“Wooed By The New Buyers Market”
From Money Magazine. “When Chicagoans John and Judy Peeler decided to move to Philadelphia last spring, they blithely assumed they’d get more space for their money. Indeed, the couple quickly found a 2,500-square-foot, four-bedroom colonial for $440,000, just about what they figured their 2,000-square-foot Windy City condo would fetch.”
“Since then the seemingly ideal move has devastated their finances. The Peelers’ Chicago condo has generated little interest, even after they dropped the price, twice, to its current $389,000. And it has been four months since they relocated, which means they’ve been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.”
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer. They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”
“Many victims of this fearsome financial trap have been wooed by the upsides of the new buyer’s market: increased choice and better prices. ‘But they forget the other side of the equation,’ says Albert Hepp, owner of BuySelfRealty.com in Minneapolis. Only when they try to unload their old house do they realize just how hard it is to sell.”
“For those who’ve just signed contracts to buy, it’s less and less likely they’ll be able to sell their old houses before closing on their new ones. In Massachusetts, a state particularly slow for sales, it takes the average seller 114 days to find a buyer. That’s almost four months of double house payments.”
“With a $300,000 mortgage, you’d pay about $10,000 in interest, taxes, upkeep and insurance while house No. 1 sits on the market.”
“Even the savviest sellers can get stuck in this situation. NAR head Tom Stevens is himself a tweener: He’s been trying to off-load his Virginia home for more than a year. ‘The housing market is going through a period of adjustment,’ he told Congress. ‘I have experienced this firsthand.’”
“Another way to use your vacant house to float you: rent it out. After Jeff Greene’s company relocated him from Tampa to Boulder in June, he and his wife put $15,000 into their home to get it ready to sell. Didn’t work. They cut the price $60,000. Still no takers.”
“Carrying the house while it sat on the market 90 days cost them $7,500; meanwhile, they were also paying the mortgage on their new house. It was fast becoming impossible for them to hold on to both.”
“Then, by chance, they found a renter. The $2,500 a month they collect covers mortgage, insurance and taxes. They now plan to rent their house out until the market recovers. ‘We still don’t have as much freedom with our budget as we’d like,’ says Jeff. ‘But it’s definitely stopped the bleeding.’”
From Smartmoney. “It’s a tough time for home sellers. Crowded open houses and bidding wars are becoming a quick-fading memory. Homes prices are down, and so are sales. In September, the number of existing home sales fell a whopping 14.2% compared with the same period last year, according to the National Association of Realtors.”
“In the third quarter of 2006, the median single-family-home price fell 1.24% on a year-on-year basis, marking the first average quarterly home-price decline since 1989. There are currently 3.75 million homes for sale in the U.S., nearly a million more than buyers had to choose from at the same time last year.”
“‘If you don’t have to sell right now, don’t do it,’ says NAR spokesman Walter Molony. ‘But if you need to be in the market, be realistic about the competition. Buyers are certainly aware of it.’”
“Forget about bidding wars. If they want their property to move these days, sellers have to offer incentives to the buyers and even their brokers, says Anthony Margueas, a realtor in Pacific Palisades, Calif.”
“Granted, offering the buyer’s broker money doesn’t sound fair if you’re a buyer. ‘As a buyer, make sure your agent isn’t getting a bonus to get you to see a house,’ Margueas notes.”
“Jeremy Lichtenstein, a realtor in Maryland, has seen perks range from a two-year lease on a Mercedes (for the buyer) to a $5,000 gift card to an all-paid trip to Hawaii (for the buyer’s agent).”
“Just got an offer? Better act fast. With all his properties, Margueas prepares in advance all reports and paperwork. ‘That way, the minute we get an offer we give all those reports to the buyer and the buyer’s agent and they can review them within a few days,’ he says. ‘That’s when they’re most excited about the property.’”
“The longer it takes to receive these documents, the more likely it is that the buyer sees another property they like or get buyer’s remorse, Margueas says.”
“Worse comes to worst, consider renting out your home while the market recovers. Margueas notes he is seeing an increase in the so-called ‘lease options to buy’ deals.”
“Adding insult to injury are economists’ predictions that real-estate prices will continue to fall. ‘We’re anticipating that the market will bottom out toward the end of next year,’ says Celia Chen, at Economy.com. ‘It will get a little bit worse before it recovers,’ Chen predicts.”
‘We’re anticipating that the market will bottom out toward the end of next year,’ says Celia Chen, at Economy.com.
Well, at least they’re getting warmer.
these so-called experts are the ones i despiced most. they got no balls. we were talking about housebubbles way before they even acknowledged it, for them to come out now is just pathetic. well at least late then never. still what a bunch of ball-less, gutless hypocrites, and sometimes just plain idiots. haha.
My feelings exactly. The ‘end of times’ is getting farther out, with some CYA and pixey dust thrown in. After this long and cold winter, there won’t be much suspension of disbelief required to believe in Groundhog’s Day. It’ll be the same thing every day, and they just can’t do anything about it.
I wonder why we never hear a follow up to these sorts of stories ? This isn’t the first story of this type. I wonder how they end up or if they are too embarrassed to talk about it ?
NickWiz, given that Celia is likely female, I hope your statement is true.
‘But they forget the other side of the equation,’ says Albert Hepp, owner of BuySelfRealty.com in Minneapolis. Only when they try to unload their old house do they realize just how hard it is to sell.”
Now tell me, just how hard is this to figure out? They “forget”??? No, I’d attribute it to something like lottery thinking.
VICTIMS?
Oh, don’t get me started calling them victims. Greedy bastards caught with their hand in the cookie jar? I’m ok with that? Real estate investors speculating beyound their means? Sure (nicer than I would put it, but accurate). But victims… Oh, I blew a gasket when I read that!
Oh, but the shift in the prediction that the bottom will be the end of 2007… That I’m ok with. Puts a smile on my face. Oh, its wrong. But 4Q 2007 is far enough out that it gets “joe sixpack” realizing that any form of real estate speculation isn’t profitable. It also covers 2Q 2007… when all hell breaks lose and the wolfpack truly begins to feed. But that is another discussion.
Neil
I’m with ya on the victim thing. Earlier today I read the CNN article “Slow-market crisis: Stuck with two homes” that carried this sentence under the headline: “Imagine you buying your dream home only to discover you’re unable to sell your current one.” The way it’s presented is just lame, like “Oh, imagine what these poor folks are going through”. Please! The headline should read “Stupid Is As Stupid Does”.
I know a “tweener” couple. Their financial stress has made them so un-fun to be around that I’ve taken to calling them Mr. Doom and Mrs. Gloom.
Excuse me ,but what realtor encouraged a seller to buy a house in a bad market when they had not already sold their house, and what lender approved two mortgage note payments knowing it was a bad market and they might not have reserves ?
I can just see the realtor now saying ,”Oh lets just get this nice property for you and tie it up and you can just sell your condo in no time .”
