Florida Speculators “Gave Up” In October
The News Press reports from Florida. “Foreclosures in Lee County jumped sharply last month as speculators gave up on land for which they overpaid and homeowners failed to keep up with their payments. In October, 352 foreclosures were filed in circuit court, up 48.5 percent from the 237 filed in September. That’s almost three times as much as October 2005.”
“‘In my opinion this is the market bottoming out with defaults,’ said mortgage broker Jeff Tumbarello in Fort Myers. ‘A lot of the foreclosures right now are failed speculative ventures, homes that never got built, where they bought them assuming it would continue to appreciate.’”
“But prices for residential property peaked in December 2005 as the median price for a single-family home in the county hit an all-time high of $322,300. In September, the median price was down 18.9 percent at $261,400, according to the Florida Association of Realtors.”
“The price of lots has dropped even more, Tumbarello said, noting that ‘there are now lots under $20,000 in Lehigh Acres,’ where it was hard to find one for less than $50,000 at the peak of the market.”
“John McWilliams, a real estate broker with Coldwell Banker Preferred Properties, said it’s not just lots in Lehigh that are losing their value. ‘Sad to say, the consensus feels that due to the plethora of 100 percent financing for entry-level homes, we expect to see an increase in foreclosures over the next six to 12 months,’ he said.”
“The problem, he said, is that a lot of people bought homes with no money down and also financed the closing costs. As a result, they might owe $240,000 on a house originally valued at $230,000 that’s worth even less now.”
“As foreclosures mount, the auction business is getting ready for a repeat of its heyday in the early 1990s when large numbers of Florida condominiums went on the block as prices plunged, said Carl Carter of J.P. King Auction Co. King already is getting inquiries and has hired a specialist to handle the auctions company officials expect will occur. ‘We’re preparing for a whole new business,’ Carter said.”
The Palm Beach Post. “New foreclosure filings in Palm Beach County nearly doubled last month as homeowners struggled with declining home values, plunging sales and soaring inventory, a report released Thursday shows.”
“The number of new foreclosure filings in Palm Beach County leaped to 866 from 453 in October 2005, RealtyTrac said, a 91 percent jump. In Martin County, foreclosure filings more than doubled in a year. St. Lucie County foreclosure filings, meanwhile, rose 28 percent over the previous October.”
“‘We have such a dramatic inventory glut in Florida - and such a disparity between prices and incomes - that there’s more work to be done,’ said Michael D. Larson, an analyst in Jupiter. ‘I don’t expect foreclosure activity to cool, or pricing weakness to end, until at least 2008.’”
From TC Palm. “The foreclosure rate in Indian River County more than tripled from 32 homes entering some stage of foreclosure in October 2005, to 109 this month, according to RealtyTrac. The highest rate on the Treasure Coast continues to occur in St. Lucie County.”
“Merle Dimbath, Treasure Coast economist, said the numbers have yet to reach a peak. ‘Unfortunately, this is going to take awhile to run its course,’ Dimbath said. ‘This might be a combination of people who took out home equity lines or had lower interest rates and are now seeing those rates rise,’ Dimbath said. ‘But this isn’t unique to just the Treasure Coast, I suspect is going on in Broward and Miami-Dade.’”
“Don Santos, past president of the Treasure Coast Builders Association, said he wasn’t surprised at the numbers. ‘Basically these are investors who can’t afford their second or third mortgages,’ Santos said.”
‘Even though construction cranes still dot the South Florida skyline and work continues on high-end, high-rise condos, real estate data shows that sales are slumping. Real estate analyst Michael Cannon said that some of the projects currently under construction are ‘destined to fail.’
‘School districts will lose $203 million in state assistance because statewide enrollment increased by fewer than 500 students this year, far below the projected growth rate, Florida education officials said Thursday.’
‘If you have windstorm insurance from Citizens, look out — yet another rate increase is coming your way. Rates will jump 55.8 percent early next year. ‘It’s absolutely preposterous. Who can handle this type of thing?’ said Peter Otto, a Bayside resident, who was chased out of Coconut Grove two years ago because of rising property taxes and insurance costs. ‘Quite frankly, when this becomes too painful for me, I will just leave,’ he added. ‘Atlanta is looking far more attractive now.’
