Will the housing recovery fizzle out in 2014?

From Reuters:

U.S. housing recovery could run out of steam

The U.S. housing recovery could run out of steam in 2014. Banks are likely to tighten lending standards once new rules come into place. Rising interest rates may drive down home loan volume, too. Cash purchases by investors could set a floor for house prices, but they may not be enough to prevent a major slowdown.

Of late, the market has been on a tear. American home prices in the third quarter of 2013 rose 11 percent compared with the same period a year earlier, the S&P/Case-Shiller index shows. That’s the strongest jump since the bubble popped six years ago. Foreclosure activity, meanwhile, has fallen to 2005 levels, according to online marketplace RealtyTrac. And existing home sales have been the best since 2007, with over 5 million on an annualized basis since May, reports the National Association of Realtors (NAR).

But Washington appears poised to throw cold water on the fiery recovery. In January, the so-called Qualified Mortgage rule goes live. It piles strict new standards on lenders who want to avoid borrower lawsuits. That could shrink home loan credit from the current level that is already lower than before the boom.

Congress may even make some reforms to mortgage finance next year, possibly laying out the funeral plan for guarantors Fannie Mae and Freddie Mac. Both lawmaking chambers are pondering bills, and outgoing Senate Banking Committee Chairman Tim Johnson needs some legacy legislation.

Meanwhile, demand for mortgages is likely to shrink, too. That’s because long-term interest rates are on the verge of rising after years of the U.S. Federal Reserve holding them artificially low. Not only will that lead to a slump in borrowers refinancing their existing home loans – a business that already dropped in 2013. It will also dissuade some from buying a new home.

It’s not looking totally bleak. Since mid-2010 all-cash purchases, mostly by investors like Blackstone, have made up 30 percent of all existing home sales, according to the NAR. That’s more than three times its historical norm. That may prevent house prices plummeting, but it’s of little comfort to the average buyer.

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

90 Responses to Will the housing recovery fizzle out in 2014?

  1. Happy Renter says:

    My one-year old and I wish you a “good morning, New Jersey”

  2. grim says:

    From MarketWatch:

    Mortgage rates won’t derail 2014 housing market

    Yes, the housing sector’s recovery has shown some signs of slowing down, as recently noted by Federal Reserve members.

    Home prices are rising, and so are mortgage rates, making it tough for would-be buyers, particularly first-time purchasers, to close a deal on a new place. Meanwhile, the looming threats of new mortgage rules and pending housing-finance reform are adding uncertainty to the market.

    Despite these challenges, economists say home sales will continue to grow next year. Why? Hiring in 2014 may be strong enough to unleash a chunk of the pent-up demand that built up during the recession.

    “It’s almost going to be like a tug of war next year. You have what appears to be a recovering economy, but at the same time you have the prospect of higher interest rates,” said Nicolas Retsinas, senior lecturer in real estate at Harvard Business School. “Generally, when there is a tug of war between jobs and interest rates, jobs win.”

    In addition, there’s evidence that purchasers are becoming used to the pricier sales environment, with recent data showing that sales of new single-family homes are close to the fastest pace since 2008. And while sales of existing homes slipped recently, they are expected to increase next year as inventories rise.

  3. There is no actual housing recovery, so what is there to “fizzle out” in 2014?

    We are simply treading water and marking time until the next fat tail event that no one could see coming.

    Only difference is that the next collapse will be the end of it all.

  4. Hint: Mel Watt is going to help accelerate the onset of the next black swan.

  5. Fast Eddie says:

    In addition, there’s evidence that purchasers are becoming used to the pricier sales environment, with recent data showing that sales of new single-family homes are close to the fastest pace since 2008.

    This is the effects of desensitization. Gas is cheap at $3.25 a gallon, right? What’s the the Holland and Lincoln toll now? Does it matter? Just raise it another 5 bucks. People will pay it, they have no choice. The “Oh well, wadda ya gonna do” attitude sinks in after the price shock wears off. Tolls, gas, property taxes and many other day-to-day expenses are out of our control and will rise unabated because too many are prisoners to these monopolies. Life s.ucks.

    Houses, however, are a different story. WE set the price but the marketing muppets and monkeys find ways to bilk you and the weaklings cave in making it impossible for others to hold. Muffy wants the house so Preston gives in and Daddy’s money will handle the rest.

    So, I guess all of us with the insight to know better will just have to comply. I have a house as collateral. For those of you entering the housing market for the first time, you’re about to get soaked, big time. As JJ would say, don’t hate the playa, hate the game.

  6. gary (5)-

    Goebbels couldn’t have said it any better.

    “In addition, there’s evidence that purchasers are becoming used to the pricier sales environment, with recent data showing that sales of new single-family homes are close to the fastest pace since 2008.”

  7. chicagofinance says:

    I don’t disagree with this opinion, but what scares me is the source. Retsinas is a scumbag of the highest order, and the “Harvard” imprimatur should not obscure the fact that he takes NAR money and sundry RE industry bribes. Consider him an academic version of David Lereah with a worse functioning moral compass……

    grim says:
    December 27, 2013 at 7:58 am
    “It’s almost going to be like a tug of war next year. You have what appears to be a recovering economy, but at the same time you have the prospect of higher interest rates,” said Nicolas Retsinas, senior lecturer in real estate at Harvard Business School. “Generally, when there is a tug of war between jobs and interest rates, jobs win.”

  8. chi (7)-

    This is the same fcuktard who concluded in 2005 that there was no housing bubble.

