patrick.net

thomas.wong1986 says

and had no idea what a mortages were ?

it's funny looking back at how much I didn't know about the real estate market 10 years ago.

That was before zillow, and before they started changing (losing) the lending rules in 2002-2003.

Now, I probably know more than the average loan broker, but 10 years ago I was a total newbie.

What really messed things up was the pay-option stuff. Banks were allowed to qualify people on teaser rate payments, and never made it clear to borrowers that negative amortization payments were adding the unpaid interest to the loan balance.

Outfits like WaMu were actually booking this unpaid interest as current income!

Insane!

you must have mis-read my post.
I was suggesting that there was a reason beyond WallStreet.

Bap33 says

Lenders should be in jail over this.

Don't be an ass. My foreclosure was done due to a job loss, after putting 20%+ down and buying a home based on my wages. If you are suggesting the same be true from 99% of the hispanic sur-named Cen Cal buyers, that is your right, but that is not correct.
These new buyers had to have a reduced understanding of economics, and WERE VICTIMS used to blow up the bottom level markets. The bottom pushed the middle up, and that pushed the top up. The new, entry level, pay-too-much-for-a-stucco-box BUYER in the Cen Cal area were 90% illegal mexicans. That is not a racist thing, it is just a fact. If they were all named Frank, then that would be a fact too. If they all drove yellow Honda's, again that is just a fact. I was not trying to tempt nor challenge your agressive support of the invasion. I feel the invading mexicans were used as pawns by opritunists. Sorry if it struck a nerve. Race plays no part.

and I agree, the bottom is done and the middle/top is next.

lmao ... that was funny

Im trying to use a 3.5% FHA to buy a house, with a 203k rehab to fix it. That 3.5% has turned into almost 10% before the end. And the interest is over prime at 4.75%
But I agree, if there were no FHA buyer programs, then the prices would come down and meet the buyers.

Troy says

apartment vacancy was VERY TIGHT in mid-2000.

It was certainly true from 1997 to 2000, after the dot.com blow up rental prices fell.

Bay Area apartment rents fall further
January 21, 2003

The average rent in the Bay Area slid to $1,381 last year compared with the 2001 average of $1,572, according to RealFacts, which tracks rents and occupancy rates. Not surprisingly, rents fell furthest in San Jose, the epicenter of the dot-com boom. There, the average rent was $1,431 in 2002, down 18 percent from $1,753 in 2001.
Troy says

It was only natural for prices to move up so much. Starting tech salary in the bay area was low 30s in the early 90s, but doubled in the dotcom rush and was about triple by 2000.

Much of that compensation was pure VC investment dollars, not revenue generated. Once the plug from VC was pulled in Q1 2000 so was the salaries and headcount. "Too much money chasing too few good ideas". Too many startups driven by inexperienced kids who had no idea what they were doing. Too many people twidling their tumbs in a cube drawing up some powerpoint presentation which had no business purpose.

Salaries in early-mid 90s had some rationalism behind them. Bruised and battered from the 80s. Anyone who had a job didnt go crying for raises. They were lucky to be still working.

Bap33 says

The bottom pushed the middle up, and that pushed the top up.

This is true to some extent, in that move-up buyers needed someone to buy their old house (perhaps at an inflated valuation) before they could move up and buy their own inflated house.

To do that, the entire industry needed fresh meat entering the bottom, and the traditionally excluded credit-challenged borrowers filled the bill.

But this didn't have to blow up like it did. CRA didn't cause lenders to abandon traditional lending standards. They were allowed to do so in 2003-2004 by regulators refusing to regulate -- indeed, actively DEREGULATING.