‘Coastal South Florida commercial property owners could get hit with massive property insurance price increases up to 603 percent in Broward County and 592 percent in Palm Beach County, while some homeowners along the coast could see their premiums more than double, under rate increases proposed Thursday by state-backed Citizens Property Insurance Corp.’
‘The increases are a ’stake through the heart’ for the state economy and homeowners alike, said Dan Gelber of Miami Beach.’
‘Q: In June, I went to a lawyer to write up my will. I wanted to make sure that, upon my death, my childhood home in Hialeah that I currently rent would pass onto my oldest son. When the property tax bill arrived recently, it came in my son’s name, and the amount had increased tremendously. What can I do? Did my lawyer make a mistake?’
‘A: The increase in taxes wasn’t a result of the inadvertent ownership change; the property wasn’t reassessed. The taxes increased because the property isn’t a primary residence and, therefore, isn’t subject to the 3 percent cap that a homestead exemption provides. The property’s market value increased, and, thus, your taxes went up.’
Projected student enrollment: 48,853. Actual: 477.
Florida dept. of Education needs some forecasting education. That’s a big miss!
that means that a large percentage of new home purchases were by flippers. Has any other bubble area (i.e., phoenix, las vegas) has similar “under enrollements”
Deer Isle Maine, priding itself on being NOT a flipper area, It’s Different Here!, has had declining school enrollments for years while the year-round population is actually increasing. Retirees who preferred to pay $100,000 for some rehab-able thing with a teeny water view, rather than $500,000 for the same thing in all-season Calif. NB, these are NOT flippers, but they WILL die in time. And, many of them like to rent out the houses for parts of the summer to defray tax-insurance-etc. This is not working very well, lots more rental vacancies than there used to be. All of the B&B type establishments have suffered, because anyone who would’ve stayed there can now rent independent quarters more cheaply.
By those numbers, is it a stretch to say that 1 out of 100 new homes actually has kids and therefore 99 out of 100 homes were conceivably bought by flippers. Even if it’s only 50 out of 100 considering single people, married people with no children or retired people, that’s still a hell of a lot of speculation. Even at that rate, basically every other new house is a spec house. Holy Hell! In all honesty though, it’s probably more like 8 out of 10 are spec homes.
The city where I work built a new pair of high schools several years ago and the cost was around $150 million. I would guess the
population is somewhere around 5,000 students. I’d guess that elementary schools cost about $5 million each to probably hold bout five hundred or so. If they actually
built and hired for 48K additional students,
then a huge amount of money (and the taxes to go with it) were thrown out the window. Hopefully the local level figured out that the enrollment was a phantom.
“[Property insurance] rates will jump 55.8 percent early next year. ‘It’s absolutely preposterous.”
It’s a good thing they had a committee research the issue: http://tinyurl.com/yglce8
Rising property taxes will also function to make a lot of rental houses negative cash flow and force even more units onto the market driving prices down. Too bad the tax and spend crown is going to kill the golden goose.
Want to find out how to find an honest appraiser??
Got a new post up! Yeah, I know…3 this week…almost back to the ‘old days’ of 5 per week.
SoCalMtgGuy
http://www.housingbubblecasualty.com
http://www.housingbubblecasualty.com/forum
Any comment on the assertion by Countrywide that 2/3 of the 2007 resets have already refinanced?
Even if it’s true, I don’t think it changes things much. What was the total $ estimate of loans resetting in ‘07, like $800 mil, right? So 2/3 were able to refi and maintain their payment & home. That means $260 million of borrowers are still out there.
the number I have seen range from 1.3 trillion to over 2.1 trillion.
It is a tough stat to really nail down. Not to mention you have the option-ARMs that have the potential to recast with people making the ‘neg-am’ payment for too long.
I don’t know how somebody could say that 2/3 of the 2007 resets from Countrywide have already been refi’d…and that if they were refi’d they were able to maintain the payment, and thier homes.
I know that more often than not, I saw people refi one I/O ARM with another I/O ARM or option-ARM.
Some people will be fine, others will still be maxxxed out. From what I have seen, a lot of people are just prolonging the inevitable by hoping the market ‘turns up the heat again’ in the spring season.
Time will tell.
