February 16, 2006

Speculators Made ‘Costly Mistake’

The Chicago Sun Times has a ‘warning’ for condo speculators. “Q: My husband and I were on a great path to being financially stable. Before we were married, we purchased a condo in the loop. After we were married for a year, we decided to buy a second condo for investment purposes, and this is where the trouble starts. We used $20,000 that we had saved and took a second mortgage on our unit for $20,000 to make up our down payment for condo number two. The real estate developer was offering one full year of mortgage, assessments and taxes as an incentive to buy, not to mention the unit was rented.”

“We thought this was a win/win situation. We would have two years minimum of no out of pocket costs, and at the end of that period or even before we can put the unit on the market and sell. The lender informed us that our credit score was good enough that they were going to approve us for a no doc loan. I now think this was a red flag for us to realize ‘this means you really can’t afford this loan, but we’re going to give it to you anyway.’”

“Well, here we are two years later, and I fear of what is to come. We put the unit on the market in April 2005 with no luck thus far. We first started the price out high, but by the summer we had came down to our exact purchase price. In November 2005, the tenants’ lease was over, so they left. Now we are in the last stage of the two-year period with no out of pocket costs. We are hopeful that we will get a tenant in the spring, but the rent does not cover all of the costs of owning the unit. We pay our current bills no problem, but once we have to start covering the costs of our second condo on our own, there is going to be no way.”

“Should I start talking to attorneys or debt consolidators? I just want to be pro-active in taking care of this costly mistake.”

“A: “About two years ago the speculative condo boom was at its peak. And now many speculators are about to find out that it doesn’t take a ‘crash’ or ‘breaking the bubble’ to create your own personal speculative crisis. All it takes is being unable to cover the carrying costs.”

“Now, I’m going to tell you exactly what I told a woman I know who mentioned she was in the same situation way back last summer. I told her then and there to reduce the offering price at least 10 percent below what other condos were going for in the same building, and to tell the realtors that she would offer them an extra incentive if they’d sell it by Labor Day. I told her that at least she’d be the first one out the door, before the rest of the crowd figured out the situation, and cut their prices too. And when she said she didn’t want to cut the price, I reminded her that the carrying costs for an extra six months would be equal to the price cut.”

“I told her then that I knew I would be writing about this phenomenon in six months, and now it’s starting to happen. If you can’t carry this property, then you have to bite the bullet and list it at such an attractive price that it is the first one that gets sold.”

“Now, by printing this response I know I’m going to get letters from other people accusing me of starting a ‘run’ on the condo market. So let me forestall that. I don’t think I have that power, to suddenly frighten people into selling. I think that the selling wave will happen inevitably because so many people are over-extended in the speculative condo market.”

Inman News has a similar tale. “DEAR BOB: A year ago, we bought a house in a new neighborhood one hour away from our current home. We were offered no mortgage payments for six months, but then we had to sell or refinance. When we tried to sell or rent the house, we learned the builder sold all 20 houses to other investors who were doing the same thing.”

“We sold the house for $90,000 less than our purchase price, and will have to come up with $33,000 cash to close the sale. Our monthly payments of $3,000 are way above the rental market of about $1,750 per month, plus a $100 monthly homeowner’s fee. Is there any way out of this nightmare?”

“A: After reading, and re-reading, your e-mail, I can’t figure out why you would buy such a rental house an hour away from your residence under those very unfavorable purchase terms requiring you to sell or refinance within just six months.”

“I don’t understand how the house could lose $90,000 in market value in just six months and why you have to come up with $33,000 cash to close the sale to your buyer. Obviously, you grossly overpaid for the house. The only good news is, because you purchased the house as an investment, you can claim a capital loss tax deduction. Please consult your tax adviser.”




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91 Comments »

Comment by feepness
2006-02-16 09:22:33

Wow, where I have heard EVERY ONE of these ideas before???

Cue the Darth Vader music… problems ahead…

 
Comment by destinsm
2006-02-16 09:22:41

You hope for the condo flippers case that Chicagoans don’t read their paper…

:) hahahahahaha

 
Comment by The Lingus
2006-02-16 09:25:48

boo hoo hoo. idiots.

 
Comment by GetStucco
2006-02-16 09:29:06

How many times will we need to read a slightly different version of this sad tale over the next five years?

Comment by lainvestorgirl
2006-02-16 10:14:26

Aaaah, stories like this warm my heart. So nice to wake up and drink my morning tea to articles like this one, keep them coming…

Comment by Sunsetbeachguy
2006-02-16 14:14:39

I say the bottom for RE will be when the RE sob story blogs experience an inventory explosion and we are all sick of them.

 
Comment by Robert
2006-02-16 14:51:02

People reap what they sow. If they wanted to “get rich quick” with a complicated, speculative investment, I have no pity for them.

While I’m against “backruptcy reform” for personal debt, I also think that people who became “landlords” and bought “investment property” should not be able to use the personal bk laws to walk away from their debt. They’re now a business, just like United Airlines, etc, and should have to follow the same rules for bk that they do–which involves paying back some percentage of debts as they “reorganize”

 
 
 
Comment by nnvmtgbrkr
2006-02-16 09:38:12

“And when she said she didn’t want to cut the price, I reminded her that the carrying costs for an extra six months would be equal to the price cut.”

