“In Reality, Homes Are Worth A Lot Less Than A Year Ago”
A pair of housing reports from the New York Times. “Subprime loans, which tend to run roughly three percentage points or more above the rates available to the most creditworthy borrowers, have become the fastest-growing segment of the mortgage industry.”
“As recently as 2000, there were just 719,000 such loans outstanding, about 2.4 percent of all mortgages, according to data from the Mortgage Bankers Association of America. By the end of June, though, subprime loans had reached 5.7 million, or 13.4 percent of the total. More than half are adjustable-rate mortgages, compared with just 18 percent for prime loans.”
“Mortgage companies, banks and investors have been aggressively marketing and trading the loans because their higher interest rates make them far more profitable than prime loans, even after taking into account greater default rates.”
“Roughly 350,000 subprime loans were seriously delinquent at the end of June, over six times the number at the end of 2000.”
“Industry officials argue that on balance, subprime lending has been beneficial because it has given people who previously did not have access to credit the ability to buy homes. ‘We all should be proud as an industry,’ Michael W. Perry, CEO of IndyMac Bank told his peers at the Mortgage Bankers Association’s annual convention in Chicago recently. ‘We have created an enormous amount of wealth for Americans.’”
“Seated next to him on the stage, Daniel H. Mudd, the CEO of Fannie Mae, acknowledged that the industry had helped expand homeownership, but suggested that it may have gotten carried away during the recent boom. ‘Ultimately, putting people in a home they cannot stay in is not a business we should be in,’ he said.”
“Down in Naples, Fla. there was an auction of houses about a month ago. A few dozen houses went on the block in front of about 500 bidders.”
“Based on the official housing statistics, you might have guessed that the sellers would have made out just fine, despite all the talk of a real estate slump. But that wasn’t what happened at the auction. In fact, if you were at the beach club that Saturday, you could have been excused for thinking that the real estate market was crashing.”
“One three-bedroom ranch house with a pool sold for $671,000. In 2005, the same house sold for $809,000. Another house, just steps from Naples Bay, sold for $880,000 at the auction., compared with $1.35 million a year earlier. On average, the houses that changed hands at the auction had fallen about 25 percent in value since 2005, according to Thomas Lawler, a real estate consultant who analyzed the auction’s results.”
“The truth is that the official numbers on house prices, the last refuge of soothing information about the real estate market on the coasts, are deeply misleading. The numbers overlook all those homes that have been languishing on the market for months, getting only offers that their owners have not been willing to accept.”
“In reality, homes across much of Florida, California and the Northeast are worth a lot less than they were a year ago. Tom Doyle, a Naples real estate agent, estimated that a typical house there, sold in the normal way, would go for about 20 percent less than it did the previous fall.”
“In the Boston area, prices have fallen about 10 to 15 percent since the middle of 2005, estimated Chobee Hoy, who owns a real estate brokerage firm in Brookline. Jerome J. Manning, who runs the Massachusetts-based auction company that conducted the Naples sale, told me he thought that values had dropped about 20 percent around Boston. The government, meanwhile, says the average price rose 1 percent from last summer to this summer.”
“In September of last year, Ms. Hoy sold a one-bedroom condominium in Brookline for $395,000. She recently sold another apartment of the same size in the same building for $300,000. Since March, her firm has been listing a house in the Fisher Hill neighborhood of Brookline that cost $995,000 when it last sold, in the summer of 2004. Ms. Hoy expects it to sell this time for less than $900,000.”
“The market in northern Virginia is similar: prices are down 10 to 15 percent, according Mr. Lawler, a former Fannie Mae executive who’s based there. In Portland, Me., the typical house has lost about 10 percent of its value in the last year and a half, said Bill Trask, the former head of the local Realtors’ board.”
“Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s that took inflation into account.”
“Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. ‘We’re now going to combine a high amount of debt with falling home values,’ said economist Mark Zandi.”
‘We all should be proud as an industry,’ Michael W. Perry, CEO of IndyMac Bank told his peers at the Mortgage Bankers Association’s annual convention in Chicago recently. ‘We have created an enormous amount of wealth for Americans.’”
No Michael, you have created an enormous amount of debt for Americans. The debt pushers are getting what little wealth is available.
Exactly, the cheap easy credit, just caused house prices to be inflated and affordibility levels to plummet. Consumers are no better off now than 5 years ago. It’s just easier to put your head in a noose now.
Most people don’t even realize their home is down in price. They have had the pos listed for over a year hopeing for that great 2005 price. Look at the new home builders undercut the existing market. These are the true values of the current market. I know of areas off 25% around here. Lets get real here people. The NAR is trying to paint a rosy picture but smart people know the truth behind their fuzzy math.
Add in the people that have owned their house for more than 5 years that are still sitting on bubblicious profits, that are now also heading for the exits and you have the perfect storm, for a real estate collapse. Book it.
I was at the Naples auction. The prices shown in the Times article seem to include the 10% aution fee. This would ot be what the sellers would get. I ran a zillow check on the properties and they auctioned for 56% of the zillow quote of their value. That is off 44% not 25%.
Lots in Cape Coral on the water were asked to have bids of $200,000. The highest bid was $60,000. They were not sold.
I am not convinced that the zillow quote was ever real. One house I have been following STILL zillows at a price it was never sold for, and never would have fetched: not in 2004, 2005, 2006.
I was at the Naples auction. The prices shown in the Times article seem to include the 10% aution fee. This would ot be what the sellers would get. I ran a zillow check on the properties and they auctioned for 56% of the zillow quote of their value. That is off 44% not 25%.
This would be in line with the October existing single-family home sales report from the Florida Association of Realtors (see http://alt.coxnewsweb.com/palmbeachpost/business/102006_report.pdf ), which indicates the median price in Ft. Myers-Cape Coral MSA is down by 44% compared to October 2005.
Petersburger — nice research. Make ‘em honest.
I talked to the reporter, as well as the auctioneer. The price quotes in the article include the 10% “buyer’s premium”, as that is what the buyer paid!
Good point. My point is that the seller only got the buyer’s price less 10% to the auction. If the zillow figures were correct for 2005 the seller only collected 56% of the estimated market value.
In an auction the seller starts out 10% in the hole. In a broker sale it would be about 5% in the hole for higher end property.
No kidding. This guy is the epitome of glib irresponsibility.
This may be the real estate “Quote Of The Year”.
‘We have created an enormous amount of wealth for Americans.’”
The same garbage eminates from realtors and Wall Street. They do not create wealth, they merely churn the money around and take a handsome profit. Value and wealth is created by entrepreurship, inventiveness, and hard work.
I have to give them credit for inventiveness however. They figured out how to sell toxic loans and package the American Dream of homeownership to those who have no buisness overextending themselves, with just a little “you can do this” or “no problem” from the mortgage broker.
“Value and wealth is created by entrepreurship, inventiveness, and hard work”
And a little capital. The tale of every everyman entrepreneur includes the chapter where the protagonist hits up all or some of the following for money… friends, relatives, acquaintances, enemies’, credit cards, and so on. Its so prevalent in the story of so many startups that it’s practically a cliché. Finally after much pestering persuasion and promises of a nice return they relent and lend our hero a bit of jack. That is “churning the money around”, moving capital from Uncle bobs checking account and employing it in the attempt to realize our protagonist’s vision. From Christopher Columbus begging Ferdinand & Isabela for a little Mad Money to William Boeing, Bill Gates and even Karl Marx, they all needed access to a little capital.
TheGrub ™
well put.
all true
but that kind of true investment and risk taking is entirely different from skimming a few percent for fees.
“package the American Dream of homeownership to those who have no buisness overextending themselves”
Madison Avenue couldn’t have done a better job.