SoCalMtgGuy
http://www.housingbubblecasualty.com
http://www.housingbubblecasualty.com/forum
SoCalMtgGuy ” Time will tell ”
I have no good feelings about the future in regard to the funny loans. I have read this between TX and you. I guess my two cents would be… if theses folks signed a dumb loan the first time, there is a good chance they would do it again. IF they did.
I am sickened by the toxic loans and what will turn out to be out right fraud. I fear this is what 07′ holds.
txchick57
Do you have a link to that story? I would be interested to read it.
Thanks…
SoCalMtgGuy
I posted it on one of the earlier threads. I think it was the one about the overall market (not location specific)
Well, the 6 people I know with ARM’s have not refi’d yet. But, one of them is certainly trying. (I don’t think they’ll get it).
I truly doubt that buyers who bought with no money down, and an interest-only loan, suddenly found sufficent cash to re-finance into a fixed-rate. The word in my neck of the woods is that, yes people are re-financing - but back into IO loans. The last gasp of a dying industry.
Yup…
If they couldn’t afford the fixed rate when rates were lower 2-3 years ago, what makes you think they can afford to pay principal on a fixed rate loan at a higher interest rate today.
I have shown the difference in payments on my blog between the I/O and fixed rate payments.
Many will not be able to afford the fixed rate loan rates of today…especially at the higher LTVs needed to make the deals work.
SoCalMtgGuy
http://www.housingbubblecasualty.com
Well, that’s what I would think too but it’s worth knowing that this sort of BS is floating around.
SoCalMtgGuy:
Great to have you posting again. I always like your insider scoops and analysis. Keep it coming.
Do you happen to know if the neg-am loans provide a means for the lender to re-appraise a property after the loan is made in order to determine if the max LTV has been reached, or is the max LTV (causing the loan to re-cast to principal and interest) is tied to the initial appraisal/purchase price? Just curious, because considering the falling prices and blatant appraisal fraud of the past few years, some FBs could get a rude awakening if the lender has the right (and exercises that right) to re-appraise the property. I know that you weren’t really involved in these loans, but I thought you (or another poster) might know how these things work. Thanks.
Posted ” SoCalMtgGuy:
Great to have you posting again. I always like your insider scoops and analysis. Keep it coming.
Here. here…. but that man a pint!
(b) In addition, upon determination by the property appraiser that for any year or years with the prior 10 years a person who was not entitled to a homestead exemption was granted a homestead exemption from ad valorem taxes, it shall be the duty of the property appraiser making such determination to serve upon the owner a notice of intent to record in the public records of the county a notice of tax lien against any property owned by that person in the county, and such property shall be identified in the notice of tax lien. Such property which is situated in this state shall be subject to the taxes exempted thereby, plus a penalty of 50 percent of the unpaid taxes for each year and 15 percent interest per annum. However, if a homestead exemption is improperly granted as a result of a clerical mistake or omission by the property appraiser, the person improperly receiving the exemption shall not be assessed penalty and interest. Before any such lien may be filed, the owner so notified must be given 30 days to pay the taxes, penalties, and interest.
So Julio, how long you been renting out your house?
“‘In my opinion this is the market bottoming out with defaults,’ said mortgage broker Jeff Tumbarello in Fort Myers.” This guy must be dreaming. A cycle has only just begun with defaults leading to price declines which lead to more defaults.
Bill. you are right on the money. When California peaked in 1990, it took until 1993 for the peak in NOD’s and until 1997 for the peak in actual foreclosures. Jeff Tumbarello needs to check with history profresser Ben Jones, so he realizes his business will not be recovering for………..oh, about SIX MORE YEARS.
Well, but I bought something in 1994 and sold it in 1996 without losing any money and only a teeny bit of sweat equity. So my impression is, the mkt was pretty flat 94-97. Not that that makes much difference for the present case, which is much more bloated (rel. to income & rent) than the 1990 case.
***Hard landing for the housing market***
This is the headline for the linked article below.
For the first time I came across this headline in MSM, incidently msn.com. Things are moving fast lately.
http://tinyurl.com/y7s69l
Yet, the Lemmings on Wall Street’s conga line keep cheering in the background with each precipitous fall. Boohyah!
***Hard landing for the housing market***
This headline should be “strong buy” by Crammer for HomeBuilders.
Never can not get enough bad news to drive up those thriving HB’s stocks. The Bill Gates advisory board for his charitable trust thinks
this is a good investment? Must be David Learah’s brother on that board!
