Speculators Struggling With Cash-Flow Problems
The Denver Post reports from Colorado. “During the first quarter, new-home sales were down 39 percent over the same period last year, according to the Genesis Group. ‘It’s a painful thing for the homebuilding community to have to deal with that kind of loss in sales activity,’said Mike Rinner, senior analyst with Genesis.”
“New homes are not the main cause of the oversupplied housing market. Foreclosures are to blame for much of the woes in the housing market. They increased 33 percent in the first quarter of 2007, compared with the same period last year. More alarming is that 72 percent of all foreclosure filings were for properties with an original loan amount of less than $200,000, mostly in Adams, Denver and Arapahoe counties.”
“‘Someone trying to sell a home for under $200,000 is competing with foreclosures,’ Rinner said. ‘If they can’t sell their home, they can’t move up to a $300,000 home.’”
The Rocky Mountain News from Colorado. “The Genesis Group said ‘foreclosures represent the most significant challenge contributing to the woes of both the new and resale housing markets.’ Genesis, which tracks the Front Range housing market, said foreclosures are creating an ‘involuntary supply’ of homes, according to its report.”
“The thousands of foreclosed homes on the market are ‘threatening the health of metro Denver’s housing market by directly and indirectly reducing demand for existing and new housing.’”
“Kathi Williams, director of the Colorado Division of Housing, said the division’s Foreclosure Hotline is ‘trying to slow down this dumping of properties into an overall saturated market.’”
“Susan Melton, who heads the Denver chapter of the National Association of Residential Property Managers, said it is more difficult to raise rents in apartments, condos and small townhomes.”
“‘There is more of a big glut of townhomes and condos on the market than houses,’ said Melton.”
“The soft housing market is driving down vacancy rates for rental homes in the (Denver) metro area, even as property owners convert a growing number of homes they can’t sell into rentals.”
“A growing number of landlords are paying more in mortgage payments, taxes and other costs than what they can bring in as rent, said said Robert Alldredge, a Lakewood-based property manager. They are willing to do so because losing a couple of hundred dollars a month is more manageable than trying to cover the thousands of dollars their home has lost in value, he said.”
“Those landlords, however, are at great risk if their homes stay unrented on the market for too long.”
“‘There are a lot of investors who have trouble with the mortgage. They have to refinance. They are struggling with cash- flow problems,’ Melton said.”
The Arizona Republic. “Few in the housing industry, those who are seeing listings increase and more mortgages fall through because of tighter guidelines, will be surprised to hear housing analyst RL Brown’s April report on the market.”
“New-home sales, new-home permits and resales were all down in April from March in metro Phoenix. Brown said the hope that supply and demand for homes in metro Phoenix will balance out in 2007 grows ‘fainter and fainter.’”
“New-home sales across the Valley fell 20 percent from March. Home-building permits were down 5 percent. Existing home sales dropped 8 percent.”
“There are new-home deals in the Valley, plenty of them. But Brown said builders can’t increase their sales until buyers can sell their existing homes. He said 2007 is a transition period for the market and ‘if you made a lot of money in 2005 and even 2006, hope you banked some of it.’”
“Here are some of his new realties for the housing market: The housing industry will eventually ‘give back’ one way or another much of the profit gains of 2004-05.”
“The demise of ‘wink-wink’ financing will cut the ranks of home buyers. Appraisals will be based on today’s comparable sales, not comps from 2005-06, and appraisers ‘will be edgy as cats at a dog show.’”
“Brown reiterates that the Valley will continue to grow. Based on his April report, the rebound just might not be as soon as many hoped it would be.’
The Review Journal from Nevada. “Community banks in Southern Nevada are starting to report higher percentages of bad loans as the real estate boom turns to a bust. Some analysts do wonder whether the bad loans that popped up in the fourth quarter of 2006 will spread like a cold in a kindergarten classroom in the next few quarters.”
“First National participated in the boom in residential mortgage loan originations over the past few years, said president Patrick Lamb, and that business has slowed dramatically. ‘Anybody who tells you they are happy with the performance of the residential mortgage business is lying to you,’ Lamb said.”
“Dawn McLaren, research economist at Arizona State University, compared the problem to the bursting of the housing ‘bubble’ in Las Vegas. While community banks generally do not make loans for single-family residences, they do lend money to developers and homebuilders, which benefited from the housing boom.”
“‘This will affect builders, too,’ she said.”
“Bankers say real estate lending looms large in Southern Nevada because banks make so many development, construction and other real-estate loans. ‘Most of your banks in Southern Nevada are concentrated in real estate,’ said Ed Jamison, CEO of Community Bancorp. ‘That’s where the growth is.’”
