[Denny]

See Counterpunch.

"The housing bubble is a $10 trillion equity balloon that will explode sometime in 2007 when more than $1 trillion in no-interest, no down payment, adjustable-rate mortgages (ARMs) reset; setting the stage for massive home devaluation, foreclosures and unemployment.

By some estimates housing activity has accounted for 40% of all the jobs created since 2001". (Times Online) July's plunging sales are just the first sign of a major slowdown. The worst is yet to come."

I do not understand what is meant by a "no-interest, no down payment" mortgatge. That sounds as realistic as a perpetual motion machine to me. Are they only available in the U.S.? Who actually covers the interest cost until the "reset" point, the housebuilder?

[one_more_day]

I think the author mis-spoke when he said "No interest, no down payment." he probably meant , no principal, no down payment. There were a lot of mortgages being approved where the payment was interest only, and did not contribute to the principal.

Obviously, the owners don't build any equity, and in the case of falling home prices they can easily end up in the negative. Pair this with rising rates and it is not a pretty picture. Can you say foreclosure city!

[Aimrehtopyh]

Surely you've heard about the "lowering of the bar" when it comes to lending practices lately. These funky non-traditional mortgages you're wondering about are one good example. They used to call it "creative financing" now such idiotic practices are status quo.

I bet that most of the americans who've gotten a mortgage in the past five years couldn't tell you the difference between an ARM and a FRM. They hear the loan agent say "I'm gonna get you into a house, let me worry about the fine print." and consumerist lust takes over their brain as they sign into financial slavery/guaranteed forclosure.

[Cobra_Strike]

So, when are the laws requiring indentured servitude to debt agencies going to be passed...the inability to erase deby through bankrupcy was a nice start...leans on peoples organs?

[gego]

Housing prices in the long run must maintain a relationship to the income of the people buying them.

On average housing prices have in modern times risen in the 3% to 4% range and increased in the 10% to 15% annual range are abnormal. Every 15 or 20 years the prices would double at these lower normal rates, so clearly the current valuations are out of line. The valuations need to fall , or stay stagnant for a very long time, to compensate for this period of abnormal, unsustainable expansion.

I know of the old idea that they are not making more land, but we are making more people so real estate must go up. This does not take into account demographics. There was a huge bubble in people born during and after WWII. This bubble has moved throught the housing market and now these people are beginning to die or relocate to retirement homes. Where are the people going to come from to buy this huge stock of homes. (Maybe all you younger married couples need to up your divorce rate to create demand for additional homes.)

Seems that Greenspan created the housing bubble as one of the worst times he could have. I guess he must have been desperate to keep the debt bubble from collapsing. I guess after this debacle they will go back to pumping the new money into the stock market again to keep the music playing. Maybe it will be the alternative energy company bubble this time instead of the dot.com bubble.

[NEOPO]

Yep - just one more negative aspect of the current convergance.

Welcome One_more_day.

Convergence.
For some reason I feel spelling will suffer post peak

[Aimrehtopyh]

$this->bbcode_second_pass_quote('NEOPO', 'F')or some reason I feel spelling will suffer post peak

[MonteQuest]

$this->bbcode_second_pass_quote('one_more_day', 'I') think the author mis-spoke when he said "No interest, no down payment." he probably meant , no principal, no down payment. There were a lot of mortgages being approved where the payment was interest only, and did not contribute to the principal.

[RdSnt]

$this->bbcode_second_pass_quote('Denny', 'I') do not understand what is meant by a "no-interest, no down payment" mortgatge. That sounds as realistic as a perpetual motion machine to me. Are they only available in the U.S.? Who actually covers the interest cost until the "reset" point, the housebuilder?

[americandream]

Whatever the "no" is...whether principle or interest....its merely another bait for the wee mice, as lenders seek to deepen their income portfolios.

This is business in the era of the fast buck. Whether its good business however, has yet to be seen when these instruments eject these inducements...

I'm inclined to reckon that nothing much will happen...folks will work harder...the church will exort us to work harder, tithe harder and generally be more compliant, as will the new high priests in media...and this whole shocking mess will degenrate into a sort of planetary slavery by stealth with the odd moment in front of the TV to make up for the sheer exhaustion of it all.