"The Commission concludes the CRA was not a significant factor in subprime lending or the crisis. Many subprime lenders were not subject to the CRA. Research indicates only 6% of high-cost loans—a proxy for subprime loans—had any connection to the law. Loans made by CRA-regulated lenders in the neighborhoods in which they were required to lend were half as likely to default as similar loans made in the same neighborhoods by independent mortgage originators not subject to the law."

http://www.ritholtz.com/blog/2011/01/one-more-time-with-feeling/

"The Republican commissioners’ desire to ban the use of the word “deregulation” in the Commission’s report is understandable. There was no chance that they would support a report that explained the decisive role that deregulation and desupervison played in making the crisis possible. Wallison was a major architect of three successful anti-regulatory pogroms (primarily, but not exclusively, led by Republicans) that created the criminogenic environments that led to our three most recent fraud epidemics and financial crises (the S&L debacle, the Enron era frauds, and the current crisis). The Republican congressional leadership appointed Wallison to the Commission in order to place the nation’s leading apologist for deregulation in a position where he could defend it."

http://www.ritholtz.com/blog/2011/01/how-can-the-architects-of-the-crisis-investigate-it/

The Republicans have totally fucked this country and how anyone can even begin to defend anything concerning their activities 1995 to now is perplexing to me.

And by banging the CRA pot that's exactly what you're doing bap. George Bush's admin fucked us cold in so many areas and the mess he made of everything will be with us for the remainder of our lives, and probably beyond.

Countries have a hard time bouncing back from screwing the pooch.

Now, to Bush's partial mitigation, Clinton and the Republican Congresses of 1995-2001 handed the Bush admin some real loser situations that were building up -- the burgeoning trade deficit with China, the total unseriousness about kicking our oil habit, a potentially embarrassing back-down from confrontation with Saddam's Iraq, and the beginning of a credit cycle boom in the late 90s.

But the Bushies doubled down in all these areas, so that mitigation doesn't go very far.

Troy says

it’s funny looking back at how much I didn’t know about the real estate market 10 years ago.
That was before zillow, and before they started changing (losing) the lending rules in 2002-2003.
Now, I probably know more than the average loan broker, but 10 years ago I was a total newbie.

I have been a homeowner since 1992! ..after giving up a pint of blood, 5 references, IRS tax return reviewed, etc etc. I had an appetite for the business press... daily news paper and like many back then, some common sense. Thats all it took!

The only thing the internet did was to amplify advertising and hype. Sad but true! Unlike your typical newspaper of years back, there is no one doing editing or reviewing what is posted on the internet. Its all advertising driven revenue. No one cares if its true or false. As long as the dollars keep rolling in.

Troy says

But this didn’t have to blow up like it did. CRA didn’t cause lenders to abandon traditional lending standards. They were allowed to do so in 2003-2004 by regulators refusing to regulate — indeed, actively DEREGULATING.

troy,
I spent most of Sunday speaking with an "ex-loan broker" at a volleyball touney in Stockton. He knew where my town was, and that suprised me enough to ask him, "how in the world do you know where Winton is?" He explained that he was a loan broker from 2002 to 2007. So, we started talking shop. And this man told me, with no reason to lie, and with most everything he said matching all I have learned from you guys on here, that the reinvestment act FORCED his bank to make a certian percentage of loans to match a few select groups. They were FORCED/TOLD/MADE to make a percentage of loans to hispanic-named people, and a certian percentage to unqualified buyers. He rattled off percentage numbers, and the legal rules behind everything, but this dude made it very clear that his bank was FORCED to write the sub-prime stuff if they wantedto do business. Now, he may have been full of crap, but the guy seemed pretty square to me. And that pretty much explains how the whole junk loan game was played. As for the guy I was visiting with, he went back to his teaching job.

He even was able to explain stuff about my house deal in detail, so he really seemed checked out. I know hearsay and , "some guy said", are not worth a crap, but I wanted to share. lol

Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999

http://query.nytimes.com/gst/fullpage.html?res=9c0de7db153ef933a0575ac0a96f958260

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

Tax Break May Have Helped Cause Housing Bubble

“Tonight, I propose a new tax cut for homeownership that says to every middle-income working family in this country, if you sell your home, you will not have to pay a capital gains tax on it ever — not ever.”

— President Bill Clinton, at the 1996 Democratic National Convention

http://www.nytimes.com/2008/12/19/business/19tax.html

Fueling the fires!!!!

Bap33 says

tts, with all due respect, the whole mess needed more buyers.

Where did more buyers come from?

illegal immigant mexicans.

