listing and put it on the web.

    Please take a look here:

    I greyed out the agent’s info, since it doesn’t matter. I’ll also forward you the email.. although I’m not sure if you will be able to open the links.

    I still haven’t found the commissioner’s email address although I found his bio.

  23. James Bednar says:


    A few issues with that “monthly payment”..

    1) It excludes property taxes.
    2) It excludes homeowners insurance.
    (Thus it’s not a PITI)
    3) It understates the mortgage payment by more than $300.

    The actual monthly payment will be closer to $4,000.


  24. RentL0rd says:

    I agree JB. It will be atleast $4k/mo.
    It’s just misleading to show a low figure in bold and small fine print using 5% interest. The estimated payment should be closer to reality.

  25. RentL0rd says:

    Not only is it fine print, look how it is in small grey font against a black background!

    Obviously, someone put thought into misleading the average joe.

  26. James Bednar says:


    Drop me an email, I have his address.


  27. bergenbubbleburst says:

    #21 Richard: And that is not a good thing And at some point that availability of credit dries up, as it is staring to dry up now.

    And when the down turn gets into full swing, the decline will be much more severe then it would have been.

    All because the fundamentals did not support the prices;this is what wee have been saying all along.

  28. BC Bob says:

    Richard Says:
    April 26th, 2007 at 9:26 am
    i’m forced to agree with you bc.


  29. RentL0rd says:

    Thanks JB!

  30. RentinginNJ says:

    It’s just misleading to show a low figure in bold and small fine print using 5% interest. The estimated payment should be closer to reality.

    This is a bait and switch. You can’t even get a 1 year ARM with good credit at 5% at this point. You could get an option ARM, but then you can’t say 5% for 30 years.

    Steven Goldman’s email is:

  31. t c m says:

    #21 – Richard

    But just because someone can get a loan – doesn’t mean that they can pay it. So they “get into” the house, but they can’t stay in it. It seems like this has been said over and over again on this blog – and now it’s all over the media. This has to force prices to come back into line with fundamentals.

  32. RentL0rd says:

    Thanks Renting.
    I can understand if an agent does bait an switch.. but an MLS?!

  33. James Bednar says:

    It’s not bait and switch, they aren’t lenders. It is misleading, however.


  34. Ron says:


    I agree. The current personal finance mentality is based on monthly payment rather than overall price. The 50yr mortgage is probably on the horizon. Tighter underwriting standards and honest appraisals will bring the market back down to earth.

  35. MBaldwin says:

    James Bednar Says:
    April 26th, 2007 at 9:00 am
    A 680+ FICO looking for a 100% loan is going to have to pay 11.5% for it.

    I’ve been approved for a full doc, verified everything 100 percent loan at 6.5 percent on the first mortgage, 8 percent on the second.

  36. njrebear says:

    Can you please post excerpts from this article?

    Why Market Strength And Economic Growth Don’t Always Line Up

  37. James Bednar says:


    That comment was in reference to the Countrywide subprime rate sheet.

    Was your loan through Countrywide Subprime?


  38. RentinginNJ says:

    You’re right. I should have elaborated. It’s not bait and switch in the sense of offing a loan at 5% and then giving you a higher rate once you get in the door.

    It’s bait and switch in the sense of getting you in the door by making you think you could buy that house for $2,947 per month (a pretty nice house for that payment) and then trying to switch you into lesser house once the numbers don’t work out. They can’t control the interest rate, so they change the house that will fit a $2,947 budget.

    If they showed you what $2,947 could really buy (probably something in the ballpark of $420,000 range assuming 10% down, taxes & a 6.25% rate), you would be much less likely to walk in the door.

    Once they have you in the door, they can start with pressure, “prices never go down”, “great investment”, “right time to buy”, etc…

  39. MBaldwin says:

    James —

    No, the loan is through a Coldwell mortgage broker. I just wanted to point out that not all 100% loans are for subprime candidates.

  40. BC Bob says:

    MBaldwin [36],

    Why are you paying 8% for a second?

  41. UnRealtor says:

    RentLord #23, to me that looks like an agent’s e-mail, and not an MLS e-mail.

    It’s your agent who is flaking out, so his/her name does very much matter (to you, not that you should publish it).

  42. MBaldwin says:

    Loan is split 80 percent on the first, 20 percent on the second. If the loan goes down the tubes, the holder of the 80 percent loan gets paid first. My understanding is that the second loan is higher risk for the lender.

  43. James Bednar says:

    Didn’t have a chance to post this up yesterday, press release from the NJDOBI:

    Court action targets NJ mortgage firm for unlicensed lenders, improper fees

    Following the discovery of nearly 400 violations by examiners, Department of Banking and Insurance Commissioner Steven M. Goldman signed legal orders prohibiting mortgage lender Dana Capital Group, Inc., from doing business at unlicensed facilities, from taking mortgage applications from unlicensed solicitors, and from charging inappropriate fees.

    The filing asks the court to order Dana Capital to properly license all solicitors and offices, and refund all inappropriate fees. In addition, the company is asked to present evidence as to why the company’s New Jersey license should not be revoked, and to pay fines for the alleged violations.

    The company, based in Irvine, Calif., lists Jersey City as its New Jersey address. The company also does business as

    “The mortgage industry nationwide has certainly faced substantial challenges in recent months, and even though these violations may not be directly related to the most recent disruptions in the subprime lending market, they pose an equal threat to the state’s consumers,” Goldman said. “We cannot allow unlicensed lenders to operate in the state, and we certainly cannot tolerate the charging of unjustified fees.”

    Court documents allege that Dana Capital:

    Failed to obtain licenses for five branch offices (Red Bank, Butler, Mahwah, Palisade Parks, and Newark);
    Failed to license 58 other retail offices;
    Accepted loan applications at 59 unlicensed offices;
    Utilized the services of 92 unregistered loan solicitors;
    Allowed 73 individuals to accept mortgage loan applications prior to being registered;
    Charged a $995 “commitment fee” from at least 26 individuals without disclosing the fee;
    Collected a $995 “warehouse fee” from at least 11 individuals, when the charge did not reflect the actual cost associated with the loan;
    Collected at least 26 application fees and 28 discount points from consumers without providing borrowers with a separate service agreement disclosure;
    Charged other fees to borrowers that are not permitted by New Jersey law.

  44. James Bednar says:


    What is your FICO if you don’t mind me asking.


  45. Chaka Chong says:

    AMT is effecting so many that soon most of the tax revenue will come from it. Given that, and this it is much simpler than the normal code, how about instead of scrapping AMT, scrap the regular code and keep only AMT?

  46. UnRealtor says:

    #46, how about scrapping them both, and the IRS too, and having a flat tax?

    When you go to the store to buy a loaf of bread, does the clerk ask you “How much do you earn?” before telling you the price?

    15% of $50,000 is fair for someone earning $50,000 a year.

    15% of $1,000,000 is fair for someone earning $1,000,000 a year.

    No deductions, no exemptions, 15% tax on all income, period.

  47. RentL0rd says:

    #42, I get email notifications from a dozen agents. All agents use the Middlesex MLS links (this is one of them), and they all have the same format with same ‘estimated payment’ options.

    In fact, If I’m not mistaken, the agents are not allowed or do not have the tools to provide other forms of auto email notifications when new properties come up (or status changes) in the MLS database.

  48. UnRealtor says:

    RentLord, can you post the beginning portion of the URL?

    Such as:

  49. RentL0rd says:

    #49, UnR here –

    where, xyz = agent’s name.

