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12/6/2019 7:27:02 PM
Posted: 1/18/2008 4:46:30 AM EST
[Last Edit: 1/18/2008 7:15:17 AM EST by 556fiend]
Chicken little has been screaming via the MSM for 3 years now that "teh howzing bubbel" was going to collapse our economy and sub-prime/adjustable rate mortgages were going to put homeowners on the streets.

Nationwide prices have adjusted downward, it can't be denied but listening to the radio today said that "3% of Americans are facing foreclosure". Now 3% is a tremendous amount but frankly, its not much higher than pre-boom stats. No matter how good the economy there will always be foreclosures...the boom just delayed them because people could have their houses re-appraised and suck out the equity for the inflated amount.

I remember during the 90s an entire circle of friends I had in Dallas that were in tech/telecom jobs. Great pay, great 401ks and great benefits. One by one they lost their jobs and floundered trying to learn new skills. My wife grew up in Tulsa and had to watch the Worldcom fiasco blow up firsthand. Not to mention those who worked outside the industry but were invested via stocks/mutuals and lost out.

Has it been long enough to declare "Tech bubble of 90s worse than housing bubble of 00s"?
Link Posted: 1/18/2008 4:49:52 AM EST
[Last Edit: 1/18/2008 4:50:10 AM EST by Torqued]
IMHO, there is still a lot of "unwinding" of stuff tied to the housing bubble left..

www.thestreet.com/pf/newsanalysis/investing/10380613.html

Link Posted: 1/18/2008 5:01:14 AM EST
The difference is that the tech boom was equity funded so investors lost money but bits could still run faster over more fiber. Investors make and lose money everyday, although not at the level of the tech boom very often. Here the problem is bank funded and it has reduced bank capital used for lending due to derivatives which magnify the effect of the losses. Lending is the life blood of the economy because it sits in the transactional part of business -- buying inventory, financing receivables, funding expansion plans, purchasing businesses etc. That is why the fed has acted so fast (the coordinated bank lending program) and why this bust is different. Having said that, the sky is not falling (although it looks like rain) and a more relavent comparison is to the s&l debacle.
Link Posted: 1/18/2008 5:04:52 AM EST
The tech crash was a depression for those of us who experienced it first hand, but it was mostly limited to tech communities (Telecom Corridor, Silicon Valley). These communities will most likely never return to anything close to what it was in the '90's. It is still like a ghost town in the business districts in and around Richardson/Plano.

The housing problem is felt nationwide, thus it gets more press.
Link Posted: 1/18/2008 5:06:57 AM EST
[Last Edit: 1/18/2008 7:32:06 AM EST by nightstalker]
Still a little while to go on the housing bubble....18 mos.

Losing some of your bloated portfolio to reason is a little different than being foreclosed.

Due Diligence
Link Posted: 1/18/2008 5:08:16 AM EST
[Last Edit: 1/18/2008 5:11:53 AM EST by stator]
Banks (like all other corporations) carrying goodwill on the books from year to year, and when the market is down, they will write that off. Goodwill is the difference between the current value on the books and past values and/or acquisitions.

So, lets say that you acquired a company for $400 million. Once the acquisition completed, you realized a net gain of $100 million on your books. The remaining $300 million then becomes goodwill on your books as well. If your merged performance does not make up that $300 million gap, then you can either continue to carry the goodwill forward to succeeding years, or write it down (off).

Wall Street and shareholders do not like write-offs because it signals that the acquisition was a bad investment. Stock price would decrease and the executives will feel the heat. Neither likes that. So what to do?

Well, corporations will carry goodwill forward and wait for a recession or crisis of some sort, then write off that goodwill while blaming the recession or crisis. Executives look good and the stock is already down anyway. The books will come out in better shape and the stock price will rebound with the market gets over the crisis.

Going back to your point about the housing bubble, I will bet dollars to donuts that much of the banking industry write-offs are from past goodwill balances that have nothing to do with the current housing market crunch in the USA. In fact, it is probably more akin to the "tech" bubble which is overpaying for acquisitions.

