This Had To Happen Sooner Or Later
The Boston Globe reports from Massachusetts. “Home prices in Massachusetts fell for the 15th straight month in July, and the turmoil in the mortgage market in recent weeks is likely to drive prices down further this year. Earlier in the slump, sales slowed because stubborn sellers refused to lower their prices to adjust to new market realities. Sellers have reduced their prices, but buyers are now facing increased scrutiny when they try to obtain financing.”
“‘People who are ready, willing, and able to buy a house can’t do it because they can’t find a mortgage,’ said Timothy Warren Jr., Warren Group’s chief executive. ‘That’s got to be bad.’”
“Ra’ufa and Bryn Clark recently bid $465,000 on a property in Beverly; it was listed for about $100,000 less than it was in 2005. During that time, the seller took the house off the market for a while, said Ra’ufa Clark.”
“‘The people decided they needed to sell the house,’ she said. ‘We decided to go for it. The price drop made it possible.’”
“Ronn Huth, owner of Buyers Choice Realty in Wenham, predicted house prices and sales will decline in coming months. ‘More buyers are looking, but they’re still reluctant to take that step,’ he said.”
The New York Post. “The nation’s housing foreclosure crisis has walloped Manhattan with a vengeance this summer, as the number of filings leaped 184 percent in one month alone, according to new statistics.”
“Staten Island also suffered from the frightening flood of foreclosures between June and July, recording a 102 percent jump, reports RealtyTrac. ‘It may have taken a little bit longer, but the subprime [mortgage foreclosure] wave has finally hit New York,’ one industry source said.”
“‘When prices are going up, it makes a lot of sense to want to partake and benefit in that prosperous housing market,’ said Solomon Greene of NYU’s Furman Center for Real Estate and Urban Policy. ‘It used to be that lenders would put the brakes on overambition. Lenders have been willing, with the advent of the subprime industry, to be much looser in their standards. There’s a crisis in the subprime industry.’”
The New York Daily News. “Although New York’s real estate market has fared better than several others around the nation, Sen. Chuck Schumer said statistics show foreclosures in the city and state are on the rise.”
“‘Anyone who thinks New York City is going to escape the subprime crisis is just plain wrong,’ said Schumer. ‘The foreclosure storm that’s been brewing elsewhere in the country has now made its way to New York.’”
The New York Sun. “Rents are down in nearly every neighborhood across the city after peaking earlier this summer, with prices retreating for all classes of apartments except studios in buildings with doormen and two bedrooms in non-doorman buildings, according to a report by the Real Estate Group.”
“Since July, rents for one-bedroom apartments in buildings with doormen dropped by $250 in the East Village and by $450 for two-bedroom apartments in buildings with doormen in SoHo, the report said.”
“‘This is not a cause for concern,’ the chief operating officer of the Real Estate Group, Daniel Baum, said. It is more a sign of ‘property owners becoming a bit more rational about what the market will bear for their properties,’ he said. Mr. Baum said the rental market has been ‘overheated’ and that the drop in rents is a sign that potential tenants are simply unable to pay the prices being offered.”
“Foreclosures in the city are on the rise, according to RealtyTrac Inc., which found that foreclosures in the city jumped to 2,561 from 1,648 from July 2006 to July 2007, an increase of about 55%.”
“‘I think you’d be naive to think that New York is immune from the credit crunch going on right now,’ the president of a New York real estate appraisal firm, Jonathan Miller of Miller Samuel, said. ‘I don’t see it as a doom and gloom situation, but I am concerned.’”
The News Times from Connecticut. “According to RealtyTrac, there were 2,118 foreclosure filings in Connecticut in July, more than double the 1,038 in July 2006. In July 2005, there were 563 foreclosure filings.”
“In July 2007, New Haven County had the highest number of filings, at 706, followed by Hartford County at 450 and Fairfield County at 403.”
“‘We are seeing more foreclosures overall,’ said Norm Krayem, president of the Connecticut Association of Realtors. He blames predatory lending as well as high prices.”
