“It’s Just One Horror Story After Another”
The Arizona Republic. “For sale at public auction: Two parcels of prime real estate next to Chandler Fashion Center. Amenities include a partly built tower called Elevation Chandler. The mortgage holder is foreclosing on the stalled high-rise condo-hotel project, according to documents filed with the Maricopa County recorder. A trustees sale is set for Feb. 5.”
“The larger parcel contains what is supposed to become an eight-story Renaissance ClubSport hotel topped with two floors of luxury condominiums. Construction stopped in April, leaving a partly built structure at Loop 101 and the Santan Freeway. A parking garage and a second tower of residential condominiums were planned for the adjacent 2.5-acre parcel.”
“The beneficiary of the trustees sale…lent $3.45 million to developer Jeff Cline in November 2005.”
“Yet another legal problem appeared for Cline last week when three subcontractors banded together and filed a lien-foreclosure lawsuit. They are asking that the property be sold so they can be paid what they are owed. They also are asking for interest and attorneys fees.”
“Two additional subcontractors have filed lien-foreclosure lawsuits, as well, and three other subcontractors and the general contractor have recorded liens but not filed lawsuits. Altogether, the mechanics liens total about $5.8 million.”
“Sanders Achen, owner of Achen Contractors, was an investor in the mortgage on the project. He since has gotten his money back from Mortgages Ltd. and takes a philosophical view of the situation.”
“‘Unfortunately, somebody is going to get hurt,’ Achen said. ‘In the development business, you throw the dice. Sometimes you win and sometimes you lose.’”
The Rocky Mountain News from Colorado. “Almost 16,000 real estate foreclosures have been filed in the Denver area in the first 10 months of the year, 30 percent more than during the same period last year. And by the end of this month, an 18-year record will be eclipsed, with more homes being lost to lenders than ever before.”
“‘I think that will have to happen,’ said Mary Wenke, Arapahoe County’s public trustee. ‘There’s no sign of them letting up. If they dip for a couple of days, they come right back.’”
“Through October, 15,776 foreclosures have been filed in Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties. That is less than 8 percent off the all-time record set during the energy bust of the late 1980s. At that time, homes could be purchased for as little as 20 cents on the dollar, which is not the case today.”
“‘It’s not nearly as bad as it was in 1988 and 1989,’ said Sandy Hume, Boulder County public trustee. However, that is little comfort if you are losing your home today. ‘It is just one horror story after another,’ Hume said.”
“Experts blame no downpayment loans, ‘creative’ financing, overbuilding, over-appraised homes and outright fraud as contributors to the growing foreclosure problem.”
‘Carma Colorado will break ground Monday on its $550 million Solterra residential community along Alameda Parkway near C-470, the first master-planned community built in the 2,000-acre Rooney Valley. The 282-acre Solterra will feature 1,100 homes. The first phase in the Lakewood development will be mostly expensive houses, priced from the $400,000s to more than $1 million.’
‘The city has spent a lot of money and energy to get things in line to get to this point,’ Morton said. ‘It’s an opportunity for them to capitalize on a market that has been underserved for a very long time.’
I just have a hard time believeing in the face of the housing slow down in Colorado they are going to proceed with this in any significant way other than some major infrastructure…..Is Rooney Valley special in some way ???
Simply put NO. The plac e to live in Dever is in the South part of the city or Cherry Hills (downtownish) or Boulder.
Where this place is going up there is tract on top of tract of new homes.
Rooney Valley is just South of I70 as you head west. It is between Golden and Lakewood just below Green Mountain. The valley is created by Green Mtn and the hog back.
The motocross track is at its north end.
If they build 1100 houses in there I shudder to think what traffic will become on 6th Ave or 93 or C470. It’s already a nightmare.
What’s the rule of thumb - one house produces 10 car trips per day?
What a hell hole it will be.
Anyone who can afford a $1 million home is not ‘underserved.’ Those people that live, and have lived, in an area described as underserved are unlikely to afford this new housing in the first place.
Wrapping development profits in the tinsel of service to community is a sick joke on the working class.
The last I heard about that project was the troubles getting water for it. If anything is underserved in Colorado it’s with regard to water availability.
Posted this in a previous post, but this could be the next LTCM combined with Amaranth, Vega, etc. In the 20’s these huge sums of money were called pools. They were outlawed for a reason, as they were a large factor in the 29 crash.
OT but so on topic here is anothe big contrubiter the the whole global bubble espically in oil. Watch the price of crude collapse as this thing unravels. The first of many keystones just fell out
http://www.nytimes.com/2006/11/22/business/22hedge.html?ref=business
Thank you for your post with the link!
~Misstrial
IMHO Oil, Gold and Uranium are good defensive investment plays. I’m a long time RE player and I’ve also had a career as an major oil exploration geophysicist. With rising demand in China and India I doubt very much that energy prices will decline much more.
Have you perused James Howard Kunstler’s website? He writes a weekly commentary on peak oil and the derivative effects of a shrinking oil supply will have on our nation and the world.
I agree with those commodities. I also think coal is a good investment play. These are good buying opportunities in commodities, but I tend to put more money in T-bills, series I bonds, and muni bonds than commodities.
