Lenders Make “A Tough Market Even Tougher”
The East Valley Tribune reports from Arizona. “The subprime mortgage market’s dramatic free fall is reverberating throughout the Valley as lenders tighten standards and would-be buyers watch in dismay as deals collapse without warning. Gilbert real estate agent Tra Bell recently felt the ripple effect when his office had five deals unexpectedly fall apart.”
“‘The lenders are saying, ‘We can’t do it anymore in this type of a market,’ he said. ‘It’s not going to work. We’re losing our shirts.’”
“The stricter standards come as a rising number of subprime borrowers fall into foreclosure. The default rates on these loans are higher than Wall Street investors, who buy them from lenders, are willing to tolerate, said Chris Mozilo, president of the Arizona Mortgage Lenders Association.”
“Investors are forcing mortgage companies to buy back hundreds of millions of dollars-worth of loans. Lenders are also selling at deep discounts and taking huge losses, Mozilo said. ‘Some of them are on the verge of bankruptcy,’ he said.”
“The fallout has left thousands of loan officers jobless and knocked many aspiring first-time home buyers out of the market. Now, lenders are taking away options and that ‘makes a tough market even tougher,’ he said.”
“And it’s not just subprime borrowers who are feeling the crunch. If a first-time buyer loses his loan, then the seller can’t move-up to another house, said Yalda Alawi, an agent in Chandler.”
“It filters all the way up, said Alawi, who had two deals involving subprime loans fall through last week alone. Industry observers worry that the overall housing market could suffer with inventories increasing and prospective buyers being shut out.”
“Some 2,949 sales were recorded last month, down 24.5 percent from the same period in 2006, the latest Phoenix Housing Market Letter from analyst RL Brown shows.”
“Developers also took out fewer building permits for new homes with 3,630 last month, compared with 3,737 in February 2006. Builders are also finding success with efforts to rid themselves of speculative homes by offering incentives and slashing prices.”
From Inside Tucson in Arizona. “Mortgage fraud in Arizona has jumped according to the Mortgage Asset Research Institute’s annual survey, which showed the state went from 23rd to No. 7.”
“The biggest increases in fraud between 2005 and 2006 came from cash-back deals in which loans are taken out for more than what property was worth and keeping the difference.”
The Review Journal from Nevada. “Home Builders Research on Wednesday reported 1,411 new home sales in February, less than half the number sold in the same month a year ago. It was the same story for existing homes. There were 2,332 recorded resales during the month, down 27.2 percent from a year ago.”
“‘The Las Vegas housing market is still slugging it out for cautious consumers who are looking for steals and deals,’ housing analyst Dennis Smith said.”
“Las Vegas-based SalesTraq reported dips in both new and existing home closings. New-home sales fell 49.5 percent to 1,441 and existing home sales fell 17.2 percent to 2,594. Despite the sales slump, median new home prices rose 3 percent in February to $321,555 and resale median prices increased 1.4 percent to $284,000.”
“‘This defies both the laws of gravity and economics,’ SalesTraq President Larry Murphy said.”
“Builders pulled 1,005 new home permits in February, down 60.6 percent from a year ago, and that follows a 53.9 percent drop in January, SalesTraq reported. Mid-rise and high-rise closings were lower in February than January, as were condominium conversion sales, Murphy said.”
“Prices haven’t dropped because sellers haven’t adjusted to the marketplace yet, said Gena Lofton, CEO of a Los Angeles-based real estate consulting company.”
“‘I believe they will go down,’ she said. ‘You’ve got so many subprime loans that are going to be resetting. If those owners aren’t able to refinance, prices will begin to weaken. It just takes time to work through the system. The market has been overvalued for quite some time.’”
“Traffic through model homes has been stable since February, but net sales have declined 37.6 percent for the first two months of the year, Smith said. The cancellation rate has declined to 24 percent from 26 percent a year ago.”
“SalesTraq showed 21,220 homes on the MLS in February, nearly a 50 percent increase from a year ago and a supply of 12.2 months at current sales levels.”
The Las Vegas Business Press. “While Southern Nevada loan officers believe the local housing market will improve in the coming months, no one is sure what’s going to happen to the sub-prime lending industry.”
“‘For us, B paper (subprime loans) are more than 50 percent,’ said Jose Sanchez, a loan officer with American Nationwide Mortgage.”
“Bill Ochs (is the) owner of Las Vegas-based Nevada Mortgage, which has been in operation for nearly 30 years. ‘These companies that are in trouble will probably become absorbed by larger entities but there will be changes down the road,’ said Ochs, who believes greed and escalating real estate values have contributed to the problem.”
“‘As houses went up in value, there were a lot of deals made with no money down,’ he continued. ‘There were speculators who said, ‘I’m going to occupy the house’ — wink, wink — and the plan was to flip the house, and make a profit and move on. It’s fine until the market flattens and the investor can’t make the payment.’”
“Those who are hurt are the honest subprime customers. ‘Money is tight right now,’ Sanchez said. ‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
‘Las Vegas ranks 16th out of 95 metropolitan areas measured by bizjournals. California metropolitan areas fill out the top five of least affordable cities, and the others include several near the Atlantic Coast.’
‘Las Vegas homeowners pay 40.8 percent of their household income for their mortgage payments, with the median payment at $1,561 a month. That’s much better than the San Francisco Bay Area, where households are paying 70 percent of their income for housing. Los Angeles and San Diego are near 70 percent as well, the study said.’
I propose changing the name from “SF Bay” to “Alt-A Bay.”
I remember looking at the stats in 2006, where in Marin the household median income of $100K (highest county in country) couldn’t cover the median traditional mortgage. Income level was $35K short annually, assuming the usual parameters/ratios.
This probably applies to SF proper as well, since the pool of buyers have similar income levels and the median home prices are just as high (in other words, one shouldn’t use the SF city median household income of around $60K because so many are renters, having chosen to keep their rent-controlled places).
This could definitely get interesting…
“median traditional mortgage” = the median house price using a traditional mortgage
Got a new post up…follow up to an FB situation from 14 months ago.
Find out the aftermath…
SoCalMtgGuy
http://www.housingbubblecasualty.com
Poor guy. He says he’s not a FB any more, but his credit report says otherwise.
You know what the funniest part of the Real Estate Bubble is? That Real Estate is going to become a boring, low-employment asset class for the next 40 years. Let me explain. How many people have thought about passbook savings accounts at the local bank recently? You know, they have paid between 1 and 5% generally over the past 40 years. Have you ever seen a self-help book at Borders entitled “How to Get Rich with a Passbook Savings Account”, or perhaps an infomercial on “My Savings Account System Will Make You Rich”? Of course not. Everyone knows you can get a savings account, but it is a dull, boring asset class that can only make you rich through extremely dilligent saving over a very long time period. I believe that Real Estate will become the same sort of asset class. By 2030, fathers may admonish their adult children to “wisen up and rent, don’t buy”. Publishers of Real Estate Books will be on to other things. Infomericals may feature the latest robots, but not real estate. In 1942 if you walked into the NYSE you would have seen brokers sleeping on benches in the mid afternoon. It took the stock market until the mid 1950’s to regain the prices of the late 1920’s, and well into the 1960’s to regain the volume. Nobody in 1950 though that the stock market was anything other than an idiotic place to put your money. Real Estate after this crack-up will go through a 40 year period of being a low-yield asset class, and homes will be something you have to put money into to keep repaired, and not expect to appreciate. They will be a COST, not an investment. For a generation!