“Problem loan totals may be tightening credit availability for small businesses, said Lanis O’Steen, president of the Turnaround Management Association in Nevada. ‘There was a tremendous amount of easy business credit for small businesses (previously),’ O’Steen said.”
The Las Vegas Business Press from Nevada. “Buyers of the seemingly defunct Spanish View Towers, a 15-acre luxury condominium project in southwest Las Vegas, filed suit Thursday to have their deposits returned.”
“The law firm of Marquis & Aurbach filed suit on behalf of Allison Gaynor, Barbara Chandler and Saralee Bowers. The family trio had put down more than $600,000 in cash as deposits on three high-rise residences.”
“This project is more than eighteen months behind schedule,’ said Terry Coffing, managing member of Marquis & Aurbach. ‘To date, there is no construction above the first floor of the first tower and the sad truth is, even that floor is not substantially completed.’”
“The project stalled shortly after breaking ground in early 2006. There are millions in mechanics’ liens filed against the project for non-payment.”
“The 2.38 million-square-foot development was initially scheduled to open by June 2007, a date it has missed. ‘Construction ceased long ago and we have learned there is no financing in place to move the project along,’ said Coffing.”
“The developer, who financed the purchase of land for the project, has reportedly set a foreclosure sale on the property for June 4.”
“New-home sales, new-home permits and resales were all down in April from March in metro Phoenix. Brown said the hope that supply and demand for homes in metro Phoenix will balance out in 2007 grows ‘fainter and fainter.’”
Supply and demand will eventually balance out again, but only at much lower prices that will enable end-user buyers to absorb the growing inventory glut.
How come these nimrods think it’ll only take a year or less to “normalize” when it took about 8 years to pump up the bubble. Oh I forgot, they’re experts!
“How come these nimrods think it’ll only take a year or less to “normalize”?”
Because they are nimrods. They prove it more and more every day.
Nimrods? You mean they are hunters?
In all fairness, Phoenix saw a 40% increase in 2004-2005. So this is a fairly signficant statement. Personally, I would be happy to buy in Phoenix for early 2004 prices (reasonable). 40% from that? No thanks.
This was in refernce to the Phoenix (Arizona Republic) article above.
To understand how out of whack real estate is today, take a look at RE Prof. Robert Shiller’s chart of housing prices adjusted for inflation over the last 120 years.
http://en.wikipedia.org/wiki/Image: Shiller_IE2_Fig_2-1.png
The long-term trend over that period has been for housing prices to rise with inflation plus less than 1% annually. The spike over the 10 years 1995-2005 is unprecedented - not even WW2 came close and at that time people had money again after the Great Depression and no new civilian housing was being built. It’s no accident that in the same 10 years, mortgage borrowing increased by a factor of 7x - from $154 bil to $1,075 bil. This is also completely without precedent. See chart D2.
http://www.federalreserve.gov/releases/z1/current/z1r-2.pdf
So what we had was a decade long bull market in housing fed by huge and ever increasing debt. Such ahistorical things can continue only so long as more and more money is coming in. The end product of this was the Extreme Lending that marked the top. Notice on the Fed’s chart that new mortgage debt declined in 2006, putting an end to the bubble.Normal trendline would have seen prices rise 8% or so after inflation - we saw nearly 70%. Put another way, we could see a drop of 35% from the 2005-2006 highs nationally and still be above the historic trend.
A bubble is simply a positive trend which becomes a bull market and then is taken to an extreme. There are clear psychological stages where an item goes from being valued for its intrinsic worth (in this case shelter) to being looked on as an investment, then a sure winner and finally a get rich quick scheme. These generally unwind until valuations are once again based on intrinsic worth. darrell has some good measures of what this might eventually mean.
If you want to know what turned the bull market into a bubble, you need look no further than the Fed and its foreign counterparts. They cut interest rates dramatically in 2001 to try to bail the economy out after tech stocks imploded. They created so much money that we’ve seen massive inflation in asset prices around the world. RE not just in the US but in London, Mumbai, Shanghai and Sydney. Stocks of course too but also commodities - the price of gold has tripled since 2002. Debt in most areas is still expanding rapidly, which is why most asset prices are still rising but US RE looks to be on the leading edge of a much bigger problem. It’s going to take a long time to play out but forewarned is forearmed.(
Would greatly appreciate a PDF warning.
Look at the end of the link.
