‘The People Who Get Hurt Come In At The End’
A trio of reports on speculation in the housing market. South Carolina. “Downtown real estate is headed for a midcourse correction after an initial period of euphoric sales, developers, real estate agents and analysts say. Columbia’s downtown housing boom started with prices skyrocketing up to $750,000 for condos. But look for most prices to settle around $200,000.”
“Why the price adjustments? Skeptics say too many units have been announced and prices have been inflated by speculators. ‘Columbia is not ready for hundreds of condos starting at $300,000,’ downtown developer Tom Prioreschi said. ‘They will be lower than that.’”
“To make Columbia’s downtown housing boom work, developers have to appeal to the buyer who wants to live in the home, not just investors who want to flip them for a profit, says financier Don Tomlin. Tomlin said developers ‘have to decide if we are selling investments or residential.’”
“Prioreschi waves off the naysayers. ‘These are quality developers,’ he said. ‘They do market analysis. These are not some yokels.’”
“‘The people who will get hurt are the people who come in with the big project at the end of the market,’ Columbia City Council member Jim Papadea said. ‘But Columbia has a long, long way to go before that happens.’”
The Record Courier in Nevada. “The seller’s market in Douglas County is over. The average price of a home in Douglas County dropped significantly in recent months, from a high of $675,000 during the last quarter of 2005 to $544,600 during the first quarter of 2006.”
“Steve Bohler, a broker/owner in Minden, said home selling prices in Douglas County are significantly lower than the asking prices, which indicates to him that they’re overpriced. About four or five years ago, people moving here from California had never refinanced their homes, but that isn’t the case now, he said.”
“‘Instead of coming here with $700,000, they now have $300,000 to $400,000 cash,’ he said. ‘They want to buy a home for a couple hundred thousand and still have enough equity to retire. I hear that from a lot of people,’ he said.”
“The recent real estate boom seems to have bypassed cities like Denver and Albuquerque, N.M, but those markets are now raising some eyebrows, according to David Lereah, chief economist for the National Association of Realtors. ‘What these metros have in common is a healthy local economy and affordable housing prices,’ he said. ‘It is becoming increasingly clear that in the aftermath of the boom, households are now seeking affordable property to purchase and live in,’”
The Wichita Eagle in Kansas. “Many are surprised that the first half of 2006 set yet another record for local home sales, even as interest rates creep up and national home sales and home building slow down. If those who wanted a new home have already had a chance to buy one, who is buying these houses now? And when will it end?”
“A new group has also emerged in the past year: Wealthy out-of-town investors looking for a safe haven for their money and a little rental income.”
“But some property managers say these out-of-town investors may be too optimistic. Wichitans are reluctant to spend more than $1,500 a month in rent for anything, Debbie Thome, owner of a property management firm.”
“After annual gains of up to 30 percent, investors in California and other hot real estate markets have cashed out, earnings hundreds of thousands of dollars. Those gains are subject to heavy federal and state taxes. But the IRS allows owners to defer taxes if they buy property of equal or greater value.”
“For those who made a few hundred thousand dollars on a sale, Wichita is attractive because they can afford a nice house for $100,000 and a very nice one for $250,000. Some buy with the intent to sell later, but the slow appreciation in Wichita can come as a shock.”
“(Broker) Cindy Sundell-Guy had a customer from California buy a house and wanted to sell it six months later. The price appreciation wouldn’t cover the cost of buying the house. ‘They were shocked they couldn’t get their money out,’ she said.”
“So how long can the good times continue? Experts say that rising mortgage rates will cool the boom here, too, just as they have elsewhere. It’s just a matter of time. The number of out-of-town investors can never be that large considering they expect to rent those homes out to somebody. It could just be that Wichita isn’t different than the rest of the country, say brokers, just a little behind the times.”
“To make Columbia’s downtown housing boom work, developers have to appeal to the buyer who wants to live in the home, not just investors who want to flip them for a profit,,,,
Live in them??? Is this some sort of new concept. I’ve never heard of such a thing!
That’s just it . The concept of establishing market value of a house/condo in a given area based on short term speculation mania demand ,is just crazy and wrong .
While it is usually true that the market value approach is the type of appraisal used in residential ,that aproach should of been barred and other approaches used in recent times by lenders .