It always amazes me how people will get emotionally fixed on a certain price and fail to see the big picture. This advice isn’t hidden economic wisdom, just plain old common sense.

Wake up people!!

 
Comment by george_ie
2006-02-16 09:43:35

Here’s the problem….

Everyone cannot be rich.

2006 is the year that Joe Sixpack will find out that he really isn’t Warren Buffet Jr., and that he WILL need to go back to whatever shitty job he quit to become an “investor”.

During normal times, real estate is only a good investment if you pay cash for it, at reasonable prices. Recently, the hoi polloi took on the misguided belief that financing investments was a “smart” way to become wealthy.

Sorry kids, but it doesn’t work that way.

Comment by Stephanie
2006-02-16 10:13:23

2006 is the year that Joe Sixpack will find out that he really isn’t Warren Buffet Jr., and that he WILL need to go back to whatever shitty job he quit to become an “investor”.

———————

Ahhh… The realities of human society… There is no way that as long as we eat food stored in packages, throw away boxes, recycle things, things break or get worn out, that there can be no “sanitation engineers,” no burger and fry hawkers, no food boxers, no truck drivers. Every society needs these people, and the trick is to not end up being one of these. So, that turns the screws on you to do better than the other person, education- and people connection-wise.

You mention financial instruments… This is getting to be true at the top of another stock market and real estate top, and especially since we’re operating on pure fiat since Nixon took us off the gold standard internationally in 1971. All those things are propped by the US dollar. I found out last night that the net investment inflow for US assets ran quite a bit under our outflow, which can cause the dollar to slide. This may be coming about because central banks and governments appear to be more hesitant to hold more US dollars which are being devalued by the minute. When that happens and the dollars come back to US shores, there will be so much money chasing fewer good and a slide of the dollar relative to other currencies (read INFLATION).

When the dollar loses value that quickly, who is going to have the money to buy a house with the money that will be required? What if the US defaults on the dollar? Who’s going to have the gold and silver to buy a house with? Your best bet is to get out of the housing mess and most financial instruments, especially the ones that are propped by the dollar, and put your money into gold and silver.

Stephanie

Comment by feepness
2006-02-16 10:40:54

Yet there are also far more debts denominated in dollars. Even if they all came back they couldn’t back a tenth of the outstanding loans.

That would mean deflation.

 
Comment by SidneyPrice
2006-02-16 12:35:16

you should watch http://www.xe.com more often. The dollar is NOT sinking in the manner that you suggest, at least for the past six months. It is mystifying. One can only surmise that a handful of very rich people overseas think that the dollar needs to be supported.

Comment by deflation guy
2006-02-16 12:55:43

I think that short-term rates are supporting it. However, once the Fed reverses course, look out below for the dollar!

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Comment by Betamax
2006-02-16 10:15:03

2006 is the year that Joe Sixpack will find out that he really isn’t Warren Buffet Jr., and that he WILL need to go back to whatever shitty job he quit to become an “investor”.

LOL. Funny but true.

 
Comment by KirkH
2006-02-16 10:25:19

Many of those jobs aren’t going to be there. Keep an eye on unemployment claims as the year goes on as “investors” scamper, tail between their legs, back to the real world.

 
Comment by Rich
2006-02-16 11:20:26

Stephanie,
The other side, the deflationist, believes that an enormous ammount of dollars will be consumed in the credit collapse and instead of rising prices we will suffer economy crushing deflation. With the liquidation (destruction) of cash caused by the credit collapse the fed will rush to raise rates to bolster the dollar, these high rates will curtail borrowing and the debt chocked public will have no money to buy goods. With the consumer spending in the crapper the world will have huge production overcapacity and the only way to move goods will be to lower the prices.

These lower prices will lead to crushing profit loss for our corporations resulting in a huge drop in the stock market that yields further dollar destruction and job loss which will agrivate the problems further.

I used to think the deflationist were screwy, but I am starting to come around to their point of view. Deflation has the same net result as inflation, ie. the US buying less goods and saving more. The only real differance I see is that inflation leaves stocks and other wealth realatively intact (not counting inflation), while deflation rapidly destroys wealth accross the board.

Deflation would be a the quick fix to our global economic problems (quick death).

Inflation is the more gradual leangthy process (slow death). For instance the recent gas prices, they allways jamm them up a huge ammount for a while then back off half the increase. We all think whew I’m glad gas is only 2.50 now, that 3.05 gas really sucked when the prices were 2.00. The consumer is chocked out of other purchases over time.

I can’t really buy this unless the Gov rushes to rescue all the crappy MBS issued

Comment by deflation guy
2006-02-16 12:32:54

A lot of the foriegn debt is held in mortgage backed securities. An increase in foreclosures will cause bond holders to lose their principle. The money simply disappears and that is deflationary. But wait, the fed will ride to the rescue and lower rates, right? Ask the Japanese about this solution. Their rates were pegged at zero and house prices declined more than 50% over a 16 year period. So, yes, the fed may be able to slow down deflation but they will not be able to stop it.

Comment by SidneyPrice
2006-02-16 12:41:26

The bondholder will lose their “principal” in the near future, not their “principles.” They lost those long ago.

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Comment by deflation guy
2006-02-16 12:51:58

thanks for the spelln leson.

