“The Underside Of The Boom”
The Post Tribune reports from Indiana. “Some single-family residential properties in Northwest Indiana are taking a month longer to sell than last year, but fortunately, the housing bubble has not burst here as it has in other regions of the country, according to local real estate agents and builders.”
“But not all the builders are as enthusiastic about the market. In Porter County, builder Steve Dalton confirms he is seeing slower sales. Dalton said some ’speculative’ homes have not sold as fast as some businessmen hoped. Some sit on lots north of Valparaiso, waiting for buyers.”
“In Valparaiso’s Coolwood Estates, Bill Hanna has had his home up for sale for four months. Initially, there was some interest, but it has dropped off substantially in the last month, Hanna said. And now, winter is approaching, a season that has sellers such as Hanna concerned. ‘It just sort of dried up with the change of seasons,’ Hanna said.”
The Columbus Dispatch from Ohio. “Property seems to be easy pickings at real-estate foreclosure auctions, which are going strong in Ohio and other parts of the Midwest. But some in the industry consider realestate foreclosure auctions something of a game between banks and buyers. That’s because these aren’t absolute auctions, in which the final bid is the accepted price.”
“‘The name of the game is the bank always wins,’ said Raymond Smith, a buyer’s broker.”
“(A) three-bedroom, 2,282-square-foot house was the last one to be auctioned at the event, and the auction ended at $185,000. The owner, Deutsche Bank, didn’t accept the offer and didn’t come to terms with the bidder. The house has been relisted, this time for $225,000.”
“At most foreclosure auctions, buyers pay the price that the seller insists on. Freddie Mac, for example, required a higher price than the winning $29,500 bid for a condominium on Cherry Hollow Road in Columbus. It settled with the bidder on an even $30,000.”
The Detroit Free Press from Michigan. “Sales of houses and condominiums have plunged during the past year, in the worst housing market since at least the 1980s. As a result, prices have begun to decline sharply.”
“Gilda Bone put her family’s Saline duplex on the market two years ago, she’s cut the price from $257,000 to $199,000, and still has no buyer.”
“John and Beth Fohrman of Ann Arbor, each brought a home to their recent marriage. They sold John’s house after cutting the price, closed on their new house and put Beth’s condo up for sale in 2005. The condo remains on the market after five price cuts.”
“The sales slump has been especially difficult for people such as John and Linda Bruce, who are paying two mortgages, one for the home in Grosse Pointe Farms they haven’t been able to sell in more than a year, and one on their new, smaller ranch home in St. Clair Shores. ‘We were not prepared for what’s happened here. … It has not been easy,’ John Bruce said.”
“Many market-watchers blame today’s slump on a price bubble that finally burst. ‘A lot of things are overpriced,’ said Sherri Richwine, a broker in Ann Arbor. ‘People are not being realistic. Just because they received a large paper appreciation, they think they should be able to sell it for that. In reality, the gain is not as great as they thought.’”
The Appleton Post Cresent from Wisconsin. “With fewer willing buyers, sellers as a whole are dipping prices, 3.6 percent in the median price, from $138,300 to $133,300, for the quarter in the northeastern part of the state, according to the Wisconsin Realtors Association.”
“Chuck Peeters, general sales manager for Coldwell Banker in Appleton said properties around the Fox Valley ranging between $80,000 and $120,000 are selling best. ‘We have about 120 homes in that range available now,’ he said.”
“Homes ranging between $200,000 and $300,000 are not selling as well, Peeters said. ‘There’s quite a bit of inventory in that range,’ he said. Coldwell Banker had 253 properties listed in that price range across the Valley.”
“‘Sellers are holding and buyers are waiting for that good deal and expecting to buy something for 50 cents on the dollar,’ said Jim Zimanek, a residential loan officer in Appleton. ‘It’s more like a stalemate. Both sides are sitting idle, which may be contributing to the slowdown in the number of transactions we’re seeing.’”
The Star Tribune from Minnesota. “Home foreclosures in Minneapolis and St. Paul are rising at a rate that is beginning to alarm officials in both cities and threatening to destabilize some neighborhoods.”
“Similar trouble is evident in some metro suburbs and around the state, as more homeowners who plunged into the housing boom are now struggling with mortgages they can’t pay.”
“In St. Paul, foreclosures are on a pace this year to be three times as high as they were in 2003. In Minneapolis, foreclosures have increased by about 79 percent compared with last year.”
“‘There are more and more people who have purchased houses using mortgage products that they didn’t fully understand,’ said Cliff Morse, a mortgage financial planner in Chaska. ‘Now people are falling backwards.’”