Darn, I write the strangest stuff for a gun forum.
Link Posted: 1/18/2008 5:14:52 AM EST
I don't think you can hardly compare the two. The tech bubble was largely based on 1's and 0's in a computer somewhere and not hard assets. That made the tech bubble play out at a much more rapid pace.

The housing bubble involves hard assets, and as such will be spread out over a much longer period of time. It will play out as a slow bleed, not a sudden, swift crash. I believe that we're still in just the beginning stages of the real pain that will be felt.

Remember, on a national average basis housing prices rose about 50% during the boom. They've only come down a few percent since then, while wages have risen only a few percent. That is not sustainable.
Link Posted: 1/18/2008 5:25:40 AM EST

Originally Posted By LvFreeRDie:
I don't think you can hardly compare the two. The tech bubble was largely based on 1's and 0's in a computer somewhere and not hard assets. That made the tech bubble play out at a much more rapid pace.

The housing bubble involves hard assets, and as such will be spread out over a much longer period of time. It will play out as a slow bleed, not a sudden, swift crash. I believe that we're still in just the beginning stages of the real pain that will be felt.

Remember, on a national average basis housing prices rose about 50% during the boom. They've only come down a few percent since then, while wages have risen only a few percent. That is not sustainable.


Since when is the value of anything controlled by the buyers income? It might find it's extreme top limit based on that, but there are lots of factors determining value, like an increased pool of buyers.
Link Posted: 1/18/2008 6:59:57 AM EST
[Last Edit: 1/18/2008 7:09:37 AM EST by 556fiend]

Originally Posted By Alacran:
The tech crash was a depression for those of us who experienced it first hand, but it was mostly limited to tech communities (Telecom Corridor, Silicon Valley). These communities will most likely never return to anything close to what it was in the '90's. It is still like a ghost town in the business districts in and around Richardson/Plano.

The housing problem is felt nationwide, thus it gets more press.


Plano was exactly what I was referencing. My whole circle of friends were all at CCCC Spring Creek Campus taking garbage classes and got offered jobs in the $40 - $60k range. It gave them a taste of the "good" life at 20 years old.

Most bought cars and houses, got married and started families. Then within one year all were looking for work in new fields.
Link Posted: 1/18/2008 7:06:36 AM EST

Originally Posted By LvFreeRDie:
I don't think you can hardly compare the two. The tech bubble was largely based on 1's and 0's in a computer somewhere and not hard assets.


I am sorry to say that has to be the worst summary of the tech bubble I've ever read. I mean no offense by it. The tech bubble was basically people buying corporations at an over-inflated price. It is also reasonable to assume that corporations have more hard assets than home buyers. I believe this has many parallels to the housing bubble today.

I do agree with your point that this bubble will take longer to play out. Perhaps your supporting statement of 1's and 0's was not what you intended.

My point is that the crunch from the housing bubble, which is the massive write-offs and write-downs by the banking institution is not mostly about the sub-prime mortgage crunch. Those assets are back by real estate so banks do not write off the loan and walk away if the home owner cannot pay. They foreclose and usually recover majority of their loan.

I say that banks are write-off goodwill which most is prior mergers/acquisitions made in the "tech bubble", and foreign loans being repaid with much cheaper dollars. We should remember that last part from the 1980's when banks got into trouble with foreign loans as well.
Link Posted: 1/18/2008 7:09:03 AM EST

Originally Posted By LvFreeRDie:
...

The housing bubble involves hard assets, and as such will be spread out over a much longer period of time. It will play out as a slow bleed, not a sudden, swift crash. I believe that we're still in just the beginning stages of the real pain that will be felt.

Lenders in our market started adjusting qualifications last summer. I had a pre-approved buyer with a 5% down loan knocked up to 10% down two days before closing. He didn't do anything to justify the bump up, but his lender saw the writing on the wall and upped all their buyer's qualifications. I think the press has made it much worse than it really was, we've been experiencing the "slow bleed" for two years but everyone is waiting for a decapitation thats not gonna happen.

Remember, on a national average basis housing prices rose about 50% during the boom. They've only come down a few percent since then, while wages have risen only a few percent. That is not sustainable.