  9. chicagofinance says:

    Paul Blair < Vigoda

  10. Phoenix says:

    On the next downturn, all debts may be wiped out as they will not be repayable anyway (from nom’s link). So, do you follow Mikes advise and be in debt up to your eyeballs (make sure you have a force majeure clause in place), or be prudent and save with no debt? After the last bailout I’m not so sure who the dummies were. Sometimes it’s better to be lucky than good.

  11. Street Justice says:

    Seems weird to people that have grown up in places that frown on gun ownership. Completely normal in most of the continental US though.

    chicagofinance says:
    December 27, 2013 at 11:37 am
    sc gov

  12. Phoenix says:

    I am not against gun ownership, but really sad when things like this happen. Just like some should not drive, some should not own guns. There are countless stories like this.
    Personally I would not want to be this guy. That’s a mistake I would not want to take credit for.

  13. Bystander says:


    Clearly the dummies will always be people save, don’t leverage to unaffordable lifestyles and pay their debts. In a 70% consumerist economy, debt slave consumer is king and responsible saver is peasant. Bernanke made this quite clear during his divine reign.

  14. Bystander says:

    Fast 5,

    This has always been the goal – pump stock market, create wealth effect, develop neutron financial product, sell RE to masses, wait for explosion. Problem is compression. Cycles are getting very close now.

  15. 1987 Condo says:

    Vigoda….problem is that he looked 75 back on Barney Miller when he was really only 54!

  16. 1987 Condo says:

    Bad news, grew up watching both Mike Hegan and Paul Blair…..

  17. Bystander says:


    As I continue to look through philly burbs, what is up with Wallingford/Swarthmore? Lots of places are getting crushed. You can find loads of homes for 350-400k and many selling for under 2004 price. Taxes? Thought it was haughy area with top schools and quick train to Philly?

  18. Michael says:

    13,16- You can think I’m a fool for saying to maximize debt right now but the only fool right now is the saver. If you are saving right now, and I don’t mean to be blunt, but you are an idiot. Saving in a low interest environment is just plain dumb. You only start saving when the interest rates dictate so.

    Every single person that was able to get a loan last year at 3.5 to 4% for a 30 year loan and didn’t is a…. LOSER. You lost. You missed out on your chance to totally take advantage of the crappy economic conditions that led to insanely low interest rates.

    Bring on inflation, eat away at my outrageously cheap loan. It’s like the best of both worlds. Borrowing the money for practically free at 3.5% (when you account for inflation) with inflation indicators heating up. Doesn’t get any better than this.

    Chi finance- You assume I don’t have the ability to foresee risk with real estate. I think you are dead wrong. This is what I see. Risk all depends on where you are buying. I’m sorry, the NYC metropolitan real estate hot spots are never going to go down and stay down. Long term the area we live in is real estate gold. I consider real estate within an hour of a coast and in a metropolitan area to be good to go. I’m not saying buy in a ghetto but good areas that fit the criteria just mentioned. So basically anywhere on the coast, located near a large city. Places like sf, entire southern coast of ca, Miami, dc area, north jersey, suburbs in ny state surrounding NYC, southern conn, boston area, Seattle area, and parts of Texas. These places pretty much carry no risk as long as you buy in a good location in these areas. Buying real estate in places like Kansas and Ohio is for fools. Middle America is dying. It’s all about the coasts.

    Remember, a little over a 100 years ago they were giving away land for free in mid-America while at the same time places near the coast were not. That same land in mid-America today is pretty much at the same price point….worthless. While at the same time, these coastal hotspots have become unaffordable to the majority of the population. So yes there is major risk in real estate but if you buy in good areas, chances are you are not placing a risky bet. If you want to gamble on real estate in our area, the only gamble is ghetto areas. You buy cheap in the hopes the city will turn it around and make a comeback (like Hoboken and parts of jersey city). That’s the way I see it. Maybe I’m missing something, please do inform me.

  19. Michael says:

    22- left out Philly area…..I’m 50/50 on chi area. Not sure what to think of it long term. Also, Denver area might qualify as only area not near a coast worth buying with the yuppie effect in the supply and demand equation.

    I’m passionate when it comes to these topics. I don’t know it all and don’t claim to know it all. Sometimes my passion and writing style come off this way, but it’s far from the truth. I just like to take a position and defend it to no end….lol Also, I’m a moderate. Just because I don’t agree with everything on the right, doesn’t make me a full blown liberal.

  20. The Original NJ ExPat, cusp of doom says:

    Michael is so funny.

  21. Comrade Nom Deplume, a.k.a Captain Justice says:

    [20] bystander

    Just back from 9 days in Utah.

    DelCo, biggest problem is taxes, then congestion and crime. Schools are iffy, even in tony Swarthmore (heard some things that put me off), while UCFSD, which services the edge of Delco, gets high marks.

    My accountant said be thankful that I live in ChesCo (I’m a 1/4 mile from the county line). He never explained why but I gather it was taxes and probably future assessments.

  22. Comrade Nom Deplume, a.k.a Captain Justice says:

    [20] bystander,

    The wife, a Bucks product, suggests that if you are considering Swarthmore, you look at Tredyffrin school dist. She says Media is good for lower grades but HS is iffy.

  23. I’ve concluded that whatever Michael says, do the opposite.

  24. How far outside of Philly does the rot extend?

  25. Jesus, I liked egg nog so much better back when I could grind Qua@ludes into it.

  26. lovenj says:

    I bet $2 million Michael is right.

  27. grim says:

    Seems like Snowden is now one step away from being declared a hero…

  28. love (31)-

    Two million of your own money, or the bank’s?