“As of Nov. 3, there were 1,353 sheriff foreclosure sales in Minneapolis, according to data released by the city. During all of 2005, there were 870. And there were 414 in 2002.”
“Roberta Englund, a neighborhood leader on the north side, said she is watching with dismay as homes whose owners can no longer pay their mortgages get taken over by banks and become vacant. ‘I don’t think there’s any way to explain adequately how devastating one or more vacant houses on a block is to a community,’ Englund said.”
“Minneapolis Mayor R.T. Rybak said foreclosures are now the top housing issue in the city. ‘It’s on some level the underside of the refinancing boom,’ he said, ‘but it also has deeper aspects including financial literacy and risky lenders who sometimes don’t have the best intentions.’”
Booming real estate prices in North Minneapolis. Yep, that made sense. I can’t believe the real estate miracle in Cracktown is starting to fail. I wouldn’t go into that area without a kevlar vest and an uzi. These stories are just so obvious.
posted ““The Underside Of The Boom”
Yea! Down side everybody goes broke!
“‘There are more and more people who have purchased houses using mortgage products that they didn’t fully understand,’ said Cliff Morse, a mortgage financial planner in Chaska. ‘Now people are falling backwards.’”
We see this over and over again, if I didn’t understand the contract I was getting ready to sign my life away for I’d damn well find someone that could explain it to me. On the other hand, plenty of these folks knew full well what they were signing. They would sign anything to jump on the equity express!
I doubt a one of them would “not understand” if prices had continued to escalate. These idiots knew they were not able to afford what they were getting into and will have to take responsibility for their actions. There were big winners and there will be big losers in this game of chance, but the biggest losers of all are the honest hard working folks, who are now denied an opportunity to own their own home at an affordable price because of the rampant speculation and greed of the past 7 years.
I live and work in upstate New York between Lake George and Saratoga Springs. Our uptick was due to 9/11. We had a lot of folks who wanted to leave NYC area. They had fond memories of our area since they vacationed there as children. Our prices were lower a lot lower due to our low incomes. Well, As folks came with cash and inventory was low, you know what happened. We were telling everybody, our prices were low because of our incomes. Everyone got greedy and some did well. Folks were selling raised ranches in New Jersey for $600,000 and coming here and buying 3000 square feet colonials for $300,000. Now, five years later, things have settled down.Those $300,000 colonials which went up to $500,00 are coming down at $50,000 a crack. Our unemplyment rate is 4% and it is still a wonderful place to live. We still have homes for under $200,000 and first time home buyers can still buy a home to live in not just an investment.
RE: Lake George & Saratoga Springs…
Nice country…
I believe that some people knew exactly what they were getting into and thought that the return on their investment was going to be worth the gamble. These ones will probably be a lot more humble and quietly take their hits without trying to muster sympathy from the rest of us, because they knew the rules of the game that they were playing.
Then there are those idiots who will sign their children’s souls over to the devil just to give off the illusion that they are wealthy. These are the ones who I despise the most and I can honestly say that I feel no guilt watching their little bubbles burst. More than a few are wearing Prada during the day and eating Top Ramen at night behind closed doors.
I dont believe they will quietly take their hit.
They will feel entitled to a bailout and be kicking and screaming as they are dragged out of their “investment”.
Spot on. Kind of like laying down a bet at the ol’ roulette table and then, after losing, complaining that you didn’t know the rules, or would hoodwinked by the pit boss.
Prices are declining or getting ready to decline every where. I just got back from Port Aransas (just north of Padre Island) for the Thanksgiving vacation. Flew back from San Antonio and met a person on the plane that was so happy that is house he owned for 15+ years and bought for $100k was now worth $140k. I say not a big deal if it corrects 20% in TX, what is $20-25k when you compare it to what we will experience in CA. Anyway, also met a doctor on the plane that told me to buy in Port Aransas, everybody in TX is a RE guru these days.
I was down in Port A two months ago and could not believe the number of for sale signs up. It seemed like the entire island was up for sale.
Why someone would pay $700k for a house not even on the beach beats the heck out of me!
If you want to be on the beach it is about 3-5 times less than the beaches in CA. Seems like a deal to me if you bought before the runup. Seems to me that sales are flat, have not yet seen prices decline, but I am sure its coming.
Story out of Michigan.
