Author Topic: Another subprime housing crisis?  (Read 1534 times)

jeromedawg

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Another subprime housing crisis?
« on: March 15, 2017, 11:19:27 AM »

tarheeldan

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Re: Another subprime housing crisis?
« Reply #1 on: March 15, 2017, 11:48:14 AM »
In terms of inflation-adjusted home prices we're not where we were yet:
https://www.advisorperspectives.com/images/content_image/data/dc/dc67c797b11ffdb08032bbc0daeb9343.png

Households are also not near as leveraged as they were:
https://fred.stlouisfed.org/series/TDSP

MBS and ABS outstanding are not as high:
https://www.dropbox.com/s/3bmsfw5zgfgfa5a/CDOs.png?dl=0
https://www.dropbox.com/s/v7um7akghygr0p9/MBS.png?dl=0

And, for now, we appear to be in the expansion phase of the business cycle, according to GS:
https://www.dropbox.com/s/sa472kv9isbcay6/Business%20Cycle.png?dl=0

On the negative side - there is also a subprime lending problem in auto loans with asset-backed securities (https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1815074&SctArtId=419448&from=CM&nsl_code=LIME&sourceObjectId=9944889&sourceRevId=1&fee_ind=N&exp_date=20270315-03:39:11) and the problem of student loan debt.

The big problem to me is that, structurally, nothing has improved and things are actually in some ways worse than they were before. The moral hazard problem has not been addressed and is actually exacerbated by the fact that the "too big to fail" organizations are actually larger now due to the consolidation that was government-brokered during the crisis (a bit old, but https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/the-fix/files/2016/02/Banks_v2.jpg&w=1484). There remains no compartmentalization between retail and investment banking. Ratings agency incentives are still not aligned. Sure, Dodd-Frank grants authority that wasn't there before but that authority hasn't been used to reduce systemic risk really. And the new administration wants to walk back on these already weak measures.

TLDR: Not just yet. Maybe later.
« Last Edit: March 15, 2017, 12:12:39 PM by tarheeldan »

SwordGuy

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Re: Another subprime housing crisis?
« Reply #2 on: March 15, 2017, 04:02:32 PM »
So, based upon the two postings so far, we're either basically ok for now or rental property will be on sale for cheap.

Win-win in my book!

mishek01

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Re: Another subprime housing crisis?
« Reply #3 on: March 17, 2017, 10:07:08 AM »
In terms of inflation-adjusted home prices we're not where we were yet:
https://www.advisorperspectives.com/images/content_image/data/dc/dc67c797b11ffdb08032bbc0daeb9343.png

Households are also not near as leveraged as they were:
https://fred.stlouisfed.org/series/TDSP

MBS and ABS outstanding are not as high:
https://www.dropbox.com/s/3bmsfw5zgfgfa5a/CDOs.png?dl=0
https://www.dropbox.com/s/v7um7akghygr0p9/MBS.png?dl=0

And, for now, we appear to be in the expansion phase of the business cycle, according to GS:
https://www.dropbox.com/s/sa472kv9isbcay6/Business%20Cycle.png?dl=0

On the negative side - there is also a subprime lending problem in auto loans with asset-backed securities (https://www.globalcreditportal.com/ratingsdirect/renderArticle.do?articleId=1815074&SctArtId=419448&from=CM&nsl_code=LIME&sourceObjectId=9944889&sourceRevId=1&fee_ind=N&exp_date=20270315-03:39:11) and the problem of student loan debt.

The big problem to me is that, structurally, nothing has improved and things are actually in some ways worse than they were before. The moral hazard problem has not been addressed and is actually exacerbated by the fact that the "too big to fail" organizations are actually larger now due to the consolidation that was government-brokered during the crisis (a bit old, but https://img.washingtonpost.com/wp-apps/imrs.php?src=https://img.washingtonpost.com/blogs/the-fix/files/2016/02/Banks_v2.jpg&w=1484). There remains no compartmentalization between retail and investment banking. Ratings agency incentives are still not aligned. Sure, Dodd-Frank grants authority that wasn't there before but that authority hasn't been used to reduce systemic risk really. And the new administration wants to walk back on these already weak measures.

TLDR: Not just yet. Maybe later.

