Now The Honey Pot Is Dry
A report from the Washington Post. “For years, as the bull market in housing gathered steam, people used their homes as glorified ATMs, pulling out money for all sorts of reasons. The trend helped support continued economic growth and recovery from the 2001 recession. But now people are reining in their spending.”
“For a long time, Paul and Amy Woodhull’s house on Capitol Hill was a honey pot. Through multiple refinancings over nearly a decade, they pulled out money to fix it up, buy a car, pay down credit cards, buy three other properties and improve them, too.”
“Now the pot is dry. With interest rates up and home prices down, they’re reluctant to touch their home equity again. They called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. ‘We’re going to have to save our pennies,’ she declared.”
“Larry Chartienitz of Chevy Chase, the Woodhulls’ realtor, said that during the housing boom he thought of paying $5,000 on a piece of jewelry for his wife’s birthday or of flying off for a weekend getaway.”
“But after seeing his income drop by half last year, he’s cutting back. For his wife’s most recent birthday, he skipped the jewelry. ‘I wanted to reserve it in case I might need it for something else,’ Chartienitz said.”
“Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005, more than triple the rate in the previous decade, according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy.”
“About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.”
“The amount of free cash extracted has fallen sharply since the peak in 2005, to $217 billion in the last three months of 2006, down by almost half from a peak of nearly $400 billion in the third quarter of 2005.”
“‘Without the housing boom, we wouldn’t have spent any of this,’ Paul Woodhull, said as he guided a visitor through his home.”
“The couple also pulled money out of their rowhouse to buy another rowhouse as an investment, and to buy a beach house in Delaware. Later, they refinanced the beach house to buy another one next door. They also refinanced at times to take advantage of falling interest rates, lowering their mortgage payments, which freed up more cash. Grand total: nine refinancings in nine years.”
“‘Jeez, we’ve got all these payments every month,’ said Amy. ‘Now, when I look at sending my son to college in a year, I can’t refinance again. Rates aren’t falling. I’m kind of stuck. What are my options? Sell a property into a down market? I’m really feeling quite caught, like panicked caught.’”
“The Woodhulls, they know they could sell their home if they really needed cash. For now, though, they’re planning to hunker down until the housing market picks up. ‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”
The Roanoke Times from Virginia. “Home prices nationally are declining in a scenario that’s also playing out in parts of the Roanoke Valley, according to sales figures and some real estate agents.”
“In March, the average price of a home dropped 7.4 percent, according to the Virginia Association of Realtors. In April, the average home price rose only slightly, at less than 1 percent to $204,218 from $202,635 in 2006.”
“Agent Pam Washington said she has slashed prices on many properties that initially were on the market for more than $170,000. Her target sales community is Northwest Roanoke.”
“Prices for homes in some areas, such as Botetourt County, may be too high, said broker Luther Burkholder. In Botetourt County, there are at least 71 new and existing homes for sale, all priced at more than $500,000, he said. They’re not selling very quickly, he said.”
“‘We just have so much on the market in Botetourt County,’ Burkholder said.”
“One Roanoke Valley home builder, Fralin & Waldron, has felt some pressure from out-of-towners who are relocating to the Roanoke area and want to bargain for lower prices on new houses. Some have moved from larger cities where they have seen builders slash prices to sell homes faster, said Kathy Gentry, sales and marking manager for Fralin & Waldron.”
“‘We have to really do some counseling with these buyers. We tell them we did not inflate our prices to begin with,’ Gentry said.”
From Bloomberg. “The slump in homebuilding, the deepest since 1990, has so far taken only a modest toll on the U.S. job market. Workers like Francisco Leon may be part of the explanation.”
“Two years ago, Leon, an undocumented immigrant from Guatemala, had little trouble finding construction work five days a week in northern Virginia. Nowadays, the 22-year-old mainly does odd jobs, often only two days a week.”
“‘It was much better two years ago,’ he said, glancing around him at several dozen Spanish-speaking men waiting to be offered day-labor jobs outside a 7-11 store on Jefferson Davis Highway, about 25 miles south of Washington, D.C. ‘There was more work. The money flowed then.’”
The Business Gazette from Maryland. “While the residential mortgage market is ‘tightening up’ across most of the nation, mortgage industry players in Maryland are more sanguine.”
“Still, the home mortgage market is nowhere near where it was two years ago, many say. ‘There’s been a tightening in the subprime market, and Wall Street is not buying loans as much as it did,’ said Charles DiPino, president of the Maryland Association of Mortgage Brokers. ‘That’s hurt some customers.’”
“According to Michael Galeone, executive VP of The Columbia Bank, the subprime market was ‘abused’ during the mortgage boom of two years ago. ‘The subprime market got into trouble as lenders began lending to people with less-than-sterling credit qualifications,’ he said. ‘Sub-prime lending lets you borrow based on the value of your home, maybe up to 125 percent of the value. The trouble happens when the market goes against those people.’”
“‘People bought more than they could afford,’ he said. ‘In the past, they could buy an $800,000 house at 3.5 or 4 percent interest. Then the market shifted and their monthly payments doubled. Many people didn’t have the cash to cover it, and they’re struggling.’”
“Foreclosures in the first quarter of 2007 totaled 2,031 in Maryland, up 88 percent from last year’s first quarter, according to RealtyTrac.”
“‘In the last few years, you had a lot of people who were not really qualified to buy a house buy a house anyway,’ said Cary Reines, executive VP of Mason Dixon Funding in Rockville. ‘Now they’re finding out that they can’t afford to keep them. We’ve seen a lot of that in the last six to nine months.’”
‘According to a published report, Virginia is 35 percent higher than the national average for foreclosures. In fact, foreclosures are up 138 percent in Virginia over last year.’
‘It’s the folks that have gone out into the open market where there’s subprime lending going on that have gotten into loans that are interest only or adjustable rate mortgages that are very vulnerable,’ said PHA’s Stu Armstrong.’
I wonder how the NoVaInvester guy is doing now? I remember his rants on how we were all crazy and how real money was made by buying real estate. the real money seems to be magically disappearing.
It would be kindas fun if we could go back in time and repost what some of these trolls had to say on this blog. Maybe we can do that for a weekend of fun and relaxation.
Got 10% down?
From the WaPo article (I posted in the bits bucket, but it’s worth re-iterating here IMO)- interesting stat was that out of the approximately $1 trillion take out each year during the boom (peaking at $1.4 trillion in 2005):
36% used for other home purchase
29% used for stocks and other assets
23% used for consumer spending
12% used for home improvements
So over 50% of about $1 trillion annually over the past few years has been pure vapor home equity extraction, put into the non-housing economy. This will affect the overall economy - a lot.
The vast majority of the people I know that took out HELOCs or refinanced used the money to pay off long-standing credit card debt (my own parents and in-laws are included in this group). Where does that fit into WaPo’s percentages? Consumer spending?
Yes, they mention CC debt reduction is included in the 23% number.
Question is - how many of those that used HELOC to remove credit card debt turned around and rebuilt the CC debt, or are in the process of doing so? I would guess most.
To be honest though the stat that shocks me is the 29% for stocks and other assets - that to me indicates that the stock market is now also artificially inflated directly as a result of the housing bubble, and will now be feeling downward pressure increasing as ability to use equity decreases. Note that equity extraction in 2006 was still above $1 trillion, way above the pre-2000 average of about $300 billion.
Most are already running their credit card debts right back up. Unfortunately, my parents and in-laws are included in that bunch. The Babyboom generation aren’t exactly smart about handling their debt.
It’s just like dieting. If you use a fad diet you gain more than what you lost. If you just cut back on food portions, and exercise more, you might be able to keep the weight off.
Welcome to the Credit Diet. Take off $10,000 and put $15,000 back on.
G,
What are the people you know running up the cc debt spending it on?