As the tendency for fraud increases in a declining market ,I would hope that the lenders will apply check and balances that exceed the pure “market approach” on the appraisal .
The real users of property are the ones that establish the true stable values .The equity locust have run up the price in so many towns that it makes me want to vomit . The mania just priced the local first time buyers out of the market .
If you just make a requirement that a out of State borrower has to put more money down ,( based on the risk factor ),along with other check and balances ,you can at least transfer the risk to the damn speculator . Just like in 1929 , had the stock market stopped allowing spec. buys on margin the great crash might of not occurred .
The number of out-of-town investors can never be that large considering they expect to rent those homes out to somebody. It could just be that Wichita isn’t different than the rest of the country, say brokers, just a little behind the times.”
I can guarantee you that folks in UTAH, IDAHO, Oregon, end elsewhere, including Florida and Texas thought the same thing.
But, as 100,000’s of people to “real estate investment courses”, and became the equity locusts of America, the bought up ALL THE EXISTING INVENTORY.
When that happens, they set the ‘new price’.
The particular buyer just had gotten into Wichita too early. If hordes of others came with them, the locals would be shocked by the new higher prices, and the “demand”. GEE….everybody wants to live in Wichita, the “new economy” has taken hold.
But, eventually the game ends…………….
It’s too bad so many communities have been destroyed by the FED easy money policies that allowed this to happen.
See, this is what I’ve said over and over ad nauseam.
People come from California, Vegas, NY, etc. with money from a bubble house burning a hole in their pocket. They come to a place like Dallas or Austin or Wichita or wherever . . . . they see they can buy this giant monument to their “financial acumen” (which in truth is nothing more than being in the right place at the right time, much like a guy on a golf course being hit by lightning was in the wrong place at the wrong time). So, eyes pop out, bedazzlement sets in, the new place is bought and the hook is set. I would bet too that even though a lot of these out of staters could pay cash for the new place, they don’t because they would rather “invest” the cash (IOW, spend it on crap) and take out a mortgage.
After the newness and excitement wear off, they take a look around and it begins to dawn on them why these places are so cheap. They ain’t California, topographically, culturally or consumer wise. Then the desire to go back starts, especially when they see that Cali prices are coming down. Oops, you want to sell this new pleasure palace to go back to California? So sorry, nobody here can afford these prices. These houses were built solely for you suckers!
But enjoy those gold faucets and Kenmore appliances with the stainless steel glued to the front. That is, if the missus can actually cook, which is a whole ‘nother thread
I read somewere that 75% of Americans if presented with a stalk of raw broccoli would not be able to tell you how to cook it.
You’re right , whos ‘ going to buy the extra large house so they can get liquid again?
They say you can’t go back once you leave Cali………
Maybe this is why?
we have the same thing happening in boulder. californicators buying $1M condos downtown while the eastern plains and denver metro are sinking like rock. the local developers are all jumping on the same train at the same time, building “urban lofts” and “urban bungalows” at $1M ++++. the only thing urban about boulder are the californicators in their hummers driving to their favorite tequila/oxygen bar. can’t wait to see how this all plays out.
this happened in my area of the Netherlands as well; prices went up about 10x over the last 10-15 years (in some small villages even 15x). Saying the locals are priced out is an understatement. And unfortunately, these newcomers with pockets full of money have a big influence on local politics as well - so the politicians do what they can to keep prices rising (with zoning, funny subsidies etc.).
Trouble is, there are always enough idiots from speculation country left to keep prices in the low population areas high for a very long time. And many of the locusts made so much money in the first part of the housing boom that they are not going to sell in a hurry when prices start turning down either.
“I read somewere that 75% of Americans if presented with a stalk of raw broccoli would not be able to tell you how to cook it.”
I bet that’s true, ’cause it jibes with what a market researcher working for a major food company here in the Midwest told me several years ago. They’re concentrating their developments on instant-serve, thaw-and-eat, and nuke-and-eat foods because, he said, the majority of people nowdays not only don’t cook, they don’t understand how to follow a recipe. They are so illiterate they can’t handle the measurements and don’t understand directions unless they are severely dumbed down. As a result, what recipes the company develops to promote their canned/dried/frozen/boxed products are usually limited to a maximum of four additional ingredients and no more than six simple steps. Even then, they get calls from baffled consumers asking whether ‘one cup’ is a drinking glass worth, or a coffee cup’s worth, etc.
