Consumer Confidence: Still Rolling Along the Gutter

It’s been about six months since we visited the subject of consumer confidence, and with the most recent data having been released this week, I thought it might be a good time to post an updated version of my interactive chart. You can drag the time sliders below the chart to view data going all the way back to 1998.

As I have mentioned before, consumer confidence is tied pretty closely to residential real estate, and as long as confidence remains in the gutter, we won’t be seeing a recovery in real estate.

After dropping below 30 in January 2009, the present situation index spent two full years below 30. Prior to this slump, the lowest the present situation index had ever been was 59.7 in September 2003, which was the last month of a 7-month trough. In January this year the present situation index finally made it back above 30, and although it has slumped a bit in the last few months, the current level of 37.6 is definitely a better place than during the worst of the crash.

I have been saying it for a while, but it’s worth repeating that I still think we’re in for a very long, drawn out, Japan-style economic slog over the next decade or so, so I expect that like home prices, we’ll see consumer confidence bounce along the bottom for some time to come.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

91 comments:

  1. 1
    whatsmyname says:

    Excellent chart. Slide back to 1998, and look for the dates GWB entered and departed office.

  2. 2
    ray pepper says:

    ” I still think we’re in for a very long, drawn out, Japan-style economic slog over the next decade or so”

    and during this very long “slog” companies that provide true value to the consumer will flourish: http://finance.yahoo.com/q?d=t&s=PCLN

    while others will die: http://finance.yahoo.com/q?s=zipr&ql=1
    http://finance.yahoo.com/q?s=ledr&ql=1

  3. 3
    Scotsman says:

    RE: whatsmyname @ 1

    Take a look at the entire trend over the 13 years shown, through all administrations. That’s the impoertant picture, the result of long term structural problems. And it looks like we’re headed down again.

  4. 4
    Scotsman says:

    Here’s a tie-in to the post above about tax structures and receipts, and why we have the problems we do. Hint- extending the Bush tax cuts are only a very small part of the problem.

    http://online.wsj.com/article/SB10001424052702304319804576389593090634256.html?mod=rss_opinion_main

  5. 5
    Blurtman says:

    Perhaps declining consumer confidence is due to the realization that the US financial system is a fraud, and that there is a two-tiered justice system in the USA. Also perhaps that the home ATM is not coughing out free dollars anymore.

  6. 6
    whatsmyname says:

    By Scotsman @ 3:

    RE: whatsmyname @ 1

    Take a look at the entire trend over the 13 years shown, through all administrations. That’s the impoertant picture, the result of long term structural problems. And it looks like we’re headed down again.

    I did look at all 13 years; that’s the point. Flat is better than down.

    I do absolutely agree that our problems are structural. This structure is created at the federal level by laws which encourage:
    a) transferring income share to the upper strata who do not use it to purchase items which create a need for economic growth, but rather sit on or use it to speculate.
    b) transferring income share to 3rd world slave labor which does use it to purchase items needed to create demand for economic growth, only not in our country.
    c) transferring share of the taxation burden to the lower classes, reducing their demand input to the economy while allowing more money for the richest Americans to sit on or speculate with.
    This is the republican party economic platform.

  7. 7

    By Blurtman @ 5:

    Perhaps declining consumer confidence is due to the realization that the US financial system is a fraud, and that there is a two-tiered justice system in the USA.

    I almost posted something similar above, but it was based on people realizing politicians not being that bright and realizing that partisan politics was bad for the country. But then it occurred to me that both of those have probably always been the case (although maybe the politics is a bit worse). The same could probably be said for your items too. So what is different? ;-)

    [Note that I deleted your Home ATM comment, because that is different.]

  8. 8
    whatsmyname says:

    By Scotsman @ 4:

    Here’s a tie-in to the post above about tax structures and receipts, and why we have the problems we do. Hint- extending the Bush tax cuts are only a very small part of the problem.

    http://online.wsj.com/article/SB10001424052702304319804576389593090634256.html?mod=rss_opinion_main

    Another convoluted and difficult to fact check pretzel from the WSJ opinion page. Here is the quote from your article that really got my attention:

    “All of which makes the White House debt-ceiling strategy a policy contradiction. On the one hand, Mr. Obama is saying Republicans must agree to raise taxes on business and high incomes, though he knows even many Democrats won’t vote for that. On the other hand, Mr. Obama says he wants another payroll tax cut because he is worried about slow growth.”

    Interestingly enough, your author and the republican party hold the mirror image view – apparently without seeing that as being every bit as self contradictory. Add the context that the Bush tax cuts structurally rebalance the ultimate tax burden to favor of high income and to the detriment of middle income Americans, and you see the intended ratchet effect. Oops, forgot to mention that aspect. Is it class war or vampirism? Same result either way.

    Here is a similar article by a fellow who boasts of “Spanking left wing ideology with common sense”. Rather than looking at one year, he looks at 10, and he cites a primary source for his data. It provides much better perspective to the one year comparison. That document finds the accumulated difference from the 2001 CBO projections to be $11.8T. If you look close, though, $5.5T of that comes from the Bush years. Not pretty for Obama to be sure, but not the funhouse mirror that the WSJ presents either.

    http://www.williamamanning.com/2011/05/cbo-2001-ten-year-budget-projection-was.html

  9. 9
    Blurtman says:

    RE: Kary L. Krismer @ 7 – My theory has been the internet, Twitter, and new technologies. For example, is the incidence of autism really increasing or are ther just better diagnostic tools? The internet, a good example of the really free press in its diversity and accessibility, is making the fraud and two-tiered justice system that much more obvious. Just look at how these new technologies are being used in the Middle East, for example.

  10. 10
    Yaj says:

    @6:

    Might as well start with point one. Unless the wealthy keep most of their financial assets in the form of bullion or physical currency – their wealth is stored in instruments that other people are using to fund real economic activity. Bonds, plain-vanilla bank deposits, CD’s, money market securities, private placement investments, preferred shares, etc, etc, etc.

    Not sure which consequence of Keynesianism has been the most destructive, but planting the idea in people’s heads that the key to prosperity is through consumption rather than savings, investment, and production has to be right up there.

    In the long run individuals, remote amazon tribes, nation-states, etc can only consume as much as they produce. In the short run they can cover the gap between what they produce and what they consume through charity, theft, or borrowing but eventually those accounts have to be reconciled.

  11. 11
    whatsmyname says:

    RE: Yaj @ 10
    Yes, point 1 is the place to start. The banks have $1.5T in excess reserves, i.e. wealth that is not stored instruments being used to create economic activity. Short positions, CDS, and other speculative derivative instruments do not produce anything, but merely allow people to gamble with the hope of transferring wealth; nonproductively, and sometimes disastrously – and not only to themselves. Similarly, transferring personal wealth to an outside economy fuels economy, just not ours. All this evidences that we are well past the point of having adequate savings to fund our level of economic activity.

