Bits Bucket And Craigslist Finds For February 3, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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S&P/Case-Shiller Median Home Price Update with Futures
plus
something ot but worth watching / Chalk Drawings
http://immobilienblasen.blogspot.com/
“Median Home Price Update”
Nice graph. It is curious that the futures market expects prices to trend down at a small lower rate than they trended up in recent years. Don’t markets usually slope more steeply on the downhill side of a boom? I am wondering whether futures market participants think housing is different?
If those prices are nominal, then I suppose the downslope would get steeper if you took out the effect of inflation on real values…
Hi GS! I think these prices include the built in incentives, mortgage buy downs, etc and don’t account for the alleged 3% anual inflation rate…..Darryl
Danke schoen…
How the Case-Shiller index is calculated:
“Eligibility Criteria
To be eligible for inclusion in the indices, a house must be a single-family dwelling.
Condominiums and co-ops are specifically excluded. Houses included in the indices
must also have two or more recorded arms-length sale transactions. As a result, new
construction is excluded.”
Find me a house sold twice with an arms length sale transaction in the recent past! This is why I don’t trade these futures - way too much haziness in the calculations and easily maniputable.
“Find me a house sold twice with an arms length sale transaction in the recent past!”
Bingo! Selectivity bias rears its ugly head. And their index also implicitly assumes the price of homes whose market value recently dropped like a rock sell at the same rate as those whose market value is steadily climbing. Last time I checked, the homes in my area that won’t sell at last year’s price because the market value has fallen were still not selling at last year’s price. So in short, CSW has a problem of upward bias — which I guess helps explain why real estate always goes up!
the price ofhomes whose market valueAhh, my favorite dearly departed equine has presented itself for kicking again. I do love to read about people who are building overpriced unneeded houses eating them in my old neighborhood.
Many McMansions sitting unsold
Older neighborhoods have large inventory of teardown homes
11:01 PM CST on Friday, February 2, 2007
By STEVE BROWN / The Dallas Morning News
stevebrown@dallasnews.com
A building boom in teardown homes has left the Dallas area with a growing inventory of unsold new homes in older neighborhoods.
TXChick, what is the reputation for Allen, TX? I’ve been there once. It seemed like McMansion Land. We didn’t venture outside very much, except for the hotel pool. It was August and it was 99 degrees the day we got out of work. I thought the sun was going to melt my head. Nothing like touching a car door when it’s 99 degrees and the sun is raging.
I ask because I have a former co-worker that has his place for sale in Allen. It’s been on the market for a few months. He was just waiting for the Spring selling season for it to go. There was nothing else he could do. This guy was a good friend from my previous company so I didn’t mention the fact that he had full control over the “price” of the house. My least favorite line might be, “it’s priced right. It’s just not selling.” He didn’t use that. I’m just wondering is Allen still booming?
I can’t put into words how horrid that area is for people stuck and trying to sell. The three worst areas for sellers today are
Allen
Frisco
Little Elm
Those are places where there is too much building/ inventory on a factor of about 10 and land all around to keep building. It’s where they put up those awful junky tract houses in ant farm neighborhoods.
Tell the guy to consider the rotisserie plan.
“Tell the guy to consider the rotisserie plan.”
I’m not really familiar with that one. Am I supposed to tell him to go to Boston Market and get a chicken dinner? Help me out here.
It was a joke. In ‘05, someone put an article on here about people trying to get out of gas guzzling cars, so some crook concocted the “rotisserie plan;” i.e., torching it.
That’s funny. I’m sorry for being a little dense.
I’m also sorry to hear about my buddy’s situation. In sounds like he is in denial. I would guess that he might have been a heloc candidate. I don’t know how much equity they have. I think they live at the end of their means. He wants to move to another state and build there. I didn’t want to ask him why he would jump right into it in another state. They have two kids. The stigma of having kids and renting seems pretty strong. This whole thing is insane. People are living their lives the way they think they should live their lives, instead of the way they want to live their lives.
I would think the stigma of living in your car with two kids would be worse. I dunno though…
The stigma of having kids and renting seems pretty strong
Huh? I have two kids and rent, they spill grape juice on the carpet and it leaves a stain, I don’t care. They bring their art home from school and I tape it up on the wall.
I’ll buy when they get older and don’t wreck stuff so much.
“The stigma of having kids and renting seems pretty strong”
“Huh?”
I agree with cactus (3 kids here)…screw anyone who has a bias against renters. If they look down on my family and I just because we are renting, then they aren’t people who’s opinion I care about anyway.
Cactus - you sound like a delightful tenant.
but i think you illustrate nicely why it is that people choose to buy, rather than rent, and will always pay a premium to do so - they want to put down roots and make a nice home for themselves. Furthermore, when people do buy, they try buy in areas/developments with other homeowners, rather than renters, to avoid tenants such as yourself who don’t care about maintaining their properties.
Cactus — My four lovely children agree with you.
“but i think you illustrate nicely why it is that people choose to buy, rather than rent, and will always pay a premium to do so - they want to put down roots and make a nice home for themselves.”
With apologies to F. Nietzsche, The desire for large home ownership often grows too fast for incomes to keep up with. Then household financial security’s root remains weak and is easily torn up.
‘but i think you illustrate nicely why it is that people choose to buy, rather than rent, and will always pay a premium to do so - they want to put down roots and make a nice home for themselves.’
I have two kids, sold my house two years ago, and rent precisely to “put down roots” of financial stability that will last beyond the next housing crash. Throwing away one’s life savings because of some emotional button that an industry can push, however, does put one in the classification of plant matter.
rotisserie plan = Escondido condo construction escape clause
http://photos.signonsandiego.com/gallery1.5/070118condofire
Wow. 4 huge condo buildings torched. Any more info on that? News stories say it was “recklessly set” and police have a suspect, but will only pursue misdomeaner charges?? Sounds like a nicely staged event for D.R. Horton. Maybe slide a construction worker a few extra bucks to “accidently” toss a cigarette into a gas can? Suspect will play “no hablo engleise”, DR gets the insurance $$$ and skips town..
That just reeks to high heaven.
There is apparently demolition work in the aftermath of fires. Out of curiosity, can anyone who has worked in demolition tell me whether the guys dropping the wrecking ball on a charred mass of former condo investments secretly derive pleasure from the demolition process?
———————————————————————————-
Paramount fire demolition permits obtained
By: JO MORELAND - Staff Writer
ESCONDIDO —- The developer of the huge, unfinished Paramount condominium complex that burned last month in Escondido has gotten demolition permits for the four buildings that were destroyed, officials said Friday.
http://www.nctimes.com/articles/2007/02/03/news/inland/22_20_112_2_07.txt
Police Identify Condo-Fire Suspect
Fire’s Cost Estimated At $6.6M
POSTED: 2:30 pm PST January 31, 2007
UPDATED: 2:59 pm PST January 31, 2007
http://www.nbcsandiego.com/news/10891578/detail.html
GS,
We drove by that site last week. Fascinating how the condo towers were basically reduced to cinders — also noted the stacks of drywall in the midst of ashes, which was interesting — but the surrounding buildings were almost untouched.
The scene reminded me of a professional demolition, where only the targeted buildings were affected.
Guess the fire department did a very good job on that one.