Maybe not,
Gen Y’ers are just as likely to be prone to excess as their boomer parents. (and their older cousins, Gen Xers)
Unless the USA loses its prominent status as a reserve currency state, we’ll likely have rolling bubbles in everything under the sun. Soon enough, it’ll roll back (maybe in 15 or 20 years if we all last that long).
Chuck Ponzi
http://www.socalbubble.com
Real Estate after this crack-up will go through a 40 year period of being a low-yield asset class
No, it’s low yield now (lowest yield ever in fact) and it will revert to higher historic yields - i.e. higher than fixed income.
Yield = Income (i.e. rent) / price
I think you really meant “appreciation”, which is the increase in price of the asset itself.
Yields on stocks were very high in the 1950’s, precisely because investors weren’t expecting price appreciation.
That’s much better than the San Francisco Bay Area, where households are paying 70 percent of their income for housing.
70 percent? 70 FREAKIN’ PERCENT?!?!?!? That’s unreal. I’m sorry, there’s no amount of California sunshine that would justify living on the barest edge of survival like that.
I live in a total rental dump in Arlington, Va. and pay about 10% of household income in rent. Better to live in a dump in Dullsville and have savings and “fun money” than be trapped in a mortgage prison in paradise.
Yes, that’s why I bailed for cheaper, rainier Oregon 12 years ago. In Santa Cruz, you could tell the homeowners. They were the ones who drove the beater cars.
Or, they were the ones with shaved heads, BO, Subarus, and tattoos. ;-p
the stats are meaningless. You have people who paid 35k for thier Marin house 30 years ago and pay 800 a year in property tax. Next door is the ‘waitress in 900k home’ situation. Mix in 40% of the city as millionaires. its weird.
Why so surprised? We read all the time about people who signed up to pay 300% of income……
Including my monthly rental unit at climate controlled Public Storage for my legecy 3 bedrooms and basement of furniture I can’t get into my apt. I rent (I could sell my car and ditch the $275 parking space) for 22.O% my of grosss income (not including bonus). 70% is insane. Rent don’t buy…have a life.
This just in Beazer home being investigated by FBI for Fraud. Perfect timing for housing market! This is the the Builders going Kabut
http://www.businessweek.com/bwdaily/dnflash/content/mar2007/db20070327_838032.htm?chan=top+news_top+news+index_top+story
No pun intended, but give credit where credit is due. As much as we like to bash the MSM on this blog, a tip of the cap is in order to the Charlotte Observer. The Observer ran a multipart series on foreclosures in the Charlotte, NC metropolitan area. It included 3 or 4 days of front page coverage, interactive maps on their website, and the whole nine yards.
The initial press release I saw on the FBI fraud investigation quoted a Charlotte based FBI agent.
Here’s a link to the Observer’s series:
http://www.charlotte.com/523/
Brings tears of joy!
Beazer Homes Faces FBI Investigation
Tuesday March 27, 5:36 pm ET
Feds Looking Into Fraud Allegations Involving Homebuilder Beazer; Stock Plunges
ATLANTA (AP) — Beazer Homes USA Inc., which has recently suffered hefty losses amid a downturn in the housing market, now faces a federal investigation of mortgage fraud and other allegations involving the homebuilder. Beazer shares plunged in after-hours trading Tuesday.
Mozilo (AZ Lender Association guy): ‘makes a tough market even tougher’
******
Great!
Cry me a **cking river!
Here’s a more rational take:
How much money did the Arizona lenders make in recent years?
Anyone?
This is just ridiculous.
No kidding! Boo-freaking-hoo! WAAAAAHHHHH! That was a pathetic tantrum piece.
Paraphrasing: “Who cares that current prices absolutely defy fundamentals of actual affordability. What matters is that we find some way, any way to keep this SS Titanic afloat so that I can continue to generate obscene commissions for unlocking front doors and stating the obvious: And this is the kitchen; note the new granite counters!”
Realtors can suck on it, IMO.
“not to imply that it is ready to cut rates at a moment’s notice”
Let’s hope the FED and the Chairman have some balls, like Mr. Volcker did:
“IRWIN KELLNER
High hopes
Commentary: Reactions to latest Fed comments are too optimistic
By Dr. Irwin Kellner, MarketWatch
Last Update: 12:16 PM ET Mar 27, 2007
HEMPSTEAD, N.Y. (MarketWatch) — Reports that the Federal Reserve is ready to cut interest rates are greatly exaggerated.
Call it viewing the glass as half full, or maybe just plain wishful thinking. However you describe it, the markets’ reaction to the statement that the Fed issued at the conclusion of last week’s Open Market Committee meeting was hasty at best, misinformed at worst.
The statement may have changed a bit, but the Fed’s intent remains the same — indeed, one might even say steadfast. Right or wrong, as far as the Fed is concerned, fighting inflation is still job number one.
Actually, unless the economy is in the tank, fighting inflation should always be the Fed’s top priority. If the central bank doesn’t safeguard the value of the money that it creates, who will?”
http://www.marketwatch.com/news/story/reactions-latest-fed-comments-too/story.aspx?guid=%7BF7E41990%2DCA51%2D4748%2D9385%2D44F03BCC9F12%7D
Or:
http://tinyurl.com/24py8s
what happened to 30% or 35% tops- if you were newly married w no kids
The Free Market in action. Yeah, that’s it.
A looooong time ago in California people started telling the banks “I’ll live as if I were poor if you just let me buy this house.” So, allowable DTI ratios went up to 40%, 50%, etc. This actually works fine for some people, but it means having to drive cheap cars, having no luxuries, and possibly no retirement money (other than selling the house). These sacrifices are why entry level houses in CA were an *expensive* $250-$300K just five years ago.
For most regions of the US the sacrifices would be unthinkable, but when you’ve lived in such an area for a long time it’s a case of frogs being cooked alive as the water warms up because they don’t notice what’s happening.
Since 2003 bubblemania has taken over so no logic applies to financing whatsoever.
tops is right - I have a tough time keeping everything together at 25% of my TAKE HOME income. If I was at 33% of TAKE HOME i would be sitting in the dark and eating top ramen every night. Sure, my wife and I go out to dinner once a week and we take a yearly vacation. But there is also the unexpected car repairs, medical bills, and other delightful occurrences that are a part of life.
I can’t understand how people can possibility think that paying 40% of your PRE TAX income is normal. They must be in credit card hell after two years.