This is incredible information. How do you know all this (job or interest of yours,) because I am sure you didn't just look it up and some of the links are from a dropbox account? Very curious, because I would love to be able to figure out this kind of information. I am in Real Estate part-time.

tarheeldan

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Re: Another subprime housing crisis?
« Reply #4 on: March 17, 2017, 11:01:06 AM »
How do you know all this (job or interest of yours,) because I am sure you didn't just look it up and some of the links are from a dropbox account? Very curious, because I would love to be able to figure out this kind of information. I am in Real Estate part-time.

Hi! I'm an OTC commodities options trader, so the Dodd-Frank regulations are something that impact me professionally - but mostly it's just an interest and I'm no real expert.

The Dropbox is mine, and as part of my job I get a lot of market intelligence from other firms - mostly oil-related like Argus, Platts, OPIS, etc, but also from Goldman Sachs, BofA, etc. My academic background is in economics and I'm fascinated by market failures - especially these days where an extreme laissez faire viewpoint is espoused by people who don't seem to understand these issues (externalities, tragedy of the commons, moral hazard, etc.)

Capt j-rod

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Re: Another subprime housing crisis?
« Reply #5 on: March 17, 2017, 05:32:40 PM »
The lending regulations and rules are a little tougher, but they are getting easier by the day. My rentals are always purchased in cash. I get a better deal and I can buy houses that others can't. If it won't pass inspection, the bank won't lend the money. I stalk the houses that the seller wants out and doesn't want to or can't afford the improvements. Will there be another bubble? I think yes. There are a huge number of bank owned houses that are being slowly released... If they dumped them all at once it would flood the market. There are still a lot of people that are teetering on the edge pay check to pay check. I see it everyday. People can't afford a $750 hot water heater swap, furnace repair, or anything over $200 without a charge card. America is cash poor. As interest rates rise, so do the payments. The market is strange in Ohio right now... 3 bedroom 2 bath homes are hot. McMansions sit and rot. Small starter homes are very overpriced. If the house needs a roof, kitchen, or bath, no one will touch it. They barely have a down payment, and they want it perfect.... Our rental market is crazy. Not enough units to go around. Will it pop? Maybe. Did anyone learn anything from 2008? NOPE!

jeromedawg

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Re: Another subprime housing crisis?
« Reply #6 on: March 25, 2017, 08:13:08 PM »
The lending regulations and rules are a little tougher, but they are getting easier by the day. My rentals are always purchased in cash. I get a better deal and I can buy houses that others can't. If it won't pass inspection, the bank won't lend the money. I stalk the houses that the seller wants out and doesn't want to or can't afford the improvements. Will there be another bubble? I think yes. There are a huge number of bank owned houses that are being slowly released... If they dumped them all at once it would flood the market. There are still a lot of people that are teetering on the edge pay check to pay check. I see it everyday. People can't afford a $750 hot water heater swap, furnace repair, or anything over $200 without a charge card. America is cash poor. As interest rates rise, so do the payments. The market is strange in Ohio right now... 3 bedroom 2 bath homes are hot. McMansions sit and rot. Small starter homes are very overpriced. If the house needs a roof, kitchen, or bath, no one will touch it. They barely have a down payment, and they want it perfect.... Our rental market is crazy. Not enough units to go around. Will it pop? Maybe. Did anyone learn anything from 2008? NOPE!

Do you use private money/lenders for purchasing cash? Or do you actually have that much capital in cash to straight out purchase a home (and if that's the case, where do you live?!).

I'm looking to get something that I can cash-flow on without needing to rely on my own capital.

waltworks

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Re: Another subprime housing crisis?
« Reply #7 on: March 26, 2017, 10:01:35 AM »
I have gotten mortgages (refinanced, anyway) in the last few years and I can say definitively that the approval process is not anything like it was back in 2005. The no-doc/stated income/NINJA crap is long gone. That's not an argument that lending is too tight or loose per se, but the subprime segment mostly doesn't exist anymore.

Demographics right now (in addition to tarheeldan's nice numbers) say that demand for housing will be going up, especially at the entry level (and especially since the housing stock got a LOT older in the aggregate over the last decade as builders quit building). That's not saying there will not be another crash, of course, but the basic economic drivers are in place for housing to be steady for a while.

-W

Capt j-rod

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Re: Another subprime housing crisis?
« Reply #8 on: March 26, 2017, 01:05:49 PM »
I now run on cash... I seek out homes that can't pass inspection and thus the bank won't lend on. Luckily for me the majority of the world has less than $2000 in savings. I treat my property like most people treat a mutual fund. Once I invest money I don't take any money away. I do all the work myself. The day that I decide to FIRE then I will flip the switch, quit buying and reap the rewards. I live in the midwest and prices are pretty reasonable. I cater to retirees, and make my property ADA accessible. It opens a whole new class of renters.