“Sanders Achen, owner of Achen Contractors, was an investor in the mortgage on the project. He since has gotten his money back from Mortgages Ltd. and takes a philosophical view of the situation.”
Real easy to be “philosophical” since he got his money back. If he hadn’t, he’d be screaming and yelling and filing lawsuits too.
Damn straight….
I’d be interested in knowing how he got his money back before the subs were paid. Seems a bit fishy for an investor to get paid prior to project completion.
“ I’d be interested in knowing how he got his money back before the subs were paid. “
I’d like to know too. I don’t know the answer but I suspect that there is some interlocking business deals and would not be surprised to find out that this involves in pulling money from one pocket and putting it in another, all hidden by some limited liability corporate paperwork. From what I understand a lot of these kind of deals involve “investors” creating a short term limited liability company so that if things go bad they can walk away and not pay the bills.
Yeah, when I read that I wondered how they got around that legality. No matter what company form, wages have to be paid before investors. If they don’t, then jail-time for individuals can become a bigger threat than civil suits/leins of shell companies
If there are so many foreclosures, why are we not yet seeing houses being auctioned off at .20 - .40 cents on the dollar?
Is it a function of time? Meaning is there a lag time between foreclosures happening and the banks/lenders finally crying “uncle?”
We need a larger percentage to push lenders into the corner. Just because it hasn’t happened yet doesn’t mean it won’t happen when more loans reset.
Its probably a matter that this has not filtered through to the MBS market yet. Cash is till flowing like water these days because buyers for bad loans are plentiful. There are also lots of idiots out there that think a 10% to 20% discount is a good deal on a house, so still plenty of buyers for foreclosures as well
Once the MBS market starts hurting and hedge funds start dying on mass (which has already begun). Banks, which will have to back their own mortgages, will clamp down on standards. This will freeze the whole credit industry (and thats when you’ll see the helicpoters clouding the sky)
Exactly. As long as there are buyers of structured mortgage securities the banks will hold onto the property rather than shake up the market. The reason is the banks get capital gains by selling the mortgages and this in turn marks up the mortgages held on their balance sheets. So banks are able to show substantial profits despite slowing growth and an inverted yield curve. For a while.
Like any other ponzi scheme as soon as the first player blinks the whole thing will collapse. Its a very good time to get to know the asset managers at your local banks. At least in my area (New Jersey) they have been very receptive.
Hey Dipster,
Are you in North or South Jersey?
Is this the way it will work? If the bank forecloses on a property where the underlying security is held in the MBS market, won’t the bank need to buy back the security? Then being out-of-pocket, I would think the bank would feel a good bit of pressure to unload the property as quickly as possible, especially if the number of loans it must buy back starts to put a serious crimp on their cash flow statement.
I predict that the market for seconds will tank first. After all, alot of the second mortgages in 80/20 deals will end up with NOTHING when the first mortgager forecloses.
This is already occurring. My colleagues call it a “bloodbath” but it’s not getting any widespread attention yet because statistics aren’t being disclosed. I suspect it’s one of those things which will cause what appears to be an explosion, but it’s been running critical for a while now. What will happen is this: the secondary market for the higher risk second-trust securities will dry up, meaning lenders won’t make, and people can’t get, 100% financing anymore. When combined with stricter financing disclosure requirements and increased lender scrutiny and underwriting, the new reality that banks won’t provide more than 80% LTV on properties using realistic appraisals will cause the real estate market to look like it has fallen off a cliff. This will cause cascading defaults as price drops and rippling unemployment throw more and more properties into foreclosure or force sales at losses.
I wonder if the lenders will allow the seller to take back 20 to 30 % purchase money second TD if the market gets tight . Seems to me this would allow some sellers to be able to sell in a tight market .
Which means that there are no first time buyers left at today’s prices. I still think that we have a while to wait for realistic appraisals. I suspect that will only happen when the market for first mortgages runs into a wall. Only if banks are lending their own money will the care if the appraisals are good or not.
KIA,
Thanks for the info. I’ve been guessing the 2nd lien market would be the first hit. Good to hear it. I still can’t figure out why there are so many ads still playing for 100%+ loans. Those seconds might just as well light their money on fire for all it’s worth, IMHO.
Wait till next year and more resets hit Colorado. We may yet see 20 cents on the dollar properties. Funny, everybody remembers this, yet the official statistics only show declines of 10% or less. I wonder if that means any…. Ooh shiny! It’s so pretty! … Where was I? oh nevermind.
“‘Unfortunately, somebody is going to get hurt,’ Achen said. ‘In the development business, you throw the dice. Sometimes you win and sometimes you lose.’”
No, you throw dice at a craps table not in the business world. In craps terminology, developers are betting the pass line roll after roll at the world’s coldest craps table. Not a good strategy and your chips will vanish quite quickly.
Right, now the subs are in the hole for $5 million and I’m sure they don’t have that laying around. Next the suppliers and downstream subs sue or declare bankruptcy. It unwinds just like it wound up. Now we have a skeleton condo project left abandoned in the valley. Notice no white knight stepped in to pick up the deal.
Exactly. I don’t know about AZ law, but in CA, a contractor’s lien is a very powerful legal weapon even when the primary contractor declares bankruptcy. (I am thinking of one case that involved 90 subcontractors - they won.)
