I don't know much at all unfortunately about the business operations of the mortgage insurers. I would "assume" that they reinsure a portion of their insurance like most insurers do...but I don't know that for a fact. Someone else asked me the same question and I just don't have the answer to it. OldTrader
I've done some renovating of older homes. In fact, I currently live in a house that is 130 years or so old. What I have generally done with older homes is to put a new roof on, jerk the old galvanized plumbing out and replace with copper, new electrical box and re-wire, new furnace and AC. But it's interesting: some of the old houses for instance when we've torn the old shingles off exposed 2X10 hardwood decking, unheard of for instance in a new home. We generally either leave this decking or replace any rotted boards because of the quality. In fact, wood in general is very hard to duplicate. A 2X4 for instance today is not really a 2X4. It's more like a 1 3/4 X 3 3/4. One house the some of the baseboards had been stolen, and today you can no longer match the old baseboards. So we had a tool built at a pretty good cost which could cut boards in the same pattern as the old baseboard. The problem was that oak today is not the same quality as oak was 100 years ago. You can certainly tell the difference in the baseboards eventhough the pattern is the same, because of the wood itself. It's true that the old stone basements may leak, you may have to tuck point the brick, etc etc. But what we've found is that when you do some of this work, what you have is a house that people love for it's older features. Personally I like the older homes once some of the things like plumbing, electrical, heating and cooling are modernized. OldTRader
OK. Thanx. I also assume that they reinsure. There's a lot of anxiety out there about the imminence of the Kondratieff Winter - it's actually many years overdue. We're not freezing in the dark yet. Maybe the Fed actually knows what it's doing. Let's hope. Good luck.
Interesting article that in the last two paragraphs discusses the "liquidity crunch" experienced by sellers in a downtrending market. Some time ago this was also outlined by Billbuild. I have seen this same thing twice, where no one shows up for open houses despite 30%+ price reductions, and homes go unsold for 2-3 years. OWP "Housing Bubbles Are Not Like Stock Bubbles If you're looking for the housing bubble to end like the stock market bubble, you'll be surprised. Housing bubbles may run on the same fuel as stock market bubbles, excess money from the Fed, but they grow and collapse according to a different set of functions and dynamics. 12.29.04 Here I respond to the cheerful voice of my favorite AlwaysOn blogger, Jamis, writing on one of my favorite topics, asset bubbles. Before the Perkins's "The Internet Bubble" book was the site iTulip.com that explained in 1998 that the stock market had turned into a bubble around 1995 and predicted in March 2000 that it was about to burst. The reasons why were explained in a bankrate.com article, "What will pop the Internet bubble?" in Nov 1999. The last update to Itulip.com was on the topic of the Housing Bubble, in August 2002. I deemed the housing market was indeed in a bubble. The main thesis was that rational housing prices are determined by cash flow, and cash flow is determined by incomes and interest rates. Incomes have been falling real terms (9.3% since 2000) while key real estate markets (read: where most people live), experienced housing prices rising between 100% and 400% faster than incomes. The explanation for rising housing prices was too low interest rates, which also caused the the stock market bubble of the 1990s. The Fed wrote a recent piece on how housing isn't a bubble, reminiscent of Greenspan's now famous New Era rationalizations in 1999 for the stock market bubble. The Fed explains that housing prices are high because interest rates are keeping monthly payment costs low. In my view, that's not an explanation of rational pricing, only for the underlying cause of the bubble. How does it end? On the way up, housing bubbles grow differently than stock bubbles. They're regional, because folks buy homes near where they get their income, usually withing a 40 minute drive. Now I realize that in N. CA that could be two miles away on the 101, but bear with me. That means prices fueled by too low interest rates will manifest where people and the jobs they drive, take a bus or train, or walk to are concentrated. Also, they happen in areas where land is scarce, such as waterfront property; speculation is encouraged by the reality of land limitations. A comment above says prices won't decline much in the future because land is limited relative to the number of people who want on it. Tell that the the Japanese who have seen real estate prices decline for more than 12 years. Too much land and not enough people in Japan? No. Even though interest rates have been near zero for years, the problem is that their incomes have been declining. Low rates are the input of a housing bubble, areas of concentration of population or scarce land are where they happen, but low interest rates will not sustain the bubble forever. Just as housing bubbles are unlike stock bubbles on the way up, they're different on the way down, too. Unlike stock market bubbles, real estate bubbles don't pop. Collapsing stock market bubbles are characterized by a sudden collapse in prices because stock markets are highly liquid. You see huge volumes of transactions at ever lower prices during a stock market collapse. Collapsing housing bubbles, on the other hand, are characterized by illiquidity, a sudden collapse in transactions. Buyers and sellers seem to disappear. The reason is a reversal in the psychology of buyers that developed at the top of a speculative housing market. Buyers had been buying at prices they knew were too high but on the assumption that they'd be able to sell if they needed to. The thought was: "Ok, maybe it's overpriced, but at least I'll be able to sell it later for at least what I paid for it, but likely more." What happens on the way down is that houses go on the market and just about NO ONE shows up to look. That's because buyers weren't buying earlier primarily because they needed a place to live, but because they thought the price would likely rise and that, in any case, they'd be able to get out when they wanted with all of their money or more. On the way down, neither condition is true. So buyers stay home, so to speak. But can't buyers be enticed by declining prices, by bargain hunting, you ask? No. Once housing sale transactions suddenly fall from, say, several hundred a month in a large community to, say, one or two a month, this creates fear and loathing about prices. Long periods of time pass when there are no transactions at all. Think of it this way. What's the comparable on your 3000 square foot home in San Mateo when the last sale was, say, seven months ago? Is it 10% less than the last sale of a similar home on the area? 30% less? This happened in Japan, and prices nationally are still more than 60% below peak prices in 1992, where real estate prices continued to climb for several years after their stock market bubble popped. Sound familiar?"