That 50% number is a little misleading. Some California markets experienced growth of 300% and people were flipping houses for 75% in one year. Orange County had a Realtor population of 1 in 5. Houston on the other hand realized maybe 25% growth on the whole.

Link Posted: 1/18/2008 7:10:30 AM EST

Originally Posted By Alacran:
The tech crash was a depression for those of us who experienced it first hand, but it was mostly limited to tech communities (Telecom Corridor, Silicon Valley).


that is not true all all. It was felt by everyone who invested in the stock market directly or indirectly such as having a pension fund. This is just about every productive worker in the USA, not including those that live off entitlements and tax credits (welfare).

It is just that many do not understand how to feel the effects of their pension funds, 401Ks, IRA's, Roth's, etc, unless one was retiring or close to it, or had too much of their pension fund in one stock (Enron employees).
Link Posted: 1/18/2008 7:14:15 AM EST
[Last Edit: 1/18/2008 7:16:06 AM EST by stator]

Originally Posted By 556fiend:

Lenders in our market started adjusting qualifications last summer. I had a pre-approved buyer with a 5% down loan knocked up to 10% down two days before closing. He didn't do anything to justify the bump up, but his lender saw the writing on the wall and upped all their buyer's qualifications. I think the press has made it much worse than it really was, we've been experiencing the "slow bleed" for two years but everyone is waiting for a decapitation thats not gonna happen.



Exactly. The banking crisis is really not all a sub-prime mortgage crisis but goodwill write-offs from other banking operations. It is just that the mainstream news media focuses on some more sensational that viewers can comprehend in minutes.

When Houston real estate market tanked due to the oil bust, it did not result in a rapid decapitation of the real estate market coast-to-coast. It is because most loans are not upside-down which gives the bank an opportunity to foreclose, sell, and get their loaned money back.
Link Posted: 1/18/2008 7:21:01 AM EST

Originally Posted By 556fiend:

Originally Posted By LvFreeRDie:
...

The housing bubble involves hard assets, and as such will be spread out over a much longer period of time. It will play out as a slow bleed, not a sudden, swift crash. I believe that we're still in just the beginning stages of the real pain that will be felt.

Lenders in our market started adjusting qualifications last summer. I had a pre-approved buyer with a 5% down loan knocked up to 10% down two days before closing. He didn't do anything to justify the bump up, but his lender saw the writing on the wall and upped all their buyer's qualifications. I think the press has made it much worse than it really was, we've been experiencing the "slow bleed" for two years but everyone is waiting for a decapitation thats not gonna happen.

Remember, on a national average basis housing prices rose about 50% during the boom. They've only come down a few percent since then, while wages have risen only a few percent. That is not sustainable.

That 50% number is a little misleading. Some California markets experienced growth of 300% and people were flipping houses for 75% in one year. Orange County had a Realtor population of 1 in 5. Houston on the other hand realized maybe 25% growth on the whole.



That's why I said on a national average basis.
Link Posted: 1/18/2008 7:26:33 AM EST
[Last Edit: 1/18/2008 7:27:13 AM EST by 556fiend]

Originally Posted By LvFreeRDie:

Originally Posted By 556fiend:

Originally Posted By LvFreeRDie:


That 50% number is a little misleading. Some California markets experienced growth of 300% and people were flipping houses for 75% in one year. Orange County had a Realtor population of 1 in 5. Houston on the other hand realized maybe 25% growth on the whole.



That's why I said on a national average basis.


I didn't properly elaborate.

Housing bubble is LARGELY localized...Waterfront cities and downtown metros.

Tech bubble was an entire industry AND their investors who numbered in the tens of millions just in the USA.

How many job losses were there in the tech industry? NAR reported Realtor populations down less than 1% from '06 to '07.
Link Posted: 1/18/2008 7:27:25 AM EST
Link Posted: 1/18/2008 7:31:17 AM EST

Originally Posted By stator:

Originally Posted By LvFreeRDie:
I don't think you can hardly compare the two. The tech bubble was largely based on 1's and 0's in a computer somewhere and not hard assets.