Some people have an insane addiction to credit cards. No doubt, some have cycled through the CREDIT DIET several times. What this has done for them is reinforced their impulse buying behaviors. Some will divorce/remarry and continue with their adolescent behaviors (really depends on how “trophy wifey” she is), but most of these credit card junkies will hit the wall and will soon have to go through a very painful “cash only” withdrawal.
Got 10% down?
Most are not spending their money on anything specific — just generally living beyond their means. My parents are perfect examples. They live a typical suburban lifestyle in a modest home. They drive reasonable cars and don’t spend money on anything extravagant (no Hummers, fancy vacations, plasma televisions, or McMansions). However, they don’t watch their spending. They go out to eat too often (3-4 times a week). They spend a bundle on their pets (vet visits, top-shelf dog food, grooming). When my mother goes grocery shopping, she doesn’t look at prices at all. They have very long commutes, but don’t seem bothered by current gas prices. All these excesses are charged to a credit card. In the end they have a household income of about $80K, but probably spend $100K per year.
I would be more critical if my wife and I hadn’t done the same thing a while back. We very slowly started to accumulate credit card debt without making any large purchases or living extravagantly. Luckily, we caught ourselves, paid off all our balances, and destroyed all but one emergency credit card that remains frozen in a block of water in our freezer. I’ve tired to convince my parents and my in-laws to do the same, but they won’t listen.
Most are not spending their money on anything specific — just generally living beyond their means. My parents are perfect examples. They live a typical suburban lifestyle in a modest home. They drive reasonable cars and don’t spend money on anything extravagant (no Hummers, fancy vacations, plasma televisions, or McMansions). However, they don’t watch their spending. They go out to eat too often (3-4 times a week). They spend a bundle on their pets (vet visits, top-shelf dog food, grooming). When my mother goes shopping, she doesn’t look at prices at all. They have very long commutes, but don’t seem bothered by current gas prices. In the end they have a household income of about $80K, but probably spend $100K per year.
I would be more critical if my wife and I hadn’t done the same thing a while back. We very slowly started to accumulate credit card debt without making any large purchases or living extravagantly. Luckily, we caught ourselves, paid off our balances, and destroyed all but one emergency credit card that remains frozen in a block of water in our freezer. I’ve tired to convince my parents and my in-laws to do the same, but they won’t listen.
This is absolutely true. The US stock market is priced to perfection from earnings driven by MEW, as well as valuations driven my MEW.
Have a look at margin debt as well. If you combine the HELOC money and the margin debt the market is now in worse shape than 2000. There aren’t margin calls when HELOC investments lose value, but it sure has to make people nervous.
Go look at hot tubs, jet skis, “quads”, pool tables or any of the other expensive toys that people bought with HELOC money over the last few years. You’d be amazed at how desperate the stores that sell this stuff are to make a sale. We may pick up a new 8-person hot tub this summer for about 30% of the orignal cost. Used stuff is even cheaper on craigslist.
HeHe . . . I just made a nice deal on a boat - 25% below NADA.
Cash is king!
Heh - I’ve been lusting after a big new flat TV for a while now. I could buy it outright with cash right now, but am going to wait for fall to get it for a song from someone desperate to sell.
Does that make me evil?
50 dollar 60 inch flat screens by 2009….already seeing the Expeditions, Caddies, 25 foot boats and jet skies for sale on people’s lawns around here in suburbia….
The bills are coming due and there is no more equity to extract….only us “pawn shop” operators ready to buy 5 cents on the dollar.
I want to get as evil as possible….to paraphrase another poster, Ed Bear.
And there’s my conundrum. If I scrimp and save, I can max out my 401k and my roth IRA to the tune of 19k/year. But I want to pile some money away for opportunity buying of luxuries from feckless FBs.
A lot of those luxuries are a mixed blessing anyhow. TV rots your brain, jet skis and motor toys rot your body. My father-in-law sailed for years, now he’s having chunks of cancer carved off his body every few months.
Many luxuries are ridiculously cheap already due to cheap labor in China.
You are not evil at all.
The bible cautions about going in to debt as dragging you to wrong doing. So, those of us staying out of this are not evil in any way.
Lots of evil stuff in the bible. Not so progressive to use a book written two thousand years ago as our moral compass, IMHO. I’ll vote for keeping religion WAY out of this blog.
How about using a document over 220 years old as the foundation of our republic?
The Bible is a great work of literature, outside of its use as the religious core of Christianity and Judaism. Many times you’ll hear people use phrases from the Bible in realtion to everyday life, in a non-religious context, such as “an eye for an eye”, as in “mortgage brokers that screwed people out of thousands of dollars by forging documents will themselves be fined thousands of dollars when caught.”
Doesn’t seem very “progressive” to cut yourself off from a big part of the foundation of western civilization based on its age, in favor of what - a nice “modern” episode of Dr. Phil for your “moral compass”? Goofy!
How about using a document over 220 years old as the foundation of our republic?
You mean the Articles of Confederation?
The US Constitution was adopted in 1789.
25% below does not sound like too much of a deal to me. That could be had in HELOC orgy days. I’m a little surprised that prices on used toys are not lower. I think the reason is that there is a long lag time between - HELOC ATM gone - credit cards get maxed to cover monthly expenses - mortgage payments fall behind - NOD - OH SHI$%T I’M SCREWED but I have to keep my boat - then reality
I think this is a full year process. I’m putting off buying a boat this year and I expect REAL deals this winter - I mean 50% - 60% off NADA - $20,000 for a $40,000 boat is worth the wait for me
good luck with that!
What’s a “quad”?
Thanks for educating this non-consumer of expensive toys. OK, as I said last week, I finally got an ipod, but it was free through a points program so that doesn’t really count.
A quadrunner or ATV. Basically the first thing an Arizona hick with $4000 to $6000 buys after “extracting some equity” out of their Queen Creek trash house.
There were all kinds of stores selling ATVs, motorcycles, jet skis, jet boats, lifted golf carts (seriously), and other motorized “big boy toys” over the last few years - I’ve noticed them starting to shut their doors as the hick money dries up. Same with places that install lifts on trucks or custom car stereos.
ATV = all terrain vehicle? Similar to a dune buggy?
How useless. At least you can commute to work on a motorcycle when the weather isn’t too bad and save some gas.
> At least you can commute to work on a motorcycle …
… and drive in the high occupancy lane. That can save a lot of time.
And get 40-50 mpg. With cheap insurance. That’s why I do it every day possible.
Except life insurance, I assume.
“Used stuff is even cheaper on craigslist.”
I’ve noticed a different trend-people trying to get waaaay too much money for their used toys on that site. Kind of like how they are pricing their houses.
I was seeing this with rents too. They start out wanting about a third more then similiar properties because their home was “special” and wanted the whole monthly nut covered. Needless to say, they were still on CL months later but with their prices reduced.
I’m still downsizing and selling a few things on ebay or CL every so often. I really plan to be able to pack in 2 days and be gone if the right job offer comes along. If I price it low just to get rid of stuff, it still sells.
So true. I’ve always found in kind of strange that my old condo cost so much to buy, yet CL and eBay effectively drove the prices of furnishing it down down down. House = four rotting walls and a roof.
I agree, Gwynster. I moved from CA 10 years ago with an ‘84 Volvo full of stuff and moved back last year with a ‘93 Benzo full of stuff. OK, plus 6 boxes shipped. Still, in ‘n’ out in 8 hours. Sorry for the used foreign car snobbery, but I rented a Chevy Cobalt last week. What a complete shitbox!
