patrick.net

mell says

Just about the right time to bring back a good lending frenzy ;)

The one good thing about this cycle, is that all the semi exotic loan structure are so out of the reach of most Americans that the debt leverage will be small on semi non capacity owning debt

For example one lender has a Interest Only loan but you need 20% down and need to qualify on a 20 year amortization payment to get the IO, which really means you can't qualify on the interest only payment for the loan.

Very little velocity on this loan so far, a "Rich Man's Loan"

Logan Mohtashami says

mell says

Just about the right time to bring back a good lending frenzy ;)

The one good thing about this cycle, is that all the semi exotic loan structure are so out of the reach of most Americans that the debt leverage will be small on semi non capacity owning debt

For example one lender has a Interest Only loan but you need 20% down and need to qualify on a 20 year amortization payment to get the IO, which really means you can't qualify on the interest only payment for the loan.

Very little velocity on this loan so far, a "Rich Man's Loan"

If they are truly rich man's loans. Even with the 20% skin in the game the idea stays the same - people expect housing to go up. If it goes down and so does their equity, they may not qualify for a future refi and rate adjustment may turn this loan so toxic that they have to (esp. if coupled with job loss or other unexpected financial calamities) or decide to walk away. Still better than 3.5% down as "strategic defaults" won't happen very often as long as they can afford to hang on (due to the 20% skin in the game).

mell says

If it goes down and so does their equity, they may not qualify for a future refi and rate

Most people in this country have a interest rate of 3.25%-4.25%, the refinance market for rate and term is dead unless you want to cash out or combine a first and 2nd loan.
mell says

so toxic that they have to or decide to walk away.

This never really happened in big numbers, people who could make their mortgage payment but decided to default anyone. I have only seen 2 cases like this out of 7-10 million loans that went delinquent.

In theory it sounded like more people would do this.

However, we are Americans! Almost all American who bought their home with negative equity, kept it and made the payments. They lived their lives, that's a proud thing about this cycle. Most Americans who could make the payment did

Those who lost their jobs or got a bad loan lost their home

Strategic defaults was a rare occurrence

Also to note, anyone who puts less than 5% down is already negative equity, assuming 6% transaction case.

One reason why late stage FHA lending have higher defaults in the recessions because with only 3.5% down they had the UFMIP to the loan balance.

So, FHA borrowers if they lose their job in the start of the recession and got their loans late in the cycle are a high risk borrower because of the net negative equity.

On a good point for this cycle, everyone for the most part if verified income, so the jobs loss because the main reason to lose your home

Those interest only loans could also be used to stay diversified. Maybe you're rich and already own significant equity and a significantly overheated area such as the bay area and just want another "vacation" home, a home for your affluenza kid or guests, or you aren't that rich but adventurous and want to stage a rental scheme - so you use the interest only loan to buy that other property instead of renting it because those low rates just make it so easy. This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

mell says

This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

It's not happening this cycle at least for housing. Mortgage demand is having it's worst cycle ever with the lowest rate curve post WWII

mell says

This is another example where low rates can encourage risk or distort the market until it blows up (and rates suddenly dramatically change).

It's actually another example of you not understanding economics. Low rates don't encourage risk. They encourage investment--as the required rate of return on investment is presumably lower making previously marginal projects feasible.

Risk reduces the expected return in the calculation whether interest rates are high or low.

Logan Mohtashami says

It's not happening this cycle at least for housing. Mortgage demand is having it's worst cycle ever with the lowest rate curve post WWII

Agreed it's not happening yet (not enough qualified buyers) and it would not happen if they keep the lending standards tight (who says they cannot water down the 20% down requirement again).

tatupu70 says

Low rates don't encourage risk.

Of course they do genius. Where have you been the the last 15 years?

who says they cannot water down the 20% down requirement again).

Since The Crisis started 2008

All you needed was 3.5% down to get a loan In fact with VA loans it's 0% and now it's 0% - 3.5% down is the bottom end, since GSE have a 3% down loan now
All you need is a 620 Fico Score

Standards aren't tight at all, people, debt , demographics are all in play

But low rates for years isn't creating any boom in housing

People who say lending is tight have no idea what they're talking about and almost 99% of them have 0 lending background, they can't even tell you the basic guidelines for loans

mell says

Of course they do genius. Where have you been the the last 15 years?

Understanding how and why things really happen. Where have you been?

You do recall the junk bond scandal, right? Interest rates were quite high in the early 80s. Didn't seem to stop risk taking and fraud, did it?

Logan Mohtashami says

People who say lending is tight have no idea what they're talking about and almost 99% of them have 0 lending background, they can't even tell you the basic guidelines for loans

they can speak, however, from direct experience with trying to obtain financing in high cost areas like parts of california where the median house price has exceeded the conforming loan limits. getting a big loan is still challenging.

landtof says

getting a big loan is still challenging.

Yes Super Agency Jumbo Loans over $625,500 is not as easy as agency conforming loans.

However, the median price in the U.S. is like 235K and for New Homes roughly 300K

Those homes make us a very small portion of the U.S. total market

But you can get loans up to 2 million but the down payment is much larger than any conforming loan

As a lender who sees many applications and writes mostly FHA, VA and conv loans; the vast majority of these buyers are paycheck to paycheck. They barely scrap together the down or it's a gift from family; and they are 1 layoff away from default. The second a recession hits and jobs start to evaporate, FC's will be on the rise.