    In addition to the URL address, I believe it uses some session or other cookies to take you to the correct listing – I haven’t had the motivation to try to figure it out. If you use the same url in a new browser session it won’t work.

  50. NJGal says:

    Unrealtor, why do people think that tax won’t work? I’ve heard many people talk about it, and just as many people say it won’t work, but no one has ever elaborated. Is there a website that explains it all? It sounds fair in theory, for sure. What other effects would it have?

    More so, does it even have a chance in hell?

  51. NJ_GUY says:

    anyone with access to Middlesex MLS? both and don’t show all listing in South Brunswick.

    Search criteria: SF, 3 BED $400-$550

  52. UnRealtor says:

    NJGal, it “won’t work” because the “mainstream” media has no issue with income redistribution (take from the “rich,” give to the “poor”), and hence mock the concept and give it no serious consideration. So most people don’t even know such a concept exists.

    At the least, it should be tried in a small state (with guidelines to prevent a mass influx of out-of-towners), to see how it works in practice.

  53. Orion says:

    Just when you think the scams/madness may be shrinking!!! :(

    Here’s one to drive you absolutely, positively, assuredly, INSANE!

    The selling of FICO scores

  54. UnRealtor says:

    RentLord #50, thanks.

    You’re right, it appears to be a MLS system. But I wonder if an individual agent can customize “notes” for the listings?

  55. James Bednar says:

    Here’s one to drive you absolutely, positively, assuredly, INSANE!

    This “trick” is typically used when one spouse has a significantly higher FICO than the other. By adding the lower FICO spouse as an authorized user or joint cardholder, they will gain the benefit of the longer/better payment history.


  56. James Bednar says:

    If you go the joint route, realize that adding your low-fico spouse will likely cause your rates to jump, so don’t try it if you carry a balance.


  57. NJGal says:

    Thanks Unrealtor. I am going to look more into it. I found some stuff on Wikipedia, but I’m not certain I trust that site much.

    But from what I read, it SEEMS like it’s something where everyone gives there fair share, and people like the Donald Trumps of the world can no longer get out of paying the proper taxes for their immense wealth.

  58. James Bednar says:

    From Reuters:

    US homebuilder cash flows a ratings threat-Moody’s

    U.S. home builders’ meager
    cash flows may pose a threat to their credit ratings, Moody’s
    Investors Service said on Thursday.
    Less than half of Moody’s rated home builders posted
    positive cash flows for the year through the end of 2006, which
    is likely to make it difficult for them to comply with
    indenture covenants, the credit agency said in a report.
    This “underscores a potentially serious problem and signals
    that their current ratings may be too high,” said Moody’s Vice
    President Joseph Snider.

  59. James Bednar says:

    From the Office of the Press Secretary:

    Statement on Federal Disaster Assistance for New Jersey

    The President today declared a major disaster exists in the State of New Jersey and ordered Federal aid to supplement State and local recovery efforts in the area struck by severe storms and inland and coastal flooding during the period of April 14-20, 2007.

    The President’s action makes Federal funding available to affected individuals in the counties of Bergen, Burlington, Essex, Passaic, Somerset, and Union.

    Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses, and other programs to help individuals and business owners recover from the effects of the disaster.

    Federal funding is also available on a cost-sharing basis for hazard mitigation measures statewide.

  60. Orion says:

    As per the article:

    “Federal law, however, does not limit the number or prescribe the type of authorized users permitted on any single account. Nor does it prohibit the rental or sale of authorized user designations. Exploiting that loophole, numerous companies have popped up on the Internet offering to buy and rent out the credit card “trade lines” or accounts of credit card holders with high limits combined with perfect payment histories.”

    The fraud potential is there.

  61. JC says:

    #60: Well, it’s about freaking time. Most people are already dried out by now and at least halfway towards getting cleaned up. Nothing like closing the barn door after the horse leaves. I’m frankly surprised he did this. After all, Bush’s attitude towards any state that didn’t vote for him is that we can go Cheney ourselves.

  62. chicagofinance says:

    Richard Says:
    April 26th, 2007 at 9:26 am
    this is why i think prices can continue to defy historical relationships of income to house price. there are many ways to ‘get into’ that house you want via funky financing. availability of credit is what decide the future of the RE market

    Reech: You cannot get blood from a stone. However, you can watch me get blood from your nose.

  63. BC Bob says:

    “U.S. home builders’ meager
    cash flows may pose a threat to their credit ratings”


    Meager cash flows? Sounds like the trapped homeowner. That answers the contagion question.

  64. MBaldwin says:

    James Bednar Says:
    April 26th, 2007 at 10:51 am

    What is your FICO if you don’t mind me asking.


    Two of us. One score is high 600s, one is high 700s

  65. BC Bob says:

    Off Topic;

    A Congressman??

    “Fiat dollars allow us to live beyond our means, but only for so long. History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars.”

  66. RentinginNJ says:

    this is why i think prices can continue to defy historical relationships of income to house price. there are many ways to ‘get into’ that house you want via funky financing. availability of credit is what decide the future of the RE market

    I’m not so sure about that.
    EZ credit works for a while, but it isn’t indefinitely sustainable.

    On the way up, rising prices give lenders surety that their investments are safe and give strapped borrowers an out either though refinancing or selling.

    Rising prices allow lenders to loosen standards and to offer funky financing. Loose standards and funky financing allow prices to rise even further.

    This works very well for a while, but like most self-reinforcing positive feedbacks loops, can’t last forever. You eventually hit a point where affordability is stretched, even with funky financing.

    Prices stop rising, strapped borrowers buyers lose their “out”, foreclosures rise, lenders lose their free default insurance of unmitigated price appreciation.

    Without rising prices, lenders pull back, standards tighten, liquidity is curtailed, prices drop. This can even create its own deflationary spiral of falling prices, leading to tighter credit, leading to falling prices…and so on.

  67. lowball says:

    Do not feed the a… ahem …“intimidate” the first time buyers:

    “PINE BROOK, N.J. — CU National Mortgage launched its new Flex-Plus 103 Loan this week from Fannie Mae.

    The program provides borrowers up to 103% financing of their homes to roll in closing costs and other pre-paid charges that can intimidate first time buyers. The product in only offered as a Fannie Mae pilot program solely for Prime Alliance clients.”

    Like Fannie Mae’s black hole of a balance sheet wasn’t big enough…

  68. BC Bob says:

    “Mutual-fund managers at BlackRock Inc., Goldman Sachs Group Inc. and Waddell & Reed Financial Inc. are investing everywhere except in the U.S. The fund managers increased their holdings of international stocks as U.S. shares underperformed.”

  69. skep-tic says:

    flat tax will never happen because it takes away congress’s grab bag for doling out favoritism.

    the only running them to the tax code is generalized pandering to special interest groups. every group has a particular deduction, credit, rate or deferral that is near or dear to them.

    the tax code is the perfect place to hide handouts because almost no one understands it or has the patience to figure it out

  70. skep-tic says:

    them = “theme”

  71. Read My Lips: MASSIVE MISERY 2008 says:

    You worried yet? Starving bunch.

    Better be cuz 2008 going to be really miserable for ya.


  72. Read My Lips: MASSIVE MISERY 2008 says:

    I will bleed a few of these show & tellers, but they do not realize it yet.

    expensive toys at 50% off. accept it zombies.



  73. hoodafa says:

    Home builder shares soar

    NEW YORK (Reuters) – Shares of home builders soared on Thursday after several companies reported some signs of improvement.

    “You saw some glimmers of light, when people weren’t expecting any,” BB&T analyst Todd Vencil said.