The problem with Craigslist is that since it’s free to advertise people often “high-ball” (is there such a word). When you have to pay per unit to advertise then there is an added incentive to price it right.
in the last 3 weeks i sold on craigslist
1)old crappy furniture i was going to throw out $300 plus help of moving it out of old place and to it’s new destination
2)2 year old a/c i could not use in my new apt. $100
3)my old coop apt. 1 listing 3 responses 2 offers and 1 buyer
closing on 6/30
i like craigslist
I like Craigslist, too, but you just have to filter out the wishing price items. Soon you notice the same old fridge showing up week after week, still overpriced. I almost wish they had a way to flag “overpriced” along with the flags for “spam”, “prohibited”, etc.
My personal opinion is that there was a lot of barely used stuff coming onto Craigslist cheap *during* the HELOC boom. People were selling decent fridges, TV’s, etc. for a song, just to make room for the new SubZero and plasma TV. I’m not sure where the “good second hand” market will go if people have to hunker down and maybe start keeping their things longer.
Interesting that BanteringBear mentions people trying to get waaay too much money for used toys. Last month, a local bicycle club had a huge swap meet on 4th Avenue. (If you’ve ever been to Berkeley, think Telegraph Avenue. 4th Ave. is our equivalent.)
Anyway, I was amazed at how overpriced the used bike stuff was. Must have been a swap meet-sized example of what Bear’s talking about.
There are two main reasons people are asking too much for used items right now - 1) they paid way too much when they were flush with cash and can’t stand the 50% cut, 2) they can’t afford to sell it for less because they desperately need the cash.
3) They’re unreasonable greedheads.
Last week I saw a 3-year old Ford Ranger for sale, asking about $4K more than I bought my 3-year old Ranger for (a couple years ago). The guy told me he hasn’t had any offers. I told him he was asking waaaay too much, and shared with him what I had paid. He said “Yeah, I’m kinda in a bind, so I’m trying to get as much as possible.”
I said “Good luck.”
I’m seeing the same thing in airplane prices. Recently there has been much more competition to sell. This has forced prices down. I also think the baby boomers are getting too old to fly and aren’t passing their medical exams.
shadash,
My brother and i have been looking at 172’s(he is a A&P/IA also CFII). The bottom is starting to fall out of the older 172’s. I am with you on the lost medical but i also think the shock of 4.00 100ll is starting to also effect people. I would love a cheap 150 but i weigh 200 and my brother is 195 so no margin here in Florida on a hot day. I am in no hurry….
Chris
Back in August 2001 I was in the market for a nice used 182 or Cherokee 235. Not any more. Any idiot crashes his plane into a school or a mall and the Transportation Scare-emsh*tless Administration turns my Skylane into an $80,000 paperweight.
‘Course round here it’s not even the TSA that’s your biggest worry. It’s the Secret Service.
Hey cobra what’s a mid time early 90’s 172 going for now?
waaahoo,
I didn’t see anything newer than mid eighties on trade a plane for a 172. The most expensive 172 was less than 50k. I am looking at early ones for 20-30k. Just something to learn on and build a few hours.
Eventually i would like to find a older Skybolt bipe and refurb it…or Pitts,Eagle etc.
Chris
They didn’t build any Cessna singles between approx. 1986 and 1996-97 (when the product-liability law revisions for aviation products were passed)
Ah yes, that rings a memory bell. I was just wondering as I sold a 79 172 with lowtime engine back in the early 90’s for I think 45K.
We just paid $460K for a 1980 Cessna 421c
As the saying goes,
If it flies, floats, or f%&ks, you better off renting.
Puh-leez! The baby boomers are only 47 to 60 years old. Rather than being too old to fly, they’re probably too broke.
az_lender,
Most likely…Heck i couldn’t think about flying until the last couple of years…Just to pricey unless the plane is paid for.
Chris
Staggering stupidity. Our economy is in deep trouble. I guess we now have to pay for the stock AND real estate bubbles.
I drove around these areas and I think the prices would fall by 40% minimum for these area: Clarksburg(MD), Urbana(MD), Leesburg(VA), Purcellville(VA), Culpeper(VA), Charlestown(WV) and Martinsburg(WV).
The surprising thing is that the builders for new homes are aware of the fact that the houses they sold in the past 2 years are priced around 100K less now and are hard to sell as the builders are offering 100K cheaper prices. And the new buyers are fools to buy now as they would be in a similar situation next year. I think the new buyers from builders should try to negotiate properly, I would say at least 30% off from their final price.
last night someone from Kearneysville WV asked about buying new in that area. I hope s/he sees your post.
Kearneysville? Where does she work? Please say she works there, in which case she can’t afford a McMansion. But there are still people buying out there who work in the DC area. It’s not the worst commute around if you can drive to the train station and you work downtown by Union Station. Otherwise, if you’re driving, that’s idiocy. Your time is wasted, and your money goes to my refining company stock profits (btw, thanks!).
Friend of mine almost bought a new place in Charles Town (bit closer in) and now is very thankful he did not. He’s renting. And waiting for prices to adjust downwards, which some people say is nuts. “They won’t drop that much.” But that’s what they said last year about new houses, and now look.
$350k in Kearneysville is still too high, just my opinion. The $100k in options is a nice builder tease, since you can bet that’s costing the builder well less than $50k.
So, worth buying? I’d say not yet.
By the way, if she’s desperate to buy, has she looked at any of the immediate-delivery houses? If you have a 20% down payment and good credit, builders fall over themselves to make you a deal on those. so if you MUST, MUST buy, go that route and take what they have, not what they will build later.
If she’s buying with near-zero down, though, and relying on builder-arranged financing, she can forget it. They won’t let you bargain them down as low, and it’s $30k’s difference . This isn’t conjecture; I’ve looked up those mortgages/finaincing/selling prices on equivalent units in new developments to verify this.
So anyway, I’m still not sure I’d bite at even a “really good deal” there, but then again, I’m not desperate to live in Kearneysville.
I live in Kearneysville, WV, bought new in fall of 2004 (finished in spring 2005), sold other house in spring 2005 (yes, I played the game, but got lucky and it all worked out without a hitch).
Panhandle WV is dead above $500,000, a price point reached in the summer of 2006. I do expect to see housing prices in the panhandle drop 20-30% in real terms, maybe a little bit more before it is all done.
If a house in Loudon County drops to $500,000, then that kills that market segment for the Xburbs in the panhandle.
I am glad I had my funny money equity from my sale, as it went down on the new house so I fear nothing from the price drops.
the biggest contributor to employment figures “holding up” is the fact that many of the jobs aren’t real. In the most recent report, the computer model created 317K jobs while the total growth was 88K. So without the computer-model-generated figures, the actual job LOSS was 229K
http://www.prudentbear.com/articles/show/2023
other factors masking true job loss according to the article:
“The officially reported governmental statistics fail to note that a very high percentage of new jobs created in the past few years were commission-only jobs, or jobs with independent contractor status. Workers categorized as independent contractors are not eligible for unemployment benefits. This means all of the real estate agents who haven’t made a sale, along with the mortgage bankers who no longer have a company to bring their loans to, will not be filing for unemployment, even though they haven’t made a dime. The Department of Labor Statistics, however, continues to view these unemployed and vastly under-employed workers as holding full- time jobs.”
And a lot of construction jobs were done by illegal immigrants. There is no record of their layoffs.
“And a lot of construction jobs were done by illegal immigrants. There is no record of their layoffs.’
Yep, the only way to count them is to dive by Home Depot and see how many are hanging around outside looking for work.
Dear GAWD: We have so dumbed down our country, we hire the dullest most ignorant people with Masters and PHD degrees, and all they have to do is LOOK at Craigslist.org and see here in NYC we have over 500 a day of those type of “jobs”, last year maybe 100 a day, and by the end of this year probably a 1000 a day….
I post my resume and i get 30-40-50 responses a week……..i remember one week i got 84 responses to my resume and ONLY ONE actually stated the weekly pay…..guess what the other 83 were??????