~Misstrial
I think the subs should probably file an involuntary bankruptcy against the primary (Federal law allows three or more creditors to band together to file a bankruptcy for a debtor). This will get everyone back on level footing and can provide time to come up with fresh capital or cram down debts to allow completion. If they can’t see that completion is the key to getting paid, they deserve to lose it all.
Not sure I see why a subcontractor would benefit from putting the primary contractor into Chapter 11. That wouldn’t stop the foreclosure against the owner.
If what you are suggesting is that the mechanic’s lien holders file the involuntary to put the borrower/owner into bankruptcy, that might not be possible as an involuntary can only be filed by unsecured (or undersecured) creditors. Since they are by definition lienholders, they could only file an involuntary if they could make the case that their liens were out of the money, which might cut against their own interests.
Finally, the new bankruptcy code makes a single asset bankruptcy case pretty tough, particularly for a property that is half-built and has zero cash flow. It might buy a few more months, but it’s not really a solution. The only thing it would permit you to do that you can’t do outside of Ch.11 is get a priming post-petition lien to fund completion but, again, you’d have a valuation fight as you’d have to prove that the existing lender’s position is improved rather than harmed by the new senior loan.
What is striking about this type of situation is that it is not atypical in terms of the mortgage: a mortgage “banker” rounds up a bunch of individuals or small players to invest in fractionalized interests in a mortgage that no commercial bank would provide (note that the name of the beneficiary of the deed of trust/mortgage is “Radical Bunny, LL” which was probably quite funny back when everyone thought it would be a great deal). My guess is that the interest rate on that mortgage was extremely high and therefore investing in it was a “no-brainer” to all of the retirees, etc., who put a few hundred grand up. The fact that one guy “got his money out of the mortgage” is odd (who’d buy a piece of a defaulted mortgage at anything close to the par value?). When, if and as this melts down I’d be surprised if you don’t see lawsuits from the investors in the mortgage against the broker who put it together.
Sometimes you do win, but the winners are long gone from this market. There’s a difference between calculated/managed risk and just plain having your head stuck up your ass. The smart ones try not to leave themselves exposed - they plan for the worse while hoping for the best. The morons we see today plan for the best, hope for the best, believe the best is the only outcome, and invest accordingly. Thus goes the saying “a fool and his money are easily parted.”
Right On nnvmtgbrkr;……
But last year those morons all thought that they were geniuses.
“The morons we see today plan for the best, hope for the best, believe the best is the only outcome, and invest accordingly.”
Another great observation from the blog! This pretty much sums up every asset class at the moment.
“The morons we see today plan for the best, hope for the best, believe the best is the only outcome, and invest accordingly.”
DREAMS!
A dream is a wish your heart makes
When you’re fast asleep
In dreams you lose your heartaches
Whatever you wish for, you keep
Have faith in your dreams and someday
Your rainbow will come smiling thru
No matter how your heart is grieving
If you keep on believing
the dream that you wish will come true
“‘Unfortunately, somebody is going to get hurt,’ Achen said. ‘In the development business, you throw the dice. Sometimes you win and sometimes you lose.’”
I swear this guys sounds like a big dufus football player after the big game. “yeah-yeah.. sometimes ya’ win…sometimes ya’ lose… you just hafta’ put in your best effort… blah blah blah. It brings me such comfort that the homebuilding industry is in such knowledgeable minds with such flowery terminology. Gambling and houses. How quaint.
Keep in mind that THIS guy already got his money out. Clearly, he assessed the risk correctly and acted accordingly.
It’s to the people who lost money that he says “win some, lose some.”
Actually, developers do roll the dice. There is always a “risk” of failure, which is why their “reward” is so high when the outcome is positive.
almost back to 1987
wow
“Almost 16,000 real estate foreclosures have been filed in the Denver area in the first 10 months of the year, 30 percent more than during the same period last year. And by the end of this month, an 18-year record will be eclipsed, with more homes being lost to lenders than ever before.”
I wish Arizona would domino as fast as Florida seems to be doing, and I don’t mean Queen Creek. The prime looking stuff I am watching up in your area is still way overpriced. Are you watching foreclosure listings in N. Ariz?
Txchick57, it’s still way overpriced here in Tucson.
I like Tucson…”Fond Memories”….Tchick, were you taliking about the area like Sedona or the Tucson area ???
Sedona/Flagstaff/Prescott
Thats Ben’s hood…..
So. NM is still way overpriced too.
Note to “Dan”: Check out Anthony, NM instead of Las Cruces. Texas people from El Paso are moving to Anthony to escape the high property taxes. Article about it in the El Paso Times. Acreage/custom homes.
~Misstrial
It is taking an awfully long time for asking prices to drop. Still way too many sellers asking $200+ a square foot.
Hey all,
I concur that it seems that the prices have stalled at about the $265 (median) for the last few months in the Phoenix metro area, what’s funny is that the local real-estate experts are throwing graphs that show the current sales activity to be in level with ( or slightly above) Oct. 2005’s !, so ” see it ain’t so bad … we are just about even with 2005 now” , the obvious missing bit is the level of inventory on the market… just ignore the inventory ( 7+ months) and it shall go away.
Currently i’m looking at 3 bits of data 1- median pricing, 2- sales activity, 3- inventory on the market.