    The driver to prosperity is not consumption, but the production that consumption demands. But prosperity is in that which is produced to meet consumption. The whole idea of stimulus is to create more production. Read up on the depopulation of the Scottish highlands where the peasantry were deprived of the opportunity to create wealth (food), so that the aristocracy could improve on its wealth (their vistas). Concentrated power can enhance its own wealth while simultaneously decreasing total societal wealth, and with great cruelty. Hardly a model to follow.

  12. 12
    Scotsman says:

    RE: whatsmyname @ 8

    You’re part of the problem. Even I can move beyond partisan politics and show a willingness to throw the entire collection of legislators out.

    As long as you’re seeing everything through a repuglicat/demogawd lens, focussed mostly on the past, nothing good is going to happen.

    The fact is we’re broke. Spending and entittlements need to be cut, and yes, the tax code needs to be redone. But even if we took all of the income from those rich bastards, everything they earned over $100K a year, it still wouldn’t even close the annual deficit, let alone cover the ever increasing costs of future entitlment commitments. So you’re gong to have to learn a new trick, ’cause the same ‘ol, same ‘ol ain’t gonna work anymore. The problem is too big for nip and tuck fixes.

  13. 13
    Scotsman says:

    Speaking of confidence, here’s a guy who has none- rats seek to jump ship:

    Geithner to Consider Leaving Treasury After Debt Debate

    http://www.bloomberg.com/news/2011-06-30/geithner-said-to-weigh-leaving-treasury-after-debt-ceiling-debate-resolved.html

  14. 14
    MichaelB says:

    RE: whatsmyname @ 11

    The problem is simple. $14 trillion in public debt and $50 trillion in private debt. That is over $150K, per man, woman and child in the USA. A family of four owes the equivalent of $600k on average. Unfortunately, 70% of the US economy is based on services i.e. retail and real estate, etc…. Given this fact, Tim is correct that consumer confidence drives the economy.

    The United States needs full employment to pay back its debt and the only way to achieve this is to bring back jobs from overseas. A lost decade is not acceptable as it will create a whole generation of jobless Americans. I believe the US will eventually do this and that’s why the USD is still a good investment. The United States can close her doors and do just fine.

    Globalization has had its benefits, but it has been a debt fueled globalization and it is unsustainable.

    Anyone else have any ideas on how we grow the economy and pay down $65 Trillion in debt?

  15. 15
    whatsmyname says:

    By Scotsman @ 12:

    RE: whatsmyname @ 8

    You’re part of the problem. Even I can move beyond partisan politics and show a willingness to throw the entire collection of legislators out.

    As long as you’re seeing everything through a repuglicat/demogawd lens, focussed mostly on the past, nothing good is going to happen.

    The fact is we’re broke. Spending and entittlements need to be cut, and yes, the tax code needs to be redone. But even if we took all of the income from those rich bastards, everything they earned over $100K a year, it still wouldn’t even close the annual deficit, let alone cover the ever increasing costs of future entitlment commitments. So you’re gong to have to learn a new trick, ’cause the same ‘ol, same ‘ol ain’t gonna work anymore. The problem is too big for nip and tuck fixes.

    I was just answering a feller you thought was worth posting. Is it my fault he puts things in the Democrat/Republican duality? I did allow that Obama weren’t lookin’ purdy.

    ” and yes, the tax code needs to be redone.”

    You seem to be allowing that taxes must be raised, or that they must be more progressive, or both? Or is it something else? I can’t say with certitude whose junk I’m looking at.

  16. 16
    whatsmyname says:

    RE: MichaelB @ 14

    Thanks MichaelB. I was starting to forget that this was the consumer confidence thread.

  17. 17
    Scotsman says:

    RE: whatsmyname @ 15

    I think taxes need to be consistently collected- fewer or no loop holes/deductions. The government needs to get out of social engineering through the tax code, decide it’s going to function on a certain percentage of GDP (18%?), then focus on efficiency and agreed priorities. Taxes need to be consistent, not changing all the time, so people and companies/investors can plan. I like a two tiered flat tax, no deductions, a refund on income under say $20K. But everybody has to pay so that they feel involved in the system, and are likely to be concerned about where their money is going.

    One of the problems with Greece is that they have high taxes- and very high tax avoidance. A lower tax rate that everybody pays would lead to confidence- people would know what to expect, and a more stable, long term oriented economy would evolve.

    Consistent expectations come from confidence in one’s knowledge of the future.

  18. 18
    whatsmyname says:

    RE: Scotsman @ 17

    That is a very interesting idea. However, if, as I suspect, this is a more regressive tax plan than what we currently have, I believe we would have consistent expectations of lower consumer confidence, based on confidence by most consumers in the knowledge of a consistently lower future. (whew, that’s a lot of commas.)

  19. 19
    MichaelB says:

    RE: Scotsman @ 17

    Great idea that has been around for a long time! …but sadly it will never happen as nobody is even proposing it at this time. Maybe after The Great Depression 2.0, coming to a country near you.

  20. 20
    MichaelB says:

    Housing Armageddon from “The Economic Collapse”:

    – Approximately 11 percent of all homes in the United States are currently standing empty.
    – The rate of home ownership in the United States has … fallen all the way back to 1998 levels.
    – …Many economists are now openly using the term “double-dip” to describe what is happening to the housing market.
    – The number of homes that were actually repossessed reached the 1 million mark for the first time ever during 2010.
    – According to RealtyTrac, a total of 3 million homes were repossessed by mortgage lenders between January 2007 and August 2010. This represents a huge amount of additional inventory that somehow must be sold.
    – 72 percent of the major metropolitan areas in the United States had more foreclosures in 2010 than they did in 2009.
    – According to the Mortgage Bankers Association, at least 8 million Americans are at least one month behind on their mortgage payments.
    – It is estimated that there are about 5 million homeowners in the United States that are at least two months behind on their mortgages, and it is being projected that over a million American families will be booted out of their homes this year alone.
    – Deutsche Bank is projecting that 48 percent of all U.S. mortgages could have negative equity by the end of 2011.
    – Some formerly great industrial cities are rapidly turning into ghost towns. For example, in Dayton, Ohio today 18.9 percent of all houses are now standing empty. 21.5 percent of all houses in New Orleans, Louisiana are standing vacant. (Everett, WA is fine in comparison!)
    – According to Zillow, U.S. home prices have already fallen further during this economic downturn (26 percent) than they did during the Great Depression (25.9 percent).
    – There are very few signs that the employment situation in the United States is going to improve any time soon. 4.2 million Americans have been unemployed for one year or longer at this point. While there has been some nominal improvement in the government unemployment numbers recently, other organizations are reporting that things are getting even worse. According to Gallup, the unemployment rate actually rose to 9.6% at the end of December. This was a significant increase from 9.3% in mid-December and 8.8% at the end of November.

    Why the long faces consumers? As GW Bush would say, “Git out there an go shoppin!”

    Looks like the gutter consumer confidence is rolling along is on the roof of a house.

