Don’t Be Afraid To Walk Away
It’s Friday desk clearing time for this blogger. “The Manhattan residential real estate market cooled in the third quarter. In addition to falling prices, properties are also sitting on the market longer these days. Despite the economic uncertainty, real estate advisors say the city is well-positioned for the changes. The city has less than eight months of inventory, compared to locations such as Miami, which have as much as five years of inventory on hand.”
“‘New York is not going to see a huge drop in prices, it just doesn’t happen like that here,’ said Pamela Liebman, CEO of the Corcoran Group.”
“Long after the crisis began in 2007, many investors and real estate executives expected a ‘correction’ to the rapid escalation in property values. But after Lehman Brothers, the venerable firm that had provided billions of dollars of loans for New York real estate deals, collapsed two weeks ago, it was clear that something more profound was afoot.”
“‘Any continued impediment to the credit markets is awful for the national economy, but it’s more awful for New York,’ said Richard Lefrak, patriarch of a fourth-generation real estate family that owns office buildings and apartment houses in New York and New Jersey. ‘This is the company town for money. If there’s no liquidity in the system, it exacerbates the problems. It’s going to have a serious effect on the local economy and real estate values.’”
“Less than two weeks after the onset of a financial crisis headlined by the bankruptcy of major investment bank Lehman Brothers, Harvard students preparing for careers in finance continue their job search in an uncertain economic climate. ‘With this wild amount of money you hear people being paid on Wall Street, those days are probably over,’ said Robin Mount, the Interim Director of Harvard’s Office of Career Services.”
“Mortgage broker Tom Milligan IV, of Newtown, said he sees some real opportunities for getting good deals and also for some real problems in the market. He said Bridgeport, especially multi-family homes are selling for nearly $100,000 less than they were.”
“‘Houses are marketed as your biggest investment,’ said Vince Valvo, for The Warren Group, which released its August report on trends in Connecticut. ‘Something we buy to use for a while until we can turn a profit.’ He said if people just bought the homes with an eye that they will live there, it might be better for them.”
“At the start of the week there were 3,983 home loans available on the market, but this had fallen to 3,402 by the end of business on Friday, the lowest number ever recorded by MoneyFacts. Michelle Slade, at MoneyFacts, said: ‘I am shocked by how quickly rates were pulled following the nationalisation of Bradford & Bingley on Monday. It is quite alarming how quickly the market had deteriorated once again.’”
“Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: ‘Equity withdrawal turning negative for the first time since the late 1990s sends a clear message that the downturn in the housing market is reducing access to equity built up in property over recent years.’”
“Estate agents have rubbished claims that Durham is the only city in the country to see house prices rise, bucking the national trend. Paul Rickaby, managing director of Durham-based estate agent move2direct, said: ‘Durham City is fighting the price drop better than outlying villages. But prices have certainly come down. Every day it seems to get worse and worse. It’s a nightmare.’”
“House prices, which began slipping in May, have now erased all gains made in the past year in most markets across the Lower Mainland. Real Estate Board of Greater Vancouver president Dave Watt added that generally, ‘it appears that truly our market, that we’ve been complaining was becoming unaffordable, has adjusted to reflect that [unaffordability].’”
“Tsur Somerville, director of the centre for urban economics and real estate at the Sauder School of business at the University of B.C., said what happens in Vancouver’s market for pre-sale condominiums is another unknown. ‘Do investors who bought downtown condo [pre-sales] hold them, or try to dump them?’ Somerville said. ‘That’s really where your big questions are.’”
“Ivan Hardie (English; 38 years old; 15 years in Japan) Condominium for a family of three in Shinjuku Ward, Tokyo, purchased in 2001 for ¥39 million. ‘I bought a condo because it’s cheaper than renting, and chose the particular property because of its size and location. I’m selling my property at this time and can’t sell it at a profit (selling price now is ¥32.8 million).’”
“With total dollar sales volume down almost a billion dollars from last year, Honolulu’s housing market is hurting. Across honolulu, the median price for a single-family home has dropped $60,000 from the same time last year.”
“‘This is a 4-bedroom, 2 bath home, has over 2,000 square feet. You have an elementary school right behind,’ said Realtor Chelsey Flanagan. ‘There’s a harley in the garage, I don’t know if they’ll throw that in, I can ask.’”
“With the housing industry at the core of the nation’s financial woes, locals have noted a downturn since last spring in Fallon’s housing market. Rhonda J. Jones at Western Nevada Title Company said that ‘there has been a significant increase in foreclosures in all price ranges.’”
“Fallon resident Karl Buckmaster, a former banker turned buyer of that type of property , said he no longer buys them. ‘It’s not worth it,’ he said. People owe more than the house is worth, Buckmaster explained.”
“Buckmaster advises people to stick to only the amount they can reasonably afford to pay. ‘Don’t be afraid to walk away, to say no.’”