Here is a link to Shiller’s actual article published in Barrons on Jun 20, 2005. It’s a must read
The Bubble’s New Home
http://www.leavittbrothers.com/pdfs/housingbubble.pdf
Link to the Shiller home price chart is broken, but here’s a better version of the chart:
http://graphics.nytimes.com/images/2006/08/26/weekinreview/27leon_graph2.large.gif
“Here are some of his new realties for the housing market: The housing industry will eventually ‘give back’ one way or another much of the profit gains of 2004-05.”
WOW!!!! Finally a realistic article from the AZ Republic!
much of = 120% of ?
Yeah this is the first gloom I’ve heard in the paper. Of course, they sure didn’t see the decrease, why should we believe them on 2004 levels (although that is significant for Phoenix).
2004 prices in Phoenix would be a reasonable estimate if the builders stopped building a year ago and there weren’t a gazillion vacant investment properties sitting vacant.
But that’s not the case.
A CLEAR IMAGE OF THE HOUSING BUBBLE
To understand how out of whack real estate is today, take a look at RE Prof. Robert Shiller’s chart of housing prices adjusted for inflation over the last 120 years.
http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png
The long-term trend over that period has been for housing prices to rise with inflation plus less than 1% annually. The spike over the 10 years 1995-2005 is unprecedented - not even WW2 came close and at that time people had money again after the Great Depression and no new civilian housing was being built. It’s no accident that in the same 10 years, mortgage borrowing increased by a factor of 7x - from $154 bil to $1,075 bil. This is also completely without precedent. See chart D2.
http://www.federalreserve.gov/releases/z1/current/z1r-2.pdf
So what we had was a decade long bull market in housing fed by huge and ever increasing debt. Such ahistorical things can continue only so long as more and more money is coming in. The end product of this was the Extreme Lending that marked the top. Notice on the Fed’s chart that new mortgage debt declined in 2006, putting an end to the bubble.Normal trendline would have seen prices rise 8% or so after inflation - we saw nearly 70%. Put another way, we could see a drop of 35% from the 2005-2006 highs nationally and still be above the historic trend.
A bubble is simply a positive trend which becomes a bull market and then is taken to an extreme. There are clear psychological stages where an item goes from being valued for its intrinsic worth (in this case shelter) to being looked on as an investment, then a sure winner and finally a get rich quick scheme. These generally unwind until valuations are once again based on intrinsic worth. darrell has some good measures of what this might eventually mean.
If you want to know what turned the bull market into a bubble, you need look no further than the Fed and its foreign counterparts. They cut interest rates dramatically in 2001 to try to bail the economy out after tech stocks imploded. They created so much money that we’ve seen massive inflation in asset prices around the world. RE not just in the US but in London, Mumbai, Shanghai and Sydney. Stocks of course too but also commodities - the price of gold has tripled since 2002. Debt in most areas is still expanding rapidly, which is why most asset prices are still rising but US RE looks to be on the leading edge of a much bigger problem. It’s going to take a long time to play out but forewarned is forearmed.
I agree with you. It looks like the all chickens are coming home to be slaughtered as the article below makes clear.
http://www.gurufocus.com/news.php?id=6016
What market mechanism would cause the price of housing to rise 1 per cent over the rate of inflation? I don’t even buy that, since housing is a fundamental cost of being live. Thus, the cost of housing is automatically a component in the price of inflation for people.
My bet is the 1 per cent premium is just an artificial fudge factor he introduces to reflect the ‘well known fact’ that housing beat inflation, even though somehow his facts could not support that urban legend.
What market mechanism would cause the price of housing to rise 1 per cent over the rate of inflation?
population growth.
Keep the government out of the foreclosure process. They will just screw it up more. Let them(foreclosed units) come on the market. Let’s get this puppy on the way and over with (2011).Wash the excess out. hehehehehehe
“Kathi Williams, director of the Colorado Division of Housing, said the division’s Foreclosure Hotline is ‘trying to slow down this dumping of properties into an overall saturated market.’”
This is what some FBs WANT to hear, to give them false hope. But the truth is that the Division is pulling on a string, at best.
Got 10% down?
Buyers of the seemingly defunct Spanish View Towers, a 15-acre luxury condominium project in southwest Las Vegas, filed suit Thursday to have their deposits returned.”
View of Los Banos? That is apparently where the deposits went to. Down the toilet - flushed really fast and with a loud whoosh noise. Good luck collecting, even after getting a judgement. There is no money, and your $600K is part of that rusting 1st floor in the hot desert sun.
Right, I believe those mechanics liens get first dibs.