People are dumb and lazy out there ,(no excuse ),but worst they trust sales people . Now don’t get me wrong because there are alot of nice real estate/mortgage people that post on this site but I’m addressing the ones that could care less about clients .These people might of insisted on the course they took ,but I can’t help but think they were not protected . Buyers and Sellers beware and protect yourself .This is a bad time to get stuck with two house payments .
The realtor in the posting Anthony Margueas, Pacific Palisades, California, expects a “Bonus” for this kind of help!
No offense taken Wizard, I couldn’t agree with you more.
Presumbably the buyers are adults, and they are the bright lights who made the decision to buy a house before selling the old one. You can blame realtors for a lot of things, but this stupidity belongs squarely on the the shoulders of the buyers. Bleeding their finances dry carrying two mortgages?
Good, maybe then they won’t make this mistake again. These buyers all deserve the Darwin Award, including that fool who’s the head of NAR.
I too blew a gasket when I read that statement referring to them as victims of a financial trap. Victims of their own stupidity is what it should say! The more I see of this crap, the more I start to fear that our pathetic, groveling politicians will try to bail these fools out in some way. If you absolutely have to make a quick relocation, why don’t you just rent until the old house sells for Christ’s sake! F these people. They probably think that renting is beneath them or something. I work with and meet a lot of very wealthy people, and none of them think this is a good time to be buying. The numbers just don’t make sense. Nope, they will be the ones that swoop in and grab this stuff at a nice discount once all these a$$ hats start defaulting. Just like Kenny Rogers said, these “victims” should learn how to walk away BEFORE they wind up in a hole. When will this madness end???
We sold our home in June of 2005, and moved into a nice rental. We had not even been in the (sold) house 2 years, so we paid a premium (50k+ cap gain tax) to get out. That’s how strongly Mrs. L and I felt about this market likely imploding, and now it shows all the signs of that becoming a fact. A sale in February 2006 would have saved us 50k. Yeah, that would have been real nice to have just waited until our 2 years were up and cashed out at the top price, and then moved along to our next adventure…. but we chose to play it safe, and there is a price to pay for that, both financially and personally. Try it in your 50’s ….. not fun.
Now our rental is on the market, and we may be faced with moving again. Not fun twice. But I have no regrets about selling and suffering the hassle of boxing up and hitting the streets again. The cost of inaction in 2005 just looked to be too costly.
In short, I couldn’t agree more with Neil, nnv, spike and CA Guy. Don’t whine about your situation now. You made your decision, live with it. There will be a cost for the Peelers’ inaction, just like there was a cost for our action. No sympathy here.
“50k+ cap gain tax”
Do I understand this correctly? You made at least a $330,000 profit on the sale of you home, after expenses of sale, in less than 2 years?
You were smarter than I. I waited till May of 06, and THANK GOD my good friend the local RE agent had EXACTLY ONE buyer who was looking for simple 2BR thing and only the cosmetics needed to be in good condition. RE guy told me what price to ask and the customer went for it. Days on market = 3. I realize this was total dumb luck and I should’ve unloaded the thing at least 6 months earlier. I had to smell the crash in the air before I became alarmed. Not smart but saved my @$$. Current rental situation has its little hassles. I’ll live w/it.
Really can’t imagine the stupidity of owing two mortgages. Wonder if the “debt is slavery” slogan that I grew up with will now trickle into people’s awareness.
Winjr & az_lender,
Sorry about the late post …. No genius investors here, but this is California ….
We made a good purchase on the house in Feb. 2004, which is 50% of the reason there was this gain. Cost of selling and taxes took their chunk…..
Winjr: Our gain (long term cap gain) was not quite this much, so think I may have our taxes looked at by a personal tax friend….. never was very pleased with the folks that did our returns. (CA resident; we got 2 checks back from IRS and Franchise Tax Board (2k), which means, they F’d up somewhere …..thanks for getting me off my ass to look into this).
“Now our rental is on the market, and we may be faced with moving again. Not fun twice.”
TXchic couple days ago had some great clauses to put in your lease agreements to protect you from flipper B.S. Stuff like $200 abatement in rent each month where you show home to prospective buyers; 2 months free rent if house is sold.
The other headline might be
Debt Deflation?
OH, I would love to see that. One problem would be that J6PCK wouldn’t understand what that means though.
LMAO!!!
It is actually very easy to sell right now. Just not at the price all of these overleveraged greedheads are trying to garner. They bought having already counted their chickens, and are now crying a river after finding out there were coyotes in the coup. Lower the price idiots. Or ride it down into the depths of despair.
And once they discover they can’t lock the barn after the (gift) horse (that they looked in the mouth) has been stolen, they’ll resort to robbing Peter to pay Paul by throwing the baby out with the bathwater.
Yeah, but killing two birds is better than one, so…
Woe betide the snake in the grass who sold them a glass house with an elephant in the living room and no chicken in every pot.
But that new place was so special. They couldn’t risk waiting and the horror of some other family getting it first.
Financial suicide. Riding 2 places down at the same time, probably on a bridge loan that’s eating them alive with no exit plan in sight.
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer. They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”
Yeah, brakes aren’t critical, I’m sure he can just Fred Flintstone it for a while until his sneakers wear out. Imagine getting rear-ended by some porkey pig jacka$$ who didn’t get new brakes because he was paying for his dream house!
As it turns out, the brakes have also gone on their houses! Ha ha ha ha!!
Also… they had a whopping $16K of savings after moving to Philly!? That’s four months of a $4K/month carrying cost. I’m a bitter renter who wouldn’t dream of paying $389K for anything and I got a helluva lot more than that socked away.
Wait, I’m not done. Going without a brake job is a really bad idea. After all… say it with me… you can live in your car, but you can’t drive your house.
Pass I’m with you. It’s this “4 months of savings” complancency that is going to make this bubble pop really loud.
4 months puts this guy in the top 10%
what are you all talking about?
Our motto “we are renting our way to prosperity”.
Owning is throwing money away!
I love it! Going to use this one around the Thankgiving table with my specuvestor family.
“If you’re not renting, you’re just flushing money down the toilet”
“If you don’t hurry up and rent, you’ll be priced in for ever.”
Partial credit for the above goes to another poster.
Thanks for that! My loud bark of a laugh had my wife asking what was so funny. She only tsked a few tsks.
Their not making any more rental agreements!!
Love it Grubner. Committing that one to memory.
Haven’t got any more cute anti-owning slogans, but a wonderful part of leasing is that the landlords don’t sell the package the rental agreements as Leased-Backed-Securities: and therefore, if you are a legitimately qualified tenant, you are reasonably well treated. Was not so true a few years back.
Why do they even need 2 cars? Doesn’t Philly have decent public transportation? Really want to save on money? Get on the bus.
They didn’t need either of those cars in Chicago either, unless they had kids to shuttle around or they were both stupid enough to live downtown and work in Shaumburg or Deerfield or somesuch.