    More at:

  74. mtnbika says:

    Skep-tic you’re 100% correct. You’ll never see the government give up their current control on tax dollars and where they come from. Even if that results in a more fair and simplified system.

  75. Read My Lips: MASSIVE MISERY 2008 says:

    Wednesday, April 25, 2007
    ‘Father’ of Securitized Mortgage Market: First Time in History Median Home Sales Price is Likely to Decline

    Lewis Ranieri, generally regarded as the “father” of the securitized mortgage market, told an audience at the Milken Institute Global Conference that, in 2007, for the first time in history the median home sales price in the United States is likely to decline.

  76. make money says:

    BoooYAAAA Bob,

    I remember in ’06 you repeated the same rants and ’07 now it’s wait until ’08.

    Just curious at what point you gonna realize that you’re wrong. I would hate to see you in 2023 repeat the same chants.

  77. James Bednar says:

    From the Harvard Joint Center for Housing Studies:

    Mortgage Market Complexity Foils Consumers and Undermines Fair Lending, Harvard Research Finds

    The recent rise in foreclosures suggests that some borrowers are taking on debt that they have little or no capacity to repay, selecting products that are not suitable for their needs, or signing up for mortgages that they don’t understand. Two reports by Harvard University researchers contend that these are just some of the inevitable consequences of an increasingly complex mortgage market and a regulatory system that has failed to adapt to the dramatic changes that have transformed the mortgage lending landscape in recent years.

    Funded by a Ford Foundation grant to the Joint Center for Housing Studies of Harvard University, this new research examines the behavior of mortgage market participants and the emergence of new mortgage delivery channels linked to the rapid growth of higher-risk subprime mortgages.

    “Despite the fact that our society values consumer choice,” observes Nicolas P. Retsinas, Joint Center Director, “the ability of consumers to make informed choices about complex mortgage products is limited.” “The situation facing consumers is made even more difficult” continues Retsinas, “by the widespread use of targeted incentives that encourage some mortgage brokers and loan officers to aggressively market confusing, and often more costly, subprime products to less than knowledgeable and often desperate borrowers.”

  78. skep-tic says:

    remember when the Harvard Joint Center said house prices were sustainable? I think this was about Q2 2006. Their argument boiled down to restrictive zoning = restrictive supply = permanent high prices.

    I wonder if they have an opinion on the supply issue now

  79. BC Bob says:


    I posted this in the past. You seem to make reference that many, on this site, talk about crashing prices. Crashing market fundamentals? Yes. Crashing prices? No. One promise, please don’t plagiarize for your final term paper.

    Unlike stock market bubbles, real estate bubbles [prices] don’t pop. Stocks are marked to the market, you don’t even have to wait for closing #’s,you can logon anytime during the day and get a market. With stocks, you see huge volumes [capitulation] of transactions at ever lower prices during a stock market collapse. Panic is appearing right before your eyes, real time.
    In addition to this, some stock markets crashes develop over time. The Nasdaq peaked in early 2000 and reached its ultimate low in late 2002.

    Housing bubbles collapses are marked by large increases in inventory and a sudden disappearance of transactions. Buyers seem to evaporate. The market turns on a dime, like Bob Toll said, “like someone turned off the
    switch”. The greed that was apparent in the psychology of buyers that developed
    at the top the housing bubble now dissipates. What happens on the way down? Houses hit the market and buyers are awol. Nobody cares about the open house down the street, ambivalence sets in. Fear begins to permeate thru the market. Bullish news [if there is any] is ignored, bearish news is magnified.

    Now, buyers don’t have to buy and sellers wait to get “their” price. Sell [at their price] to whom? Transactions dry up, periods of time pass when there are just a sprinkling of transactions, in relative terms. It’s a
    major standoff. The game is played at midfield and neither side advances to any great degree. This can go on for years with small price declines each year.

    That said, after a disastrous spring, what’s next? Sellers can hold out until they can’t. At some point, sellers are confronted with standard
    life altering situations; job relocation ,retirement, job loss, kids,
    divorce, etc…, just normal market factors. This process develops over years,
    resulting in prices deflating slowly. Housing price value changes are not experienced by property owners until they try to turn the property into a liquid asset. If there is little activity, is the real value of a particular
    property the 10% off 2005 highs, 6-8 months ago, or possibly 20% off 2005, in today’s environment? We don’t know until the asset is monetized.

    Consider this a play with different scenes. Each scene incorporates different plots. We have witnessed Scene 1, the switch is turned off,
    the makeup of the market implodes on the weak foundation of its own insanity. Scene # 2 is just beginning, the spigots are turning off. There may be 2-3 scenes left before the curtain close on this nightmare. Some possible
    headlines for upcoming scenes; a major builder and/or lender goes bust, a dollar crisis, a full scale recession, etc…? The outcome of each scene will be accompanied by another prick in the overinflated balloon and is unique in its time frame and price decline. The only question is how many more scenes are left and the duration of each. IMO, the final scene will probably be approx 10-20% of the total time of the play and account for approx 30-40% of the total price decline.

    Patience is the key, who knows what year the greatest % of sellers capitulate. I think it will be very interesting in 2008. Lastly, when
    these cycles turn they go longer and further that anyone can imagine. Unfortunately, mom, quarter on quarter, prices plod.

  80. EconRealist says:

    Did anyone post this before:
    Agent Begs Selles to take homes off market..


  81. Seneca says:

    pesche22 Says: (re: XHB)
    April 25th, 2007 at 11:24 am

    >>>…been short from 37
    >>> only a moron would have been long.
    >>> and it has a way to go.
    >>> trapdoor is open

    XHB up $1.10 at the moment.
    Who says you can’t fight gravity?

  82. James Bednar says:

    Gary Watts attempted to persuade agents into collusion a few months back. I believe he also asked agents to remove “For Sale” signs in areas where they were common and to stagger the open house schedules to give the appearance of less inventory.


  83. RentL0rd says:

    make money, you should watch lowball’s youtube links in #65

    Now, if you want to refute the bubble, please do so after stating your own credentials

  84. James Bednar says:


    One additional comment related to “visibility”.

    Remember, during the early 90’s real estate crash, very few knew it was even going on.

    Unless you were a builder or a home owner that needed to sell (having purchased at the peak), you might have not even known that it was going on at all.

    Prices fell hard, but we all survived.

    Will this time really be any different? Sure, media has changed. We’ve got blogs, the web, and almost unlimited media choices, none of which were available back then. But how many people are really paying attention? My guess is significantly fewer than anyone here thinks.

    During the last crash, the sun came up every morning and went down every evening. The fact that real estate prices fell 30% didn’t result in massive depressions, economic armageddon, soup kitchens, a revival of the WPA, commodity hording bunker dwellers, Max Max, etc etc.

    If you weren’t involved, you simply had no idea. I have no reason to expect the scenario to play out any different this time through.


  85. bergenbubbleburst says:

    #78 Watch and learn grasshopper.

    Where were you in the early 90’s? I guess you were busy watching Inspector Gadget.

    Ah so young so silly, but you will learn grasshopper;they all learn in the end.

  86. James Bednar says:

    From Reuters:

    Subprime fear to spur CDO downgrades-Clifford Chance

    Ratings may be cut on collateralized debt obligations by this summer as the subprime loans that back the debt structures continue to sour, according to a partner at law firm Clifford Chance.

    Moody’s Investors Service and Standard & Poor’s may begin to downgrade credit ratings of CDOs in coming months after receiving monthly and quarterly reports from bond managers, said Steve Kolyer, a partner at Clifford Chance, which is an outside counsel to S&P.

    CDOs are pools of debt products that can include debt ranging from highly rated bonds, junk bonds and riskier mortgages.