I believe that you are correct. And by definition, anyone who “buys” anything that does not yet exist is engaging in rank speculation, and ya know, when you speculate, sometimes you lose. For a somewhat humorous reminder, see:
http://en.wikipedia.org/wiki/Pig_in_a_poke
Condo towers that go bust should be required to build enough floors, even if it’s only exposed beams, so that the “investors” in the project have a suitable height from which to fling themselves.
In spanish “baño” means bath.
What an appropriate “vista”.
Got 10% down?
Does anyone in LA/OC even SD counties listen to 97.1 on the weekends? It is INCREDIBLE, they act as if nothing has happened and there is no down turn, it is one big smarmy filthy infomercial with no warnings from the radio station. Just this afternoon while I was driving around I turned there for a few minutes to hear Tim Conway Jr. espouse that La Habra was UP 50% over last year in value….yes the good old median ploy I guess. And the real estate shill he had on there even was trying to backpedal a little and say it might be inflated prices reflecting a new project of something. I would have throw up in my mouth had I not been laughing so hard, then I thought about calling in….I figured what is the point I would never get through to tell the truth and I would have to lie to talk to them and then they would just cut me off. Did shame and self respect go on a long holiday this decade, are we trying to just outdo the excesses and greed of the previous decades, and there is no accountability? Unreal…like the Twilight Zone in real life, this is going to be ugly….real ugly….real estate the real opiate of the masses.
There is no acoountability in the industry.They find good bullsh@tters and hire them as cheerleaders.They spew nothing but lies and bs most of the time.I think a lot of folks have a very hard time figureing out any kind of math calculation so they think it is true. 200k loan for 550/ month kind of sh@t. Anyone with a brain can at least figure something is wrong here; 200k *.06=12k/12= 1000 in interest alone so something fishy going on.Just add the other interest to the back of the loan and never pay it off. This is the stupid nonsense being sold by the corrupt lending industry.
Does anyone in LA/OC even SD counties listen to 97.1 on the weekends
You might as well listen to George Chamberlame on 600 a.m., both shows make you want to pull your hair out. My solution was just to stop listening, keeps my BP down and I am in a much better mood.
Ben, you and your blog rock. Thanks for your hard work.
Some very nice ‘catch phrases’ on todays blog. My goal for next week will be to work them into a conversation.
1 - ‘will be edgy as cats at a dog show.’
2 - ‘will spread like a cold in a kindergarten classroom.’
Here’s one for the FB’s to work into a conversation:
3 - ‘like a hot kiss at the end of a wet fist.’
My goal for next week will be to work them into a conversation.
‘like a hot kiss at the end of a wet fist.’
‘will be edgy as cats at a dog show.’
‘will spread like a cold in a kindergarten classroom.
Why not just tell us how great your kids are.
“‘There are a lot of investors who have trouble with the mortgage. They have to refinance. They are struggling with cash- flow problems,’ Melton said.”
For some reason, I’m not welling up.
“He who goes a’borrowing, soon goes a’sorrowing.”
-Benjamin Franklin
Go ahead and weep for the flippers and FBs, Banteringbear. It’s OK for men to cry and feel empathy. My life coach said so.
Just read this book - all about the Self Help/Life Coach scams:
http://www.amazon.com/Sham-Self-Help-Movement-America-Helpless/dp/1400054095
I was joking, of course. If anyone ever offered to me my “life coach,” I’d give them a wedgie on general principle.
There are a lot of investors who have trouble with the mortgage. They have to refinance. They are struggling with cash- flow problems,’ Melton said.
Let them struggle all the way to foreclosure.
Re Phoenix - “Here are some of his new realties for the housing market: The housing industry will eventually ‘give back’ one way or another much of the profit gains of 2004-05.”
I guess that refers to the Phoenix market. My smug pals who bought in 2004-2005 in Phoenix will be eating crow soon. Hope there is enough crow left for those who bought here in 2002 -2003 because the Phoenix prices will keep falling to below those levels too. They laughed because I bought series I bonds and Arizona municipal bonds while they bought houses.
More dead rabbits lying on the side of the road while the tortoise laughs his a$$ off.
Good thing we have a healthy population of crows here in California.
But they’re pretty skittish - must be something they learned back in the early 1990’s.
“Kathi Williams, director of the Colorado Division of Housing, said the division’s Foreclosure Hotline is ‘trying to slow down this dumping of properties into an overall saturated market.’”
I don’t understand- are they helping people hang on to properties they can’t afford, just to keep housing inventories down?
I was confused about that statement as well. Kind of like using sand bags to keep the Mississippi from flowing. With a lot of men, money and material you can divert small stretches of the river, but the water eventually has to reach the Gulf.