  21. 21
    MichaelB says:

    Impact of a trade war with China on consumer confidence in Washington State

    From Business Insider: Washington State ranked #2 of states that would be crushed by a trade war with China.

    Exports to China 2010: 10.3 billion. Washington’s exports to China grew 442% over the last decade. Crops account for $4 billion of the exports, and transportation equipment comes in a close second at $3.9 billion. Computers and electronics are Washington’s fourth largest exports to China, …42.11% of Microsoft revenues come from outside the U.S.

    Will there be a trade war with China? Only a matter of time as the current trade relationship is unsustainable.

  22. 22
    ARDELL says:

    On the bright side…I appear to have called the bottom of “consumer confidence” in Feb of 2009. :)

  23. 23
    MichaelB says:

    RE: ARDELL @ 22

    Good call! What’s your prediction for June 30, 2012?

  24. 24
    ARDELL says:

    RE: MichaelB @ 23

    Blood in the Streets…

  25. 25
    Yaj says:

    @10

    So the entire 1.5 trillion in banking reserves could disappear overnight and it would have zero effect on bank’s capacity to absorb losses on their loan portfolios without going under, capacity to make loans, etc? It’s not at all clear to me that the excess reserves, as in bank reserves that exceed statutory requirements, equals “store of real wealth that could be removed from bank’s balance sheets without diminishing their capacity to engage in routine operations.”

  26. 26
    Macro Investor says:

    Look, Tim — Consumer confidence is not really important to housing. Same goes for per capita income and price to rent. The only thing that really matters is availability of credit.

    You called the bubble years ago based on intuition. It just felt like houses were priced irrationally. The bubble didn’t burst because others felt as you did. It crashed because the credit well ran dry.

    Years ago, people only bought houses with large down payments, strong credit scores and stable income. They paid much higher rates. Then the gov and industry decided that wasn’t good enough. They used fannie and freddie to lower rates. Soon that wasn’t enough, so they opened up credit to virtually anyone who could fog a mirror. That was the bubble. It wasn’t confidence or anything macro related. It was just money being thrown around like it was candy.

    Right now, most people are bogged down in debt. This will end when society has the ability to borrow again. It could happen quickly if there are mass foreclosure sales or a debt forgiveness program. The system resets and everything starts over again. Otherwise we grind it out for the many years it takes to pay off a mortgage. That would be the Japan ending.

  27. 27
    Scotsman says:

    RE: Macro Investor @ 26

    “That would be the Japan ending.”

    I gather that’s different from a “happy ending?” Where’s OneEye- he might know. . .

  28. 28
    whatsmyname says:

    @25

    And if it were only $1T in excess reserves that could safely be lent out, would that make any difference to the question of whether there is substantial saved capital not contributing to the economy? This is not to mention the billions in the other instruments I brought up, and that you conveniently ignore. You are quibbling over an irrelevancy.

    Let’s look at the margins. Tell me which contributes more to US production; $100,000 which gets spent at the grocery store, local restaurants and stores, perhaps a new Ford, and a deck addition, or $100,000 added to $1.5T excess sitting in the banking system?

    BTW, excess reserves is the amount beyond what the bank’s regulators believe need to be retained in order to safely manage the bank’s losses and fund operations.

  29. 29
    MichaelB says:

    RE: ARDELL @ 24

    Lets hope that’s not literally true.

  30. 30
  31. 31
    Pegasus says:

    By Kary L. Krismer @ 30:

    RE: MichaelB @ 20 – You’ve now proven that you’re extremely gullible

    http://blog.seattlepi.com/realestate/2009/08/06/have-we-become-a-nation-of-the-extremely-gullible-its-on-the-internet-it-must-be-true/.

    Kary that two year old article you link appears to have been written by an idiot…..

  32. 32

    By Pegasus @ 31:

    By Kary L. Krismer @ 30:

    RE: MichaelB @ 20 – You’ve now proven that you’re extremely gullible

    http://blog.seattlepi.com/realestate/2009/08/06/have-we-become-a-nation-of-the-extremely-gullible-its-on-the-internet-it-must-be-true/.

    Kary that two year old article you link appears to have been written by an idiot…..

    No, but at least now we know it was read by at least one. What part of it do you disagree with? It’s basic math. If you don’t know the variables you can’t know the result. Go ahead and explain what you think is wrong with the article, or is throwing around insults all you are capable of?

    It does raise the question though–was MichaelB citing to a two year old survey by Deutche Bank, or have they updated their nonsense?

  33. 33
    LocalYokel says:

    By Pegasus @ 31:

    By Kary L. Krismer @ 30:

    RE: MichaelB @ 20 – You’ve now proven that you’re extremely gullible

    http://blog.seattlepi.com/realestate/2009/08/06/have-we-become-a-nation-of-the-extremely-gullible-its-on-the-internet-it-must-be-true/.

    Kary that two year old article you link appears to have been written by an idiot…..

    “What’s in a name? that which we call a rose by any other name would smell as sweet”

  34. 34

    RE: Scotsman @ 13

    Our Country’s Financial Management is Run By a Real Estate Failure

    Article on the possible rat jumping the sinking ship, Geithner:

    http://www.nancybenvenuto.com/general-interest/timothy-geithner-cant-sell-his-own-home/

  35. 35

    RE: Scotsman @ 17

    High Taxes Can Work

    If you get a home and decent medical care for the expense….in America, the middle per capita incomes [taxes or no taxes] can’t even afford rent for their own place….especially in places like Seattle.

  36. 36

    RE: softwarengineer @ 34 – Maybe he really wants to hold onto the house because he sees massive inflation in our future? :-)

  37. 37

    RE: Scotsman @ 27

    Interesting Blogs from All This Morning

    The trouble with comparing America to Japan though, is they lend us MASS surplus money and we borrow it. Another anomaly, Japan before or after Earthquake?

    If Japan is the base to compare to [after the earthquake] America’s toast.

  38. 38

    RE: Kary L. Krismer @ 36

    Yes Kary

    Stagflation is real today in my book, but not per capita wages or home prices….just the things omitted from the CPI calculation, like food, tuition, medical costs and gas.

  39. 39
    Blurtman says:

    RE: softwarengineer @ 38 – OK. It’s not working. Both parties suck. What’s next?

  40. 40
    whatsmyname says:

    RE: softwarengineer @ 34
    I laughed; I cried. I love John Oliver, (in a decent manly way, of course).
    Thanks for posting that video.

  41. 41
    Scotsman says:

    RE: softwarengineer @ 34

    Very, very funny! Thanks, Softy!

  42. 42
    whatsmyname says:

    RE: Scotsman @ 12

    Here is a very interesting and basically nonpartisan alternative look at the deficit problem. I am not sufficiently motivated to challenge the assumptions, but you might be:

    http://www.washingtonpost.com/blogs/ezra-klein/post/we-have-a-congress-problem-not-a-deficit-problem-in-one-graph/2011/05/19/AGVOXgtH_blog.html?wprss=ezra-klein

    @40 and 41.
    Egad, we completely agree.