There you have it, folks: the people who lack the rudimentary math to even follow a recipe are sheep led to the slaughter when it comes to signing for a suicide mortgage.
I’m missing something here. Regarding the broccoli; why wouldn;t you just steam it?
I’m missing something here. Regarding the broccoli; why wouldn’t you just steam it?
“I read somewere that 75% of Americans if presented with a stalk of raw broccoli would not be able to tell you how to cook it.”
Why, you microwave it of course. Right?
I cannot cook. Hate it in fact. But I can steam broccoli. By why? The more raw your diet the healthier you are.
Heavy sigh. “But why?” not “By why?”
Nope. No illiteracy here.
I happened to be watching the “The Learning Channel” (TLC) yesterday and was fascinated by two shows pumping “flipperhood”.
First there was “Flip This House” and then “Property Ladder”. I couldn’t believe it. It became all too clear what has happened.
1. Secretary or drummer or McDonald’s employee - decides to buy a “fixer” for say $200K.
2. Gets “easy as ordering a pizza” zero down loan suicide loan knowing full well that they will only need to hold the loan for the time it takes to make the improvements (hopefully only having to make a single payment)
3. Hires contractor to make improvements (est costs $20K)
4. Obligatory “granite counter tops”, “stainless steel appliances”, paint, and new flooring (possibly more for major overhauls)
5. Sells new and improved property on market for $300K
6. Gets target price (or even more) and walks away with $80K for 4 weeks worth of work.
7. Plans to flip 12 properties in a year and make a million dollars in one year and retire
With this sort of “even a secretary can become a millionaire in one year” hype no wonder we are in this mess.
The FED laid the groundwork, flippers created a type supply, and the bubble became a self-fulfilling nightmare.
But there are two self limiting factors in this “game”
1) Prices have to keep escalating to ensure a recoup on the original investment plus the cost of all the improvements (and there are plenty of flippers who made zero improvements)
2) You have to find a buyer for ever less affordable properties
…and both of these have played themselves out
Anyway you cut it this is a classic ponzi scheme. Also, the show seemed “old” as one of the episodes was about a secretary in CA who bought a condo and flipped it in about a month for a handsome profit. Given the price she paid for it ($240K) and the price she sold it for ($340K) I would say this most likely happened several years ago when condos were still somewhat affordable and prices were climbing fast.
Then again, this WAS a show so maybe it didn’t even happen at all. Wouldn’t be surprised if the show was produced by the NAR to “keep the party going”. Since all the flippers used RE agents to sell their quick flips you can see the NAR having a HUGE interest in having flippers buy and sell in as short a time period as possible. NAR loves flippers.
After seeing those shows yesterday I now think that speculation is a MUCH bigger part of the bubble than I previously had thought.
A week ago I did a “random sample” of 10 homes in my Zip Code using Zillow and HALF of them appeared to be “flips” (bought in last couple years and now selling for several hundred thousand more). I kind of blew off that 50% of the listing appeared to be flips (couldn’t be that high…right?) but after seeing this show I can see why it very well may be true. If it is….the crash will be MUCH WORSE than I had originally thought.
I have always thought those programs had alot of influence in this housing mania . One guy on PROPERTY LADDER made a 250k profit in a short time . Most of the flippers they show on these programs make 50k to 100k in 2 to 3 months .Even the jerks come out ahead of the game .
In a declining market most of these fixer-upper flippers could come out on the short end .
The last flipper I saw on T.V. refused to put in air-conditioning in Simi Valley ,(a hot location ) . These jerks still came out with around 50K in profit . Fixer-upper flipping is just real risky in a declining market .
I saw that one too… no air conditioning? No problem they said, we are selling in the winter time and no one will notice!
Guaranteed.
I noticed years ago ‘Designed to Sell’ would always talk about properly “staging” a home, to get it to sell faster. Basically, make it look generic/friendly enough that prospective buyers could see themselves living there.
Things like; remove all family pictures, remove all but one or two furniture items per room, matching color schemes, etc.
Afterwords, I noticed these items when house hunting myself. To me, “Staged” homes are dead give aways the home is being flipped. One I remember, had an empty dining room, save one table. On the table… a rolled up newspaper and a bowl of Cheerios already poured out and ready to eat!