    “There are going to be losses,” Kolyer said at a briefing on subprime loans on Thursday in New York. “That’s when there will be a reassessment of the credit grades of a lot of the instruments that were sold out of the CDOs. That’s when there will be further dislocation.”

  87. bergenbubbleburst says:

    #86 JB i agree with most of what you say, but I would be a little less sanguine than you are.

    First off many did suffer back then, and took years to recover. And I am not so much convinced that people did not know as much as they did not want to talk about it.

    A fundamental shift this time is the prevelance of many who bought homes who never should have. In addition the lending standards were far tougher back then.

    You really did have to qualify for a mortgage. And there was really no toxic financing vehicles to speak of.

    Finally having lived through that one as well, I can tell you that housing as a get rich quick scheme was not in vogue at the time.

    HELOCS and Home Equity Loans did not become all that prevelant until the late 90’s.

    In short while the last time was also a bubble, you did not have the complete insanity that you has this time around. I think in the end it will be worse this time around then the former.

  88. James Bednar says:

    First off many did suffer back then, and took years to recover. And I am not so much convinced that people did not know as much as they did not want to talk about it.

    I’m not saying there wasn’t suffering, there was. I’ve had a number of first-hand accounts emailed to me. The most interesting account was from someone that emailed me after I had posted his sale as part of this thread:

    New Jersey Condos – A Look At The Last Crash

    He was one of the Evergreen losses, purchased in 1988 and sold in 1996. Sold the unit for significantly less than he originally paid, 8 years later.


  89. NJGal says:

    “I guess you were busy watching Inspector Gadget.”

    I know I was, and he was awesome!

  90. UnRealtor says:

    BC Bob #81, nicely laid out.

  91. investorDavid says:

    When I was teaching, I never set the bar to the lowest denominator. It gets boring. I wanted to challenge the bright minds.

    I guess it’s still true that average Americans are not educated.

    I have ambivalent feeling regarding recent invasion of sophomoric minds and/or juveniles.

    Is it our responsiblity to educate them or let them rot in the gutter? As a liberal, I wanted to educated them all. But at the same time, one has to be pragmatic.

    Save those who wanted to be saved.

    It’s nice to see Aristocratic pear trees flowering along side of dog wood trees. Spring is finally here.

    Nice diversion from watching the grass growing – I mean.. housing price falling. :)

    Such a slow long process – almost as bad as watching Devil’s game.

  92. investorDavid says:


    how much are you charging for writing his term paper? :)

  93. investorDavid says:

    I did notice that many houses listed on NJMLS do not have the For Sale sign on the front lawn.

  94. bergenbubbleburst says:

    #98 David: I know in my town that was the case in a couple of instances, and the houses for sale are in pre-foreclosure.

  95. bergenbubbleburst says:

    #98 David: I know in my town that was the case in a couple of instances, and the houses for sale are in pre-foreclosure.

  96. bergenbubbleburst says:

    #93 NJ GAL I liked Thomas the Tank, and Are You Afraid of the Dark

  97. BC Bob says:


    Some differences;

    1988-1997 was regional, recession related. At that time, individuals had skin in the game, many 20% down. To qualify, they were subject to a scope up their *ss. I remember faxing more documents, to the lender, than I changed underwear. During this time period, there was no urgency to sell unless it was dictated by normal factors; job loss, relocation, divorce, etc… In conjunction with this, homeowners were “real”, 20% of their hard earned $ at play. Flipper was a TV show ,commodity moves were isolated to the Chicago and NY pits and your lender was down the street. A home was a place to live not to entertain the town in your adjoining bowling alley.

    Today’s lunacy will make 1988 look like a walk in the park,imo. There is no dp today[pre March 2007]. The world was presented with an opportunity to own a free call. Who would’t jump in? Besides their credit[if they have any], what is their motivation to sit thru this? To work their way out of a 100-150k hit? As compared to one factor, recession in 1988, we now have many culprits, fed, lenders, appraisers,regulators,liquidity, hedge funds, yield chasers, etc… You have close to 60% of this crap securitized and possibly leveraged in many different areas. The implications are much more severe as compared to 1988, imo. Presently, in addition to being a regional bust, it’s national and international. You can’t even come close to comparing today’s fraud, greed, mispresentations,lies to 1988. This will be corrected. However, the unraveling will be more severe than 1988.

    This is unchartered territory, in the midst of a good economy. What happens if we decline 20%, just a natural pullback, and the result is a recession? History indicates that there are major problems approx one year after builing permits collapse.

    Yeah the sun will rise but this has the potential of evolving into a real classic. We are hanging on by a thread; exports and service. What scenario do we encounter if the main dogs stop wagging it?

    Right before the last decline, we did have a crash, 1987. It’s ironic, one culprit then was LBO’s. Is today’s private equity yesterday’s LBO’s?

  98. chicagofinance says:

    James Bednar Says:
    April 26th, 2007 at 4:00 pm
    I’m not saying there wasn’t suffering, there was. I’ve had a number of first-hand accounts emailed to me. jb

    grim: Great… adding to the inflation of your cranium, we have you believing that your are the Dr. Phil of blog moderators

  99. bergenbubbleburst says:

    JB Can you tell me when this listing originally went under contract, it just cam back ont he market. I am trying to track how long it is taking for houses to fall out of contract. Thanks in advance.

    njmls 2701382

  100. bergenbubbleburst says:

    #95 David: May get slammed for this, but at the train station in the morning, it is guranteed by the time the next to last train for the morning pulls in, the Post, Daily News and Bergen Record are all sold out.

    In the case of the WSJ and the NY Times, no such concerns.

  101. bergenbubbleburst says:

    #103 Chgo: We should have such problems in the Peoples Republic of NJ.

  102. James Bednar says:

    Here is some past history as well..

    ACT 874 ELM AVE $579,000 7/12/2005 7/13/2005
    PCH 874 ELM AVE $569,000 8/16/2005 8/16/2005
    PCH 874 ELM AVE $559,000 9/9/2005 9/9/2005
    W-C 874 ELM AVE $559,000 10/10/2005 10/10/2005
    EXP 874 ELM AVE $559,000 1/12/2006 1/12/2006

    ACT 874 ELM AVE $549,000 10/10/2005 10/11/2005
    W-C 874 ELM AVE $549,000 11/16/2005 11/16/2005
    EXP 874 ELM AVE $549,000 4/10/2006 4/10/2006

    ACT 874 ELM AVE $499,900 1/10/2007 1/10/2007
    ACT* 874 ELM AVE $499,900 1/16/2007 1/16/2007
    ARR 874 ELM AVE $499,900 1/19/2007 1/19/2007
    PCH 874 ELM AVE $489,000 3/12/2007 3/12/2007
    ACT* 874 ELM AVE $489,000 3/13/2007 3/13/2007
    U/C 874 ELM AVE $489,000 3/16/2007 3/16/2007
    W-T 874 ELM AVE $489,000 4/4/2007 4/4/2007
    BOM 874 ELM AVE $489,000 4/4/2007 4/4/2007
    W-T 874 ELM AVE $489,000 4/4/2007 4/4/2007
    BOM 874 ELM AVE $489,000 4/25/2007 4/25/2007
    PCH 874 ELM AVE $479,900 4/25/2007 4/25/2007

    Talk about chasing the market down…

  103. bergenbubbleburst says:

    JB so under contract 3/16, and I guess PCH means back on market as of 04/25? Thanks

  104. bergenbubbleburst says:

    #107 JB I thought it was on the market since last Summer, I had no idea its been on the market since 05, fast approaching 2 years now. I guess I was asleep when tracking this one.