Roger: CC hell is the only answer I can come up with. No way that most of the folks can actually afford all that they have. If spending 40%+ of my gross income is what it takes to “own” a home, then I would rather remain a renter and take the occasional meal out and an annual vacation. People in the US really need to think more. When you check out of this life, would you rather look back and see a life of enjoyment, or a life of servitude to a stucco box and automobiles?
Roger, I’m in about the same boat as you (around 25% PITI on take home pay), and it is tough to pay all the bills, put money into the 401k and put away a little for emergencies. I make well above the median income, and I have a very reasonable house payment (under $1200 PITI) compared to just about everyone I know. People have to be using future money (i.e. debt) to stay afloat. The numbers simply don’t add up otherwise.
Add me to this group as well. I figured out I spend 25% of my takehome pay on PITI and it’s a struggle to have anything left over at the end of the month. I have two kids but I have a 10 year old, paid off car and no other debt to speak of. I can only conclude that people spending 40% of their before tax income on housing are suffering from a combination of ignorance, delusion, and keeping-up-with-the-Joneses.
gp
And one more on the “list”. 25.8% of take home.
Right out of law school, my wife and I had humongous school debt and didn’t make nearly the kind of money we should have. We were just barely scraping by and often had to juggle bills, even with low rent and few other expenses. I will never, ever live that way again. I can’t imagine willingly signing on the dotted line with the intent to live that way for 30+ years.
I can’t imagine willingly signing on the dotted line with the intent to live that way for 30+ years.
Five years ago, I wouldn’t have understood that sentiment!
Thank god for the internet.
“The subprime mortgage market’s dramatic free fall is reverberating throughout the Valley as lenders tighten standards and would-be buyers watch in dismay as deals collapse without warning.
Unsurprisingly, since the subprime implosion, inventory is skyrocketing here - on the order of around 1000 additional homes per week. At 57,000 and counting, we’ve already blown away the old record set last June (54K). Who knows when this will stop?
We’re just getting started!! I expect 60,000 by end of April!
“Some 2,949 sales were recorded last month, down 24.5 percent from the same period in 2006, the latest Phoenix Housing Market Letter from analyst RL Brown shows.”
If 2006 was a bad year, and Phoenix is dow 25% (YOY), that does not portend well for the future of this RE market.
The sub prime blow up is just getting started. Can you imagine what this thing will look like months from now?
Pretty soon people will start to connect the dots.
“Pretty soon people will start to connect the dots.”
I don’t think so. People are dumb. They won’t connect the dots until the dots hit them over the head ! Over 1/3 of homeowners don’t know what kind of loan they have ! Most don’t realize the housing market has tanked if you have to sell. Most don’t realize their house isn’t worth what it is mortgaged for.
Agreed that people won’t catch on until it’s too late.
Update on east bay (CA) MLS stats: Active listings have increased by 20% in the last 3 weeks. As of today it stands at nearly 11,800. Most of the listed sales are going for a bit under asking. Almost all of the price reductions are in the outer fringe or less desirable cities, but when you dig deeper you find homes in “prime” areas that have been continually withdrawn and relisted since last summer, and most of these have minor price reductions at each relist (get a clue, sellers!).
I found one lease rental for a single family home (~1900 sf) at $2450/mo. Very nice, new neighborhood. When purchased, the owner paid a bit over $800K with $770K borrowed (piggy back). Tell me how this rental can possibly cash flow! Best of all, the first mortgage is adjustable. I think this is the point where auger-inn takes over with some reference to backside poundings….
People are going to be dolts about this.
Ugh… I had Gary Watts quoted to me by some otherwise bright people during a meeting today. They refuse to see what’s right in front of their face.
So they will scare away mortgage lenders by stupid policies, talk bailouts etc.
But as I noted before (and posted in my blog), the mood has changed. The number of buyers drinking the cool aid is declining by the week. Some by a forced stomach pump (rejected from getting enough mortgage).
But home owners? Oh… their pride is tied up in their home value. That’s ok. It just means more inventory overhang and a lower bottom.
Got popcorn?
Neil
I must just hope that most of my clientele will pay off their loans faster than their property values decline. The last 30-year loan I wrote was on a house I’m willing to live in if it comes to that. The last one before that was a house in Superior (ugh), note written at the end of 2004. And only a 7% down payment. Hmm, not good. However, the rate was 8.5%, so if they stop paying, I would try to go back and re-assign the payments as “principal”, amend my tax returns, so that I could be made whole by selling the house at a 25% discount vs 12/04 price. Most notes I write are 15 years or less, with present LTV below 70%. Nobody in default today. Whistle past that graveyard.
I am ready to sit on top of south mountain and watch the fireworks. I told my wife that the winter of ‘07/’08 is when painic selling will strike phoenix and surrounding communities….Right on schedule
“‘The Las Vegas housing market is still slugging it out for cautious consumers who are looking for steals and deals,’ housing analyst Dennis Smith said.”
Transation: “Come on all you buyers, take one on the chin for the gipper…”
I don’t think they want the buyers to take one on the chin. They want the buyers to take it a little deeper than that.
The Perfect Storm.
…I love that one.
The company recently helped Ramon Arroyo buy a new home in Queen Creek. Arroyo had hoped to buy two years ago, but his credit was a mess. So he continued to rent and steadily worked to improve his credit score.
Then this year, he decided to try again but still struggled to meet standards as he kept an eye on interest rates.
It was a discouraging process, Arroyo said, but after working with two separate lenders he eventually found a program that worked.
A first time home buyer at 54, Arroyo moved into a $225,000,four-bedroom house this month.“I could have been left behind,” he said. “I feel really comfortable and happy that I got my dream.”
Congrats, Ramon! And great timing!!!
“Congrats, Ramon! And great timing!!!”
LMAO!
“I feel really comfortable and happy that I got my dream.”
In a year or two that dream will become your worst nightmare.
Ramon got in just as the house of cards began to collapse. I think we may have found the Greatest Fool.
85249: unfortunately I must disagree. Ramon may have been one of the last, but a week or so ago I visited a local residential project where they were selling townhomes for $700-800k. Townhomes! If we assume their nifty lot map is correct and true, people are buying them or at least making the deposit necessary for the builder to mark it as sold. Lots of so-called “upgrades” in the units, but still! We are still looking for that final greatest fool!
wow, he tried get a loan two years ago, but he’s credit was a mess? What….he couldn’t fog a mirror!
Dude, you’re dead! Get on with your afterlife………………………
Geez
LOL!
I was laughed at for buying in Chandler AZ in ‘02 with a 30 fixed @ 5.25% and 25% down. Who’s laughing now numbnuts?????
bully for you. hope your home is a nice home. Chandler is very nice.
3000sf brand new in ‘02 paid 280K.
I bought new in ‘02. 20% down, 30-year fixed at 6%. Paid just under $200,000 for a new 2600 sq-ft home on a 1/4 acre lot. The builder thought we were nuts for skimping on upgrades to keep the price under $200K, but I know what we could afford, and I had no interest in paying 30 years for carpet and appliances.