I do not have any inside information on this, but it is a mistake to think that the board of a large charitable foundation is making an investment in HB’s because they think the timing is right. Somebody at Morgan Stanley or some such place is advising them that they need to find “non-correlated” assets to implement a portfolio theory strategy through dollar cost averaging. They have enough money and enough time to take a long view like that and not worry about timing the market.
The widespread fallacy is that an individual investor can do the same thing. You can’t. Locking yourself into an equity portfolio and thinking you will be able to get out when you are “nearing retirement” is a pure timing-based strategy. The problem is, you are timing your sale for a date in the future that you don’t have any information about. If you are going to try to time the market, and mere mortals have no real choice, better to make decisions today based on what you think is happening today.
The headline should read, “Don’t Pay Attention To the Numbers in This Article”.
quote:
“Housing starts for October tumbled this morning, dropping 14.6% to a seasonally adjusted annual pace of 1.49 million new homes — the weakest level since July 2000. Bloated inventories and weakening home sales contributed to the drop. Economists had been looking for a 5.6% fall to a 1.67 million annual rate.”
Hmm, well, working backwards, then through the calculations, you’d have to start at 1,775,000 to drop 5.6% to 1.67 mil. Well, if you again start at 1.775 mil and reduce by their # 14.6%, you come in way above their other stat of 1.49 mil. Should be more like a 16.7% drop. Am I missing something?
further. . .
“The markets took the housing news hard, falling after a week of strong gains. At 11:40 a.m. ET, the Dow Jones industrials were down 11.37 at 12,293.97.”
Oh no, that is a sharp decline. Almost 1/100th of one percent!!! We’re all gonna die!
You’re right, they’re wrong. The September housing starts were somewhere below 1.7 million rate. In fact I think it was…1.67. Now, that doesn’t QUITE work with the percentages either, but that could be due to “seasonal adj”.
Let’s just say, The drop was 300% more than expected.
And the second line about Starbuck’s falling profits…hmmm…any connection to falling housing values and a reverse wealth effect?
Let’s just call it what it is; Wealth Destruction.
““‘In my opinion this is the market bottoming out with defaults,’ said mortgage broker Jeff Tumbarello in Fort Myers.”
This dude has a great future flying pizzas.
Where is you 10lbs trout when you need it?
This guy posts regularly on the Ft. Myers (FL) NewPress real estate forums and believe me, this is one of his more intelligent statements. What a dope!
Except he will be trying to flip the pizza while the ingredients are still unmixed in the bowl
huh? You toss the dough, then you build the pie.
talking about the flour, yeast, etc…..raw materials before you can flip the pie
I think he means the flour and water are still in the bowl. He flips it, whole mess explodes….sort of like his business is doing today….
Yeah. This is a rich one.
Defaults will peak after insurance costs stabilize, property taxes stabilize, housing prices stabilize, and the ARM reset wave passes. Probably 2009. Late 2008 if we are lucky.
Consistent w/ my remark above that I thought prices were stable 94-96 despite peak defaults being 1997.
“In October, 352 foreclosures were filed in circuit court, up 48.5 percent from the 237 filed in September…‘In my opinion this is the market bottoming out with defaults,’ said mortgage broker Jeff Tumbarello in Fort Myers”
Yep, that make perfect sense. As the default number skyrockets geometrically all of a sudden, for no reason, the defaults number will magically stop and “bottom out”.
Somehow, the normal behavior, where trends develop and mature and then slowly level off doesn’t apply to the defaults in FLA, according to mortgage broker, Mr Tumbarello. Perhaps tthe NAR needs to fill the opening left by Mr Learah once his medication runs out.
Sheesh. How many idiots can this RE complex employ. Seems like the have a monopoly and have cornered the market for imbeciles.
Does the mortgage industry track statistics such as total LTV at closing? Would be interesting to see how many people who bought in the last 2-3 years used 100% financing.
they’re sold separately, first mortgage goes one direction, the second mortgage another. the first mortgage lender may or may not know of the second, but the second mortgage lender obviously knows of their risk position. yields on those seconds went from 7% to 14% real quickly as soon as the real estate market cooled.
But prices for residential property peaked in December 2005 as the median price for a single-family home in the county hit an all-time high of $322,300. In September, the median price was down 18.9 percent at $261,400
Let’s hear it for stickiness on the way down!