It’s just like when the diamond cartel convinced American women that:
1. diamonds are a girl’s best friend
2. you deserve a diamond for an engagement ring, and nothing ‘less’
3. you want a new diamond, not one of those ‘used’ antiques
And that it should cost a month or two of your salary.
Aren’t they spouting off something about three months’ salary nowadays?
Suckers.
Diamond industry is the most successful cartel and marketing campaign ever. (most others faded after a bull run..)
Now they are pushing people to buy THREE of them together, symbolizing past,present,future.
I predict next push would be for seven diamonds, for the seven seas (symbolizing Ocean of love) or seven days of week (Always with you)
Blue Nile is still selling diamonds? Maybe the only dot com that advertised on the superbowl still around. LOL
bluenile.com
All you have to do is to consider who REALLY is behind the diamond market. Try to find out much of anything about the “Kimberly Protocol,” for instance — an anti-trade international agreement to fix diamond prices. Just like American “Foreign Aid” — follow the money. Don’t be shocked to find that it ends up buying, for less than ten cents on the dollar, the votes to keep it coming. Slick. Unfortunately.
Don’t even get me started on DeBeers, the diamond cartel. Thankfully, my wife feels the same way I do about it and her wedding ring is a plain platinum band. It was always so ackward when we got engaged and all the ladies would say to her “ohhh, let me see your ring!” just like they have been programmed to do. Then they would see the plain band and be embarrassed. I took it as a good opportunity to let them know that they had been brainwashed and told them to do a little research.
“‘ohhh, let me see your ring’…Then they would see the plain band and be embarrassed.”
‘ohhh, where is your house?’ Then I would tell them that I was renting and be embarassed.
“I took it as a good opportunity to let them know that they had been brainwashed and told them to do a little research.”
Unfortunately in my experience that rarely works. The more honest ones will just say “Fine, I’m cheesy, I want a blood-covered rock anyway.” Sometimes it’s enough to make you wish you’d just taken the @#$ing blue pill.
LOL. i was just thinking about that movie today.
Ignorance is bliss
It is incredibly easy to buy a fake stone and have it mounted in a real setting and none of your plastic friends will ever know. My mother had a fairly large diamond and, fortunately, acknowledged that she was fairly ditzy. She loved to travel to Europe, so she had a duplicate made of her wedding ring; only the guy with the loupe will ever know which is the real one.
My own opinion of jewelry-grade diamonds’ value is far, far lower than my mother’s.
It doesn’t take ingenuity to give money away. Like google, if you have to give your service away from free, it can’t be that valuable.
This entire economy is a big joke. We are going to be wiped out by the Chinese, the Japanese and the Indians who are producing things of real value.
‘We all should be proud as an industry,’ Michael W. Perry, CEO of IndyMac Bank told his peers at the Mortgage Bankers Association’s annual convention in Chicago recently. ‘We have created an enormous amount of wealth for ourselves.’”
Fixed it.
I wonder if they’ll feel just as proud next year by the enormous amount of poverty they will have created for Americans
And, in other subprime news, NPR ran this story on Morning Edition:
“The mortgage business could be heading for trouble as the housing market slumps, especially lenders who dealt in high-risk loans. One big bank, HSBC, announced that its losses from bad loans would probably grow this quarter.”
Listen to the sorry tale (and weep crocodile tears for the subprime lenders while doing so) at:
http://www.npr.org/templates/story/story.php?storyId=6585605
A heart warming message in my inbox this morning, at least this kid knows whats going on in the industry. He just doesn’t know that Freemont is in a death spiral:
“I’m sure most of you are aware there are major movement within the Non-Prime mortgage industry. Most of the programs that helped expand the mortgage expansion over the last 5 years have gone away or are going to go away. Not to mention several firms are up for sale or are exiting the industry all together. To name a few First Franklin was sold, Option One is up for sale, Sebring Capital is shutting it’s doors, Argent(and retail Ameriquest) are on the block, and yesterday Own-It announced it’s closing it’s doors. This is just the beginning, send your loans to Fremont, we are positioned for the long haul and have no intention of exiting the industry. We offer the best service in the industry, we don’t have Retail to compete with you, and we get loans closed quickly…… Stay tuned! No need to overnight anything, email the appraisals and fax everything else for submission, it’s that simple!”
It’s that simple, we’ll be open tomorrow, maybe.
He left out Golden West, which got bought out by Wachovia. (I unfortunately own WB, and am in the process of dumping it.)
I hope Golden West really hurts WB. I just can’t see how all those option arms can work out ok - I know Golden is the leader and it had great management, blah blah blah - if so great then why sell!
I do too, but for the love of God not until after I’m done selling it.
Lemme put that a different way — you folks trying to short the homebuilders, load up on WB instead. There’s no way it’s going much higher than the high 50s, and everything about that merger is bad, bad news. You have a little time.
You like WB short better than WM? I covered my LEND short a few weeks ago at the low, and I want more exposure to the area.
WM has cultivated its retail (ie, nonmortgage) business a lot better and its growth has been much more organic. OTOH WB has been acting more out of desparation and its incorrigible inferiority complex with BAC.
Not saying WM is a screaming buy or anything, but it’s like WB is trying to fail.
If Herb and Marion Sandler who run Golden West are selling you can bet they know that market is way overvalued and it is time to cash in. Those two are way too smart.
yup, the sandlers “rang the bell” at the top of the real estate market and the market for exotic mortgages when they sold out to walkallovayah. problem is not enough people were (are) listening.
The opposite of the Sandlers must be the “Donald”.
I wonder how Trump mortgage is doing these days?
about as well as Trump Ice
http://www.trumpice.com/
LMAO, that Trump water site is the funniest shit I have seen in a while.
I wonder how much some twit paid him for the use of his likeness on that crap.
That someone capable enough to put together that website together thought this shit would make money is beyond my limited mental capacity.
Puhlease,
That site has oscommerce written all over it. It just has a Trump skin.
Besides, the developer is probably fine as long as he got paid to do the job. Some harvard MBA grad probably thought the idea up, sold it to the Donald, and got hired on for commissions.
Who’s the sucker in that scenario?
BAC is lame, why should WB have such a complex about them. to be honest, the folks selling the sub-prime platforms are going to regret doing so in a few years.
What was needed was to shut them down for about three years, not through out the baby with the bathwater.
The subprime RM-REITs are IMHO overshorted. One interesting long/short play is to buy the preferred stock, and short the common.
Trump Mortgage is run by a guy who lied on his resume…
If you buy two of these troubled subprime firms, do you get a third one free?
you get a Chevy Aveo thrown in and a Koi pond
A Chevy Aveo thrown into a Koi pond? Somehow performance art as an incentive sounds like a bad idea, but I would totally micropay to see that. Spreading the meme around might just be enough to cause it to show up on GooToob.
ROTFL
Own It is closing? Did they issue a press release? “Need to spend more time with the family”
Is “non-prime” like calling used cars “preowned” or calling south central “South LA”? It doesn’t sound quite as bad if you change the name?
My favorite mortgage ad is the one that goes something like “Do you have a sub-prime loan? You’re not a sub-anything, you’re a human being!”
I like “Used Home Salesman”
“It’s that simple”
That’s the whole problem w/ the mortgage industry. It’s overly simplified. Anyone can get a loan.
Nice. Thank god the puts I bought on mortgage lenders are looking like they’ll pay off. I was starting to worry there.
Yep.CEO Michael Perry has been doing a “heck of a job”….of screwing the American people and putting them in debt for the better part of their lives while he and his money shuffling pals live like parasites.
Yeah how does declining home prices and increasing debt make America wealthier. More spin.