===============
“The officially reported governmental statistics fail to note that a very high percentage of new jobs created in the past few years were commission-only jobs, or jobs with independent contractor status
It’s a generational thing. My generation didn’t get pensions. The next generation isn’t getting health insurance. My kid’s generation may not get food.
and government inflation numbers will still be at 2-3%.
Well, I guess you just have to pay for some things yourself. I’m certainly not looking to anyone else for my own financial stability.
I wouldn’t mind paying my own way if the baby boomers weren’t asking us to pay for their retirements (in some cases as long as their working lives) and their health care (and my own health care, and my kids, etc, etc.). If you can get the baby boomers to pay for their own retirements and health care in old age, I’m all for generations taking care of themselves.
You might enjoy reading Christopher Buckley’s new novel “Boomsday”. The idea is that instead of collecting Social Security the boomers should just all kill themselves.
This particular boomer is taking care of “Greatest Generation” in-laws who can’t live on their pension/social security/medicare/supplemental insurance. Unfortunately, there are fools from every generation.
I think instead of ignorance, the official numbers are blatantly manipulated to make the economy look better. Recently released Fed minutes reveal how much importance the powers-that-be place on “mass psychology”. As long as everybody closes their eyes and thinks happy thoughts, the economy will keep humming right along, or so they believe….
aNYCdj
My h worked as an i.c. for 6 years before the company finally had the numbers to hire! He actually took quite a pay cut when was hired. So except for when the contracting company cancelled health insurance coverage (something the employing company took action over) we did quite well by it.
Maybe its worth a 2nd look? He made quite a few quality contacts through that situation too.
for those of you without the time to read through the article:
Number of April Jobs Created by Computer
Mining 2,000
Construction 49,000
Manufacturing 3,000
Trade and Transport 30,000
Information 7,000
Financial Services 26,000
Professional Business Services 44,000
Education and Health Care 47,000
Leisure and Hospitality 95,000
Other Services 14,000
Total: 317,000
I actually got a call on an unemployment survey once. First thing is, unless they have a very sophisticated way to adjust it, people who are illegal immigrants or are getting calls from banks/lenders/collection agencies or are just limited in their command of English aren’t going to answer those calls (or will hang up) and that automatically means they are under counting.
Also, they don’t count people who are “full time” employed. Employed in any way at all is what they count. If you spend one hour in the week doing something that might lead to payment (even if you aren’t paid for it) you are not unemployed. Unpaid internships are considered employment. And if you are unemployed (I was at the time), you have to tell the caller what you did that week to actively seek employment (and they wanted more than read the want ads).
The only thing that might lead to a little overcounting was that I was called early enough in the day (6:00′ish I think, maybe a little earlier) and almost no one who is working in a professional position in the New York area is home by that time.
Or jobs that never existed in the first place. NYT just ran an article that the quarterly reports lag monthlies by a few quarters, and all the 2006 monthly job reports are being revised down:
“A big difference was in construction employment, which the quarterly study found contracted by 77,000 jobs in the quarter, in contrast to the increase of 34,000 jobs shown by the monthly surveys.
“The data show we had two consecutive quarters of job losses in construction,” said David Talan, an economist at the bureau, noting the small decrease shown in the second quarter of last year.”
http://www.nytimes.com/2007/05/26/business/26charts.html
exactly, see my post above. the April report showed a 49K increase in construction employment - sure to be revised down later
I like to call them “self-unemployed.”
‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”
What the heck, go ahead put the deck on the roof Paul. Just think of all the “value” you’ll be creating, just hope it doesn’t crash down on your head.
from the quotes with the articles pictures:
“…said Paul Woodhull, 50, a self-employed radio show producer.
“You gotta figure we’re in kind of a plateau here for a while.”
uh…….
This guy brings up a nice point. It use to be that adding a deck, adding wood floors, upgrading the kitchen, etc… was to enhance the living experience of the house. Since the late 90’s additions and improvements to a house were to increase the value. A real paradigm shift.
None of those improvements ever seem to add value to a home. At least not right away. I know someone who thinks adding a bathroom to their home (because it only has one now, as do the rest in the home in his neighborhood) because he thinks it will sell faster that way. It’s insane.
Now that’s one improvement that can indeed, “enhance the living experience of the house”, at least during certain critical moments!!!
For the same price in the same area, a 3/2/2 trumps a 3/1/2 any day….
Yeah, but if the bathroom costs $40k, then does a 3/2/2 for $220k trump a 3/1/2 for $180k?
(To be honest, it often can. The second bathroom is the best one to add. The third is almst never a good deal, at least financially.)
Don’t forget to factor in the cost of marital bliss!
Marital bliss… True, but that’s for the BUYER to factor in, not you, at least not if you are adding a bathroom just so you can sell it.
My brother, when he was single, bought a house in a great neighborhood at a really great price. One of the main problems is that in that neighborhood it was almost all families; singles normally found it too quiet as well as too expensive. But the house had only 1 bathroom. Which is all he needed, so he was happy with his lowball offer, even if the seller wasn’t so happy accepting it.
‘I would love to put a deck on the roof,’
I would love to put my foot in her ass. This steams me.
Thanks, thanks a lot NYCityBoy. Now everyone else at work wants to know what I’m cackling hysterically about.
When I read this article this AM, my first thought was “Ben and the HBB folks are going to love this article - especially the deck on the roof quote”.
You’ve got a kid going to college in one year. Do you really need a roof deck? No wonder they’re going under.
“What are my options? Sell a property into a down market? I’m really feeling quite caught, like panicked caught.”
Somehow, I don’t have a lot of sympathy for someone who refinanced nine times, levered up to buy three other properties and is just now discovering that they might be on the hook for everything that they borrowed.
oh, what the heck. Let’s double down! okay, let’s double down again!………
Current homeowners currently just do not know where the rapid appreciation came from….It was lot’s of people doing the double down!
Next stop…the basement!
The real Real Estate bottom. Don’t worry folks this elevator makes plenty of stops and goes real, real slow on the way down….”oh, I think it stopped. Maybe it will stop going down”
“Darn, i thought it hit the last floor down” ” Okay, I really, really think he hit it……………”
I can just picture them being foreclosed on all four properties at once when market rents dip below carrying costs, and there is no equity ATM to bail out the cash flow crunch. Then they will be the focus of another boohoo MSM article.
Market rents in the DC area have not provided carrying costs since maybe, maybe, 2002. Rents are also coming down somewhat. I hear mortgage payments are also going up somewhat. Perfect storm.
“What are my options? Sell a property into a down market?…”
Yes, that may be your best option. Don’t you recall what happened to investors who used this logic to hang on to tech stocks? Here we go again…
( Nouriel Roubini)His warnings have been dismissed by many mainstream economists, but he turned out to be right last summer when he predicted a more severe housing slump than commonly expected. Now, he said, “I see a quite significant chance of recession, well above 50 percent.”
I feel like there are two Americas: one gets the real story online and in the streets, the other listens to the mainstream media.
To some extant, thie reflects a bit of a bifurcation of society. Those whose wealth comes primarily from wages are running nervous these days, the see a lack of job security and a decline in real income. Those whose wealth comes from returns on equity have seen their wealth zooming in the last 4 years. They just don’t SEE each other.
I’m starting to see some price shifting in Arlington, but we still have a long way to go. Prices are all over the place (with a lot of folks still in serious denial esp. with the renovations vs. new). I’m still sitting on the sidelines in my rental. The owner said I could stay as long as I like and she won’t ever increase my rent which is nice to know.
see the article in the post on 2 arlington sviets complete w segways- your taxes were paying for an energy “consultant”
“The couple also pulled money out of their rowhouse to buy another rowhouse as an investment, and to buy a beach house in Delaware. Later, they refinanced the beach house to buy another one next door. They also refinanced at times to take advantage of falling interest rates, lowering their mortgage payments, which freed up more cash. Grand total: nine refinancings in nine years.”