Please tell me you're trolling.

Bap33 says

Neighborhood Reinevestment Act mandated a certian percentage of loans were wrote to unqualified buyers with hispanic sounding names.

Nope. You need to stop taking racist Repub. talking points to heart. The CRA eliminated redlining, it did not require the banks to give out bad loans to illegals or poor black people or poor white people either for that matter.

Bap33 says

What happened to “20% down”?

It vanished as a requirement when prices got so high that no one could own a home without relaxed loan conditions. That is the banks/Wall St./gov. colluding together. Aka Bush's "ownership society".

Bap33 says

The only victims are the tax-payers.

Even illegals pay local taxes believe it or not.

Troy says

But this didn’t have to blow up like it did. CRA didn’t cause lenders to abandon traditional lending standards. They were allowed to do so in 2003-2004 by regulators refusing to regulate — indeed, actively DEREGULATING.
“The Commission concludes the CRA was not a significant factor in subprime lending or the crisis

Congress passed back in 2002 Sarbanes Oxley. Very often stated by Dems as result of Enron, Tyco and WorldCom fraud. None of them mentioned Fannie Mae Accounting Scandal which eclipsed all the prior ones mentioned.... $90Billion in losses hidden from investigators and regulators.

While the FEDs prosecuted and imprisoned the CEOs of the corporations, Enron especially, Fannie continued with their "Culture of Corruption". The libs in Congress didnt lift a single charge against their friends at Fannie! Fact is they all walked free of any charges.

http://www.youtube.com/watch?v=_MGT_cSi7Rs

Of all things said! Conservatives want more regulations, while Libs wanted less regulations... see for yourself.

thomas.wong1986 says

tts says

QUIT BLAMING THE VICTIMS!!

1999 to 2001 long before low interest rates.. prices doubled!

Herd mentality like the dot.com era, the gold rush and all the rest!

1)Rates were still pretty low historically speaking.
2)Home prices were recovering from the early 90's bust still in the mid to late 90's.
3)Overflow from the .com bubble, which was mostly a Wall St. phenomenon but still effected prices in the wealthy areas.
4)Prices back in 1999/2001 were nowhere near their 2005-6 heights, they never could've been reached without the banks/Wall St./gov. interference.

Also do not confuse or conflate bubbles with booms. We've had booms before and are IMO unavoidable. If the gov/Wall St./banks do their job properly though the booms get limited in size/scope so that when they bust the damage is greatly mitigated.

Remember when it was the gov's job to "take away the punch bowl just when the party was getting started"?

tts says

It vanished as a requirement when prices got so high that no one could own a home without relaxed loan conditions. That is the banks/Wall St./gov. colluding together. Aka Bush’s “ownership society”.

1,000% wrong minded position. Market conditions work just fine. A homes price will match the buyers ability to buy it in an unmanipulated market.

your other stuff is wrong too, but we all had that arguement a long while back. No ned to cover it again. It's cool. HAve a good night.

Fannie was bad but weren't the drivers of the price appreciation of 2002-2005.

This is the only chart that matters:

http://research.stlouisfed.org/fred2/series/HHMSDODNS

Here it is 1995-2010

Here's a chart with total real estate valuation in red.

Mexicans and subprime borrowers didn't drive up total valuation to $24T in the US. That was done by a financial system OUT OF CONTROL.

Part of the insanity was the FEEDBACK effect higher valuations had via the ability of specuvestors to cash-out refi their loans as valuations rose and interest rate terms fell.

The kept the bubble going long past the breaking point, and also stimulated appreciation, at least in the 2004-2006 period (when traditional mortgage interest rates were no longer falling).

thomas.wong1986 says

Prices from $200K - $400K skyrocketing to $750K to $1MILLION+ …

and had no idea what a mortages were ? Irrational Exhuberance!

Yes, that is right, they had no idea what mortgages were.

I know professionals, college educated and everything who're intelligent, but didn't know the first damn thing about mortgages or the housing market. Who'd they go to for info. about what to do with their home or to buy a new home?

1)Realtor buddies.
2)Banks.
3)LO's, also usually they're buddy.

and sometimes maybe

4)the news.