  29. Michael says:

    You guys can laugh at me but why do you think it’s been so hard to get a loan when the rates were so low? You think the banks wanted to give a 3.5 rate loan for 30 years? Hell no. No one in their right mind that understands economics would want to do that. For example, if a friend came to you and asked to borrow 100,000 for 30 years at 3.5%, would you do it? I doubt it. The interest won’t keep up with inflation and you will be losing money. It’s common sense if you understand how inflation works. Watch how easy it will be to get a loan when these interest rates start rising in the next couple years. It’s no coincidence.

    Taking on debt is not always a bad thing. Taking on debt with stupid low rates to buy hard assets (real estate) that generates income through rent is how you take advantage of the current economic conditions. Maybe I’m wrong but this is the way I see it. What’s the worst that is going to happen? You collect rent for a year or two and have to sell? Even if the price drops 50,000, you collected rent. It should offset most of the lost.

    So IMO, people that didn’t buy late 2011 and 2012, and maximize their loan amount, missed a golden opportunity and lost out.

  30. sven says:

    You mean that all the money the banks loan is theirs?

  31. Michael says:

    34- By the way, the only reason banks were giving out loans at these low rates is because they were forced by the fed and govt to do so ( the banks were bailed out by the fed and govt). It’s illegal to turn down a loan if the person is qualified. Key word qualified. Of course they made it almost impossible to get a loan by raising the qualifications but the people that were able to get a loan at those low rates made out big time. I think grim or realtors on this board can vouch for how difficult the banks made it to get those low rates. They used every trick in the book to avoid giving out a loan at the lowest rates possible.

  32. Michael says:

    35- no it’s not all their money. Far from it, but if they take on a 30 year loan at 3.5 %, sooner or later that loan will be a negative on their balance sheet. You think they want 3.5% loans on their books for 30 years? It limits how many loans they can give out when the rates hit 7%. That’s killer to be loaning out money at 3.5% when rates are 7%. The bank is losing big time!

  33. Michael says:

    And since the bank is losing big time, this means you are winning!! Get it?

  34. sven says:

    Sorry Michael, my comment was for -33 Spine Snapper

  35. Michael says:

    32- I think it’s damage control by the government PR. If you can’t beat em join em…lol

  36. grim says:

    First off – very few people were able to time a 3.5% rate, getting this rate was pure luck, if you were a week early, or a week late in some situations, the window was closed.

    You make it sound like banks were preferentially handing out 3.5% – or that 3.5% was there for the taking, it was not.

    Purchase mortgage is not something you can pull the trigger on in 1 day – in most cases I’d say it is at least 3 weeks before you can be in a position to lock the rate. Typically, it’s closer to 4. And this doesn’t even take into account the time needed to actually shop for a home to buy.

    It would be nice if you could close on a mortgage before buying a house, but that isn’t the case. The folks who got them did so by sheer chance of being in a position to lock a rate during the window, anyone who claims that they were savvy enough to do this an idiot.

    People should stop talking about 3.5% loans like they were commonplace, they were not, the vast majority of them went to refinancing, where the cycle times were much smaller.

  37. Michael reminds me of that guy Mitchell who used to post here about his wonderful life in Cellulite, NC, his weightlifting prowess and 250 lb. waitresses at the donut shop near his double-wide.

  38. Michael says:

    25- a comment from that article that I think says a lot about Florida.

    “After living in Florida for thirty years, I moved to Colorado more than a decade ago. I had these observations while on a recent vacation to Florida.

    The influx of people is quite obvious on Florida’s highways. The congestion of vehicles greatly extends commute times. The driving experience is often quite stressful and sometimes dangerous. Road courtesy is often lousy. In spite of the influx of people and their dollars, many roads still do not have sidewalks.

    Generally speaking, infrastructure is not being expanded fast enough to meet the needs of all the additional people. Many restaurants, shopping centers, and parks are overcrowded, so wait times tend to be high. Common courtesy frequently suffers under these conditions.

    Poor areas, in place in the 80s and 90s, are still poor. In some cases the poor areas appear to have increased in size.

    Florida’s quality of life appears to me to be going downhill, and the expanding population appears to be a major cause of the decline.”

  39. chicagofinance says:

    Inaccurate….banks are borrowing at FF rate on the margin, and/or may lock in fixed borrowing rates lower than they offer in mortgages……when the bank initiates a mortgage they lock-in a profit on the spread…..they lose future earnings when someone prepays the mortgage through sale or refi……they lose BIG in default situations….as usual, your rationale posits specious arguments……

    The reason that mortgages are so difficult to secure is pure and simple….uncertainty….and it should speak volumes about the state of the real estate market.

    Michael says:
    December 28, 2013 at 9:35 am
    You think the banks wanted to give a 3.5 rate loan for 30 years? Hell no. No one in their right mind that understands economics would want to do that. For example, if a friend came to you and asked to borrow 100,000 for 30 years at 3.5%, would you do it? I doubt it. The interest won’t keep up with inflation and you will be losing money.

  40. Street Justice says:

    Grim, did you see Snowden’s holiday video message?

  41. chicagofinance says:

    Michael: it your real estate Nirvana, you had better hope that personal incomes outstrip this issue….

    Bond-Yield Rise Means Borrowers Will Pay More
    U.S. Treasury Bond Yield Climbs Past 3% for the First Time in More Than Two Years

    Updated Dec. 27, 2013 7:10 p.m. ET

    Growing confidence in the economy pushed a widely followed U.S. Treasury bond yield above 3% on Friday for the first time in more than two years.