‘there are now lots under $20,000 in Lehigh Acres,’ where it was hard to find one for less than $50,000 at the peak of the market.’
I see this in Arizona, too. Raw land is not sticky!
A 20% lose in property value in 06, wipes out the 40% gain in 05, there abouts. Does this mean that property values had a 0% gain for the past 2 years? And does this mean that these people made no money on their RE investments for two whole years? OMG.
They plan to raise the insurance prices more in Florida . Florida 1926 a coming .
Hey - there were *steals* in Florida in 1926.
… If you were willing to wait until 2005 to sell, that is.
The Orlando Market is Great. Prices are still appreciating. Best time to buy is now!!!! Don’t wait, or it will be too late!!!
http://www.orlandosentinel.com/business/orl-biznews-housing111706,0,4266879.story?coll=orl-home-headlines
Orlando has a 1 year supply of houses on the market now. It looks like there’s no hurry to buy.
“J.P. King Auction Co. King already is getting inquiries and has hired a specialist to handle the auctions company officials expect will occur….”
Meet the new market makers.
Buh-bye, Florida.
Not so quick; Sherlock Ho_mes is on the job. In Jacksonville, the search for missing GFs has just begun. Look at the search’s sponsors: http://tinyurl.com/ymdv7u
Yeah, and OJs still looking for the killer.
He’s publishing a book telling how he would have done it, if he was the real killer. I’m serious!
Yep, and “authorities” are lambasting the publisher - WHO WAS A DOMESTIC ABUSE VICTIM THAT SAW HER EX WALK!! Makes sense, doesn’t it?
“Let them eat cake” in Florida. I believe it was Rocerfeller once said that when the shoeshine boy starts talking about stocks then it is time to get out of the market. This happened in Florida two years ago. You would have to be a fool to buy a condo in Miami now. I do blame the banks or anyone who made these loans. I am told Country Wide Finanical is able to show a full mortgage even if a buyer has a 100% loan due to accounting rules. Sounds like another ENRON, only worse, in the making.
Great blog Ben.
The Queen of France said that supposedly before the French Revolution. Rockefeller did not make the shoe shine boy quote Bernie B did. Better get your facts straight on this blog.
Marie-Antoinette made the cake quote. I always understood the shoe shine boy quote was attributed to Joseph Kennedy.
Bernard Baruch?
And Marie Antionette was later beheaded.
Better get your facts straight on this blog.
The quote has been widely attributed to Bernie, Kennedy, Rockefeller, et al. No one knows for sure at this point; no facts involved.
It is attributed to Joe Kennedy. But one might say it was his cover for exiting the market, which he did because he had inside information.
Posted ” the shoe shine boy quote”
The shoe shine boy, was casey’s dad…. trust me!
Shoeshine boy analogy very appropriate. Probably what brought me to this blog was a purchase of a $460,000 POS by a friend whose annual income is less than 10% of that amt. I was thinking WTF? I personally would hesitate to buy $460K POS even though I certainly have more liquid assets than that.
‘The increases are a ’stake through the heart’ for the state economy and homeowners alike, said Dan Gelber of Miami Beach.’
Ouch! That’s gotta hurt.
Small businesses which dominate Florida’s tourist industry are going to get killed in 2007 due to property taxes and insurance premiums. Toss a 2007 national recession onto the fire and Florida is toast. Burned on both sides.
Pretty soon we’ll be saying from toast to toast.
“Toast to toast burned on both coasts” LOL.
That school enrollment report is amazing. I’ll bet that the actual number is much lower. When local school boards get State money based upon enrollment you know they will fudge to the up side as much as they can. It would be interesting to see how the private schools are doing. Obviously, their parents are voting with thier feet.
I suspect that the main factor is the amount of unoccupied flipper housing. Schools used historic averages for estimating the number of children that x amount of new housing would contain. But with a huge amount of flippers much less of this housing was occupied by end users.
“schools use historical averages to estimate”
Not a reliable methodology, is it?
“the main factor is the amount of unoccupied flipper housing”
Not only that, a lot of families cannot afford to live in FL anymore. ‘Atlanta is looking far more attractive now.’