SwordGuy

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Re: Another subprime housing crisis?
« Reply #9 on: March 26, 2017, 04:25:37 PM »
I now run on cash... I seek out homes that can't pass inspection and thus the bank won't lend on. Luckily for me the majority of the world has less than $2000 in savings. I treat my property like most people treat a mutual fund. Once I invest money I don't take any money away. I do all the work myself. The day that I decide to FIRE then I will flip the switch, quit buying and reap the rewards. I live in the midwest and prices are pretty reasonable. I cater to retirees, and make my property ADA accessible. It opens a whole new class of renters.

Good plan! 

waltworks

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Re: Another subprime housing crisis?
« Reply #10 on: March 26, 2017, 05:25:47 PM »
I now run on cash... I seek out homes that can't pass inspection and thus the bank won't lend on. Luckily for me the majority of the world has less than $2000 in savings. I treat my property like most people treat a mutual fund. Once I invest money I don't take any money away. I do all the work myself. The day that I decide to FIRE then I will flip the switch, quit buying and reap the rewards. I live in the midwest and prices are pretty reasonable. I cater to retirees, and make my property ADA accessible. It opens a whole new class of renters.

Yeah, your experience is great confirmation that subprime RE lending is a non-issue at this point.

Agreed that ADA-compliant housing will be in big demand in the next 20 years, too.

-W

Capt j-rod

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Re: Another subprime housing crisis?
« Reply #11 on: March 27, 2017, 07:24:51 AM »
I wouldn't say sub prime is a non issue. There are still plenty of people in the "flip" business that apply lipstick to the pig until it passes. If we could get banks back to being banks, I'd be happy. Higher interest=fiscal responsibility. If they give me higher interest on investment I will save more. If they charge more interest I will buy smaller or less and pay it off sooner. This "free money" has poisoned our society. If and when interest comes back... Rentals will be in very high demand. I laugh because we accuse the Chinese of deflating their dollar, but then we turn around and lend ours out a historically low rates. I quit "using the bank's money to make me money" four years ago. Would the bank exist if this were the smartest path? Would Vegas exist if you could win? I used them to get started, but then I quickly discovered how much it really costs... Closing costs, realtors, etc was close to $10500 on a house my buddy just bought. A deed search and filing fee on my last house cost me $350 total above sale price.

waltworks

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Re: Another subprime housing crisis?
« Reply #12 on: March 27, 2017, 09:08:01 AM »
That is an interesting rant, but it has nothing to do with "subprime" lending, which is, in essence, lending to people who should not qualify for loans. In 2005, you could literally (I was offered many) get a mortgage for a $500k house with no documentation of your income or assets. If for some reason your stated income was too low, no problem - we'll do a negative amortizing loan so you can "afford" the payments!

THAT is what subprime lending was, and it's something that no longer exists for real estate (it still does for cars, but those are quick/easy to repossess so it's not a systemic issue like RE was).

-W

Another Reader

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Re: Another subprime housing crisis?
« Reply #13 on: March 27, 2017, 11:14:29 AM »
Some of the low-doc mortgages are coming back, at higher interest rates  The folks at Cash Call, everyone's favorite payday lender, have been in the mortgage business for awhile.  Recently they have begun advertising "income and credit solving loans," which are at higher interest rates.  Hope the gubmint isn't buying that paper, but it's probably making its' way into the MBS market.

waltworks

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Re: Another subprime housing crisis?
« Reply #14 on: March 27, 2017, 11:32:30 AM »
That's interesting. I am no longer really involved in RE (prices went up so much that I dumped all my rentals) so I haven't done anything but a quick refi in the last few years. But that (should have been really easy) was quite a PITA, leading me to believe standards were still pretty high.

If the NINJA loans come back big time, I'm selling my own freaking house. You don't have to be a genius to figure out what happens in that scenario.

More likely I think we'll see a gradual rise in interest rates and a flattening out of appreciation/long stagnation in house prices with the usual region-specific variations up or down. And hopefully lots of homebuilding. A lot of young folks will be getting married and having kids in the next decade.

-W

adamcollin

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Re: Another subprime housing crisis?
« Reply #15 on: March 28, 2017, 05:33:59 AM »
Thanks for sharing this valuable information.
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