    Taxes I believe are 10K, or almost.

  105. James Bednar says:

    BOM is back on market.


  106. make money says:

    BC well put.(83).

    My view is that the US culture has changed. People are now willing to pay a huge amount of their income for housing. MTV Cribs, All the home improvment channels, Granite everything this culture shift is real.

    In the nineties no-one has heard of Granite countertops and bathrooms. People are now spending money on their house. It’s a new generation with different mindset on life.

    A beautiful home represents good living and this generation, today’s consumer is different.

    If an average couple after taxes brings home $8,000 per month they don’t mind spending $4,000 for their mortgage.

    Believe that.

  107. bergenbubbleburst says:

    #111: Besides being wrong and silly, you are incredibly shallow.
    You will learn grasshopper;they all learn in the end. Now run along.

  108. James Bednar says:

    The comic strip, and origin of the phrase, “Keeping up with the Joneses”, debuted in 1913.


  109. MJ says:

    anybody here watched “Glengarry Glen Ross”.

  110. NJGal says:

    “A beautiful home represents good living and this generation, today’s consumer is different.

    If an average couple after taxes brings home $8,000 per month they don’t mind spending $4,000 for their mortgage.

    Believe that.”

    I don’t. I’m today’s consumer, and that’s pathetic. I’d like to think I have more taste than to think granite countertops = luxury. And I don’t have too many friends comfortable spending half of their income on their mortgage. But then, my friends are not stupid.

  111. James Bednar says:

    Why would anyone want to refer to their home as a “crib” anyway? Frankly, it seems like an insult to me. Infants and immature children spend their time in a crib. Thus, calling someones home a crib is indirectly calling its occupant an immature child.

    Hmm.. Now that I think about it, the term seems to fit.


  112. BC Bob says:

    “People are now willing to pay a huge amount of their income for housing.”


    I would agree, with one stipulation; if they were required to put down 10-20%. The last few years 600k house, with all the bells and whistles, was a slam dunk. If it cost me nothing to get in, give me an indoor pool also. Not just any pool, one which produces waves. Today’s generation just does not realize [yet] that you actually have to pay for this.

    Fast forward to 4/07. Now, the same lender wants at least 30K down, [600k]. If not, you’d be better off going to Tony Soprano, you’ll get a better deal. With closing costs, it now costs 40K to open the door. Is today’s generation really different? Let’s see how important all the intagibles really are, now that you are required to put up.

  113. NJGal says:

    Good observation on the word “crib” Grim. Never thought about it like that.

  114. Zac says:

    immature child?
    is that the opposite of a mature child ?

  115. Pooch123 says:

    make money, anytime someone says “this time its different” you should double-check to make sure it really is. I truly doubt the whole “home improvement trend” is a modern phenomenom. You don’t think families pouring money into their home (it may have been harvest gold and formica countertops instead of granite and stainless steel) has been around since way back when?

    Certainly it was a common theme on the wonder years, which was way more popular than mtv Cribs (ha, that show is soo 3 years ago) ever will be. Perhaps it seems more prevalent today because of the explosion of media outlets (mainly cable TV and that whole “internet” thing).

    Your statement (111) reminds me of the nytimes’ quote of a FL realtor in 2005 thrown around on the bubble blogs regarding real estate prices reaching a permanently high plateau because, of course, “this time is different.”

    My view is that the US culture has changed. People are now willing to pay a huge amount of their income for housing. MTV Cribs, All the home improvment channels, Granite everything this culture shift is real.

    In the nineties no-one has heard of Granite countertops and bathrooms. People are now spending money on their house. It’s a new generation with different mindset on life.

    A beautiful home represents good living and this generation, today’s consumer is different.

    If an average couple after taxes brings home $8,000 per month they don’t mind spending $4,000 for their mortgage.

    Believe that.

  116. UnRealtor says:

    RE: “Cribs”

    Don’t miss this hilarious “Star Trek Cribs” video:

  117. Pooch123 says:

    Whoops. Didnt mean to re-post part of post 111 by make money. Apologies.

  118. make money says:

    “The comic strip, and origin of the phrase, “Keeping up with the Joneses”, debuted in 1913.”

    That’s not what I mean.

    Please explain why the American Consumer keeps spending.
    Our parents believed in saving for a rainy day. No-one wore $300 jeans, everyone owned their cars. No Thousand dollar TVs, Digital cameras, I-pods, god forbid if you don’t upgrade your cell phone every year. This things didn’t even exist.

    It’s not a handfull or a certain personality of people it’s the whole CULTURE. Iwas a a wedding and someone complemented my suit and followed up with a question of what name brand is it.

    It’s not just homes, it’s everything. It used to be 30% of income should go towards your mortgage. Now it’s 50+%.

    I agree with the fact that if there is a recession or the rates go up to 9% then this whole economy is in trouble.

    The equity markets are now increasing consumer confidence and spending. Last 5 years consumers took money out of their homes and now it’s back to the stock market.

    next coctail party you go to pay attention and wonder why everyone is talking about the DOW and 50% of people really have no clue as to what DOW even stand for.

    Then again, I’m too young and I Know nothing.

  119. BC Bob says:

    Let’s go easy on Make. I sincerely realize that I was blessed to have similar mindsets, running around in circles, like hamsters, bidding up every wigwam out there. Thanks to Make and his cohorts, I now live for free. Also, like Castle, grill my steaks on my Weber. Steaks paid for by the lust of a granite countertop and a home theatre.

  120. Zac says:

  121. BC Bob says:


    Holy S*it. MTV cribs really exists? This site is better than comedy central. Make, I’m starting to like you. Please, for your own sake, get your head out of your *ss. There is still time to right the ship.

    By the way, if I went to one of your cocktail parties, I would explain to all how the Dow has crashed [not talking going forward]. Not important though. Just an aside.

  122. Pooch123 says:

    Dow stands for something? Who knew. I thought it was just the 30 companies that best represented the US economy, as picked by the wall street journal…

  123. James Bednar says:

    No Thousand dollar TVs

    1970 23″ Tube TV – $290
    Inflation adjusted price – $1,500

    Digital cameras

    1977 – Nikon FM $300
    Inflation adjusted price – $1,000


    1979 – Original Walkman – $275
    Inflation adjusted price – $825

    The more things change, the more they stay the same..


  124. make money says:

    Why does everyone feel the need to take something I say and twist it,

    Yes..I meant the 30 companies…askhole

  125. make money says:

    My point is not that people didn’t have anything to spend their money on. They DID.
    And some of them DID by the walkman at $275.

    What were the sales numbers though, I’m sure it wasn’t a fraction of Ipods Apple sold.

    I’m talking about the whole culture and not a specific personality group of people.

  126. Zac says:

    makemoney (128)

    because grasshopper… you sound green.

  127. James Bednar says:

    What were the sales numbers though, I’m sure it wasn’t a fraction of Ipods Apple sold.

    Sony Walkman.

    Units Sold: 350,000,000

    Apple iPod.

    Units Sold: 100,000,000
    (to date)

  128. Pooch123 says:

    Make, I apologize for my kinda jerk comment. Still, I think its kinda naive to think this (my) generation spends any more callously than my parents’ generation. I think in general people romanticize the past, including their spending habits, and complain about today’s youth, ie those crazy kids! we never

    (1) drank that much
    (2) used those drugs
    (3) dressed like that
    (4) spent like that, etc.

    If there were a significant difference between the generations thats more evidence that some sort of housing correction is inevitable (how can you afford that apartment when you’re $300-jeans-ing it up).