“Why do they even need 2 cars?”
That’s what I thought. A second car is a relative luxury, particularly given this couple’s situation, and it is easily replaced later when their ship has stopped listing so badly.
Right, just a temporary rough spot (now quoting article): “until the market recovers. ‘We still don’t have as much freedom with our budget as we’d like,’ says Jeff. ‘But it’s definitely stopped the bleeding.’”
But once the market recovers, in 2023 or thereabouts, freedom returns.
Funny you should say this. My realtor (friend) has a primary home (500k as of today) and a rental (300k). already behind on the rental payments and the payments don’t even cover the mortgage. Hubby drives nice volvo and she drives nice BMW SUV. I told her to get rid of cars to help with payments. Oh almost forgot, the big kicker is the Primary home has an ARM that adjusts this month. She said getting rid of the cars won’t help enough to make a difference. She already has her mind set that she will loose both houses
Clearly she’s aware that YCLIYC,BYCDYH.
YCLIYC,BYCDYH ???
Could you spell it out for me, please?
Sorry. You can live in your car, but you can’t drive your house. For this reason, she’d rather let her houses go and keep the cars.
Yeah, my ol’ Toyota truck looks better all the time. maybe we’ll see the return of those “don’t laugh, it’s paid for” bumper stickers.
Can we make some dough producing very large window signs with the same message (DLIPF) ? For people who own their rundown houses outright? Someone posted that 30% of homeowners have no mortgage debt.
Can we make some dough producing very large window signs with the same message (DLIPF) ? For people who own their rundown houses outright? Someone posted that 30% of homeowners have no mortgage debt.
How bout this one: “GOT COMMA?” as in savings in the bank. Unbelievable less than 10% have 4 months earnings stashed.
Five bucks says they have nice expensive leases on those cars and it will cost them plenty to get out of the leases.
I hope he wrecks into his own house pulling into the drive because his brakes don’t work! BAHAHAHHA!
The American Dream, alive and well!
Exactly, but not just hit it:
Here’s to hoping the brakes give out while he’s pulling in the garage one night, plows over the water heater & right through the back wall, mows through the kitchen destroying the granite counter tops and SS appliances, and flies right out the back slider and into the HELOC funded swimming pool…..
Hey, watch it, lefantome, you darn near made me have a spit-coffee-on-the-keyboard kind of moment!
My coworkers have got to be wondering while I’m smirking. Dang, that was good!
I’m very glad I hadn’t sipped any of my cola as I read that!
uuuuhuuu, Dats some funny Sh#t yo!
that image definitely cracked me up! LOL
lol
Unfortunately, can’t happen any more. Houses today are just a driveway and garage, with attached living quarters (accessible only through garage).
This little snippet about “brakes” pretty sums up the IQ of the folks who are still “in the game”…
Wow, the IQ in this country must have fallen off a cliff!!!
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer. They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”
Hmmm… which zip code do they reside in? I must avoid the area completely.
Aw, don’t sweat it. After all, brakes aren’t “critical”.
I bet it is not just in that zip - there MUST be more, similar morons all over the place…
And no air conditioning in Philly! Oh the humanity!
Right , good point M.B.A.. How many stressed borrowers are putting off doing necessary things because of this housing mania turn bust ? What if they put off going to the doctor or things like that or don’t get the heater fixed or pass out with the stove on because they couldn’t afford air conditioning ,etc. etc.etc. You start to think about how stressed out the kids might be in these situations and you realize how irresponsible the industry/buyers/sellers have been in betting that real estate always goes up .
That was my thought too. “Honey, we don’t need brakes on the car. Let’s go on that Carnival Cruise deal that’s on sale this week”
What a chump.
you hotshot renters think you’re so good…until you meet the end by getting hit by a speculator with no brakes!
Funny thing is that if these people had any real skills and a set of tools they could do the brakes themselves. Brake pads are $30 (fronts) and it takes an hour to change them. Tisk tisk. Are people afraid to get their hands dirty ? Guess so.
They were probably counting on a HELOC or a kickback to buy a new car !
Lots of people never learn. They didn’t grow up in one-parent families with four kids. We fixed everything - I still do almost all of it now - I mean, why just throw the money away? Aren’t there at least good toys to spend it on?
Yep. This was my same miserable experience. I gave up doing the cars 10 years ago. “Imploder” splurged! Felt like “Vacation”! No, BETTER!
DO NOT ENCOURAGE THEM!!!! I would not trust 50 percent or greater of people to change their own tires or oil, etc (have seen people pour oil into transmission fluid receptor, etc) The last thing we want are people who are stupid enough to buy at these prices attempting to ensure their vehicle is properly maintained themselves.
Disclaimer: I don’t do my own laundry, I send it out. In exchange for 3 free hours, after considering the costs (quarters, soap, softies, etc), it ends up costing me 6 dollars. My time costs more than $2/hr and they do a much better job than I do
“They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”
You get used to the ringing sound after awhile and learn to anticipate stops.
“You get used to the ringing sound after awhile and learn to anticipate stops.”
LOL. Reminds me of the beater I drove back in high school. NOT SAFE.
Yeah, I had one of those. Brake pads bad? Well, I learned: Replace ‘em now, or replace them AND the rotors later. Master cylinder bad? Oh, that was a bad one. After one near-call with death via cross-traffic, even though I was 21 and foolish, I was after that experience happily giving up beer money to get brakes fixed from then on.
I’m not usually on to recommend piling expenses on credit cards when you’re already deep in debt, but this maintenance thing might be a rare and worthwhile exception!
I just hope these people still have enough money for birth control. We don’t need them reproducing. The brakes can wait. Buy some trojans. Fast!
lol
I think we’re kind of missing one point on the brake situation.
Somewhere there’s a brake shop NOT getting business. Multply this by 1000’s of other brake shops, repair facilities etc, and the effect on the total economy begins to be clear. It’s not just housing anymore!
Apparently it even includes Wal-Mart (0.5% yoy sales increase announced today, am I right?)
I heard some radio blabber sayin that if the Dems get control, Walmarts B@lls will be put to the fire.
Situation definitely calls for some Trojans.
Ah yes, arrest the usual suspects. As if the coming recession didn’t have anything to do with a bursting housing bubble, which was brought about by AG’s irresponsible monetary policy.
The Democrats did it!
Funny that you mention credit cards… you’d think if you needed brakes and didn’t have the cash, you would charge it. These guys won’t even do that. Makes me think there overextended on revolving credit as well.
This Holiday shopping season is going to turn out to be a real bust if there are many people out there like these two…
Time is such a killer. Just let those mtg payments pile up.
I’d like to hear buyers offer 60k below asking today. Or 60k below asking 6 months from now after 6 mtg payments.
“They now plan to rent their house out until the market recovers.”