  43. 43

    RE: Blurtman @ 39

    The Supreme Court Vote was Close

    5-4 in favor of corporist lobbyists continuing to fund campaigns, allowing us to pick out the least ugliest of our two ugly Dem/Rep candidates [for low wage population density increases].

    It may be that if one of the corporist controlled judges croak, we may get a 4-5 vote on this campaign bribery issue [foreign funds too] with a new Supreme Court Judge and get some real candidates perhaps; I’d like to see some engineers, nurses, teachers; hades even some blue collar workers run for higher offices…the attorneys we mostly get just aren’t for the little guy [IMO]. Time to try other professions.

    Until then, we’re toast.

  44. 44
    MichaelB says:

    RE: Kary L. Krismer @ 32

    Kary, on an Internet blog, cites an article on the Internet by a Kary Krisner to prove I am gullible for believing everything I read on the Internet? Ha Ha!

    At the end of the day, it all comes down to debt, local, private, and public. Kary, I owe you a debt of gratitude for your posts as they are keeping me in stitches!

    Why is the possibility of 48% of Americans underwater so unbelieveable? Why don’t you dust off that HP calculator you used to get a perfect score on your Finance exam at the UW and prove that it is mathematically impossible? Or use your super-lawyer logic to prove point by point what is so wrong about that article?

    Kary, you still haven’t even given me those comps that I requested almost two days ago….you are losing credibility fast.

  45. 45
  46. 46

    RE: MichaelB @ 45 – Are you pfft? You have the same dense way of thinking.

    Read my blog piece and then respond to the criticism of the DB “study.” And while you’re reading it, note that I describe the DB “study” as being widely reported. That you can find that Time Magazine reported on it isn’t surprising and doesn’t deal at all with the criticism of the “study.”

    It’s very simple. They didn’t know the amount owing back then or at the end of 2011. They didn’t know the value of even a single piece of property at the end of 2011. So there was no way they could say what percentage will be underwater at the end of 2011. Only a fool would think that study was worth the pixels that it takes up on a computer screen. Finally, DB is an especially dubious source if you’re at all familiar with the types of property that DB took as collateral prior to the peak. If you’re aware of that, it’s rather obvious that they had no clue what the value of property would be in the future, and they probably didn’t know the value at the times they made each loan.

  47. 47

    By MichaelB @ 44:

    Kary, you still haven’t even given me those comps that I requested almost two days ago….you are losing credibility fast.

    You are pfft! He doesn’t remember things I’ve said either. Go see my prior response the last time you asked for the comps.

  48. 48
    MichaelB says:

    RE: Kary L. Krismer @ 46

    New CoreLogic Data Shows Second Consecutive Quarterly Decline in Negative Equity
    August 26, 2010, Santa Ana, Calif. –

    Data Highlights
    …Negative equity remains concentrated in five states: Nevada, which had the highest percentage negative equity with 68 percent of all of its mortgaged properties underwater, followed by Arizona (50 percent), Florida (46 percent), Michigan (38 percent) and California (33 percent).

    ……The 11 million negative equity properties are backed by $2.9 trillion in mortgage debt outstanding (MDO). On an MDO dollar basis, the negative equity share was 33 percent and the total dollar value of negative equity was $766 billion.

    “Negative equity continues to both drive foreclosures and impede the housing market recovery. With nearly 5 million borrowers currently in severe negative equity, defaults will remain at a high level for an extended period of time,” said Mark Fleming, chief economist with CoreLogic.

  49. 49

    RE: MichaelB @ 48 – Wow, you really are naive. How is a different source of the same type of information any better when the information they need to calculate the percentages isn’t something they would know or be able to determine? This isn’t rocket science, but instead simple concepts that even a teenager could understand.

    But let’s assume they are right. If only two state are over 46%, and one of those isn’t very highly populated, and only four states over 33%, how could the DB prediction for the end of 2011 of 48% be anywhere near correct? Is math not your strong suit?

    But hey, as long as we’re assuming that’s right, thanks for proving I was right two years ago! :-D

  50. 50
    MichaelB says:

    RE: Kary L. Krismer @ 49

    Kary, I’m not saying it is 48% today, only that is is very possible. By the way, 25% is already a HUGE number!

    From Bloomberg:

    Home-Price Drop Leaves 27% of U.S. Owners Underwater on Loans, Zillow Says
    By John Gittelsohn – Feb 9, 2011 4:01 PM GMT+1100
    “…About 15.7 million homeowners had negative equity, also known as being underwater, at the end of the year, up from 13.9 million in the previous three months, …the total represented 27 percent of mortgaged single-family homes, the highest in Zillow data dating to the first quarter of 2009. …Values will fall as much as 5 percent this year, putting more homeowners underwater…Las Vegas led the nation in homes with negative equity, at about 81.5 percent of all properties with mortgages, …followed by 69.9 percent in Phoenix; 67.9 percent in Reno, Nevada; 61.7 percent in Orlando, Florida; and 58.5 percent in Modesto, California. …Atlanta had the fastest increase in negative equity, with the percentage of underwater homes rising to 54 percent from 37.6 percent the previous quarter. …The total value of U.S. single-family homes tumbled about $798 billion in the fourth quarter, according to Zillow. For the year, values fell by more than $2 trillion to $22.3 trillion.

    48% underwater possible? yes it is. Each % drop in real estate prices results in a % increase in underwater mortgages.

  51. 51
    ARDELL says:

    RE: Kary L. Krismer @ 49

    Kary Asks: “But let’s assume they are right. If only two state are over 46%, and one of those isn’t very highly populated, and only four states over 33%, how could the DB prediction for the end of 2011 of 48% be anywhere near correct?”

    Easy – you don’t average the percentages.

    3000 is 33% of 9000
    46000 is 46% of 100,000

    33% + 46% divided by 2 = 39.50%

    3,000 + 46,000 divided by 9,000 + 100,000 = 49%

    Answering off the top of my head on the fly…no time to get it to the exact 48%…but when you combine the asset values of all and the debt ratios of all and divide again…the difference is not the average of the two or several separated percentages.

    You owe me one MichaelB :)

  52. 52

    RE: MichaelB @ 48 – BTW, Corelogic’s range of for value on Tim’s house is over $50,000, and on mine over $80,000, but they’re trying to claim they can determine a percent of houses underwater?

  53. 53
    MichaelB says:

    RE: Kary L. Krismer @ 49

    Kary, are you starting to see a trend here yet?

    First Quarter Brings More Dismal News for Housing Market
    Date:May 8, 2011Author:Katie Curnutte

    …In fact, home values fell at a pace we haven’t seen since 2008 — the darkest days of the housing recession. …median home values… fell 3 percent during the first three months of the year. This decline was large enough to cause Zillow to push back its forecast. Previously, we anticipated a bottom in home values by the end of 2011. But with values falling by about 1 percent per month so far, it’s unlikely that will happen. We now believe a bottom will come in 2012, at the earliest. ….The quickly-falling home values caused more homeowners to slip into negative equity. By the end of the first quarter, 28.4 percent of single-family homeowners with mortgages were underwater, up from 27 percent in the fourth quarter of 2010.