There’s something particularly delicious about a CEO conflating the terms “wealth” and “debt” that I think really speaks to one of the reasons why tracking this bubble is so intoxicating. It’s like it’s 1984 and only a select few are getting the doublespeak.
NOTE TO FED: DEBT DOES NOT EQUAL WEALTH!
The statistics of median home prices are a joke in California. It just keeps growing year over year, month over month. Who really adds and calculates this stuff…..an illusion of paperwealth to keep the economy afloat…just a matter of time before the stack of cards come a tumblin down…..
From SP over at Patrick.net:
Buried Treasure
By Kitty Galore 1 hour, 17 minutes ago
April 1, 2007
NEW YORK (Reuters) - Ask nearly anyone to describe the state of the nation’s economy and you get the same answer - “recession”. However, if you happen to run into the shadowy personality known simply as ‘The Elitist’, you will get a different answer. The Elitist is stepping high and whistling a gay tune (not that there is anything wrong with that) even as the gloom spreads ever wider on this economy.
His secret is simple - he has cornered the world’s production of St. Joseph’s statuettes and has a half-nelson on related accessories. As the once red hot U.S. real estate market swooned unexpectedly in late 2006, and after several quarters of ’stabilization’ and intense ‘normalization’, failed to revive this spring, sellers of homes have turned to The Elitist for help. Help that he is happy to provide through his chain of St. Joe’s Cafe’s (Nasdaq: STJO).
St. Joe’s Cafe’s have eclipsed the growth of Starbucks, as desperate home-debtors flock to these outlets buy their daily statuette. Taking a page out of Starbuck’s strategy, The Elitist offers three sizes - tall, grande and venti - as well as an ethnically diverse set of statuettes (thankfully NOT called vanilla, chai and mocha). The Elitist is keen to point out that he did avoid one costly mistake that Starbucks made: “I realized that Starbucks had overextended their franchise when they opened new Starbucks locations in the restrooms of existing Starbucks.”
Growth in the St. Joe’s sector accelerated unexpectedly in late March, as rumors spread that burying more than one St. Joseph statuettes would help sell the house faster. The Elitist declined to confirm or deny any such claim, but acknowledges that the development greatly increased demand for the product, and allowed them to rapidly extend the franchise into St. Joseph Scented Oils, St. Joseph burgers and a St. Joseph branded line of active-wear. “When we started hearing that people were taking out home-equity loans to repave their yards with St. Joseph statues, we realized this would be something really big,” says the Chief Economist of St. Joe’s, Mr. David Lereah. “This is a new paradigm and sales have reached a permanently high plateau. People are now getting concerned that if they don’t buy the statuettes today, they may get completely priced out.”
What’s next for St. Joe’s? The company is tight-lipped about their future plans, but speculation is spreading that the company will use its multi-billion dollar IPO war chest for acquisitions and expansion into the huge Chinese and Indian markets. “There are a lot of demigods, and our aim is to become the world’s number one provider of demigod-related merchandise,” says The Elitist. From his No. 3 position on Forbes’ billionaire list, everything seems easy.
Bryan,
Is this guy “the bomb” or what!
“Ask nearly anyone to describe the state of the nation’s economy and you get the same answer - “recession”.”
Hmmmm, I don’t know if this is true. I thought that recent polls show that the general public think that things are going “ok”, and there is a lot of Christmas/Holiday shopping going on. I thing that the general public is still in spending mode.
The article is for next year - recession is coming. I think the Christmas spending is one last hurrah before reality sets in. What do you do if you know money is going to be tight but don’t want to admit anything is wrong and you’re burying your head in the sand? Spend, spend, spend for a bit of retail therapy and a great Christmas before those credit card bills become due in January. Aferall, we can sell the house in the Spring, right?
Dude that was tongue in cheek… the whole thing.
Sorry I think it is true, over 50% of the working population is earning less today than 6 years ago. This is not a recession?
nope.
Yes, Home Equity Loans were up 8.1% last month. I think it’s people tapping that ass one last time to pay for Christmas before they return the pile of junk to the bank.
I hope my company’s retirement plan manager hasn’t invested heavily in real estate loans.
LOL. That’s some funny shiite.
Spin is a wonderful thing, especially if your Robert Toll….. WFT is this “downturn that started 15 months ago crap ” Going? seems 10 months ago things were fine, Is the Home Building and RE industry starting to “Back Date’ the burst so We Americans with the attention span of a gnat think we have had enough and start buying?
I actually agree with him that the beginning of the end began around 15 months ago but we are no where near the bottom.
I think the point is, he was lying 15 months ago, and he’s lying today.
The end of the bubble began July 05. With the announcement of the first M/M Home sales decline in 5 years. Its just at that time it was very easy to ignore as price appreciation was still high (although decellerating). This is also when the smart money (including the Toll brothers) started dumping HB stock
This is also when I hit the panic button and started telling eveyone I knew to get ready for a big one. However I got my nose thoroughly rubbed in it with my first less in “The Market does not reflect reality”
Where knowing the exact point of the housing bubble popping is important is that the S&P 500 follows the home builders index with a 12 to 18 month lag.
Guess where we are today.
“Where knowing the exact point of the housing bubble popping is important is that the S&P 500 follows the home builders index with a 12 to 18 month lag.”
Since when?
Read it a few articles, and of course can’t find it any more
but I’m pretty sure they were on
http://www.itulip.com or http://www.financialsense.com (great sites btw).
ultimately its not a big leap of faith to believe considering how much housing has be the last leg the US has been standing on. (a recent article has a nice graph clearly showing housing slow down leading the recessions of the last 50 years http://www.financialsense.com/editorials/kasriel/2006/1205.html)
Fox,
sorry, that was an urban myth perpetuated by some fancy-pants bloggers who want you to buy more gold. The myth part of it is that the “graph” which is created is especially doctored to only include data since (i believe) 1995. Prior to that, there was no correlation. Of course, if you only look at 10 years of history, houses only go up.
John Doe,
Exactly. I tried to post a similar reply but it didn’t make it.
I googled Home building - S & P 500 - I had read the same reports before, but had never researched to see if 1) the charts were correct and 2) the analysis is correct. There are blogs and then there is the John Serrapere analysis. I do not believe it is an urban legend.
http://tinyurl.com/ybzlne
And from the Federal Reserve
What Do Financial Asset Prices Say About the Housing Market?
“…prices suggest that investors currently expect some mild depreciation in home values within the next year….”
http://tinyurl.com/ybrpk4
And for Txchick et al that trade options using Black/scholes - Some nice math for calculating CME housing futures.
while the nice thing about all this is that we won’t have to wait very long to find out if it is myth
2 minutes to midnight everyone, do you know where your stocks are
There was an article about this in Fortune a month or two ago. One of the most important things I learned in college was dont believe a graph. But its still an interesting thought if its true.
In Westcheter County, NY…it topped out May 2005 with the NY Magazine cover title - “Is your house like a .com stock?”!!!
We put out house on the market that week at a ridiculous price of $749K that my wife and realtor agreed to. The market literally stopped that week though we had a lot of lookers. After two months, I took over and cut it to $689K and we were under contract for $670K in two weeks. I wonder what it is worth today? Perhaps $600K?
I know a couple in Valhalla that have had their oversized Poltergeist house on a tiny lot for sale for at least 3 monts now.
In 2 months they dropped from $889K to $875K…still on the market. Guess they dont want to sell.
oh, the house is for rent at $6500/month. They already bought a bigger house in Greenwich.
What idiot pays 6500/mo rent? A drug dealer or some rich oil Arab?
Actually, they probably knew about it 15 months ago and have been desperately trying to avoid the consequences since then. Sometimes these guys let slip little details like that which are very enlightening.