Now, I don't know if that will cause prices to decrease as the banks/servicers have become quite good at limiting/controlling inventory. Should be interesting to see what happens this year.

As China sells stocks, won't they just take that money and plunk it into U.S. real estate, causing housing prices to go even higher?

There doesn't seem to be any end to Chinese money no matter how low their stock market goes.

exfatguy says

As China sells stocks, won't they just take that money and plunk it into U.S. real estate, causing housing prices to go even higher?

Chinese amount to 150K-200K homes a year here in the U.S. out of 5.7 million homes sold

In areas like Irvine CA and So Cal it has more of an impact. However, nationally, they're too small to matter much.

8% of the buyers in this cycle are from foreign countries

Strategist says

Strategist says

30.46 TOL

I am telling you, if you believe in your 200% return on the builders, Here is your buying opp for TOL ;-)

Logan Mohtashami says

Strategist says

Strategist says

30.46 TOL

I am telling you, if you believe in your 200% return on the builders, Here is your buying opp for TOL ;-)

Stocks react to all kinds of nonsense. Means nothing.
Hey, where's the number for the BK lawyer? By tomorrow I should be bankrupt. This time it's the Chinese and the NorthKoreans that are screwing up my life. :(

Strategist says

Stocks react to all kinds of nonsense. Means nothing.

Hey, where's the number for the BK lawyer? By tomorrow I should be bankrupt. This time it's the Chinese and the NorthKoreans that are screwing up my life. :(

What are you talking about.. I wasn't Bullish on TOL at 40 and now I am saying it's a better buy at 30! :-)

Unlike most wall street firms that had a token buy rating

Opportunity here to Buy TOL in a bear market pricing!

If you don't feel confident then put a stop loss now at 28.65 .... market gives everyone a shot to buy something they want at a discount

Logan Mohtashami says

If you don't feel confident then put a stop loss now at 28.65 .... market gives everyone a shot to buy something they want at a discount

Buy More Buy More Buy More.

Strategist says

Buy More Buy More Buy More.

The you agree buying TOL in a break market pricing makes sense if you're in the 200% over time camp?
:-)

I was looking into buying ibt or tol but how does interest rate effect housing buying/building. U think it will stay low for next 2 yrs till rate hike continues?
I know when rate goes down ppl buy more.

KgK one says

I was looking into buying ibt or tol but how does interest rate effect housing buying/building. U think it will stay low for next 2 yrs till rate hike continues?

I know when rate goes down ppl buy more.

When I went on CNBC to try to explain that the growth in XHB and TOL was only due to a low par and it's pricing too much growth, this is the pull back that should happen, not the Buy ratings at 40

Charts 30-34 area good area to get into TOL, because below 28 the pricing is for more profit margin hit that we saw in Both TOL and LEN recent reports.

So, now that's it's at 30, cheers up if you're a believer in the builders and TOL this is when you get in now

Thanks Logan!

Market is getting fun again ;-)

Ironman says

So, now where do we go to find some yield for our available cash?

The only hunt for yield I am and have looked for in this cycle was from my rental property.

High Debt yield was always a River Boat Gambler game if it is sought after with time.

Ironman says

Got any other good ideas?

At this point of the cycle, not really.

Ironman says

Logan Mohtashami says

Market is getting fun again ;-)

So, now where do we go to find some yield for our available cash?

Vegas.

What about 5% dividend blue chips?

Chevron

2015 jobs averaged 221K/mo; as UR recovers maintaining strong job mkt will not require as rapid a pace of job growth
My 2015 Prediction
"Look for job creation numbers to be between 210K – 225K with some improvement in the wage growth"

LOL did you google for that image using "george washington eagle ride rocket launcher flag"?

landtof says

did you google

Yes

indigenous says

Chevron

Which one of you mutts disliked this and why?

indigenous says

Chevron

Which one of you mutts disliked this and why?

Historically, these deep heavy crashes in oil has given great buying opp for a lot oil companies

Moved into my condo 35 years ago today, 6463 Bordeaux, Dallas, 75209 in Bordeaux Village surrounded by Lemmon, Inwood and Mockingbird. Paid $50K, financed with 12-3/4% rate for 20 years--lucky to get a fixed rate! Lived there 24 years, sold it in mid-2005. Mine is not visible because of the trees, but it's at the back of the huge lawn. The ones across the street are right at the curb, have large back lawns. 214 units across 14 acres, still beautifully maintained today:

https://www.google.com/maps/place/6463+bordeaux+75209/@32.8354238,-96.8262218,3a,75y,253.7h,90t/data=!3m6!1e1!3m4!1syX3UY3GXaj1Fe3aa_eRldg!2e0!7i13312!8i6656!4m2!3m1!1s0x0:0xb2f3672bb1344ed0!6m1!1e1

My thinking was that oil companies have already taken their hit. And Chevron is a blue chip.

The dislikes I get are usually from the Wogster just out of habit.

Strategist says

Strategist  

See how strong TOL is holding up here at this high 29 level... Trust me :-)

How is this possible with $30 dollar oil

They always keep it up as long as possible. The answer they will give is that oil was much more expensive when they started processing/purchased the oil.

Logan Mohtashami says

How is this possible with $30 dollar oil

state tax.