I am sorry to say that has to be the worst summary of the tech bubble I've ever read. I mean no offense by it. The tech bubble was basically people buying corporations at an over-inflated price. It is also reasonable to assume that corporations have more hard assets than home buyers. I believe this has many parallels to the housing bubble today.

I do agree with your point that this bubble will take longer to play out. Perhaps your supporting statement of 1's and 0's was not what you intended.

My point is that the crunch from the housing bubble, which is the massive write-offs and write-downs by the banking institution is not mostly about the sub-prime mortgage crunch. Those assets are back by real estate so banks do not write off the loan and walk away if the home owner cannot pay. They foreclose and usually recover majority of their loan.

I say that banks are write-off goodwill which most is prior mergers/acquisitions made in the "tech bubble", and foreign loans being repaid with much cheaper dollars. We should remember that last part from the 1980's when banks got into trouble with foreign loans as well.


I don't think that you understood what I meant by the 1's and 0's comment. I am talking from the psychological perspective that it is easier for someone to admit a loss and sell some tech stock that is just a ticker symbol somewhere in cyberspace than it is for someone to admit they paid way too much for the house they are living in and sell it at a loss to move to a more affordable place.

I believe that most people will try to hang on to their overpriced homes for much longer due to the fact that it is a tangible asset (they live there) and all the associated hoops that they would have to jump through to sell at a loss and move somewhere else.

I was talking from a home price perspective, not an overall economy perspective.
Link Posted: 1/18/2008 7:32:17 AM EST
There is intrinsic value in real estate. Tech bubble was because there was nothing behind the value.

Most of the "burst bubble" is due to highly localized hyper-inflation in values, caused by speculative ventures in these few markets.
Link Posted: 1/18/2008 7:42:12 AM EST

Originally Posted By 556fiend:

Originally Posted By Alacran:
The tech crash was a depression for those of us who experienced it first hand, but it was mostly limited to tech communities (Telecom Corridor, Silicon Valley). These communities will most likely never return to anything close to what it was in the '90's. It is still like a ghost town in the business districts in and around Richardson/Plano.

The housing problem is felt nationwide, thus it gets more press.


Plano was exactly what I was referencing. My whole circle of friends were all at CCCC Spring Creek Campus taking garbage classes and got offered jobs in the $40 - $60k range. It gave them a taste of the "good" life at 20 years old.

Most bought cars and houses, got married and started families. Then within one year all were looking for work in new fields.


A lot of guys with 10+ years experience had to find new careers, too. With the huge amount of people out of work, even low paying jobs were hard to find from 2002-2003. A few that I know were able to get back into telecom, but some refused because layoffs are still common.

Many lost their house, car, marriage, etc... The foreclosure rate in Collin County back in 2002 was pretty high but was mostly unknown outside of North Texas.
Link Posted: 1/18/2008 7:56:16 AM EST

Originally Posted By stator:

Originally Posted By Alacran:
The tech crash was a depression for those of us who experienced it first hand, but it was mostly limited to tech communities (Telecom Corridor, Silicon Valley).


that is not true all all. It was felt by everyone who invested in the stock market directly or indirectly such as having a pension fund. This is just about every productive worker in the USA, not including those that live off entitlements and tax credits (welfare).

It is just that many do not understand how to feel the effects of their pension funds, 401Ks, IRA's, Roth's, etc, unless one was retiring or close to it, or had too much of their pension fund in one stock (Enron employees).


I did say mostly, and I agree with you up to a point, but 9/11 got more credit for the downturn in the economy nationally in 2002 than the bursting of the tech bubble. While the rest of the country was in a resession, the tech communities were in a depression. Many supporting businesses and restauraunts, in and around the tech communty went out of business, as well.
Link Posted: 1/18/2008 8:15:43 AM EST
The tech bubble was worse because it was built on fantasy and promises, while housing is a real, tangible asset.
Link Posted: 1/18/2008 1:33:56 PM EST

Originally Posted By DnPRK:
The tech bubble was worse because it was built on fantasy and promises, while housing is a real, tangible asset.


+1

Lots of boomers lost their retirement.
Link Posted: 1/18/2008 1:41:22 PM EST

Originally Posted By Keith_J:
There is intrinsic value in real estate. Tech bubble was because there was nothing behind the value.