 
Comment by SidneyPrice
2006-02-16 12:58:18

Not a problem at all! I hope that the deflation thing doesnt come to pass BTW, but Im heavy in cash to be diverse. No real estate as far as I know, unless you count bank accounts. The big banks are not bigtime holders of MSEs, as far as I know. Anyone know different?

 
Comment by Rich
2006-02-16 13:47:23

Sydney,

Why on earth would you dislike deflation if your heavy in cash.

I mean other than having compassion for the pain it will cause the country.

I am having a dilema of what to do with my investments, I’m all in securities now (silver & gold mining, insurance mainly) but fear that the inflation scenario may erode and deflation may crush them. I just can’t bring myslef to sit in cash at 4% when I know damn well that inflation is greater that10% (Screw the govs new inflation calculations) and more like 15%.

I fully realize that cash will be king, but when will only known with hindsight revealing weather inflation or deflation was the outcome.

Any thoughts?

Ben,
how about a thread on inflation vs. deflation banter. I know you have made a few comments favoting deflation. It would be interesting to see others view.

 
 
 
Comment by josemanolo7
2006-02-16 13:06:06

well then, the central bank will not increase interest rate, at least not as much). so what wil happen if the dollar halve its value? export will shoot up, import will slow down, perhaps substantially. prices will come down with the reduce in world demand (because of us). then more poor countries/citizens of this world will be able to afford and absorb china’s (over)production. isn’t that much better than your scenario? well then, why increase interest rate, that much, unless bernanke or whoever wants to collapse the world economy?

 
Comment by Stephanie
2006-02-17 06:59:06

The other side, the deflationist, believes that an enormous ammount of dollars will be consumed in the credit collapse and instead of rising prices we will suffer economy crushing deflation.

That’s what they say. However, Ben Bernanke, who is the new chairman of the Federal Reserve, will not allow deflation to occur, because he recognizes that the only way to prolong the economy’s collapse is to inflate the debt away. It’s kind of like this - if you make $20,000 a year and have a $5,000 note to pay, then that $5,000 won’t seem so big when you have to make $100,000 to make ends meet and save money. That $5,000 is only about 1/20 of your income, whereas before, it was 1/4!

The only real differance I see is that inflation leaves stocks and other wealth realatively intact (not counting inflation), while deflation rapidly destroys wealth accross the board.

Not necessarily - look at the Great Depression. We’re following exactly those lines. The wealthy, on average have their money in stocks, bonds, derivatives, real estate, and ALL of these are backed by the US dollar. When the dollar fails, then these people stand to lose A LOT, unless they go in and buy up precious metals before the bank collapses. Study the effects of banking holidays on the public (standing in line and being paid a fraction of every dollar you have deposited). Remember, inflation has the effect of confiscating your wealth through inflation and interest rates. Also, remember why the Federal Reserve System is going to stop publishing the M3 (money aggregate) number in late March, presumably to hide the M3 expansion done with a “technology called the printing press” (Bernanke’s words in a speech in November 2002).

Inflation is the more gradual leangthy process (slow death).

Then that’s your answer. The Federal Reserve System is not going to allow the economy to implode that repidly if they can help it. They stand to lose the entire country and world, since they are the ones running the private corporation that loans money to the US government, the Federal Reserve System. They also run the central banks of the world, and they stand to be rounded up and assassinated if it implodes in a deflationary period.

With all this said and done, with the real estate bubble, derivatives, short-selling of the magnitude we have today, irresponsible lending of money (creative financing, if you will), abject greed abounding, this has NEVER happened before. There is no telling which way it will go. I might be wrong and the deflationist camp proven right. All I’m saying is do your due dilligence and protect yourself and your family.

Stephanie

 
 
Comment by Robert
2006-02-16 14:54:42

They think they’re Donald Trump, not Warren Buffet! AFAIK (I’ve held BRK-A for about 10 years), Buffet doesn’t do too much R-E investing.

 
 
Comment by peterbob
2006-02-16 09:45:29

“Should I start talking to attorneys or debt consolidators? I just want to be pro-active in taking care of this costly mistake.”

Here’s a novel idea–lower the price!

Oh, and what’s the address? I was thinking of moving downtown, and I can move in soon, if the rent is right. :)

Comment by Rich
2006-02-16 11:31:03

Yeah I loved that quote.

“Should I start talking to attorneys or debt consolidators? I just want to be pro-active in taking care of this costly mistake.”

Is rushing to the bankruptcy lawyer really proactive. =) =) =)

How about them shitbags live up to their obligation and sell their fantastic “investment” for the 30k loss and put it on their creditcards. The were allready proactive when they bought the place, they really should suffer financial pain for 10 years for doing something so stupid.

It really irritates me when these same pricks that caused the RE bubble and all its problems cry for help from credit consolidators and attorneys. They helped screw the entire country and now feel they are entitled to help.

I saw screw em and hooray for the new BK laws (in this instance, not generally) they should suffer for many years for their complicity in this huge problem.