Just who do you think was supposed to be educating these people anyways about the realities of the marketplace anyways? The schools? Really? Come on man...

tts says

Just who do you think was supposed to be educating these people anyways about the realities of the marketplace anyways? The schools? Really? Come on man…

Common sense!

Bap33 says

Market conditions work just fine.

You're gonna play the "efficient market" card? God even Greenspan doesn't believe that anymore. If markets were efficient there never would've been a crash or recession ever in any laissez faire system.

Bap33 says

A homes price will match the buyers ability to buy it in an unmanipulated market.

Maybe, but even you believe the housing market wasn't unmanipulated. You just attributed it incorrectly to the CRA which is a Repub. talking point to put the blame on the Dems. when its really all their damn fault, but not because of the CRA.

Clinton helped relax the rules on the banks by finally canning the last few scraps of Glass-Stegall and Bush finished the job with his "ownership society".

Bap33 says

your other stuff is wrong too, but we all had that arguement a long while back. No ned to cover it again. It’s cool. HAve a good night.

Phht. This is a forum, people are supposed to talk back. If you don't want to talk to someone don't say anything.

thomas.wong1986 says

Common sense!

Doesn't really exist, never has. Weep for humanity I guess.

maybe? maybe? lol

there is something familure about this one .... hmm

thomas.wong1986 says

Of all things said! Conservatives want more regulations, while Libs wanted less regulations… see for yourself.

They're all full of crap, Dems and Repubs. You're falling for ginned up political controversy. It doesn't matter which one is in power since they all do what the banks/mega corps want right now.

Instead of focusing on the Red vs. Blue "politics as football" game we need to concentrate on issues. But that means putting aside ideological purity for being practical, and most people simply can't do that because they're blinded by the showmanship both sides are displaying.

Amazing stuff..... some people got it, some dont

231 Harding Ave
Los Gatos, CA 95030
Source: Public Records Beds: 2
Baths: 3.0
Finished Sqft: 1,707
Unfinished Sqft: -
Total Sqft: 1,707
Floors: 2
Lot Size: 8,528
Style: Single Family Residential
Year Built: 1965
Year Renovated: 1965
County: Santa Clara County

Property History
Date Event Price Appreciation Source
Aug 17, 2010 Sold (Public Records) $258,500 -7.3%/yr Public Records
Jan 09, 1998 Sold (Public Records) $675,000 -- Public Records

Bap33 says

maybe? maybe? lol
there is something familure about this one …. hmm

Laissez faire is a old idea that was tried for hundreds of years, had bubbles and busts and all that jazz too. Some the biggest bubbles ever (google the Tulip bubble) were under Laissez Faire economic systems.

"Free" and "unmanipulated" markets are something that can only exist on paper. In the real world they've never existed and never can.

@Troy,
ok.
But when you say the financial system was out of control, what was the main vehicle used to free up most of the liquid that the investors played with? I suggest it was, in part, due to the newly built houses in Everywhere, California that sold for $XXX (10 times HH income) to people who did not see that as a problem. If the free money for houses was not the way liquid was getting brought to the WallSteet types, then what was it? (seriously, what was it? I'm not being smartassed)

thomas.wong1986 says

231 Harding Ave
Los Gatos, CA 95030

that's not a comp.

there was no listing prior to sale.
probably not an arm's length sale (too lazy to check propertyshark to verify).

http://www.redfin.com/CA/Los-Gatos/231-Harding-Ave-95030/home/833489
http://www.zillow.com/homedetails/231-Harding-Ave-Los-Gatos-CA-95030/19751308_zpid/

zillow has it for $1M.
no way it sold on the open market for under $300k.

Big money for Wall St. was in repackaging those home loans over and over again, selling back and forth to suckers. The suckers being supposedly forgien SWF's and investors for the most part, turned out instead to be lots of domestic municipal fund buyers and pension fund buyers too though. CDO's and CDO Squared and such. That is where the insane tens of trillions of debt was created, housing itself is only "maybe" a couple of trillion.

Bugger!