Bring on the pain. I can take the heat
“The builder thought we were nuts for skimping on upgrades…”
Good for you. Tell the builder to stick the so-called “upgrades” where the sun don’t shine. Add them on later at your convenience, and for a fraction of what the builder would have charged you. Not to mention that the builder probably would have done a marginal job of installing said “upgrades.”
Some things we did upgrade that would have been difficult or costly to do later like additional outlets and gas stubs to the kitchen. Flooring and bathroom fixtures were completely out of the question.
3 years from now someone will be able to say the same. In 2010 I paid 280K for……………..
Because in AZ, that’s all they make………..is land!
haha
“I was laughed at for buying in Chandler AZ in ‘02 with a 30 fixed @ 5.25% and 25% down. Who’s laughing now numbnuts????? ”
You did it the right way. 30 fixed with at least 20% down. Good job!
“Do you know how long it took this family to save 10 grand?”
My guess:
“Longer than the foreclosure sale at the courtyard steps 2 years down the road”
“Longer than the $300.00 do-it-yourself-thru-the-mail divorce”
Dude, you are killing it today!
My guess:
“Longer than the foreclosure sale at the courtyard steps 2 years down the road”
“Longer than the $300.00 do-it-yourself-thru-the-mail divorce”
LOL. Those are priceless!
No kidding. Since when is *anyone* entitled to buy a house for no money down? An unqualified borrower is just that. Time was, a lender wouldn’t even see you unless you had clean credit, solid employment and 20% down. Those were back in the pre-bubble days, when housing was actually a whole lot more “affordable” (compared to rents & incomes) than it is today –when every mouth-breathing Howmuchamonth clown is entitled to get a NINJA loan.
No unqualified borrowers + strict lending standards = lower real prices & true affordability. Imagine that!
“Home Builders Research on Wednesday reported 1,411 new home sales in February, less than half the number sold in the same month a year ago.”
Builders need to cut prices more dramatically than they have been. All of this incentive crap isn’t enough. They’re still trying to squeeze every penny they can out of the buyer. The margins these guys made during the boom were unreal. They were still building for ~$75 per square foot. Lots of wiggle room. Oh, I forgot, they need to pass on the losses from their speculative land investments to the buyers.
‘Some 2,949 sales were recorded last month, down 24.5 percent from the same period in 2006, the latest Phoenix Housing Market Letter from analyst RL Brown shows. Developers also took out fewer building permits for new homes with 3,630 last month, compared with 3,737 in February 2006.’
In a ‘glutted’ market, they took out 600 more permits than new houses sold. And the permits were only 93 fewer than 2006. Speculators, the builders will put you into the dust!
Exactly! A long, long, way to go before these guys are building at a loss.
I’m suprised it’s only down 24.5%. I don’t see any activity in my neighborhood in Chandler AZ. I can’t even remember the last time I saw a RE agent’s car. Some of these house have been on the market close to two years. You have to be a total ignoramous to buy in AZ right now. Rent and wait it out.
Wish you would tell that to my newest borrowers, I made them read this blog to no avail. They are comparing their great “deal” to last year’s prices. I told them I am not afraid to lend $50K on what they think is a $150K property, but they may be very sad in future.
My math says that 2,350 fewer homes sold in the region YOY. (New and “aftermarket.”)
My bets aren’t on the flippers for 1H07. But 2H07 on? I’m thinking the bank will make the deal.
And yet coworkers will argue blue prices are going up. Geez…
Cest la vie.
Got popcorn?
Neil
people overestimate builder’s ability to cut prices.
Look at the builders. Even when they have margins of 15% +, they are losing money hand over fist.
builders are CASH FLOW sensitive. They must continually show good cash flow in order to keep open their lines of credit. Without their lines of credit, they’re done.
If they sell their inventory at too low of a price, then they must depreciate teh rest of their inventory on their books too… which will make their cash flow statement look bad, which can restrict their credit lines… which will lead to their demise.
this will get interesting
“people overestimate builder’s ability to cut prices.”
That’s a very general statement. I like to look at raw numbers. It was reported recently that Toll Bros was still building at ~$75 per square foot, not including the land. When they’re selling for $250 per foot and up, there is no way they don’t have a huge cushion. And cash flow? Where’s all the cash from the boom? Did it evaporate? They should have some huge reserves.
I think the Inspector has it right: the homebuilders absolutely must have credit lines in order to stay alive. Write downs and losses have to be killing their books. Any cash would be burned through quickly.
“When they’re selling for $250 per foot and up, there is no way they don’t have a huge cushion”
Yes, they have a cushion on THAT PARTICULAR house. However, that cushion gets rapidly used up with:
1) CEO compensation
2) Stock buyback (pump and dump. it’s Bull, but a lot of the builders burned a lot of cash buying their own stock)
3) holding costs on the THOUSAND of finished but unsold homes
4) interest payments on their debt
5) dividends
6) holding costs on their undeveloped land
and so on.
“Where’s all the cash from the boom? Did it evaporate? ”
Answer: yes. It evaporated to all the above areas.
here’s an example. A store sells Coca Cola. they buy coca cola for 10 cents, and sell it for a dollar. Wow, they make 90cents on each can of coke sold! they must be raking it in.
However, their cash flow is more than just:
Profit = (Money received selling Coke) MINUS (Money spent buying Coke)
It is really:
(Money received selling Coke)
MINUS
(Money spent buying coke)
MINUS
(money spent on rent for the store)
MINUS
(money spent on business insurance)
MINUS
(money spent on taxes)
MINUS
(money spent on employee salaries)
MINUS
(money spent on benefits)
MINUS
(money spent on interest payments on loans used to start up the business)
MINUS
(money spent on advertising)
MINUS
(Money spent on “kickbacks”)
and so on.
Get the point?
IN the same way, you can’t just say that KB Home’s profits are:
Profits = (Sales price of house) MINUS (cost to build house)
Instead, it’s more like:
Profits =
(AGGREGATE price of all homes sold)
MINUS (AGGREGATE price of building materials)
MINUS (AGGREGATE price of land)
MINUS (AGGREGATE salaries of contractors, employees, etc)
MINUS (AGGREGATE advertising budget)
MINUS (CEO/executive compensation)
MINUS (holding costs of all finished but unsold homes)
MINUS (holding costs of land and land options)
MINUS (insurance costs)
MINUS (interest payments on debt)
MINUS (a whole bunch of other expenses)
Then cash flow is even worse, because you use those profits and subract stuff like stock buyback and so on.
The builders are DEPENDENT on credit. If their balance sheet looks like crap, then their INTEREST rates will rise on their debt, which will put a crunch on their balance sheet.
If they sell their inventory too low, then they must make adjustments by GAAP, which can affect their debt holding.
You’re oversimplifying business operations, especially those of a debt-dependent cyclical enterprise
Look, I don’t need a tutorial on business. Frankly, you’re sounding very imperious and, subsequently, I’m finding less humor in your bat story.