Comment by deflation guy
2006-02-16 12:44:41

I tend to be as irritated as you are about this issue. However, the government keeping the rates at negative real rates, lenders that had little or no underwriting standards, home inspectors and other players perpetrated what essentially will be seen as one of the greatest acts of fraud ever. I agree that people who speculate should be held accountable for their mistakes, but there are suppose to be checks and balances in the system that prevent them from making them. The system removed the fail safe mechanisms on purpose. Personally, I would be even more irate if the government baled out the lenders. You know they will because the government always takes care of their own :(

Comment by Rich
2006-02-16 13:38:21

“Caveat emptor”, screw em. I am an agent and have allways pleaded with my clients to be conservative, and not embrace VOODOO financing.

I had about 30 deals in 04′ and 05′ with only one buyer, all the others were sellers. Could have doubled that easy if I had no conscience and embraced all these crazy buyers. My last buyer paid 600k on a home with horrible IO, ADJ rate, stated income death loan. I sent him to my lender and he choose his own, the loan cost him over $20,000!!!!!!!!!!!

I pleaded with him to use my legit lender, to purchase a less expensive home, to put more money down, to just wait (yes wait) a little while to see what came up (he looked at only 8 houses and purchases) and he rejected all my advice.

He gave me sad looks, as if I was a lost little boy, like I just didn’t get it and ignored all my advice. At closing he looked me in the eye and took a deep breath as he signed saying “Rich, this is more than I make”.

His initial payments were more than he made! The loan was so awful that when his 3 year teaser IO period ran out his payment was sure to double! His girlfriend is supposed to help him with the payments, when the teaser rate runs out the payments will surely be greater than both their incomes combined!

I can no longer work with buyers and am going to work for the State as a tax collector. Kinda funny to think that I now feel a Tax Collector is more honorable than a RE agent.

It is really sad how bad the industry has gotten. I loved to find great deals for buyers in the early-late 90’s, but I saw how far they fell from 89′. As far as I can determine 02′-03′ made us equally expensive as 89′. Now you can add two blistering years of appreciation to the almost 50% decline in prices we saw from 89′-95′.

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Comment by LinQ
2006-02-16 16:25:00

Rich, you should begin collecting emails from everyone here. Some of us will need an honorable agent to help us when we are ready to buy. Do you have much experience w/forclosure purchases? ;)

 
Comment by Rich
2006-02-16 18:36:13

LinQ
Simply drooled over them in the 90’s. Amazing money to be made, but alas I was too poor to partake on my dime.

Sold a lot for the buyers of them to contractors that fixed em up and sold them for them, the contractors made basically wages (there was little work for them then).

The auction buyers all made between 15k-20k a pop after cost for a 3 month 50k investment. This was huge envy crap for me at the time, my average commission at the time was around $900 and my clients were netting 20k!!

Fantastic priceless lesson for me. I have saved much so I could be in their shoes at the right time.

AND THAT TIME IS NEAR!!!!!!!

HALLLLLLAAAAAYYYOOOOHHHHYYYAAA!!!

 
Comment by Tom
2006-02-17 00:23:08

I second linq. Rich, when you’re ready and when the mucky muck realtors are all flushed out, I’m looking for an honest realtor to work with :) You can contact me at gotomgo@gmail.com. Cheers!

 
 
 
Comment by josemanolo7
2006-02-16 13:13:50

come to think of it. the financial institutions probably anticipated the coming housing market collapse (or bursting) that they rush the new bk law to teach these (speculators) a lesson. i am sure, one of the *debt relief* our government has in mind is rescinding or changing this law in line with what we had before.

 
 
 
Comment by greenlander
2006-02-16 09:45:55

Wouldn’t it be nice if we could re-institute debtors’ prison for people like this?

 
Comment by fishtaco
2006-02-16 09:46:25

This story showcases the root cause of all asset bubbles. The utter lack of commom sense. Many americans are going to learn the hardway over the coming years.

I have a solution. Sell you other place, maybe you can break even with it. Perhaps you have a better chance of staying out of the red by renting or selling it? Move into your investment property and stop buying things you can’t afford.

Comment by SFV Jim
2006-02-16 10:37:41

Great advice. Since the first one they bought probably has a lower cost basis. Probably best to sell it, instead of renting it. Then move into the other unit, it’s in the same building. Then they will only have one unit to worry about, but since they are living in it, they won’t have to worry about vacancies and negative cash flow.

 
Comment by Pata Nahin
2006-02-18 00:06:19

This seems like a worse choice. Selling the place that’s underwater gives them a tax benefit - the capital loss writeoff. Selling the place with the lower cost basis will do the opposite.

 
 
Comment by AustinYankee
2006-02-16 09:49:41

I’ve had a contract on a condo (161k) in St. Augustine since August. The completion date was moved from this month to June. The deposit was about $9,000. I’m looking forward to forfeit that deposit and I’d sooner leave the country than have that albatross hanging around my neck! Cut your loses and count your blessings. Go GLD!

 
Comment by SB BubbleBeliever
2006-02-16 09:59:20

Terry Savage WROTE ON:
A warning for condo speculators

February 16, 2006

EXCERPTS:

“About two years ago the speculative condo boom was at its peak. And now many speculators are about to find out that it doesn’t take a “crash” or “breaking the bubble” to create your own personal speculative crisis. All it takes is being unable to cover the carrying costs.”

TRUE

“Now, I’m going to tell you exactly what I told a woman I know who mentioned she was in the same situation way back last summer. REDUCE offering price at least 10 percent below what other condos were going for in the same building. I told her that at least she’d be the first one out the door — before the rest of the crowd figured out the situation, and cut their prices too.”