    The benchmark 10-year note’s yield rose to 3.004%, pushing the price down 4/32 from Thursday’s close. While the yield already had more than doubled since sinking to a record low in July 2012, many analysts saw the 3% mark as a test of investors’ faith in the economic rebound’s staying power.

    The yield rose during every trading session of the holiday-shortened week, propelled by upbeat data from the labor and housing markets, business spending and household consumption. When bond yields rise, their prices fall.

    But rising yields make borrowing more expensive. The 10-year Treasury yield is a reference point for many loans to U.S. businesses and consumers—and is used to set terms for foreign governments and companies selling bonds in U.S. dollars.

    Trading in the 10-year note also helps determine interest rates in the $10 trillion U.S. home-loan market.

    Analysts said Friday’s climb above 3% means interest rates that have jumped since the 10-year yield bottomed out in July 2012 will likely go even higher, though they will remain unusually low in historical terms.

    “We are seeing the tide turn from a lower-rate era to a higher-rate era,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ.

    Some economists are worried that higher interest rates might start weighing on economic growth. But many investors and analysts expect little or no impact as long as future rate rises are gradual.

    It also helps that inflation is low, constrained by inconsistent demand among businesses and consumers. Meanwhile, home-construction and house prices have improved despite higher mortgage rates.

    Still, the climb in interest rates tied to the 10-year note’s yield is causing some prospective purchasers to reassess their plans.

    Darien, Conn., officials are more likely to pay cash for property targeted for parkland, rather than borrow $1.9 million in the bond market, said Kathleen Buch, Darien’s finance director.

    In 2012, the New York City suburb took advantage of low rates by selling $33.6 million in bonds to refinance existing debt. The move saved $2 million. “If we have to borrow at higher rates, that means the budget is impacted,” she said.

    “ The 10-year U.S. Treasury bond yield has more than doubled since its record low in July 2012. ”

    Bruno Fiabane of Princeton, N.J., closed earlier this month on his purchase of a second home in Vero Beach, Fla. The 66-year-old Mr. Fiabane decided to buy the $1.5 million home with cash after home prices rebounded and rising rates soured him on a loan.

    “We saw prices really start to turn about six months ago, so we were much more inclined to make a decision,” said Mr. Fiabane, who runs an insurance business in New Jersey. He plans to use the Vero Beach property after he retires.

    The average interest rate for a 30-year fixed-rate mortgage rose to 4.48% this week from 4.47% last week and 3.35% a year ago, according to Freddie Mac.

    Investors have sold Treasury bonds en masse this year to seek higher returns in stocks and riskier fixed-income assets. Through November, U.S. bond funds targeting Treasury debt suffered a net outflow of $40.2 billion in 2013, according to data provider Morningstar Inc.

    In contrast, funds that invest in low-rated “junk bonds” issued by U.S. companies have attracted $2.6 billion from investors.

    Treasury bonds are on track to suffer their biggest annual loss since 2009, according to Barclays PLC.

    As of Friday, the Dow Jones Industrial Average was up 26% so far this year, on pace to finish with the benchmark index’s strongest annual gain since 1996. The Dow slipped 1.47 points Friday to 16478.41, snapping the longest winning streak since a 10-session run that ended in March. For the week, the index rose 1.6%.

    Stocks have remained strong despite the Federal Reserve’s announcement this month that it will start scaling back its $85 billion-a-month bond buying in January.

    That is the central bank’s first major step to wind down its monetary stimulus five years after the financial crisis hit.

    Some investors see no end in sight to the move into stocks from Treasury bonds. A continued exodus would push bond prices even lower and the 10-year yield higher.

    “If we carry the economic momentum into next year and break above 3%, then one has to look for larger moves with an eye toward the 2011 yield highs at 3.75%,” said Jason Evans, co-founder of hedge fund NineAlpha Capital LP in New York.

    Rick Rieder, co-head of Americas fixed income at asset-management giant BlackRock Inc., said he doesn’t expect interest rates to rise sharply. The reason: Fed officials have pledged to keep rates low through at least early 2015.

    As a result, “risky assets will be in good shape for a while,” said Mr. Rieder.

    Some analysts believe that investors who are lukewarm on Treasurys will resume buying them when the 10-year yield nears 3.25%.

    At that level, Treasurys would look like a good value compared with stocks because the bonds are lower in risk and pay regular income.

    Three percent is “a level that’s been out of reach for some time and represents good value relative to inflation, other industrial economy bonds and a moderately expanding U.S. economy that still faces challenges,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.

    Opinions differ widely on how far or how fast the 10-year yield will rise now that it has crossed the 3% mark.

    “Treasury yields are likely to crest in the 3% zone,” said Robert Tipp, chief investment strategist at Prudential Fixed Income, a unit of Prudential Financial Inc., Newark, N.J.

    —Geoffrey Rogow contributed to this article.

  42. chicagofinance says:

    Fundamentally failing to acknowledge risk……

    Michael says:
    December 28, 2013 at 9:35 am
    What’s the worst that is going to happen? You collect rent for a year or two and have to sell? Even if the price drops 50,000, you collected rent. It should offset most of the lost.

  43. chicagofinance says:

    Andy Kessler: Living the California Nanny-State Life
    Are you into reusable bags, recycling, fluorescent bulbs and going by the rules? I know just the place for you.