Why does everyone assume that a market recovery will mean that the prices will go back up to where they were? This is fact: there was more housing built than required, there was never a housing shortage. Therefore, the boom was not based on fact. Now when things settle, you will still have more housing than is needed, and when you have an oversupply, do the prices go up?
Yes, and if you adjust the value for inflation (use constant dollars) then it begins to look even worse. The RE industry hates inflation adjusted figures. They also don’t like to consider the impact of taxes and operationg expenses.
Well, if you consider a recovery as “getting back to normal”, I’d say the recovery is just getting started!
Here in Tucson, there are PLENTY of houses for rent. And we seem to specialize in those that are being rented out by upside-down specu-vestors.
“Why does everyone assume that a market recovery will mean that the prices will go back up to where they were? This is fact: there was more housing built than required, there was never a housing shortage.”
SMF — this is the sad reality that will dawn on all of these FBs waaay too late. It will be the shock of standing there, alone and in the spotlight (so to speak), having been snookered. A lesson to last a lifetime.
“And it has been four months since they relocated, which means they’ve been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.”
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending”
Am I right in assuming they only had 16K in the bank as savings for this manuever. It’s a bad move to try and carry two mortgages, but even worse if you don’t have a large enough cushion to fall back on.
Upon further review, I’ll bet that’s about all they had saved and it doesn’t surprise me. After all, if they had cared about planning and frugality they wouldn’t have been in this spot in the first place.
pass,
I read this article earlier this morning and wondered if the 4K carrying cost was net of their primary residence. If not, what’s the couple doing with the rest of their monthly income?
Well, if their savings/cash is gone, I’d assume the debt on the chicago condo (mtg + hel) is close to the full $389K asking. The monthly payment on that would be around $2000, prolly a bit more.
Assessments would run at least $600-700/mo on a decent 2BR. Taxes would be $300-400/mo. So the carrying cost of the condo is rock bottom $3K/month.
I’m ignoring the mtg interest deduction, but you don’t get to deduct that from your monthly check to the bank.
Well if the savings are gone, the next thing is to sell the equities and or commodities to raise some more cash, maybe even cash out some of the 401K.
Nooooooooooooooooooooooo. Do not touch the 401k. Claim bankruptcy. Don’t touch the retirement savings. They’re going bankrupt one way or another. At least if they file bankruptcy now their 401k doesn’t get touched. If the outcome is inevitable don’t worsen it.
are you serious? You think they have equities or commodities already stashed away somewhere? Not a chance. This couple has never saved. I even doubt there is much of a 401k to consider (the advice not to touch is very good advice btw).
> I even doubt there is much of a 401k to consider (the advice not to touch is very good advice btw).
My guess is that 401Ks are going to get hit in the future with a “one time” tax to bail out Social Security, Medicare, or whatever emrgency arises. Just wait and see - our elected representatives will try it - it’s too much money for the government to let alone.
Just an update folks, the property is now listed at 350,000.
MLS# 1207297
Parcel # 14-17-226-023-1003
Look out below…
Does that mean some idiot is renting it for 2500 a month while its up for sale. Somebody found a “Super Duper Greater Fool”, or someone is making something up…ie lying…p
The stupid ,and their money is soon parted…Happens everytime.
if you could not save decnet $ while renting, how did they think they would w/2 mortgages? Everyone knows things pop up unexpectedly. It gets harder to save once in a home, not easier…
16k - FOOLS!
“Since then the seemingly ideal move has devastated their finances. The Peelers’ Chicago condo has generated little interest, even after they dropped the price, twice, to its current $389,000. And it has been four months since they relocated, which means they’ve been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.”
So I figure their first listing price was $399, then $394, and now $389. Try shaving 20% off that price and you just *might* find a sucker. Right now, it’s you.
-Richie
Nah, the article said they thought it would fetch $440k, so they’ve cut it $50k if that was the original listing. But it shows how out of touch with the market they were, since it’s still too high.
Why don’t they report how much they purchased the house for? (because the typical reader wouldn’t have much sympathy?)
For the record, any San Franciscan or New Yorker would KILL to be able to buy a 2-bedroom condo for $389. That buys a studio here. $440 gets you a studio in the Marina or Pac Heights. Either our bubble is insane or I need to move to Chicago.
Well, I live in Chicago but all the really good jobs for what I want to do are in NY or SF. Maybe we can switch.
Passthebubbly, move to New York, then. Rents and prices will be coming down in 2007. The upcoming glut is amazing. Nouriel Roubini has some great comments on the market. He knows his stuff.
Living in New York City isn’t nearly as scary as you would think. If you ever have questions about neighborhoods and living standards just let me know. I’m addicted to this blog. Just put a message out for me and I will make sure I get in contact with you. It will be like the Bat signal. I love it here (except for the people sometimes). Just don’t buy one of those $3 million condos at 255 Hudson St. Take care!
$389K here in Colorado Springs buys you a really nice 4-bd/4-ba/3 car garage/finished basement house in a good area with great schools. Plus, you don’t have to put up with those pretentious San Franciscans or rude, obnoxious New Yorkers.
Sammy, what do the taxes and insurance run?
CO taxes and insurance are extremely cheap. Also, HOA fees are laughable, about $40/month.
““Since then the seemingly ideal move has devastated their finances. The Peelers’ Chicago condo has generated little interest, even after they dropped the price, twice, to its current $389,000.”
-sounds like the peelers are gonna be peelin’ taters soon. Seriously- there are so many stories full of total idiots who move BEFORE they sell their house. Any numbskull should know better!
Why is everone assuming that the market is going to turn around in 2007. 6 months ago they couldn’t see the downturn at all and now they have become expert forecasters and are saying it will be cleared shortly.
Am I missing something or are sales still falling ? Don’t you have to hit a bottom and maybe see a few dead cat bounces before you can forecast an upturn ? Anyone seen a bounce yet ?
-
it’s called wishful thinking.
Imploder suggest they give up on “wishful thinking”… move directly on to “fist full drinking”
I think the worst of the *declines* will be in the second half of 2007. All of today’s highball sellers will still be left holding the bag in addition to all the new inventory that will come on by then. By August next year the pain in the Sarlac pit of real estate will be excruciating, with another summer ending.
But that won’t be the bottom, not for at least a couple more years.
The worst of the decline will be past when there are two or more pages of RTC (foreclosure) homes listed in every Sunday paper in 4 point font.
Army, I agree with your assessment.
I saw a slight bounce in August, I think. But it went by fast, kind of like Rhode Island.
lease with an option to buy, now that’s a clever idea in a falling market. if the house goes up in value (fat chance) the lessee/buyer gets all the upside when they exercise the contract. if the home falls in value, then the lessee/buyer walks on the deal and buys a cheaper home elsewhere. pure and utter stupidity on the sellers side.
Boulderbo — I’ve been vulturing for such a deal in the area to which I want to relocate. So far, the lease options have been by flippers (and even builders) who are not stupid enough to give such a fixed-priced option along with true market rent. But it will happen sooner or later a really good property will come along with such terms.