“A slowing in price appreciation is also hurting new homeowners, Krayem said, because ‘you would owe more than your house could bring today.’ Except in Fairfield County, Krayem said last year’s buyer who only put 5 percent down likely wouldn’t have any equity in his home if he needed to sell today.”
“For Connecticut, Krayem is more optimistic, because the state’s economic underpinnings are good. ‘Home prices needed to come down and they have,’ Krayem said.”
The Norwich Bulletin from Connecticut. “Angela Barlow is nearly at the end of her rope. The East Killingly resident has had her white-shingled, three-story home on the market for more than a month without a single offer. Barlow said if something doesn’t happen soon, she’ll lose everything.”
“‘I almost lost the house to foreclosure once,’ said Barlow. ‘If I don’t sell, I’ll have lost close to $100,000 worth of equity. There’s been at least three families on this street who have lost their houses just this summer.’”
“Connecticut had 13,198 foreclosure filings from January to June, or one for every 108 households in the state, the ninth-highest rate in the country, according to RealtyTrac.”
“Statewide, Windham County households recorded the highest number of foreclosure filings. The Killingly Town Clerk’s Office has received paperwork for 12 foreclosures since January, one fewer than the total number received in 2006. The situation is more pronounced in Thompson, which had nine foreclosures in the last eight months, three more than for all of 2006.”
“Attorney Jonathan Peck, whose office is in New London, said the increased number of foreclosures can be traced to…the inability of homeowners to refinance subprime loans and the depreciation of home values.”
“‘Those subprime loans are a killer, and I think that’s a big reason for what we’re seeing up here,’ First Selectman A. David Babbitt said. ‘But our building inspector says construction on new homes is continuing. We’ve had 12 permits taken out for new homes in the last six months, so we seem to be as busy as ever.’”
“Peck said many home buyers purchased homes within the last three years by financing up to 100 percent of their home’s value, with the hope of refinancing before interest rates jumped. ‘People borrowed so much to get in with the expectation of a degree of appreciation,’ Peck said. ‘No matter how you cut it, it’s a sad event.’”
“‘In 2005, a person may have bought a home for $200,000 by financing $190,000 of it,’ Peck said. ‘And if that home is appraised at $180,000 in 2007, which is possible because of the current market retreat, that person still owes $10,000.’”
“Housing statistics for New London and Windham counties showed fewer houses are being sold this year. A 2007 second-quarter housing comparison report lists 272 single-family homes sold this year, compared with 1,161 units sold during the same period last year. The average price for a home was $345,552 this year, while similar residences went for $323,153 in 2006.”
“‘I think 2007 will turn out to be a normal market year,’ said John Bolduc, executive VP of the Eastern Connecticut Association of Realtors. ‘Keep in mind, the last five years have been a boom, so this had to happen sooner or later. You can’t sustain double-digit numbers forever. The market is taking a breather.’”
The Times Leader from Pennsylvania. “The number of building permits issued in Luzerne, Lackawanna and Wyoming counties for new, privately owned housing fell dramatically in June compared to a year earlier, and so did their average value. The decline is even greater if only single-family homes are counted.”
“‘We can feel a little effect,’ said Bill Price, owner of H.W. Price & Sons in Forty Fort. ‘There is a glut of empty homes out there.’”
“And when builders come under pressure, they can turn to subcontractors to help absorb the blow. ‘It’s definitely a more competitive situation right now,’ Price said. ‘Most builders look at price first,’ so he knows to bid aggressively when seeking that kind of work.”
“‘We notice a little bit of a pullback,’ said Larry Bonner, president of Sand Springs Real Estate Corp. in Butler Township. Like many builders, Bonner said his company is offering incentives to potential buyers, such as up to $10,000 in options at no charge or a free one-year membership at the Sand Springs golf course.”
“‘We’re not getting a lot of young buyers,’ which may relate to difficulty in obtaining financing, he speculated.”