    Dec. 27, 2013 6:28 p.m. ET

    The other day my family stopped for frozen yogurt in Palo Alto. Ice cream in Silicon Valley is frowned upon these days, even though froyo tends to taste more like soap than a scoop of butter pecan. Waiting to pay, I watched a young man wearing a Vampire Weekend T-shirt cut the line, go to the counter, and ask whether he should put his garbage in the compost, recycle or landfill container. “Well, any leftover toppings go into compost. The spoon and cup can be recycled. But the plastic top and bag, unfortunately, need to go to landfill,” said the employee. There was a line at the trash, each a victim, it seemed, of a disorder: eco-OCD.

    Not me. I left my empty cup on a table.

    I’m unqualified for today’s sanitation edicts. Which is why living in California has become nearly impossible.

    So far, 88 cities and counties in Golden State have banned plastic bags. Most stores are now required by law to charge 10 cents for a paper bag, which so annoyed an elderly man in San Carlos this summer that he took a swing at the cashier. Maybe he was onto something.

    Many shoppers have resorted to reusable bags—never mind that a 2011 study by the University of Arizona found E. coli bacteria in 8% of reusable bags, and lots of salmonella too. Perhaps California should pass ordinances requiring bag-washing; a survey of people who shop with reusable bags found that only 3% ever do. Or maybe just give us our plastic bags back.

    The nanny mandates just keep coming. As of October, Palo Alto requires all new homes to be wired for an electric-car charging station, even if you drive a ’69 Mustang. And thanks to the ominous-sounding Title 24, half of the lighting in new kitchens is required to be “high efficacy luminaires,” which usually means glaring fluorescents. These are hard-wired, since the state doesn’t trust its citizens not to swap them out with old-school bulbs.

    But in California, as in so many other places, the nannyish mentality extends well beyond government, seeming to reach into life’s every cranny. Want a simple cup of coffee? Hard to find one that doesn’t come without a lecture about its being “fair trade”—as if all other coffee were obtained at gunpoint. My pound bag of Starbucks SBUX -0.39% beans, for which I clearly overpaid, is labeled “Ethically Sourcing.” That’s not even good English, but I don’t want to be accused of being unscrupulous in how I acquire my morning buzz.

    Once caffeinated, I hit the streets with my dog. To be nice, I stupidly ask people I run into what kind of dog they have. The smugly self-satisfied answer 98% of the time: “rescue dog.” I think that’s French for mutt—and doesn’t answer the question. When someone asks me what kind of dog I have, I just say “show dog.” Shortens the conversation.

    Then it’s off for some fruits and nuts. I don’t have the drab clothing or strappy footwear that seems to be the farmers-market dress code. But when I do go, I find myself entranced by the variety of kale. On one recent visit, I was told by a post-hippie vendor with that his lacinato kale could be spun, minced and fried—not to mention that it had been approved by the CCOF: California Certified Organic Farmers.

    Under the next umbrella was a vendor selling similar rabbit food. I listened as a woman asked if the farmer used pesticides. “No, we use 100% organic farming techniques,” he replied. Then why, she asked, didn’t he display usual CCOF sign and other bureaucratic testimonials? “Because it’s not worth it,” he said. “Between certification and inspections, I’m easily out a couple of grand that I just can’t afford as a small business.” The woman paused, then walked away. I saw her fill her reusable grocery satchels at a Real Organic stand. The vendor rolled his eyes.

    Continuing my stroll, I sidestepped the organic, vegan, gluten-free Soy Beanery and came upon a food truck with the longest line in the market. It was selling $13 air-chilled, free-range rotisserie chickens. The grease from the chickens was dripping onto a bed of roasted potatoes.

    There was no one to tell me I couldn’t indulge. I bought a chicken and some greasy potatoes. With no reusable bags, I nearly ate them on the spot.

    Mr. Kessler, a former hedge-fund manager, is the author, most recently, of “Eat People” (Portfolio, 2011).

  44. Michael says:

    41- 3.5 or 4%.. Who cares. The house prices were at a low and the rates were low. The point is if you were able to get a 30 year loan at these rates. Obviously, the majority could not even get a loan. Look how many cash purchases have been driving the market. It was not mortgages driving it. Which leads me to believe the banks were not willingly open to giving loans at these rates.

    You state that the majority went to refinancing. Further providing evidence that these rates were set (forced) this low by the fed to not give new 30 year mortgages but to help get the underwater homeowners back on their feet by allowing them to refinance at really low rates. This saved the housing market from being flooded by even more for closures.

  45. Michael says:

    44- I know that they borrow the money at a cheaper rate than they loan out (depositors not even getting 1%) but you are telling me a bank wants a to loan money out for 30 years at 3.5%? Why would they want that on their balance sheet for 30 years when you factor in inflation? I don’t get it. Future profits? They are losing long term by loaning out 100s of thousands of dollars at 3.5 to 4%. Maybe I’m missing something.

  46. chicagofinance says:

    This “ruined” the housing market from being “cleansed” by even more for closures.

    Michael says:
    December 28, 2013 at 10:42 am
    This saved the housing market from being flooded by even more for closures.

  47. chicagofinance says:

    Mikey: spread? borrow at 1 and loan at 3.5? You have a profit (i.e. revenue) making machine of 2.5% per year as long as you manage risk properly and cover your operational expenses.

  48. Michael says:

    52- I get it but it’s not fixed. The interest the banks have to pay rises when the interest rates rise. They don’t have 30 year contracts at 1% with depositors. Again, maybe I’m missing something, but it’s not a good idea to loan hundreds of thousands of dollars at 3.5-4% for 30 years. It’s a good idea to borrow at those rates and length of time. Do you understand how long 30 years is?