“Area house-flippers rethinking strategy”
http://tinyurl.com/yxsf4o
From the link:
‘Jeff Mueller had a nightmare Thursday he hopes doesn’t come true. Mueller dreamed he lost money on the sale of the 3,000-square-foot vintage home he owns at Hancock and Cherry streets in Port Huron. He has spent two years and more than $100,000 renovating the building and converting it from a dilapidated, four-apartment complex into two condominium units. On Saturday and Sunday, he will be auctioning the condos. The bidding starts at $69,500 per unit.’
‘Even if I sell them for what I think they’re worth, I’m basically going to be breaking even,’ said Mueller, 32, of St. Clair. ‘Maybe I’m going to shoot myself in the foot, maybe I’ll stumble. … Hopefully it works. We’ll see.’
‘This is Mueller’s first attempt at ‘home flipping’. But the harsh reality of Port Huron’s housing market is proving frustrating for many would-be flippers. Local Realtors said most homes will be on the market for six months to two years. That’s a problem for flippers, who depend on quick turnover to maximize their returns.’
‘Some flippers are giving up. Jeff Guske bought a home at Garfield and Stone streets in Port Huron 18 months ago for $50,000. He and his son spent six months gutting it and renovating. Guske said he spent $30,000 on materials. Last month, he gave up trying to sell it and started renting it. ‘Everybody’s looking, but nobody’s buying,’ Guske said.’
>
Great, another fly-by-night condo project renovated with crap from Home Depot that looks like any other of the condos out there for the choosing. I’ll pass.
Oops. Here’s the quote…(it didn’t appear in the last post)
“In gutting it, he hauled out 90,000 pounds of plaster, wood and waste - enough to fill 11 dumpsters.”
How much do you want to bet that he didn’t add back 90,000 pounds of plaster, wood and fixtures?
Actually I like the yellow painted walls, the track lighting is very 1980s/1990s though.
He would be better off renting the units vs selling them. If he can break even on a cash basis he will be in good shape over time.
Boatsloads of these half-baked Home-Depot Discount Dept. quality converted apartment houses around here.
Owner usually sells to a relative to establish a market price level and then to a couple suckers who were former tenants
Sucker pool is empty now.
Heaven help those who have to unload in order to relocate.
I predict that by next year all of the flipping shows will be replaced with a new kind of reality show; “Flip the Flipper”. Teams of psychiatrists, psychologists, hypnotists and voodoo witchdoctors will go in and do their best to renovate these sad shells that used to be real people. Instead of an electrician we’ll get to see electroshock treatments.
This years Thanksgiving dinner was decidedly more “downbeat” from last years. Two of the couples that came to the dinner are underwater on their “investment” properties in San Bernadino along with my Sister-In-laws husband who can’t sell his house in Placentia (Last year he was convinced he’d net at least $ 100 k on the sale).
Of course, no worries - the big spring ‘07 bounce will kick the market back into high gear (NOT!).
Chillin– looks like it’s beginning to sink in w/some. But I’ve got one at the office that I think has yet to sniff a clue. Bought a 1/2 dozen places in the last 3 yrs. NC, Phx, FL, GA. Some sight unseen.
Doesn’t yet have the look of OMG–JUST SHOOT ME. Still think the vast majority are still in the denial phase.
financial death to all speculators!!!
You know,
I don’t really agree with a “death to the speculator” bent taken by some on this blog. I totally HATE those who got into this game without any understanding of the “fundamentals” or an idea of how to play. Like being at a poker table with someone who does not know how to play!
That said, speculation is not inherently a bad thing. If you know the rules, and realize what your getting into, flip away! If the bank is stupid enough to lend you money (without lying on the loan app; which is fraud, and therefore in my eyes, no better then stealing) go ahead and speculate. Lots of people have gotten very weatlhy by doing it. Many more have lost everything. If you realize what your getting into; and its not your kids college money, go for it.
I just do not agree that speculation is a “bad” thing. Stupid people are a bad thing; stupid people with stupider banks.. Well, that’s even worse!
How is real estate speculation different from stock-market speculation? It isn’t. When someone makes money on a stock investment, most people admire their gain and don’t find it morally reprehensible. Yet when it is a real estate speculator (who often has taken on the headaches of renovation, plus the out-of pocket costs) who reaps some financial rewards at the end of the often-grueling process, many who post here seem to feel that any profit is illegitimately earned. The logic of many here escapes me.
I didn’t lose a penny in the collapse of the stock bubble. But almost all of us are in the housing market. And there is a lot of difference between rehabing houses and the insane, do nothing and flip it market we’ve had the past few years.