From WFMZ TV in Pennsylvania. “As a result of all the foreclosures and the ‘mortgage meltdown,’ dozens of realtors, lenders and others from the industry put their heads together in Bethlehem Monday.”
“Janet McIlhenny has been a realtor in the Lehigh Valley for 7 years and a banker for 15 years before that. She says she’s never before seen some of the things happening in her business now. ‘As a realtor my costs are going up of doing business every day and client frustration is going up which leaves it more frustrating for me.’”
“A big question is ‘who do I work with’ when many mortgage giants are going under? The experts say people need to seek out certified and trusted real estate and mortgage professionals who make informed decisions on what someone’s pocketbook can afford instead of what someone’s willing to lend you.”
“Sam: ‘I think the days of, ‘I’m going to take a borrower somewhere and if they don’t get the answer they want I’ll take them to the next guy,’ those days are gone for a while..and that’s good.’”
Please sign the petition and pass it on to those you know. The more people that know about this and are aware of what is going on, the better. Please pass this on to others via email and blogs.
http://www.petitiononline.com/bailout/petition.html
I have over 300 signatures and I started this just last night. While it does not have quite the impact of going door to door, we can get more signatures this way covering a much wider area.
speaking of bailouts check out this link
http://news.yahoo.com/s/usatoday/20070822/cm_usatoday/3waystohelpborrowerswithoutbailingthemout;_ylt=AhaufqcaGz_RsBCLCe_MMcis0NUE
and a question??? what is a tiny url? or a uri?
tinyurl.com is a website. You can paste a long URL (or URI; same thing, different acronym) and the site will generate a shorter URL redirect for it.
This is a partisan document. Do you have one that is not political?
I don’t see the partisanism since it also says Congress. I pointed out which 3 are screaming the loudest. They just happen to be Dems.
This is document has a suspicious nature based on those named. Do you have something that simply addresses Congress, and the issue of bailing out the lenders?
The people named proposed bailouts. However you will see he included all of congress.
I can see what it is. It is political in nature. The members of Congress that will be pushing any bailout the most will be those who are the most connected with the business interests that will be harmed by bad loans.
Few give a damn about the borrowers involved. I certainly don’t.
In any case, the lender bailout is almost certain to pass. The FED is likely to lower rates on the 18th. They will do what they have to do to keep the system floating.
Give me a break!
I also know I can’t please everyone : )
That doesn’t mean you have to be a dupe.
Tortious, please get lost you political hack
‘the lender bailout is almost certain to pass. The FED is likely to lower rates on the 18th.’
Pretty sweeping statements, with as usual, absolutely nothing to back it up.
Cool and energetic idea, Tom.
I think people should call in as well, though, to Sen. Dodd the Bailout Ninny, and their own congress person too.
Dodd’s number is 202-224-2823. I got it off this blog last night but haven’t called yet.
so as city/county gov start to lose money in their collections of property taxes should we expect to see other income increase such as parking/speeding/dui/red light tickets/higher taxes and fees etc…..
inflated property taxes are yet another factor driving prices down…of course property taxes never go down and potential buyer will be factoring property taxes into their buying decisions.
i agree that the housing crisis will make it more difficult for towns to maintain there budgets…all they can do is put a lien on the property and wait until the taxes get paid…town budgets are already getting hammered with rising fuel prices…
(“Janet McIlhenny has been a realtor in the Lehigh Valley for 7 years and a banker for 15 years before that. She says she’s never before seen some of the things happening in her business now.”)
She doesn’t remember the early 1990s in the Lehigh Valley? You had middle class “supercommuters” traveling three hours to work in Manhattan each day in the late 1980s too, because they were priced out of anything closer. Didn’t hear too much about them again until after 2000.
So, being in the banking and RE biz for 22 yrs, she never saw the ‘happenings’ of exploding prices and funny financings?
I just want to shout when I hear about those ‘long time in the biz’ folks who are now oh so puzzled.