I am in Plano, right next to all those cities, and they are building like mad out here. It is a nice family neighborhood but boring as hell. Pockets of strip malls and corp restaurants between tracts and tracts of inclosed unfriendly home communities. Plus, the new homes seem to be less expensive than buying a resale home. Also, the bank owned properties go up every month, although still not bad. Your friend should be fine in Allen IF..and that is a big IF priced right and tell him not to wait.
You New Yawkers 99 degrees is just getting warm,come on out to the cali deserts when its 115.
I’ll say it again…122 in Rancho Mirage (next to Palm Springs)
Phoenix also 122 on 6/26/90 - the airport was shut down temporarily until temp dropped. I’m no physics expert but something about the extreme heat made takeoffs difficult. That was some hot day!
Air density goes down as temperature goes up. This reduces lift.
To my knowledge as a retired airline pilot, Boeing aircraft I worked were restricted to 120 degrees F. for operations.
“Rancho Mirage”
Sounds like a great location to build ghost tract home developments…
“Mirage…ghost tract”
“I’ll say it again…122 in Rancho Mirage (next to Palm Springs)”
All those fb’ers buying those ‘affordable’ Mc Crapboxes in such furnace hellholes as Victorville, Coachella Valley,Palmcaster,ect., get a good desert roasting in 100%+ frying pan 8 months of the year. Add on lovely 200 mile daily commutes, desert wackos and methlab junkies, et, and presto, 200% foreclosure rates coming to a hi-desert Mcs*itbox oasis near you.
How secure are the water supplies for these places? Admittedly, I’m from the NE, but anyplace without secure and abundant water 20 years out is no place I’d spend a nickle.
Spike,
I lived in Ridgecrest in the late 80s and early to mid 90s. I remember a scientist there (and at that R & D navy base, there are tons of scientists) claimed there was enough water along the easter slope of the Sierra Nevada in the region near Ridgecrest to provide for a population of 100,000 people in that area. At that time, the population in the Indian Wells Valley was somewhere between 23,000 and 28,000. It’s ten miles from the southern Sierra Nevada mountains. They rise very abruptly on the east side. The western slope rises gradually. Inyokern is about 2600 feet above sea level. Less than five miles away to the north, you would be at the top of Olancha Peak, about 8,300 feet above sea level and officially in the Sierra Nevada range. As for “Palmcaster” and “VictorSperiaLanto,” I don’t know about their water outlook.
colorado river
hey bottomfeeder ain”t that the truth
my wife and i visited her uncle for “1″ day in september
tee off at 5am damn it is brutal
we rushed back to venice quickly
That is why I’ve never played golf. Can’t handle the tee times. I can get up that early (a few times a year) to go hunt a huge piece of meat that will feed my family for weeks or months, but otherwise, naaah, there are other sports and exercises that work really well later in the day.
–
http://money.cnn.com/magazines/fortune/fortune_archive/2007/02/05/8399151/index.htm?postversion=2007020209
A $510 million trailer park cashes out
The last people to strike it rich in the real estate boom may be residents of a Florida trailer park. Fortune’s Stephen Gandel reports.
By Stephen Gandel, Fortune
February 2 2007: 9:10 AM EST
(Fortune Magazine) — There are a lot of homeowners in Florida who are looking to sell and can’t get their asking price. The real estate boom they counted on to make them rich has passed them by. This story is not about them.
For the past few weeks, the 411 people who live at Briny Breezes, a 43-acre trailer park on the Atlantic about 60 miles north of Miami, have been facing the exact opposite situation.
In December a developer offered them much more than any of them paid - and much more than any of them ever expected to get - for their homes. On Jan. 10, a majority of residents voted to accept. Few of them, though, seem very happy about it.
The developer, Ocean Land Investments (OLI), bid $510 million. That means the owners of Briny Breezes’s 488 mobile homes (many of which could have been bought for less than $100,000 a few years ago) are now millionaires on paper.
OLI hopes to turn the community into a condo and hotel development. “It’s a really unique piece of land,” says Logan Pierson, head of acquisitions for OLI.
And it is. On a barrier island, Briny is sandwiched between million-dollar homes to the north and south and is the last significant piece of beachfront property in the area without mansions or a luxury high rise. For the past half-century it has been a co-op owned by middle-class residents, many of them retirees and snowbirds from up north.
Debbi Murray, the director of archives at the Palm Beach Historical Society, says she believes the chief legacy of the recent real estate boom will be the end of affordable housing. “We’ve priced the average person out of the market,” says Murray. “Briny was the last affordable community on the beach.” OLI says condo units in the development replacing Briny will start at $3 million.
…
lets start an Imploder like list of the high end tower cancelations complete with some the cheesy ads.
I’d like to see a Cat 5 Briny Breeze blow in and take out those $3M condos.
Or just let the housing bust take them out. Can you imagine what those $3 million condos will be going for in 10 years. I would guess $1 million.
I can understand living in condos here in NYC. There is nothing else to choose from. Why would you buy one if you could have a nice little place of your own? Or, if you are spending $3 million, you could have a nice big house with a full-time housekeeping staff. These REIC fools have lost their freaking minds.
My thoughts exactly. I understand the condo at the beach my dad has in Long Beach because you don’t have a choice if you live in that city and want to be on the sand, but places like Irvine,Ca people are nuts. And worse, who the hell would buy a condo that use to be an apartment. Apartments have been and always will be thin walled thin ceiling buildings and they don’t fix that when the convert. They just change the counter tops and carpet. Why are people so desperate to buy that crap.
At $1 million, the current trailer dwellers will be able to buy back in for cash.
$3m in 2017 may be worth $1m today, especially in terms of home prices. Remember that houses are financial assets, and hence any increases in their purchase prices are not part of inflation.
Could happen, better than converting them to a giant low income ghetto that is my almost prediction, I can hear the developers now, “we are trying to help with affordable housing, just give us a montstrous tax credit”
My understanding is the deal has NOT closed. The developer gets time to put entitlements and plans together. My guess…the deal will never happen. Wishing money for the mobile home residents.
Wanna bet some of them have already tried to monetize it thru selling options on the MHs? And that someone idiot has offered to buy them?
Hell, knowing what I know, I’d do that. I’d offer a 25% “discount” to someone willing to option me out now. Why not.
Paladin — my money is on the deal failing. Day late, dollar short. That notwithstanding, I’d have thought that some of the sellers would have cut a deal whereby they swapped their Briny equity for a sparkling new condo.
I think that this little trailer park, and its ultimate transformation (or failure thereof) could turn out to be one of the more interesting post-bubble stories that we will read for years after.
I’ve got a feeling the buyer has an “out” buried somewhere in the offer sheet. Let’s fastforward a year and see if the check gets written…..and clears the bank.
Dan — I’m with you 100% on that. I will bet even money that it does not go through, but I don’t have any emotion (hopes) in that analysis. In any event, I think it is a very interesting micro-event in the bubble-and-bust sequence.
The NY Times says the “fearless” young are still buying in New York.
http://www.nytimes.com/2007/02/04/realestate/04cov.html
Then again, the guy in the story works on Wall Street. And not everyone does. Moreover, Wall Street is highly cyclical, and it is no accident that most of the pay is in the form of bonuses that can be scrapped if next year isn’t so good, personally or overall. Looks like they’ve upsized to living off the salary and the bonus, all for a one bedroom that looks like it needs a lot of work.
fearfeckless‘But Mr. Hyman, a 27-year-old trader at Credit Suisse First Boston, and Mrs. Hyman, a 24-year-old elementary science teacher at the Grace Church School, lose all of their sentimentality when they talk about real estate.