I am trying to understand something here, if these people purchased these additional properties as “investments” how was it any sort of an investment when they took out all of the equity they had in them?
Was there not a point where they thought, gee I should stop doing this as I am eating up all of my “investment” and we will not be seeing a return on this.
Is it possible the jewelery, cars, paying off credit cards etc.. was their return of this “investment” in their minds as they bought this stuff?
Instead of seeing a return from the future sale of one or all of these properties and blowing the money on all of that stuff at that time, they just did it early.
I don’t see what their problem is now, they did what most stupid people do, spend all of their money. It doesn’t make any difference these people would have blown all of the money anyways. It is their destiny to shop and spend every dime they have.
This is no different than someone living in the red of their overdraft on their checking account and going payday to payday.
I guess some people just do not believe in saving money and having money in the bank to consider themselves to be wealthy, they just want their wealth to come in the form of jewelery, clothes, trips until the well runs dry.
Pitiful really.
“It doesn’t make any difference these people would have blown all of the money anyways.”
True. See it all the time & can’t understand it. They see the savers not in financial duress but refuse to follow the path. Another thing too, is that these types always believe everyone else is much richer than they actually are. Then, to attain this imagined state of ‘normal’ wealth, debt is the instant gratification cure. These folks watch too much Hollywood where everyone is portrayed as upper middle class. All they would have to do is go to the internet and pull up a few stats to see what the USA households really have to lay on the table.
We are the targets of the greatest propaganda effort that the world has ever seen, and the central message is “Buying stuff will make you happy.”
They are probably bankrupt but just don’t know it yet. They’ll realize this when the properties hit the market.
They believed that each house was a money tree. Shaking the money tree was as easy as refinancing every year. But you are right, they will not realize how BK they are until they start seeing bitter lemons, not sweet dollars, in those trees.
Got 10% down?
I guess they were calling it an investment, but in reality buying a property was more like opening up a new credit card account. It was a means to get access to present cash flow. They thought that the cash flow (market price increases) was permanent. Guess not.
7 kids to put through college? Those kids are going to be in student loan hell when they graduate. The one thing that may not give in to downward price pressures is college tuition. I’m not sure about this one, but it just seems to me those numbers are very very sticky.
I know a small college president. I haven’t talked to him about this. I’m almost scared to raise the question.
Yup. There is a persistant confusion between credit and cash, between capital and income with these people. These people BELIEVE that the money that they have borrowed is income, and treat it as such.
I can’t help thinking that some enterprising college or university, most likely in India or China, will set up a virtual operation that will undercut the heck out of American institutions’ lofty tuition charges.
I would like to see that, but I see two problems, too:
1. Some studies demand practical exercises, like laboratory work, patient visits etc. They are difficult to outsource.
2. Quality - I don’t doubt that education from India can be better than from the USA, but it is difficult to prove. How would employers react? “Yes, we take you but for half the salary”?
I think that’s unlikely. Rightly or wrongly, this country is considered the “gold standard” for technical degrees. While it’s certainly true that the Indian Institute of Tech is a top notch institution, because there are so many fewer college slots per capita in India it has to be MORE selective than MIT, despite not being as prestegious.
My wife used to ask me “What are we doing wrong?” This was in comparison to people like this. Every year we thought we might be able to move out of our 2/1.5 and every year prices moved higher. I didn’t even think 0 down.
We would look at these people and feel stupid, like we missed the boat. These people don’t mention it but they are paying for private schools. That area is not the best in most directions after a couple blocks. They are also Ground Zero for a strike at the Capitol.
I read that and thought ‘My God, these people are so toasted.’
My wife used to ask me “What are we doing wrong?”
NoVA,
These conversations were going on in our home before I stumbled onto Ben’s blog in Feb 06. My husband changed careers 10 years ago and so most of our peers were further along in their career paths. But they were living exponentially beyond anything we’d ever consider. I felt so deflated, and like we were failures.
I still don’t feel superior to any of these people. They do have careers and positions that could have allowed them to be in a much stronger position than where we’re at. It’s just now I have my self respect back, and a better appreciation of my own strengths and ability to size things up.
I’m with you, CarrieAnn. I thought there was something wrong with my money management, that we didn’t have the money to spend on cars, vacations, etc like our peers did. Nope, we’re doing fine. You may not feel superior to them, but you’ll always be more financially secure than they are. And you won’t have to go to your children when you’re old (do you detect the resentment in my tone?)
“‘Jeez, we’ve got all these payments every month,’ said Amy. ‘Now, when I look at sending my son to college in a year, I can’t refinance again. Rates aren’t falling. I’m kind of stuck. What are my options? Sell a property into a down market? I’m really feeling quite caught, like panicked caught.’”
There is something so wonderfully ironic as to not be able to afford to send your child to college because of your own stupidity and greed. How’d you like to be their kid? “Sorry honey, we can’t afford to pay for your tuition, we have all of your money locked up in these houses that we don’t live in.” Thanks ma.
In the new book Boomsday, the heroine is a young woman who cannot go to college because her parents blow all the money on an internet start-up. Seems so 1990s. Perhaps the author should update that aspect of the story.
What is with this “parents pay for college” crap? I paid for my own college. My fiancee is paying for hers.
I can’t pay for my grandparents’ retirements, my parents’ retirement, my own living expenses, AND my kids’ college. Not to mention the mass national debt those generations left us with. There just ain’t enough money.
Sorry kids, you’re paying your own way through school.
Better yet, how about 2 years of manditory military service for every high school grad? The government could provide a money for college program while they serve the country. Also, some that would normally slip through the cracks might stay on in the service or learn a skill there they could use in society instead of populating our jails. A lot of 18 year olds don’t know what they want at this stage in their lives anyway as is evidenced by how much they switch majors in college. This would put a huge brake on unnecessary military adventures too. Not a big fan of government programs but a thought.
ss, my mom and I have this conversation all the time. Personally, I think that if a kid is a top student and would be best served by going straight to college than they should go. If not some other type of service: military, AmeriCorps might serve them better and shouldn’t be frowned upon. Especially if it would help them get a handle on their finances, before talking on a whole load of debt that their career choice might make difficult to pay back.
“if a kid is a top student and would be best served by going straight to college than they should go.”
Disagree. All the wealthy and politically connected would pull strings to try to get their kids in college while the rest would go to Iraq. Everyone needs to get some skin in the game to keep events like Iraq from occurring again.
“Everyone needs to get some skin in the game to keep events like Iraq from occurring again.”
Agree, and this cannot be repeated too often. Those making policy decisions have no skin in the game and their children and grandchildren are shielded as well. This is no way to run a democracy.
street sense,
The only downside to mandatory military service is do you really want someone watching your back who really doesn’t want to be there ?? I spent 4 years in the Corps and after Advanced Infantry Training i knew for a fact i was glad it was all volunteers who wanted to be there.
Marine Corps bootcamp does a pretty good job of sorting out the dirtbags…
I could live with some type of mandatory community service instead of a military requirement though.
Chris
“Mandatory” and “freedom” are mutually exclusive terms. That statement is hyperbole but it’s a fact. There are those of us out there who, god love the kids who defend us, will never go into the service for whatever reason. (For me, it because I think our military complex is too large; we can defend our country with far less resources and people.)
“Mandatory” goes against everything JFK said: …Ask what you can do for your country.
JFK meant that people should expect to serve their country, not to get other people to do the dirty work for you. And he walked the talk - compare him to the clown in the White House today.
Of course there was a draft during JFK’s entire political career, and he supported it. Just like just about every other WWII volunteer of his time.
When I was in college in the 70’s in Michigan I knew lots of students who were putting themselves through college. I was often surprised when I visited their homes and saw how wealthy their parents seemed to be compared to my own, who scrimped to pay my tuition for three years. The current generation of spendthrifts probably got their habits from their parents.