Actually, those estimates are as valid as any. School-age children are a must-serve-now population - they show up at the school house door and they will be seated. That school admin’s were not more aware of the potential bad effects of flipping is not surprizing, only lamentable. Send another bouquet to the REIC crowd.
‘I don’t expect foreclosure activity to cool, or pricing weakness to end, until at least 2008.’”
Ok now we have “experts” talking about 2008. Do I hear 2009? Anybody? Liarreah? LAY? G. Watts? Nah…liars to the end.
bottom will be when forecloserues = 1990 adjusted for pop growth
not before
Why 1990? That was beginning not end of crash. Maybe I am missing your logic. ??
Ha! Here’s one for ya:
How to get yourself successfully into debt and other lessons from the new real estate experts
- By Carol Lloyd, Special to SF Gate
Friday, November 17, 2006
Whether it’s the fall chill or a seismic real estate crack across the land, real estate publicists have been flooding my in-box with ideas for stories that reveal just how nervous the industry has become. They pitch tales about how to take advantage of this “unique” market, how to sell a home without fear and buy homes “at a discount” — and in general leverage fantabulous opportunities up the yin-yang.
Here are some of the choicest examples that have come over the transom: Dan Hanson, managing director of Countrywide Home Loans, offered his analysis of a new company-sponsored study that found that “nearly half of Americans may be overlooking a significant financial asset.” Ninety-one percent of homeowners consider their homes investments, the study discovered, but many do not “manage” this investment. Translation? Managing this investment means refinancing, reverse mortgages, extracting equity and buying more real estate — all things that put homeowners more into debt but bring home the bacon for lenders like Countrywide.
Kathy Passarette, a certified interior decorator with staging company Creative Home Expressions, offers eight media-ready tips for sellers to immunize their houses against the declining market. Her big tip: When preparing your home in a down market (in which you might be anxiously facing the loss of thousands of dollars on the sale), don’t forget to spend money on something really important — staging your house.
And “successful real estate author, Dolf De Roos Ph.D.” shares his experiences buying 52 homes in 52 weeks, in a step-by-step program designed to help the neophyte investor create wealth. His premise that “there are deals out there” belies one simple problem: For the vast majority of people, this is not the right time to embark on a real estate career.
But when I received a press release with the subject heading “Put yourself successfully into debt,” it sounded too masochistic to be believed. Wasn’t Americans’ homeownership debt what so many economists were worrying about? Who would actually say this?
So I called the expert in question, Steve Dexter, owner of 27 homes and funder of over $500 million in real estate loans, at his home in Laguna Beach. Dexter, an affable, surprisingly candid guy, offered a glimpse into the world of one emerging real estate guru and his path from seminar student to seminar leader to major publishing house author.
As Dexter told it, the book grew out of handouts from the 4-hour, $49 workshop he offers at community colleges across Southern California. He’d been rewriting the handouts for years when syndicated real estate columnist Bob Bruss encouraged him to turn them into a book.
Dexter said Bruss passed on the name of his own book editor, who ultimately rejected the manuscript, but McGraw Hill accepted it. The result? “Real Estate Debt Can Make You Rich.”
Dexter assured me his book wasn’t actually encouraging investors to plunge themselves deep into the red zone. The original title was “Responsible Use of Debt,” but the publisher suggested that that might not fly off the shelves. Nevertheless, he said, debt is important in most trajectories of self-made riches. “Ninety percent of millionaires got there through real estate debt,” he claimed.
Like most “get rich through real estate” books, the key to Dexter’s real estate recipe is not new. As a personal lender to other investors, he focuses on the ins and outs of various loan products and approaches to indebtedness. But his buy-and-hold strategy is actually one of the most conservative real estate games around. It hinges on the fact that real estate is the only context in which an ordinary person can (and usually does) take advantage of extreme leverage — in this case, by buying homes for 10 percent down. If the price is right and the rent is right and the investor has enough time to wait, highly leveraged real estate will eventually breed substantial wealth.
Fair enough. Buying homes (at below-market prices), renting them out to cover their costs and reaping long-term tax benefits is indeed a well-worn path to American riches. And according to Dexter, if you choose your housing stock carefully, by investing in the least risky markets — avoiding new homes but buying smaller, older homes in improving neighborhoods near jobs and transportation where people will always live — you can reduce your risk even more. Indeed, even his choice of indebtedness has tended toward the conservative. He made no use of new-fangled loans but bought most of his houses with 30-year, fixed-rate mortgages. His ultimate goal is to own 15 houses free and clear with no mortgage at all — but he plans on buying 30 homes to get there, selling off some and keeping others.