So in the next few months either inventory reduces (listings get pulled or sales activity picks up) or median pricing will have to come done. somethings gonna give. This is my conclusion, and I welcome your comments.
“I concur that it seems that the prices have stalled at about the $265 (median)”
Forget the MSM and NAR reported median price. I am finding a surprising number of SFR sales at price points below $300,000 in Las Vegas. The 1st time homebuyers are willing to take smaller
sq ft houses, and smaller lots, as long as the price is below $300,000. It’s the few sales above $900,000 that distort the reported median price. Try looking for the lowest price SFR
2 bed or 3 bed SFR with 2 baths, with small sq. ft.
What’s interesting is that inventory isn’t following its normal decline for the holidays. So while a lot of inventory is being pulled for spring (which’ll be yet another painful lesson to the FBs waiting for a bounce), obviously there’s a significant amount coming online to offset it.
Bring on the price decreases, I’m ready to buy…after a 50% haircut
I’m thinking of starting a foreclosure tracking site with a database, for Coconino and Yavapai counties. It odd, the weakest parts so far are the ones everybody assumed would be the strongest; Oak Creek canyon, Village of Oak Creek and Sedona.
You might want to throw Maricopa and Pima Counties into that database, Ben. Just for laughs .
I have seen some major price reductions in the Phoenix area which is a start. After some of these sell, there go the comps.
“Experts blame no downpayment loans, ‘creative’ financing, overbuilding, over-appraised homes and outright fraud as contributors to the growing foreclosure problem.”
Yes - but the banks are still offering these loans. These days it’s easier to buy a house than it is to rent. Has anyone heard if the banks are starting to get cold feet?
In Colorado, you don’t need a mortgage broker license, and I don’t know of too many banks in the Springs or Pueblo that offer a lot of these “non-conventional” lones or stated income financing…at least none of the banks I’ve talked to. And, when I asked about a low interest/neg amort loan, my loan officer flatly said..that’s not a good loan and we don’t do those here. I think its the mortgage companies like Countrywide and such that offered these loans.
These days it’s easier to buy a house than it is to rent.
Ain’t that the truth! We had to pay a security deposit, show a recent paystub, and do a credit check. For the dogs we had to show photos to prove they weren’t pit bulls or rotties, and to get a vet’s note stating the dogs were neutered. Sheesh, it’d have been so much easier and cheaper to get a liar loan and just live free while the house slid into foreclosure.
That is my problem with renting. I have a very large (115-120 lb) male dog who is protective of me. He is not neutered. (I show him occasionally so cannot be neutered to do so). People don’t want to rent to me. He never goes the bathroom in the house, does not dig, bark, or chew, but nonetheless, I can hardly find a place to rent. It is an exercise in futility. I blame it on the countless undeserving owners. I was just traveling with my furry friend and we stay at Motel 6 because it is pet friendly. I took him out for a walk and stepped right in a pile of fresh crap from some loser owner who did not clean up after their dog. I can’t stand that sh!t. I am really looking forward to owning my own place again because it is just too difficult to rent with this beast.
BB, what kind of dog? BTW, have you visited the website dogfriendly.com? One of the better online references.
We take our 100lb female shepherd everywhere.
He is an Akita. No, I have not seen that site but will check it out. Thanks!
We have a long way to go because the general public thinks that if they bought their house three years ago, new, from the builder that property values can’t fall below that level. Twenty cents on the dollar is going to put a lot of RE property under water for quite a long time but the end result will be a return to normalcy and the ability to move your family and work where you want and have money in your pocket.
Just more idiots throwing around loose money. How can anyone in their right mind continue to build, esp. in an area where the foreclosure seems to have no end in sight. These clowns in AZ and CO deserve to have their heads heanded to them. Addtionally, so does anyone that finances them and anyone who buys this crap from them. At this point, I may make a special non-capitalistic exception to free market and propose a moratorium on all new building starts nationwide. This country needs to cool its heels in developing. What exactly is this all about at this point? Do we really just want to cover the entire country with one big building or shopping mall where we can all rent rooms? I don’t get all this rush to keep building.
“What exactly is this all about at this point?”
OCDan: when you figure this one out, let me know. To me it looks like financial suicide at some point in the future, but I am fairly conservative. I agree with you, we should take a step back and examine with an objective view. We are overbuilding where there are no good jobs and where no one wants to live, and the desirable places are being barricaded by NIMBYs. Maybe the military will be able to use some of the central valley developments as urban warfare training centers.
I am starting to voice my complaints with the community development folks. I am tired of them hanging out in the builders pockets, while turning their backs on the communities best interests.
Most planners/community development people are the developers greatest cheerleaders. Like stereotypical government workers most find it easier to approve projects rather than stand in the way and get run over. I work with planners that are young, never really had a real job before, and have never seen a recession. To them, building will go on forever at this pace.
The more I read of these stories about builders messing up royally, the further I am comforted into seeing that their lack of professional panache’ will help crumble the market that much faster. When Ford Motor Company makes a statement that they lost 3.2 billion dollars, their response is careful, restrained, and assured with mention of a turnaround plan and explanations for the lack of profit. On the other hand, when a building company messes up, their response is more like” sometimes it’s like gambling… sometimes you win, sometimes you lose”…
If Bill Ford Jr had stood up and said this during his report to Ford shareholders, they would have looked at him like he was a big idiot. You simply cannot run a company- any company- in the manner that many of these builders and lending agencies have been. In the end, it might not be reluctant homeowners all too unwilling to lower their unrealistic prices that cause the market to head south, but ultimately the decisions made by homebuilders.