Most of the "burst bubble" is due to highly localized hyper-inflation in values, caused by speculative ventures in these few markets.

Precisely. The "Tech Bubble" was just hot air and at the first hint of trouble the whole house of cards came crashing down because there really wasn't any true worth behind it.

Atleast with the housing industry there's something of intrinsic value providing a base point.
Link Posted: 1/18/2008 1:49:38 PM EST
We won't know for three or four years.
Link Posted: 1/18/2008 1:54:38 PM EST
We're all gonna die.
Link Posted: 1/18/2008 1:57:56 PM EST
The tech burst cost me $50,000, my house has gone up in value.
Link Posted: 1/18/2008 8:19:01 PM EST
Why can't the banks just refinance the people who have ARMs to a fixed low rate and then there would be alot less people getting foreclosures? That sounds like a simple solution that would help out both the banks who are losing billions and the people who are losing homes.
Link Posted: 1/19/2008 3:32:47 AM EST

Originally Posted By JoeyP:
Why can't the banks just refinance the people who have ARMs to a fixed low rate and then there would be alot less people getting foreclosures? That sounds like a simple solution that would help out both the banks who are losing billions and the people who are losing homes.


Great plan, but banks aren't keen on debt forgiveness. It would have to get a lot worse.
Link Posted: 1/19/2008 3:39:10 AM EST
[Last Edit: 1/19/2008 4:29:17 AM EST by Wobblin-Goblin]

Originally Posted By JoeyP:
Why can't the banks just refinance the people who have ARMs to a fixed low rate and then there would be alot less people getting foreclosures? That sounds like a simple solution that would help out both the banks who are losing billions and the people who are losing homes.

While you're coming up with these fantastic solutions, dream up a nice financial package for guys like me, too, who bought within their means.
Link Posted: 1/19/2008 4:17:25 AM EST
[Last Edit: 1/19/2008 5:09:58 AM EST by Bladeswitcher]

WIth the housing situation you have a bunch of people who took out really big loans to buy houses they couldn't afford. In most cases these folks had very little equity in their homes. THeir "ownership" was a facade. Yes, they were making payments but it was essentially rent -- they knew (or should have known) that they were only paying interest. They weren't building any equity.

You just have to ask how much are the "victims" of the housing situation really losing? What did they really own anyway?

FWIW, I bought a house two years ago. I bought a house that was more than reasonable for my and my wife's income level. We took out a fixed rate loan and started with about 30 percent equity. We're fine. We haven't been affected by the housing thing in the least . . .
Link Posted: 1/19/2008 4:28:31 AM EST
The tech bubble affected me personally as I lost my job because of it. Also, stocks I had and my 401K took a giant hit. I had stock in the company I worked for and thank god I sold some of it before it went to damn near nothing. It hit a high of $162.00/share and split. When it split I sold half my shares. By the end of 2001 it was only worth $3.00/share.

The housing market affects me but not as much. The industry that I work in now is affected by so many markets its not even funny but if one area slows another may pick up meaning that I'm pretty secure as long as some portion of the economy is working OK.

Do I think this is worse? No, well at least not yet.

Also note that some people who are involved in foreclosures want to be. Who wants to be upside down on a mortgage payment that will last another 30 years? Bail out if you can and start over.

Link Posted: 1/19/2008 6:21:47 AM EST

Originally Posted By wgjhsafT:
Also note that some people who are involved in foreclosures want to be. Who wants to be upside down on a mortgage payment that will last another 30 years? Bail out if you can and start over.


This is a good and underappreciated point. The Bush Administration, is, as usual, coming down hard on the side of moral hazard and political cronies when they are "trying to keep people in their homes". They are trying to use taxpayer money to bail out banks, not "keep people in their homes". Bush is, as usual, lying and figuring that he is so damned smart that no one will ever figure it out. The only realistic solution for a lot of people who bought homes that they can't afford is bankruptcy at this point. Period. There is no other responsible suggestion to make to them.
Link Posted: 1/19/2008 6:30:35 AM EST
Tech bubble.

At the height of the tech bubble US stock were worth more than the rest of the world's combined.