I’ll never understand why it was so widely believed that run away prices were good for anyone.
“Angela Barlow is nearly at the end of her rope. The East Killingly resident has had her white-shingled, three-story home on the market for more than a month without a single offer. Barlow said if something doesn’t happen soon, she’ll lose everything.”
If that’s not enough heinousness, her daughters are named Savannah and Madison.
“…she’ll lose everything”
She should get smart and cut the price down so much that the buyers will be *shocked*. That is the only way. And, no one is going to feel sympathetic just because she says she’ll lose everything. During the boom years these people didn’t listen to logical people. It is not as if there was an unexpected natural disaster that hit these people. Everyone who is suffering now in the housing crash, were amply warned. They refused to listen because they were greedy.
“If that’s not enough heinousness, her daughters are named Savannah and Madison.”
White trash likes to act sophisticated once in a while.
‘her daughters are named Savannah and Madison.”
That is better than Cheyenne and Montana … which I have heard children named here in So Cal. When I grew up in Indiana there were names like ‘Dutch’ and ‘Elmer’.
I LOATHE the name Madison. I think it’s currently number two on the list of most popular girl’s names. How can people be so stupid as to name a girl that? Its translation is “Maud’s son.”
‘Savannah and Madison’?
That was enough heinousness to start with, and now it’s heinousness squared.
Doesn’t this woman ever hang out downtown anywhere? Those are stripper names. And I would know. Haw!
I have a dog named Madison. LOL
And is your dog also a stripper? Or did you raise her better?
LOL - these need some sort of special flag. I can’t replace keyboards all the time.
Reminds me of the way you make your own “porn star” name:
-Name of your first dog, and
-Name of the street you grew up on
Mine is “Krypto Curtis”
“Johnson Hewes”
(no kidding, I didn’t name the darn beagle though)
Mine is “Lucky Oldbrook”
I would be Samantha Greentree.
My in laws named their sons, Wills and Tucker, as if they were royalty. They might as well have named them Kick Me and Beat Me.
forever cursed “Whatchu talkin’ bout Willis?”
An Albino Stripper?
I have a cousin named Savannah and every time I hear her name I think the same thing “stripper name”.
Savannah…such a nice city, and they had to go ruin its name.
BWWAAHHAHAAAHHAA!!
“”A big question is “who do I work with when many mortgage giants are going under?”
Answer to realtors question :
Guess your going to need to qualify your buyers now instead of putting any Tom ,Dick ,or Harry buyer into a property promising them that real estate always goes up and they can get a refinance down the road . Must be hard finding someone with a down payment these days . Don’t you wish you saved money during the boom times instead of thinking it would last forever ? Maybe you should of refused to put a unqualified buyer into a overpriced home during the boom and than you might not be in the spot your in now.I know , I know ,it was the mortgage agents fault ,you didn’t set the buyers up for a big fall ,it was the mortgage agents handing out the easy money . You never told young first time buyers to “buy now or be priced out forever “,or ,”You can’t afford not to buy because real estate always goes up ,and were running out of land .” No fault with the realtors .
HW~
RE: Must be hard finding someone with a down payment these days .
A former appraisal associate of mine who got run out of the biz because of his skill and honesty, tried a stint as an L/O with Wells Fargo back in the early 90’s.
One comment he made to me at the time was that 20% down payment borrowers were virutally non-existent. And that was back when there was some reconcilation between purchase prices and income.
There was a blip in yesterday’s Beantown Globe which said on a national average, American wages, adjusted for inflation were less in 2006 than they were in 2000.
Certainly there’s no downpayment crowd in those numbers.
Whatta fookin’ house of cards.
I just talked to a mortgage broker who said that loan money is getting down the pipeline because banks went in on behalf of the mortgage agents and took their cr-p pipeline of loans and got a loan from the Feds on those loan notes .
So ,it will be interesting to see if the junk of the junk in loan paper ends up getting eaten by the Feds in some way ,shape or form .