OMFG! You have a $300k+ house and you can’t fix your brakes?! You didn’t turn on the A/C!?
Being a climate-controlled renter has never felt so good.
Imploder suggest name change= Un-Muggy.
The best one was the one about the NAR official. You’re not supposed to believe your own propaganda.
This is just barely the opening round. This will get a lot uglier. Imagine what some realistic interest rates would do to this market. That has to frighten any sensible person. Unbelievable!
How funny would it be if the NAR guy defaulted on one of his mortgages…
“Adding insult to injury are economists’ predictions that real-estate prices will continue to fall. ‘We’re anticipating that the market will bottom out toward the end of next year,’ says Celia Chen, at Economy.com. ‘It will get a little bit worse before it recovers,’ Chen predicts.”
And just how much worse do you think Celia?……..5% ? hahaha
try 25%……….
Why does the media keep quoting these so called economists?
They have no idea where this things at.
I’m thinking it’s just about time for another “media” story about how blogs like this are causing buyer panic and the fall of the market. With plenty of quotes from Leahry and other assorted asshats.
Word. It’ll happen soon, just watch.
Why bother to call these reporters “journalists”? They’re really just typists. As for these “economists”, aside from Roubini and Schiller, they are all dumber than mud, and if they could get jobs flipping burgers, as least they’d make themselves useful. You want insight into the real estate crash-read this blog and talk to Ben Jones.
Paul Krugman, the Princeton prof who has a regular column in the New York Times, has also been spot on with the RE bubble.
Stephen Roach and Dean Baker as well.
Perhaps Celia Chen should read this…………….
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0610/document/dd103106.pdf
“In Massachusetts, a state particularly slow for sales, it takes the average seller 114 days to find a buyer. That’s almost four months of double house payments.”
Wouldn’t it be far cheaper and more sensible to just drop the price on the home you are trying to unload to a level the market will bear, than to hold on to two mortgage payments for 114 days? These people talk as though reservation price has nothing to do with the time it takes to find a buyer.
GS,
“Cheaper” and “sensible” aren’t words known in the lexicon of people like this. They’ve bet the farm, and chanted the money mantra for so long, it’s like a new language to them.
“In Massachusetts, a state particularly slow for sales, it takes the average seller 114 days to find a buyer. That’s almost four months of double house payments.”
This is only half of the equation.
What is the sale price (as compared to the original listing or comparable houses) after those 4 months? Without this information, a statement like this just perpetuates the “it just takes longer to sell in this market” mantra which encourages sellers to follow the market down.
A little over a year ago a couple holding multiple properties would have been featured as “Millionaires in the Making” on CNNmoney.com Times sure have changed.
Exactly!!!
“For the line it is drawn and the curse it is cast
And the first ones now will later be last
For the times they-are-a-changin’”
Robert Zimmerman
sellers have to offer incentives to the buyers and even their brokers, (?) says Anthony Margueas, a realtor in Pacific Palisades, Calif.”
Oh Gaud I’m Gonna be sick! What a puke! These people just never quit! Anthony wants to get paid for walking around the battlefield and shooting the wounded! What a guy! Really would want him on MY TEAM!
Ha ha excellent image.
Rape you on the way up and rape you on the way down.
Hate to say it, these bonuses to brokers can be quite effective. In 1996 I wanted a quick sale on a condo that was identical to zillions of others on the market. It wasn’t a DOWN market but it wasn’t great either. Broker advised me to offer 1% of purchase price as extra bonus to whatever agent could close a deal. This ensured that any customer looking at properties like mine would be shown MINE. 30 showings in 30 days, and the 30th looker did buy it. Phew.
Az. I know that your statement is absolutely correct. That’s why I want to puke. Read the second part of his statement:
“Granted, offering the buyer’s broker money doesn’t sound fair if you’re a buyer. ‘As a buyer, make sure your agent isn’t getting a bonus to get you to see a house,’ Margueas notes.”
Of course Mr. Margueas is warning everyone due to his Samaritan upbringing. He would never steer someone to a house that he’s gonna get an extra “undisclosed” bonus out of. His pronouncement sounds like a ominous warning to those desperately trying to sell their houses. Like half of 6% aint enough. Believe me, I’m well aware of how the real estate game is played.
Susan Jacobson, any time you want to chime in here about “drinking champagne by the fireplace” while their agent demands more “Vig” for a sale, please we are all ears.
They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy. ‘Everything goes toward the mortgages.’”
This gives a new meaning to “California Stops”.
Oh wait, they’re from Chicago.
-
>They’ve also put off fixing the brakes of their second car. ‘We don’t spend money on anything that isn’t critical,’ says Judy.
I smell two Darwin Award winners.
Nice!
They may get the Darwin Special lifetime Achievement Award. LOL Geko…
And I smell burning asbestos… wait, we’re smelling the same thing.
Aw, Gekko, you made me laugh so loud that the neighbors will probably wonder what’s so funny.
If I could choose on speech for a president to give to the nation, it would be a one-hour speech on personal financial responsibility. Of course our current Prez would be disqualified from delivering this speech, but it sure would be nice to have someone actually stand up and tell the entire country at once to STOP BORROWING, START SAVING, AND PULL ALL HEADS OUT OF ALL ASSES IMMEDIATELY. Maybe Oprah could do it. Or the Pope.
Like many of you, my interest in the downturn in the real estate market isn’t fueled by schadenfreude, but real actual anger. I’m getting a little tired of being responsible with my finances, saving my 15% on a bad month and 25% on a good month, socking away cash into my 401-k, my mutual funds, my 529s for my kids. I’m a bit tired of my 13-year-old tv and 9-year-old car. I would love a new Hugo Boss suit to wear to work! But this pesky sense of responsibility just prevents me from exercising my rights as a brain-dead, live-for-today American citizen to throw away every penny I’ve made and will make for the next 30 years into a giant steaming pile of retail crap. Much less a shoddily-manufactured McMansion in some cookie-cutter suburb.
Sorry to vent, rant, and complain. But after reading this article, I just feel like American values are slipping down the sewer of consumerism, and it’s a little sad.
I should proof-read before posting, but proof-reading doesn’t seem compatible with a good ole rant.
I meant to add: I’m angry because I, and millions of others, ARE responsible, but we’ll be just as screwed as anyone if this RE downturn causes a major depression or recession. I hear my 4-yr-old say this all the time, so it feels a bit odd to reduce my feelings to this, but hell, it’s a rant: “It’s not fair.” It’s grossly unfair, grossly unethical, grossly unAmerican for people to be so lax with their finances.
Jeez, I’ll just say it: Maybe it is time to bring back poorhouses. Or workhouses, or whatever the hell you call them. Maybe it is time give bankruptcy judges the option to jail people for debts.
Okay, rant over. Sorry for wasting your time.
I liked it. Lots of passion.
Only 2 questions. Vioviv, did you you grow up in Los Angeles. If no, where did you grow up.