    Let’s see, a 3% decline in home values has resulted in a 1.4% increase in underwater mortgages. Assuming a linear relationship, a further 43% decline would result in approximately 48% of mortgages underwater. Since prices are currently 60% higher than in 1997, this is possible.

    No wonder Consumer Confidence is so low Kary!

  54. 54

    By ARDELL @ 51:

    RE: Kary L. Krismer @ 49

    Kary Asks: “But letâ��s assume they are right. If only two state are over 46%, and one of those isnâ��t very highly populated, and only four states over 33%, how could the DB prediction for the end of 2011 of 48% be anywhere near correct?”

    Easy – you don’t average the percentages.

    3000 is 33% of 9000
    46000 is 46% of 100,000

    33% + 46% divided by 2 = 39.50%

    3,000 + 46,000 divided by 9,000 + 100,000 = 49%

    Answering off the top of my head on the fly…no time to get it to the exact 48%…but when you combine the asset values of all and the debt ratios of all and divide again…the difference is not the average of the two or several separated percentages.

    You owe me one MichaelB :)

    Math obviously isn’t your strong suit either! Look at California being only 33%. I agree you don’t just average them, but with the highest state being Nevada, and the second highest only being slightly above 48% and also not one of the three biggest states, you’re not going to get to 48%. Why do you think I mentioned Nevada being a low population state?

    Just a reminder for others. Ardell at one point thought that a sale erroneously reported at over $4M would affect the median when the real sales price was only over $400k (and over the median at the time).

  55. 55
    MichaelB says:

    RE: ARDELL @ 51RE: Kary L. Krismer @ 52

    Not sure about the math, but appreciate the support! :) Yes, I do owe you one!

    Fact is, 1% drop per month in real estate prices in 2011 is not good and believing this will end by 2012 is naive… Based on what? a huge increase in employment? Kary really cracks me up…”If you don’t believe me, read my blog…”

  56. 56
    One Eyed Man says:

    RE: Scotsman @ 27

    If you’ve got the cash, you can probably get a happy ending in Japan. But the masseuse will take her time so get some saki and relax.

    Those in positions of political and economic power will almost always take the route similar to Japan. It might result in slow growth if your lucky, it might be stagflation, or it might be a slow drift downward to economic equilibrium with the BRICKS. But those in power are extremely unlikely to risk it all in a reset if they have a choice.

    They will always prefer a workout to a liquidation unless they think they’ve got a willing buyer for the assets who will pay more than the current debt and equity holders see in the going concern value. Even GM bond holders preferred a workout with a huge haircut to liquidation. The plant and equipment were essentially worthless unless you had a buyer who could use them and was willing to pay up. That would have been a huge gamble. The general rule is that you lose almost all the value of an enterprise once you shut it down, including the value of the plant and equipment.

    Whose going to buy GM in the summer of 2009? And whose going to buy the American economy if you liquidate and reset in the summer of 2011, 2012 or 2020? The only buyers would be our current holders of dollars to risk to buy at fire sale prices like the Chinese and the oil producers. The wage equilibrium between the US and the BRICKS would be sped up. And the corporate profits if there are any would pile up in corporate coffers of emerging market capitalists rather than on Wall Street.

    You might have the money to buy a house if housing falls through the floor but what would be the point. A reset only sounds good if you are sitting on cash to buy the assets and you can be sure that there will be an economy worth living in after the reset. If you can’t sell products, there is no going concern value and the assets are worthless. If you’re the current debt or equity holder you’re not going to take the chance on a reset. The political and economic powers who are illiquid and vested in the status quo will always favor the certainty of slow change over a fast reset, whether it results in Japanese stagnation or not.

  57. 57
    ARDELL says:

    RE: Kary L. Krismer @ 54

    You are such a piece of work Kary…at one point I thought there was a Santa Claus. At one point I thought there was a God and a Guardian Angel…and I still do.

    Did I ever think whatever you just said? Who knows? One time you drove me so crazy with over 60 comments on one simple blog post in a short period of time, I had to take a tranquilizer and I didn’t know WHAT the heck I thought anymore. :)

  58. 58
    ARDELL says:

    RE: Kary L. Krismer @ 54

    Kary,

    Did you know you could buy 36 homes in one part of Florida for the price one of my clients paid for one house in Kirkland…and it wasn’t nearly the most expensive house sold in 6 months there? What does “population” have to do with it?

  59. 59
    Scotsman says:

    Yup, slow drift to the bottom. No happy ending for the masses, only frustration and anticipation, waiting for the big event out on the horizon. The perenial tease. Makes me blue.

  60. 60
    Macro Investor says:

    By MichaelB @ 55:

    RE: ARDELL @ 51RE: Kary L. Krismer @ 52

    I hate to get into this slug fest, but Michael indicated his error in comment #44:

    “Why is the possibility of 48% of Americans underwater so unbelieveable? ”

    It’s not 48% of AMERICANS. It’s 48% of MORTGAGES. Not everybody who owns a home has a mortgage — it’s roughly 50% (??). So if you are going to believe this study — which I’m not saying you should — the household number is really half of what you’re arguing.

    Kary, he’s not math challenged. It’s more like reading comprehension challenged ;)

  61. 61
    MichaelB says:

    RE: Macro Investor @ 60

    Macro, you are correct and I used the wrong word there – I meant 48% of mortgages. Not reading challenged, but possibly writing challenged. Thanks for pointing out that error.

    Since you corrected my English and not the point I will assume you agree with what I intended to say since I did say mortgages elsewhere.

  62. 62
    MichaelB says:

    A 4 year slow drip, drip, drip of shadow inventory. 1% drop per month for 44 months = 44% drop. It is expected to take four years to clear out shadow inventory.

    By Alistair Barr, MarketWatch
    SAN FRANCISCO (MarketWatch) — Standard & Poor’s Ratings Services said Monday

    At the end of the third quarter of 2010, the principal balance of foreclosed homes topped $450 billion, which represents about a third of the nonagency residential mortgage-backed securities market, according to S&P managing director Diane Westerback.

    “While this amount is down about $10 billion from the second quarter, we estimate that it will take 44 months to clear the supply of distressed homes on the market in the U.S. as a whole, which is up from our second-quarter estimate of 40 months…

    Yes, the dreaded Japanese (Unhappy) Ending a 75% drop in real estate over a decade.

    “July 2015 is a great time to buy real estate!”

  63. 63
    ARDELL says:

    RE: Macro Investor @ 60

    Maybe not having a mortgage is UN-American. :)

    I’ll make MichaelB “right” yet. Consider the alternative…

  64. 64
    MichaelB says:

    RE: ARDELL @ 63

    :)

  65. 65

    By ARDELL @ 58:

    Did you know you could buy 36 homes in one part of Florida for the price one of my clients paid for one house in Kirkland…and it wasn’t nearly the most expensive house sold in 6 months there? What does “population” have to do with it?