“We’re more comfortable with taking on debt and paying tomorrow,” Mr. Hyman said. “If the cards topple, you can rent your place out and go somewhere cheaper.”’
The fearless young were daytrading out their mommy’s basements in 1999 and 2000 too and we continually read about how they were making $500K a year. Bet you I’ve been served a double order of fries by at least one or two of the fearless young since.
This nonsense is as old as time. The fearless young are also the ones who go tearing around at 90 mph in their muscle cars. They’re all going to live forever, you know?
Young Masters of the Universe. Possibly the most obnoxious creatures currently roaming the planet.
Most of us were like that at some point, thank god no one offered us 100% financing IO loans…
Someone did offer us 100% financing IO loans, but fortunately not when I was that young.
BTW, you may have noticed the couple in the article bought with 10% down (= $80K+). The problem they will face going forward is that many who bought in the same price range bought with 0% down IO, and this group will soon no longer be around to help prop up the auction price (= maximum bid), as it is fairly unusual to see cab drivers and hairdressers getting qualified to invest in this price range.
The image that pops into my mind is that of the Three Stooges in an episode when they are in the army. The seargant asks for volunteers out of a line of soldiers, and all of them except for Moe, Larry and Curly step back.
Ft. Lauderdale — agreed, in that when I was at that age, no one would offer me/us the sort of financing this couple received.
“If the cards topple, you can rent your place out and go somewhere cheaper.”
That is the signature financial illusion and ultimate curse of today’s young. It assumes that when the cards topple for them, the cards will not also topple for everyone else, or at least most others, among whom are virtually 100% of the potential renters they have assumed they will survive upon.
I predict that Oprah will make another billion off the aftermath of all this. Boo Hoo, ultra-redux.
The fearless young are also the ones who go tearing around at 90 mph in their muscle cars. They’re all going to live forever, you know?
Cue Andy Reid’s
dip$hit sons
This site also has HBB relevance. The Save Ardmore Coalition was formed to keep a long-established Main Line community from being sprawl-i-fied and mall-i-fied. IIRC the Coalition was started when a developer attempted an eminent domain grab.
(Andy Reid = Eagles coach, for those who don’t eat breathe and sing football)
….According to court records, Garrett Reid has a pile of speeding tickets. In 2001, he was stopped for driving 74 mph in a 55-mph zone in Chester County. And twice in 2004, he got tickets for driving more than 5 mph above the speed limit in Montgomery County….After the crash, investigators filed search warrants for Reid’s home and the SUV that Britt was driving, NBC 10 reported. Police recovered two weapons - one from the SUV and a platinum handgun from the Reid home, NBC 10 reported.
And that has to do with housing values (as opposed to feminism), how?
Chip,
Out of simple curiosity, how did that relate to feminism?
The site Phillygal linked wasn’t working, but I looked the story up on Google. Didn’t see anything having to do with feminism…???
Just curious.
Sorry about the messed up link. It looks like they had a system upgrade going on. Maybe this one will work:
Andy Reid’s rugrats
I followed this thread up to the original post in which reference was made to how “the fearless young” have different attitudes re: taking on debt. That then morphed into how some young guys muscle around in their vehicles. And that reminded me of Andy Reid and his now notorious offspring. Because they’re in the same age bracket.
The original link (that didn’t link) had to do with housing values because Ardmore is an established community that is trying to maintain its character and fend off development that will inevitably drive up property values. Why the Andy Reid story showed up on the Save Ardmore site, I can only surmise. Maybe Mr. Reid lives in Montgomery County.
As for feminism, your guess is as good as mine. Maybe you happened to catch the link at some moment right before it upgraded and you were re-directed to “Gloria Steinem’s Goals for 2007″ website ?
This is too much thinking and writing for a Sunday morning, I mean afternoon. Chip, I’m bringing you up on charges of Brain Abuse.
I believe it. Many new younger employees in Silicon Valley are interested in Striking it Rich with Stock Options. None are interested in making something new that will benefit people. They call themself tech savy because they own an IPOD, an overhyped toy.
The flip side is they are unaware that only 56 went public last year while 400 were acquired. Since the VCs bought at 5 cents a share and sell at $2 bucks, employees bearly get their investment pack 100%.
nothing too bad about the article, at least the buyers are doing research now. how many people buy into the toll brothers luxury scam only to find out they are one of the worst builders.
they are taking on risk, but NYC you need to do your research because values fluctuate depending on the building. And building financials are important since a bankrupt building means you lose everything except for the mortgage
So I guess you think that young couple was pretty clever for sinking $875K into a dinky apartment?
Nothing too bad, eh? “They can easily rent out their apartment” according to the article. OK, how much per month? Nowhere near enough to justify a $900K price
That probably comes out to about $7,000 - $8,000 per month. Yeah right. For that kind of money I could have a monster apartment in this city. Not some 700 square foot 2-bedroom in Midtown.
These idiots just amaze me. The attitude around here is so ridiculous. I had a co-worker tell me “it’s different here” just yesterday. I thought he was messing with me. He wasn’t. He firmly believes it. Everybody in Manhattan still thinks all of this $hit is being bought with cash. Nobody will believe that it is Kamikaze loans that are keeping these prices up.
Manhattan will be one of the last markets to fall but it will fall by 40 - 50 percent. That is still my prediction.
“Nobody will believe that it is Kamikaze loans that are keeping these prices up.”
From the article:
“While many buyers under 30 are getting financial help from their families, they are also turning to aggressive financing. Data collected by the National Association of Realtors show that nearly 65 percent of first-time home buyers finance more than 95 percent of the cost. A first-time buyer is also far more likely to have a mortgage that begins with an attractive interest rate and adjusts periodically.”
““My parents freaked out when I said I was doing a seven-year, interest-only ARM,” she said. “They’ve always bought properties that they’ve owned for life. In the end, they agreed with her that it was smarter to own than to rent…”
Note to Charlotte Lewis, Brooklyn-based photographer, and her parents:
An interest only ARM is the same as renting from the bank with a variable rent (that is at historic lows) while taking on the asset price risk. Except you get to paint the walls. Oh well.
I believe it was 1974 when manhattan fell like that last time…
My aunt, a real estate agent, low balled on a upper east side penthouse at the bottom. She has a waiting list for guests!
Got popcorn?
Neil
“Manhattan will be one of the last markets to fall but it will fall by 40 - 50 percent. That is still my prediction”
That is the scenario for the LA Westside as well. Imagine Bargain -basement prices for Beverly hills digs for one-half of 2006 peak prices.
I believe NYC went bankrupt that time
GS
NYC never went bankrupt, Felix Rohatyn with Prez Ford’s reluctant help, created bonds backed by the feds. The city paid back the bonds and interest by ‘80. Those advising Ford to let the city and the financial markets collapse were Cheney, Rumsfeld…I kid you not.