  49. Michael says:

    Also, why do you think all of a sudden there is talk of getting rid of 30 year mortgages? Coincidence? I think not.

  50. Ben says:

    Michael, banks don’t care one bit about the loans they make anymore. They don’t even care about the interest rate. The only thing they make sure is that you qualify for a mortgage via Fannie/Freddie guidelines so they can sell the loan.

  51. Ben says:

    No bank keeps their loans on their balance sheet for 30 years anymore.

  52. Michael says:

    56- So who is in charge of my 30 year loan in 20 years? You might be right but I just don’t understand who the bank pushes that low interest loan on. I don’t think anyone with common sense would want to take on that loan. Obviously, I’m missing something. Maybe you guys need to put it in simple terms for me because I don’t understand. I’m not being sarcastic, I’m being serious.

  53. grim says:

    No bank keeps their loans on their balance sheet for 30 years anymore.

    Nobody keeps a mortgage for 30 years anymore. A 30 year loan is a misnomer, in reality it’s a 7-10 year duration fixed rate loan with a 30 year amortization schedule. Prepayment isn’t risk when it’s expected in spades.

  54. Ben is very Right says:


    Around 2009 – when the Financial Crisis was at full power, the at-then CEO of Hudson City Savings Bank was making the CNBC/Bloomberg round talking about his bank was special because they kept their highly qualified/ screened mortgage loans on their books instead of securitising them. Well look at them now, they are on their way to be part of M&T Branch network.

    No sane banker, or any one that knows the time value of money would keep any mortgage loan they do with these silly Fed financial repression created rates unless they are ARM. If the mortgage has a fixed rate then it’s sold to F&F if conventional. That is why a 30yr Jumbo with a fixed rate and low down payment is a rare animal.

  55. joyce says:

    Genius… lenders (almost all) don’t keep the loans on their books. christ you know nothing

  56. grim says:

    59 – You could have plotted the descent of HCSBs portfolio by simply listening for the increase in Hermance’s arrogance. It’s not that they had an in-house portfolio that was the problem, it was that they got greedy.

  57. Whenever I would get a call from a borrower who had mortgaged to HCSB- either first or second lien- I’d just tell the prospect to start packing.

    Those mf’ers wouldn’t ever budge in allowing a short sale, even when they were in second position with a balance of less than 30K. They’d refuse to consent to the short sale and lose the 30K, just to force the senior lien to FK.

    Wish I had shorted those idiots, as they had tons of crap on the books. They bragged of having only top-shelf borrowers, but they were top-shelf only in the sense that they used same flawed metrics all the other banks used to determine who was creditworthy.

    In the end, banksters are banksters. All scum, all doing the devil’s work.

  58. Michael says:

    58- Jesus, this is crazy. What is the point of a bank today if they don’t hold the loans. This is just plain crazy.

    So basically when I say that I’m taking advantage of the banks with a 3.4-4% interest loan, I’m really taking advantage of the taxpayer through Fannie/Freddie?!?! Got damn bankers are the devil.

  59. Michael says:

    59- this was my exact thinking. Who in their right mind would loan out money that long for so little interest. Little did I know the taxpayer was. This pisses me off. You can never get over on the banker! What bs!

    “No sane banker, or any one that knows the time value of money would keep any mortgage loan they do with these silly Fed financial repression created rates unless they are ARM. If the mortgage has a fixed rate then it’s sold to F&F if conventional. That is why a 30yr Jumbo with a fixed rate and low down payment is a rare animal.”

  60. Michael says:

    60- genius, I don’t work for a bank and I don’t invest in banks. Why should I sit there and research the fundamentals of their banking system. It’s pretty obvious they took a simple process of loaning money out and turned it into a complicated system all for the sake of being stealth while they are stealing your money. Like I said, I don’t claim to know it all. Just teach me instead of making fun of me, I’m a fast learner.

  61. Comrade Nom Deplume, a.k.a Captain Justice says:

    This is a deduction that IRS can be expected to attack even more vigorously


    Not that they haven’t before. I was audited for the same reason years ago but knew how to defend it.

  62. Comrade Nom Deplume, a.k.a Captain Justice says:

    Lies, damn lies, and statistics . . . An example of tax distortion.


    If this is based on sales, it is ridiculously deceptive. Same for Delaware, ranked 3rd. This is because they sell booze at low or no tax to neighbors in high tax states.

  63. Ben is very Right says:

    Michael, what happened. You just took the “BLUE” pill from Neo?

    What, did you actually believe your own hype and not see the true reality?

    You are right, when you are taking advantage of 3-4% interest rate you are taking advantage of F & F.!. But better yet, F & F is not taking advantage of you. F & F is taking advantage of your kids and grandkids which are the ones that will have to pay (or whore themselves by that time to pay) for it the bail out that it would be surely need it.

    Yes, is it not genius. The boomer banking gangster get to bail out the boomer generation, make extra dough, and pass the true cost on to future generations that it will hit them only when they have been dead for 20 yrs+.

    I can’t believe, that after reading this blog for a while, you actually did not see the true till now. Why do you think the blog has so many neo-survivalist / armageddon proponents in here?

    So yes, when you proposed that someone buy a house today with a 30yrs loan at 4% from Bank Of America. What you really are saying is – Buy a house today from a lucky boomer that needs to bail out so he can retire; his bail-out will be paid by a BOA mortgage which will be transferred to F & F (of course after a fat profitable fee to BOA) which F & F will book a loss over the loans lifetime vs the true time value of money – if it does not default outright) and whose loss will be made whole by the earning power of your 2 granddaughters whose income will be made of working as strippers for someone.