“You simply cannot run a company- any company- in the manner that many of these builders and lending agencies have been. ”
Well, your statement makes sense to me, but all the average Joe’s have taken their bait, and Wall Street seems okay with it all as well. I too look forward to them all getting a black eye.
I used to work in the home building products industry, and got to know the industry. The majority of builders are small independents who build less than 20 houses a year. These guys ARE gamblers, and they are fully aware that sooner or later most of them will crap out and leave the table broke. The smarter ones will still have some assets, in a trust or in the wife’s name.
Why is it that places like Colorado are showing the greatest fall-out from the real-estate bubble when places that got FAR more inflated over the last few years are still just seeing a slowing market (e.g. higher inventory, longer listing times, etc)? Logically, one would expect Orange County, New York City, or Seattle to be experiencing the most foreclosures.
Does anyone have any thoughts as to why some of the least frothy markets are being hit first? Is this an indicator that the markets really are pretty sound in our “bubble” regions and just won’t see big losses or price reductions as the cycle plays out?
I had the same question. What is it about Denver, versus a Phoenix or a Vegas, that’s pushing the foreclosures there?
I had the same question. What is it about Denver, versus a Phoenix or a Vegas, that’s pushing the foreclosures there?
They never got the equity cushion that the bubble states did..If you have to sell in Denver, you are hosed.
I think Denver and Dallas are much the same. Everyone claims there’s no bubble but the foreclosures are off the charts.
Combo of high risk taking behavior in a low-appreciation environment. Nasty.
From what I understand, the Colorado job market has never really recovered from the telecom bust.
Without the huge price increases, they coulnd’t tap into large amounts of equity to pay the bills. Since the gravy train just recently crested the hill of outrageous appreciation on the bubblicious west coast, there has not been sufficiant time for the foreclosures to really ramp up. Now that these ignoramus heads are all tapped out on this “free money,” foreclosure and BK are around the “bend of reckoning.” I anticipate MASSIVE amounts of foreclosures across the board in AZ, CA, OR, NV, and WA. It will take a while but it’s gonna be nasty. There are tens of thousands of people who have been funding their entire existence with their house.
“I had the same question. What is it about Denver, versus a Phoenix or a Vegas, that’s pushing the foreclosures there?”
Well you folks out there have been guffawing about Phoenix’s heat all summer long. This time of year temperatures are in the 80s and mornings are nice and cool. I know the snow birds must be here because rush hour at the end of the day lasts from 4pm to beyond 7pm. I-10 lit up sign tonight at 7:15 pm in the south valley announced “heavy traffic, expect delays.” The Phoenix metro population grew from 3.1 million to 3.7 million people, so we must be dumb, right? Besides heavy traffic, the only thing I cannot stand about Phoenix is the rude drivers, they must be the rudest in the world, the most piggish. They do not show other drivers courtesy because they do not use their turn signals. Los Angeles drivers are much more courteous (I lived in LA for 3 years up to this April).
Denver has had almost no home price appreciation for the last five years. When you have no appreciation and the same risky loan products available to the rest of the country, you have disaster. This is why San Diego will be in the same boat as Denver and every other bubble city once prices are stable or drop even the slightest. This is also the same reason why Texas has such a high incidence of foreclosures. Appreciation covers up a lot of $hit (EPDs, FC, BK).
I’m from Colorado but live in San Diego now. Here’s a couple of reasons I’ve deduced from living in both places that seems to answer your question.
In Colorado
1. Your Realtor is often your Mortgage Broker
2. You don’t need a license to be a Mortgage Broker (I’ve heard)
3. People don’t make a much money as in California (take home). But it relative because the cost of living is cheaper.
4. Colorado has never seen a price run up. People just don’t know that toxic mortgages are bad.
5. A lot of new homes are being built and they all offer in house financing. Couple this with #4 and #2 and you have bad news.
In San Diego
1. More people are into Real Estate as a Career
2. San Diego has two types of people. The ones that have lived here forever and the ones that just got in town.
3. The people that just got in town tend to be young and willing to do anything to get a paycheck. (Sell bad mortgages, Push people into overpriced houses)
4. Because there is a large number of young people that don’t know any better they think that 500k for a 900sqft house is a reasonable price. It’s all they’ve ever known. They’ver never seen houses sold for 100-250k in San Diego.
5. The people that have lived here a while tend to pray on the ones that just got here.
The above are just my observations. Most likely you could replace San Diego with California in general.
5. The people that have lived here a while tend to pray on the ones that just got here
You could easily be describing Dallas as well. The locals are thrilled to sell places in the exurbs to the Clowninforninans at prices that will never be seen again, as well as such exotica as high rise condos in Oak Cliff and $1M plus condos downtown. The fallout from that is going to be unbelieveable.
You have to remember that not everybody from California is a “clownifonrian”. There’s just a lot more of everything out here. The idiots that bought in Dallas at retarded prices are speculators taking advantage of lenders that have gone crazy. I hope all the speculators crash and burn hard because all they’re doing is playing with other people’s money.
