National housing bubble, my opinion.

[Mudbugger]

This is a rant about the national real estate crisis.

I believe that the current real estate, housing and credit crisis are all interlinked and are the ultimate responsibility of one person.

The American home buyer.

Let me explain.

For the last few years the housing market has been going through an upswing with record new home buyers and home ownership is at record levels.

What has fueled this? Record low interest rates for one and ARM loans.

Who was granting these loans? Mortgage companies.

They gave ARM loans to high credit risk individuals.

Most of the time these people violated the cardinal rule of buying real estate "Buy what you can budget not what you are pre-qualified for".

They got the home of their dreams (what they thought was a dream house, not what they could afford) and when the ARM reset to a fluctuating percentage they couldn't meet their obligations.

Now we have record foreclosures, new homes sitting empty and many people's lives lay in ruins.

Also we have people getting deeper in debt by charging more things to stay afloat.

The cold hard truth is that the greedy mortgage companies insistance that anyone can get a house and giving every poor schmo a loan for a house they can't afford is one aspect of the problem.

The other is a little harder to hear.

The rest of the blame falls on the undereducated new home buyer. They don't do the legwork and research into what it takes to get a house and probably don't read the documents when they buy a house.

If someone does this and is now in foreclosure or worse.... they have only themselves to blame.

Perhaps more people will learn from their mistakes and not let it happen to them.

Sorry about the cold splash of water on this situation but i just had to express myself on this issue.

Mudbugger

[skirby]

The homeowner is to blame because they didn't think about what they were doing, but were they not just the horse with a carrot on a stick in front of them? Who is to blame that these people were sold a house without any money down or sold a house with an ARM or an interest only mortgage? A lot of these home buyers have very little in the houses they purchased, so what have they lost? I don't feel sorry for the mortgage companies? They are the ones who put together these deals. No one forced them to loan the money. I do feel sorry for the people who live on a street where a foreclosure has taken place. Their property values are going down because of the actions of others.

[dimebag1980]

People were feeling great and the mortgage companies were being greedy and sneaky. Shame on them. Sure, people share somewhat in the blame for not being more informed, but "professionals" are supposed to help people make more informed decisions. Not everyone can figure out all the mortgage terms on their own, and that's where these so-called professionals are supposed to help. Rather than helping, however, they were taking advantage.

I bought my home with no money down, but aside from that I got an excellent mortgage. Lucky for me, the area in which I bought is a good area and the homes are appreciating in value at a very nice rate. Not as much as before the "big burst" but still quite well. I absolutely do not regret my decision. I was well-informed (especially working in the home construction industry) but I also had a good mortgage broker who worked with me and did a great job of explaining things that I wasn't sure about.

Anyway, that's about all I can say on the matter. What's done is done, and it's all over but the crying.

[jcasey]

Without a doubt, it's the homebuyers faults. I worked for Chase's subprime mortgage department for a couple of years and I saw it all. The vast majority of people did not read what they signed. They do not understand the concept of a contract. Most of the time they had no clue where their loan documents were when they questioned why their rate or escrow increased or why they received a late charge and why it was that much. I've seen people pay $27,000 prepayment penalties so they could refinance! I saw a payment increase from $900 to $1900 only six months after the loan was originated. I've seen it all.

I will also say that the banks and mortgage brokers are not exactly adhering to a code of ethics. They are all just trying to get paid. The brokers would fudge the numbers and omit paperwork so the homebuyer could get the loan so they could get their cut. Most of the subprime lenders would make the loans, get their cut and sell the loans off. Neither of these 2 would suffer if these loans busted. They made their money and got out. It's still not their fault though. If you're buying a home and make a comittment for hundreds of thousands of dollars for the next 30 years you should know how much you can afford. People didn't care, they just wanted as much money as the bank would give them.

[cajun]

How is the housing market out in Shreveport panning out this year? I hear that in BR, New Orleans, and Houston are in a position where you can barely tell that there's a recession. I was wondering if the new oil boom out there was helping boost the market...