Totally ironic…
“We own 4 houses so we must be rich” says the parents.
“Sorry can’t afford any of your college expenses because we are so ‘rich’.” says the parents next fall.
Even worse… their kids won’t even be able to apply for financial aid because their parents “own” all of that property. The government will basically say, “sell your properties and then come to us for financial aid”.
I really need to ask a stupid question here…How come all these parents are paying for junior to go to school ?? It was made pretty clear to me i would not get much help should i decide to go to college. Sucks when the family farm is propety rich/cash poor. I paid my own way along with uncle sams help. I honestly think the Marine Corps gave me outstanding motivation when in school because i had saw how screwed up the rest of the world was…
Oh well…at least i have zero education bills…
Chris
P.S.-I also worked part time while attending school…is that so hard to do ??? RANT OFF…..
I don’t know that this too hard to work part time during school (at least for most people), but it’s still a drop in the bucket compared to university costs at state schools. Personally, I think that if people have the means, and their child could benefit from going to college, i.e. has a reasonable amount of focus, decent grades, and didn’t spend their high school years stoned why not help out. At the same token it’s hard to say if that’s the case for the Woodhulls: they bought a house for 254k and all the money they’ve spent has stemmed from real estate gains. Like someone mentioned upthread, their kids may be even more screwed now because of all the paper equity.
Well Cobradriver, there are people though they are rare, who actually believe education is imperative. They also believe that helping their children get an education is fundamental to good parenting. I’m sorry your parents didn’t feel that way, its a shame.
College is getting so rediculously expensive that most people can’t afford it on their own; anymore than they could afford a 600k house on a 40k salary.
Josh
I am paying for four years of state university for each kid. They agreed that private school or out of state tuition were too expensive. That said, they don’t take it for granted and both of my sons work throughout the school year. They both have money in the bank for the future and no loans. But they’ll have to pay for any additional graduate education.
Well, one of the problems was hinted at above. I grew up in a rural area where there was a sentiment, “My kids on his own at 18 just like I was.” The problem is that the parent makes too much money for the kids to qualify for financial aid. See, you may consider your kids on their own but Uncle Sam does not - unless your kid somehow makes enough to be considered independent.
That’s where I have a problem with those types of parents. They are putting their children at a severe disadvantage. In these cases even the kids who grew up in poverty are more advanataged.
The parents really have a little obligation to help. I’m not saying they should pay for everything. Kids should work their way through school - I did it as you did - but their parents should help some.
One thing I’ve noticed, in many countries (India for example) it’s considered an obligation to educate your children. In some families of higher status, it’s even obligatory to send them to prestigious private schools.
I had this conversation today with my son. My parents did not give me one dime. I have to say I was obviously more motivated than many of my fellow students. But had my parents given me any help at all, I could have afforded a much better school.
It would be so nice to believe, having been a President’s list student, that I got the same education anyway but as long as employers don’t believe that it doesn’t matter. And besides, all I have to do is read this blog to know I didn’t get the same education.
I’ll be helping my son (and daughter) maximize their potential just as all my neighbors are doing the same.
See, you may consider your kids on their own but Uncle Sam does not.
That’s exactly it. Independent students can get loans and grants regardless of their parents’ (or parent’s) income. However, Uncle Sam doesn’t consider a student “independent” until they turn 24 or earn a bachelor’s degree, unless they’re married, have a kid, join the armed forces, or were in foster care until age 18.
My parents refused from day 1 to fill out any financial aid paperwork. Without their financial info on my FAFSA, I didn’t qualify for anything, including loans.
I work full-time, and I’m putting myself through a communty college nursing program (1 year to go!). It costs $142 per credit. Uncle Sam has set aside funding for nursing students, but they want my parents’ income, even though I’m married and haven’t lived with Mom for 8 years.
I’m going to push my kids to learn a trade. If their heart aches for Shakespeare, they can get an English degree in their spare time.
When I started college at Case Western Reserve University in 1997, tuition was under $20,000. With room and board it was less than $30,000. Today, my university gave the following budget:
Tuition $ 32,800
Room and Board (double/basic meal plan) $ 9,938
Required Fees $ 1,108
Total Estimated Expenses $ 43,846
Try work part time to make that while you’re studying!!!
My buddy just paid off his house. He owns it. My other buddy kept buying up. He has 28 years left on his newest mortgage. Guess who I want to be?
I would much rather pay off one house than to have 4 financed.
“Sorry honey, we can’t afford to pay for your tuition, we have all of your money locked up in these houses that we don’t live in.” Thanks ma.
Maybe the 7 kids can chip in and send their parents to How Not to Be A Dumbas$ School.
LOL!
I just love how Greenspan refers to the equity extracted from homes as “free cash”.
“I just love how Greenspan refers to the equity extracted from homes as “free cash”. “
It is “free cash” as long as the magic home appreciation machine is working, as soon as it stops however that “free cash” turns back into debt. That’s the problem of magic, its great while the illusion is working, but when you spot the wires or the card up the sleeve then its turns into just a trick.
Maybe what he meant was “nearly free cash,” as the paper on which money is printed is very cheap.
No, like I tell my hubby about his baseball card collection it ain’t money until you SELL it. Right now it’s a bunch of cardboard.
“…it ain’t money until you SELL it.”
Worse yet in the case of fiat currency, it ain’t money until you SPEND it.
“There ain’t no such thing as ‘free cash.’”
Isn’t Greenspan really saying the monetary base is housing? And since people have extracted all they can with unsustainable debt there is a real danger of the money supply shrinking?
“The couple also pulled money out of their rowhouse to buy another rowhouse as an investment, and to buy a beach house in Delaware.”
sounds just like a buddy i work with and just like this couple (i am sure) he is not “subprime”.
“‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”
when this becomes unthinkable then we have hit bottom. still a long way to go before then though.
“The couple also pulled money out of their rowhouse to buy another rowhouse as an investment, and to buy a beach house in Delaware. Later, they refinanced the beach house to buy another one next door. They also refinanced at times to take advantage of falling interest rates, lowering their mortgage payments, which freed up more cash. Grand total: nine refinancings in nine years.”
What is this phrase “pulled money out of …?” These refinancings were based on imaginary increased value, not on actual equity (and when did that word get redefined?). What they really did was borrow more and more against make-believe values, and now they’re just waiting for the market to pick back up so they can BORROW MORE for a roof top deck. I cringe at the idea of a little debt, so cannot imagine the idea of being this far underwater.
““The Woodhulls, they know they could sell their home if they really needed cash. For now, though, they’re planning to hunker down until the housing market picks up. ‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”
Wow, completely and utterly oblivious.
gee where’s tigger when you need him…
I’m caught, I’m caught, in my own honey pot!
I never understood the “strategy” behind refinancing and ending up with a bigger mortgage balance than when you started. I refinanced as rates went down, but it was to lower my payment, nothing else.
This whole “liberate your equity” madness is just beyond beyond. Now the bills are stacking up, the equity is gone, and folks have zero safety net.
Debt does not equal wealth. No wonder Americans are so disengaged. Everyone’s too busy worrying about how to rob Peter to pay Paul.
‘I never understood the “strategy” behind refinancing and ending up with a bigger mortgage balance than when you started.’
It makes great sense so long as real estate goes up by more than 10% a year forever.
‘I never understood the “strategy” behind refinancing and ending up with a bigger mortgage balance than when you started.’
I only refi’d when I got the bank to lower the loan without points by telling them that I’d take out a loan somewhere else. Did I get the lowest rate, No, but I still got 2% points knocked off my original loan without adding to the backside of the loan.
Debt does not equal wealth.
That’s just crazy talk.
Maybe Lisa needs a remedial class in New Paradigm Economics.
Lisa, please gather your belongings and wait for the Re-education Counselor to come get you.
