Addicted To A ‘Masters Of The Universe’ Economy
It’s Friday desk clearing time for this blogger. “In all, Rhode Island recorded 3,479 foreclosures last year, among 390,403 residential properties. ‘It’s not just community by community; it’s neighborhood by neighborhood,’ said Richard H. Godfrey, executive director the state’s housing agency. ‘Those are the neighborhoods that saw the fastest appreciation in the last four to five years, and they’re the neighborhoods that saw the most subprime loans.’”
“Housing prices in those neighborhoods skyrocketed, beginning in about 2004, Godfrey said. ‘Now, they’re coming down just as fast, if not faster.’”
“Godfrey said first-time buyers in those neighborhoods, many of them immigrants, were seduced by low introductory rates on adjustable-rate mortgages. ‘Buy a house for less than the price of a car,’ he said. ‘People who have no hope of owning and were struggling to pay the rent, when someone says you can own a piece of the American Dream, it’s very hard to turn that down.’”
“‘Consumer spending from 2002 to 2008 was equal to what people borrowed in home equity loans. That’s the investment bankers. And, when housing valued dropped the tail spin started,’ said U.S. Rep. James P. Moran to members of the Mount Vernon-Lee Chamber of Commerce. ‘Next year over one half of home owners in this country will be technically bankrupt. They bought homes they never could afford not realizing that when the first low interest payments were over, the payments would skyrocket. In some cases payments are more than their total income.’”
“He cited a case in Northern Virginia where 200 homes in one development were sold on margin with an escalating interest rate. All 200 home owners have now been evicted due to foreclosure.”
“LandAmerica Financial Group Inc., a bankrupt Henrico County-based company with Richmond roots dating to 1925, is closing down. Severance packages will not be awarded because the company is in bankruptcy, LandAmerica spokeswoman Carol Gentry said.”
“‘The problem here is the company has no money,’ said Robert M. Lawless, a bankruptcy law professor at the University of Illinois law school. ‘This is what’s known as turnip law. You can’t get blood out of a turnip.’”
“Some communicable diseases can be traced back to what medical researchers call ‘patient zero,’ the first carrier of an illness and often someone who has no symptoms. One of the most notorious examples of this is ‘Typhoid Mary.’ The global recession has a ‘patient zero’. ‘Patient zero’ bought a house in Stockton, California, in 2003 after getting a subprime mortgage. He defaulted on that mortgage 39 months later.”
“He was a client of Countrywide. He got a $250,000 mortgage five years ago, He did not have to put a nickel down to get the loan. The value of real estate in Stockton, California, where he bought his home had been rising at 10% a year for four years. He was a good credit risk not because of his income but because the value of the asset he bought was bound to go up 100% by the end of this decade. Two months after his mortgage reset in 2006, he lost his job. He was in default less than 90 days later.”
“Somewhere in the Countrywide archives are his number, phone number, and most recent forwarding address. He is still looking for permanent employment.”
“Oklahoma home builders on their way back from Las Vegas saw the latest in eye-popping, sales-inducing home products and services at the annual International Builders Show. A star attraction this year was Tulsa-area builder Joe Robson’s ascendance to chairman of the board of the National Association of Home Builders, organizer of the huge trade show.”
“Oklahoma City builder Chuck Robinson joked that Robson might decide he’s taking the national reins a little late, having missed the housing boom by a few years. ‘Kind of like when you go to the lake and they say, ‘Oh, you should have been here last week. We were really catching them,’ Robinson said.”
“Oklahoma foreclosure filings were 50 percent higher in 2008 than the year before, according to RealtyTrac.”
“Things are about to get tough for homebuilders in Texas, which until now has been a rare safe haven for recession-battered builders. ‘Texans are a little bit shell-shocked because it’s come home that we’re going to deal with this, too,’ said Pam Minich, a real estate consultant specializing in Texas.”
“In a sense, housing in Texas is a victim of the state’s success. While Texas did not experience the most extreme overbuilding, that carpetbagger enthusiasm produced too many developed lots, complete with utilities, Minich said. ‘As the housing industry suffered, everybody heard Texas was holding up, so homebuilders from other parts of the country came here and got too aggressive for reality,’ Minich said.”
“Arizona is paying the piper for overbuilding in the first six years of the decade, said economist Elliott Pollack. The Valley is spending the last four years of the decade working through the excess, Pollack said, and home prices will continue to fall until equilibrium is reached. ‘Until we work off that oversupply we’ve got nowhere to go. It’s that simple,’ he said at the Glendale Civic Center.”
“Arizona’s Republican senators…favor a plan that shores up the housing market, cuts taxes and doesn’t expand new spending indefinitely. ‘We’re trying to provide a floor so housing values don’t decline anymore,’ said Sen. Jon Kyl.”
“After reading your recent article, ‘Some NJ legislators eager to tweak rules on housing,’ I am compelled to respond…What is so often forgotten in conversations on this topic are all those people…with incomes from $30,000-$45,000, who need affordable housing, and it’s these people who will help keep New Jersey’s economy moving.”