The market in northern Virginia is similar: prices are down 10 to 15 percent,
Yes, as one of my co-workers is finding out. He and his wife blew it big time last year when they bought a huge McMansion over an hour from their jobs — but “it’s worth the drive because we have such a nice house”.
Problem is, they had an ARM, and they had to sell. Admittedly, that was their plan because they’d done that same trick TWICE in the last few years, each time scooping up several $10ks of tax-free gains. The McMansion was a stretch, but with so much leverage, they could get even more gains!
Unfortunately, as it turned out, they lost $50k from what we can tell (they won’t say, but sales records are public) on this deal. Bad but not a disaster, since they would have had to pay $36k to rent one of those monsters for a year. Their old neighbors are irate because they asked too little — but I give them credit for actually having the sense to price right and move that house, even at a loss, before their payments landed them in real doo doo.
Yet they turned around and bought all over again! They just refuse to rent! “It’s all about the equity”, he says, as they bought in September. This time it’s a brand new but more modest townhouse at $304k, something they can afford, at least. He figures that type of housing ought to increase in price, and they can get back to their flipping ways.
And then this weekend I was looking at the real estate section of the Washington paper. Oh my, his neighborhood — on sale! The builder is now offering all the new ones for $269,900 — and with heaps of options. A quick check of the real estate transactions shows that a few people are buying them, too. So much for appreciation. All I can hope is that he learned some of the lesson and didn’t get a teaser-rate ARM. And that he likes living in that place enough to stay for years and years, because he’s out of money now and can’t afford to buy his way to the closing table again.
I think what you are describeing is very typical of the action out there. A lot of people are underwater because they got greedy.They might be stuck w/ the pos for many years to get back to break even point.
dude, where can you get a townhouse for 270k near dc?
PG county ?
Well, I didn’t say NEAR to DC. How about Warrenton/Culpepper distance? Yeah, sucks to be on that commute. I’m not sure you can get a new townhouse even in Prince Georges for
culpepper !
new car every 2 years for that commute
and the car lease leaves you upside down even more!
And in 3 to five years when the building defects really start to show up and then they have lots of deferred maintenance from all of the nonowner-occupied units and the onwers like them that cant afford to maintain their properties, nor the increase in HOA - then they will see how little the thing is really worth (try trimming another $75,000 - $100,000).
Unlike a home, where you are not too tied to your neighbor’s lack of upkeep of his home; with a condo if you/your neighbors cant afford the HOA, at some point the depreciation really starts kicking in. Things like broken vehicle gates, no more security guard, trees causing foundation problems, driveways and walkways in need of repair. The list goes on and on.
Condo’s are only a good play in the short-term and at the lower, working class income levels. And if you’re not getting 25% cash on cash as an investor, you are in trouble.
A townhouse in NoVa for 304? Where? Not that I am going to buy one but if it is the neighborhood I am thinking they are not going to want to live there for long…
Follow-up on McMansion dude’s previous house (and no, I won’t be more specific than this about his neighborhood, lest he stumble into this blog which I know I’d mentioned to him in the past, though he might recognise himself here anyway):
He sold out in the low $800k range in summer. At the time, there were 4 other houses on the couple of streets in his “exclusive” development which were for sale. One went off the market, apparently. No others have sold. Asking prices on the remaining ones have dropped like a rock since then, to $720-$799k. Ouch.
And these were the neighbors who were angry in the summer because he sold “so low”!
And townhouses are LAST on the appreciation list (oh, excuse me, manufactured homes on rented land are last). And the HOA fees aren’t tax-deductible.
Oh well!
1 hour commute for a nice house…great move! This mentality will get beat out of people…first due to equity loss, then due to time in the car and traffic, and finally due to the next fuel crisis or significant uptick. By then (perhaps 2009-10?), their house will be worth 50% or less than 2005 prices and still declining if they can even find a buyer at any price!
Actually, it was about an hour for him. I think it took his wife well over that — for her it would take an hour only if it was Sunday! They’ll be like one of my neighbors who rips through cars (like the bloke above said) every 2 years! Well, that’s how long her Saturn lasted. I bet they didn’t figure that into their “house payment”.
wow, you keep alot of tabs on that coworker..
WTF, WTF, WTF, WTF??
They bought a house, sold it, and LOST MONEY. It wasn’t that bad because it only cost them about $1,200 a month more than rent and it was tax deductible so it only really cost them about $800 more a month than rent so they DECIDED TO DO IT AGAIN.
WTF, WTF, WTF, WTF??
This is why it’s going to be a long drawn-out affair, folks…
Yes. We have seen record YOY increases in the amount of idiots in this country.
I calculate a 72 month supply of them currently. I don’t know how we are going to work through them n less time.
Didn’t you get the memo? “It’s all about the equity”
It wasn’t that bad because it only cost them about $1,200 a month more than rent and it was tax deductible so it only really cost them about $800 more a month than rent so they DECIDED TO DO IT AGAIN.
Yeah, I think when he was telling me this, my mouth was probably hanging open in disbelief. I hope he didn’t notice, or at least didn’t take offense!
But like I said, the good thing is that they did decide to pull the plug on it this summer; it could have been a LOT worse. The article above said 10% drop in a year, but we’re seeing 10% drop since summer when he sold and bought again, at least in the far outlying suburbs. An extra 10% loss on an $800k McMansion would have been disastrous for him, since they barely had the money to scrape together to get rid of the thing when they did. (Leading to probably a 100%-financed mortgage on his current place, ouch.)
A bad thing I didn’t mention above is that for this McMansion, they bought a whole lot of big new furniture because their old stuff looked too small! Aiiieee!! That was NOT in the cost reckoning. I haven’t seen how well that oversized furniture fits in his new townhouse. Nor do I know if they bought this stuff on credit, though I suspect they did.
I see years of cramped living and high payments for this friend.
Two persons I know in Richmond just purchased condos. Don’t know exactly were. But I have been telling them not to buy and what do they do? Whet ahead and purchased. One told me - “You wont have any chance to get equity unless you own” - Both just purchase in the last month or so, will be interesting to see the fall out.
I belive that as housing prices drop in the DC suburbs that prices will decline in the Richmond area.
Oh no, not condos in Richmond! Have they lost their minds?
I can hardly restrain some of my younger friends from wanting a condo in NW (DC), but at least they see it as an option to avoid long commutes and be close to the party life. But Richmond? Where you can go just a few miles out and get a townhouse or “real house”?
“You wont have any chance to get equity unless you own”
So they’re smoking that equity weed, too, eh? Equity on a condo is a precarious thing to bet on, as some of my friends have learned to their dismay in the condo busts years ago in other cities. First to lose value, last to regain it.
You could always have equity in, say, the equity markets instead.
Lemme just put these two quotations together, without comment:
‘We have created an enormous amount of wealth for Americans.’
“Most worrisome, growing numbers of these families are falling behind on their mortgage payments, and they won’t be able to bail themselves out by refinancing or selling their homes. ‘We’re now going to combine a high amount of debt with falling home values,’
We did that with the .com bubble, enormous wealth for every 21 years old.
Problem is the wealth evaporated too quickly.
I get the idea that this whole bubble has largely been as a result of our country not being competetitive anymore (middle class jobs being sent to the lowest bidder, somewhere in Asia) and housebuilding is one of those rare industries totally unaffected (you gonna hire constuction guys living in India to do the work, or import some land from a foreign country?) in this day and age. Who knows how many people owe their livelihood to the housing biz, in a roundabout way. How many other solid middle to upper middle income industries can you think of in our country that employ the numbers that real estate does?
