Category Archives: Housing Bubble

Today’s Housing Bubble Commercial Real Estate Bubble Post

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In the years leading up to the 2008 crash I was posting a series called “Today’s Housing Bubble Post.” (Scroll down, it starts in March, 2005.)

Quick summary: Wall Street was bundling mortgages into “bonds” with a good interest rate. The money was made on selling these bonds, called Collateralized Debt Obligations (CDO). When a bank makes money from the loans themselves they look carefully at how risky the loans are. But when a bank makes money from passing along as many loans as they can to someone else they don’t care how risky the loans are, they only care how many they can pass along.

So Wall Street was doing everything it could to give as many loans to people as possible, no matter how risky. The knew it was risky, but didn’t tell the customers for those loans. They told the customers there was very little risk. This is known as fraud.

Those fraudsters made many, many billions from this scheme. The entire economy blew up. No one was held accountable for what happened. No one.

When you let people make billions from fraud and not hold anyone – anyone – accountable, guess what happens. They do it again. They call it a business model.

When the tide goes out that you learn who’s been swimming naked

Commercial real estate is office buildings, retail, etc. This is an industry that lives on loans.

Do you think office buildings are worth what they were worth before COVID? Do you think that financial institutions learned their lesson from the 2008 crash, when no one was held accountable?

Take a look at this, from The Intercept, THE BIGGER SHORT:

A longtime industry analyst has uncovered creative accounting on a startling scale in the commercial real estate market, in ways similar to the “liar loans” handed out during the mid-2000s for residential real estate, according to financial records examined by the analyst and reviewed by The Intercept.

… This time, the issue is not a bubble in the housing market, but apparent widespread inflation of the value of commercial businesses, on which loans are based.

Uh oh.

Now it may be happening again — this time not with residential mortgage-backed securities, based on loans for homes, but commercial mortgage-backed securities, or CMBS, based on loans for businesses. And this industrywide scheme is colliding with a collapse of the commercial real estate market amid the pandemic, which has business tenants across the country unable to make their payments.

Overstating borrower income, inflation of past financials, misstated financial fundamentals … and selling bundles of loans to pension funds, etc, to offload the risk. Just like 2008.

Read THE BIGGER SHORT, it’s all there. Trump’s real estate practices are mentioned, too.

Also, you can listen to the story on the Deconstructed podcast, THE WHISTLEBLOWER TRYING TO STOP THE NEXT FINANCIAL CRISIS

Today’s Housing Bubble Post

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The SF Bay Area is in another housing bubble. In fact prices are higher than they were in the last one, which didn’t end well. 3br, 1-or-2ba houses in bad neighborhoods are selling for $800,000. People are “bidding up” houses to one or two hundred thousand over the asking price.

Here’s a clue to what’s coming eventually (not right away): I heard an ad on the radio telling people to “take money out of your house” saying you could get $100,000 to spend.

That’s right, home equity loans are back, telling people to “take money out of your house.”

Bay Area home prices soar

Is Bay Area housing bubble back?

Real Estate Expert Says China Cash Is Driving Soaring San Francisco House Prices

Today’s Housing Bubble Post: Who Could Have Known?

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People are writing about the just-released transcripts for Federal Reserve deliberations during the 2008 financial crash, and who knew what and when. No one at the Fed knew, didn’t get it even after it started, and still say no one could have known.

The first “Today’s Housing Bubble Post” on this blog appeared on April 5, 2005. Yes, I was already writing about the housing bubble and its dangers so often that I started giving the post a “Here we go, again” title…

I was not alone. Bloggers all across the country were screaming that a crash had to come from this.

Reading this one dated April, 2005 today was heartbreaking because it links to this post,

The warning signs are everywhere that a mortgage/housing fiasco is unfolding and the silence is deafening. Except for newcomers like Cramer, the media isn’t covering this debacle or the Doral matter. The home builders having their head handed to them after record existing and new sales, plus record earnings, should put the media on notice that we have a problem.