On that I/o from Brooklyn, and the 2 bed in Midtown, no mention of the maintenance fees…which could easily add 800-1200 a month, also prop. taxes, which in Manhattan are not terrible. My fave, the couple who paid half a million to live in 117th ST. in Spanish Harlem, home to drug dealers, street crime/grime, dangerous projects and nothing, but nothing but crumbling tenements. Shopping–yeah, off track betting, and grungy bodegas. Think Compton without all the charm.
Yeah dba, I agree there’s nothing too bad in the article!
Naomi LaHaie, a 24-year-old art director in the Connecticut office of an advertising agency, spent six months searching brokers’ Web sites for apartments. Each Sunday, she traveled from Milford, Conn., to visit as many as seven open houses. (Thanksgiving weekend was her only break.)
Even with some help from her parents in putting together a deposit, she knew she would need a roommate, so she looked at places with two similarly sized bedrooms. She ruled out buildings where she found that the doorman on duty was less than friendly, thinking that would make it less attractive to a potential roommate. She also avoided the Lower East Side and the East Village because she thought a quieter neighborhood would be more attractive for resale.
After visiting 61 Manhattan apartments, she recently put down a deposit for a two-bedroom, two-bath condo at 555 West 23rd Street, priced at $1.1 million.
“It was brand-new, and it was all feng shui-ed, and there was a gym, and it was all friendly,” she said. “If the doorman is really friendly, you get a good vibe.”
24 year old art directors paying 1.1 million because the doorman is nice. That’s some amazing research those smart New Yorkers do!!
Oh COME ON. How much does a 24 year old art director make in NYC? Let’s hear some guesses, because I can almost promise it is nowhere NEAR the 300K number you really need to afford a 1.1 million dollar home!
Nice doorman?
I hate you guys, I already have a headache just thinking about that one.
I bet she’s making $70,000 tops. This has the wreak of Interest Only and Bank of Mommy and Daddy subsidizing. This city is living so far beyond its means it’s laughable.
The talk of that $16 billion in bonuses gives everybody a wet spot. They forget that half of that probably went to 1,000 - 2,000 executives. And many of them live in Long Island, New Jersey, Westchester, Brooklyn, etc. Not all of that money stays on this damn island.
You really need to see how much building is going on here to understand the oncoming glut of condos. It appears they will all finish right around the same time. Eveybody had the exact same idea at the exact same moment. They should be here just in time for the Q4 2007 recession. Sweet!
“They forget that half of that probably went to 1,000 - 2,000 executives.”
Exactimento, amigo. 1-2 thousand executives’ bonuses cannot prop up the entire NYC market, no matter what the financial press propaganda suggests…
NYCityBoy
Correct. All these large bonus numbers get the juices of the young and ambitious flowing but the truth is, it’s the pals of Paulson who skim most of the cream. The rest get to lick the plate after they have fed.
The other thing which makes me groan is the phrase, “Art Director”. Does that mean she has a degree in liberal arts? Jeez. For 99% of those who hold that kind of degree, most of whom had dreams of becoming an actor or some position in the creative field, it usually ends up being a piece of paper they can wedge under the door of their cheaply rented room to keep the draft out as they boil thin soup over a one ring gas burner. Whenever I see the phrase, employed as a “Art Director”, two things come to mind. Job insecurity and age. Usually, job insecurity increases with age. Let’s hope she can pay off her mortgage before those two things bit her on the a**.
…and half of all that went to the government.
Clearly, you don’t know much about television/film/print advertising… because, if you did, you would know what an “Art Director” does…. and no, I’m not one myself…
But I think this is one of the best examples I’ve seen of pontification where the pontificator knows nothing about the subject!
WeHo Render, clue us in, how much DOES “a 24-year-old art director in the Connecticut office of an advertising agency” make? A ballpark figure would be fine.
So what does a 24-year old art director do and what do they make? Enlighten us.
It really depends on what kind (size) agency they work at, what kind of clients they have, etc… and I don’t know about NY market (I work in LA market in film & TV)….
Buuuutttt… it’s not inconceivable, *if* they were really good, worked at a big agency, with a decent bonus, they *could* be making 200-250K, especially if they negotiated a commission on any clients that they brought to the agency… this also presumes that they are working primarily in print medium… in feature films, “art directors” are generally called “production designers” (although there are some “art director” titles in effects-heavy/animation films - a really good one of *these* people is going to be well over 200K..)
One thing to remember is that film/TV and advertising (to an extent) are not subject to quite the same rules of hierarchy/age/doing-time-in-a-firm that some other industries are… just because someone is 24 doesn’t *necessarily* mean they are sorting mail, making copies, pasting art to foam core for the presentations, etc…
All this said, it’s probably not *likely* that our 24-year-old heroine is making 200-250K, but it’s possible.
Hope this helps…
“Oh COME ON. How much does a 24 year old art director make in NYC?
Generally you need to have worked in advertising a little longer than two years out of college to be earning any serious bank. (Sorry WeHo, a 24 year old AD might be a good designer and have monster web skillz, but part of the job description is to manage a staff, and no 24 yr. old has those kind of chops. East Coast style, anyway.)
Also, from what I’ve seen, the terms “Art Director” and “Creative Director” are essentially meaningless anymore. My guess is that somebody gave Naomi that feel-good title because daddy was owed a favor by one of the principals.
From the article:
“Even with some help from her parents in putting together a deposit she knew she would need a roommate,”
So Naomi isn’t sitting that pretty, just yet!
Sounds like lucky sperm club member to me.
LOL! Future Darwin award recipients…
i work about 3 blocks away from 555 w23street and
this lady is crazy, they are building on every crvice in chelsea and the inventory is soaring, this will take time
24 year old with a “million dollar apt”?
no bubble here kids move along
““You have a new kind of buyer today,” said Dottie Herman, the chief executive of Prudential Douglas Elliman Real Estate. “Twenty years ago, it was ‘Pay everything off in cash and have no debt.’ Ten years ago, it was ‘Have some debt.’ If they want something now, they figure out a creative way to finance it.””
“The mind-set of younger buyers may dominate the patterns of buying in New York City for years to come. Their liberated attitude toward borrowing is helping to keep prices stable. ”
LIBERATED attitude toward borrowing. Oh, I see. The old way of only buying what you can afford is the old, stodgy way, while the “figure out a creative way to finance it” way is the LIBERATED view.
The way that the NY Times glamorizes buyers vs. renters (that ‘renters failure to commit’ article) and spending beyond your means by being ‘creative’ is kind of sick.
But what do I know, I’m just a bitter renter with a failure to commit and no creativity in financing options.
I’m not sure that today’s youg are any dumber and less risk averse than their elders were at that age. I am sure that people have been more willing to lend them money than used to be the case.
Sick indeed… How is the current financing trend in any way “liberating”? If anything, it’s the opposite. This is not just lack of brains, but lack of morals.
It’s just DNA combined with DMALs (Dumb-Ass Lenders). The stuff of one of those feel-good Disney movies about the lion and the cycle of life. Reminds me of the recent London rag photo of a pelican in London with a live (cheap-lunch) pigeon in its beak. The Brits posting were horrified. I suggested they never, ever consider a holiday in Kenya. I shoot pigeons for target practice. They are flying rats. In a perfect world, they would crap on every pigeon-lover’s car.
Im renting! Many have seen RE as a bubble since 1999 in Silicon Valley. Renting is 45% of Owning.