SENSIBLE ADVICE SO FAR…

“I told her then that I knew I would be writing about this phenomenon in six months — and now it’s starting to happen.”

UHhhhhh HUHhhhhhh…..

“Now, by printing this response I know I’m going to get letters from other people accusing me of starting a “run” on the condo market.”

SORRY, A MILLION OTHER NATIONAL NEWSPAPERS are hitting the market with the same story. You’re no LONE RANGER…. but go on:

” I think that the selling wave will happen inevitably because so many people are over-extended in the speculative condo market.”

BINGO! Whether SELLERS admit there is a bubble or not… the GLUT of homes + condos that are flooding the market will inevitably make it very difficult to get the GOLDEN PRICE you were hoping to pad your personal financial position.

TRANSLATION: “GAME OVER” for flippers and speculators. Sad, because the lady actually sounded really nice.

 
Comment by indiana jones
2006-02-16 09:59:22

And the unfortunate thing about these stories is that the ‘investment’ was likely made because the stock market was perceived to be too risky or flat. Of course, with the amount of leverage involved in these real estate purchases, the opposite is true. With 5% or 10% down, it doesn’t much of a downturn to have losses exceeding the
initial down payment.

 
Comment by homelessbubbleboy
2006-02-16 10:22:01

Any idea when we will see such crack in the SFH market in chicago?

 
Comment by also renting in ma
2006-02-16 10:23:04

The only thing that surprises me besides the lack of financial knowledge that some investing people people have is their lack of general knowledge. I met someone recently that just bought two FL condos to flip. Duh. I don’t get these people that don’t understand carrying costs, let alone the cost of money.

 
Comment by DC Condo Watcher
2006-02-16 10:25:04

Was using TurboTax last night to do part of my taxes. Good reminders that the program gave:

1. Real estate losses on your main or 2nd home ARE NOT deductible
2. If your home is foreclosed, and any debt is forgiven (difference between what you owed the bank, and what the bank got back from selling the house MINUS selling expenses, which can be in the tens of thousands) - THEN it is added to your ORDINARY INCOME!

Double whammy - can deduct losses from your home (down payment, improvements, etc), AND you get to pay tax on the forgiven debt from foreclosure.

To nail it - IRS debts are NOT FORGIVEN in a bankcruptcy. So the taxes owed from forgiven debt will stick until you pay them off. Bankruptcy will NOT CLEAR them.

Practical advice to speculators facing their day with destiny: Convert your speculative property into a rental. You can THEN DEDUCT losses from your income if you are ACTIVELY participating in the rental process (easy to do).

Comment by dwr
2006-02-16 10:32:04

“Practical advice to speculators facing their day with destiny: Convert your speculative property into a rental. You can THEN DEDUCT losses from your income if you are ACTIVELY participating in the rental process (easy to do).”

Isn’t it a passive loss unless you can prove you’re in the real estate business more than X number of hours per year (something like 750)?

Comment by DC Condo Watcher
2006-02-16 10:34:49

Unless the tax rules changed recently, my understanding is that all you have to do to be ACTIVELY involved in the rental process is to any one of a number of things: select/screen tenants, collect checks, make a visit once in a while to check up on your property, put up a ad in the newspaper to rent it out. Just one of these, and you’re an active particpator. You can even have a management company managing the property, as long as you do just one of the above things.

I think the IRS devised this rule to separate out the individual homeowners renting out their handful of properties from the people who own “shares” in a distributed rental property partnership, etc.

Comment by Ben Jones
2006-02-16 13:36:13

Also, if it is a capital loss, it can only be written off against a capital gain, or @ $3,000 per year against regular income (capital loss carry-forward), if I remember it right.

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Comment by josemanolo7
2006-02-16 13:24:57

but, there is such a thing called *offer in compromise” to reduce your tax liability in some cases. they might be able to get some relief this way.

 
 
Comment by Ben Jones
2006-02-16 10:27:45

Don’t miss the update from Inman. Thanks to the reader who sent that in.

Comment by The Lingus
2006-02-16 10:40:58

Don’t miss the update from Inman. Thanks to the reader who sent that in.

“Please consult your tax adviser.” LMAO!!!! In other words, tough luck idiot! [too funny!]

 
 
Comment by bottomfisherman
2006-02-16 10:39:05

“I fear of what is to come”

I am seeing more and more of the F word lately. Looks like the G word is suddenly passe…

 
Comment by destinsm
2006-02-16 10:40:22

An example of how you can lose $90,000+ in real estate in less than 6 months….

4212 JADE LOOP
DESTIN, FL 325415132
Sale Date: 06-29-2005
Sale Price: 415,000

4219 JADE LOOP
DESTIN, FL 325415132
Sale Date: 09-26-2005
Sale Price: 275,000

This is in a new TH development about 3/4 complete….. Both units same size, same layout, and across the street from on another.