I agree with a lot of what you say, but I still find it hard to believe that many of these builders are unable to further lower their prices. I think they’re squeezing every penny they can out of the buyer. Perhaps the carrying costs are eating them alive, but I have to believe based on their build costs, and considering all income and expenses that there is still a lot of room for negotiation. I have considered the prices paid for land, and it just doesn’t add up. Anybody in the industry will tell you that the margins were “sick” on these homes the last 5 years. Maybe the answer is that the fat-cats are (and have been) running away with the dough and BK is right around the corner.
The fat cats cashed out hundreds of millions the past few years. Karatz, Mozilo, Toll and the rest of the gangsters are set for life.
they’re spending that on stock buybacks, so the insiders can dump
As a group, the builders don’t have a lot of cash sitting on their balance sheets. Generally speaking, the cash from the boom times was plowed back into the business (bought more land, inventory, etc)
New Home Bldrs Hurting in AZ:
One of my accounts is a drywall, stucco, and painting subcontractor that does all of their work for the tract home builders. Their business is down 65% this year, they say they have 500 employees, but on a Thurs none of them were actually working on a new house.
They’re hoping for a rebound, but this is the just the beginning of the bell curve crash. They’re afraid of what’s happening, thats for sure.
‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
Listen carefully: Put 10 grand in bank=> buy $200K house in 2 years for $110K with 10% down. See how the “affordability” problem is miraculously solved by market forces!
I posted this in the Bits and Bucket thread earlier but it got caught in the filter for over 6 hours and it is appropriate for this thread so I’ll post it again. This is from my local mortgage brokers blog here in Salt Lake City. The hurting has just in the mortgage industry and already they’re trying to pass the blame.
http://slcrealestate.blogspot.com/
::Start rant::
So I got an email from one of my favorite lenders today about new rates and terms for 100% and 97% loans –
We’ve been given a heads-up from our Secondary Marketing Department. We continue to see deterioration in the 100% products and Stated Income product offerings.
We do not have all the details but we wanted to alert you to the following:
If you have floating loans in the pipeline that fall under these products please lock them immediately.
What hurts is these new changes appear to come from Fannie Mae, meaning, my favorite lender isn’t the only one that will be affected. This will be a systemic change. FICO scores have been raised from 680 to 700. On top of that, the rates are increasing; 100% by .25% and 97% by .5%.
So why am I upset about this? Because like the way Homeland Security treats airline passengers, Fannie Mae is applying a broad brush to a problem that needs specific, targeted action taken.
Homeland Security knows that people who attack America from overseas so far have proven to be young Arab men. Their solution to the problem of young Arab men committing terrorist acts is to make every grandmother, housewife and businessman from Anchorage to Kalamazoo be searched from head to toe for cuticle scissors and toothpaste! All of this comes with a price tag of billions of taxpayer dollars. BILLIONS!
It appears that in the face of a housing downturn, America’s government sponsored enterprises which facilitate the movement and efficiency of the mortgage market, are taking a similar approach. Instead of eliminating making loans to the people who are most likely to default, they are eliminating entire programs.
I’m going to let you in on a secret here. Those “subprime” lenders that have gone out of business because of forced buybacks are going down because of fraud…not because of a few greedy borrowers here and there. They’re going down because of corporate cultures that value production over quality and a lack of regulation and oversight over corrupt mortgage brokers, real estate agents, appraisers and title personnel who are also in on the scam.
Subprime lenders are not seeing losses because the nature of the business is bad. They are seeing losses because they ignored the precautions put in place to reduce risk. Considering that about 15% of loans are even in the subprime category and that of these 15%, 90% of borrowers are paying their mortgages, the fact that a few lenders have generated so many buybacks for first payment default and fraud tells me this is not a systemic problem, it’s an isolated problem associated directly with the originators of those loans. Those lenders who have tolerated and encouraged this kind of behavior are now paying the price.
Unfortunately there are many innocent victims with mortgage fraud and everyone will pay the price. Fannie Mae is applying a knee jerk reaction to the problem. Just like Homeland Security, a broad net has been cast to scrutinize everyone, not just those who we know are most likely to be the problem.
::End rant::
Too bad he doesn’t offer a means of detected fraud. Certainly, 20% down inhibits the probability of a fraudulent loan.
Yep. And it doesn’t even really matter if the loan is fraudulently obtained - 20% down ensures it will be paid back. Duh.
And BTW, in defense of the homeland security guys, they have to strip search everyone’s grandmother. If they bust an arab, the courts will let him walk, no matter what he’s done, if he’s been “singled out” for scrutiny. Strip searching your grandmother ensures Ali Baba does time. Hell of a price though.
That’s why you put the airlines in charge of their own security and let them reserve the right to refuse service to anyone for any reason. No more fondling of passengers by horny TSA officials.
I posted a rather lengthy response explaining why fraud and most of the other problems we now have in real estate are their (real estate industry) fault and these new standards are the result of their own failure to regulate themselves. Now the brokers are complaining because average people can’t get loans (and they can’t get commission checks). They are getting what they deserve.
“Just like Homeland Security, a broad net has been cast to scrutinize everyone, not just those who we know are most likely to be the problem.”
I’m Timothy McVeigh, and I approve this message.
“Homeland Security knows that people who attack America from overseas so far have proven to be young Arab men.”
Yeah, but employed by who? (Hint: Al-CIA-da)
Guess they haven’t seen 9/11 Press for Truth or 9/11 Mysteries.
Gee, what’s the big deal about saving up $10k in this day and age anyhow? Boy, we’ve really lowered the bar, haven’t we? What’s $10k in 1975 dollars anyway - say it was $2k, $3k - what would a family with only $2 to 3k in savings have done in 1975? Easy, they would have rented.
John,
It’s quite a bit of money for the average family. If a family has a gross income of, say, $50,000 per year, it can take an awfully long time to save up $10k.
Sure, in theory one can eat nothing but rice and beans, wear thrift store clothing, take public transportation, and rely on the public library for entertainment. But in practice people need reliable cars, cannot show up at work in thrift store clothing, and $50/month for cable TV just plus another $50 month to dine out every so often isn’t that expensive.
While we’ve got access to better technology, etc., now, in many ways life today is harder than it was in 1975.
Meaning, of course, that families with annual gross incomes of $50,000 should rent instead of purchase.
Alternatively, if 3BR/2BA ranch houses were priced at, say, $90,000, a family earning $50k would be able to comfortably afford one.
There are still large parts of the country where that is the case (if not less), and where a two-earner family with one worker somewhat skilled can earn about that much.
If it takes one more than a couple of years to save 10k then one shouldn’t own a home. Period.
There are far too many things associated with a home that can run you thousands of dollars unexpectedly. If you are living on such a thin margin that a thousand dollars is a huge hurdle then you simply shouldn’t own a home.
Is that “fair”? Maybe not. But housing is merely one facet of life. Living in humble, yet affordable, circumstances is far preferable to living in such debt that you’ll likely lose what you never should have acquired in the first place (and then some).