Perhaps asking the media to quit cheerleading and look at the housing crisis objectively is too much. What of our representatives in Washington? The congress had better be meeting to figure out what the heck they are going to do instead of debating who is more responsible for Fannie.

It was heartbreaking because I happened to see this comment today, which is dated 2005 – 9 years ago:

Our economy is awash with problems right now:
– inflation
– lack of jobs
– manufacturing moved offshore
– pending health care crisis
– pending social security crisis
– housing bubble
– foreign investors fleeing the dollar.

Do you hear the media or government discussing any of this in great detail ? Instead they focus the publics attention on trivia personal interest stories.

… If the media started focussing on the real above mentioned issues, maybe the general public would start making better life decisions…

The post I linked to is titled, “Media, Congress Need To Wake Up.” Inflation is not a problem today, potential deflation is. (In fact inflation hurts bankers but helps working people…) The health care crisis will be helped a lot by Obamacare. There is and was no “pending social security crisis.” Foreign investors are fleein to the dollar. But “lack of jobs” and “manufacturing moved offshore” are worse, and the housing bubble is back in some areas.

Yeah, well, fat chance with that, it’s much worse 9 years later. The media and Congress have their heads even further up their asses.

Today’s Housing Bubble Post

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Yes, I am reviving the “Today’s Housing Bubble Post” that was so popular prior to the (last) crash.

In a local weekend paper today I saw a 3br, 2ba regular old house on a regular old street in a regular neighborhood in Cupertino, CA listed for $1.4 million.

Fed-driven low interest rates lead to asset bubbles. Tax cuts for the rich lead to massive wealth inequality and investors with too much money chasing fad-speculations like birds all flying off a wire at the same time.

We need a different approach. What we need for the economy is a massive infrastructure modernization effort. Since the Reagan tax cuts we have deferred maintaining our infrastructure (and cut education and everything else) and it has caught up with us.

The Congressional Progressive Caucus “Back To Work Budget” immediately hires 7 million people to fix our infrastructure and pays for it by bring tax rates on the wealthy back to Clinton levels, plus new brackets for millionaires and billionaires. And they tax capital gains at the same rate as regular income. But they don’t even bring it back to pre-Reagan levels!

Looks Like I Need To Revive The Housing Bubble Series

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Looks like the housing bubble is back — waaaayyyy back. In my area prices are waaaayyyy above the peak of the bubble.

I do not live in a great neighborhood. But it looks like a 3br, 2ba house can go on the market now for $750 – 800K, and sell right away, sometimes the same day, for as much as $900K. Word is that around here that it is Chinese nationals and hedge funds buying about 1/3 of them for cash. The rest pretty much sell for cash as well.

Here is a 2br 1ba offered at $775K. Seriously, go look at the street view.

Over at Calculated Risk, Jim the Realtor: Here is what it looks like at an open house:

Trying To Warn People

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Just sayin’ … you should listen to Dave.
2007: Today’s Housing Bubble Post – Coastal Real Estate Prices,

People still buy real estate that will be underwater in a few decades. Think about that.
… Think about what will happen to real estate prices in coastal areas when we do start taking global warming seriously. How much will people pay for real estate that is going to be under water in a few decades?

2010: Real Estate Near The Gulf,

I was already concerned with the effect of global warming on real estate prices when it suddenly sinks in that a lot of land is going to be underwater. Seriously, would YOU buy a house anywhere in a coastal area that has an altitude lower than maybe 30 feet? One of these days everyone is going to realize what that means – all at the same time.

Housing Bubble Returning In SF Bay Area

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Uh-Oh. High-end SF-Bay-area housing is back up to bubble levels.

The Bay Area’s recovery from the housing crash is proceeding ZIP code by ZIP code, with only a few upscale communities nearing the values they saw before the bubble popped five years ago.
…According to an analysis by this newspaper of home values by ZIP code, with higher priced homes, such as the core of Silicon Valley and parts of San Francisco, have recovered much of the home equity lost in the crash.

And take a look at this recent not-high-end listing: 2br, 1ba, $795K

Who Saw Housing Bubble?