    Michael says:

    December 28, 2013 at 12:34 pm

    58- Jesus, this is crazy. What is the point of a bank today if they don’t hold the loans. This is just plain crazy.

    So basically when I say that I’m taking advantage of the banks with a 3.4-4% interest loan, I’m really taking advantage of the taxpayer through Fannie/Freddie?!?! Got damn bankers are the devil.

  64. Ben is very Right says:

    To further answer your question

    – What is the point of a bank today if they don’t hold the loans?

    Well the point is to be economic rentiers, and bail-out backed casino gamblers!; what else is there to be? Ask JJ – Hookers & Blow for everyone is the Goldman Sachs unofficial motto.

    Why do you think bankers have always had a shady reputation?
    Do you see the First National Bank of the Roman Empire still in business?

    Banking/Finance does well when they were segregated and regulated.

    Anyone remembers 5.25% savings account minimum interrest and 18% maximun loan interest? Commercial Banks did loans and mortgages, and invested only in government bonds? Insurance Companies invested only in government and corporate loans? The gambling houses aka Investment Banks did what they wanted, but no government money bail them out.

    It was called Glass-Steagal Act. You know that chap of a president FDR really was a genius.

  65. cobbler says:

    There are many trillions of $$ desperately wanting to invest into FDIC-guaranteed 5.25% APR product, and about 2 orders of magnitudes lower demand from high quality borrowers for matching 9% or so APR loans. No banks will take your deposit into an interest bearing account if it can’t make a matching loan to someone. When people’s salaries are increasing by 2% a year at best, there is zero demand for long-term high interest loans, unless the borrower means to hold it only for a very short time.

  66. FRTR says:

    Michael re: post#35 of yours:

    Bought a local two family at 3.75 with minimum down (not going to explain how I pulled that off). Needed work but it was all cosmetic and light mechanical, that I could do myself (sheetrock, paint, floor refinishing, plumbing and minor electrical).

    The 2X mortgage positive cash flow (BTW – tenants pay CASH) and tax deductions have proved to be very lucrative.

    Used to do single family upscale rentals back in Morris County, this blows them away! Wish I could pick up another at that rate. Eh, if the price is low enough rate almost doesn’t matter (I said almost). Many more foreclosures coming on the market soon here in Warren County (got to be careful about where as there are some places few are interested in even renting short term).

    Local apartment complexes have jacked rents recently. Don’t even have to advertize for tenants.

    BTW – Went through the ringer on that mortgage. My HR dept. was REALLY getting annoyed with the lender (Wells) calling constantly about my employment status.

    Get this: The bank scrutinized my daily ATM withdrawals for 3 MONTHS!. Asked what’s this constant $20 for everyday. Told her is was for my crack habit. Beleive it or not it almost killed the application!

    Won’t use Wells F again. Found a MUCH easier dupe.

    Keep the Fed. Funny Money flowing!

  67. Ben is very Right 2 says:


    What I’m trying to say is that the pre-Glass-Steagal environment restricted by having its above mention bank regulation and segregation of services (my bad on Insurance Cos -should have read -> govt and corp bonds) limited the Fed’s ability to do bubble blowing.

    It’s not a coincidence that many of the restriction on bank account rate (the 5.25% minimum of savings acct went away in the late 80’s) dissappeared and serial bubble blowing started right after. 1- S &L (Greenspan) 2- Tech ( Greenspan) 3- Housing (Greenspan) 4- Present resurrection attempt (Bernanke).

    The Fed could not do this bubble blowing before because no one in their right mind would have risk their monies in these bubbles when the bank paid 5.25%. This interest rate floor itself prevented the Fed from going lower. And bail-outs were off the table because it was either bankruptcy or FDIC take over. None of the Citigroup (Citibank, Travellers, Investment Banking ) like monolith TBTF to warp the system.

    Monies that were risked investments, were risked with the idea that it would be a profitable and productive investment, not a Fed / Wall Street generated carry trade with guaranteed profits as long as the musical chairs game (bubble is blowing) is playing.

    The overall financial/Fed game today was played in the 20’s and it lead to the great Depression. Rules instituted afterward ensured stability for 50 yrs. The boom/bust cycle has return, just as the old rules were removed. The depression generated rules created stability by creating integrity in the system. A big part of the problem right now is that everyone knowns that the Fed/Treasury/Goldman Sachs like are all together in bed. It’s one gigantic circle j3rk/org.y. Which by the way comes back around to the subject of this blog – Housing in the previously stated way of F & F mortgages and future bail out by future generations, all for the benefits of the boomer locust financial oligarchy presently making the rules.

  68. The Original NJ ExPat, cusp of doom says:

    I still think Michael is probably a Wendy’s fry cook living rent-free in his Mom’s basement. Perhaps he considers himself heavily invested in Clearasil futures (if he bought three tubes when it was last on sale at Pathmark).

  69. Ben is very Right 2 says:

    Cobbler :

    More directly to your statement of – > There are many trillions of $$ desperately wanting to invest into FDIC-guaranteed 5.25% APR product, and about 2 orders of magnitudes lower demand from high quality borrowers for matching 9% or so APR loans.

    Well that is what a true market place is about is it? A 9% mortgage environment would have a 9% mortgage housing prices and people that can afford it a 9% mortgage interest rate based on their income. In short a true price discovery point. Not a point likely to generate “bubbles”, but a point likely to be within the 3.5 to 4.0 x income generally available in the N NJ area (if I remember correctly from an old Grim post about housing vs income in NJ).

