Guess What: The Next Housing Bubble Is Already Underway



[image url="http://static.businessinsider.com/image/4adcc68c0000000000cfef9f/image.jpg" link="http://www.businessinsider.com.au/the-next-housing-bubble-is-here-2009-10/cheap-money-1" caption="" source="" alt="family happy homebuyers" align="left" size="xlarge" nocrop="true" clear="true"]
It’s back!You see, we’ve always just assumed that after experiencing an epic hangover following the housing party, there’d be no way we’d rush headlong into the same bubble right away.

But we were wrong — the housing bubble is back. Sure, prices aren’t at their old levels, but everything else is in place.

Generous government involvement is back. Fear of missing out on good deals is back, and yes, even no-money-down is back.

Here’s how the housing bubble got reinflated >>

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[slide
permalink=”it-starts-with-cheap-money-1″
title=”It starts with cheap money”
content=”In a desperate attempt to keep the financial system afloat, the Federal Reserve has been aggressively expanding the money supply, pushing interest rates down, buying mortgage securities, while also funding Fannie and Freddie.

As this chart shows, foreign governments have completely stopped bying agency debt, leaving the Federal Reserve to pick up the slack completely.”
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[slide
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title=”Massive Government Involvement”
content=”In addition to the aggressive Fed, various government argencies are doing everything they can to promote the American Dream — homeownership at any cost.

HousingWire: Federally backed mortgages account for 59% of new home sales transactions with 96.5% to 100% loan-to-value (LTV) so far in 2009, according to the latest John Burns Real Estate Consulting homebuilder survey.

The availability of Federal Housing Administration (FHA), Veterans Administration (VA) and US Department of Agriculture (USDA) residential mortgage financing programs has been critical to the new home market this year, the firm said.”
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title=”Ridiculous Loans”
content=”But at least these new federally-backed loans aren’t as bad as they used to be, right? Please.

The FHA is still underwriting loans with a LTV ratio of 110%:

Without question, Tejada’s loan is toxic–to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada’s loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She’s paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs. A loss of one of them would likely leave her unable to make the debt payments.”
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[slide
permalink=”the-usda-4″
title=”The USDA?”
content=”Wait, you knew the FHA was standing behind loans, but the US Department of Agriculture? Really?

Yep, and they’re not even asking for a down payment.”
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[slide
permalink=”the-frenzy-begins-5″
title=”The Frenzy Begins”
content=”Buoyed by all these incentives and the $8,000 tax credit, first-time homebuyers are said to be in a ‘frenzy.’

Campbell Surveys (via Calculated Risk)

First–time homebuyer demand for properties continued to be strong in the month of September. First-time homebuyers accounted for 42% of home purchase transactions in September. …

Many agents indicated an REO buying frenzy in local markets, especially California. “Entry level REO’s are taken by the storm! Many multiple offers!” exclaimed a California agent.”
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[slide
permalink=”speculators-snapping-up-foreclosure-condos-6″
title=”Speculators Snapping Up Foreclosure Condos”
content=”In addition to all the first-time homebuyers, speculators are loving this market. Folks are coming into areas of California and Florida, and offering to pay cash for large swaths of dirt-cheap, foreclosed-on properties.

Condo Vultures having trouble keeping up with demand:

Miami Herald: Former business journalist Zalewski founded his foreclosure specialty real estate and consulting firm in March 2006 — a few months before the start of the housing crash he predicted would come.

Over the past three years Zalewski said he has hired 36 agents to keep up with the demand from cash investors looking for bargains. His business, with its provocative name, caught the eye of filmmaker Michael Moore while he was working on his new documentary, Capitalism: A Love Story.”
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[slide
permalink=”dirt-cheap-prices-have-convinced-everyone-its-time-to-buy-7″
title=”Dirt cheap prices have convinced everyone it’s time to buy”
content=”Jim The Realtor of BubbleInfo.com explains how lower prices have accelerated the frenzy.”
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[slide
permalink=”homebuyer-psychology-8″
title=”Homebuyer Psychology”
content=”Another factor, explained by Jim The Realtor, is psychology. We’re already at that point in the cycle where buyers freak out about missing the bottom, so they bid up anything that looks remotely good.”
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permalink=”now-were-expanding-fhas-9″
title=”Now we’re expanding FHA’s”
content=”The Obama administration, through Treasury, is already scheming to bolster state-by-state HFAs:

As part of its comprehensive plan to stabilise the U.S. housing market, the Obama Administration today announced a new initiative for state and local housing finance agencies (HFAs) that will help support low mortgage rates and expand resources for low and middle income borrowers to purchase or rent homes that are affordable over the long term. Following up on the intent to support HFAs first outlined in February under the Homeowner Affordability and Stability Plan, the Administration’s initiative has two parts: a new bond purchase program to support new lending by HFAs and a temporary credit and liquidity program to improve the access of HFAs to liquidity for outstanding HFA bonds.”
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[slide
permalink=”and-banker-bonuses-will-drive-city-prices-to-the-moon-10″
title=”And banker bonuses will drive city prices to the moon”
content=”Meanwhile, the return of Wall Street bonuses means we can expect to see soaring prices in New York again, sooner than you expect. Don’t agree?

Check out what’s already happening in that other financial centre: London.

Guardian: Property asking prices in London have broken through the record high set in November 2007 as the drought of homes for sale around the country continues to distort the market. New research out today shows that the average asking price in London jumped 6.5% to £461,157 in the four weeks to 10 October, sailing through the high of £412,731 set in November two years ago.

The survey by the property website Rightmove also shows that asking prices in England and Wales are now higher than a year ago, after climbing 2.8% in the past month. However, any optimism about the speed of any housing market recovery is expected to be dampened by today’s report from the Financial Services Authority, which will outline plans for reform of the mortgage lending industry.”
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[slide
permalink=”now-see-11″
title=”Now see”
content=”The 15 folks made to look like fools by the great idiot-maker rally >>
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