If you’ve been hoarding $ the past few years, the near future should be a good time to be unemployed. The stock market’s had a nice run, bonds have done OK, prices of discretionary things (like travel) should stabilize or decline and nobody’s worried about long-term stuff like Social Security yet. Everyone else panics and pukes their assets while you relax.
“pukes their assets”
cute
savers will be rewarded
BY CHINA !
Imploder always knew he was “genius”. Imploder has getting unemployed down to “science”.
Now just need to go to Savon to purchase “Barf Bucket” and get ready to receive Imploder’s “rightful bounty” spewing from sky.
vioviv nice passion. Don’t be sorry for the rant. I know people get worked up when the see leaders and media types get worked up, but I don’t. If you done the homework and know what you are saying and are not be hypocritical or just looking out for yourself, than by all means get passionate.
What really sucks is that every dollar you save is being lent out to the morons borrowing and bidding house prices up.
It’ just torques me off that my own money is being used to bid against me. I know that there are other options besides the bank, but how much gold can you pile in the back yard? All my debts and living expenses require dollars, so I save dollars, just to have them lent out to total morons who bid up the prices of things.
Maybe being “prudent” is just the other half of the co dependent pair. Without prudent people piling up savings where would the money come from? — (The Fed of course - they can print up money whether we save or not).
What really sucks IMO is the possibility that every dollar you save will be worth way less because of these guys wreaking havoc and destroying our economy.
So, to repeat advice already proffered here by many:
move your savings to foreign currencies. Quickly.
Az-lender the problem is many other countries have similar problems. Most of Europe and Australia/New Zealand. I am not sure of a safe currency. It sure is not the Chinese Yaun. Which will crash with the US.
What really sucks is that every dollar you save is being lent out to the morons borrowing and bidding house prices up.
More accurately, for every dollar you save, 33 DOLLARS are being lent out to morons. Or is it 150 dollars? Who could say these days when banks have a reserve requirement of almost zero.
Actually, its worse than that.
RE lending uses the house as collateral, but there still must be some deposit. So the $1 you save allows the bank to loan about $50 in a RE mortgage. But that mortgage gets sold off and when it does that $1 gets used again… and again.
But then consider that the someone that received the $50 spent it as a downpayment on HIS new house and then there is probably a HELOC that gets spent and some of that gets “saved” and so on.
The ratio of debt to actual deposits is very very high and the spin off from saving $1 is huge.
I hate to have to keep correcting people on this, but the bank can NOT lend more money than it has in deposits. If someone deposits $100 , and the reserve requirement is 10%, they can lend out $90. If they lent out more than $100, then the reserves would be negative.
Using the 10% example.
Deposit $100 to bank
Bank Lends $90
Same $90 deposited in bank, increasing deposits to $190
Bank lends $81
$81 deposited in bank, increasing deposits to $271
Bank lends $72.90
$72.90 deposited in bank, increasing deposits to $343.90
Bank lends $65.61
…
And so on, until there is $1000 in deposits, 10 times the original deposit (1 / 10%).
I read what you posted previously and found it intelligent and clarifying. I believe you are correct. Is he inncorrect? Does anyone disagree ? ( With proof hopefully.)
Austin Martin, what part of the phrase “fractional reserve lending” do you not understand?
From the Mogambo Guru’s latest:
But not even those social horrors can attenuate the shock of finding out that the banks are so massively over-leveraged that they have a measly $40 billion lousy bucks as reserves against $5.5 trillion in savings? Hahahaha! Again with that cold, hollow laugh of the damned!
My hands involuntarily clench and my eyes bug out in disbelief to think that a measly $40 billion as reserves against a whopping $5.5 trillion in depositor liability is a trifling $0.0073 per dollar! Two-thirds of one freaking cent!
And with a gigantic $6 trillion dollars in the loans and leases portfolio of the banks, these “assets” only have to decline by a trifling a 1% in price to wipe out their entire reserves! Hahaha! This is the level of absolute, ruinous insanity that reigns in the banks!
TJ, I’ve grown tired of trying to explain this to the people here. I also note that reserves have dropped by nearly 10% in the last 5 or 6 months. Storm coming?
…but how much gold can you pile in the back yard?
I’d sure like to find out!
vioviv,
I’m not sure Oprah’s audience would get the message. I love it when she profiles people absolutely BURRIED with debt..countertops stacked high with maxed out credit card bills and collection notices. With most (if not all) of them looking at the camera with a glazed look and commenting how they couldn’t figure out how they got into this mess. Followed by the next scene of the husband getting into his brand new shiny full size pick up truck to augment his Ducati performance bike.
If you line up 10 American’s, I’d be willing to bet that 9 of them are F’d up financially. Just sad.
It’s too bad that the Saturday Night Live skit about not buying things you can’t afford was pulled off YouTube. (Copyright violation.) It was a CLASSIC.
http://www.youtube.com/watch?v=fMudzRcPxLc
A classic
vioviv,
You’re right on the money but you will NEVER get that kind of leadership out of this president. We’ve been without a strong leader for so long, the cultural, economic, and social problems continue to mount, yet the leadership, at least this one, blames us, the people, the electorate. I’ve never seen such dismal leadership failure in my life.
Fear not, there are plenty more to come!
This President couldn’t lead ants to a picnic. Until we face a true social and economic crisis, the sheeple are going to continue electing shysters and con-men who promise something for nothing.
vioviv, Perhaps the main reason why I became a lender was that I was so angered by almost all Americans being borrowers. Over a period of time, it occurred to me that instead of being mad at it, I should take ADVANTAGE of it. I grant you, it has been tricky to learn how to walk the tightrope — making sure you lend only to people who are likely to repay, and going out of your way to make it POSSIBLE for them to repay if they get into a temporary mess. But I am not mad at any of them. They made it possible for me to quit my straight job when I was 49.
elo you are so right. Just look at the consumer debt in America. What’s it at? 2 trillion. Assuming 300 million Americans live here what does that come out to? I know the stats say the average American owes 9k on credit cards, but factor in car notes, student loans, HELOCS, and overpriced mortgages, not the traditional 2-3X income types, but the exotics and well, most ‘mericans are screwed. On the other hand, how the hell do you think this economy keeps going?
How do all the disfrancised, working poor, eating from hand to mouth, and unable to get any credit, not to mention a credit card figure into this. And yes kids too….Would that not bring the real individual credit debt much higher than 9K?:)
“average American owes 9k on credit cards”
I owe zero, so Mr. Smith must owe $18K.
oh, wait a second, my closest friend also owes zero, so now Mr. Smith must owe $24K,
oops, my sister also owes zero, so Mr. Smith must owe $32K…
I could go on, but I’ll spare ya’ll…
oops..make that $27K and $36K
“If you don’t have to sell right now, don’t do it”….
Okay, first, this idea suggests that some people put their house on the market for…what? Fun?