Financial Services
Healthcare
Technology
Energy
Telecommunications
So, it’d be 1/6th of the middle to upper middle class incomes in our country, adding in the industries you noted…
RE is definitely a huge piece of the economy…I’m just suggesting that it’s not the be-all and end-all of the US economy. I can’t say much about incomes, but I know that there are a lot of well paid folks in the other industries I noted above.
Here is a link to the component of US GDP by industry:
http://bea.gov/bea/industry/gpotables/gpo_action.cfm?anon=1716&table_id=17292&format_type=0
Law… we’ll always have lawyers. Also education/government. Not all the highest paying jobs, but try firing a teacher or fireman.
You left out local fire and police with huge overtime and bennies..
which the under new rules, the governments will have to start disclosing.
I would LOVE to see those construction workers and RE salesman enter IT! Its easy, everyone is doing it.
Josh
I see them more in a professional cheerleading capacity…
Financial Services - declining jobs
Healthcare - ok, i’ll buy that argument for strong job growth
Technology - deflating prices due to increased competition from India and China - long term prospects not good. See also Dell computer sales for current info as to what industry and consumers do when they don’t need a faster computer anymore.
Energy - unsure as of yet, a lot of geopolitical issues affect this sector
Telecommunications - again, deflating prices (i.e. Vonage, etc), once the infrastructure is in place on a national level you only need some people to maintain it, so longterm job growth questionable.
I think overall, most of the industries you mention don’t hold any long-term prospects for keeping our contry afloat economically speaking.
The question (and my answer) had to do with the number of high paying jobs, not the level of change in the number of jobs in the future which is certainly debatable. For the record, employment in the financial services and energy sectors is growing very strongly and there seems to be no end in sight. Try finding an experienced geologist or derivatives trader for less than $300k per year…
So where does one go to get one of these $300K geology jobs? My brother’s obviously in the right business trying to get a tenured professorship.
In understand what you are saying, but how many of those jobs are there?
Even if India, China etc. have an absolute advantage in labor-intensive production, thanks to the lower cost of labor (and of regulation-driven overhead) there, the doctrine of comparative advantage will always keep at least some of those jobs in the U.S.
We have been growing the economy based on createing more debt.House goes up 100k in 6months so now you have this 100k that comes out of nowhere and the buyer now has 30 years to pay it off.Basically you are createing money based upon paying over time.I think they refer to this as mortgageing the future.The lenders have made it a lot easier to pay over time and now require no down payment. So as long as people can make the ridiculous payment by borrowing from other sources we are keeping the party going.I think the economy should be based on job growth and innovation more.We are getting a lot more competition from the world economy now. To make up for the loss in job growth are assets are being artifically inflated to compensate. No savings and people are living paycheck to paycheck. The system is very fragile right now.
Arizona Dude, let me go on record as agreeing 1000% with this part of your post:
I think the economy should be based on job growth and innovation more.
The rest was pretty good too. Now, how do we get the word out to the rest of the country? If not the world?
Well not to sure how to get the word out to some of the zombies out there. I would first start with getting away from dependance on foreign oil. A lot of jobs could be created there. We need tax credits for people who consume less. In our society you are cool if you consume a lot of goods and have a lot of stuff. What about the people who consume less, live within their means and help the environement? How to we recognize these people?
It would be a lot simpler, and a lot more equitable, to institute a consumption tax (with a large exemption for spending on necessities — say $60,000 or so, depending on the area).
Perhaps it is fragile by design. If you will bear with me during this “tin foil hat moment”. The reason that much of the US manufacturing and now professional employment has gone overseas is IMHO we got too expensive and labor costs ate into the profits that shareholders (yes, that’s folks) demanded of publicly traded companies. Now, how do you bring those jobs back? You create a situation where labor costs are reduced. And how can you do that? Well half the job was reducing much of our employment to “service sector” jobs, can you say “would you like pickles with that?” . The other half may start with recession or dare I say depression to set the stage were people will accept much less for a “good” job than they were willing to before this fiasco. Just some thoughts on why this may make sense at some level. Not that it is right, but it is one perspective. I personally doubt that we could go low enough to take back much of the manufacturing that is now done in Asia simply because labor costs there are very very low at this time.
But down the road, as the Asian costs rise there may be an entry point for many here who have been financially beaten down by debt and unemployment or underemployment. I saw it in Pittsburgh in the late 70’s and early 80’s when Steel went away and entire communities were boarded up as those who could left and those who stayed took jobs at Kmart. All those jobs went to the new mills in Japan and Germany thatthe US built as part of the Marshall plan in the 40’s.
One aspect of being beaten to a pulp, your infrastructure ruined, ala Germany or Japan, circa 1945, is that all the ineffeciency goes away and you can start fresh.
We’ve never experienced this and there’s still a lot of dead weight around our neck and industries that might be competitive if they were to change their ways, are so far gone, that we just give up and allow Asian rates of pay to dictate the terms.
What a great idea.
Start with a thousand-plane raid on the Irvine Business Complex to blow up the dead-man-walking mortgage brokerages. Paging Curt LeMay…
Got this picture of ol’ Curtis, cigar @ the ready, looking over maps of the OC…
That is an excellent argument in regards there being a purposeful reason for having a depression so as to have people quickly accept a lower standard of living in the future. Some food is better than no food.
US companies can remain competitive in manufacturing, but you have to be smart about it. My employer is a manufacturer based in Mass, with factories in the US, Canada, and Mexico. They are not just surviving, but flourishing…
How are they doing it, you ask? They don’t try and compete with the cheap, retail crap produced overseas and sold in places like Home Depot, products with very low margins. Their products are professional, spec-grade products that have much higher margins (and require more engineering capability).
Also, technology is a big enabler for them. From the ERP Manufacturing and Financial system to the computer-automated lines out on the factory floor for any process that is low value/labor intensive. If you have never worked with a Chinese company to manufacture something to spec with a high degree of accuracy/low tolerance, then you don’t realize how far behind technologically they really are. The Chinese have one advantage, and that is the cost of labor. Well, if I automate a process to make a single worker 100X more productive than his “Overseas” counterpart doing the same process manually, I am winning the productivity battle.
Additionally, by being a domestic manufacturer, we can deliver orders far sooner to our customers than any Chinese manufacturer can. It comes down to increases in efficiency, productivity, and good management. Hell, Toyota is the manufacturer that everyone wants to emulate. They build cars and trucks here profitably… why aren’t more companies trying to do that instead of off-shoring? Because most executive managers are worthless, looking for the quickest, easiest path to “increase shareholder value”, i.e. my stock options. They think quarter to quarter because that is what the Wall Street dictates. My two cents…
Excellent points! And I agree with the final two lines wholeheartedly. I firmly believe that there is a serious issue of selfish greed in the upper ranks of management and the result is complete failure to manage growth of the business, but instead, as you said, growth of personal compensation. When shareholders reward actual growth of the business rather than quarterly numbers things may change.
What the US needs is to invent something groundbreaking. The car, the airplane, the telphone, the computer.
Something requiring industrial production. I am hoping one day it may be energy related. Perhaps fusion technology , perhaps commercial spacecraft.
The most recent of our achievements you mentioned is the computer, around 60 years old now.
Lets see, in Wisconsin in the 1940’s a UW prof developed a novel type of nuclear reactor that did not use or need a liquid coolant - sorry since it did not result in fissionable material that idea was shelved. China is constructing 40 of these plants now with another 300 scheduled to be built in the next 30+ years (2040).
During WWII, the US developed the Fax machine, but saw no use for it. I don’t think the Fax ever amounted to anything.
Maybe biological?
The US started Stem Cell research, forgot thats all being done by France, China and Korea now. We will be able to buy licenses to use from these countries thou.