The argument is not about Renting vs Owning. Its about financial fundementals, real estate price history and understanding the NAR hype. Those who want to buy see the danger rent. Some homeowners also see the dander and sold out and currently rent.
Rent vs Own does not scratch the surface of the debate.
they recently closed on an $875,000 two-bedroom co-op in Midtown. As owners in a building with relatively lenient policies, like 10 percent down payments and flexible sublets, the Hymans talk about their apartment as a strategic investment that they someday plan to turn into cash.
“We’re more comfortable with taking on debt and paying tomorrow,” Mr. Hyman said. “If the cards topple, you can rent your place out and go somewhere cheaper.”
They are either both freater fools, or he’s pussywhipped. Strategic investment my ass. Wonder what kind of trades he is doing at CSFB. Then again, fits the definition of a Risklove.
” Then again, fits the definition of a Risklove.”
You got that right. Manhattan crashed hard in 89/90, didn’t start to recover until 93/94. These idjits should have done a little research in the NYimes archives–tons of articles on then “investors” who couldn’t find renters to cover half their costs–it was only 12 years ago. Glad they’re comfortable with debt–they’re gonna have it for decades. Idjit parents and Idjit spawn.
Big news this morning in northern Maine, where a battle between the people of Maine and the largest Real Estate Investment trust in the U.S. is shaping up. http://tinyurl.com/265cda
This development is in THE MIDDLE OF NOWHERE, which is precisely why it’s always been one of the wildest areas in the country and a favorite of fishermen, hunters and other outdoors types.
The people in this part of Maine are very poor as measured by money. But they are rich in the surrounding beauty and recreation they have been blessed with.
So now, Plum Creek, the nation’s largest landowner is riding in on a white horse from their native Seattle to save the poor people of northern Maine from themselves — and make a gigantic fortune in the process.
What is really happening is the area is being turned over to the wealthy from away and the native Mainers will become even more poor in the long run. This is a classic manifestation of the polarization between rich and poor we see becoming even more pronounced in the single digits of this century.
The one good thing is it’s far away from population centers and it’s cold. This should keep out some of the rich-raff.
“Rich-raff”. I love it.
Palmetto/Beehive — agreed — added that to my “classic quotes and phrases” list from Ben’s blog.
I have something I’ve wanted to see discussed on this blog for a while. We always talk about what % of income should be spent on housing. People have different ideas on this but many say no more than 20 - 30 percent of gross income.
I think this number by itself doesn’t say much. I think there are 3 major expenses that we all have. They should be looked at in aggregate when making housing decisions. I think we should add up housing costs + utilities + transportation = overall living costs. Food and clothing is usually similar for all areas so I don’t include that here.
Take my situation, for example. People that I know from back home laugh at what I pay in rent. Yes it is very high. But the other 2 expenses are very low. I would love to see what others are paying, or what they think the typical payment around them is.
Location: New York, NY
Housing: $2,500
Utilities: $80
Transportation: $200 ($152 pre-tax for 2 unlimited use Metrocards plus a miscellaneous $50 a month for taxis and trains)
That makes my monthly nut about $2,800 per month. The advantages of New York are no car payment. I really don’t know how much cars cost any more. I don’t pay car insurance. I typically don’t know how much gas costs. And a small apartment requires very little in way of utilities (gas + electricity + water). Transportation is obviously the most variable of these 3 costs but you can get an idea of what those around you are doing. They might have 2 payments. One is a Suburban and the second is a Honda Accord. That would probably be ??? in car payments.
Please share your experience. It would be nice to see what people are really putting out as their monthly nut.
in queens you can afford to buy an apartment and a car
And I would be in Queens. I hear about how great it is to live in the Boroughs. They are so much cheaper. Then any time there is a cloud in the sky I get to listen to everybody in my office piss and moan at how awful their commute was. I must be missing something. Is it great or isn’t it? A 45 minute commute might take 2 hours if a snowflake is in the air. The MTA is awful. I like to know that I can walk to or from work whenever I need to. That has a large benefit to it.
And where is the aparment I can buy? And what kind of car am I buying?
The once difference between your situation and my situation circa 1986 is housing. We lived on a ground floor apartment next to the Prospect Expressway in the outer boroughs at $500 per month. Perhaps $1,200 now? I had previously lived in the Bronx. We never considered Manhattan, and we didn’t have a car.
That said, there is something to Manhattan. We didn’t want to come home from there at night on a weeknight, so we didn’t really participate in what it had to offer other than work.
My advice is this. From the two Metrocards, can I conclude you are a young couple? Do you want to have kids someday? Go back to school? Change careers? Give to charity? Save for the kid’s college, or retirement?
Our goal was, and is, to be “semi-independently wealthy.” Live on one income. The rest gets saved, or given away. And pre-kids and home purchase, it was almost all saved. It pays off later, big time. Housing can be any percent of one income (preferably not the highest, or not by much) your lifestyle prefers.
Good advice. Wife and I are currently DINKs, but our goal was to live in a way that we would be okay once we start having kids. We’re in Lancaster CA and that’s one place we can get away with doing that. Rent is $950 for a 2/1, $500 for 2 cars and insurance, utilities roughly $150, maybe $250 when we kick up the AC during the summer. We both work in town, so gas expenses are minimal unless we go out of town for “social and cultural experiences”. We could buy something at the median price here, but there’s no way we’re jumping into a tanking market. In the 90s, about half of the 40,000 housing units went into foreclosure here. History will repeat itself if not worse. I’ll buy if the mortgage payment and taxes and insurance is equal or is less than my rent at a 15 year fixed rate. Even then, I would have to consider when this will bottom out.
hey dba where in queens? besides a coop can you live and have a new car for 2800 a month?
rego park and i bought a 1br coop back in 2003
$2000 a month for mortgage, maintenance, utilities, car, and garage space
$76 a month for metro card and the queens blvd lines run very nicely. i get a seat almost every morning and around half the time on the way back home. don’t even work in manhattan. takes me around 20 minutes to get to work by train. 40 minutes if i stop by starbucks.
sometimes i work on 12th ave and it takes me around 1 hour including walking from the 8th ave subway. there is a lot of money in artsy careers in chelsea
Good topic, and your situation demonstrates why I wish we had more public transportation…
we rent 2300, no car payments but about 450 for insurance and gas for the two vehicles
most disposable income goes to the boats, I don’t like to add it up, too painful but at least we are maxed out with our 401K’s etc. and we have nice lump of cash from selling the house.
Oh yes, house (contents) and boat insurance is around 400 per month I think.
“housing costs + utilities + transportation = overall living costs”
Economists have written about this tradeoff between transportation costs and location rents (what you pay to live closer to Manhattan, for instance) dating back to the work of van Thuenen in the 19th century.
http://en.wikipedia.org/wiki/Johann_Heinrich_von_Th%C3%BCnen
I agree that utilities should be part of the equation (bigger houses cost twice as much to heat). Generally, I am guessing you could assume a flat percentage markup over the purchase price of a home to reflect the present value of all other future ownership costs (utilities, maintenance, PITI, etc) not be too far off the mark. In other words, homes that are 10% larger will carry roughly 10% higher long-run ownership costs.