Been there, done that, a grueling 10 days sandbagging the flood of 92. Very spirited, but you can’t stop the river. In fact, an emotional misallocation of resources probably cursed many homes that could have been saved.
The rule is “Think first, then act”. History tells us again and again what happens when the two are mixed up. Fast forward to Iraq.
The lenders will take the hit as the FB’s get to live in the house for free a little bit longer than usual. The houses will be added to the inventory list eventually. I’d rather see the lenders lose more money so they might not be so stupid next time someone wants a 110% LTV
If the lenders didn’t learn anything the last time around, what makes you think they’ll learn something this time?
Fifteen years from now, it will be different again, but they’ll come up with another way to blow themselves up. All it takes is a new generation of people running the show, who think that they are smarter and more aggressive than their predecessors.
What makes you think they didn’t learn from last time?
What was the lesson from S&L?
1) you’ll make stunning profits on the way up
2) you’re protected by the corporate veil
3) almost nobody will be caught and prosecuted.
4) in the end the taxpayer gets the shaft
(Replying to my own post) Actually,I was wondering why a governmental agency (Colorado Division of Housing) was attempting to manipulate the housing market. I went to their website (http://dola.colorado.gov/cdh/); I looks to me as though they are involved in promoting housing development - or in this case, in trying to prop up a faltering industry. I wonder how any many FBs will be goaded into digging themselves a deeper hole, in a fultile attempt to “slow down this dumping of properties.”
(futile) I meant to write.
“Those landlords, however, are at great risk if their homes stay unrented on the market for too long.”
The risk is that their alligators eventually consume so much of their wealth through negative cash flow / poverty effect (aka inverse wealth effect), thanks to rent that won’t cover PITI + negative home equity gains, that they get foreclosed straight into the vortex of falling prices.
P.S. The risk is even greater if they never find a renter willing to pay their wishing price.
and all the while they’re waiting out the storm they’re losing equity.
appraisers ‘will be edgy as cats at a dog show.’”
Appraiser’s will all end up as the “deal-killer” scapegoats as underwriting looks to deflect customer anger and outrage after they’ve ponied up a $500.00 application fee.
Also…
All watch for all the grammies doin’ appraisals for extra pin money to drop by the wayside due to stress coronaries as they get called back to re-appraise all the overvalued crap they did in 2003 & ‘04
’cause Mr. and Mrs. FB are desperate for their bi-annual house ATM $20k withdrawal to clean up their credit card debt.
The question I have is “when will all of the homeowner discounts have a direct impact on resale appraisals?” Is it possible to not treat them as comps? The discounts alone should destroy the comps in those areas.
MBS bond holders, Wall Street will revalue their bonds and the mortgages behind them. They are going to want millions of appraisals!
Shel commented on Zaio in March
http://thehousingbubbleblog.com/?p=232
Are you there Shel?
I see Zaio selling direct to MBS bond holders and Wall Street.
‘FB are desperate for their bi-annual house ATM $20k withdrawal to clean up their credit card debt.’
- So true. When I am at the gas station almost all of the other customers are paying at the pump with there credit / atm card. I mostly buy at the Mobil station and I am paying with a credit card … my employers credit card that is.
Well you just can’t tell whether people are simply using a card as a method of payment or adding gas to the ballance that they’re paying interest on.
I use my credit card to get points and pay it off each month. I just don’t like carrying cash. Besides, it’s a hassle to walk into the store and wait in line for gas.
“A growing number of landlords are paying more in mortgage payments, taxes and other costs than what they can bring in as rent, said said Robert Alldredge, a Lakewood-based property manager. They are willing to do so because losing a couple of hundred dollars a month is more manageable than trying to cover the thousands of dollars their home has lost in value, he said…Those landlords, however, are at great risk if their homes stay unrented on the market for too long.”
There are a lot of accidental landlords out there who are not yet in danger of losing their “investment”, however they are squandering their future retirement. Countless people who lived quite comfortably, decided to jump on the gravy train and buy real estate. How long are these types willing to pump money into these busted flips? Some of them do have the means to bring a little cash to the table and cut the cord on the thing. That said, I imagine most will ride the pig all the way down because of their greedy nature.
A-ok by me. We need these greedy pigs to subsidize our rental housing costs! The more of ‘em the lower the rents!
The weirdest part of this whole episode with these “accidental landlords” is that they VOLUNTARILY dug themselves in their landlording hole, and now they choose to deal with their reduced quality of life issues for many, many years. All because the 6%ers had to get theirs. I would NEVER want to be a landlord, even when owning rent estate pans out.