 
Comment by turnoutthelights
2006-02-16 10:52:02

OT, but… In my neck of the woods some years back, a family on long-term government assistance received a substantial inherence. Of course, like the IO/Option/investor of today, they spent the money like no tommorow, and within 6 months were flat broke again. When their ‘request’ for new GA was denied, they sued the government, claiming they had no means of suppport. The judge ruled that the money they had should have lasted 3 years, so he declared them ineligible for assistance til the end of that time. The end of the story quoted family members conplaining about ‘ now what do we do? It’s just not fair!’ Fair or not, bad decisions do come home to roost, and just not fair won’t matter much.

Comment by Kaleidoscope Eyes
2006-02-16 13:40:13

Sometimes I wonder if a class on basic money management ought to be required in high school - just like English, algebra and other academic subjects.

And how about having a “financial literacy” unit on the exit exams.

Of course this will never EVER happen but one can dream.

 
 
Comment by rms
2006-02-16 10:56:40

Set it on fire; I’ll bring the franks!

 
Comment by tommy_trojan
2006-02-16 10:58:39

As I mentioned before on this board. More trouble for existing home sellers in the coming months. The inventory glut will get worse as home builders need to complete their planned developments, and unload while they can. “i”"U.S. Jan. Housing Starts Rise 15% to 2.276 Mln, Most Since 1973″”/i” Damn the torpedo, full speed ahead! Most home builders operate on borrowed money, they don’t want to sit on a recently purchased land undeveloped.

 
Comment by MazNJ
2006-02-16 11:03:37

OT but had to share: So time for my lease to renew in semi-bubblicious Monmouth Cty NJ. Note: Rent includes all utilities but electricity (gas heat). Rental increase for next year: $15. Damn, I really wish I bought last year so I didn’t have to suffer these intolerable rent increases (so much for people assuming 5 percent or 10 percent annual rental increases). Additional note: watching the new listings and price reductions pour into my inbox, saw a home I thought was lovely 6 months ago come in again… 2nd price reduction, beautiful home in navesink, down 60K from original listing price… sure its not even 10 percent but if the trend keeps continuing and they chase the curve, who knows, in 2008 or so it could be mine. And if not that, something else reasonably priced.

 
Comment by moonvalley
2006-02-16 11:32:29

My new favorite program is “Buy Me” on HGTV. I’ve rarely watched this channel because of it’s blatent encouragment of reckless RE investing. But this new program is the bomb! A half hour of watching insane flippers see their chickens come home to roost. OMG!! Followed by the Daily Show for an evening of bliss.

 
Comment by dcbubble
2006-02-16 11:33:15

DC ranks 16 on a new list showing the extent of the housing bubble. According to the The Data Almanac 2006, it cost $499 more to rent a home than to buy a home in DC.

http://www.dcbubble.blogspot.com

Comment by DC_Too
2006-02-16 13:31:43

The $499 figure is based upon HUD data from 2003. Sales prices are (were, tee-hee) up about 20% per year, compounded, since then. I live here. Rents are dead flat since 2003.

 
 
Comment by Left LA Behind
2006-02-16 11:45:31

The human side of me wants to feel sorry for these schmucks, but then the rational side kicks in. I am 33. Since the age of 25, I have managed to save at least 50% after tax. I have rented, and I have owned. I have invested heavily in various paper vehicles. Sure, I got a bit of a smackdown from the tech bubble burst (no dotcoms - related infrastructure blue chips), but I HATE debt.

Now, some may say I am crazy for not leveraging such easily-obtainable money. However, I know for a fact that I am much more liquid than the majority of my friends. Sure, they may have paper “equity” (fiat equity?), but they usually have the spending habits and consumer debt to match.

Getting rich (the REAL rich - cash and performing assets!), one day at a time.

As I read all of this news from my temporary home in a foreign country, I love the fact that my housing is paid for by my employer. On top of that, I will not return to the United States until at least January 2007. Even more cash in my pocket then.

Will I think twice about low-balling these specuvestors? Hell no! I have WORKED for my money. I have spent many months away from home, family, and friends. There is no chance I am going to give some idiot flipper the fruits of my labor. Conversely, I am going to profit from their misery.

Rant over.

Comment by Mr. D
2006-02-16 12:30:21

Is there not a happy median between reckless speculation and saving 50% of your income while you are away from family and friends? If you don’t mind me asking, when do you plan to start enjoying yourself?

 
 
Comment by Stephanie 81
2006-02-16 11:45:41

@ DCBubble

Mortgage pmt 30 year fixed: 1891
Rent: 1392

 
Comment by TXchick57
2006-02-16 11:56:37

Cry me a river. Who cares. They can take their place in line at the bankruptcy clerk’s office.

 
Comment by cowcat
2006-02-16 12:46:15

These stories are only the beginning. This is going to be a widespread mess by Q1 2007

 
Comment by OCMax
2006-02-16 12:49:05

I’m all for capitalism and the free market, but when the specuvestors discovered real estate, they made the decision to start squeezing people for SHELTER. It was all fun and games with tech stocks, comic books, baseball cards, wine, and the myriad of other things that have been speculated on within the last 20 years. But this time, it became personal. Bulls eat, bears eat, pigs get slaughtered. I love watching pigs get slaughtered.

Comment by Left LA Behind
2006-02-16 13:10:55

Starved pigs will happily decimate a human corpse in minutes, including bones. Flipper eating flipper. The current order of things, until us, the enlightened, get out chance to fry the bacon.