Well, first off, I would like to start by saying that I am a DINK, so my numbers might seem a bit high. Here goes:
Location: Palm Beach Gardens, FL
Housing: 2K
Utilities: 200-300
Transportation: 1,300 (including insurance)
Let’s call it 3600/mo. Add on the 20K of debt that my gf (not greater fool, although..) came into the realationship with, which I am paying as quickly as humanly possible, and it takes the number into the strastosphere. But, that’s not really your question, the monthly nut is right around 3600 for me right now. That is right around 1/2 the monthly nut I would have if I had bought the same property (using a real morgage).
Use this site here for historical % of median houshold income to service P&I.
Somewhere between 25 and 55% of HH income in OC, CA.
http://www.thebubblebuster.com/orangecounty/summary.html
Check out the other cities and national trends.
Location: Phoenix, AZ and a small “burg” in Iowa where my “official” residence is this year.
Rent: $1025
Utilities: $180 to $300
Transportation (including auto Insurance) $125 / month
Total worst case $1,450 per month.
Bill — that is better than I am doing, though I live well, direct waterfront, two covered spaces, close to good restaurants, monthly Rent $2K; utilities under $200. Insurance under $100 and cars are optional (toys), so don’t count for much in the expense total.
Another item that can really swing monthly expenses is health care - employer paid, partly paid, or individual paid in total. Family plans can run over $10,000 a year. We spend over $5,000 per year on a partial employer paid plan, including our own HSA contributions.
Yep. Especially if you lose employer-provided health care in your 50s — pre-Medicare, post youth. I’ve always had health insurance but what does it matter? I’ve never needed health care.
“housing costs + utilities + transportation = overall living costs.”
We have three kids, so there are extra costs right there.
hey here is my deal
location-rego park queens ny (30 mons door to door commute)
rent-$600 (my in-laws own my place all i pay is maint/garage)
car ins-$160 month (2002 economy car with 45k miles paid off)
metrocard (2) $160 month
gym-$80 (my wife works-ot 5x a week-god bless her)
cable-$110 with dsl service
cell-$80 for 2 phones
land phone-$50
our dog-$40 bucks for food
no electric or gas bill
now although i want out of my place i am in no rush
15% of both salaries in 401k
major monthly deposits in tax exempt money market
eat out when we want and $0 cc debt
nice vacations at least once yearly
a bitter renter with great credit no debt and
a nice nest egg but yet just a lowly renter
whoa is me
well it is around $1300 a month total
i know i know i am not building equity
mgnyc — at those costs, you not only have no call/reason to be bitter, you should be delighted! Take some time to calculate what it would cost you to own the level of place you’re living in — I believe you’ll be very grateful for what you have.
I’m in Western suburb of Portland, OR:
Rent: $1025 (2BR/2.5ba rowhouse)
Utilities: 175
Transportation: ~300 (13 yr old car, liability only insurance, short commute)
Hey NYCBoy–no cable, no road runner? I’d love to know how to beat those two costs. Please share.
2000 sq/ft, two story, full masonry, 4B/2br.
PITI: 1000/month (5.5%/15 yr fixed)
Utilities: 175/month total average
Cars: 2, owned in the old sense; 1400/year insurance+ 300/yr taxes; gas Toyota truck 25/month max; Prius 10/month average (12000 combined miles/year.)
Figure 500/year total maintainence
220/month total (This is a lot of money–I need to look at this in the future)
1395/month total to house and cars.
Ljay — you apparently bought a place for $100,000-110,000. At 2,000 sq. ft. of living area, that seems like a pretty good deal anywhere in the U.S., though you failed to mention where this is. Interesting that you would spend almost half the cost of your house on your Prius, but that’s your business.
NYCBoy — in most ways, I can’t relate, but I definitely agree that if you can live well without a car, your available cash improves your living situation a lot. The rest of us, probably 90% of the country and of posters here, just assume car expenses. Most of us, I suspect, could not stand to live in such restrictive confines as your own. But you have a good point about the offsets. Glad you like.
San Diego County.
Rent 4/2 SFH: $2,100
Cars (2, paid off) TOTAL: $315
-gas- $150 (live close to work)
-ins- $110/month
-reg- $30/month
-maint- $25/month (guessing for an average)
Utilities, TOTAL: $525/mo
-gas & elec- $300 (that’s high, when cold)
-water- $85/mo
-cable & internet- $95/mo
-phone $45/mo
That makes a grand total of $2,940, if my calculations are correct.
BTW, if we had bought our house at the time we rented it, we’d be paying a total of about $4,328/mo just for PITI (no maint or tax ded calculated) — and that’s if we had put 20% down.
Renting is a no-brainer, IMHO.
I was driving home from work last night after sunset and passed the New Century Mortgage building complex in San Diego at SR 56 and I-15. The place looked deserted at 6:30pm on a Friday, including darkened windows in most of the building. Is the place deserted? And where does New Century rank on the list of subprime lenders at risk?
Is it really suprising that at 6:30 on a Friday night an office building would be deserted?
I think that is reaching a bit.
“Is it really suprising that at 6:30 on a Friday night an office building would be deserted?”
Yes. Especially since it also looks deserted at midday. It is just easier to notice when all the windows in a large office building are darkened early on a work night evening.
GS:
With respect for a long-time poster
you strike me as a cantakerous old coot…
Don’t you know these new kids are out partying on a Friday night?
How long has it been since you were in your workplace office at 6:30 on a Friday evening?
If you meant to say deserted at mid-day why didn’t you say that the first time?
“you strike me as a cantakerous old coot”
I write older than I look, fortunately
get stucco i hope your young
you must need energy to deal with those 4 children
god bless ya
my cousin has 3 i do not know how you guys do it
more power to you
Sunsetbeach — c’mon — that’s unfair. GS contributes a heck of a lot of great stuff here, particularly useful since the disappearance of Professor Bear. I think GS’s point was, quite accurately, that mortgage companies these days have so little business that they never have to stay late, as opposed to their “golden” days. I think you knew that, too. so, no-fair on the cheap shot.
I’ve noticed the same thing while driving by there on different evenings, GS. Not many lights are on in that building during normal hours. Later on in the evening, the lights seem to go on for the night. It’s much brighter and a curiously interesting contrast.
ON JAN. 9, one of the largest sub-prime lenders in the United States, Option One Mortgage, notified all its mortgage brokers in Rhode Island that it would no longer accept applications for loans for owner-occupied properties in the Ocean State.
There are about 1,100 licensed mortgage-broker shops in the state, and the so called sub-prime market constitutes nearly 18 percent of the market. Lenders like Option One provide mortgages for individuals, many of them members of minority groups, who cannot obtain loans from traditional banks and credit unions.
Option One is not alone in its decision to withdraw from Rhode Island. Other large companies, such as Argent Mortgage and New Century Mortgage, have quickly followed suit. They are leaving for a simple reason. During last year’s General Assembly session, the anti-business leadership on Smith Hill passed a horrible piece of legislation titled The Rhode Island Home Loan Protection Act.
The philosophy behind the bill is based on the premise that all potential borrowers are entitled to the same interest rates on their mortgages no matter what their previous credit histories.
http://www.projo.com/opinion/letters/content/CT_sullivan3_02-03-07_RF40T0Q.c8738.html
.