I also understand, some remove all their furniture, and rent a new couch, bedset, etc just for the staging purposes.
BOTTOM LINE. If you see staged homes like this, turn around and leave. A flipper likely is likely marking up the price $80K+ for this “service”.
yeah, in Europe programmes like that also played a major part in the later stage of the boom. We now have nearly a whole evening of RE related programs on one of the channels (buying, financing, remodeling etc.), programs about the nice things you can do with that extra mortgage (expensive gardening, pools, yachts - creative financing is always a major part of the show), there are several series running about buying /remodeling foreign homes, etc.
I sure hope that Columbia SC, city councilman’s dayjob isn’t giving investment advice. At least the people in Wichita seem to have some sense that the party is over.
For all the talk of globalization of this market and that, how come people still hold on to the notion that real estate hasn’t been affected at all by the changes in the system of capital flows and transportation?
When people in California or New York play any measurable role in real estate in Kansas and South Carolina, market dynamics have been altered in a way that really doesn’t fit any existing economic model.
It is abundantly clear that markets have been altered by companies efforts to reduce costs, what makes people think that efforts to improve returns won’t have effects as well?
Jim Papadea, the councilman you refer to, owns lots of downtown real estate in Columbia.
“‘The people who will get hurt are the people who come in with the big project at the end of the market,’ Columbia City Council member Jim Papadea said. ‘But Columbia has a long, long way to go before that happens.’”
These two comments are typical of what I hear in my political circles. The second is nothing more than a variation on “it’s different here” but the first is an eggregious display of of poor governance.
Papadea is saying three very bad things in one. First that somehow the idea of city approval for development projects doesn’t involve whether they are appropriate. He’s got no problem letting $750k condos go through because he trusts the market will price them at $200k. Second he’s absolved the city of any potential consequences should the project go bad. We all know better and so should he. Finally, this business of only the recent (out of towners) at the end of a boom being the only ones’ hurt. Hey, if this were about contained impact and responsibility correctly assigned to just the guilty then none of us would be so worried.
When does David Lereah actually look at the economic situation? How many newspaper and magazine quotes, TV appearances, conference speeches does he make a week? Does he ever stop his glamorous lifestyle to look at a spreadsheet?
Let’s hear it for the economists who sit in a room pouring over data and economic models.
We’re talking Realty not Reality here.
LOL
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$750k to $200k??? That’s the nastiest price drop prediction I’ve seen. -73%???
Of course, that puts in the territory of the NASDAQ drop, from a high of ~5000 in 2000 down to ~2000 in 2006 , or a ~60% decline.
Columbia’s downtown housing boom started with prices skyrocketing up to $750,000 for condos. But look for most prices to settle around $200,000.”
From $750,00 to $200,000? Holy Crash. That’s pretty serious declines in price expectations.
Simmsssays…Gadget Dos and Gadget Don’ts
http://www.americaninventorspot.com
“‘Instead of coming here with $700,000, they now have $300,000 to $400,000 cash,’ he said. ‘They want to buy a home for a couple hundred thousand and still have enough equity to retire. I hear that from a lot of people,’ he said.”
This would indicate to me that people are spending their retirement money ahead of time supporting their California lifestyle.
“A new group has also emerged in the past year: Wealthy out-of-town investors looking for a safe haven for their money and a little rental income.”
Why they think Real Estate is a safe haven is beyond me and the money could just as easily generate interest income without the hassels and expenses of being a landlord.
“After annual gains of up to 30 percent, investors in California and other hot real estate markets have cashed out, earnings hundreds of thousands of dollars. Those gains are subject to heavy federal and state taxes. But the IRS allows owners to defer taxes if they buy property of equal or greater value.”
No they are not subject to “Heavy” taxation, just normal taxation and deferring that taxation by doing a 1031 exchange does not make those taxes go away. In most cases you’d be better off just paying the taxes and putting the proceeds in CD’s unless you are young enough to survive another RE cycle. 1031 is another loophole propagating this bubble.
“1031 is another loophole propagating this bubble”
We have similar tax rules in the Netherlands that cause people to buy the most expensive house they can get when they move, just because it seems better for their (income) taxes. I’m sure authorities make many of those rules to keep their pyramid game going a little longer; in the month that this new rule became effective, average sales prices jumped by 5-10%.