Cray computers has standing purchase agreements for 1000 Cray computers, but our US won’t allow the export; so China is now developing its own super computers.
we will invent the most wonderful incredible things and still have the greatest independent thinking workforce in the world - the BS hindrance of these ideas to reality are troubling.
I don’t know. Look at Dubai, UAE - importing thousands of Pakistanis and Indians to perform the construction jobs, and Americans and Brits to do the engineering.
Meanwhile, you can’t pick strawberrys from a thousand miles away, but when was the last time a natural-born US citizen worked the fields?
Before World War II. The south-of-the-border crews were brought in while our boys were off fighting in Europe and the Pacific.
I live in the Central Valley of California and it’s an interesting place, as it’s California’s bible belt, as all the Arkies and Okies that came to pick crops in the 1930’s, (ala Tom Joad) brought their religion with them.
When ’ssshrubery (my new name for our feckless leader, with apologies to Monty Python) shows up in the Golden State, he typically makes a beeline for Fresno or Stockton, safer there.
The coming depression will accomplish three things. First there will be a tremendous destruction of debt freeing the economy of its barnacles. Second, old technologies and businesses will be wiped out in the economic forest fire. Third, our people will suffer greatly and will be toughened up. This will set the stage for a new long term economic recovery.
This happened in 1780, 1840, 1890, and 1930. There will be no quick fix and even King Solomon can not stop it. It is the K wave and Joe Schumpeter rolled into one. It will result in major war as before.
As our nation wrings its hands over Iraq our people do not see that the real danger is the price level of their very homes and the coming deflation. A deflationary decline will clobber our major industries, generate massive international debt defaults, and bring on trade protectionism. This will push us into an economic conflict with the major powers and power blocks. We are not in a confrontation with China, Russia, the Eu, or Japan.
We are fighting a war which has 3000 dead which is less then the 5000 in the Phillipines Insurection. We spend 16% of GDP on medical and 4% on defense and the war. People will look back at this period as the “good old days” I fear. We have forgotten what is a bad scene.
I do not mean to belittle the sacrifices of our troops. In the life of a nation the current war is a sideshow compared to a conflict with major powers.
Do ” men make events or do events make men”? If you think “men make events” then you hate Bush and blaim Greenspan. If you think that “events make men” then you and I think history is a cycle. There is not a lot you can do about it except try and protect yourself and family.
As my dad used to say, “we are just a bunch of piss ants flooting down the Mississippi with all of us saying ‘I am steering I am steering’”.
A deflationary depression makes that confrontation highly likely.
Well said.
The Arabs are buying what few steel mills are still laying around in the US, dismantling them and reassembling them over there. Apparently this is cheaper than building them from scratch. Also, we have all the engineers/designers. I know, I have relatives in the business.
We could always import parrots to replace RE agents…
The sales manager could teach them the standby lines:
“This is a great area”/”This is an up and coming area”
“Now is a great time to buy”
“Have you noticed the granite counters and SS appliances? They’re great”
“Great schools”
“Stunning _____. Bathed in light!”
“It’s just a slowdown; things should pick up next year!”
” Where’s my 6% ?”
Whenever in doubt the parrots could have default adjectives like:
“Magnificent”, “Wonderful”, “Stunning”, etc. even though these hardly correspond to the crap they are selling…
sold in the normal way, would go for about 20 percent less than it did the previous fall.”
20% off
so when is it a crash?
2nd quarter of 2007 is when the crash will start it roll, and by 2008 a full recession will be in place. Then in 2009 a depression will start.
You may be off on the date for the start of the depression. It will come sooner than that, IMHO.
“Daniel H. Mudd, the CEO of Fannie Mae, acknowledged that the industry had helped expand homeownership, but suggested that it may have gotten carried away during the recent boom. ‘Ultimately, putting people in a home they cannot stay in is not a business we should be in,’ he said.”
this guy’s starting to come around… right after OFHEO declared their intent to sue Raines, et al for their target bonuses.
check out my latest 3 postings on first payment mortgage defaults. these are classic examples of abuses of the subprime lending practice of giving away cash and as much cash as possible to earn that fee/commission.
those of you that have access to foreclosure listings: check out the listings yourself. any NOD (notice of default) that is filed within 6-8 months of the loan’s origination is a first payment default until proven otherwise. I don’t have exact % of them in term of total # of NOD’s, but they do account for a good chunk of foreclosures out there.
Your blog is great. A lot of people were buying just to get the appreciation. They figured they could make the payments on credit cards and then benefit from quick appreciation and get rich quick. AS soon as the market changed you are seeing people run out of heloc money and getting spooked.Casey serin is classic example with his 140k in cc debt. Classic bubble situation here.
Most of the NODs in Boston are like this. Probably an average of six or so each day….most in the poor areas (sadly). Virtually all of them are within the last year.
‘We have created an enormous amount of wealth for Americans.’”
This is so sad from the actual reality. In truth, all that has happened is that old man inflation got disguised in the form of overpriced housing. All this time Americans have been sitting back and imagining that the economy is in terrific condition when all that has happened is that banks, lending agencies, and the industry leaders all found a clever way to extract cash from the populace- create an outlandishly easy way to buy houses with the easily predicted outcome of rapid appreciation, interest from specualtion, and therfore the creation of the very environment I’m sure many of these so-called ‘industry specialists’ wanted: panic-induced risk taking. I’m sure they were at first equally but pleasantly surprised that Americans would stick their necks out as far as they did, and so they rode the wave for years.
Nobody said a thing as these agencies started shoveling out the risky loans and products that they knew every sucker would use that lacked a clear understanding of money and how it works.
It makes me almost disgusted to hear about someone from just such a company stand up and even think that they’ve helped anyone but themselves to enormous amounts of wealth. These guys knew EXACTLY what they were doing, and guess what?- they’re going to get away with it scott-clean too.
This is inflation. This is what it looks like.
It’s not inflation if the price of other goods doesn’t keep up, and especially not if incomes don’t keep up. They haven’t.
Yes, it is inflation. Inflation is an increase in the money supply. Prices and wages are not inflation, they are prices and wages. Globalization has kept prices and wages flat. Global inflation has been funneled directly into houses and paper assets. The Fed doesn’t pay wages or buy stuff, they print money and give it to banks at a “discount” rate. The “money” markets don’t buy stuff or pay wages either, they package debts and other “assets” and sell them.
It’s a shame that the CPI and other bureaucratic propaganda has had such a good record at decieving the population about our money system. The best thing about gold is that it is what it is. It’s hard to fake, easy to count. The current “money” system is a true and collosal farce, even Greenspan can’t define money anymore.
Remember, the people that benefit most from inflation are the ones who get the freshly created “money” first. The upper 2% of the world now owns 50% of the world’s assets. That leaves the rest of us with way too little purchasing power to influence “inflation”. If you never get hold of the money you have no ability to influence the effects of that money. Most newly created money stays within the financial industry. Regular folks are allowed to “borrow” it, but few of us get to “have” any.
http://dictionary.reference.com/search?r=1&q=inflation
in·fla·tion
1. Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency
…
I realize that you are using the definition of inflation used by the Austrian school of economic thought. However, the more commonly accepted definition (above) is more useful, in my opinion. Yes, the money supply is growing but so is productivity and so is the population. It is more useful to look at what exactly you can get with the money, hence the measurement of the general level of prices.
I don’t like Coke or Pepsi either. Sorry, I don’t go for the “commonly accepted” (vulgar) definitions. If you are going to communicate you have to have some kind of consistency in the language. The CPI is no more inflation than mercury is temperature.
Even so, the “general level of prices” for housing has been showing serious evidence of monetary induced inflation.
Sorry, I don’t go for the “commonly accepted” (vulgar) definitions.