  129. make money says:

    When Ipod cell phone becomes available at Apple will sell 10 million in it’s first year. And then no one will want it next year.

    Even though it becomes cheaper, there is no demand for it.

    The product cycle from innovation, growth, maturation, and extinction is about a year long for some products. After a year you can’t give it away.

    There is higher demand for the Iphone at $400 today then there will be at $100 next year. It used to be the opposite.

    Please be aware that I don’t agree with the spending habits of the US consumer,but I don’t deny that it exist.

  130. skep-tic says:

    I do think MM has a point about the growing “needs” of Americans.

    There are many items that are considered virtual necessities by many today that were luxuries or non-existant 25 years ago (cell phones, cable tv, high speed internet, air conditioning, going out to dinner, gym memberships, etc).

    Additionally, we’ve been without a severe recession for about 15 yrs now. Many people simply have no first hand experience re: the need to save.

    I am constantly amazed by the amount of discretionary spending I see. People who really can’t afford it spend tons of money on clothes, dining out, bars, vacations, status cars, etc.

    Some of this sizeable portion of the population chooses to go wild on their homes. I am sure there are plenty of people in the tri-state area who spend 50% of their income on housing.

  131. make money says:

    Sony Walkman.

    Units Sold: 350,000,000

    Apple iPod.

    Units Sold: 100,000,000

    Yeah OK now even you are comapring apples to oranges. Since you have all the numbers why don’t you break down the numbers for the first few years and at what prices.

  132. make money says:

    “Additionally, we’ve been without a severe recession for about 15 yrs now. Many people simply have no first hand experience re: the need to save.”

    That’s the KEY. Without a recession to learn from US consumer will keep spending. The BULK of their INCOME will be spent on housing. Period.

  133. Pooch123 says:

    I think people overestimate the importance of $300 jeans culture. Yeah, saving is important (I am fairly frugal, shop only when I have to through merchant networks, use discount codes when available, etc), but compared to the cost of home ownership, a fancy pair of jeans here or there is a blip on the radar. I think smoking or a regular starbucks frapuccino habit does more damage over the long run than a few extravagant purchases per year (its not as loud but its still $25 per week you otherwise wouldnt spend).

  134. make money says:

    Poooch (138)

    Great point. The jeans may not have been the best example, it’s the whole culture that I’m talking about.

    My wife and her friends think that going out to dinner 3 times a week is a necessity.

  135. Pooch123 says:

    My point with all this is that there is very little that is unique about this generation and its housing boom/bust cycle.

    $300 jean culture and eating out at restaurants regularly have been around a long time and these sort of luxuries are not major determinants of housing affordability.

    I think its important to not lose sight of the big picture, ie actual real estate prices and inflation.

  136. Zac says:

    cultural observation circa 500BC:
    Wine Women and Song
    cultural observation circa 2007CE:
    Sex Drugs Rock n Roll

    some things never change

  137. James Bednar says:

    From Bloomberg:

    Fremont General Sued Over Purchases of Stock for Pension Funds

    Fremont General Corp., a mortgage lender barred from making subprime loans, was sued by a retiree who claims corporate officers authorized the purchase of Fremont stock for company pension funds as they dumped their own shares.

    The suit, which seeks class-action status, was filed this week in federal court in Los Angeles under the Employee Retirement Income Security Act. Executives sold $16.5 million of their own shares from Jan. 1, 2003, to April 24, 2007, while causing the company’s retirement plan to buy between $150 million and $210 million of the stock, the complaint said.

    Fremont and its officers caused company pension funds to buy shares though “they knew or should’ve known that company stock was an imprudent investment because of Fremont Investment & Loan’s unsound underwriting, risk management, and lending practices,” the lawsuit said. Fremont Investment & Loan is a unit of Fremont, according to the complaint.

    The suit seeks to recover “millions” of dollars in money lost in the funds when the share prices fell this year.

  138. skep-tic says:


    Not to harp on the jeans, but expensive jeans are a pretty recent development. I think if you tried to sell $300 jeans to my granpa, he’d let the hounds loose on you.

    Same deal with restaurants. I have an acquaintance who I saw at a wedding recently in SF. This guy works in Palo Alto as a lawyer. He was telling me there’s this restaurant that he loves so much, he eats there 5 nights a week. He figures he spends roughly $35,000 per year there for him and his wife!

    Maybe an extreme example, but it wouldn’t surprise me at all if many people of similar age/profession spent $20k going out to eat/bars per year

  139. BC Bob says:

    “My wife and her friends think that going out to dinner 3 times a week is a necessity.”

    Make [139],

    Kudos to you. Ask my wife what her favorite meal is; Reservations.

  140. make money says:

    “some things never change”

    I have an uncle who keeps saying that some things never change and it’s true to a certain extent.

    Spending is NOT a new phenomenon, however the scale that it’s being done is unprecedented and it’s acceptable and part of the culture now. That’s the difference.

    The priorities of this generation are not the same as the priors. I used to go out to dinner with my parents when it was someone birthday, or I did good in school,or we just wanted to go out because it was Saturday. Now it’s let’s go out to dinner cause we are hungry.

    That’s what I’m saying.

    If people are so non chalantly spending on these things how do you think they feel when buying a home. They’re willing to overspend(overborrow) 20%-30%.

    They don’t think about the long term cost of the Granite, they just want to be able to showcase their home to their friends.

    Even if it means no savings for a long period of time. Even if it means no 401K contribution.

    They think that they are prepared to make th esacrifice and instead of 5 pairs of 300 jeans they’ll now only have 2. They don’t even realize how large the sacrifice really is.

    Financial irresponsibility is part of the US culture now. People in their 20’s are doing it, people in their 30’s are doing it, 40’s 50’s even fed. state and city gov’t is doing it. Just look at NJ.

    I just simply accepted it as part of the US culture and trying to make money using it.

    My question now is that since there is no new money going into housing, where is it going?

    Why DOW at the all time high, is it a coincidence?

    Which sector of the market will double in the next 5 years?

  141. James Bednar says:


    Well said.


  142. make money says:

    Let’s figure it out and lets MAKE MONEY!!

  143. Zac says:

    discount retailers

  144. James Bednar says:

    From MarketWatch:

    Flippers flop as hot housing markets cool in Vegas, elsewhere

    In the rampant real estate speculation of the Las Vegas valley three years ago, people lined up outside Pulte Homes sales offices overnight as if they were waiting for the release of the latest video game console or hot new movie.

    Having seen his house in an upscale part of suburban Henderson, Nev. jump $200,000 in value in 18 months, Sam Schwartz felt he couldn’t miss any part of the boom.

    He spent the night in the parking lot with TV, snacks and drinks, along with about a hundred other people.

    Schwartz intended to buy a new home and then quickly sell it within the year – for a huge profit. Most people waiting were flippers just like him, he said.

    “We had seen real evidence of what was possible in this crazy, inflated market, and we just wanted to get a piece of that investment equity,” Schwartz said.

    But when home prices unexpectedly took a backward step, many investors seeking to cash in quickly were left “upside-down,” or owing more on their mortgages than what their homes were worth.

    The result was a glut of homes in the marketplace, communities spotted with empty houses and for sale signs – and a foreclosure rate in Nevada that leads the nation as owners unable to sell became saddled with unbearable debt payments.

  145. Richard says:

    make money, your cogent synopsis on the consumer culture today versus year’s past is dead true and those here that deny it are talking for themselves or an extreme minority. your message is getting twisted because it’s counter to the bubble believing masses that frequent this blog hoping for a return to prices they either can afford or are willing to pay to get into the RE game on their terms.