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Calculated Risk, commenting on Fed Reserve Chair Bernanke giving a “no one could have predicted” the crash, where he said it “was difficult to anticipate…” CR writes,

I disagree that the crisis “was difficult to anticipate”. I think the potential for the housing bust to lead to a financial crisis was fairly obvious (I first mentioned the possibility of a financial crisis as a result of the then coming housing bust in 2005).

Here is this blogger, in August, 2002: Multiplier Effects ,

From what I read, the economy is currently being propped up by what most people seem to agree is a “bubble” in housing prices. So far this housing bubble has allowed consumers to keep spending just enough to keep the economy afloat for now. But if refinancing houses rather than rising incomes is the source of funds to keep up the spending binge, won’t this have a multiplier effect on any downturn? (Economy propped up by housing bubble, spending slows, economy slows, pops the housing price bubble, people stop spending, economy slows more, many lose houses, economic drop accelerates.)
Multiplier effects are worrying me lately. We have had a period where stock prices rather than the underlying strength of the companies became an underpinning of the economy. For example, the pension problem – pension funds invested in stocks, stocks rise, companies don’t have to make contributions, AND their books look better because the pension funds are claimed as assets. As long as the market was going up everyone’s books looked great but now underfunded pension plans will have to drain cash out of companies, lower that previously claimed asset, all lowering earnings, eventually causing the market to go even lower, accelerating any downturn. Same thing with insurance companies – reserves in the stock market, market drops, not enough reserves to cover obligations. As I said, many companies were propped up by their stock prices not their own strength. So when the market drops it multiplies the effect.

Note that I said I was already reading about it. I’m not claiming some kind of credit or anything of the sort, only that there were already enough people worried about that we were heading for a big fall that I was reading about it and looking into it. People were already worried, after the dot-com crash, seeing the Fed pumping up a different bubble.
Then I had many entries in 2003 and on, and it became a regular thing, and generated a lot of traffic because others were worried and reading about it, too. This was because I was reading about it at so many other sites. When I moved to the new web host I set up a Housing Bubble category.

The Foreclosure Paperwork Mess

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You might be starting to read about the big mess with foreclosures and the paperwork.
During the bubble so many mortgages were given out and then resold to investors, and it was all happening so fast, that the paperwork was not looked at very closely. See this explanation. The result is that it might be clear that you have a mortgage and ought to be making payments, but it is in no way clear who owns that mortgage and who you should be paying, and who should be foreclosing on you if you are not.
That is the root of the huge problem that is opening up right now. It is becoming very clear that the paperwork on many of these mortgages was not done correctly, and sometimes was even done fraudulently. If an investor bought a mortgage or package of mortgages, like a CDO, it was with an assurance that the paperwork was correct. So now that investor has recourse they they might not have had before and might be able to go back to whoever sold them the toxic assets and demand their money back.
The implications:
* People who have been paying mortgages might have been giving money to the wrong people. One investor has been getting extra payments while the correct investor was getting no payments. Now they are all going to have to sort that out and get the money to the correct people.
* Banks sold these packages of mortgages with assurances that the paperwork was correct and will now be on the hook to buy them back.
* Those banks might not have the means to buy them back.
We might be heading for a second round of the really big banks being insolvent again.