This last part is what really grabs my attention. I would like to see or compile an economic profile of the Japanese economy reaching back at least 20 years, ideally further. The profile would include Nikkei index, JBG rates, RE prices, domestic inflation, Yen/$, bank NPLs, budget and trade balances. Anyone here studied the Japanese bubble in detail and can recommend some sources? Yes I can compile this information myself but ... sure would be nice to find a shortcut.
"...This happened in Japan, and prices nationally are still more than 60% below peak prices in 1992..." I wonder how this affected people who bought into the rally and people who got in at the bottom after crash? Given currency state and interest rates, is first group in a better shape now? How is second group doing? Besides having low cost basis, what are the benefits ripped by second group? It does not look like they made a quick buck (that depends on what has been the lowest low. 60%? 90%?)
as it could have been a plug for business but I read a quote in one of the NYC papers today where a partner in a small real estate brokerage firm is quoted - my advice is to stop renting once you are in the market you are in play, and anywhere you buy in the city you can DOUBLE YOUR MONEY -
Went to Barnes and Noble with the wife to grab some coffee and read some magazines... They had a HUGE table full of all kinds of newly published Real Estate books, most of them titled something to the sound of "How to never work again and make billions by buying homes for barely anything using your existing mortgage and refi'ng" There was an employee just standing by the desk being mobbed with questions from Mr and Ms Joe Blow about how many of those books they should get.. This can't be good.....lol
Your post brought back memories. Back in the late 70's real estate was just screaming hot in California. I was in my early 20's and got hot on a house myself and started reading books. The bookstores had tons of new books...infamous authors like Albert Lowry (eventually went bankrupt), Robert Allen (eventually bankrupt, 500k IRS, and the president of his fan club went to the Fed pen.), William Nickerson, Jimmy Napier, etc...just too many to list. These people were GODS at the time and could attract thousands...standing room only...at their "free" seminars. I still have all their books...lol. Fortunately I didn't act on any of their advice. I was still reading and pondering (and looking for two nickels to rub together) when the real estate market crashed hard in 1980ish. I eventually bought my first home (still have it) in 1984, just by luck at the bottom. The real estate yard sign had been in the ground so long it had rotted and fell over. No other realtor ever pursued the listing, most realtors had left the business. This realtor's business had SO gone to hell he had closed his office and I had to drive over to his house 20 miles away to sign the papers. He sounded so disinterested on the phone, he probably felt sure I wouldn't show up to buy it. Nice to hear things have made a full circle (actually two full circles to be exact, my books were from two cycles ago)...the real estate publishing business is going great guns. Might want to collect some of the better titles for future laughs!
In the late 70"s interest rates were something around 16% +/-. Huge over building by home builders. Prime interest rate reached 21% in 1979?? No securitization of the mortgage market. No standardized appraisals. Spotty liquidity in the mortgage market. Totally different situation now. Builders have taken an enormous inefficiencies out of the construction process and are now able to deliver a completed home for less than $100,000. Builders, for the most part, do not "warehouse" land. We have very few unsold homes in this area. IF priced right, right location, etc etc. You people treat housing like the "market". You hear people ask " What's the market going to do??" Well, are you talking the QQQQ's, Dow 30, gold, oil, Dell, Yahoo or just exactly what is this famous "Market".. If everyone participating in this discussion owns 1000 shares of CSCO at it's high of $80 we are all under water. Not so in housing market across country. My house goes up in value while your speculative home in Orange County drops 15%. Two totally different scenarios. Speculators and single family landlords will probably suffer depending on location and particular situation and financial aspects. Remember, stock purchases are made basically only two ways. All cash or 50% margin. Not so in real estate. Many, many methods and types of financial instruments available. A long term fixed rate, self-liquidating mortgage at 4.5% is good!! I think some people are speaking without having any basic knowledge of the real estate market in the US. Some seem to not understand the basic principals of a mortgage. Also, remember the Realtor's job is to get the highest price possible on your house. If the listing is placed too high and then is reduced down by 10% that is not necessarily a sign of weakness. It is because the Realtor excited the seller to get the listing and they tried the market but no takers. The market makers on the stock market do this everyday, all day long. SteveD