Wow! I don’t think I’ve ever seen government hand out cynide laced Koolaid to that degree. I have zero sympathy for mortgage brokers but forcing mortgage brokers/banks to regard people with bad a credit history as equal to those with a good credit is crazy. There ARE exceptions for those who had reason to go bankrupt. Medical expenses being number one. I’ve come across a few people who went bankrupt who, except for getting caught by exceptional and unexpected medical expenses, were reliable individuals. If I were involved in the mortgage industry (don’t hold your breath) I would hi-tail it out of ANY state which brought in that kind of legislation.
It’s almost beyond belief. Mindless liberalism run amok.
The far left and the far right both stink, so please no anti-Bush rants.
“The philosophy behind the bill is based on the premise that all potential borrowers are entitled to the same interest rates on their mortgages no matter what their previous credit histories.”
Bwah-hah-hah-hah-ha! And I’d been complaining that *investors* had been ignoring any sort of risk premium…now RI has *outlawed* a risk premium? Bwah-hah-hah-hah-hah-hah!
So now will borrowers with good credit scores in RI get *worse* rates now that they have to subsidize sub prime?
Yup. If this insanity passed, everyone would paythe worst subprime rates. That’s why I can’t imagine it ever passing. You’d end up with a couple of RI-only companies that only offered subprime rates to everyone. Now THAT would help home prices recover. NOT.
According to the O.P., it is law. Hence, the exodus.
Well I stand by my other statement then. There will be a couple of in state only companies that will charge subprime rates to everyone.
“The philosophy behind the bill is based on the premise that all potential borrowers are entitled to the same interest rates on their mortgages no matter what their previous credit histories.”
What wingnut ignoramus economicus wrote this bill?
Genius… let’s take away people’s incentive to maintain good credit.
does the law also include a provision that the lender cannot reject any load application?
http://www.marketwatch.com/news/story/wall-street-picks-home-builder-stocks/story.aspx?guid=%7B616FD01A%2D9466%2D446B%2D8467%2DCCDB8ADDC7DA%7D&siteid=yhoo&dist=yhoo
nice story about why some builder stocks are going up and others are dropping
Canabalism will only get the home construction industry so far against a backdrop of subprime lending collapse, falling prices, 2.1m vacant homes currently on the market and more in the construction pipeline based on the “soft landing” hypothesis.
http://en.wikipedia.org/wiki/Cannibalism
Canibalism huh? How long till they all catch kuru?
Unemployment rate hiccups, hits 4-month high
Job market stayed solid in Jan., government says
By Jeannine Aversa
ASSOCIATED PRESS
February 3, 2007
WASHINGTON – Wary employers slowed hiring in January, pushing the unemployment rate to a four-month high of 4.6 percent and giving job seekers a bumpy start to the year.
Still, the Labor Department’s employment report yesterday suggested the jobs market remains in solid shape.
The more subdued job creation in January – 111,000 new positions compared with 206,000 in December – is consistent with the expectation that the economy’s growth as a whole will moderate. That means the unemployment rate may well slowly climb this year.
http://www.signonsandiego.com/uniontrib/20070203/news_1b3economy.html
New links are now on the website. Thanks for reading!!!
http://madisonhousingbubble.blogspot.com/
Article in Saturday’s Washington Post concerning pressure on RE appraisers from mortgage brokers and RE agents.
Appraisers Under Pressure To Inflate Values
“[...] Alan Hummel, senior vice president of Forsythe Appraisals of St. Paul, Minn [...] Bottom line in Hummel’s view: Congress needs to enact legislation making pressuring appraisers to distort their valuations, or interfering with appraisals in any way, a federal offense, subject to criminal penalties. And state regulators need to step up enforcement against fraudulent appraisals, pressure tactics and appraisers who give in.”
Fairly strong stuff for the WashPo.
Look for a similarly titled article next year with a 180 degree change in message:
“Appraisers Under Pressure to Correctly State Values”
Old news not much made about it by congress but still going in many cities in all states. http://www.appraiserspetition.com/
Its goes like this.
1) Realtor tells the buyers there are multiple bids (unconfirmed to number of bidders or amounts) forcing buyer to overbid 5-10-??%
Notice in the past all bids were lowball offers under asking. Now days real estate tells the buyer, “RE always goes up” and all the other hype.
2) Eventually realtor finds buyer willing to overbid and pays using exotic financing.
Biggest hype here was telling buyer “you buying the monthly payment, so dont worry about it”
3) Mortgage Broker/Realtor pretty much force apprasiers to inflate value regardless of comps.
Repeat cycle. We hardly had overbidding in past years. Low interest rates partly fueled the prices, but since when did lower cost of money increase home prices. Back early 90’s prices declined along with interest rates which did bottom to 3%.
My 2cents…
Especially since it was in the RE section not the business section. The business section has had some actual, reasonable bubble stories, but the RE section is filled with cheerleader articles IMHO.
The Wealth Effect. LOL
http://www.marketwatch.com/news/story/richer-you-better-your-sex/story.aspx?guid=%7B0ED91D0E%2D2346%2D4BBD%2D9B01%2D853A6F483701%7D
I think it’s because the more wealth you have, the more likely you can afford to be a sugar daddy (or sugar mommy)!
Take it from a father of four, the wealth effect can work both ways…
So for people who pretend to be rich, it’s just …
If joining the mile high club is considered wild and freedom finding sex…..especially when they’re in their own private plane….
I’d say their image of wild and crazy is all wrapped up in their higher self-image. Gheesh!
I’d say there was more craziness going on in my freshman years college dorms!
thnx txchick, as a Netjets investor I collect these stories.
Let me give you a preview of a coming scandal, just to illustrate the chase for yields. In the US, about 25% of the mortgages on new homes are what is known as sub-prime mortgages. These are mortgages that are slightly less creditworthy and therefore offer higher interest rates. In the beginning this was a good thing, as first-time owners and those just starting out in life were given an opportunity to own their own homes.
But then came a world of liquidity looking for yield. Investors demonstrated a large appetite for these mortgages. Investment banks would buy those high-yielding sub-prime loans and package them into something called Residential Mortgage Backed Securities. Now, a sub-prime loan is not considered an investment-grade security. But when you put a group of them together into a pool and break them up into various sub-groups or tranches, through the alchemy of high finance, you turn lead into gold. You create high-grade bonds from sub-prime debt. In fact, 80% of those grouped together get a AAA rating, because that tranche gets the first monies paid back to the debt pool. And it probably is pretty safe money. No problems yet.
Then the investment bank starts slicing smaller parts of the pool and eventually ends up with the final 4% getting a below-investment-grade BBB rating. Again, this is all a good thing as it allows investors to buy the risk they want and makes for a more liquid real estate market. But then we start to get cute with alchemy. Not content with turning lead into gold, we start trying to do the magic on sewage.
Investment banks pool all these BBB tranches into yet another pool called a Collateralized Debt Obligation or CDO. The rating agencies have sophisticated models which tell them that with the increased diversification, 87% of these former BBB bonds can now be sold as AAA or AA investment-grade bonds. Only 4% is considered actual BBB debt. So we have taken an original security that is not investment-grade and turned all but less than 1% into an investment-grade bond.