How many individuals can save $800/month? Probably very few. It probably takes a household/family to come up with $800 savings.
“Those who are hurt are the honest subprime customers. ‘Money is tight right now,’ Sanchez said. ‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
No need to qualify ‘honest customers’ with ’subprime.’ Anyone playing by the rules gets hosed when loose lending practices unleash the forces of rampant speculation and fraud. When qualification standards revert to traditional norms, those honest customers are left holding the bag of deflating market values.
I assume it took them longer than those that put $0 down. Geez, all of the sudden people realize that $10k is real money and this guy is going for a $200k house? What about the $500-600k houses?
It’s quite a bit of money for the average family. If a family has a gross income of, say, $50,000 per year, it can take an awfully long time to save up $10k.
Using Quicken’s savings calculator I ran a quick calculation using a monthly savings of $250 and an interest rate of 5% which is about what my current Vanguard money market is paying.
I calculate that if you set up an automatic savings plan into a Vanguard money market of $250/mo you will achieve $10 grand in 41 months.
Change the assumption to $500/mo and you will reach $10 grand in 20 months.
Can the average rental family with a combined family income of $50,000 a year save $500/month? If not, they better forget about buying because owning that house is probably going to cost a lot more than renting, probably on the order of $500/mo more when all the costs are factored in.
Good point, Kent. I used to rant at young people telling them they must save a THIRD of their gross income for some number of years before buying houses and having children. Did they listen? Not usually.
I’ve always thought that the number one rule of personal finance is “don’t spend more than you earn”. If you can’t save on average at least a couple of hundred dollars a month, you need to adjust your lifestyle so you can. If you’re young, childless, and renting maybe you can get away with spending everything you earn for awhile, but if you’re over the age of 25 you need to start thinking about your own future. What are these “don’t have $10K to my name” people gonna do when they’re old and grey? Government bailouts aside, I think the future will belong to the savers.
I’ve been following the Bend, Oregon market, where “it’s different here.” The realtors (who else would do it) continue to whistle past the graveyard, talking about how the lower-priced homes (at $450K) are still active and everything will be fine. I’m popping corn… the people who move to Bend from CA and Seattle won’t be able to sell their homes, because their buyer can’t sell THEIR home, because that buyer can’t get financing. It’s the trickle-up theory, and it works.
I’ll be needing a LOT of popcorn. On the other hand, my road-constructing friends will be able to retain their staff this year. Good for them; they’re very hard-working people.
I grew up in Oregon back when Bend was just a farm town.
I have been somewhat astonished by recent attempts to turn Bend into the next Aspen or some such nonsense. Fact of the matter is that Bend will never be Aspen or any other such ski town because Bend is not a ski town. Mt. Bachelor is 22 miles away from Bend and they don’t even have night skiing. The ski towns in Colorado that Bend aspires to actually have ski resorts within the town itself and all kinds of ski oriented nightlife as well as night skiing.
Likewise, Bend will never be an exclusive getaway spot like Santa Barbara or the San Juan Islands because it really isn’t that unique. There are a dozen similarly situated scenic little towns in central Oregon. It’s not like there’s a beach or anything. If what you want is Central Oregon sun, sage brush, and mountain scenery there’s Redmond, Madras, Sisters, La Pine, or for that matter, Klamath Falls.
As for the “coolness factor?” That’s easily duplicated too. I grew up in Eugene back in the late 60s and 70s when Eugene thought it was just the most preciously cool little town rivaled perhaps only by Berkeley and Boulder. Now every little city in the west is full of brew pubs, coffee houses, craft markets, and bike trails. Heck, even towns like Waco Texas have that sort of thing. And you can buy houses here for $50 grand or the price of a tricked out SUV.
Like you, I expect Bend and it’s other small Oregon sister cities of Ashland and Medford to crash and burn.
Finally, Bend will never have much of a diversified economy because it’s simply too far off the beaten path. The nearest freeway to Bend is I-5 which is 120 miles away in Eugene. The nearest university is also 120 miles away in Eugene or 130 miles away in Corvallis.
Don’t forget that the Sisters sometimes get a little testy, and have recently been acting up. I wonder what would happen to Bend RE if one of the Sisters decided to pull a Mt. Saint Hellens?
You mean Bend’s not special?
This is just precious…
Don’t expect a bailout if you overpaid
The lender won’t reduce the note just because values dropped and the house is worth less now.
By Jack Guttentag, Inman News
March 25, 2007
“Those who are hurt are the honest subprime customers. ‘Money is tight right now,’ Sanchez said. ‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
Then if it is so damn hard to save 10 grand why the F’ did home prices go up to stupid levels?
Thes people need to rent. Not all people are entitled to own a house.
sorry, here is the link…
http://www.latimes.com/classified/realestate/news/la-re-yrmort25mar25,0,6176836.story?coll=la-class-realestate-news
Also from today’s on-line L.A. Times:
Sell now to avoid capital gains tax?
“Question: My wife and I own a home that we bought years ago for $200,000. It is now worth about $700,000.
“If we stay in the house another 10 years and then sell, and the value then is $1.2 million, we will be liable for a capital gains tax on $500,000. This is the total capital gain of $1 million less the $500,000 capital gain exclusion for a couple.
“On the other hand, if we sell now and immediately purchase a similar house, we pay no capital gains taxes. The $500,000 gain exclusion would be applied when we sell now, and it would be applied again when we sell after 10 years. Should we sell now to avoid the future tax?”
Talk about delusional. Should somebody tell them they have nothing to worry about regarding capital gains taxes?
Same link as above. Just scroll down.
http://www.latimes.com/classified/realestate/news/la-re-yrmort25mar25,0,6176836.story?coll=la-class-realestate-news
Last year the investors had a somewhat smile on their face and half-hearted wave now that have a puss only a mother could love and a middle finger waving what a difference a year and a sub-prime melt down makes>
‘The Standard & Poor’s/Case Shiller Home Price Indices report shows..the largest year-over-year drop was in Las Vegas, with prices falling 6.9 percent.’
Am I missing something, or is this data completely bogus?
CS Home Price History for Las Vegas:
Jan07: 230.52
Jan06: 230.48
Where’s the YoY 6.9 percent drop??