Can’t do a 1031 on personal property. Would not want to give up the $250,000/500,000 exemption anyway. And since when are Long Term Capital Gains (top rate 15% Fed) heavy???? Heck, I’d be happy if my EARNED income was at that rate (and didn’t start out with 15.3% in SSI taxes. Tax deferral is too often penny wise and dollar foolish.
story at Bakersfield.com on buiders incentives
Well seeing as how I live in Columbia, S.C. I can tell you first hand, the downtown developement is out of control and being handled poorly, by these so called “professionals”. Jim Papadea(RE-Pro)Ha! is full of crap and a part of the problem. It’s the “if we build it, they will come” plan, and it ain’t working. I am enjoying the show though!
I’m curious - do Columbia, SC incomes support even $200,000 condos (assuming they’d be starter homes for young adults)?
Columbia is #90 on this list http://tinyurl.com/r7bpf. Not sure what year these listings are from, but since wages have been essentially flat for several years, it’s a good-enough guideline.
I think your list is from the 1990 census. Median income levels are considerably higher now. There is undoubtedly some sort of market for 200K condos in Columbia, but I don’t know how big it is.
Median salary is about $41,000.
(They do market analysis. These are not some yokels.’”)
heh, I wonder is suzanne does their research.
(“‘The people who will get hurt are the people who come in with the big project at the end of the market,’ Columbia City Council member Jim Papadea said. ‘But Columbia has a long, long way to go before that happens.’”)
the people who will get hurt the most are the one’s who bought at the top.
CA # out from DQ:
http://www.dqnews.com/ZIPCAR.shtm
5 counties are YOY negative
That is awesome news… thanks!!
downtown Columbia SC ?
roflow same in Ashville
lieRAH thinks denver’s ok ? wow
Anybody paying $750K for a condo in Columbia, SC should have their head examined (I used to live there). There’s no way on Earth that local incomes support anything like that and there’s no army of baby boomers descending on SC with that kind of cash, either.
As for migrating Californians propping up real estate throughout the rest of the country, that will come to an end as well. It’s a big country, and there’s only so much impact that the California equity lottery can have. Besides, I thought everyone was moving to California, not out. Isn’t it paradise on Earth?
‘Instead of coming here with $700,000, they now have $300,000 to $400,000 cash,’ he said. ‘They want to buy a home for a couple hundred thousand and still have enough equity to retire. I hear that from a lot of people,’ he said.’
Sounds like the CA honey pot is already running dry.
“I thought everyone was moving to California, not out. Isn’t it paradise on Earth? ”
Well there are estimates of 3,000,000 illegal aliens in California. That’s only the beginning of the golden state’s problems. On the other hand, there are still beautiful places in California. As much as most people on these boards like to laugh at the people of Central California, I know first hand that the ones from there are the most down-to-earth people in the state that you can ever meet. The pretentious ones are in San Francisco, LA, Orange county, and San Diego. The locals who have been in central California for generations are not the ones who bid up the prices. There were a lot of equity locusts WITHIN the state from the coastal bay area who sold out and bought houses further inland. They are the scorn of the locals, much like Seattle folks hate Californians, per se. I lived in various parts of California, Oregon (as a kid in the 60s), Arizona, and even on the east coast, and know some of the cultures. Small towns have good down to earth people. The big city slickers who “know everything” are the ones to ridicule. I hope the locals in Wichita or in Austin are milking Californians for all they got, much like the Floridians in the 1920s who sold non-existant parcels to the New York City big shots. I always remember my humble roots, and I have been proud to drive my Toyota economy car (paid for within 2 and a half years) next to these big shots in hummers in Los Angeles who have interest only loans. I can handle living in Los Angeles once again. Other than the illegal aliens and pretense, there are so many great things I like about the beach cities. I look forward to my return and will rent near the beach once again. Many people understand that LA has some of the best paying defense jobs, some top colleges (UCLA, USC, Cal Tech, Pepperdine, and so on), outstanding weather, and very good transportation (improving every year). This is why in the long term (until the big quake), LA is one of the best places to live. I do my best to legally avoid as much California state taxes as possible (I’m currently a permanent resident there), and invest in US treasuries, muni bonds, and such. So I don’t worry about the socialism of California. I change my permanent state residence everytime I switch the state where I earn my money. Currently I earn my taxable income in Arizona. That’s part of my tax saving strategy.