I agree, rehabing and selling houses is a totally different thing then speculating on homes. However, if people want to speculate; I say let them. What do I care? I don’t find it “evil” or wrong to speculate on home appreciation. What I do think is totally awful is wanting/expecting a bailout when people go BK from the speculation. And also, the amount of leverage the bank is allowing people to use it insane! But that’s not really their fault, and if they are educated to the risks and willing to take them, go for it. That’s capalisim (in my view), risk vs. reward.
All that said, don’t come crying to me when you have 10 properties on 100% margin and they drop 10%, costing your 10’s or 100’s of thousands of dollars. You’re the one speculating, not me. And I don’t want to hear your crap about a bailout when you so far underwater that the govt is coming after you for the tax burden on all the short sales.
I do not dispute their is a difference, or that the market is insane right now. I just don’t think that we should villify the house flipper. Its a product of the financing instruments that banks are now allowing; if we returned to no more then 80% margin (20% down on all purchases) that would be the end of this madness.
What I think is rehensible is that the bank is allowing someone making 25% of my income bid against me on the home I would like to buy because of a “creative” financing instrument. Banks are the real “evil” in this equation IMHO. If they were qualifying buyers the way they used to; that would honestly stop the madness almost overnight. I can tell you; in Palm Beach, if you were not allowed to buy a home that was more then 3X your gross HH income, and needed a 20% downpayment…. Well, lets just say, the market would be reduced substantially.
“…How is real estate speculation different from stock-market speculation?..”
Stock market speculation is typically done with your own money, while RE speculation (at least the speculation of late) has been done with someone else’s money.
No risk should yield no reward, is I think, the logic of many here …..
I agree that lax lending guidelines are setting this country up for a banking collapse that will make the S&L fiasco look like chump change and that scares the hell of out of me. However, a significant of real estate speculators do put up their own money, they take on the risk and, if they are lucky enough to succeed, they’ve made money the time-tested American way. There are many things that rub me wrong about our financial system, especially in the past six years, but I say either change the system or quit judging people for working within the confines of the system that we have, warts and all.
“… but I say either change the system or quit judging people for working within the confines of the system that we have, warts and all.”
Susan –
Unfortunately, change over the past ten years is exactly what has put the housing market into its current highly precarious position. Ten years ago my wife and I qualified for a home loan only after having our finances raked over the coals. Despite the fact that we brought a stellar credit rating and a 20% downpayment to the table, we had a struggle to qualify. Ten years later, anyone who can breathe can get an I/O ARM with 0% downpayment. And anyone with a credit rating and enough savings to qualify for a downpayment would be well-advised to watch and wait for the lenders to call in their umbrellas before competing with speculators and subprime borrowers with nothing to lose.
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
- Mark Twain -
“However, a significant of real estate speculators do put up their own money, they take on the risk and, if they are lucky enough to succeed, they’ve made money the time-tested American way.”
Perhaps you think of investing as nothing other than a gambler’s lucky roll of the dice, but my understanding of the time-tested American way is to create something of value in the process of investing. Something tells me that buying investment homes which produce negative income when PITI is subtracted out from rental costs will not work out too well for the late-comers to the “flip-that-house” game.
In my observation, most money that has been made in the markets in recent years has, unfortunately, not “created something of value.” I am not convinced, for example, that most recent leveraged buyouts have created something of value to our society, although they certainly have created something of monetary value to a small class of increasingly rich investment bankers. In my world view (and this was true for me long before I went into real estate), a piece of land and a place to sleep at night has more basic value to a society than a stock certificate. I do, however, truly appreciate your thoughtful responses to my orginal comment, Get Stucco, and I think that the debate is an important one as I fear for the future of our economy in particular and our nation in general.
“How is real estate speculation different from stock-market speculation? It isn’t.”
Susan –
Either read more here or otherwise check your facts before posting. There is a huge difference between stock market investing, where most investors have 100% skin in the game, and real estate investing, where the asset purchased is very lumpy (too expensive for most US households to purchase outright) and hence only possible with the help of leverage. The availability of easy money for individual households of modest means to speculate is what has set up the coming wave of foreclosures which will help to bring the bubble down. Unfortunately, many households will go bankrupt in the process. Those who lost a great deal in the tech stock crash may have a poorer retirement, but at least they did not end up in a negative net worth position, as many are likely to wind up after the bubble finishes bursting.
“How is real estate speculation different from stock-market speculation?”
They are totally different… what about the people who just want a home to live in to start a family, who are now priced out or pushed into buying a depreciating asset just to have room for their kids? It’s possible to make money on stock speculation in no matter which way the price goes, and nobody has to buy an overvalued stock, but when young families have to leave an area because of housing speculators pushing the prices up, it hurts the entire community.