We've been hit kind of hard in Dallas...glad I didn't buy last year when I was thinking about it.

I agree that this is the fault of the consumer, but in reality, it's been too easy to get loans. I went to a Ford dealer to buy an Explorer last year and felt that it was the most I could afford....they insisted that I could get into an F250 King Ranch with a $60,000 price tag that would be worth $30,000 as soon as I signed the papers. No thanks!

Someone on my salary at the time should not be able to afford something so expensive anyways. I thought hard about my purchase and I bought a USED Chevrolet Tahoe that's depreciated approximately $1000 since I bought it mid 2007- it's reliable as old faithful and I don't care if I scratch it on the way to the hunting camp. It's not an exotic...parts and paint or cheap if I ever break it. A new Explorer or 4runner would have dropped thousands in value as soon as I drove it off the lot! When it comes to automobiles, buy used and buy from large reputable brands. Not to knock BMW or Audi, but they are maintenance nightmares and they are expensive to ensure. A GM, Ford, Toyota, or Honda can be fixed anywhere and you can get hundreds of thousands of miles out of them without any major problem if you take care of them.

As for housing:

If you are making $50,000 a year and someone offers you a flexible rate mortgage to finance a $250K house at $0 down, then you are just plain dumb to go with it, especially if you have one or more dependents.

So yes, it's a personal responsibility problem more than anything....but I guess this is what we get from the generation that is willing to spend more on Starbuck's Coffee than gasoline (ahem...I can make the coffee at my house where my SUV likes to drink 87 octane unleaded which is a bit difficult to refine in the kitchen sink)

If you are barely getting by and are unable to save any money, then you need to sell the damn mansion and move into a more affordable home.

This just goes to show you that when it comes to finance, we should let people make their choices but force them to live with it. These struggling banks that made bad choices should deal with the natural consequences along with Joe Blow who is living way above his means.

This has been going on for a long time, and these government programs that make it easier to transfer risk of these sub-prime loans have been around since the late 1970s and have finally come to an end.

My advice to the uneducated working class and to the young professionals just out of college:

1. Build wealth, not debt....work long and hard and slowly aquire real estate. Avoid expensive products with moving parts...like automobiles or boats...that depreciate rapidly and eventually become useless.

2. Buy for the long term- don't buy a house that you will move out of in a couple of years or you will be subject to market failures. If you bought your house at $50/sq foot in 1990 and you are forced to "let it go" now for $110/square foot in 2008, then you are still doing better than the neighbor who is trying to break even on his 2006 purchase at $140/square foot.

3. Avoid using credit cards altogether- 18% rate is a joke. Keep a couple of credit cards for emergencies and try to pay cash or use a debit card for day to day items. The same can be said of the pay day loan business. Horrible rates. I'd rather starve now than to owe 20% next month to one of those scum bags.

4. Be smart. What's more important? The Ipod or the phone bill? The 20" spinner rims or your 401K contribution? A brand new Mercedes that will be worth nothing in a few years or a used Chevrolet or Honda that will give you decades of cheap service?

[Mudbugger]

Cajun,

Bravo, bravo, bravo!

I can't agree with you more. You hit the nail on the head, now someone needs to start a thread about the bailout mentality that has gripped corporate America.

I heard a Congressman, forgot his name offhand, has proposed that instead of another stimulus check to Americans he has a counterproposal.

Instead of sending out checks from the remaining 350 billion of the 700 billion for banking bailout, why not have a tax holiday for the months

of January and February of next year. In that you wouldn't pay any Social Security or Federal withholding taxes for those months.

I say do it, because it will put more money in most people's hands than a puny 300 check from Uncle Sam.

What do think about this idea and our slow march towards a socialistic America?

Mudbugger

[monsoon]

I wrote this post a few weeks ago in response to a question from someone who is most likely working for one of the big banks on what to do about the coming layoffs. It would seem to be applicable to this conversation.