Good transportation? Sure, if you like driving 5 mph to work.
Was!
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Those yokels run the state.
Woohoo! North Carolina, Nevada and Kansas houses for everyone!!!!!
Elko, Nevada? Holy crap. I stopped for gas last week. It’s like living on planet Venus. I lost a liter of sweat just filling up my tank.
I stopped in Levant, Kansas, just off the I-70 in a fruitless search for a gas station. Holy crap — the place felt right out of “Children of the Corn.” Not a soul in sight at mid-day. If California Equity locusts show up, they’re welcome to the place, as long as Malachai and pals don’t object.
Learah: But they can’t build more land.
Reporter: If you gave 1/4 acre to every man, woman and child in the country you’d fill up less than half of Texas.
Lereah: Yeah, but they can’t build more land.
A simple look at the demographics of Columbia says it all. I’ve got a broadcast property in Columbia and its a lovely city and great escape from the Bos-Wash corridor, but its definitely NOT $750,000 condo territory.
Only 15% of the households have household incomes over $100,000 a year — about 15,700 households. 121,000 persons (1/5th the population) work in the low paying hospitality sector (bar, restaurants, hotel). There are lots of 2,000+ sq ft. houses in the suburbs (aka mini-mansions) with a really nice yeard for $200-250k, some close to or with lake access. Even assuming a portion of those folks with $100,000+ incomes want to live downtown, if they have a family, I can’t see a 1,200 or smaller condo in the $200,000+ price range having any appeal at all. There are some folks, to be sure, but not one fifth of the market.
Secondly, I can’t imagine a university student parent carrying a $2,500+ monthly mortgage nut for their student to live in a condo for four years, expecially with rents averaging $600 a month and the University’s semester housing costs being far, far less than $2,500.
The development is good and welcomed, and Columbia is truly a worthwhile visit for folks, but it sure as heck isn’t $500,000-$750,000 condoworld.
Mr. Prioreschi is one guy in the article that has his head in reality. An extremely savvy guy.
Hiya Steve. Small world. Loving PDX. Selling house in Colatown next month. Good luck with the station - sounds good : )
A&C
Speaking as someone from SD, every So Cal equity refugee who leaves is replaced by no less than 3 illegal immigrants. Its a new paradigm.
And two of the three are pregnant with anchor babies.
On the upside, those in Wichita that bought that $50 fixer several years ago can cash out,and buy back at $50k with the new granite top upgrades when this unwinds. One mans’ pain is anothers’ good fortune. …”Rolling urban renewal~
Serial Bubble Economics, and the Parabolic Blow-off in Bully Behavior:
http://www.xanga.com/russwinter
see both Sunday and Saturday blogs
““Prioreschi waves off the naysayers. ‘These are quality developers,’ he said. ‘They do market analysis. These are not some yokels.’””
Even sharks get eaten.
Don’t recall those boys at Enron or Worldcom
were yokels either.
“A new group has also emerged in the past year: Wealthy out-of-town investors looking for a safe haven for their money and a little rental income.”
A CD paying 5%.
‘“A new group has also emerged in the past year: Wealthy out-of-town investors looking for a safe haven for their money and a little rental income.”
A CD paying 5%. ‘
Right on! CD’s, money market funds paying 5%, T-Bills, much easier to deal with and buy and sell, with no headaches about deadbeat tenants. What a concept!
It could just be that Wichita isn’t different than the rest of the country, say brokers, just a little behind the times.
A little behind the times? Yeah, about a hundred years. City folk are funny, they laugh at the hayseeds who reside in places like Wichita and think they’re backwards, but, what they don’t realize is that those hayseeds spend some of their free time ridiculing people like those California equity locusts who come in and buy the old Johnson spread for 130k. Bwahaha!
You know who’s going to get hurt in the end? Honest hardworking tax-payers like you and me!
When 51% of people in a given market hold exotic mortgages hoping to Get Rich Quick because their house is “guaranteed” to appreciate 10% year after year…eventually go broke.