04:26 ET Feds are investigating homebuilder Beazer - BusinessWeek.com (BZH) 31.41 -0.91: -Update- BusinessWeek.com reports that federal investigators have opened a broad criminal probe into lending practices, some financial transactions, and other dealings at Beazer Homes USA. The North Carolina field offices of the FBI, the IRS and the Justice Dept. have recently opened a joint investigation into the co over such matters. The Inspector General of Housing and Urban Development is also part of the group since a large percentage of Beazer’s loans were made to low-income borrowers and insured by the federal govt through the Govt National Mortgage Assn., according to people familiar with the investigation. Investigators, however, are not limiting their probe to possible mortgage fraud. “There’s all sorts of potential fraud issues here,” FBI spokesman Ken Lucas told BusinessWeek. “We’re looking at all types of [potential] fraud associated with Beazer—corporate, mortgage, investments.” The joint investigation stems from a series of articles that ran in The Charlotte Observer in mid-March, detailing allegations of abusive lending practices and unusually high foreclosure rates in a handful of Beazer housing developments in North Carolina. The paper’s investigation alleges that foreclosure rates in several Beazer developments ran at around 20%, compared with the national average of 3%. (See 16:21 comment)
04:21 ET Beazer Homes: CNBC announces that Businessweek is reporting the FBI is investigating BZH on possible lending fraud (BZH
How can it not be fraudulent for the builders to encourage buyers to finance “incentives” on the mortgage contract, in the interest of hiding deflated market values? Nothing like financing fancy cars, vacations and cash handouts on the thirty-year payment plan…
I’m hoping that the demise of subprime mortgages and of 100% financing will finally end the “denial” period for sellers here in Tucson. From what I can see, there sellers are stubbornly holding to their “my neighbor sold last year for $X, so I deserve it too” prices. I know that some or many of these sellers must be getting near the end of their ability to “wait out the down market”. Still see some sales in the neighborhoods where I’d like to buy, amazingly they seem to be pretty close to the wishing prices. I guess a few lucky sellers are finding the last of the GFs. But now that the GFs won’t be able to get 100%-fog-a-mirror financing, I hope prices will begin the long slide back to the historic relationship to median income in the area.
OFF TOPIC, but interesting — a while back I posted that I had come across a buyer who bought 5 houses in 2 months for between 150% and almost 200% of the comparable per sq. ft. prices. I emailed the Tucson FBI office with the info, and just heard back from a special agent working on mortgage fraud. The houses I found were part of a mortgage fraud conspiracy involving Phoenix and Tucson real estate clerks and mortgage pushers. It was in the news fairly recently. Some “clever” folks are going to jail. Plus I’d be that there are nice monetary penalties to go along with the federal felony convictions. Plus the IRS will want to get paid on the illegal and therefore probably not reported income. Gotta be nice to have an IRS bill accumulating interest and penalties while you are in prison. Talk about starting in a hole when you finall get out. Good times.
Got Mortgage Fraud?
Congrats!
we need more of you out there!
HIC
My hat off to you my friend .
The fraudsters really did a number on our state. Good job!
Deceived??? How about stupid??
A comment on the talk about helping fb’s by increasing the FHA loan limits, thus allowing fb’s to switch their high interest loans to a lower FHA loan. We have now reached the proverbial “fork in the road” where those as*holes in Washington are rattling their undersized brains trying to figure out how they can stop a meltdown. Actually, these politicians are simply taking advantage of the situation by getting on t/v to show everyone, “They Care.” Total photo-op b.s. because this mess is their fault. They were he only ones in a position to step in and say, “Whoa! What’s going on here with thisd predatory lending!”
This meltdown was predicted and they ignored it. So, how do they intend to overcome the BIGGEST problem in the current real estate mess which they don’t seem willing to mention? That big problem is not interest rates. That big problem is AFFORDABILITY. And in passing it should be noted that the USA is not alone. The affordability factor is worldwide, including europe and Australia, etc. Property prices in the UK, for instance, are simply a joke. Please note for reference further down this post that these countries all have similar social security structures. That is, retirement pensions and health care.
In the USA, most of the fb’s did not put down 20% or 10% or 5% or even 1% because they had not saved enough money. I actually heard that a $1 bill sealed the deal in these toxic loan mortgages!
Let’s look at numbers. A $450,000 property needs $45,000 as a 10% down payment. $90,000 for 20%. It gets worse. These fb’s had closing costs added on and were given up to a 125% mortgage based on the value of the property to cover expenses because they couldn’t even come up with a few thousand $’s to pay closing costs! Jeeez!
So, let’s take an average fb who has a mortgage of $450,000 (average in California) and is now in default. It’s almost certain that the fb is probably not making enough to pay for that mortgage even if the interest rate is, say 5% or 6% if they were able to switch from a reset toxic loan into an FHA loan. Don’t let the name California fool you. Most of the working people in California DO NOT make $100,000 a year. $20,000 to $30,000 is a good average and California is expensive which is why they couldn’t come up with closing costs.
I’m hoping that we will see someone (a banker or an outspoken mortgage broker) give testimony at one of these Washington phony “never-ending-hearings” and then ask the question which REALLY matters. That being, “Your looking smug and superior as you ask us probing questions. Where where were you in the last 6 years while all of this was going on?” Don’t hold your breath waiting for a plausible answer.
This decline is going to continue UNTIL prices reach a point where many more people will be able to buy a home via the FHA (and probably other government schemes which will be set up to counter-act the decline). You can be sure that will be promoted when the property market bottoms out. End result? Lots of people buying homes at the “bottom”. Even ex-fb’s will be forgiven and can buy again. Remember, a foreclosure is wiped off the record after 10 years. That means millions more stable tax payers moving into a lot of surplus property who will see the equity grow in their American Dream over 30 or 40 years. End result: A 30 year old couple buying sometime in the next 10 years (2007 to 2017) will retire in 40 years (let us say 2047 to 2057) just as the Social Security and MediCare system becomes too overwhelmed financially and that American Dream becomes the couples retirement and medical expenses piggy bank via reverse mortgage as government “means testing” kicks in.
Beazer (BZ) under investigation! Just announced! IRS, FBI and Justice investigating their lending practices. Stock down 12% in AH on news!
BTW: Who’s going to put together the “Builder Implode-O-Meter” site? BZH and TOA can be the first members of the club.
Read about Beazer here.
http://www.businessweek.com/bwdaily/dnflash/content/mar2007/db20070327_838032.htm?chan=top+news_top+news+index_top+story
Beazer=BZH
Duh!
LMAO -
For every boom we have scandels… this is no
different. Bad Loans.. Fake Appraisals.. Fake
Multiple bids on by phantom buyers.
Bonds backed by automobile loans may be hurt by rising subprime mortgage defaults as people with poor credit struggle with their household debt, according to Standard & Poor’s.
Capital One Financial Corp., Wachovia Corp., Wells Fargo & Co., and other lenders have lent more funds to people with bad credit scores in the past few years to sustain growth, S&P said today in a report by analysts led by Mark Risi. The loans are also for longer terms, increasing the probability of default, the analysts said. About 68 percent of 2006 subprime auto loans were due in five years or more, Risi said.
“There could be some fallout from subprime in auto loans,” Risi said in an interview. “We don’t have much data yet. We’re still in collection mode. It’s probably going to be hard to say for a while.”
To read more, click here http://www.bloomberg.com/apps/news?pid=20601087&sid=a7etPDiLQq4s
Given a choice between making a car payment or paying the mortgage, consumers react in different ways, Risi said.
“Without much thought, you’d say people wouldn’t want to lose their home so they’d first make the house payment,” Risi said. “But with a lot of the borrowers struggling to make their house payments, to get any cash, they have to get to work. And that’s what they need their car for.”