What law states that a market has to exist . When the interest rates were 15 to 20% ,it was a dead market .Inflation was a more important concern to take care of than providing cheap money to the real estate markets .
It’s a big house of cards, as you say ,and it makes me sick how the powers that be won’t just let the risk takers take their loss . Let the risk-takers take their loss and than funds will be put in the right direction again because the scum of the industry will be kicked out .
My feeling is that they will need to give 10% down loans eventually , but they will need insurance in the future to get investors to even go on loans and this big insurance pool will be paid for by the borrowers ,so the cost of money will go up in that way .If you put 20% down you get cheaper costs and that has always been the reward for borrowers who save . Speculators should always have the higher loan costs because they are the greatest risk and this cut’s down on speculators making up to much of the market . How the loan makers thought that the wisdom of old lending standards was no longer valid ,based on a bunch of myths ,was the problem .They can’t continue making loans based on new age myths and BS .
10% down payments are going to scarce while the savings rate remains negative (0.05), rising food/fuel prices, et cetera…
Median home prices will be corrected by median incomes.
I think the rent index ratio to mortgages will also come into correction. Now it’s 208% twice the average of 108%. The rent index is a good indicator of how much people can afford for housing.
The down payment, in the past, has been what separates the owner from the renter. For example, you can rent a house for $1000 monthly, mortgage payments should be 108% (roughly) but certainly not 208%. The hard part about getting a mortgage is the 20% down payment, which is as it should be! Only hard working people who save for a down payment deserve mortgages! That’s how it’s always been in the past…why fix it if it’s not broke?
“‘When prices are going up, it makes a lot of sense to want to partake and benefit in that prosperous housing market,’ said Solomon Greene of NYU’s Furman Center for Real Estate and Urban Policy.”
Sol, this is one dopey remark. So, with a housing bubble inflating, it made sense to belly up to the table and “partake”? What about wildly inflated prices out of whack with median incomes? The absence of sane underwriting? The teaser and prepayment penalties on exotic mortgages?
Sol, we’re going to have to add you to the Hall of Shame, with your dimwit pals from George Mason U and that blockhead Retsinas from Harvard.
“blockhead Retsinas from Harvard.”
Haahhvaahhad! Yeah, real geniuses. Harvard oughta have its law school accreditation yanked for turning out the AG of the US, who can’t even assimilate basic constitutional principles. Oh, and didn’t Yale turn out the shrub, with his sharp (not) business acumen? Sheesh, a diploma mill could do better in terms of law and business, two areas this country seems to be having some real difficulty with at the moment. Boola-boola!
http://biz.yahoo.com/ap/070822/accredited_home_lenders_restructuring.html?.v=2
Ouch !
“‘I almost lost the house to foreclosure once,’ said Barlow. ‘If I don’t sell, I’ll have lost close to $100,000 worth of equity. “
Another nonsensical rant by someone buying into that realtor gibberish. How can you lose equity? If the house is priced to market, then the difference between what you owe and what the house sells for (minus realtor fees) is equity, not what you think it was worth last year. These dolts will never get that the market determines price, not the seller.
I can just hear Elmer Fudd saying, “I was wobbed.”
There have been other FB articles posted that suggest the peeps don’t know what equity really means.
It’s only equity if you can cash it out.
That statement twisted my balls too. These dim bulbs don’t even come close to understanding they ALREADY lost. There is NO recovery of $40/share Corel that sank to $5 in a week. This is what happens when listen to Real-Turd mantra that RE only goes up.
They didn’t already lose. They won’t lose until the house is sold. And that ain’t happenin’.
Actually, it’s the worst of both worlds… The BEST she can do is lose “$100K”, or worse - she can lose everything. Sucks to be stupid and unlucky.