  70. cobbler says:

    Ben [74]
    While housing is an important part of the economy, there are other parts as well. You don’t want to kill off any economic activity (by essentially eliminating loan rates below 9%) just to prevent housing bubbles. Prices of pre-owned houses in a very large part of the country are still below the construction costs, so if they drop in a significant way as you are asking for, it will destroy whatever is left of the construction industry. I don’t want to get on my hobbyhorse of rolling back globalization, but without doing it you can’t get to where you want to be vs. low-risk high interest rate environment. I had no problem taking a 9 5/8% mortgage in 1991, since my salary was going up by at least 7% every year; today, if someone earns money by working rather than gambling, borrowing long term at more than 5-6% is a plain life-destroying decision. Save money, even at 0.25% interest, and buy for cash.

  71. Street Justice says:

    Michael, please remember to take your bipolar meds as directed…

  72. Ain’t no cure for stupid, and Michael’s got a big case.

    Just waiting now for his groundbreaking post on how Phony/Fraudy are really pre-determined financial garbage cans/bailout vehicles.

  73. All that matters is my Magpies give those Gooner toadies a right proper arse reaming tomorrow.

    In yer fcuking eye, gluteus.

  74. Fcking Champions League or bust.

  75. Who am I kidding? When the student loan bubble explodes, it will dwarf the re-poop of the so-called housing market.

  76. The Original NJ ExPat, cusp of doom says:

    [80] Right on clot. Here’s a cool tool to find the first to fail colleges. You really have to download the data to a spreadsheet to play with it correctly, but here’s the cheat sheet:

    NE on the grid is bad, SW is good.


  77. Phoenix says:

    Grim 41,
    I must have timed the loan just right as I snagged a 3.5 30 fixed on my home purchase.
    Wife really wanted the house so I feel I was goosed about 25-30g more than I should have paid, but I was once told “when married, you can only be right or happy but not both.”
    FTFR 71,
    I was with Wells also. Day before closing they called me and told me they could not confirm my employment. Was told by them they check every ten days. My employer, a large firm, stated they have 3 full time employees just handling these types of requests. As far as Wells was concerned, I just threatened to sue them if they did not close the loan based on the reason they gave for not closing. They never sent the check to the closing, IOU’s were handed out by my attorney to close the deal until the check arrived. The experience was disturbing to say the least.

  78. Ben says:

    Haha, this was priceless. It is titled Castles that cost less than an apartment in NYC.


  79. cobbler says:

    expat [81]
    The problem is there, but the site’s methods seem to be lacking. Harvard, Princeton and Yale show as endangered, while Hofstra is passing with flying colors…

    Problem of student loans defaults will be eventually solved by making writing them off easier. As there is no collateral to seize, the damage to the economy will be limited to a bunch of teachers at 4th tier schools becoming unemployed, and a few banks stupid enough to make educational loans to marginal (or non-existent) students at fly-by-night schools a large portion of their portfolio going to FDIC.

  80. chicagofinance says:

    I fundamentally disagree with everyone asserting that originating a 3.5%-4% mortgage is a losing proposition. F & F are in trouble not because of bad economics, but rather being forced to eat bad credit profile loans that are poisoning their asset pools, having morons manage their counterparty risk pools, and having limited or ineffectual hedging……..the investment risk of an asset always can be hedged away if you know what you are doing…..it may crimp your margins, but that is about it. The fools errand in being forced to take on crap credit……

  81. chicagofinance says:

    The fool’s errand is……

  82. Comrade Nom Deplume, a.k.a Captain Justice says:

    [81] expat

    Ha. My alma mater is far more stable than BC. That’s all that matters.

  83. FRTR says:

    Phoenix 82:

    Wells keeps the note, too. Guess they’re into going long on good credit, low amount (under 200K? – from what I can see) Morts. Why?

  84. Michael says:

    71- This is exactly what I’m talking about. Multi-family houses are a gem at making money when bought at the right price and right conditions.

    Wells Fargo also gave me hell on my 30 year jumbo. Every day it was some stupid request that seemed to me to be a ploy to not give the loan. Half of the requests didn’t even make sense. Phoenix’s experience with not sending a check to the closing tops the list. How does that not look like a ploy to put off the loan at all costs? Like I said, I still got the jumbo 30 year loan, but throughout the process I felt like they were trying to find any way possible to get out of giving me the loan. My wife and I have credit scores of over 800, in stable jobs that we have been in for a while. We have a multi family that I purchased in 99 at the age of 19 that was basically paid off (20,000 balance), yet they put us through hell to get the loan. Once again, how does it not seem like they were trying to avoid giving out the loan at all costs?

    I know now that the banks don’t own the loan, which leaves me scratching my head as to why they looked into any excuse to try and not give the loan? You have three people who posted on here with the same hellish experience. I know a couple of other people that went through this process but were duped out of their mortgage application fee after the bank pulled out on rediculous excuses. I don’t know what to make of this whole experience.

  85. Michael says:

    85- I don’t believe that it’s mathematically possible to hedge every bet. Yes, any investment is a bet since you are getting paid on risk. I think the people in finance thinking they can outsmart the system is the sole reason 2008 happened. You took a simple system and turned it into a damn complicated model for no reason whatsoever other than you thought you gamed the system so that you can’t ever lose. Now stocks don’t even follow fundamentals anymore. It has not followed fundamentals for a while now thanks to the geniuses of wall st.

Comments are closed.