Hey, I have no wish to buy any GOOG, but I wouldn’t mind a house with room for my own workshop… I could afford it, but I’m not going to let these speculators take my $$$.
I have relatives in Porter County, IN and in one of the adjacent counties, and was up there for a family reunion last year. I spent a lot of time wondering what people did for a living to afford houses of that size, unless they were employed in one of northwest Indiana’s long-declining heavy industries. That area is too far even for extreme commuting to Chicago, although I suppose it would make sense as a vacation home area. Then again, one of my relatives related that Porter County leads the state in meth-related criminal activities, so maybe many of the locals are exploring other options.
I’m not surprised at the trouble in Appleton. Who wants to live in northeast Wisconsin anyways? It is very cold, and very very upper-midwestern.
It’s funny but a study done by National City showed that the most overpriced houses in the US were located in Michigan. While prices had stayed flat or rose with inflation, the bottom completely fell out of the local economy such that the bulk of the housing stock was unaffordable at resale prices.
While florida/CA get all the press attention, the real blood will be in the midwest as the last bits of US industry die off in the face of a moderate increase in the housing stock.
Depopulation is a wonderful thing. Just look at Detroit
In the short run, I believe that you are right that places like industrial Michigan will continue to get hit hard. However, those who take the long view know that the upper Midwest has many attributes that will appeal to people in the coming decades: the Great Lakes as a fresh water supply, the lack of hurricanes and earthquakes, and a climate that will appeal as global warming exerts itself on our continent. Many computer-generated models by NASA and other governement scientists predict that within the next 15 to 20 years Americans will be migrating in large numbers toward the Upper Midwest and exiting states like Florida and Arizona in droves.
Just wait till some La Raza firebrand gets elected mayor of LA in about 2012, thanks to barrio-level “organizing” by his gangster homies and bloc voting based on bribes and a desire to “stick it to the man.” While his cronies squabble over the spoils like monkeys at a salad bar, the last Anglos will be streaming out of LA and headed for points north.
if i hear another comment about buying houses pennies on the dollar i go nuts. that house was never worth $200k pal, so if i buy it for $100k which was the price in 2004, you didnt give me such a great deal. just a fair price.
martket’s vocabulary needs to be changed
if i hear another comment about buying houses pennies on the dollar i go nuts. that house was never worth $200k pal, so if i buy it for $100k which was the price in 2004, you didnt give me such a great deal. just a fair price.
martket’s vocabulary needs to be changed.
NATION’S HOUSING
KENNETH HARNEY
Low-documention mortgages popular among tax cheats
November 26, 2006
WASHINGTON – If the IRS wants to spot large numbers of people who are stiffing the tax collectors, it might want to consider auditing a fast-growing segment of the home-mortgage market.
New research suggests that more than one out of six of all borrowers who take out limited-documentation or no-documentation mortgages do so in part because they have significant under-the-table income they do not report on their federal tax filings.
Limited documentation and no-documentation mortgages once were used primarily by self-employed professionals, small business owners and individuals who are heavily dependent upon bonuses or commissions. In limited or no-documentation programs, applicants typically state their income and assets to the loan officer, but are not required to show detailed proof of that information for the lender’s files.
Generally, applicants are required to have good credit histories, but at the extreme – known as NINAs (no income verification, no asset verification) – they needn’t document much of anything to qualify. The attraction of such mortgages for lenders or brokers: They come with higher rates and compensation for the loan originator.
Low-doc mortgages were only a fraction of the ’90s market, but today they are big business. This year they represent more than 16 percent of all new home loans, according to Inside Mortgage Finance, a trade publication. Wall Street rating agency Standard and Poor’s says volume jumped by 50 percent between mid-2005 and mid-2006, based on mortgage securities pools it rated.
Unlike earlier periods, however, today’s low-doc borrowers are more likely to be people who could – but choose not to – document their income with W-2 forms or pay stubs.
Why do they prefer to go the low-doc route? Survey designer Geosegment Systems of Nashua, N.H., asked a representative national sample of 2,140 mortgage brokers active in the limited documentation field this question and came up with some eye-opening answers.
While 63 percent of brokers said they knew their self-employed clients had “unreported income” they wanted to keep off the record, 71 percent said their borrowers’ applications were dependent on additional income “from a household member with poor credit.”
http://www.signonsandiego.com/uniontrib/20061126/news_1h26harney.html
“‘The name of the game is the bank always wins,’ said Raymond Smith, a buyer’s broker.”
Oh yeah? The bank doesn’t win unless it sells the property for enough to get its money back. And if that were possible there wouldn’t have been a foreclosure in the first place.