Bap33 says

But when you say the financial system was out of control, what was the main vehicle used to free up most of the liquid that the investors played with?

For one, it was the Fed dropping interest rates to near-ZIRP:

10-Year Treasury Constant Maturity Rate (DGS10)

3% for a 10 year bond in 2003! That sucked!

Luckily, Wall Street found other vehicles for the world's rich people looking for yield. Safe as Houses!

Even safer thanks to the modern miracle of collateralized debt obligations (CDOs).

They could tranche all the suicide loans they were making and call 10% of them "equity piece" (stashed somewhere on someone's balance sheet as an asset), 30% of them moderate risk, and leave 60% of them TRIPLE-A, the same risk as sovereign debt. They offered a little sweetener for the suckers buying the 30% B piece, since with home rising 10%+ a year getting into this gravy train was like getting more free money for the world's rich people.

Then around 2007 all the suicide loans starting blowing up and lenders had to start pulling people's HELOCs, which caused further blow-ups because too many people were using debt to service debt.

http://economictimes.indiatimes.com/news/international-business/norways-central-bank-sues-citigroup-report/articleshow/6630369.cms

LONDON: Norway's central bank is suing Citigroup for alleged non-disclosure of financial risks at the time when Norwegian sovereign wealth funds were used to purchase securities issued by the US lender prior to the global financial crisis

Norges Bank alleges that it lost USD 835 million because Citi failed to fully reveal the financial risks it was facing, particularly from investments in sub-prime mortgages, British daily The Financial Times reported, citing a lawsuit filed in New York.

What they were also doing was 80/20 loans with Fannie Mae taking the 80% conventional part and wall street securitizing the shit 20% part.

Literally what they did was take 1000 second liens and call 80% of them safe (AAA) and 20% of them not safe (B).

Remember the higher interest rates 2nd liens had, back when they were offered? That was to sucker in the investors looking for 8% AAA-rated yields.

Banks looking for further credit enhancements could take the B-rated paper and then get AIG, MBIA, Ambac, Radian etc. to insure it, magically turning it into A-rated (basically borrowing the insurer's AAA-credit rating, since they were now on the hook for the risk).

Debt buyers were also hoodwinked by the private mortgage insurance providers. They too were writing checks their balance sheets couldn't cash.

NY judge rules MBIA couldn't tell if GMAC misrepresented MBS

The New York Supreme Court on Wednesday ruled that MBIA Insurance Corp. did not have any way to discover if GMAC Mortgage LLC intentionally misrepresented the true nature of mortgage-backed securities that MBIA insured.

http://www.housingwire.com/2010/12/21/n-y-judge-rules-mbia-couldnt-tell-if-gmac-misrepresented-mbs

There is a local flipper out in our area. I think he is filing for bankruptcy though. He bought a few properties and couldn't sell them, his purchases also dropped in price. Maybe one day he'll go do something useful for society.

Adding cabinets from "Home Depot" is hardly renovation for which people will overpay 50,000 for.

Every house I watched get bought by investors in the last three years, are now selling for less than they bought them for. This after they gave those houses "The Treatment" standard issue Granite counter tops, stucco covered furring strips trimming the windows and doors, and painted crap brown trimmed in turkey shit green.

Troy says

Literally what they did was take 1000 second liens and call 80% of them safe (AAA) and 20% of them not safe (B).

Anything with implied goverment guarantee, is considered safe.

Bap33 says

Who wanted them in place? Who wanted them removed?

The people who cleaned up the S&L mess wanted more regulation.

The people who made the S&L mess wanted less regulation.

"In the summer of 2003, leaders of the four federal agencies that oversee the banking industry gathered to highlight the Bush administration's commitment to reducing regulation. They posed for photographers behind a stack of papers wrapped in red tape. The others held garden shears. Gilleran, who succeeded Seidman as OTS director in late 2001, hefted a chain saw."

http://dorkmonger.blogspot.com/2008/11/cutting-red-tape.html

Chart: Annual rate of real estate appreciation, 1990-2006

(red is 30 year interest rates for reference)

Here you can see that the rate of appreciation SPIKED after that press conference in 2004 and 2005, from the 10% of 2002-2003 to 17.5% at the end of the summer of 2005.