Why do people want to do this to themselves? How many times have I, as a renter, seen the face of desperation on landlords? When they tell me the rental rate, I always respond with one word in my best Humphrey Boggart: WOW. Some of ‘em immediately reduce their rent, and I have not even begun to negotiate!
Also, I refuse to rent from a Realtor (TM) . If the landlord is a Realtor (TM) I try to leave them with the impression that they are asking soooooo much for rent, and I tell ‘em ‘you need me more than I need you’ just before I leave.
Got 10% down?
“Those landlords, however, are at great risk if their homes stay unrented on the market for too long.”
Heck, in some areas of California, the difference between PITI (cash outflow) and rental income (cash inflow) is so great, that newly minted landlords are at great risk even if their homes stay rented!
my two year lease was to end i aug.
landlady does not have an option to sell/ she bought for 465 in 2005 and now a similar condo is listed for 409.
called her and asked if I should find a new rental or is she willing to extend the lease for another year.
she is not selling and came back with a rent increase of 75$ pm.
I told she got here rental chks with out fail and being late for last two years. No rent increase or I’m out.
near by condos that are not selling trying to rent for 2200, no luck.
Finally
one more year of lease and no rent increase
happy renter
in East ventura county, CA
Looks like the news is out….
http://www.hgtv.com/hgtv/spcl_prsntn/episode/0,1806,HGTV_3909_50649,00.html
“What’s With That Really Expensive House?
This one-hour special goes behind the closed doors of the most-talked-about houses in the neighborhood to meet the interesting characters who live there.”
it’s the one w a fraud deal going on
Saw it. The ‘cheapest’ property was $25M.
Fiancee and I taking a leap of faith, in more ways than one.
Not only are we getting married, but we’re going to put our house on the market. If it sells for anything close to what I think it may…
( I won’t say “what it is worth”, because one down the street sold for about $100K more than what I consdier it to be “worth”)
… then we’ll be renting for a couple years.
Good luck, Darrell. If you succeed in selling, I am sure you will be happy with the results in a few years.
You are a prime example of what’s happening in the market. Everybody is trying to time the top and get out. This will really put the screws to the FB’s because they have no room to cut prices. I love it. Keep those inventories growing. HEY EVERYBODY, SELL YOUR HOUSE NOW!
SELL YOUR HOUSE NOW OR BE PRICED IN FOREVER!
ROTFLMAO!!!
Got 10% down?
Darell -
We are also selling (scheduled to close mid-June) and not getting back into the fray for a couple of years at least. Lots of things fell into place for us to sell right now including a probable peak in the local market. (VT has a way of lagging a year or two behind most national trends.) We are looking forward to having one less set of responsibilities and lots more cash in the bank.
Good luck with your sale and your wedding!!
“Lots of things fell into place for us to sell right now including a probable peak in the local market. (VT has a way of lagging a year or two behind most national trends.)”
This is why this thing is going to drag on for years. The loose lending is national, and while some markets are faultering, others are peaking. It’s hard to say “real estate is local” when the people who are buying in many markets, are not. There are a lot of one trick ponies still begging to be parted from their windfalls. This will take some time when you consider the amount of money many did make during the boom. I am still seeing small acreage in the PNW selling in a day. The speculation continues.
Lots of things fell into place for us to sell right now including a probable peak in the local market.
Yes, you are selling at the peak, the very peak, lol.
I’m thinking of the morality of your decision. You are essentially looking for a knife catcher. Sure, sell them for what the market will pay. But at the end of the the day, is this an ethical act? I’m asking this question for myself only. We are both adults here, and we have our own set of morals, but ethics is universal i.e. it is intrinsic regardless of your experience or history.
Cinch
He can’t be responsible for reading the mind of a potential buyer and figuring out what’s best for them. As the earlier thread discussed, their are pros and cons of buying — even in a declining market.
I have no moral problem with a transaction between a willing seller and a willing buyer unless there is some deception involved.
Let’s say we’re playing poker, and I’m pretty sure I have the better hand, so I raise. 2/3rds the pot.
1) Anyone buying a house has to know they are taking a chance that the price will fall. They should judge the price vs. the value to them. Not my fault if they buy for some other reason.
2) Ethics are for suckers. Winners only worry about what is legal; if not legal, what are the odds they get caught, what will the punishment be, and is the reward worth the risk.
Only a little tougue in cheek on that last one….
Ooops, left out where I was going with the poker thing.
Is it unethical for me to raise the pot when I’m pretty darn sure you’re gonna call and I’m pretty darn sure I’ve got you beat.