The Great American Credit Catastrophe

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The 911 of the Middle Class is the consumer credit debacle. It is the gift that keeps on giving. The reality is that the housing crisis is just one piece of this really big, ugly mess. It seems to me that our President MUST call for immediate reform and take action through executive order. Call me politically naïve, but we need action. Unemployment continues to hover close to 10%, and higher in badly hit areas. Interest paid by the banks on savings ranges from less than 1% to maybe 2.5% on a good day. The consumer credit card companies, though regulated now sort of, ran naked through the streets jacking up everyone’s interest rates to over 15 to 30%. Yes they have to notify the poor, irresponsible slobs now before they do things, but the banks still get to burn kerosene in the town square with no permits. And we haven’t even gotten to the health insurance yahoos that have four more years for their trickery. Oh Nelly, bar the door! It’s the Wild West again as the cattle are corralled – only this time it’s the American people being herded to ruin by the giddy-up bankers and health insurance companies, not just the mortgage guys.
People are getting sick from worry. Their backs hurt, their necks are out, and they are grinding their pearly whites. Few sleep well at night. Pharmaceutical sales are up. The banks we saved are savaging us. They are bulldozing the Middle Class under mountains of debt. People are losing their homes, divorces are up, businesses are closing, and unemployment is rampant. The consumer credit world and their FICO scores are broken. They are based on a world that no longer exists. In two short years, many consumers have watched their scores collapse under an avalanche of debt. The FICO scores were calibrated for a different time when consumer credit cards were not the only source of money available, mortgages were not under water, and unemployment was not soaring. If we are ever to unwind this situation, these algorithms must be reset. Otherwise the banks will never lend again. The Middle Class needs a do-over, just like the banks got.
Yes sir, Obama stood up against the broad sweeping foreclosure legislation, and Bank of America seized the moment halting foreclosures nationwide. But we’re all holding our breath waiting for the other shoe to fall as even Progressive strategist Mike Lux gens up the netroots to re-engage with the President and Congress. It is inconceivable that people have not taken to streets in protest over their lost pensions, and the absence of any kind of interest bearing bank account — except on consumer credit cards. In fact, this week Robert Sheer wrote brilliantly about Obama’s “No Banker Left Behind” — while every normal person has been thrown under the bank bus. How did we allow the bail-out of every financial institution, while abandoning the common folk? Why are Democrats — whether conservative, moderate or netroots – not able to channel this collective anger, rage and disappointment other than to take aim at one another? Given the data, there is no way out for the once resilient Middle Class without a do-over. Instead of “No Banker Left Behind” let us heal the Middle Class by fixing the credit industry; restricting the health care industry now, not in four years; and making those banks lend the money we gave them and not hide behind FICO scores. All of the Democrats are writing, but no one is demanding change now. The Tea Party has successfully harnessed the anger and rage, but has no plan. Frankly, they are just another distraction taking our attention away from the gravity of the problems.
Mr. President, come back to us as Mike Lux laments. We need you. We, in the Middle Class, are living this nightmare everyday of our lives. Figure it out, and get the Middle Class out from under. The numbers do not lie. This is our emergency, our call to action, our 911. Friends and neighbors are collapsing from the stress when they can ill afford it. Unemployment is not going away. Consumer debt is skyrocketing. Mr. Obama, Americans are not being frivolous and irresponsible as Dr. Summers would like you to believe. They are boxed in with no escape hatch. Consider enacting a nationwide job core like the WPA, putting the banks on real notice, corralling those nasty health insurance folks, redoing the credit industry, and loosening up cash. No one is sleeping at night. People are nervous and cannot see a future.
Please, inspire us again, show emotion, get messy, and let the wrinkles show. Mr. President raise your voice in outrage. Give us voice. Come back to us. The time is now.
This was originally published on the Huffington Post earlier today.
See the pearltree below for the references for this article.
US Economy

Today’s Housing Bubble Post

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This is pretty important, because, as we know, when a huge housing bubble bursts it takes an economy down with it. China’s Coming Property Bust

So everyone recognizes that a correction must come soon, right? Not exactly. “I don’t see any bubbles,” 44-year-old Zhang Xin told Hong Kong’s South China Morning Post ( SCHPY.PK – news – people ). “The next few months will be a fantastic time to buy.”
Really? There were, a few months ago, 64.5 million urban flats that showed no electricity usage for six consecutive months. That’s one in four city apartments, enough housing for some 200 million people. The value of vacant apartments held by speculators is about 15% of gross domestic product. Beijing’s bank stress tests assume a 60% fall in property prices. In fact, official statistics show that property price increases slowed in July.

64.5 million empty urban flats now, but,

And there is more bad news for the residential market. Property developers, who are already building 20 million flats, have company. Local governments are constructing another 20-30 million, and other government agencies and companies are also building housing for employees.

Real trouble ahead, if China doesn’t manage this properly.