Still, however conservative his plan, Dexter’s perspective seems colored by the rosy appreciation rates of the past few years. Like so many newly minted real estate gurus of the past decade, Dexter began buying homes during the boom — in his case, in 1998.
Now that the market has changed, I asked him, don’t investors need to adopt different strategies?
He told me he has insured himself against the down market by buying homes people want to rent and by maintaining plenty of cash reserves. Indeed, Dexter’s actual investing seems quite a bit more conservative than his advice for readers. “I haven’t bought anything for the last two years,” he said.
In the end, he had some dark things to say about the financial instrument his book seems to applaud. “There are two things that can kill you, and one is disease and one is debt. I’ve been putting people in debt for 16 years. I’m a merchant of debt. It’s a tool to prosper [but it's also] a sword that can cut you down.”
Indeed, his next book gives a sense of just how he might profit from those who mistake his current book as an invitation to incur debt willy-nilly.
Its working title? “How to Profit From the Coming Wave of Foreclosures.”
This is not bottoming out. These are the weakest, most speculative, market-distorting loans being foreclosed. There’s a lot more where that came from. Here’s why: once the people who were willing to pay “anything” to get in the door of a new house and those who wanted to “flip one or two” to “get in the game” are gone, there is nothing - nothing! - holding up those prices. The people who made slightly less risky decisions and were slightly more rational can hold on slightly longer, but then they will go as well. This is why a decline looks like a parabola, people. It’s not just smoothing the dots out. It is a process, which accelerates as more and more elements add to the decline.
“once the people who were willing to pay “anything” to get in the door of a new house and those who wanted to “flip one or two” to “get in the game” are gone, there is nothing - nothing! - holding up those prices.”
Unless operation stealth reflation is soon approved and implemented…
“why a decline looks like a parabola”
I guess my graphs posted in the bits bucket did not clear up this misconception, so let me explain. A parabola is concave and has a nice smooth upside down U shaped top — like the arc of a ball thrown into the air. So-called parabolic price moves are misnamed because they have a sharp discontinuity at the point when the market runs out of GFs and speculators run for the exits — more like Laplace’s famous double exponential:
f(t) = b exp(-|t-p|),
where b = bubble top and p = panic time.
I still disagree with you (partly). I thought “parabolic price moves” referred only to the run-up side. I.e., parabola concave upward, not downward. Like y=x**2, not y=-x**2. And yes, then there’s OOPS a discontinuity, totally different function takes over. I agree your function describes the whole thing much better.
‘I thought “parabolic price moves” referred only to the run-up side.’
Dunno — I never actually saw it explained (before I made up my version
)
I think AZ_lender is correct about the colloquial usage. It usually describes a price chart that is getting steeper and steeper until people are predicting that it will go up forever. Then comes the discontinuity.
Florida has always been a Sinkhole for houses, condo and land speculation. This time it looks like a “Blackhole” forming and the Debt God is pulling the Plug !
It is time for “someone” to find some dark energy to help the housing bubble resume expanding.
http://physicsweb.org/articles/news/10/11/16/1
Since entering Fla last weekend, I keep being amazed that I can actually enter Palm Beach County, enter Indian River County, etc, without observing county-wide sinkholes.
So it’s not just flippers and toxic mortgagors and builders with a lot of finished inventory who have their houses the market. Now even many financially responsible people, those with some real equity, may be forced to sell due to the increasing insurance bills. Florida is not just toast- it’s thermonuclear toast.
As w/ most Florida natives, I am thrilled that this ridiculous market is starting to crumble. More important to me and my family is the insurance issue noted by Ben. My parents are both natives and live primarily off of my dad’s military pension and social security; my father was a career air force pilot, served two tours in Nam and retired as a Lt. Col. They have Citizens and their premium went from $2,700 in 2005 to over $7,000 in 2006. If the premium doubles as the article suggested, my parents will be in dire trouble. They are but a single example of what will happen throughout the State. So much for their golden years.
Looking at the local TV news, you’d think everything is still hunky-dory.