Anyway moral of the story story is that although there’s A LOT of clownifonians out here. Not everyone is one.
Las Vegas 2005 Pop: 545,000
Fresno 2005 Pop: 471,000
I remember an history note from years ago, commenting on the historical impact and general carnage of the Battle of Waterloo. After reviewing the size of armies, number of dead and injured, it reminded people that 20 battles during the American Civil War were larger than Waterloo.
Everything is bigger in California. Even the governor’s biceps.
I think the problems occuring in the ‘least frothy’ markets are primarily due to job losses. At least that is the case in the MW, where foreclosures have been amoung the highest in the nation. Also, building of all sorts (residential, commercial) has lagged greatly in the MW, so that source of employment and spending is not in play. I think that foreclosures in the ‘more frothy’ markets will be due to a bust in the construction industry (and related industies) and to the ARM resets. Those 2 factors take a longer time to play out than a plant closing in town.
There are a number of reasons. First, places like some California cities and New York are more desirable than Colorado. Secondly, there is more difficult (due to regulations, available land) to build houses in CA & NY compared to places like Texas and Colorado. Thirdly, there are more people. LA, for instance, is over-crowded.
I attribute some of it to what I have always sensed from Southern Cali. There is a sort-of arrogance here. There is a decent amount of people here who believe that there is no other place in the world that even compares to SoCal. For them, it might be true; however, they make financial decisions based on this perception. I have talked to countless people who state as an undeniable fact “everyone wants to live here”.
I think that this perception/arrogance is delaying a fall in SoCal. I do believe that it will happen, but it will probably be one of the later markets.
I second your observations. Many in CA and NY simply feel that the prices are justified somehow do to the superior status of their adopted cities. The average Californian can sit back and tell you anything you could possibly care to know about Japanese food, fine architecture, politics, business trends, foreign countries, and so on. But if you were to ask them what Montgomery Alabama, Atlanta GA, Nashville TN, Houston TX, or Denver CO is like, they are utterly clueless. The one thing that they DO know is that California is so much better than any of these places… and if they were to choose a close 2nd… NYC would suffice as a substitute.
Personally, I hate NYC with a passion. Same with LA, and SF-Bay Area is starting to get on my nerves royally. Listening to this crap spew every single day from these people is what’s doing it too, on top of the ridiculous expense.
I’ve lived in 4 different cities. In their own ways, every single one of them were the same in terms of their quality of life pertaining to the individual. Basically, I’ve lived exactly the same way in every city, and so do most everyone else. They come home, watch their TV shows and do stuff on the weekend.
The basic reasons why CA and BY are more pricey is they literally have 5 times the population density. There is plenty of land for sure, but as mentioned above, the current residents who’ve been here forever have been trying for decades to prevent anyone else from moving in next door. When you put these two things together, how does it equate to something great?
“Does anyone have any thoughts as to why some of the least frothy markets are being hit first?”
They just got an earlier start. I left Boulder in 2001 and things were nuts. Real estate talk everywhere, just like SoCal in 1989. Then the telecom bust came along…Lucent laid off half the city of Denver and things started to drift. FB’s lived off their equity before it was trendy. Now they’re hosed and I think it’s a precursor to the rest of the country. Prices are still high in Boulder county (SIL asking $480k for her $280k house. Nice place but…) So watch they show there and get a preview of SoCal and AZ…
I have lived in the SF Bay Area for the past 12 years, so I can talk a bit about the housing bubble here and why it hasn’t collapsed yet. In 1994, people were selling detached houses in Sunnyvale (center of Silicon Valley) at a loss. I recall an acquaintance who had to sell his house for $250,000. What followed was the telecom/dotcom boom in stock prices and most importantly the massive transfer of wealth from investors to the holders of stock options at numerous companies. I suspect it was a bit like Vegas, where just outside the casinos they have every kind of luxury/shiny goods seller there is (cars, stereos, jewelry, etc.) except in the Bay Area it was housing. Naturally the first thing the newly minted millionaire (or more likely multi-hundred thousandaire) would want is a house. Housing prices rose quite dramatically up until 2000/2001.
I was expecting to be able to buy a house perhaps a year ago, having waited out/survived the NASDAQ/dotcom bust. I didn’t plan on Greenspan et all lowering interest rates to a real -2% (what lovely returns I got on my bank savings) just as housing prices were beginning to fall. I was watching inventory rise and prices start to slide and then it all reversed and with a vengeance. I began to see housing development on every peace of open land left in the valley. In addition, they have actually been tearing down lots of vacant 60s and 70s era low-rise commercial buildings to be replaced with town houses. And finally, in 2004, Google went public. It was as if someone built a great time machine and we all went back to 1999. The last dot com to go public - except this time they actually were making hoards of money. A few thousand people suddenly had enough money to buy homes in the Valley at even the most inflated prices.
A few other companies have done quite well - Apple and eBay come to mind. Many others have had modest but steady growth. It’s been enough to smooth over the staggering losses after the bust - though the local tech economy is still nothing like it was. However, relative to Dallas, Phoenix, or Denver - the money flowing to the Bay Area has to be staggering. High tech companies commonly export 50% of their product abroad - bringing a lot of hard currency into the region whether it’s Yen, Yuan, or Euro. They also operate at 20% plus profit margins. Much of this wealth is held by stock holders. A lot stays here though. There are few regions in the United States that benefit from this sort of an export economy and it has helped to push the housing bubble up to a truly staggering level. Single family homes in Silicon Valley commonly sell for $850,000 at the moment.