As far as property bubbles go, ours was pretty mild. Late 80s Japan takes the cake for property bubbles (Imperial Palace was "worth" more than California, homewoners were taking out 100-year mortgages to be able to afford hounsing!

Even right now there are property bubbles much worse than ours. The average price for a home in the UK is now ~200,000 pounds (~$400,000!) about twice as much as here! And an average house in the UK is only 800 sq. ft!

In Spain 90 percent of homeowners have adjustable rate mortgages. The subprime mess here has been bad enough with only a few percent of homes. IN SPain there has been more concrete laid down ower the past 10 years than the rest of Spain's history combined!
Link Posted: 1/19/2008 6:32:09 AM EST

Originally Posted By Neotopia:
Tech bubble.

At the height of the tech bubble US stock were worth more than the rest of the world's combined.

As far as property bubbles go, ours was pretty mild. Late 80s Japan takes the cake for property bubbles (Imperial Palace was "worth" more than California, homewoners were taking out 100-year mortgages to be able to afford hounsing!

Even right now there are property bubbles much worse than ours. The average price for a home in the UK is now ~200,000 pounds (~$400,000!) about twice as much as here! And an average house in the UK is only 800 sq. ft!

In Spain 90 percent of homeowners have adjustable rate mortgages. The subprime mess here has been bad enough with only a few percent of homes. IN SPain there has been more concrete laid down ower the past 10 years than the rest of Spain's history combined!


And the rest of the EU has invested a buttload of money in the UK and Spanish property markets.
Link Posted: 1/19/2008 6:36:54 AM EST

Originally Posted By Procyon:
We're all gonna die.


That's what I always say.
Link Posted: 1/19/2008 10:17:59 AM EST

Originally Posted By Wobblin-Goblin:

Originally Posted By JoeyP:
Why can't the banks just refinance the people who have ARMs to a fixed low rate and then there would be alot less people getting foreclosures? That sounds like a simple solution that would help out both the banks who are losing billions and the people who are losing homes.

While you're coming up with these fantastic solutions, dream up a nice financial package for guys like me, too, who bought within their means.


Im just saying that if the Gov would say screw you to the banking industry and tell them to fix it themselves this would be the logical answer. It would also teach them a valuable lesson to not lend money out to people who can not afford to pay it back because the government is not going to help you with your poor business decisions. Simple solutions are usually the best solutions, besides if they have to fix it themselves they will be much less likely to make the same mistakes.
Link Posted: 1/19/2008 10:38:03 AM EST

Originally Posted By LvFreeRDie:
I don't think that you understood what I meant by the 1's and 0's comment. I am talking from the psychological perspective that it is easier for someone to admit a loss and sell some tech stock that is just a ticker symbol somewhere in cyberspace than it is for someone to admit they paid way too much for the house they are living in and sell it at a loss to move to a more affordable place.

I believe that most people will try to hang on to their overpriced homes for much longer due to the fact that it is a tangible asset (they live there) and all the associated hoops that they would have to jump through to sell at a loss and move somewhere else.

I was talking from a home price perspective, not an overall economy perspective.


Eh, so what about all the people who lost their jobs during the tech crash?
Link Posted: 1/20/2008 2:27:37 PM EST

Originally Posted By SNorman:

Originally Posted By LvFreeRDie:
I don't think that you understood what I meant by the 1's and 0's comment. I am talking from the psychological perspective that it is easier for someone to admit a loss and sell some tech stock that is just a ticker symbol somewhere in cyberspace than it is for someone to admit they paid way too much for the house they are living in and sell it at a loss to move to a more affordable place.

I believe that most people will try to hang on to their overpriced homes for much longer due to the fact that it is a tangible asset (they live there) and all the associated hoops that they would have to jump through to sell at a loss and move somewhere else.

I was talking from a home price perspective, not an overall economy perspective.


Eh, so what about all the people who lost their jobs during the tech crash?


+1

How many jobs have been lost to the "housing bubble"?

New home production was down 25% in '07 but more homes have been under construction in the last few years than at any other time. Builders over the last few years have made a pile of money...you just have to hope they were wise enough to not expect it would last forever.
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