“According to (a website) the number of foreclosures in Maricopa County could double in the next 120 days. Lloyd Lane, who manages the site, says 350 foreclosures were filed on Wednesday alone and Maricopa County is currently averaging 300 to 500 foreclosure listings per day. The number of foreclosures in the county will increase according to Lane who says there are currently 20,812 bank owned homes in Maricopa County with an additional 26,000 facing foreclosure.”
“‘All the houses are for sale in this neighborhood, everybody is leaving and there are a lot of abandoned homes,’ said Araceli Elias who lives near 67th Avenue and Thomas Road.”
“Yes prices are definitely down from the housing bubble, but they’re still higher than some pre-bubble costs. The National Association of Realtors says the average cost of a home is $212,400. That’s down eight percent from the $230,000 peak price in 2006. The problem is it’s still up 39 percent from the pre-boom price of $153,000 in 2001.”
“‘The main point is, we’re not addressing the problem yet,’ said Robert Toll, CEO of Toll Brothers Inc.. ‘In order to get out of the hole we’re in, we have to stop the slide in the home price.”’
“As it struggles through the housing crisis, home builder D.R. Horton Inc. is unloading land across California at big discounts. As builders try to survive one of the worst housing downturns in U.S. history, land buyers and brokers expect more such tax-motivated fire sales of undeveloped land this year. That could set a new low for land prices in California and other troubled housing markets.”
“Over the last decade, attorney William Brennan and other grassroots consumer advocates came to the State Capitol more than a dozen times to warn Georgia legislators that the flourishing, free-wheeling subprime mortgage market posed a threat not only to borrowers but to the state. At one of the more raucous hearings on the predatory lending law, a crowd of young mortgage brokers jeered during Brennan’s testimony about the urgent need to clamp down on subprime loans. One broker commented that Brennan worked for Legal Aid because ‘he couldn’t get a job in the real world.’”
“Brennan still has his job. That condescending broker probably doesn’t.”
“The reality is that in the frenzy of easy loans and rapidly rising property values, many Americans simply bought houses they could not afford. (Of) many questions Congress still needs to answer..one is raised by Florida Sen. Bill Nelson: Why did securities backed by risky subprime mortgages earn very top credit ratings, which encouraged pension funds and insurance companies to buy them?”
“Though all eyes have been focused on faltering mortgage-backed securities, the Treasury Department last month amended its original $700 billion bailout plan to buy up a wider range of troubled assets after heavy lobbying by financial industry groups.”
“Delinquencies are rising fast in the $2.6 trillion consumer credit market. While the sector’s troubles aren’t as severe as those in the $14.8 trillion mortgage arena, experts expect Americans to fall more behind in their payments as the economy continues to weaken. ‘Once you dig into it, you realize the credit crisis has spread far beyond the mortgage sector,’ said Martin Weiss, founder of Weiss Research ‘When you sum up all the debt sectors and all the potential for bad debt, you recognize that $700 billion is a drop in the bucket.’”
“Many analysts have attributed a tightening of credit in many of these markets to a credit crunch. This is mistaken. Virtually all of the key people in policy positions completely missed the housing bubble as it inflated. The fact that they still seem to not recognize the nature of the housing bubble is likely to further compound their mistakes.”
“The economy is sinking into recession primarily because of the loss of trillions of dollars of housing bubble wealth; the credit situation is very much a secondary factor.”
“Legislation was duly passed to facilitate this public good of home ownership, and Lo!, many empty purses became home owners, or so they thought. But they forgot the fine print: ‘If you do not keep up payments, your home may be at risk’— yes, your HOME—not something that is an optional extra, but a basic necessity (the bottom step on Maslow’s hierarchy: shelter).”
“But, this did not stop the fat wallets from dreaming up ever more clever ways of lending ever more money to ever-more-empty purses.”
“Which reminds me of a discussion I had many years ago with a businessman who wanted to increase his borrowing from the bank. As he explained to me, the value of his assets would increase with inflation so why not borrow 100 percent now that would become 90 percent, then 80 percent and so on of the value in the future, and then he would be able to repay his loan. But, Ms. No asked him another question. ‘How will you make the monthly payments?’ ‘Oh, don’t worry about that,’ he said. ‘You’ll lend me the money to do that!’”
“Well, no surprise, he did not get his loan.”
“In the meantime, however, remember: when the world was a calmer place, people, both fat wallets and empty purses, used to look upon houses as homes, places to live in. They either borrowed money to buy their homes, or rented their homes. Our continental European cousins didn’t forget this, which may be one reason why the real estate market has not been so hot for many of them. And, nor have they made a lot of ‘pretend money.’ But, most importantly, their homes have remained their castles and they have not suffered the same level of heat from financial fires rampaging near those homes.”