What will happen is that your legislators will pass legislation giving them subsidies and tax breaks. And then YOU and I will end up paying for them!
The EXACT SAME THING happened when the dot-com bubble burst, and people owed AMT on worthless stock options. (Because of a scheme aimed at lowering taxes, people were subject to tax on the discount - FMV on the day they exercised, even if the shares were now worthless.) My local state legislator, Anna Eshoo, introduced legislation to give “tax relief” to these greedy SOBs! Can you imagine? Someone tries a complicated bet aimed at lowering taxes, loses, and then me, Mr. Hardworking Taxpayer, has to bail them out!
Mark my words: THIS WILL HAPPEN AGAIN. Proactively write your legislators asking for NO TAX RELIEF for people holding exotic mortgages who find themselves broke!
Not to worry. Folks keep forgetting that the US is a debtor nation. We rely on foreigner’s benevolence to finance our consumption. By bailout, I assume you mean paying the bankrupt individuals the excess cash the US gov’t has laying around. Well…there isn’t any. They start creating more money to bail out bankrupt individuals, and you’ll really see the $ crash (not like it isn’t already). If you’ve got money in the bank, you’ve already bailed them out. 90% of YOUR money was lent to these folks. Nope, the bank didn’t ask you if it was OK to give YOUR money to someone making 30K a year to buy a half million dollar house (that they weren’t going to live in, just flip). But they did their own research, and did anyway. That is the system we have.
Folks don’t feel sorry for people trusting realtors that gave them a good sales speech, and I hope they will understand the same when your bank fail,s and you are left standing in line for your FDIC insurance. At that point, the check you’re getting will be getting worth less and less as foreigners dump the $.
A lot of folks here are convinced that houses will drop X %. That is going to produce a massive sucking sound. As the homes drop (and I don’t see how they can’t based on how we got here), it will produce a contraction of the money supply (not from the US gov’t, but from the mess that the fractional reserve lending made). It is going to effect us all. There will be no bailout. There is nothing to bail anyone out with. Seriously, you’d have to ask the foreign lenders if they plan on bailing anyone out. They can crush us, and they’ll never have to fire a shot.
Scary. I hope you’re wrong, for our sakes, but I doubt it.
The thing that has really amazed me about this whole bubble is how one house can sell in the neighborhood for a crazy price, and yet everyone else in the neighborhood can refinance, getting the same super high appraisal prices, based on that one sale. This relationship assumes that every other home would fetch a buyer for the same insane price. The only way this works is if very few ever want/need to sell. But once the rest of the neighborhood wants to sell, without a lot more buyers, the illusion of high prices disappears overnight.
But the new debt taken on in refis does not disappear.
Thats why you need 4 to 5 comps to establish market value . The lenders that are stretching because of one sale are STUPID .
It seems like there may be laws being broken with the way the whole industry works. There are many groups (RE agents, HOAs, etc, builders) that collude to keep prices up! This wouldn’t be legal in any other industry.
I spoke to some friends of mine who live in a HOA deed-restricted community. I asked them how can they live in a pseudo-police state where you can get fined for having your trash cans out too early?
They said that the “HOA keeps property values up.”
Why are “high house prices” good for anyone…even those who already own a house. We wouldn’t want it if, say, car prices kept going up even 5% year….even if that would help us get more money on a trade-in! Since we all have to live somewhere, I think people are fooling themselves about the amount of “profit” they really get from rising home prices.
Wichita, Kansas now a hotbed for California speculation?
You’ve got to be kidding me. Next to Fresno or Bakersfield, that has to be the ugliest city I’ve laid eyes on. Drab, gray concrete, perfectly flat and boring landscape, and the usual cornucopia of Dually trucks from all the unemployed Boeing factory workers.
I bet someone has said this here before (it’s impossible to keep up with all the posts nowdays):
He who lives by the 1031 can be slain by the 1031.
1031 exchanges are probably a major factor in keeping the medians prices from falling at this time (besides regular home owners moving up to bigger houses). It would be interesting to see what % of recent buyers were 1031′ers who were too greedy to just pay taxes.
I know a guy who is buying an even more expensive condo in SD using a 1031. The idiot doesn’t know when to take his profits and thus will lose them.
The 1031 and Greed will keep a great many of these flippers from actually realizing their profits.