Is there some % break point where it is no longer ethical? It is unethical for me to sell you my house if I’m 99% sure that it will go down, but it is fine if I’m only 75% sure it is going to fall?
I know my argument would go down this route i.e. a poker game analogy. LMAO all is good!
Like my Dad always says, “there are two types of people, the caught, and the uncaught”
So, by the same argument, Cinch, selling a STOCK that you own that you believe to be over-values would be unethical as well? Hogwash!
Yeah.. I thought of the stock angle as well.
I have stock in a company that is a good long-term investment at a reasonable price. However, the price has doubled in the last few years, and I think it is about to drop.
Is it unethical to sell when I think it overvalued, with plans to buy it back later should the price fall to a more reasonable level?
We’re looking at it like this…
We owe $130K on the house, and about $50K in other debt, moslty medical bills($20K) and legal fees from divorce/custody battle($20K), and cars.
One down the street, 200 sqft smaller (1578 vs. 1773) sold a week or so ago for $225K. It needed a lot of work because soon after it closed, a dumpster appeared out front and was quickly filled with carpet and bathroom/kitchens guts.
Same $ per sqft puts us as $252k. I have a friend whos wife is a Realtor and would sell it for 4%…. 1% for her, 3% to buyer’s agent… If I’m serious about agressive pricing. If I find the buyer sans agent, just 1%.
I’m thinking $240K because our house could use some work too.
We could walk away with $0 debt, and $50K in the bank. Oh wait, still have student loans from fiancee’s masters, but that is like 4% interest rate.
Instead of paying interest, we can put the money into CD’s and Gov bonds and be making a bit over inflation.
We’ve checked rents, and looks like we should be able to rent for less that our current debt payments by about $300-400 a month or so. In fact, one right across the street is for rent.. Fully remodeled. 100 sqft larger, with new floors, granite counters, new appliances, etc.. $1350 a month. A house that is worth…. sorry, “can sell for”… like $280K, and I can rent it for $1350 a month. Hell, I’ll probably just end up buying that place from them for $180K a year a couple years from now….
Good luck Darrell. I enjoy your comments here and on the azcentral.com articles.
There are plenty of nice houses for rent, so be picky and thrifty when the time comes.
more power to you .. i say SELL and set the new comps for the neighbourhood.
“‘Someone trying to sell a home for under $200,000 is competing with foreclosures,’ Rinner said. ‘If they can’t sell their home, they can’t move up to a $300,000 home.’”
Be of good cheer. That $300,000 home will be a $200,000 home by 2009.
got equity?
How is this for ethics?
People bought for $255K with $50K down. Signed an “occupancy rider” swearing it is their primary residence…. but it is currently rented and they are looking for another tenant.
After buying, they put a good $30-40K into a full remodel.
Their cost must be $1800-2000 a month or more, but they want to rent it for $1350 a month.
Is it unethical to rent it for that? Should I let the bank know of the fraud now so they can foreclose while they can still get out with what they are owed?
Oh, these people own at least 4 other places…. just in the wife’s name. I didn’t bother to look up the husband.
Disaster in the brewing…
You need to get them to agree to 2 or 3 months free rent. Your gonna need that money later on when the sherriff tells you the bank wants you out in 10 days. Also set up an escrow account instead of a monthly check. They can see the money is there and you’ll avoid wasting the last rent when you will get kicked out.
There is going to be Hell to Play(Pay) with the Credit Grinch this Xmas kiddies.
More alarming is that 72 percent of all foreclosure filings were for properties with an original loan amount of less than $200,000…
It’s still very hard for me to get past this idea of most foreclosures occurring on houses under $200K. Yes, I left Colorado due to the lack of jobs, but damn… you’d think the biggest employer was WalMart. [Wait, that's Arizona!]
The colorado RE crash has been happening for some time now. How’s the job market in Denver? Are the larger employers doing ok still? Where are the best placed to work?
It depends on which industry you work in. As an overall barometer for the Colorado economy, we haven’t had a TABOR refund in years, and I don’t expect one next April either.
“The family trio had put down more than $600,000 in cash as deposits on three high-rise residences.”
I take it the deposits were not placed in escrow accounts? Tsk, tsk, tsk. I’ll bet that that wad of cash is as good as gone (can’t get blood from a stone, etc.) Oh well, it’s not as if $600,000 is a lot of cash these days.