Nope....I don't see any crash soon or for a long time to come. You're all being taken for a ride by the new enterprise and entrepreneurship of future forecasting...as Marx said...the choice is either chains or liberation.

[Micki]

$this->bbcode_second_pass_quote('', 'I') know of the old idea that they are not making more land, but we are making more people so real estate must go up. This does not take into account demographics. There was a huge bubble in people born during and after WWII. This bubble has moved throught the housing market and now these people are beginning to die or relocate to retirement homes. Where are the people going to come from to buy this huge stock of homes.

[MonteQuest]

$this->bbcode_second_pass_quote('americandream', ' ')Nope....I don't see any crash soon or for a long time to come.

[eastbay]

By 'bail out' I wonder if they mean the prudent financial move is to sell whatever housing real estate one now holds and rent (rents are becoming more costly), or buy a smaller, less costly place outright rendering one less susceptible to interest rate increases and expected price declines.

I mean, ya gotta live somewhere, right?

(edit for typo)

[rwwff]

$this->bbcode_second_pass_quote('eastbay', 'B')y 'bail out' I wonder if they mean the prudent financial move is to sell whatever housing real estate one now holds and rent (rents are becoming more costly), or buy a smaller, less costly place outright rendering one less susceptible to interest rate increases and expected price declines.

I mean, ya gotta live somewhere, right?

[eastbay]

That should be easy for those not living in inflated markets such as the Bay Area, LA, San Diego, Seattle, Boston, New York etc... whose incomes qualify them for a 10 to 15 year $2 to 300,000 loan.

But for most of those owning on the West Coast with 'goofy' loans it's possibly too late. If home prices drop and mortgage payments go too high the best many of them can do is jump ship and start to pay increasingly higher rents.

What we recently did was cost downscale quite a bit, pay cash for the house and wash our hands of bank mortgages. Hopefully we made the prudent move.

[Tyler_JC]

The situation in Massachusetts has already gone critical.

"Massachusetts Single Family Home Year-Over-Year Inflation Adjusted Price Changes, 2004–2006, from publically available U.S. government and Massachusetts Association of Realtors data. Note that: (1) the inflation-adjusted year-over-year price is decreasing; (2) the rate of price decrease is accelerating; (3) the overall shape of this curve is consistent with a market that peaked in summer 2005, with a critical point at mid-August, and is falling."

Link to image

Link

[Cojock]

A deficit-based monetary system is mathematically unsustainable and sooner or later the exponential curve of a deficit-based money supply runs up against the inability of economies to sustain the growth necessary to allow the debts created as Money by banks to be repaid.

In particular, running up against the limited level of oil and energy available.

Now there IS actually a mechanism to create an asset-based money supply and that is basically for investors to INVEST in properties (or renewable energy assets come to that) and to share in the rental (energy) streams the property produces.

It is possible, but clumsy, and complex. to utilise trust law to "unitise" rentals streams from property investment.

I advocate a "Land Partnership". In the US you can use an LLC for this, in the UK an LLP (no relation to the US version).

You keep the freehold in trust with a "Custodian" member, and the other LP members are the Occupier(s) and the Investor(s).

The Occupier simply rents not the Property but the Capital invested in the property. The Investor has something close to a REIT - a long term investment perfect for pension funds etc.

This stream of property rentals has a value in exchange for other valuable "money's worth".

For as long as an Occupier has "Equity Shares" in the property (which he can acquire simply by paying in excess of the rent) then he won't default - if he hasn't the cash, he pays shares instead.

It's not Rocket Science: it shares the risk and reward between Occupier and Investor in an entirely new (and, as it happens, Islamically sound) way.

[eastbay]

Cojock,

.... uh, could you run that by me one more time?

You had me for the first two sentences... then, "poof".

[rogerhb]

$this->bbcode_second_pass_quote('Cojock', 'I')t's not Rocket Science: it shares the risk and reward between Occupier and Investor in an entirely new (and, as it happens, Islamically sound) way.

[aflurry]

Cojock,

You have a link or book or something where i could get more info on this type of arrangement... i think i see the general idea. it sounds real interesting.