    You’re kidding, right? Rather than houses under water, let’s deal with elections. If 100% of the population of Delaware voted for the Republican for President, that would hardly affect the percent voting for Republicans because it’s a small population state. If 100% of the population of California voted for the Democrat, that would have a huge impact. That’s why we have the Electoral College system, so that large swings in large states don’t affect the overall result.

    Getting back to the topic at hand, the state with the highest percentage underwater is Michigan, which I’m guessing isn’t in the top 5 of homeowner states. So that is having some effect, but not as significant of an effect as if California was the number one state. Then you have Florida and Arizona at 50% and 46%. One or both of those is a top five state, so they would have a big impact on the overall average. But then we get down to number 5 or 6 being California at 33%, and it is a large state and would be pushing the average down from 48% a lot, because two thirds of a lot of houses there are not under water.

  66. 66

    By Macro Investor @ 60

    It’s not 48% of AMERICANS. It’s 48% of MORTGAGES. Not everybody who owns a home has a mortgage — it’s roughly 50% (??).

    I hadn’t noticed the Americans comment, but I was always dealing with residential homes, not people. I will admit though that I had not been giving a thought to considering those without a mortgage at all.

    I don’t think your 50% figure is anywhere near accurate though as an indication of people without a mortgage. I know that recently the number of cash buyers has increased, but that’s abnormal and many of them may encumber the property later to fix it up. BTW, I will point out that in the past I have mentioned how many people buying $1M+ houses do so with cash. IMHO, that percentage is much higher than the percentage for under $1M, and as I recall that’s about 15-20%.

    I would also point out that it’s impossible to know exactly what the DB “study” did because it was apparently never made available, or at least wasn’t available two years ago when it came out. So at best we can only guess based on news reports.

    Finally, no matter what they were doing it’s still BS because they still can’t know the amount owing (unless it’s zero in most instances) and still can’t determine the value of the property. So no matter what they thought they were measuring, it’s bogus.

  67. 67
    One Eyed Man says:

    RE: MichaelB @ 62

    “Yes, the dreaded Japanese (Unhappy) Ending a 75% drop in real estate over a decade.”

    “Unhappy” is a qualitative statement with only a subjective meaning and may well end up being true for a lot of America. But 75% is a measurable value and unless intended as hyperbole makes you an excellent investment opportunity in the same way AIG was for Goldman, just on the opposite side of the cycle.

    For the record, are you predicting a 75% total decline off the CSI peak for Seattle, the 20 city index, the King Co median, or the median for the sex offender colony you’ve identified in Everett? I’ll pick up the counter party action on any one of those but you’ll have to deposit your stake in advance because some of you’re statements make you way too much of a wild card for me to risk whether you’ll be solvent at the payoff and I don’t think you’ll qualify for an AIG type bailout to fund the payoff to me.

    Just to put some approximate numbers where your mouth is (and without checking the actual peak numbers) I believe you’re saying that the King Co median will go below 120K and/or the Seattle CSI will drop below something like 60 before July 2017. Name the restaurant and we can put up restaurant gift cards to collateralize the payoff. And no Claim Jumpers, I don’t want to run out screaming “fire in the hole” like Ray and leave a slag pile in the parking lot.

    By the way, how’d those Treasuries work out for you last week? (See “Rhetorical Question” before answering.)

    PS, my apologies if the tone of my comment is somewhat insulting and “in your face”, but I thought it appropriate as a writing style you appear to admire and employ. If there’s one thing I can say about that industry shill know as The Tim, he generally lets people express themselves freely whether they’re haters, taters, or master . . . well, I think you and the rap masters (contradiction in terms) know where I was going with that one.

  68. 68
    ARDELL says:

    RE: Kary L. Krismer @ 65

    I read it as total asset value against total debt = negative equity of 48%. Number of people would not be in the mix. So no, I’m not “kidding”.

    Sure, maybe they should have said “America’s Mortgage Carrying Homeowners, on a combined basis, have 48% Negative Equity” vs ” 48% of Americans”. But that’s just spin and splitting hairs. It doesn’t make the answer “wrong”.

    If negative equity in Bellevue/Medina were 33% against 46% negative equity in Kent, you would end up with a higher total than the highest of the numbers in the comparison due to the asset value difference vs population numbers.

    Answering your question as to how the total could (and likely DOES) equal 48% even though the two other numbers are less than 48%. Because the equation is about Asset Value and Total Debt, and one house in one area can equal many houses in another. So # of people or homes or Americans is not relevant to the mathematical equation.

    True they may have taken that “right answer” of 48% negative equity and erroneously called it “people” or “Americans”, but I think that’s just the spin and not a reflection that the actual mathematical result did not come out as 48% as to negative equity.

    If you have a $2,500,000 mortgage with 33% negative equity in Medina, that’s $825,000 underwater.

    If you have a $250,000 mortgage with 46% negative equity in Kent, that’s 115,000 underwater.

    Total Asset Value (subtract negative equity from mortgage value) = $1,810,000
    Total Debt = $2,750,000
    Negative Equity is $940,000 or 66% of $1,810,000 current Asset Value.

    Also, it makes perfect sense if you consider that the % of new or newer houses in the “low mortgage” category for Americans is likely zip and the % of highest negative equity is in the newest of homes, to some degree. So the area with the most new homes would like have the highest % of negative equity, and not the area with the most density that was “built out” in the 50s or later.

  69. 69
    David Losh says:

    RE: ARDELL @ 68

    What the heck? You’re surprising.

    Yes, that is an excellent point. These new construction developments in areas of limited demand are the furthest under water.

  70. 70
    ARDELL says:

    RE: ARDELL @ 68

    P.S. Add to that the % of cash out refinances taken out by homeowners who have owned their homes prior to the drop, and you can EASILY have a 48% negative equity total comparing total mortgage amount to total asset value.

    Looking at one example:

    Home purchased in 1987 for $105,000.

    They still live in that home and in late 2006 they took out a first mortgage of $600,000 and a 2nd mortgage of $75,000.

    Current value $480,000.

    Negative Equity = Underwater $195,000 or 41% of current value EVEN THOUGH they bought it for $105,000 24 years ago.

    Add to that NO improvements since 1987…not even a new roof that they have been patching and covering with blue tarp every time it rains and that $480,000 current value estimate is GENEROUS.

    How many times do we go to someone’s house who wants to sell it thinking, “OK…they bought it in 2002, so they shouldn’t be underwater” only to find they stacked their student loans and car loans into the mortgage amount at peak in 2007? Many, many times.

    Negative Equity is NOT about a drop in home prices impacting ONLY those who BOUGHT at peak value. It’s about all of the people who maxed out their loans via loan consolidation or cash out refinances at peak ADDED to those who bought at peak.

    48% Negative Equity sounds about right to me.