  146. Clotpoll says:

    Grim (88)-

    Precisely. Our “little thing” here isn’t a blip on the screen of 99.9999% of the world who wants to buy or sell a home. The movements of the RE market are perceived at best like big gestures made into a funhouse mirror.

    Yep, there are more sellers now. Yep, there are fewer buyers now. But the dance between the two is still the same…buyer sees house, buyer loves house, buyer wants house, buyer switches off brain, buyer maybe dickers a little, buyer buys house. Rinse and repeat.

    Stock, commodity and bond traders don’t fall in love with their purchases. You can’t fall in love with pieces of paper. However, you can fall in love with a house, neighborhood and community…so much so that the purchase of same either represents the symbolic resolution of some childhood psychic injury or a reinforcement of shaky self-esteem.

  147. Richard says:

    the walkman has been around since 1979, the ipod only a few years. much more competition in the ipod than walkman space ever saw. better to look at the overall category.

  148. hobokenite says:

    With all this talk of spending 50% of our income on housing, I’m beginning to think that Make Money is really Bob Toll.

  149. James Bednar says:


    Have you read Veblen’s Theory of the Leisure Class?


  150. make money says:

    “With all this talk of spending 50% of our income on housing, I’m beginning to think that Make Money is really Bob Toll.”

    First I’m a Grasshopper and the immigrant version of Trump and now I’m Bob Toll.

    If you don’t want to get stuck paying 50% of your income to the mortgage then I have an answer for you hobokenite.

    MAKE more MONEY!

  151. lisoosh says:

    I think if easy credit were as available 20, 50 or even 80 years ago, people then would have spent just as they do now.

  152. James Bednar says:

    Theory of the Leisure Class is available on the Project Gutenberg site, you can find it here:

    No need to go out and buy it, it’s public domain, having been published in 1899.

    Or we can just cheat:


  153. Clotpoll says:

    burst (91)-

    “In short while the last time was also a bubble, you did not have the complete insanity that you has this time around.”

    I beg to differ. I had a front row seat at the last crash, and the insanity displayed was world-class. And, it was much worse than the current unpleasantness, because the people doing the crazymaking were professionals who should have known- and done- better.

    Let us review the ’89-’91 debacle that led to RTC:

    1. Entire downtowns (e.g., Dallas) were built based upon bogus financial plans and fraudulent appraisals. They were financed by S & Ls that had- to that point- been statutorily prohibited from making such loans.

    2. Large tracts of condominiums were built all over the US…based upon bogus financial plans and fraudulent appraisals. They were financed by S & Ls that had- to that point- been statutorily prohibited from making such loans.

    3. In the Northeast Corridor, the overbuilding in commercial RE led to RTC fire sales in which Class A office space sold for as little as .05 on the dollar. Ever hear the term “see-through”? It was coined during these years to describe 100% vacant office buildings. In some instances, you can even TODAY find a few of these buildings at fractional occupancy.

    4. In NJ, community living was so overbuilt that most condo/co-op units lost 50% of their value within one year of closing. Many owners of these properties had to hold them for 7-8 years just to see their values come back to their original sales prices.

    5. Talk about credit crunches: lenders didn’t want to write mortgages…EVEN on Class A properties bought for .05 on the dollar in RTC auctions. To this day, I’m still paying an original non-recourse mortgage on an office building I bought in late ’92, because there is a prepayment penalty that runs for the ENTIRE LIFE OF THE LOAN (and those were the usual terms in those days; I was lucky to even get that loan!).

    6. Three major banks were in danger of failing (Citi, Chase, Chemical). Thousands of thrifts were blasted to smithereens, leaving only loss in their wake. Things are tough now…but I don’t hear talk of any money center banks closing up; if anything, the I-banks are going to be able to strangle many subprime originators and buzzard their still-valuable assets for pennies on the dollar.

    7. This whole debacle occurred against the backdrop of the first Iraq war, double-digit inflation and a worldwide recession (including the complete collapse of the Japanese RE market). If you were in RE back then (I was investing with my Dad in those days), there were days you didn’t even want to get out of bed…and plenty of days where, hell, there wasn’t much of a reason.

    We were about to throw in the towel and go find something else to do when RTC came about. When it was announced that scores of prime RE was coming to market in a “distress auction” format, it was the first time I had seen my Dad smile in two years (hard to smile after you’ve been thru two solid years of getting your brains beat out). I still remember him saying, “we’re gonna make us some money now” in that funky Southern drawl of his.

    Honest to God, I hope I never see days like those again. Today is NOTHING compared to then. And, today isn’t nearly as bad as the late 70s- early 80s, when the prime rate was 20%+. To me, things are worst when the whole damn economy….no, the whole damn world…is circling the drain. That’s when anyone in RE can honestly say that alternatives are slim-to-none. Today’s environment is certainly not that.

  154. Clotpoll says:

    MM breaking out of trolldom tonight.

  155. James Bednar says:

    Brings a tear to my eye.

  156. BC Bob says:

    “buyer wants house”

    Clot [151],

    Compulsion, impulse, urge, craving. The market fulfilled these desires and gave. Now the market demands retribution. As a result, do past wants become today’s/tomorrow’s pipe dream.

  157. Clotpoll says:

    BC (161)-

    The past wants don’t go away. To again quote my Dad, who once said after watching an acquaintance training his pit dog to fight: “that dog’s got a taste for it now”.

    Well, we’ve all got a “taste for it” now. Can’t put that genie back in the bottle. However, for the near future maybe the price of the thrill will be a lot less.

  158. bergebbubbleburst says:

    #158 Clot: True and I remember it well espcecially how close Chemical came to going under.

    However, I do not think there was the same level of insanity among buyers of houses at the time, and you still had to qualify for a mortgage, and of course no exotic financing.

    As far as a recession, we are far over due for one, and when t finally does arrrive, it will be ugly.

  159. BC Bob says:

    “Well, we’ve all got a “taste for it” now”

    Clot [162],

    Not denying that at all. However,living off asset appreciation is over. Free money/no lending standards is history. When the masses, now come to an open house do they have a wallet full of cabbage ot just burnt out cc’s?

  160. James Bednar says:

    If all it took was desire, why have sales fallen off so dramatically?

    Surely desire isn’t waining.


  161. James Bednar says:

    …or perhaps it wasn’t housing that we developed a taste for, but the lure and promise of easy money. Housing was simply the vehicle to get it.


  162. Zac says:

    thats it James.
    it not whether you win or lose.
    it’s the thrill of the bet.

  163. Zac says:

    hasn’t Booya Bob been calling it a ponzi scheme all along ?

  164. Clotpoll says:

    burst (163)-

    Still beg to differ. The insanity was there; it just manifested itself in a different way.

    For the average homebuyer then, the inflationary mindset (“buy it today; tomorrow it will be more expensive”) was in full force. So what if you had to put down 10-20%? When the grim reaper ripped 50% of your condoshack’s value out from under you, you were still upside-down and plenty f*cked.

    And what of the developers who threw together pie-in-the sky business plans, backed them up with bogus appraisals and sold the deals to mom-and-pop thrifts who saw nothing but oceans of profits? How many billions pi$$ed away? And…pi$$ed away by people who were supposed to be trained professionals.

    The ’89-’91 bust wasn’t fueled by homeowners…it was the developers and thrifts who were drinking the kool aid.

  165. BC Bob says:

    JB [166],

    Akin to being handed free chips at the table. Everybody else is winning. Why not take the free chips, being offered, and close your eyes and roll? Black, you win. Red, they lose.