But nobody covered themselves in glory insisting on making housing less affordable in the 1990-2005 period.

This guy here:

http://www.vdare.com/sailer/080928_rove.htm

details the argument that all the minority buying you were seeing in your area was a similar political master-plan to the political move to invade Iraq and take their oil.

Something that seemed smart at the time but didn't quite work out as planned.

thomas.wong1986 says

and it certainly did not explain why prices doubled prior to the 2000-2001 recession.

Interest rates fell from 10% in 1985-1990 to 7.5% in 1990-1998.

GDP rose from $5.7T in 1990 to $10T in 2000.

This graph

is complicated but shows two things:

blue line: total real estate asset valuation to GDP. Down is RE growing faster than GDP (bad), up is GDP growing faster than RE (good).

red line: is the 30 year mortgage rate regime (/10 to fit the scale)

With this graph you can see the 1980s run-up in RE relative to GDP was partially due to the falling interest rate regime (from 13%+ to ~9-10%). It's my general thesis that the baby boom entering their prime credit draw-down years (the median boomer was age 30 in 1985) pushed money into housing and was thus responsible for the secular rise in prices 1975-1990 (and the inflation in general).

With the 1990 bubble crash the Fed dropped rates a lot, helping to arrest the slide in RE valuations -- valuations in nominal terms held flat while the economy slowly recovered in the 1990-1995 period.

Affordability started the downtrend in 1998 as the market started coming back to life in dotcom areas (and most investors in the stock market were sitting on fat equity gains that gave them purchasing power in real estate).

The Fed attempted a brave attempt to but the brakes on the economy in 1999-2000 (that this was just before the 2000 election is just a coincidence no doubt), but after the election was decided in late 2000 the let rates fall down to historical lows, which continued the upwards trend in RE valuations.

Bap33 says

And this most recent bubble was a return to that original open market mistake by moving away from the new idea of lending rules. Is that about right?

The story of real estate lending is generally one of increasing access to credit.

I think analyzing anything prior to 1970 is a waste of time since that was both before the baby boom entered the housing picture (as buyers) and also for the first half of the 20th century most communities had plenty of land available for easy residential development.

But starting in 1970 banks started qualifying households not just on the man's salary but both. This encouraged households to fall into the "two income trap" of buying a better house at the expense of requiring both spouses to remain working.

The stupid thing is eventually every household was forced to commit to the two-income trap to be able to bid against everyone else doing the same thing. Prices went up, but nobody was getting more for their money since people were just bidding up the site value and not buying actual better houses.

After the 1970s inflation adjustment, interest rates have been on a secular downswing, with 30 year mortgage rates falling from 13% in 1985 to the 5% of today. Specific periods of rate change were 1985-1987 (from 15%+ to 10%), from 1990-1994 (10% to 7%), from 2000 to 2003 (from 8% to 5%), 2009-now (from 6% to ~4.5%).

This rate adjustment appears to be a one-way street, since the lower 80% of the population has been only keeping up with inflation as far as wages go:

The Fed simply has no ability to raise rates until wages turn upwards again. This is obvious to everyone and is why the 30 year Treasury bond is still under 5%:

http://research.stlouisfed.org/fred2/series/WGS30YR

Lending also has been in the process of loosened. Low-down loans were formerly only available to VA borrowers, but in the 80s and 90s they have been extended to more people.

But what really changed in 2001-2005 was the rise of 80-20 financing, or even 80-20-25 financing, where 120% of the purchase price was borrowed to get the borrower into the house.

In addition, middle class borrowers could abuse their high FICO scores and avoid the income documentation step. This allowed them to sidestep traditional lending underwriting and buy more house than they could safely afford.

Up to 50% of the loans being made in 2005 were low-documentation.

Another affordability innovation was pick-a-pay, negative amortization. This was very popular with specuvestors interested in only holding the property 2 years to get the tax treatment.