Well then, no wonder your argument is right - you are redefining terms to make it right. That isn’t just the vulgar definition of inflation but also the definition that most economists use.
The CPI is no more inflation than mercury is temperature.
And I never mentioned the CPI.
Interesting debate. Kind of like socialism and capitalism. There are people who say they are capitalists, but their actions reflect socialistic ideals. However, when in Rome, do as the Romans. If you are in America but believe in Socialism, you sure as heck better sell it as capitalism, or you’ll never achieve your intentions.
Change subject to economics. How and why do prices rise? Supply and demand. The medium used for exchange is also subject to the same law. You can inflate the heck out of it, but if it doesn’t flow into the group of prices you use to calculate how much you are creating, voila. Apparently, 373 trillion dollars of derivatives isn’t a form of inflation. Imagine what commodities would shoot to if people began to lose confidence in the paper. Then you’d see some inflation. It is the expansion of the money supply, it just hasn’t hit the basket measured by the CPI. The people who control access to the money first don’t want the rest to understand the game.
They have confused enough people to achieve outright theft with the full consent of the people from whom you are stealing. Make no mistake about it, inflation is stealing in every sense of the word.
Interesting. I never looked at it that way before.
Well said. Whenever someone uses the term inflation as if it is consumer prices, I immediately think they do not know what they are talking about.
One of the causes of the last depression was the concentration of wealth. A great deal of wealth was in the 1920’s based on debt. This debt also affected stock values. When wealth becomes too concentrted in a few hands the debtors are unable to pay. As the underclass default the rich are also hurt as the value of their wealth is destroyed.
Most of the rich will not get out and will suffer huge loss in the coming recession/depression along with everyone else.
Another way to look at it is in a biological sense. This may sound silly but stick with me. In the ocean tuna (rich) are supported by great numbers of sardines(the poor and middle class). If the sardines are weakening (the last 20 years of declining real wages) the tuna can capitalize on the situation feeding on the desperate and weak. When the sardine population collapses so does the tuna.
Sounds fishy? Maybe but the economy is probably actually a biological system.
‘Alpha Strategy’ by Pugsley has a good take on inflation.
[“In September of last year, Ms. Hoy sold a one-bedroom condominium in Brookline for $395,000. She recently sold another apartment of the same size in the same building for $300,000. Since March, her firm has been listing a house in the Fisher Hill neighborhood of Brookline that cost $995,000 when it last sold, in the summer of 2004. Ms. Hoy expects it to sell this time for less than $900,000.”]
I’ve been to some of the condos on Route 9
in Brookline and they are typically pretty old.
$300K for a 1 bedroom is okay if you have the
money and don’t mind the lack of space but
you can get something like this in the low 100s
in Nashua. I don’t know if a 2-hour commute
into Boston is worth $200K. Brookline is very
nice in certain areas but I don’t think that I’d
want to live on the very busy roads.
Is that Comm Ave? Have fun dealing with BC kids.
Rt. 9 is Boylston St, I think I would rather live near the BC kids!
There are lots of For Sale signs in Brookline, as well as Allston/ Brighton and the other surrounding areas.
I lived in Brookline for 2 years. Absolutely hated it. It was mainly a insanely wealthy neighborhood with few good restaurants, amazingly crabby and cheap people, and yes- tons and tons of college kids running all over the place. You couldn’t pay me to live there now. I moved out of there 7 years ago and even then some of the victorians were over 800k. I can’t even imagine how much they must be now even in a downturn. Some of the damned craziest people lived there too. Mainly old, rich, eccentric people who had nothing better to do other than come into the store I worked in and DEMAND that their 10 year old $15 toaster be repaired.
So where did you move to and how does it compare?
How do you know it is right on route 9? That would be pretty grim and there were some grim looking places between Cypress and the Village right on route 9. I lived in Brookline for 10 years and loved it apart from the parking….. There is also that 1960s or 70s mega place (forget the name) in Brookline Place (right where route 9 starts). It was infamous for roaches.
Oak House? was that? I know what you mean… a big development of one bedroom and two bedroom apartments. Way overpriced even in 1997 ($220,000 with $275/month in condo fees), god only knows how much it is now.
One of Whitey Bulger’s top henchmen (Flemmi?) lived there. Dated a 17 year old blond who worked at a jewelry store on Washington Street, and Bulger killed her in his basement. I just love Boston.
Does anyone know where we can see data on the numbers of subprime and prime loans issued in various markets?
The expansion from just over 700k of these loans to 5.7MM loans is frightening, and I’m curious as to whether they are concentrated in certain regions, or spread fairly evenly throughout the US. My sense is that they are more prevalent in less affordable markets, but would love to see the numbers.
I moved to the Bay Area, SF. I like it ‘better’ here in many ways, like the food, weather, diverse geography, better job climate, and so forth. But in reality this area has the same cliche’ problems Boston has: expense. Any advances in salaries here are offset in the crushing level of expenses, mainly in the form of housing. Like Boston, I don’t see much in the way of upward mobility for younger people and families.It seems like most people my age reach their young adulthood, get married, then when the time comes to make the next decision- aka- buy a house or settle somewhere permanently, they have few options available.
Both of these areas are almost totally reliant on their older populations to facilitate the continued misbalance in cost of living versus income, even if you make a high salary.Simply put, the only people I’ve seen buying in my neighborhood are older folks who are simply trading houses.
I also see the extreme stratification here that also existed in Boston: Lots of incredibly wealthy people, lots of poor and destitute people, and a middle class scraping things together to get by.
I lived near Boston for college and now live in the Bay Area. The two areas are remarkably similar — culturally, socio-economically — in the many ways jetsonboy names. That’s one reason I personally take heart from the fact that prices are falling in Boston — a little window into the future for the Bay Area. Both places have highly educated populations, incessant arguments that they are “not making any more land” in either place, cyclical tech-heavy economies, entrenched wealthy oldsters staying put in their big houses — and a particular sense in each place that it is super-special and immune to price declines. Except prices are falling in Boston, and — from what I’m seeing in resale prices on actual homes in my neighborhood — they are here too. (The second NYT article Ben posted above was excellent on this last point.)
I had heard that a friend’s son was going to rent a studio in SoMa for $1600 a month. Wow.
SF values may not plummet considering that a high percentage of SF RE is owned by Chinese. They are usually very consevative investors. This comment also covers any So Cal city with a large oriental population. Irvine, Rowland Heights etc come to mind.
I grew up in Hacienda Heights in the 1960’s and there were perhaps 1/2 a dozen Asian kids (3rd, 4th generation Japanese-Americans) in my elementary school and now it’s closer to 85% Asian…
Virtually the whole San Gabriel Valley looks this way now.
If you like Asian food, just off the 10 freeway, there are more really good restaurants than you can shake a stick at~
The Times article on pricing implies a good part of the neccessary correction (perhaps half, though not in NYC) HAS occured, but we just don’t see it, because people are unwilling to sell at the real price. Perhaps the other half of the adjustment will occur in 2007.
Perhaps sellers will realize what happened by 2010.
Ben, oh Ben. I love you and most everyone on this blog, but this story has finally done it! I am so pissed off after reading the story I want to puke.
How the %(%^(&*^(^(*&^ does anyone in their right mind get off saying “they have created” anything except a massive amount of debt and fraud! I am just so pissed. Alright we have argued, debated, and discussed whose fault it all is until the cows came home. However, one thing is certain. A lot of families are going to feel alot of pain. On top of that, this insanity that debt=wealth is slowly rotting this country of any realistic hope for the future.
When the common man who makes anywhere from 5-100K thinks leveraged a 1m piece of RE is wealth, he and his family have no real financial security in sight. Now, multiply that by hundreds of thousands and you have the US economy.