 
 
Comment by OUT OF LA
2006-02-16 12:57:54

these stories are music to my ears,such fun to read…..it beats the funny papers…if a develpoper is giving u 2 years free…..that should be a warning sign to rational individuals to run fast out of that office…..but greed makes them stay…..

 
Comment by LowTenant
2006-02-16 13:04:25

“Recently, the hoi polloi took on the misguided belief that financing investments was a “smart” way to become wealthy.”

Sadly, the people who will get screwed will not be those who cashed in on the bubble. Among my friends and colleagues, most of whom are well-educated and well-off to begin with, several grabbed a few extra hundred thousand doing casual house-flips over the last few years. They got out over the last year when it started taking longer to sell. Of course, at about the time that these “recreational” flippers were pocketing their profits and moving on to other hobbies, the less advantaged people were just getting in. I’m not gloating at all at their misfortune, because they’re generally not the ones that captured the upside.

 
Comment by mtnrunner2
2006-02-16 13:18:39

It’s inhumane for those of you who are reveling in the pain of others.

These condo owners were doing the “right” thing: saving their money, investing for their future, working at their jobs. It’s not like they are in financial trouble because they ran up their credit card to buy $500 Coach purses or $8000 trips to Europe. They bought investments, of a type that is considered safe and American, and encouraged by our government, the local newspaper, their parents.

I did get out at the peak, in January 2006, and am waiting for a collapse to buy again. I feel sad for the millions of people who will be forced into bankruptcy.

I hope you will all focus on how this can help you, and discuss the economic impact, and stop snickering at people who are suffering.

Comment by Left LA Behind
2006-02-16 13:27:34

Due diligence. That’s the name of the game. I sold up when prices approached 15% above historical appreciation. I did my research, and so should anyone else. My taxes and borrowing rates will suffer due to specuvestors; so, no sympathy. I will bathe in their blood.

 
Comment by Rich
2006-02-16 13:55:41

Bullshit,
Investments make money or have some valid reason to appreciate. These morons were degenerate gamblers that caused property for those seeking a place to live to cost more. They tried to increase their nest egg at the direct cost of others.

An investment is not a zero sum game, it is win win for all parties when it is not a scam.

Speculation (gambling such as these folks) is a zero sum game, for them to prosper someone else must pay. They never intended to provide a service (be a legit landlord and provide housing) or help anyone but themselves. Greed was their motivation, not Return On Investment, just plain greed.

 
Comment by Sunsetbeachguy
2006-02-16 14:32:07

Ben:

Here is a topic for the weekend:

Schadenfreude vs morality lectures

Maybe you could dig some of the numerous times this topic was beaten to death on the old blog.

It is kind of tiresome. But for the record I enjoy seeing ignorant knuckleheads get what is coming to them.

 
Comment by circling_vulture
2006-02-16 16:27:51

Sorry but I must add to the chorus here - Pure BS! Most of these idiots were *NOT* doing the “right thing” - or saving their money. They were buying things they couldn’t afford believing they would appreciate into the stratosphere forever, and that it was foolproof a “get rich quick” technique.

 
Comment by greenlander
2006-02-16 17:18:45

Your hope is squashed! I am going to continue snickering at stupid people in pain. You’re right, it’s not their fault that they are stupid. Their parents were probably stupid too!

Comment by Rich
2006-02-16 18:25:03

greenlander,
LMAO at that one…
Blame there ignorant parents.

I love it.

Comment by Pata Nahin
2006-02-18 00:24:23

“Blame ‘there’ ignorant parents.”

Do you mean ‘their’?

My how everyone here loves to cast the first stone. Thank God they have the anonymity of the Internet to protect their glass houses.

(Comments wont nest below this level)
 
 
 
Comment by Pata Nahin
2006-02-18 00:28:33

I’m with you mtnrunner2 and LowTennant. I know alot of exceedingly well educated and decent people who will be burned.

They didn’t get into real estate out of excessive greed. They just happen to spend all their time being productive members of society working hard at their jobs. This leaves little time for them to analyze their alternatives for investing their savings. They went with what seemed to be the common sense, low risk investment - real estate.

 
 
Comment by circling_vulture
2006-02-16 13:20:06

“Is there any way out of this nightmare?”

Nope. Only thing you can do is not be stuipid enough to get yourself into it.

 
Comment by TheLingus
2006-02-16 13:59:06

Is anyone else enjoying the misfortune of these greedy bastards?

Comment by Sunsetbeachguy
2006-02-16 14:33:52

Yep, but be careful the morality police (AKA American Taliban) are coming to lecture you on your bad form.

 
Comment by circling_vulture
2006-02-16 16:43:49

Lovin it. Not sure why my last comment didn’t appear though.

 
 
Comment by smileydave
2006-02-16 14:29:23

I feel a little sorry for them, but I feel more sympathy for all the young hard-working couples who have been shut out of home ownership by all the yahoos driving up prices.

Comment by Left LA Behind
2006-02-16 14:46:46

Yep. Me too. All of those people raised to believe “save 20%, buy a place you can afford, and live the dream”. They deserve sympathy, not those who take the easy money, rack up the CC debt, and drive the Hummers… We will ALL suffer from the morons who provided the easy money, as well as those who accepted.