Agreed, Lisa. I talk to my neighbors and they seem that boom times are here to stay and housing values go up forever. Hate to tell them they (and I) have probabably lost 8-10% of value in the abodes we LIVE IN (not an investment).
Remember a house is a place to live and if you make money on it, ANY MONEY, or profit, count yourself lucky.
400-500K houses in a 10 dollar an hour service economy is not going to hack it for much longer…one or the other will break.
So True Lisa. I re-fi’d and even bought down my rate to 4.875% a couple of years ago, make extra principal payments and am in good shape.
The serial re-fiers however are just renting from their mortgage lender forever. Each time they re-up, you know they take a 30 year am again (or 40). The total price they pay for their house over time has got to be astronomical.
A free and clear house used to be considered part of one’s retirement plan, as was whole life insurance, a 401k, etc. Now, for too many, all three are leveraged to the max to keep up with the Jones’s and fulfill the sense of entitlement.
It makes you wonder if being fiscally and financially responsible will pay off in the long run.
Naah, I’ve never had to pay a 20k cleaning fee when I left a rental. That’s the MINIMUM haircut the serial REFIers will get.
Could anyone tell me how much in fees you pay to refi? Am I wrong in thinking the Woodheads paid a lot in fees to refi 9 times in 9 years?
Those who refinance believe in “real estate always go up.”
Allow me to inject a little Slashdot humor here:
Borrow…
Refinance…
???
Profit!!!
“Now the pot is dry. With interest rates up and home prices down, they’re reluctant to touch their home equity again. They called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. ‘We’re going to have to save our pennies,’ she declared.”
It sounds like high time to launch helicopter drops and subprime bailouts in order to pick fatigued U.S. consumers up off the floor and get them to keep the economy afloat by spending themselves into oblivion.
“The Woodhulls, they know they could sell their home if they really needed cash. For now, though, they’re planning to hunker down until the housing market picks up. ‘I would love to put a deck on the roof,’ Paul said. ‘If this thing goes up in value more, maybe we’ll do it.’”
What if they found out upon trying to sell the home that it was worth, say, $600,000 less than they previously estimated? It could happen — three days ago, I had a conversation with a nice couple whose retirement savings have turned out to be $600,000 less than expected because they overestimated the value for which their home will sell by that amount.
I just made an offer on a house where that exact thing has occurred. The couple’s realtor took a hard line, but I know several people in the neighborhood. Not quite $600K, but still a sizeable chunk. I am not trying to “take away” their retirement with a reasonable(RE said insultingly low) offer. I AM PROTECTING MY OWN!
And I’m in my early 30’s………..
Repeat after me “No, I will not fund your retirement by taking massive debt upon myself.”
I would be insulted that they found your offer insulting.
I told them that the lsiting price was insulting…… AND I will be back when your agent’s listing agreement expires.
Imagine the nerve - insulting them by throwing reality in their faces like that.
Folks I know, in Virginia, bought a house in like 03 for 390K. Took a loan for around 320, or whatever 80% is. Also had a second trust from their former home, about 60K. Rolled them both together, and clearly took an extra handful, because in late 2005 they refi’d the home for like $425K. So after all is said and done, you have a mortgage LARGER than you bought the house for. Where did all of the money go ?!
The wife and I have almost 240 large in the bank and a mortgage I can cover with two weeks of take-home pay per month. It feels good to be a saver. Who needs an equity loan? just pay cash…
…a mortgage I can cover with two weeks of take-home pay per month
Two weeks per month? That feels good? Seems like half your income to a mortgage is a bit high, but to each his own. My own mortgage is less than 20% of just my take-home pay — after 401k. Maybe I’m not living large enough.
Mine’s about 16% of take home pay. Only owe a few more months anyway.
THAT’S the benefit of buying, as opposed to renting. When you’re paying a fixed rate on a decreasing amount of principal, eventually you get to the point where your mortgage payments are almost neglegible. Before I bought my house, I was paying twice as much in rent for an 1 bedroom apartment as my parents were paying for a nice house in a nice neighborhood.
No, you’re living plenty large. Keep paying it down.
But you’re ahead of me, mortgage takes about 25% of take home. I won’t be satisfied until I get to zero.
“According to Michael Galeone, executive VP of The Columbia Bank, the subprime market was ‘abused’ during the mortgage boom of two years ago. ‘The subprime market got into trouble as lenders began lending to people with less-than-sterling credit qualifications.
Oh duh, what do you think is the definition of “sub-prime” is. It means people with less than sterling credit. You know SUB PRIME, below prime, like a submarine. What a moron.
“Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005, more than triple the rate in the previous decade, according to a study by former Federal Reserve chairman Alan Greenspan and Fed economist James E. Kennedy. About a third of the free cash gained during this period was used to buy other homes, they calculated.”
The number of people with multiple homes is unbelievable. I think we’re still in the first inning of this ballgame. The sellers of today are the buyers of yesterday so there is simply no way to recreate that demand. Lower prices are the only thing which can bring buyers. But the pool will still be much smaller due to the tighter lending standards. I can’t see this thing turning around for years.
By what inning do you think it will dawn on people who own multiple homes that (1) they cannot sell them for what they paid, and (2) it is really expensive to own multiple homes when real estate no longer always goes up?
I can’t say what inning, but I would hazard a guess that by next summer this thing will be in full swing the other way. By the time the 07 numbers pile up like a 200-car train wreck early next year, the media will finally get it and then the masses will also.
I speak anecdotally, but homes here in Foothill Ranch and RSM are still selling at 600-800K+. Now, I don’t know who is still buying at these prices and the selling time is definitely a lot longer. On the other hand, homes, condos, etc. are all piling up. I see open houses now every day of the week, when year(s) ago it was only on Sat and Sunday. Also, the number of open house signs increases every weekend. Some of the street corners are so overloaded, I am surprised the local authorities or HOAs haven’t done something about it, esp. when there are 5-10 signs on one corner and another 5-10 on the opposite corner. What visual noise!
What visual noise!
To you and me, maybe.
But we’re talking about subdivs where the homes are built on the aesthetic principle that big is beautiful, money is to be flaunted, and excess is virtue. The Land of the Brand, you might say.
I see this for-sale sign festooning as amusing just desserts: these folks constructed a make believe life, in more ways than one, now let them live with the craptastic signs mocking them–the scarlet letters of their greed and foolishness!
“I see this for-sale sign festooning as amusing just desserts: these folks constructed a make believe life, in more ways than one, now let them live with the craptastic signs mocking them–the scarlet letters of their greed and foolishness!”
Brillliant post. The everlasting for sale sign in the yard is quite amusing, and pitiful.
I believe is was a town near SD where it was found the signs were nonconforming. The city gathered them up and round filed them at City Hall. Must have been sweet watching a bulky agent dumpster diving.
“I’m really feeling quite caught — like panicked caught.”
“For now, though, they’re planning to hunker down until the housing market picks up.”
And therein lies the problem - they think the market will pick up soon. They think a rising market will once again allow them the opportunity to spend beyond their means and to continue to live financially reckless lives. They probably trust their local realtor or mortgage broker who assured them we’ve reached the bottom of the correction. Boy are they in for a rude awakening.
…they think the market will pick up soon. They think a rising market will once again allow them the opportunity to spend beyond their means and to continue to live financially reckless lives. They probably trust their local realtor or mortgage broker who assured them we’ve reached the bottom of the correction.
It’s like they never got over the fact that there’s no Santy Claus, and this RE fallacy is the replacement for childhood magical thinking.
Wait, now I’m really feeling quite caught - like panicked caught - at the thought that I’m surrounded by nincompoops….
A catchphrase that should go right along with “RE always goes up” is “You can always refinance.”
Except, evidently, when you can’t.
