Study: Tech, not spec, fueled U.S. housing boom

[Nords]

I don't know if this was a local phenomenon or nationwide, but the Hawaii housing market started to take off as the tech wreck tanked.

When we bought our house (17 June 2000) the sellers had first listed it in February. *It was a pigsty and in poor material condition so it languished and they pulled it off the market for "improvements". *When they put it back on the market (13 June) their first Open House was on Father's Day so their traffic was non-existent. *Spouse saw the property at 2 PM Sunday and we had our offer in by 9 AM Monday.

The property had been listed on the MLS website but I don't know how quickly the posting went up. *The realtor told us later that later Monday morning they received a hailstorm of e-mails & phone calls from Silicon Valley that continued for two weeks. *Our $405K offer was accepted on their $425K listing by then but we had to vacate all our usual contingencies and the sellers had backup cash offers of over $500K. *

I think all the Silicon Valley workers came to work that Monday, looked at the value of their stock options and the market trend, and started converting their company equity to another type of equity. *

I wonder how much of this has continued over the last five years, and only now are investors sending their hot money spewing over commodities and international funds-- and sucking all the loose money out of the housing market.

[brewer12345]

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Originally Posted by youbet Thanks Brewer, nice explanation.* Still, I'm curious, is the banking industry actually experiencing higher profitability due to all these subprime loans?* Are subprime loans actually "bringing home the bacon" to their stockholders?* If so, it implies that the higher rates charged for subprime loans are more than making up for the higher risk, that the market is not efficient for these products. Interesting.....

Up until recently, at least, a big involvement in the subprime market was VERY profitable. *Things aren't quite as fun now because the bank that sells the loans has to guarantee that the loans are good for a certain (short) period after the loans are sold. *Check out the beating HRB is getting today to see why this can be bad for shareholders. *But for several years, subprime mortgages were a very fat profit stream indeed.

[greg]

Might I add at this point: The Creature from Jekyll Island (not sure about the spelling of Jekyll) is a wonderful book about how the banking system in this country works. Good reading while watching events unfold.

[brewer12345]

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Originally Posted by Apocalypse Might I add at this point:* The Creature from Jekyll Island* (not sure about the spelling of Jekyll) is a wonderful book about how the banking system in this country works.* Good reading while watching events unfold.* *

Heh, I dunno, I think the big, fat textbook on my desk is even more fascnating: "Financial Institutions Management: A Risk Management Approach"

Seriously, an interesting and very readable book on how bubbles play out is "Devil Takes The Hindmost". IIRC, it was written befoe the dot bomb unfolded, but it starts with the tulip craze and covers most of the other big bubbles since.

[d]

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while the bubble was due to more than ...

there's likely a semantics problem here ... a bubble is defined by "pure speculation" ie speculation upon speculation. if the price rise is caused by "fundamentals", it's not a bubble. In the case of housing, i'd guess there is some pure speculation, but the authors of the study are not-so-simply concluding that there's more to it than that, and hence it's not a "bubble".

[uncledrz]

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Originally Posted by newguy888 Wow. How did I do something right for a change??

I put the blame directly on the wisdom and sage advice from this community!

[greg]

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Originally Posted by brewer12345 Heh, I dunno, I think the big, fat textbook on my desk is even more fascnating: "Financial Institutions Management: A Risk Management Approach" Seriously, an interesting and very readable book on how bubbles play out is "Devil Takes The Hindmost". IIRC, it was written befoe the dot bomb unfolded, but it starts with the tulip craze and covers most of the other big bubbles since.

Brewer: Been there, done that. I already have a series of cascading sells/buys/holds in preparation for implantation of the new tulip bulbs. My forcast on RE is a 3-7% drop/yr for 5-10 years--the middle way. I'm prepared for this. May be worse, may be better. Who knows? Jekyll is a tale from the darkside.

(Slightly off-topic maybe: All those mortgage companies such as Countrywide have packaged up their mortgages and sold a lot of them off. Spreading the risk, as Greenspan used to say. Most have ended up in pension funds or are owned by foreigners. This risk may hurt the 'forclosure walkaways' more than they think. Or other pensioners? What's in your wallet pension fund? )

[janeofalltrades]

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Originally Posted by newguy888 I am so glad I have positioned my self to be able to sit back and not worry about how to pay my mortgage.

Amen!

[al_bundy]

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Originally Posted by brewer12345 Uhuh, but who regulates the banks?

uh, the government

but from what i heard the federal reserve has had a lot of trouble trying to get lenders to stop with the short term financing

[FinanceDude]

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Originally Posted by brewer12345 Heh, I dunno, I think the big, fat textbook on my desk is even more fascnating: "Financial Institutions Management: A Risk Management Approach"

Hey, I had that book.............I think it's missing...................

When I took my ARM test in the 80's (didn't pass), they had us do case studies about risk management...........and all the examples were about banks and Savings and loans.................

[al_bundy]

Quote:

Originally Posted by d there's likely a semantics problem here ... a bubble is defined by "pure speculation" ie speculation upon speculation.* if the price rise is caused by "fundamentals", it's not a bubble.* In the case of housing, i'd guess there is some pure speculation, but the authors of the study are not-so-simply concluding that there's more to it than that, and hence it's not a "bubble".

a lot of it was pure speculation. back in 2003 or 2004 i was watching the evening news and they profiled a couple who wanted a nice house they couldn't afford. so they bought using ARM and planned to sell when it reset. if NBC news found out about it, then it was probably done by a lot of people before.

the official numbers I've read showed that california had a rate of 75% of all mortgages last year were some type of ARM. nationwide it's around 25% up from single digits several years ago. I think in the next 2 years we will find out just how so many people who make less than $100,000 a year were able to afford $400,000 homes