 
Comment by deflation guy
2006-02-16 21:14:21

Your comment reminds me of 1988. I had just graduated from college at the top of the last housing bubble. It was extremely fustrating to start life out without any hope (so it seemed) of getting into a home for several years. Prices were very high relative to income (but not as high as they are now). I can only imagine the fustration of our youth who are doing all of the things they are told to get ahead only to be caste into a market like this. I can relate. But, I waited it out and in 1996 I was able to get a reasonable price on a decent home in a good neighborhood. My only advise to people starting out is to save your money and wait this out. Your opportunity will come. Prices will come back down to affordable levels.

 
 
Comment by Dreamin of 07
2006-02-16 14:55:13

When is this bubble burstin? I am tired…

Comment by Rich
2006-02-16 18:30:47

BLASPHEME Dreaming,

Steal yourself weak soul. Hell lieth beyone the corner of weakness. 40 virgins lie with the pure whoest honor the GREAT BUBBLE.

DO NOT COMMITITST THYNSELF TO THE IGNORANCE OF THE DOOMED HEARD.

THE END IS NEAR!!!!!!!!!!! FOR THE HEARD =)

As you all might tell this is my third very tall VO and coke.

ENJOYIST THE PAIN OF THE INLOSENT HEATHEN NON BUBBLE BELIEVERS!!!!!

 
 
Comment by moonvalley
2006-02-16 14:55:39

Just got back from lunch off the Plaza, there was a table full of Realtors behind us, about 7 of them, anxiously talking up properties. After scarfing up an 800 dollar lunch..(heard them discussing the bill)..they all checked their Blackberries. One sort of pouted and said…”hmm, no messages. I’m kind of getting used to that”

 
Comment by Sammy Schadenfruede
2006-02-16 15:58:53

I hope you will all focus on how this can help you, and discuss the economic impact, and stop snickering at people who are suffering.

I’m not snickering. I’m openly guffawing. These “FB” fools recklessly and irresponsibly used credit and debt to build their proverbial “house of sand,” in the process driving up prices to insane levels that deprived more prudent would-be homeowners of a decent shot at living in a nice house in a nice neighborhood — something most of our parents took for granted. So spare me your sanctimonious moralizing — I reserve the right to be openly gleeful as I watch these greedy, stupid fools get their heads handed to them. I have no compunction about moving in with a lowball offer once their bubble dreams have crashed and burned.

 
Comment by drwende
2006-02-16 18:44:18

Snickering? I was choking on laughter, myself.

The people I feel sorry for are the ones who saved their money and then put 20% down on an over-inflated house that they could just barely afford because feared being priced out of the market forever — and the “American dream” of home ownership is very compelling. They’re stuck between a rock and a hard place, with too much equity to just walk but not enough cushion to comfortably ride out a deep drop.

Investors relied on catchphrases instead of research don’t get my pity. “Investing” implies rationally weighing the return on investment. The stock market crash happened recently enough that it should have been a lesson about fools rushing in.

 
Comment by oc-ed
2006-02-16 20:29:17

I guess for me it is a sense of relief that I have not been the crazy one these past 5 years. While all of the RE bulls have treated me as if I were nuts not to jump on their bandwagon and drink their kool aid. It’s hard not to feel, in a way, redeemed when I read about these financial tourons finally sufferring what was to me, and many other “clear headed folk”, a natural consequence of their choice. But this mania has added in a time dialation to the equation. So instead of the quick, step out into traffic — BAM! — get hit by traffic sequence. We have a drawn out step into financial risk — make lots of paper profits — have a party in traffic with David Lerah — invite everyone into traffic — oh look is that a large slow bus coming? — Why yes, I think it is — drink up, the bus never hist anyone — and so it goes.

So, yes, I guess I am reassured by these tales of woe that the world is after all logical and there are consequences to choices borne of complete stupidity and greed. The bottom line is that when you sign on the dotted line you are all alone. Even if everyone told you X, Y and Z is true, if you did not bother to do your own homework it’s your ass in the fire.

Should the weasels who misrepresented, cajoled, manipulated and lied to make the sale be taken to task - OH YEAH they should - perhaps a rather large excise tax fed into a fund for poor suckers - or maybe let’s just regulate real estate like commodities or securities and hold agents, appraisers, and lenders to a higher set of standards than they seem to be able to impose on themselves these days. (with apologies to the honest folks in those groups - how can you stand to go to office parties these days?)

 
Comment by moonvalley
2006-02-16 21:43:15

All of those people raised to believe “save 20%, buy a place you can afford, and live the dream”. They deserve sympathy, not those who take the easy money, rack up the CC debt, and drive the Hummers… We will ALL suffer from the morons who provided the easy money, as well as those who accepted.
You’re right, those are the ones I feel sorry for . I am also getting very tired of people not listening to me when I try and warn them not to jump into this market right now. I can’t stand to hear these poor bastards telling me “it always goes up , I just want to flip houses and make money for my retirement”. I have steered people to this blog, shown them the stats, there is just no telling some people. I had this converstation this afternoon with a friend who is about to recieve a tidy sum from a dead relative. The guy really needs to hang on to his money not start flipping. I wish he’d stop talking to realtors.

 
Comment by The Lingus
2006-02-17 05:37:44

Wow…. we have poet. Took the word right out of my mouth…… Amen.

 
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