So what happens next? Well the big change in the Bay Area happened with the collapse of Enron. Accounting rules were tightened up and stock options heretofore must be treated as compensation that goes against corporate profits. It’s no surprise that Bay Area companies (and I suspect companies nationally) have tightened up compensation packages such that rank and file employees get a fraction of the stock options they used to (mine are worth less than the annual bonus we get in good years - perhaps enough for a down payment on a modest car). Without the stock option funny money, average employees of Bay Area companies must pay for housing with savings derived from their salaries. You can find numerous charts out there that show the current disparity between median wages and median mortgage payments.
The other big change in the valley is off shoring. It used to be that when companies needed to hire inexpensive employees. They hired interns and fresh college graduates - bringing another wave of people to the bay area to work on the next big thing. Now the cheap work is sent to India. There are a host of issues and implications in regards to this, but the big question in the near term is who gets laid off in the next recession. If the money/Wall Street people decide this issue (and they usually do), the cutbacks will be made in the Silicon Valley. Why layoff 4 employees in India when you can layoff just one in the US and continue to develop product at roughly the same pace but at less than half the cost?
So you take no more stock options, add in off shoring, a rasher of recession on top, plus mix in the usual - peak oil, inflation/deflation (take your pick), ARMs, HELOCs, liar loans, the dollar collapse, the trade deficit, M3, and the US banks suddenly having to loan money just to people who have a chance of paying it back and what do you get? Bay Area single family homes selling for a median $1 million - or a Japan in the 90s style reversion to the mean?
Could it be because there’s no damn money there?? That’s why I left. The rural area I grew up in is now part of suburbia and (according to everything I read) home to both high concentrations of I/O loans and rampant defaults. Doesn’t surprise me a bit — there’s simply NFW the jobs there support those home prices.
I’m on sabbatical this year but have been asked by my College’s administrators to add additional sections (3 instead of 1) to my “Real Estate Foreclosures: Debtors’ Rights, Creditors’ Remedies” class next Fall. The curriculum committee thought I was nuts when I brought the course through for academic approval in Fall 2004. At that time I let them know that I’ve been around this real estate cycle too many times not to recognize rough seas were on the horizon.
In my humble opinion, this time around will be substantially worse than we have experienced in my lifetime. Too bad those around me didn’t listen to my opinions of future events.
Academics are also human beings (for the most part). They are not immune from the very forces you seek to explain. At first I failed to understand why they were able to suspend their own internal belief systems to humor your choice of course load. Then I dredged up those long dormant university memes and realized they were perfectly logical. If the bubble burst they look good for being there with you. If the bubble inflated they have an internal power chip to play/trade in the future.
Well played sir. Perhaps you can include a units on:
Fraud indicators
Reversion to mean
Historical bubbles
California’s either/or lender recourse
Hierarchy of creditors (tax, contractor, association, 1st, rest?)
This time IMH[umble]O won’t be much worse but it will be so brutally fast that only the most nimble will be able to dodge the collapsing financial infrastructure.
SCProfessor –
I have been tempted to steer some of my students towards careers in foreclosure-related business. (Ironically, a number of students have recently balanced class attendance against their pre-graduation full-time jobs as mortgage brokers!)
Do you have any suggestions about how someone with a bachelor’s degree in econ might explore career options in this growth area?
Law school with all the bankruptcy classes they offer and then summer clerkships in the bankruptcy sections of large law firms.
I concur with TxChick57’s response. Another avenue may be to go the Fraud Examiner route (www.acfe.org). I’m currently creating a class titled “Fraud Examination and Computer Forensics.” It will be a winner because of a single word in the title — Forensics. Student class selection is driven by what they hear and see on TV. Today of course Forensics is a wonderful marketing word. Perhaps we could increase enrollments in our vocational plumbing classes by recasting them with a title such as Waste Distribution Forensics. What say TxChick57?
I’m predicting that the big money will be in MBS litigation. To what extant are the loan issuers and aggragators complicit in borrower fraud.
these guys ever work?
found a typo in the article:
“‘Unfortunately, somebody is going to get hurt,’ Achen said. ‘In the development business, you throw the dice. Sometimes you win and sometimes you lose.’”
Should read:
“Fortunately somebody else is going to lose. I got out by the skin of my teeth,” Achen said. “Hey when your playing with OPM why not throw the dice. If you win they win, If you lose they get F_____d.”
I was just wondering how the Katrina affected RE market was doing after14 mo..
Conclusion: The government is rotten to the core, top to bottom.
http://www.louisianaweekly.com/weekly/news/articlegate.pl?20061120e
Hundreds of thousands still displaced and yet I hear so little about this in the media.
So sad.
Folks who believe that the gubbermint can or will save the day for RE with “helicopter money” should pay special attention to the Katrina experience. The rescue effort quickly became politicized, and lots of blameless victims expecting federal/state assistance wound up with little or nothing. Wait ’til you see what happens when someone proposes a rescue effort for homeowners whose “disaster” is largely the result of their own cupidity/negligence.
like staying in NOLA when a cat 5 is coming straight at you ?