If that was me I might jump off that unfinished highrise
http://www.ft.com/cms/s/8d7aaf52-0801-11dc-9541-000b5df10621.html
“To increase lending volume, banks could either reduce their interest rates or reduce underwriting standards. Given the hunt for yield, this is a no-brainer. So collapsing standards will now stretch out the credit cycle while ensuring the delayed downturn will be more savage when the defaults finally happen”.
We are in big trouble with all this.New tent cities in az full of homeless?
txchick,
Can you explain how this works? I don’t see how being long the high-risk tranches and short the low-risk tranches works out. Sure, you get a very high interest return on the high-risk tranches, and you only have to pay the interest on the low-risk tranches to be short. But how does this protect you (the Hedge fund)? If the high-risk tranches blow up, what good does it do to be short the low-risk tranches? The low-risk tranches would not necessarily get hammered at the same time, or would they? And even if they did, could you have enough coverage to offset your losses?
I guess they are betting on the actual risks of the supposed high-grade tranche to be much worse than that assigned by the rating agency.
Since the rating agencies give them AA or AAA ratings (undeservedly perhaps) they trade a high prices like treasuries.
In such a case, the slightest sign of actual credit problems will send their prices down sharply. The waste on the other hand is known well to be poor and can be bought low.
It’s like you’re betting on the fact that miss pretty cheerleader isn’t qutie as innocent as she looks—and that the tough biker chicks might not be entirely maniacs.
I guessthat the ‘arbitrage’ parts of it really means lowering sensitivity to prevailing interest rate movements which will affect all bond prices in the usual way.
It depends on where the tranches lie in the long chain of break outs. The first generation of AAA tranches do ok. And nobody but the big boys of finance get in on this level. But these financial wizards take all of the BBB and spin them off again into another package of tranches which also start with a AAA tranche. So that pension manger of the local yahoo water agency buys all this AAA rated stuff thinking he is doing OK. Every time the Hedge funds buy into these toxic piles of goo they run out and swap a cut to another hedge and get a reciprocal bite of another funds toxic stew. They have done this so often they can’t keep track of it. The OTC value is 385 trillion. You have some many posistions of BBB junk mascarading as AAA tranches that it all has to short circuit.
FB has 3 bigs rampage through his foreclosed house:
http://www.kgw.com/news-local/stories/kgw_052607_news_pig_house.12e66bfa.html
we have a negative savings rate. ok, now that the housing isn’t doing anymore saving, do you think idiots like kudlow will finally say the negative savings rate is problem? probably not, he’ll probably say the rising dow is causing 401ks to swell, which aren’t counted as savings. of course, most don’t put a lot in their 401k, or it’s got RE in it.
I have one question with the eventual spillage of housing into the stock market:
got bear market?
“More alarming is that 72 percent of all foreclosure filings were for properties with an original loan amount of less than $200,000″
Wow. Just wow.
I’LL SECOND THAT WOW!
I don’t understand why that is a “wow”. Houses were under $200K a couple years ago when most of the ARMs that are now resetting were written. They said “original loan amount”, not the “refi’d 3 times in the last 4 years amount”.
Good point. How many stories do we read with people with an original loan at $80,000 that “needed” all the things the home equity atm could purchase.
The median home price is right around $225K right now. It’s not too far fetched.
Could potential for fire and it maybe not be savable in a large fire have an effect on future pricing? Someone should not die trying to save some a$$hat’s mctinderbox.
http://news.yahoo.com/s/ap/20070528/ap_on_re_us/wildfires_defending_homes
Could potential for fire and it maybe not be savable in a large fire have an effect on future pricing? Someone should not die trying to save some a$$hat’s mctinderbox.
http://news.yahoo.com/s/ap/20070528/ap_on_re_us/wildfires_defending_homes
Cash is the new credit:
http://www.peoplenewspapers.com/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=C842ECDD6D5B4FEFBCBB36A9F414A921&AudID=DA7D68F24889442D98449D08560D8327
Makes a lot of sense. If you’re making a big income, you’re going to pay the AMT anyway, so why pay mortgage interest too? The write-off is of no value. That reduces the decision to straight market timing, unless you are convinced that you can make significantly more than the going mortgage rate on investments year in and year out.
My IRR on stock and bond investments over the last four years is north of 14% with more than 50% in cash, but I’m not convinced that I can keep that up for 15 or 30 years. Almost everybody has a few down years here and there.
Big income = married filing jointly starting just about 100k/year
CASH = Never BUY a house WITHOUT IT !
And preferably for 50 cents on the Dollar Max if possible
I live in Chandler, AZ (just SE of Phoenix). Most houses have been sitting on the market for YEARS now, not months! I know someone with 6 mortgages on 4 houses. This is looking uglier and uglier every day.