I too am quite taken by the phrase “pulled money out of…” When you take on a second mortgage, you have not pulled money out of your asset, you have instead borrowed money against it. This money will have to be repaid WITH INTEREST. These people cannot simply sell their house to cover the loan because they will always need a place to live. One way or another, they will have to eventually pay the loan back, interest and all.
“The Housing ATM” wasn’t really an ATM, it was more of a Housing Credit Card. People weren’t “extracting” their own money, they were borrowing someone else’s.
However, this is yet another example of how people manipulate language to change people’s thinking. If we call it “extraction” instead of “borrowing” then people will be more likely to take out another loan.
It reminds me of how the recording industry has succeeded in changing the name of illegally downloading music from “copyright infringement” to “stealing music” in order to change how people thing about the issue.
Excellent post!!!! This is what I have always felt and believed that the home ATM was a credit card,
Visa
Very- impulsive- Stupid- Debt
Remember the Russian General in the movie Air Force One who was “extracted” from prison . . . . his was temporary too.
That would be VISD
“It reminds me of how the recording industry has succeeded in changing the name of illegally downloading music from “copyright infringement” to “stealing music” in order to change how people thing about the issue.”
Totally OT but that really pisses me off. The recording industry had no problem with stealing from me and my kids by price fixing.
“About a third of the free cash gained during this period was used to buy other homes, they calculated. About 29 percent was used to acquire stocks and other assets. About 12 percent went to home improvements. And nearly a fourth, 23 percent, went to consumer spending, including paying credit card bills and reducing other non-mortgage debts.”
There is a problem with this ‘free cash,’ which is that it was debt-financed, implying that it is supposed to be repaid to the lender. Now that home prices are falling on a national basis, I am wondering where all these cottage-level financial wizards are going to come up with the ‘free cash’ to repay what they owe on their liberated equity expenditures?
“The Woodhulls, they know they could sell their home if they really needed cash. For now, though, they’re planning to hunker down until the housing market picks up.”
Remember when “hunkering down” used to mean playing it safe in a bunker with lots of supplies? Now people apparently think they’re “hunkering down” as they drift in the middle of the ocean on a plastic raft without food.
Very nice metaphor.
roflow !
Would be interesting to know what they consider to be “hunkering down”.
““Homeowners gained an average of nearly $1 trillion a year in extra spending money from 2001 through 2005…”
No, they voluntarily went into debt of nearly an extra one trillion dollars.
Unbelievable.
I hope I don’t have to pay for these clowns.
Yes. And I believe Americans took on five trillion dollars more real estate debt during that period. Real Estate debt doubled during the bubble. That seems sensible.
“About a third of the free cash gained during this period…”
Now they are learning the hard way that the cash wasn’t Free!
“…They [the Woodhulls] called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. ‘We’re going to have to save our pennies,’ she declared.”
Are these new rules for the Woodhull’s children or their parents? Just wondering…
I speak anecdotally, but homes here in Foothill Ranch and RSM are still selling at 600-800K+.
——————————————————————————
Take heart OCDan, there will always be some homes selling even in a down market. Realtors I’ve talked to recently are indicating that the sales are extremely SLOOOOOOOW here in the OC despite the occasional dummy buying.
For me this is all deja vu again back to 1990 when prices started to rapidly drop in South OC. Wait for the next three months to fizzle and then you’ll see some serious price declines.
I agree w/ this. I have friends in the Hunt Club and Marbella (San Juan Cap) who took 50% + haircuts between 1990 purchase and 1996 sale. It started slowly, but the plunge really accelerated in the 94-96 timeframe.
Ways to go, but the outcome is inevitable.
“For now, though, they’re planning to hunker down until the housing market picks up.”
LOL, good luck with that one. Many non-shill economists are predicting up to 40% price drops over the next several years.
I’m predicting foreclosures and bankruptcy for the Woodhull family.
Them: “40%? Prices won’t go down that much.”
Me: “Why not?”
Them: “Well…they just won’t.”
I live in Rockville, MD off of I 270 in North Farm. Believe it or not the last two house both sold in less than a week. The first house had 3 contract offers and sold for 96% of the $780,000 asking price, and the house was not that nice, it had the original 20 year old kitchen and bathrooms. The other house that just sold was in better condition with a new kitchen and slightly larger. The agent priced the house on the low side to generate interest. Before the house had an official open house there were 5 contracts and from what I have been told it sold above asking price. One person even had a $30,000 escalation clause. However, I do not know the final price.
I guess the market is not that bad for houses that are considered “close in” to DC.
from what I have been told it sold above asking price
I would go by what the county assessor’s office says, not a Realtor’s ™ word. “Asking price” is also a very fungible concept. Better to compare it to what similar comps sold for last year and the year before that to establish whether or not it *really* sold for “more”.
“Debt does not equal wealth.”
That can’t be true. All I have to do is buy a DVD that is incessently advertized on WFAN in New York to have the “Transform Debt into Wealth” system explained to me. Therefore, the money debt you have, the more wealth you will have after you get the DVD, right?
Fed minutes say housing is worse than they anticipated
Inflation still a concern though
oops, no ez rate cuts for the FB
“Worse than anticipated” = moniker for the bubble’s denouement?
And the market is acting very positively on that awful news. “Hello Goldilocks, have a chair.”
Could between the certain housing crash and the possible dollar crash. No easy choices.
Goldilocks is playing jumprope on the staircase again…
Has anyone else read the book Little House on a Small Planet? I think the author would fit in well here.
No, but I ‘ve read The Little House by Virgina Lee Burton. ; )
these jerks bought 2 3 4 houses and spent recklessly.
They contributed to these foolish prices and must suffer for it.
Buyers need to wait for the collapse when these jerks like these are in fire fire fire run for the exit mode. it is coming shortly when they realize the bottom is soem time away.
Comment by Michael
2007-05-30 10:57:12
BS! Mikey I live in one of these bubble markets and I can assure you there is depseration in the air. Rumor this BS that. Things have dried up and realtors are just looking for bids.
Of course there is always a few dunces with their heads cut off running around buying a house, but there are not to many anymore.
Does anyone know how many people have multiple homes? Either as vacation homes or as “investments” .
I’m mikey(TM) and I’m getting CONFUSED here !!!!
That WaPo article nearly put my blood pressure through the roof. These people refinanced over 10 years to buy all those material things and pile on more debt. They thought they were superior to renters, no doubt. But the day of reckoning is nigh for them. 6 children? Maybe I should read that article again. Maybe ten years ago I should have recklessly buy a house, refinance over and over and get my girlfriend to produce babies - no worry. Use my house as an ATM machine to pay for raising them.
> 6 children?
So what? Children don’t have to be so expensive, they are also cheaper by the (half) dozen. Let’s focus on the four houses instead, there their problem is.
I’ll bet those kiddies don’t wear hand me downs and their mother has never told them you can’t always get what you want. I used to tell my kids “People in hell want ice water.”
While they don’t have to be, I suspect they are in this case.
“They called their six children into a family meeting recently, and Amy laid down new rules: No more impulse purchases or frivolous shopping trips. ‘We’re going to have to save our pennies,’ she declared.” “
And so the biggest redistribution of wealth from savers and producers to useless eaters and kleptocrats in the history of the world draws to a close. Pity. Next: the hangover.
No hangovers so long as the stock market always goes up:
http://www.marketwatch.com/tools/marketsummary/
Yep, the inflating of the stock market is amazing to watch. Everyone proudly strutting about how the Asia problem is “contained” no doubt like how subprime problems are “contained.” The PPT must have been very busy today. I also love the stupid response to the Fed’s statements: Basically, the Fed says that inflation is still a concern, the Bubble is contained, and as we know the yield curve is no longer inverted. That means rates, if anything, will go up. So, the market rallies thinking rates will go down… huh?! Amazing!
“That means rates, if anything, will go up.”
Not if the Fed sits on them.