The government is rotten, corrupt and inept to the core — true enough — but New Orleans bears a great deal of the blame both for it’s failure to anticipate and prepare for Katrina, and the failure to recover more rapidly in it’s wake. The citizens of New Orleans voted in or tolerated sleazy, incompetent political leadership on every level, which not surprisingly was more interested in cronyism and skimming the loot than paying any attention to infrastructure or emergency preparedness. Then there is the all-pervasive 9th Ward culture, before and after Katrina, of sitting on your ass waiting for Uncle Sam or some other benevolent parasite-sustaining governmental body to take care of all of your wants and needs. The criminality of a large percentage of the Katrina refugees has also caused them to wear out their welcome in places like Houston that foolishly welcomed them with open arms.
Couldn’t agree more. Why on Earth people would sit and wait for the government when they live in a huge bowl under sea level with a massive hurricane on its way is a mystery to me. IMHO, the lion’s share of the blame lies with people who were able to evacuate, but didn’t. If the rescuers didn’t have to waste time with them, the truly needy (i.e. handicapped) people would have been reached quickly. An ounce of prevention…
“Experts blame no downpayment loans, ‘creative’ financing, overbuilding, over-appraised homes and outright fraud as contributors to the growing foreclosure problem.”
Funny how it seems like just yesterday when all the “experts” the media could find were saying that it was different this time, as we had reached a new era of ever-increasing home prices and low default risk…
Don’t you just want to throttle all these so called experts? The parallels with 1929 are frightening. Permanently high plateaus, etc. I guess that for one to be considered an expert, you must make ridiculous statements and be willing to sell your soul, ala Lereah and L.A-Y.
http://www.gold-eagle.com/editorials_01/seymour062001.html
Indeed. See what the “expert” prognosticators of the day had to say about the Great Depression. Very soothing to the rubes, but dead wrong.
“‘Unfortunately, somebody is going to get hurt,’ Achen said. ‘In the development business, you throw the dice. Sometimes you win and sometimes you lose.’”
That’s nice. But since it was so late in the game, perhaps another euphemism would have been more appropriate. A couple come to mind.
“They all look good at closing time”. Or the ever popular- ” If you don’t want to wake up next to a whore, don’t go to bed with one.
Meanwhile, in western Colorado, people are literally dying to live in Garfield County:
“Deb Meader, 48, is a nurse, a mother of three girls, and a new grandmother. She lives in the town of Parachute, approximately two hundred yards from five gas wells.
“You can’t live next to a gas well and not get sick. We look around on the mesa and everyone’s got something. The guy below us had a real bad heart attack. The guy that owns the orchard has prostate cancer. I have headaches. Tom, my husband, has high blood pressure and gets headaches. Regina, my daughter, she had burning like you have a bladder infection. I did some research and found out that’s a symptom of exposure to the chemicals in the air. My other neighbor, she’s been sensitized to what’s in the air because a gas well burped while she was irrigating. That’s when gas builds up and they don’t have the proper lids and filters on the top and it burps up and the gases come out. If she goes outside without a respirator on, she gets vomiting and diarrhea and her eyes will burn.
“Last summer, they were doing a lot of flaring up here, and my neighbor and I both woke up in the middle of the night, throwing up, with diarrhea and muscle pain. We called the sheriff’s department and the EPA and then found out that there was a couple wells flared during the night. It’s just a big revelation for me that it’s okay to assault people and no one’s held accountable for what they’ve done. We’re not protected by the government or the law. This isn’t the country that I thought I grew up in.”
http://www.oriononline.org/pages/om/06-6om/Clarren-Voices.html
So here’s a novel idea, lady — MOVE! Or better yet, don’t live there in the first place. But if you DO choose to live there, don’t expect government (i.e. taxpayers) to protect you from your own poor choices.
“But if you DO choose to live there, don’t expect government (i.e. taxpayers) to protect you from your own poor choices. “
If the government will arrest someone for shooting at your house or for dumping garbage onto your yard then why not arrest someone who sends clouds of noxious gas over your property? Why is it all right for the taxpayer to protect me from the first two and not the third?
Front lines update….
Last three loan apps i have taken today have been people who have taken out P/O Arms within the last three months. These are people who refied into the loan, not for purchase. Nothing seems to be changing.
Something does seem to be changing. The NAR just announced a drop in the national median price from Q3.05-Q3.06 (1.2%?), and if memory serves, the new home price was recently off by 10%+ YOY on a national basis. I am not sure why that does not strike fear into the hearts and minds of both borrowers and lenders, but I am reasonably sure that it will, in due time…
I know a few things about app loan volume at one of the big lenders … and it has increased a bit the last couple of months. The easing in mortgage rates, I suppose has helped.
I’m still of the mind though, that if/when 30 year rates stay above 6.75%, the market will croak. People just cannot handle that, they have been conditioned to forget it’s even possible.
“and it has increased a bit the last couple of months.”
As the months go by, I would expect the weekly mortgage refinancing numbers to go progressively higher. As we get into 2007, if this isn’t happening, then we know that a lot more people are stuck than is currently being expected by the “don’t worry - everybody will just refinance” crowd.