Places like Salinas and the Central Valley saw up to half the new loans going out as negative-am in 2005. Of course, by juicing affordability, what really happened is that prices were bid up as multiple bidders abusing the system bidded against each other for houses coming onto the market.

Banks were also qualifying borrowers on the introductory teaser rate of IO loans, not the back-end fully-amortizing rate. Pure suicide loan for all borrowers wanting to maximize how much the bank would lend them.

In 2008-2009 all the worst of the suicide lending innovation listed above were removed from the market.

IIRC there was even some talk of qualifying borrowers on the highest household income, not both. OH HAPPY DAY if that actually happens (not holding my breath).

Troy says

Interest rates fell from 10% in 1985-1990 to 7.5% in 1990-1998.

You cant make an otherwise $200-300K home into a $1.2M in a few years just
based on interest rates and monthly payments. Based on incomes and inflation
it bearly cracks $400K today. As your graph shows prices and rates both fell
in the early 90s.

Only insanity (irrational exhuberance) has gripped the minds of buyers!

Troy says

Places like Salinas and the Central Valley saw up to half the new loans going out as negative-am in 2005. Of course, by juicing affordability, what really happened is that prices were bid up as multiple bidders abusing the system bidded against each other for houses coming onto the market.
Banks were also qualifying borrowers on the introductory teaser rate of IO loans, not the back-end fully-amortizing rate. Pure suicide loan for all borrowers wanting to maximize how much the bank would lend them.

In 2008-2009 all the worst of the suicide lending innovation listed above were removed from the market.

IIRC there was even some talk of qualifying borrowers on the highest household income, not both. OH HAPPY DAY if that actually happens (not holding my breath).

One should mention the clamp down on apprasiors. Its interesting that after the blow up that falling prices in part were blamed on apprasiors who no longer bound to being black listed by realtors and loan officers if they didnt play the game and inflate or re-inflate prices. That certainly was found on main street not wall street. And today, lots of REA not too pleased with that.

I read this recently in the Economist and tend to agree with it.
He refers to research by Atif Mian, of the University at California, Berkeley, and Amir Sufi, of the Booth School, which shows that increased mortgage availability pushed up American home prices by only around 4.3%. This was a small fraction of the rise in prices during the boom. Irrational exuberance and a willingness to bet on prices rising for ever were probably much bigger contributors to the bubble than credit expansion. My head hurts trying to figure out how they isolated the various causes and effects, but it fits with my "flipper velocity" theory of home prices.

fewy, when did lending really change?

I walked into a CFC retail branch in late 2001 with a solid FICO and a nice salary (but little down payment and only 1 1/2 years of salary history) but they didn't feel any great ability to fund a loan for me in the bay area at that time.

4 years later I'd have had a wide choice of offerings.

EBGuy says

My head hurts trying to figure out how they isolated the various causes and effects, but it fits with my “flipper velocity” theory of home prices.

what also fueled the price rises in 2004-2005 was the gains of 2002-2003 funding the specuvestors via hard cash-out capital gains or the ability to jack the equity out of their existing portfolio via cash-out refis.

The $500B/yr of cash-out equity conversions also funded millions of bubble jobs, who were also willing & able buyers into the bubble, especially with the rise of subprime originations 2004-2006.

It was a beautiful bubble machine. I had no belief such a thing could be created in a modern, lawful, protestant work-ethic society.

How wrong I was.

EBGuy says

I read this recently in the Economist and tend to agree with it.

He refers to research by Atif Mian, of the University at California, Berkeley, and Amir Sufi, of the Booth School, which shows that increased mortgage availability pushed up American home prices by only around 4.3%. This was a small fraction of the rise in prices during the boom. Irrational exuberance and a willingness to bet on prices rising for ever were probably much bigger contributors to the bubble than credit expansion. My head hurts trying to figure out how they isolated the various causes and effects, but it fits with my “flipper velocity” theory of home prices.

I'm curious how they separate mortgage availability and irrational exuberance. It seems like you can't have irrational exuberance (or at least can't act upon it) without the mortgage availability. Even if a person making $50k thinks the $700k house is going to be worth $1M in 3 years, if no one gives him the loan to buy the $700k house, he can't buy.