“New Jersey is at war with itself on affordable housing and has been for years. Because of our unbalanced income structure, many people in this income range can not afford to live here. Why should someone who works full time in our state not be able to afford a decent place to live?”
“How can New Jersey legislators and towns debate how to avoid affordable housing while ignoring the hard working New Jersey citizens who are the backbone of this economy and can not afford to live here?”
“The rising cost of living in the five boroughs, combined with a city economy that has been unable to create enough well-paying jobs, has led tens of thousands of middle class New Yorkers to leave the city in recent years and kept others stuck among the ranks of the working poor, a new report shows.”
“In 2006, 151,441 residents left the city, a 7% increase over 2002. The overall population increased as a result of natural births and immigration. The number of New Yorkers with bachelor’s degrees who left the city rose to 29,370 in 2006, up 127% from a year earlier. ‘The city, probably going back to Mayor [John] Lindsay really hasn’t focused on the middle class,’ said Joel Kotkin, an urban historian and the report’s coauthor. ‘It’s becoming increasingly addicted to a ‘Masters of the Universe’ economy, which has now completely fallen apart.’”
“In one of history’s more candid reflections, Henry Morgenthau, Jr., Treasury Secretary under President Franklin D. Roosevelt, confessed, ‘We have tried spending money. We are spending more than we have ever spent before and it does not work.’”
“Just six years after crafting the New Deal, Morgenthau declared that their efforts to create jobs and restore America’s depression-ravaged economy by expanding the federal government to unprecedented levels had been a failure. By Morgenthau’s own assessment, the New Deal saddled our country with ‘as much unemployment as when we started…and an enormous debt.’”
“In 2004, a team of UCLA economists concluded that the policies of the New Deal, which suppressed competition and kept unemployment in the range of nine to 16 percent, actually prolonged the Great Depression by seven years. Amity Shlaes, an economic scholar and Great Depression historian, has argued that the sheer ‘arbitrariness’ of the New Deal actually exacerbated the crisis.”
“As in 1933, today our nation is confronted with an economic crisis that grows worse each day. The burst of the housing bubble and the subsequent credit crisis has badly impaired our financial markets. Some in Congress are rallying around a ’solution’ that sounds alarmingly familiar: spend more than we have ever spent before. The federal government doesn’t have the money. We are approaching a tipping point whereby creditors will be unwilling to buy government debt.”
“‘Our economy was built on excessive borrowing,’ said South Charleston native Thomas Hoaglin, who retired last month as CEO of Huntington National Bank. ‘That didn’t feel bad until recently. We got what we wanted when we wanted it. A tremendous number of individuals were spending more than they were making every year. Businesses were leveraging up.’”
“‘We lacked in financial services adult supervision over the last several years,’ he said. ‘There’s no other way to put it. There were unsupervised mortgage brokers and unsupervised, very greedy Wall Street bankers who created unregulated products. And there were rating agencies motivated to give high ratings in order to generate fees. That’s a formula for failure. Compensation practices are so front-end loaded - get the loan, make the fees, don’t worry about the long-term performance. Those practices are going to be altered significantly.’”
“Almost all banks on Main Street have remained active lenders - including Huntington Banks, he said. ‘Lending is what we do. But we all have to be mindful of changing circumstances. We must be mindful of the precipitous fall in land values.’”
“At today’s sales pace, it would take more than 10 months to clear all the houses for sale in the Richmond market, she said. A four-month supply is considered healthy. ‘The problem last year was an oversupply — we were building too many houses,’ said economist Christine Chmura, a speaker at yesterday’s forecast meeting of the Home Building Association of Richmond.”
“Speaker Lloyd Poe, president of LifeStyle Builders & Developers Inc. in Midlothian, said the country is worried about the auto industry and workers. Homebuilders ‘are having it much worse than they are,’ he said, pointing to data that show 3 million housing industry jobs were lost last year. ‘For the first time in history, we have lost the ability to sell housing as a great investment.’”
“Faith might move mountains, but can a small piece of plastic move a four-bedroom house? In this dismal real estate market, lots of people think so, provided that the plastic is a figurine of St. Joseph. Shops that sell religious paraphernalia are reporting phenomenal sales of tiny statuettes of St. Joseph - the earthly father of Jesus and the patron saint of the home and house sellers - to real estate agents and homeowners.”
“‘We have over 5,000 items in our store,’ said Norma DiCocco, who owns the St. Jude Shop in Havertown, Pa. ‘And you know what the No. 1 item is? The St. Joseph statue.’”
“It wasn’t until the real estate market really tanked that St. Joseph took off the way it did,’ said Dan Loughman, president of Roman Inc. of Bloomingdale, Ill., which distributes the St. Josephs nationally. ‘It was always a best-seller, but now it’s a super-best-seller. It sells everywhere. You can find it in hardware stores, gift shops and religious stores.’”
“John Badalamenti, an associate broker in Collegeville, Pa., keeps a St. Joseph on his desk. He recommends the figures when all else fails. ‘But first,’ he said, ‘I offer a few other thoughts: Make sure the house is properly priced, take care of deferred maintenance, and consider paying the buyer’s closing costs in a slow market.’”