OCRenter I read your blog this morning by linking over. I just can’t imagine how these people seem to think that 1-1.5M is nothing. Even if I made 5 times what I make now, I still wouldn’t be in the 3X income range for that kind of debt. Who has these jobs that pay 500K/year? Who would even want to pay 25K a year in taxes. I would rather donate that money to a charity somewhere to feed or house people/children!
This story just goes to show you we have really hit the end of critical thinking in this country by the majority.
We have also debated on this blog what the FED will do. It won’t matter because whatever it does, the American people will still be debt waaaaay over their heads and they will continue to be there if they buy these waaaaaaay overpriced homes on 50-100K salaries.
Folks, the bottom line is once again make sure you have cash on hand, some money in metals, and maybe some foreign currency and stocks. I am not buying anything the debt creating machines and waaaay overpaid CEOs in this country are selling.
We are screwed!
Your so right OCDAN, and I’m pissed right along with you .
I don’t think people realize how much the bogus sub-prime market drove the market prices up by giving low down loans to speculators and unqualified liar loan buyers .
When a regular lender goes out and sees 5 purchase loans made in a tract they use those as comps. They don’t go into the fact that the sub-prime lender gave a bunch of people loans that are foreclosure bound creating a false demand and a unstable market .
So the sub-prime lender market that didn’t care about solid appraisal or the buyers qualifying set the prices for the market .
Does anybody wonder how it got out of hand and driven up price wise beyond reason .Apparently the secondary market was going for those higher yields on the adjustable creep loans not knowing that the appraisal were not solid and most the buyers needed appreciation to survive .You don’t make any loan based on the premise “real estate going up will reduce any risk .”
A unqualified buyer putting a no or low down on a house is just as bad as no demand because they should not of purchased the house to begin with and they can only be bailed out by appreciation . Speculators are almost just as bad because they can only last so long without rental cash flow if the market turns .
You had builders overbuilding just to sell to speculators and unqualified buyers with their “special lenders” which has created ghost towns where every other home is up for sale now with limited demand .
The creep lenders have destroyed the economy ,all for their short term gain and we are all going to suffer as a result . I hate them . The NAR/CAR ?Realtors did everything they could to put people in houses regardless of qualifying also with the cheerleader hype of “get in or be priced out forever ,real estate always goes up ,go on this ARM loan you can always refinance after you make a ton of appreciation,” spin.
The media not challenging a self-serving real estate industry that helped create a mania, that is doomed to crash,is another factor in the perfect storm of unchecked madness .
So, I agree with you my friend and I am pissed also .
Subprime lending pushed prices well beyond where they would have gone. This includes the huge amount of 100% financing and loans with unsustainable artificially low payments. This will also be the cause of the market continuing to worsen.
I am seeing many homes bought in the last 2 years for sale already, many with short sale wording in the listings.
Here is an example of a nice 1960s 3-bed track house in coastal Los Angeles area:
Oct 2004 Listed for sale %599,900
Dec 2004 Sold for $635,000 using 80/20 100% financing
Dec 2005 Refinanced cash-out 80/20 totaling 715,000
June 2006 Listed for Sale $759,000
Aug 2006 Lowered price to 755,000
Aug 2006 Later in month lowered again to 739,000
Nov 2006 Lowered to 639,000
Oops, with selling expenses, they are short at least $110,000. If the lender/lenders approve this short-sale, that is a big 1099 to pay taxes on. I did not have to look very hard to find this. There are many of them out there.
“Unfortunately, there are also a lot of families that took on huge mortgage debts based on the ephemeral peak values of their properties. In effect, they cashed in on the housing boom without cashing out. The withdrawals have been so big that the average household in Boston now has slightly less equity in its home than it did in 2000, according to an analysis by Moody’s that took inflation into account.”
I’m no R.E. expert like some of you here, but that sounds frickin hilarious. (By the way, I’m a reformed real estate coach. I’ve reprented of my sins.)
So financially, many of you are getting ready for the inevitable collapse and most definitely a recesion and perhaps a “panic”… (that’s what we used to call depressions and 2007 would be the centennial of the “panic of 1907″) will ensue…
How else are you getting ready?
We’ve borrowed a page from the Morrmons and have around 3 months of food on hand and really should have more, but I can only do so many Costco runs and you have to be a little cagey in what you buy as a lot of the food that’s yummy has a short shelf life.
My wife and I are in the process of starting gardening and growing veggies and have planted a number of fruit trees that will take a few years to bear results~
How are you geting ready?
I hope all of this is in jest, I mean, I read some of these blogs and it is a bit in “tin foil hat” land for me.
Are we going overboard in predicting financial doomsday?
I’d rather be prepared for something that may never happen, then wait until it’s happened and then act.
Besides,
Ya gotta eat.
Absolutely not. Stock up on gold, guns, and ammo. Civilization is going to come to an end because we can’t buy homes.
yeah, these people are some real whack jobs. Everyone knows the government will take care of us if something bad happens.
How am I trying to get ready? I am trying to get out. I am going to Europe for a job interview next week. I will gladly pay 40% in taxes if it means I get decent health insurance and a government that isn’t criminally stupid and inept. The only problem is (wait for it!) — I’d have to sell my house. Heh.
I’m getting my friends with rifles together so when the balloon goes up we can go and get all the food from the libertarian suvivalists with the bunkers and stockpiles. Good luck stopping us! I’d rather attack a bunker in Idaho than defend one.
Libertarians practice their shooting weekly, in decent weather, and maintain pretty good contact with each other. Most of us can hit more of any target with a single-action revolver, or lever-action rifle, and faster, than can modern-day hot-shots with automatics. Good luck with that plan.
I am heading toward the metals. If the dollar tanks, metals are gonna skyrocket. I don’t think Gold will ever go below $500 again and it may just stick at $600. The food stocpile is one I haven’t put much thought into, but I think that will be a New Year’s resoultion. Also, going to have a ton of cash on hand. I went through Northridge ‘94 with no gas in the tank and no cash on hand. Said I would go to the ATM and the gas station the next morning. Well, the next morning came, but with a nice little wake up call. Banks had lines out the doors in the Grenada Hills/Northridge area. I also want some actual Euros and Pounds on hand. The reason I want all of that on hand, cash, metals (coins), and foreign currency is that if you don’t have it on hand, getting a hold of it will be very hard. Think bank holidays. IOUs with the grocer will only work for so long.
OCDan, as a fellow RSM’er, I hope you are not taking survivalist fantasies of upperTrabuco Canyon too seriously.
Although, you could get some real land there and live out a long time if things collapse. Although refugees from LA might come and overwhelm South OC.
I do agree with you about having some food and cash on hand. I also keep my cars tanks filled, part and parcel of living in earthquake country.
I love it’s color, it’s brilliance, it’s divine heaviness…
Auric Goldfinger
I was quite impressed with the NY Times piece that argued that the data is not all that it appears to be. Many of the arguments raised in the article were right off this blog…
‘We all should be proud as an industry,’ Michael W. Perry, CEO of IndyMac Bank told his peers at the Mortgage Bankers Association’s annual convention in Chicago recently. ‘We have created an enormous amount of wealth for Americans.’”
Hi,
Debt is not wealth.
However, lenders aren’t selling homes at fire sale prices. ‘The banks have taken a stand, they will not give them away,’ he said. Typically, foreclosures can be purchased at no more than a 10 percent to 15 percent discount to the rest of the market, he said.”
GEEEEEEEEES……. Banks and lending institutions did not care about buyers on the way up over paying by 20% to 30% but all of a sudden they won’t sell if bid are over 10% to 15% discount.. No one should buy from these banks. Make them hold a non performing asset!!