Again, if all those mortgages pay off like they have in the past, then not too much problem. But recent research suggests that as many as 20% of these mortgages sold in 2005 and 2006 are going to default or foreclosure. But the CDOs assume that less than 1% will default. If the number of defaults is even half of that predicted, then someone is not going to get their full capital back, let alone the interest. And we are seeing home foreclosures at record levels in every part of the United States due to the large number of sub-prime mortgages.
Why such a growing default rate? Because investors kept throwing money at mortgage bankers, who found out they could sell mortgages with little documentation. For instance, you could get a loan without actually having to prove your income. So the bankers said, “Let’s take the fees and run. Bonuses all around for selling more mortgages.” Now there is anecdotal evidence that a small but significant portion of these low-documentation loans had some items that were misrepresented. You know, little things like whether you were actually going to occupy the home.
Who bought these CDOs? Again, my sources say it was primarily Asian and European institutions, which simply looked at the rating on the bond and bought them. There will be lots of finger pointing over this one. Look for massive lawsuits and a major scandal to start up by the end of this year.
From a Speech by John Mauldin.
“From a Speech by John Mauldin.”
Any relationship to our John M?
None that I know …
“Now there is anecdotal evidence that a small but significant portion of these low-documentation loans had some items that were misrepresented. You know, little things like whether you were actually going to occupy the home.”
And other things, like the REAL income of the person buying the home, or the number of properties simultaneously being bought (all as “owner occupied”), and non-biased (ie not “shopped”) appraisal of the underlying collateral’s (the house’s) value.
But then again, brokers and loan officers have been arguing that the investors have known all along about the deceit (fraud), and have giving tacit approval for the practice, and therefore it was OK for people to lie on their loan documents. According to at least some of the mortgage brokers, “It’s all good”.
i love mauldin get his updates via email great stuff
Well I think I was posting yesterday that my theory was that the secondary market wasn’t getting the proper ratings on these loans they have been buying . The secondary market has a long term realtionship with buying long term loans ,for which most part were pretty predictable loans .
This “wooden nickel ” stuff that’s been passsed off on the secondary market investors was the doing of the sub-prime slime . These bagholders just didn’t get the feed back of foreclosures to know that the sub-prime slime lenders were giving them the fraud junk .The slime lenders really betrayed the trust they were given ,like they betrayed the public also. These so-called middle-men lenders between borrower and bagholder Lenders are the problem in recent years .
Wait until the public understands that anybody could get a loan ,a crook , a dead person , a unqualified buyer ,a dog ,someone in prison ,builders with no money ,buyers getting cash back ,unemployed people ,flippers without a dime in the bank ,investment groups with no down payments ,and people who did not even exist . Sometimes I wonder if the property even existed in some cases .
bank failure:
http://www.fdic.gov/news/news/press/2007/pr07009.html
The first of many
There was some speculation here on the HBB a week or two ago as to the nature of the failed bank recovery process for FDIC insured savers. At the time, someone opined that it might take as much a nine months or so to recover some insured funds. Here’s a link to the FDIC page that details the process in this case:
Metropolitan Savings Bank, Pittsburgh, PA, Closing Information
For insured savers it seems pretty straightfoward, at least as I read it.
Lol……
The appraisal is the most important item in the loan underwriting . For God sakes, can’t people see that the property is the security for the loan .
I think one of the reason why many borrowers were referred to the sub-prime lenders is because they would hit any numbers .The regular lenders started using the sub-prime closed sales for their data on appraisals and the industry just kept on building on overly inflated appraisals .
Also, if someone overpays for a house ,but they put up a big down payment ,the lender will still make the loan .Some lenders reserve the right to not tell the borrower what the appraisal came in at .So, a appraiser can’t just run with a comp. that might be one of those type of sales ,(recently there has been alot of cash back and fraud sales also ). The market has to confirm a high sale comp sometimes so that is why appraisers usually need 3 or 4 comps on the appraisal . In addition , if a appraiser has recent comps ,but the current listings are way under current comps , that is a big factor that must be considered in showing were the trend is going on market value . In fact ,appraisers have to state if it’s a declining market .
The appraisal is suppose to be for the protection of the lender and this protects the borrower also from paying a inflated price .
It’s really getting to the point that because of a need for a major correction in many markets it’s impossible to figure a stable market value IMHO . Usually when this declining market situation starts happening the lenders will start cutting back loans .Lenders,(bagholders ) don’t want to catch a falling knife either .
I contend that because the market was a false market of unqualified buyers and short term speculators ,driven by a hyped up RE mania ,that the appraisals were false ,they were inflated ,and true market value was not obtained because the market was set by a false premise that the buyers were “able buyers ” and the purchases were” arms length transactions “, which is a necessary requirement .
I think I put this post above in the wrong spot ,my fault ,oh well .
Good post, though, Wiz.
From the Feb 4 NY Times:
Young Buyers, Prepared and Fearless
Some select excerpts:
““We’re more comfortable with taking on debt and paying tomorrow,” Mr. Hyman said. “If the cards topple, you can rent your place out and go somewhere cheaper.”
“The mind-set of younger buyers may dominate the patterns of buying in New York City for years to come. Their liberated attitude toward borrowing is helping to keep prices stable.”
“The Hymans, while leading a reporter on a Saturday morning through the dimly lighted rooms of their new apartment at 140 West 58th Street, peppered their talk of romance with mentions of their extensive research and of Excel spreadsheets that calculate the monthly costs of their new home”.
“After the couple spent $35,000 on a number of changes, including expanding the closet in the master bedroom and installing new floors, Mr. Hyman predicted that they could easily rent the place out and cover the mortgage”.
“I really think that real estate will not go down,” she said. “At the very least, it will stay the same. In the meantime, I need a place to live. So the worst-case scenario still isn’t that bad.”
http://www.nytimes.com/2007/02/04/realestate/04cov.html
Why even expose ourselves to possible (if not likely) worse-case scenarios? Shouldn’t we always try to make life a best-case scenario? Risk everything for a brutal punishment.
Deputies seek man in Lakeside slaying
By Debbi Farr Baker
STAFF WRITER
February 3, 2007
LAKESIDE – Sheriff’s officials have identified a suspect in the fatal shooting of a 64-year-old man Thursday afternoon.
Deputies are looking for Michael Ray Jennison, 36. He’s white, 6 feet tall, with brown hair and blue eyes.
He was last seen driving a 1996 white Toyota sedan with California license plate 4YOF792, sheriff’s officials said.
The victim was identified as James Marcel Magot of Pacific Beach, a real estate agent.
(Last night’s 11pm SD network news mentioned that Mr. Jennison was a condo owner in foreclosure…)
http://www.signonsandiego.com/uniontrib/20070203/news_2m3jim.html
I cite the above story as evidence that the housing bubble is moving on from denial to anger…
i agree stucco
unfortunately it is only a matter of time before some desperate fb goes postal
The story is not clear yet, but one possible explanation of the facts brought to light in the media thus far is that the foreclosed buyer went postal on the realtor who sold him the condo. The media has not yet released information to pin down the story at this point…
When rain turns to hail…
Holy cow! I heard that on KOGO driving home from work yesterday. I wondered why they made a point of saying the shooting occurred in a condo complex (mentioned it twice, i think). Should have put two and two together.
Pinal County home resales are declining
The median price of an existing house in Pinal County also has steadily dropped, according to the figures released Friday
http://www.azcentral.com/business/articles/0203pinalhousing0203.html