  166. njrebear says:

    Median house price in 1989 100K Vs 250K now. Which means less number of loans but increased loan amount per unit. Building pace 2005 – 2.25 million units. 1989 – 2 million units.

    64% home ownership in 1990 Vs 69% in 2006.
    Large part of that increase is because of fraudulent stated income, free money, and appraisal fraud.

    In 1990 Baby boomers were upgrading. Next 10+ years boomers will be downgrading.

    In 1990, RE bubble was isolated to developed countries. 2001-2006 – every part of the world has experienced at least 150% property value growth. Inflation pressure across the globe. Central banks in tightening mode.

    In 1989 banks supplied loans. It was easy to identify bail out candidates. The power of derivatives makes it impossible to identify investors. Mistrust amongst global partners?

    2005+ – negative savings. House ATM is the only road to consumption.

    Last month there were reports of 0.65/dollar auctions in California. We are just 8 months into a 6 year ARM reset cycle.

    Service sector outsourcing in 1990?

  167. BC Bob says:

    clot [169],

    I don’t remeber the insanity of the homeowner. As a matter of fact, I distinctly remember 28%/36%. I had to move columns to get a mortgage in 1985, with 20% down. My wife had one late payment, to a health club, when she was 18. They made me twist and turn over that. There were no flippers, liar loans, piggybacks, I/O’s, etc… As a matter of fact, flipper was just a cute dolphin.

    The S&L crisis was born out of deregulation and was, I believe, more centered upon commercial real estate. In addition to this, the S&L’s could tap into other profit centers, for the first time, like cc’s. Everybody and their brother was getting into it; Keating,Jim Guy Tucker, the Clinton’s [whitewater], one of the Bush’s. It grew exponentially; too many institutions chasing too few opportunities. The residential real estate market did not die as the result of the S & L crisis. The S&L crisis could not weather the storm of an old fashioned oil crisis, [$11.50 crude], a massive overbuilt, speculative commercial bubble, a stock market crash and the recession.

  168. Clotpoll says:

    BC (172)-

    Yes, the genesis of the S & L crisis was commercial RE. However, commercial and residential RE crossed paths in the area of community living (condos, co-ops).

    And, difficult qualification process aside, once the buyers were financed up, their inflationary mindset never caused them to pause, take a look at what was an obviously overbuilt market and hesitate to pay prices that kept spiraling upward…even in the face of massive inventory overhangs.

  169. Pat says:

    160, I’m bawling, too. It’s like a Hallmark movie in here tonight.

    Make, you ready to rock and roll?

    You say the consumption is doing us in. If you’re right, which graph are we in for over the next two years?

    What’s your best guess?

  170. hobokenite says:

    It’s the new math:

    5% down (on Amex no less)
    90% financing.

  171. Tor says:

    Ref. earlier posts about sleazy real estate tricks.

    My understanding is that the tax abatement that is in place for new construction in Union City, NJ, is not transferrable. If you sell the property, before the 5-year abatement period is up, I have been told there is a tax penalty…

    The below listing on craigslist is marketing the tax abatement as transferrable.. anyone know something I don’t?

    JB. Thanks again for an excellent site and discussion forum. I read your posts everyday.



  172. bergenbubbleburst says:

    #169 Clot: I am sure it was there, but you did have to come up with a down payment then, and as far as i remember (and I may be romanticizing the time period), there was not this arrogance that i believe we have seen this time around.

    The attitude so what if its 500K, next year it will be 600K,a nd teh yar after that 700k.

    This fits in with Make Money’s contention that people don’t care if they pay 50% of their income towrds housing.

    And if true, only because they believe next year it willl be worth even more, and every year after that too. When that changes, I do not think those same people will feel the same way about paying 50% of their income to housing.

  173. bergenbubbleburst says:

    #145 make Money: OK lets say you are right, this is the new reality, and people do nto care about paying 50% or more of their income to housing.

    1. Will they continue to be OK paying that amount, if prices decline or even stay flat. Is not this willingness to pay that much predicated on theri belief that prices will continue to rise, and so they just sit back and watch the equity roll in?

    This would fit with their mindset of no need to save, no need to 401k, jyst pay 50% of your income to housing,and the house does the rest.

    2. How long deos this last? What happens when fixed rates go back up to 8 or 9%. We can all agree that it is unlikely that reates will ever reach 18 or 19% again like the early 80’s, but certainly we will see rates back up in the 8 and 9 camp at some point.

    3. When does it exhaust itself, from just plain old unaffordability.

    This mistaken belief that this whole area is now becoming aa paly ground only for the rich is mistaken. Will most companies in NYC always maintain a NYC presence, probably. Do they neeed aremies of workers here no.

    But there is no way companies in the NYC metro area are going to pay big six and seven figure incomes to the rank and file employees? Its not going to happen.

    Every where is wealthy now? No difference between Saddle Brook and Saddle River, Yonkers and Chappaqua? Valley Stream and Garden City, New City and Spring Valley, all the same now.

    And all of these towns all chocked packed with people who are willing to pay 50% or more of their income on housing, and all making big six and seven figure incomes.

    And companies willing to pay those salaries for all, top to bottom? Not happening

    As far as the Dow, my equity buddies tell me its almost all institutional driven, and of course now with the headlines, you will see retail starting to get involved again. In at the peak again? And of course that is assuming they have the cash to invest.

    And Make Money if you are right, and this is the new reality, then I will continue to rent, as it is so much cheaper then owning.

    I run the rent numbers I pay with what a POS cape will cost, plus property taxes, and it makes no financial sense, even with the tax write off.

    Make Money one other thing you fail to realize, much of your theory is all based on the absence of recession, and we are due for one, long over due. And that is why I call you grasshopper, as you have only seen the good times, and as such you have this rosy view of things.

    Finally I would point out according to people I know who are in the know about such things, granite and stainless steel are out;they belong to the masses now.

  174. make money says:


    I’ve been saying all along that only interest rates going to 9% and/or a recession will bring back housing to the traditional 30% of income expense but youfail to pay attention to what I’m saying. At this point I think you’re doing it deleberately.

    Foundamentals do not support housing prices. I agree!

    They told Starbucks founder that he’s out of he’s mind if he thinks that MILLIONS of people will dring $5 coffee everyday. That the fundamentals don’t support the $5 coffee price and that he will have to lower the price in order for people to drink Caffe latte everyday.

    Don’t underestimate the US consumer. That’s all I’m saying.

  175. bergenbubbleburst says:

    #180 Make Money: If you say do not underestimate the stupidity of the U.S. Consumer then yes I would agree with you, and all the more reason not to follow. Becasue every one appears to be doing it, just makes it all the more scary.

    As far as interest rates getiing to 9% who knows if it will even take that much. A full one point rise to 7.25% could be all it takes, and yet when rates were at all time historice lows, people went ARMS’. And yet 6.25-50 30 year fixed rates, and tons of inventory available. Something is changing (affordability?)

    A nice recession will beetch slap people back into reality, and then they will start crying about how they did nto know and all the rest.

    Lets wait and see.

  176. make money says:


    “#180 Make Money: If you say do not underestimate the stupidity of the U.S. Consumer then yes I would agree with you,”

    No. I’m saying the opposite of you. I’m saying that the US consumer is financially STUPID and will continue to spend. It’s part of the CULTURE now. It’s normal.

    It used to be that only a certain type of flashy personality of people overspent and was financially irresponsible. Now it the masses. It’s the gov’t.

    It’s the way of life.

  177. bergebbubbleburst says:

    #181 MM: ANd at some point the money will be gone, and they will not be able to spend,by by Starbucks

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