  71. 71
    ARDELL says:

    RE: David Losh @ 69

    In a new neighborhood…you can easily have 100% of the people in negative equity…even those who put down 20% at time of purchase, due to the other people who bought zero down in the same neighborhood selling short or letting them go to foreclosure, driving prices down below the overall area average.

    That’s why AZ has the problem it does…and Vegas…and Florida. Not only are there a huge number of new homes…but they all pretty much look the same! Why wouldn’t a buyer make 5 offers at 50% of current value and just take the one that buckles to the pressure? They are all the same! Why should the buyer care “which one” except as to who will give it to them for the lowest price?

    When my Dad passed away back in the early 70s, my Mom decided to move to a “row home” vs a “storefront”. She picked up the phone and called EVERY RE Office in the area and said “I can buy a house for $8,500. If you have a house for $8,500, call me.” ONE person called her back…she bought it.

    When they all look about the same…price drops are more severe, because there is almost ZERO good reason for people to pay more for the house 3 doors down.

    Ray likes to talk about Strategic Default and people who bought at peak and those homes “all coming back!”. The reality is there are many, many MORE homes than that when you add those who bought many years ago, prior to peak, who maxed out their mortgage amount at peak.

    48% national Negative Equity is not incredulous.

  72. 72
    David Losh says:

    RE: ARDELL @ 71

    As long as you double downed on your comments here I’ll agree that 48% seems reasonable. What Tim Kane came back with was that 33% of owner occupied homes are owned free and clear. There are also non owner occupied, or commercial properties, that are owned free and clear.

    Falling equity is also making it hard for people who own free and clear to hold on to the property. If you are maintaining an appreciating asset that’s great, but if your asset is losing 1% per month, it may be time to rethink your position.

    Interesting for me are people who have multiple properties, that have owned a very long time, and are getting very high rental income, who are asking about selling.

    My opinion is that for an investment many people may start looking elsewhere, or want to do more with the money they have tied up in property.

  73. 73
    Blurtman says:

    RE: David Losh @ 69 – That’s the new house premium, like the new car premium.

  74. 74
    ARDELL says:

    RE: David Losh @ 72

    I believe the discussion and numbers were residential vs commercial…but I came in in the middle. Unlike you, David, I never mix commercial chat with residential chat, and I am always coming from residential owner occupied (that is as to intent at time of purchase and can be currently vacant or even rented out) vs residential purchased for investment purposes. So that can include rental property, but only in the case of “unintended landlord” as in “shadow inventory”.

    I don’t agree that what we are looking at is entirely or maybe even primarily “FALLING” equity vs “Negative” equity. If someone bought, as in my example, for $105,000 in 1987 and maxed out the loan at peak value at $675,000 that is not “FALLING” equity…that’s just a stoopid lender.

    Every single day we see a whole lot more stoopid than falling. “Stoopid” is the Philly word for not having the sense you were born with, which is a little different from “stupid”.

    How many times do we see a short sale or bank owned where the negative factor has NOTHING to do with original purchase price? LOTS! They pulled the “on paper” equity OUT at peak. That’s pretty much stealing…not falling, sometimes with the help of a crooked appraiser.

    If someone buys a house for $400,000, zero down, and some joker let’s them do a 125% of purchase price cash out refi 6 months later (many did…you saw the ads) causing the mortgage to be $500,000…the value doesn’t have to FALL for the result to be “negative”.

    It was negative from the getgo when they allowed the 125% of value refi.

  75. 75
    ARDELL says:

    RE: ARDELL @

    P.S. My personal “favorite” is the lender who let the homeowner roll in the car loans and the student loans to the relatively new mortgage 6 months to a year after purchase. Now the homeowner is driving away in their free cars with their free education to a rental property. How “stoopid” is that? Not about “falling equity”…more like FAILING equity/collateral for the loan.

  76. 76
    MichaelB says:

    RE: One Eyed Man @ 67

    One Eye – Great Post! Upon reviewing your comment, I must admit that a 75% drop from the high is hyperbole- I must have gotten a little carried away there! If it occurs I will buy you dinner in a soup kitchen.

    What I’ve been making the case for is a 48% drop from the high, which is completely in the realm of possibility.

    According to a reputable website called Seattle Bubble, the median home price in Seattle was $453,062 in 2007.

    48% drop from peak: $453,062 x (1-.48) = $235,592.24 (This is 3.6 x ave. wages of $65k)
    75% drop from peak: $453,062 x (1-.25) = $113,265.50 (1.75 x ave. wages of $65k) This would require a Great Depression or wage deflation via deleveraging. Point taken One Eye!

    Word of advice – Don’t get a happy ending in soapland or you may get soap in your eye.

    BTW – Did I say Great Post!

  77. 77
    MichaelB says:

    Ardell – great point – it is total mortgage debt / total asset values and population is irrelevant.

    Kary, thanks for the civics lesson!

    GO ARDELL!, UHUHHH! YOU GO NOW…UHUHH! :)

  78. 78
    David Losh says:

    RE: ARDELL @ 75RE: ARDELL @ 74

    Taking money out of the property, shaking money out of a property, is a part of Real Estate. Borrowing money is the American way, and we have bankruptcy in the Constitution, of this great country.

    Banks gave away money. I see no reason why people would give the money back.

    Banks have always been Satan. Banks are the lowest form of business that use any excuse to lie, cheat, or steal. Debt is slavery, and yet we have these huge crockadile tears for the poor banker who was intent on stealing from all of us.

    Give them nothing. Giving money to banks at this point is unAmerican. Banks have done more damage to the world than Al Quida, but you don’t see a war on banks. It’s up to us to stop them, and teach them a lesson.

    It’s our patriotic duty to never give the banks a dime you don’t get a direct return for.

  79. 79
    Voight-kampff says:

    RE: Kary L. Krismer @ 65
    Why don’t you and Ardell just go on a date and get it over already!!!
    :-)

  80. 80
    ARDELL says:

    RE: David Losh @ 78

    LOL! Reminds me of my “conversations” with E (Eleua) back in 2005/2006 when I said “I don’t give a RA about Banks!”.

    He thought I meant they would not have a problem…no, I meant I just don’t give a RA about banks. :)

  81. 81
    ARDELL says:

    But is it really a 48% – 50% “loss”?

    Take a look at this:

    http://www.redfin.com/CA/Manhattan-Beach/714-Manhattan-Beach-Blvd-90266/home/6706553

    Bought 2/1994 for $340,000
    Bought 6/2000 for $545,000
    Bought 10/2001 for $679,000
    Bought 4/.2006 for $1,335,000
    Bought 1/2011 for $776,000

    If the 1994 buyer sold it in 2011 he would have had a 128% gain. If he sold it in 2006 he would have had a 293% gain.

    But “we” choose to wail about the 42% loss without regard to the previous gains.

    This is NOT the first time in “history” or even in my 21 years in the biz where I have seen 40% to 50% down after a run up in prices.

    If something goes up 200% and down 50%…excuse me, but…didn’t it go UP 150 Freakin’ %?