But lets assume this is true. What he is now saying to anyone thinking about buying is; the only people selling in this market HAVE TO sell!
Gee, that doesn’t strengthen the buyer’s hand now does it?
Its thoughtless comments like this that make me believe that real estate is a market full of dopes.
Good point. They are stabbing themselves in the back with that one.
Couldn’t agrre more. Drove across the country this summer with family for vacation. Went and visited dear friend haven’t seen since his wedding a decade ago. Anyway, we pull up and he has a for sale sign in the front yard. Asked what the deal was and he said, “We are testing the market.” While he said that he gave me the thumbs down sign, which I already knew was coming. I, of course, kept my mouth shut as all of us down to keep the peace, but I knew better, thanks to Ben and all of you guys. In the end, I couldn’t help bu think, he is not testing anything. He is hoping some poor schlep offers him 650K for the house. Sadly, his mortgage is 220K and he would only get 555-575K, about 6 years later. My heart breaks, a 300K profit for 6 years. Nice return. That kind of greed is what galls so many of us here.
I wouldn’t have a problem if he were to list it at $525, accept $515 and rent. If you’re buying and selling at what the market will bear, I’d call that smart, not greedy.
Does he have an exit strategy, though? Does he know what/where he wants to rent, and how much it will cost? Doesn’t sound like it.
That kind of greed is what galls so many of us here.
No you’ve got it wrong. Sellers cannot dictate price, the market does. A seller simply sells for what the market dictates. That’s not greed.
It’s the buyers who have been greedy, who have been responsible for this absurd run-up in prices. They have been willing to pay ridiculous prices, in the hopes that they will be able to sell for an even more ridiculous price a few years down the road.
I know of at least a few people who are trying to sell even though they don’t “have to”. They realized they were a little late in seeing the housing bust, and they figure if they can still get out, they should. Some profit now is better than smaller profit, or a loss, next year. Not all current wannabe sellers are TOTAL idiots. And note that the sales stats have not gone to ZERO yet.
It won’t be long before elderly “don’t have to’s” start bailing en masse’ in hopes of preserving whatever’s left of their erstwhile “retirement fund”.
“Many victims of this fearsome financial trap have been wooed by the upsides of the new buyer’s market:
This use of the word “victim” is way past out of control! These people are NOT victims, the socialist media loves it though. It’s not their fault, it’s not fair, it’s for the children…. BS they signed up for it, now live with it!
Our whole society has this victim complex now. No one wants to take responsibility for their own mistakes - they’d rather blame someone, anyone else; even something as abstract as “the new buyer’s market”.
I truly do feel bad for some of the people who made bad decisions on real estate. But they were the ones who made the decision - no one forced their hand or made them victims. And anyway, most of the specuvestors that I talked with over the past couple years were extremely smug about how rich they were. Here is the downside to speculative investing - you can actually lose.
Andy, Andy, Andy. You don’t get it. It is everyone else’s fault. It’s your fault I am responding to you. Sarcasm off. In all seriousness, Andy, don’t get me started. From the President to the lowly ant we as a society have shirked our responsibility in some way. Even if not deliberately, we have sat by idly and allowed to go unchecked. No more Mr. Nice Guy here. If you screwed up, cop to it. It’s not like we are going to shoot you or anything. We just ask you own up to what you did. Case in point, while it is just a small thing in the grand scheme of things, I was umpiring Little League, Fall Ball and well, I blew the call. After the inning was over I told the home plate ump. It was hard, but you know what we all moved on. Even the coach who called me on my error moved on. I realize for FB’s it will be harder to move on, but all we ask is for a little honesty and confession. STOP THE BLAME GAME, AMERICA!!!!!!!!!!!!!!!!!!!!!!11
Hey, it’s not MY fault I blame everyone else!
“Socialist media?”. Do you think Bernie Sanders owns Money Magazine? FYI, Money Magazine is owned by the giant media conglomerate Time Warner.
What the hell is wrong with Americans, when the country is controlled by big business and the rich to an extent not seen for 100 years, that they think “socialists” are running everything?
Who’s Bernie Sanders?
Yogurt,
I don’t agree w. your contention, but I do wonder when being rich and being a socialist became mutually exclusive.
We have a friend who is a Realtor(tm). We had him over LAST YEAR for an interview to talke about buying a new house. He told us flat out we had to sell our house before we bought a new one. He told us the market was slowing down and that while prices were still going up that it was way harder to sell than to buy.
I have never bought a house before selling the old one, I’ve seen too many folks screwed by that one. That’s what apartments are for.
climber ….You had a good real estate agent that gave you the right advice .
As far as people feeling like victims when they find out that they made a bad decision ,this is natural . You tend to feel betrayed by any outside force that supported your bad decisions .
Lets face it , people are brainwashed all the time by TV,peers ,commercials ,parents ,trends ,on and on and on . It takes alot of will power to keep your head straight in a insane world . Alot of people bought into the real estate mania and their dreams of easy money financial security are being shattered as I write this post .
In the final analysis you pay for your mistakes in life and hopefully you learn a lesson by them .
John & Judy Peeler…..sounds like a SNL skit waiting to happen!
Flashback - 1 year ago:
10/31/2005 - CNNmoney.com “I’m Tom Barrack and I’m getting out of real estate.”
-
“I feel totally safe playing polo on a field full of pros. But when amateurs are all over the field, someone can get killed. They have more guts than brains. They charge after every ball and don’t know when to hold back. It’s the same with U.S. real estate right now. There’s too much money chasing too few good deals, with too much debt and too few brains. The amateurs are going to get trampled taking seasoned horsemen, who should get off the turf, down with them. That’s why I’m getting out.” - Tom Barrack, Colony Capital, LLC - http://money.cnn.com/magazines/fortune/fortune_archive/2005/10/31/8359143/index.htm
And he said that 10/31/2005.
GS,
This ones for you.
Comments?
http://www.marketwatch.com/news/story/story.aspx?siteid=mktw&guid=%7BAC4F1475-5D97-4EDB-A394-C3446F2BC3E2%7D
I’ll jump in. It’s true that HBs are less highly-leveraged on average than in the past, due to enormous profits over the past 3-5 years. Therefore, any builder showing prudence should be able to avoid bankruptcy.
OTOH, the supply/demand situation today is not comparable to any we have seen in our lifetimes. ‘73-’75 comes the closest, but this situation will dwarf that, IMO. Therefore, any builder who doesn’t err on the side of conservatism (meaning massive layoffs, no options exercising, no new starts on all but the most important projects) here is going to suffer.
St. Joe’s acted fairly quickly and now can sit on their land and invest their recent winnings and sell timber if they feel like it. Buy JOE and sell [pick your favorite ostrich housing stock or lender] against it.
“Having depleted their savings to pay for this, they’ve had to seriously cut back on spending. They went without air conditioning this past summer. They’ve also put off fixing the brakes of their second car.