“Or, they were the ones with shaved heads, BO, Subarus, and tattoos. ;-p”
I better get that “Tattoo” before I see the loan officer next time! Man, these new requirements are “tough!”
‘Money is tight right now,’ Sanchez said. ‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
What is he in such a hurry for. Why don’t they pay their bills and clean up their credit score and wait for the houisng market to correct. Sheeesh
They want “The American Dream”, and they want it NOW.
In the back of my mind, I still think that 20% down is “normal”. From the time I was a little tot, 20% had been burned into my brain. So that’s what we aimed for when we first bought. We didn’t buy a second before we had that 20%.
Just heard a commercial why use a realtor?
Prices are favorable big inventory to choose from and these thugs know the local markets.
NO THANKS. I will buy when the time is right and prices are down to sane levels without the help of a crooked realtor.
I’m visiting Wellington New Zealand. I walk into the local market, pick up a paper and this is the headline: IMPOSSIBLE DREAM - Survey shows crisis in home affordability. It goes on to state that 73.5 percent of the average Kiwi’s take-home pay is needed to buy an average priced house.
Nope. No global equity crisis.
Wow. As I read down the article in the NZ paper, it states that it would require 92.8 percent of one’s salary to afford an average home in Auckland. But wait, it gets worse. One would need to spend 105.2 percent of your salary to afford a home in Queenstown.
Those Aussie’s should listen to my college basketball coach, and just “give 110%”
Until they do that, I’m not impressed!
In California (San Diego) they had those calculations too for a while. When it started hitting “you need 130% of your salary” they simply changed the assumptions.
I think it WAS 20% down and fixed 30 year rate, they changed it to an ARM and I think lowered the down payment assumptions…
A couple of weeks ago…
I had to let a friend down easy~
Let me explain.
I found an excellent piece of property, a perfect real estate set-up.
You wish every property had what this one did and the weird circumstances, as the previous owner had passed away suddenly and the far away kids of his, wanted a quick sale and hated to drive 5 hours, to the place that was hardly lit at night. Why couldn’t those people put in streetlights!?
So they did a fsbo @ about 1/2 of what the property was worth, and I was persuading a friend to buy the property, and had been doing so for a month and half.
Then the light hit me~
Every last piece of property in the country, will drop by much more than it went up, the way a pendulum swings back and forth…
So a hypothetical house, (hope you don’t live in hypoburbia, please move)
in say Glendale, Ca., that I remember being worth $275k in 1990, that has gone up to $825k, can swing back rather easily to $125k, with no buyers, as confidence will take a shellacking and some of you will throw brave talk at me, and tell me how, “you’d buy 20 houses for that price”
but i’ve studied beasts, both human and animal species, and got to know them on an intimate basis.
My past as a Failed Gambler allows me to see much of how the gambler’s mind works.
When you are on a winning streak, it’s the greatest high and you feel you can do no wrong.
My first casino experience was in Lake Tahoe. I turned $300.00 into around $2800.00, when I was 19. I was gonna be a star!
I had the brains, I could just go to Tahoe, in lieu of working. Sweet!
I wasted about 12 years of my life gambling and learned my lesson.
Many of you will have to learn your lesson as well.
There is no free lunch.
Getting back to the story:
My friend was devastated, when I told of my thoughts and they couldn’t understand how I could be so flip/floppy, when I was the one egging them on to buy it?
Better to disapoint them now, than saddle them with a payment for 30 years.
Things Change
“And it’s not just subprime borrowers who are feeling the crunch. If a first-time buyer loses his loan, then the seller can’t move-up to another house, said Yalda Alawi, an agent in Chandler.”
JHC….yet another numb-nutted statement referring to all those entitled jackasses…”move-up to another house”. What is this obsession with “moving up”??? It’s not just the flippers/speculators…it’s a whole bunch of people who feel some sort of itchy need to go bigger, better, best. My parents were pretty well off, and they raised 6 kids in 3 bedrooms and 1 1/2 baths. Who needs media rooms, exercise rooms, closets the size of NYC apartments, a “great room” the size of a Baptist church…?
Criminy, it’s not global warming that’s gonna kill all of us….it’s over-sized people, houses, and egos.
I don’t know if this has been posted or not, but it is absolutely astounding.
Advice to someone facing foreclosure?
“It’s not their fault”
Jordan Ash, about six minutes in.
Weeke3nd America
(And I’ve been trying to post this since Saturday, so I apologize if it’s on here several times, but it doesn’t seem to be showing up)
“Las Vegas-based SalesTraq reported dips in both new and existing home closings. New-home sales fell 49.5 percent to 1,441 and existing home sales fell 17.2 percent to 2,594. Despite the sales slump, median new home prices rose 3 percent in February to $321,555 and resale median prices increased 1.4 percent to $284,000.”
Why did prices rise in such a glut?
My take. Subprime is no longer an option. Unqualified buyers can no longer buy, and thus the only buyers left are those with real money and income. Thus, the buyer pool today isn’t interested in starter homes, only trade up homes. Thus, the median sales price goes up as the lower half of the buyer pool almost completely dries up. JMHO - Make sense?
My take on New Zealand.
Foreigners have been piling in and driving up prices to insane levels as New Zealand still looks cheap on a global relative basis. (i.e. Hong Kongers are used to paying US$500-1,000 per square foot for decent accomodations).
Add to that the fact that mortgage rates range from 8-10%:
http://www.rbnz.govt.nz/keygraphs/Fig3.html
I daresay that “affordability” in much of the US and definitely in California would look the same as New Zealand at those mortgage rates…
I’m a Yank in NZ.
It’s common for New Zealanders to blame foreigners for the run-up in house prices. There is some truth to that (come in with a few US$, or even better with Sterling, and you’re at an advantage when buying). And you can get houses with acreage and water views for far less than their equivalents in North America or Western Europe. (The construction quality is pretty horrid, but that’s beside the point - people here suck it up.)
But the affordability issue here is more complicated because:
(a) Income tax rates here are very high, but capital gains are not taxed at all. The only way most Kiwis can reduce their income tax bite is by running a rental corporation at a loss, hoping that the untaxed capital appreciation will pay off later. This has been solidly true for many years, the predominant and most profitable form of Kiwi investment.
(b) Kiwis don’t trust equity investments, having strong memories of a disastrous share market collapse in 1987 and a relatively short history w/ stocks before that.
(c) The home ownership dream here is stronger than in the USA. It’s really more fundamental to the Kiwi identity than ‘the American Dream’ is back in the States. This makes letting go of the dream very hard, but does not change reality.
“Those who are hurt are the honest subprime customers. ‘Money is tight right now,’ Sanchez said. ‘I have a couple who have saved 5 percent to buy a $200,000 house and their FICO (credit) score is 600. I don’t know if they’re going to qualify. They want to hear assurances and all we can tell them is, ‘We are going to try.’ Do you know how long it took this family to save 10 grand?’”
These people have no idea how much they are going to be helped by the tightening. By the time they save another 10 grand, that house will be going for 100K and they can put 20% down. What a happy story that would be.