    What has changed is that people don’t stay in their houses to capture gains. They are turning them over and borrowing out of them too much. And this is not the first time. The same thing happened in the late 80’s and they tightened the rules on Home Equity lines and borrowing against paper equity. Unfortunately…someone, a whole lot of someones, forgot.

    This is NOT the first time there has been a 50% drop after a huge run up in prices. Not by a long shot.

    Someone just bought this house for $500,000

    http://www.redfin.com/WA/Bellevue/15023-NE-16th-St-98007/home/499802

    From someone who paid $109,900 for it 1987.

    No wailing…no crying…no big loss…no short sale…no foreclosure. …and yet the house down the street could have had the same YAY 355% UP! YAY DAY…except we choose to see and strike a price at peak. Why? Why see the 48% down and not the 355% gain as an offset?

    Crap! That’s why.

  82. 82
    One Eyed Man says:

    RE: MichaelB @ 76

    Fair enough. I don’t think we’ll get to 48% off peak in Seattle, but I agree its fundamentally reasonable based upon the price/income ratio and its certainly not out of the realm of possibility. I tend to think that there is some truth to the theory that real estate prices are sticky on the way down and tend not to cycle all the way down to the fundamentally justifiable price absent some additional source of downward economic pressure. But even 75% isn’t out of the realm of possibility although it would seem very improbable to me without some form of additional black swan to give things a big push.

  83. 83

    Ardell said”If something goes up 200% and down 50%…excuse me, but…didn’t it go UP 150 Freakin’ %?”

    Actually, no, it didn’t. Lets say you bought a house for 100,000 dollars. If it goes up 200%, it has risen to 300,000 dollars. And if it then goes down 50%, it drops to 150,000, so from the beginning it’s only risen 50 Freakin %, NOT 150.

  84. 84
    ARDELL says:

    RE: Ira Sacharoff @ 83

    I caught that during the edit phase but:

    1) I was in the middle of staging a house and

    2) I thought it would be fun to see if anyone was listening.

    I think you get a prize for that, Ira. Maybe a beer. :)

  85. 85
    MichaelB says:

    RE: One Eyed Man @ 82

    Prices are historically sticky on the way down mostly due to high transaction costs related to selling a home. Not so sure that applies in a foreclosure driven market as the decision to sell is taken out of the hands of homeowners. Imagine the psychological impact on consumers when foreclosures hit a 5 year high. Can it get worse? It most certainly will. I wonder if banks will be willing to lend money for housing in such an environment? How about Fanny and Freddie?

    Douglas A. McIntyre – Foreclosures Hit 40-Month Low As 50-Month High Lies Ahead – 24/7 Wall St.

    “Foreclosures reached a 40-month low in April, and the news is more negative than positive. …The silver lining had a cloud. …Most of the media will run a headline today that says “Foreclosures Reach 40- Month Low.” Readers may believe that this is because the housing collapse, which began three or four years ago, is over…The collapse of the housing market may not have entered its final stage. …And, financial firms have about two million homes in their “shadow inventories,” which they own but have not yet put up for sale. Foreclosures just reached a 40-month low. That figure could hit a 50-month high before too long.”

  86. 86
    MichaelB says:

    Two great quotes from Robert Schiller:

    “I worry that this is a real and continuing downturn, like in Japan,” Shiller said. “It had a boom in the 1980s that peaked in 1991. Prices declined in the major cities for 15 straight years after that.”

    “This is the biggest housing boom and bust in U.S. history,” he said. “The bubble was unique. “That makes it impossible for statisticians to forecast because they deal with things that repeat themselves. You see a pattern and expect it to repeat.”

  87. 87
    BillE says:

    By ARDELL @ 70:

    RE: ARDELL @ 68

    Home purchased in 1987 for $105,000.

    They still live in that home and in late 2006 they took out a first mortgage of $600,000 and a 2nd mortgage of $75,000.

    Current value $480,000.

    Negative Equity = Underwater $195,000 or 41% of current value EVEN THOUGH they bought it for $105,000 24 years ago.

    The whole time vampire mortgage brokers were telling people “That’s YOUR money!”
    Or “Pay off debt!” Only they failed to explain that it was just transferring debt from something like a car loan to a 30 year home loan. Hmmm, if you couldn’t pay before, then they’d take your car. Now if you can’t pay, they’ll take your house.
    I about wanted to puke every time I heard someone say, “I paid off my _____ loan when I refinanced.” They didn’t pay off shit.

  88. 88

    RE: ARDELL @ 81 -Delete–the topic had changed.

  89. 89
    ARDELL says:

    RE: BillE @ 87

    I feel very badly for those particular people as they are way past their ability to earn anywhere near the payment on those new loans. I’m not sure they had an income at all besides pension at the time someone gave them that $675,000 worth of loan. If they did 5 years ago, they don’t now. I think the husband is well past 70 years old and handicapped due to age. I think they just want to stay in their home until they die there, and are using the cash out to both live on and make the monthly payments. That’s why they don’t have money for a new roof that should have been replaced at least 10 years ago. I guess if they die before they lose the house, the plan will have succeeded though.

    What bothers me most about today’s loans is that no one has reconfigured the basic math around the normal expenses of a young family. It wouldn’t take a lot of effort to re-budget the ratios based on today’s different expenses of everyone with a cell phone vs a cheap landline. It’s not just the amount of expenses, but the type of necessities that have changed dramatically.

    The current ratios used were set when everyone listened to the radio, and few people had a TV! :) So simply going back to the past, is not likely the best “fix”.

    Totally resetting the qualifying parameters might push down further on home prices, but at least it would be based on some semblance of today’s realities for a young family.

  90. 90
    ARDELL says:

    RE: Kary L. Krismer @ 88

    The Topic is “Consumer Confidence”. Just as there is lateral land support from your neighbors, there is financial support from your neighbor’s equity positions…or not.

    In reality everyone should be cognizant of the financial health of their immediate neighbors

    http://raincityguide.com/2010/11/11/are-you-buying-in-a-financially-healthy-neighborhood/

    vs the overall American negative equity. But the subject of all of your neighbors being underwater, as in a large new development, vs a neighborhood with 50%+ equity, is clearly something each home buyer should consider.

    Back to Ray and they are All Coming Back and Strategic Defaults. Clearly if you are in a neighborhood with 48% or more negative equity, “they are all coming back” is more true, even for someone who is able to make their monthly payments while their neighbors go into foreclosure or sell short.

    While I don’t think there is a lot of value in determining the Country’s Negative Equity position…there is huge value in each person determining the Negative Equity position of their immediate geographic vicinity.

    That will determine if someone should have “consumer confidence”, or if that is merely “false hope”. The underlying mathematical equation discussed here should be taken away by every reader who should do a study of the neighborhood, where they currently own…or the neighborhood where they intend to purchase.

  91. 91

    RE: ARDELL @ 90 – The topic had changed from the percentage of mortgages underwater to the percent decline in value. I didn’t notice that because the same 48% figure was being used in both cases and I was looking a a feed rather than a single thread.

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