What A-holes. They are putting innocent people at risk. Not surprising that FBs of their ilk wouldn’t give a damn about their fellow citizens.
That just blew me away. Given that mindset, I’d be willing to bet that they’ve canceled their auto insurance too. For the sake of the kids, I hope the new job covers 100% of their health insurance premiums too.
Just wondering if it occurred to these people yet that maybe one or both needs to work a second job for a while? Working 60-80 hours a week sucks, but sometimes that’s what you have to do to make ends meet. My guess is that in addition to consuming all of their savings, they’re probably in the process of maxing out the last of their their credit cards as well. If they haven’t already, their kids’ college funds and their 401k’s will be the next to be raided (although its possible that was where the $16k came from). Very ugly scenario. So basically they’ve set themselves back at least 10 years financially, assuming that they can get the Chicago condo sold before the end of the year. If not, then they’re headed to BK and possibly will lose both homes.
But even if they can get it sold for $350k, the real kicker will be in another year or so when they realize that servicing all this debt means that they can no longer afford the $440k Philadelphia house and they need to sell. Only to discover that they’re looking in the mid $300s for that one as well.
And when they get the bank to approve the short sale on that house, they’ll be floored by their tax liability on the 1099 when they go to start their taxes on the evening of April 14, 2008.
Schadenfreude indeed.
GS,
Here’s one for you.
comments?
http://www.marketwatch.com/news/story/story.aspx?siteid=mktw&guid=%7BAC4F1475-5D97-4EDB-A394-C3446F2BC3E2%7D
Zener estimates builders took impairments on 1% to 3% of inventory this year, and will likely take an additional 1.5% in land writedowns in 2007. Although this will lower earnings per share by 17% on average next year, he said, builders will still be turning profits. He estimates impairments would have to reach 8.5% of inventory for earnings to turn negative.
This analysis seems to assume that the impairments will be the only factor that lower earnings. If a collapsing market reduces revenues by 30-50%, then the impairment percentage only needs to get to 4-6% before earnings go negative. And at 1-3% plus 1.5%, some builders will be at that point.
Of course, a 30-50% market downturn would also accelerate the impairments. Just eyeballing it, it seems to me like anything more severe than a ~20% market decline is going to cause major problems for HBs. Cramer is an idiot: I wouldn’t buy a bond from a homebuilder right now, much less their stock.
What is really scary about this couple is that let’s look at how many others are in this double mortgage situation and its ramifications. Assume you bought House #1 with an i/o ARM (and Leg). Took out HELOC for House #2 on i/o ARM (and Leg). Then took out HELOC and House #2 for credit card payoff, new Hummer, and whirlwind vactation. Four mortgages on two homes and probably ran up the credit cards again. Before this whole market unwinds, things are going to get real ugly. Imagine how much the total debt load is in my scenario? You could conceivably have upwards of $10K per month in payments.
Meant to say took out HELOC on House #2.
Look at all those people that lost money because they couldn’t sell their house and they lost their desposit on the new home purchase to the builder . I know some of those people took out a loan on their homes they were trying to sell in order to not lose the deposit on the new construction and now they are paying two mortgages .
The real shame is that they didn’t write a contract with the builder that was subject to selling their house at x price or they would be entitled to their deposit back .
Anyway ,the real estate mania turned so quick to a different market that people did not have enough time to adjust and they were just stuck in many cases . During a mania people do stupid things and look back and wonder how they could of been so stupid .
This has nothing to do with housing, but it proves there’s never gonna be a shortage of stupid in this country:
http://creditboards.com/forums/index.php?showtopic=209427
(Creditboards is actually quite useful and informative, and lots of people are far worse off than him.)
I regularly check the Mortgage and Bankruptcy forums there.
The desire for a home is very strong. Stronger than common sense, obviously.
Did I read of those posts correctly - someone has a credit card from Hooters?
one of
“Jeremy Lichtenstein, a realtor in Maryland, has seen perks range from a two-year lease on a Mercedes (for the buyer) to a $5,000 gift card to an all-paid trip to Hawaii (for the buyer’s agent).”
These are not “perks”. These funds come from where, class? That’s right, the buyer’s pocket! I for one am not going to buy my agent an extra trip to Hawaii for Pity’s Sake!!!!
‘It will get a little bit worse before it recovers,’ Chen predicts.”
Just a little? Is that like a wee dram? Just a flesh wound? Can you quantify a little?
Yeah, Arwen, I think she did quantify to an average 3.6% loss. $30-$50k for a lot of boomers. Gloomanddoomers, I’m gonna start calling them. She used the phrase “little bit” but then walloped in secret. How’d you like to be 55, and lose $50k in equity in one year.
No, dead cat just passed the 103rd floor. No bounce yet, so far so good.
Roidy
ROTFLMAO ! dead cat passing the 103rd floor. That is hilarious !
That cat ain’t going to have much bounce in it when it hits the ground from that height ! I will be more splat than boing. Just saying. Poor kitty !
Have no fear real estate will experience the “Dead Cat Splat”.
Two thoughts…
1 - we are coming on 1/2 way through football season, so we should start to hear the, “just wait until after the superball, blah,blah, blah, bullshit”
2 - I wonder, for how many FBs, the start of their financial ruin, was the purchase of their home..whereas, had they not bought, they’d be better off. There was a day, when buying a home was a great first step towards building a future. Now, I fear, it is just a financial grenade.
“But other areas could level off much sooner, in part because prices are already down. In Arlington, Mass., a suburb just outside Boston, home prices have fallen 18 percent from their peak in the summer of 2005.”
Honey, pass the Tums…
Even the savviest sellers can get stuck in this situation. NAR head Tom Stevens is himself a tweener: He’s been trying to off-load his Virginia home for more than a year. “The housing market is going through a period of adjustment,” he told Congress. “I have experienced this firsthand.”
ISN’T THIS THE DEFINITION OF ‘PUMP AND DUMP’?
IN QUOTES BEFORE AND AFTER THIS MEETING, THIS MAN TELLS PEOPLE TO BUY HOMES.
THINK I MIGHT SEE A PERP WALK COMING FOR MR. TOM STEVENS.
IF YOU CAN’T EVEN SELL YOUR OWN DAMN HOUSE…
WHY IN THE WORLD WOULD YOU TELL SOMEONE ELSE TO BUY ONE?
MAYBE BECAUSE YOU ARE TRYING TO ‘PUMP AND DUMP’?
I hate to pile on, but these people really deserve the misery they’re going to experience. Sounds typical of many thirty-something Americans who feel that big gas guzzling SUV’s, 4 bedroom Mcmansions,a stay-at-home mother, a good suburban school district,etc, are entitlements. I can’t believe that they had the stupidity to do what they, with so little reserve cash, and with her pregnant to boot! Compounding their woes, they probably got an IO loan on both places, so foreclosure on one or both properties will be looming in a half year or so. What’s next for them? The neighborhood soup kitchen? Living in a camper? If so, they had it coming.