She’s unlucky BECAUSE she’s stupid…
If it is true that rents determine values, as many on this blog claim, then there is such a thing as equity, even when a house isn’t sold. Another apartment comparable to mine recently rented for $2,750 per month. If I rented my apartment, I would pay that amount, but instead I pay approximately $800/month in monthlies and property taxes. So I am currently saving $1,950/month or $23,400 per year because I own. This savings is imputed income that is not taxed. If you value the imputed income at the municipal bond– NYC/state tax-free rate of 4.5%, that savings is worth $520,000. In other words, if I had $520,000 in tax-free municipal bonds, I would earn sufficient income, which when combined with my homeowner costs, would allow me to pay for the free-market rental cost of my home. The equity in my home is worth $520,000, based on the rental cost, regardless of what someone is willing to pay me. Never mind that someone would likely pay me $700,000 in a sale. I am realizing the rental value equity every month in cost savings, even when I don’t sell.
This is a somewhat odd way of defining equity. By this line of argument, I would have equity in my car if the loan payment is less than a lease payment would be, regardless of whether the balance on the loan is higher or lower than what I could sell the car for.
I can see how it is cheaper for you to own that apartment (or the car) than to rent it, but maybe we should just call it “cheaper” and not make it more confusing than it needs to be.
I agree that equity exists even when you have not yet sold the house - in fact, when you have sold the house, it is no longer equity, it is just profit (or loss). As a concept, equity only makes sense to me if it means the difference between what I owe on the house vs. what I could hypothetically get for it if I were to sell it.
That’s self-evident. When bubble-people say housing only keeps up with inflation, they’re forgetting that that locking in a housing expense is a very wise move in an inflationary environment.
The rent vs. own equation will push me to buying when I see rents rising faster than homes are declining.
Waiting for monthly cash-flow positive is a tactical mistake, since when that occurs more owners will not sell, but rent, reducing supply and stabilizing prices.
Interesting method to calculate equity. Never thought of it this way. Can anybody find fault with this reasoning? Thanks.
There’s nothing wrong with it; it just isn’t particularly helpful.
I could use a similar method to redefine the cost savings I get for buying a lifetime supply of generic tissues vs. Kleenex tissues. I could translate the monthly cost savings into a municipal bond interest equivalent and claim that it is my “tissue equity.” There isn’t anything wrong with that, but how does it help?
I think the only useful definition of equity is one that quantifies the unrealized profit of an asset on which you still owe money. If you owe $200K on a house that you could sell for $300k, then you should be able to count the $100K difference as part of your net worth (so you can sell it, trade it, or use it as collateral), and the concept of equity allows you to do that.
Comparing the equity in a home which is an enduring asset, with that of a car, a depreciating asset is not fair. Housing equity trumps automobile equity, because houses last a lot longer. Cars make it to the junk heap in a (relatively) short period. Housing can last for many generations, if solidly constructed.
But criticizing my analysis of housing equity by comparing it to “tissue equity” is beyond ridiculous. Why don’t you just go to “toilet paper equity” since your obvious bias against real property runs so deep, you cannot think straight.
There’s no reason to get upset.
We’re arguing about vocabulary here, so whether or not an asset appreciates doesn’t matter. If it really mattered, you would have pointed it out when you redefined the word “equity.”
Nobody would buy, trade or lend against the number which you propose to call equity, so what is the use of this definition? What do you propose to re-name the accepted definition of equity, the one that you can buy, trade, or lend against? What are you gaining by juggling definitions?
I explicitly agreed that in your example, owning is more cost-effective than renting, so I fail to see why you think this is biased against owning real estate property. I simply think that redefining the accepted concept of equity is a game of semantics that offers no real benefit.
I’m not upset, just amused by your stupid “tissue equity” comment.
The reason I was examining, from an economic view, the term “equity” was for the following reason:
I read this prior comments by phillygal:
“There have been other FB articles posted that suggest the peeps don’t know what equity really means.”
“It’s only equity if you can cash it out”
I disagreed with her view as to what equity “means”, and in the tradition of blogging, I made my case.
You seem to be bent on undermining my position, and I find your arguments lacking, even though you are clearly educated, and have indicated you have found no fault or disagreement with my points.
“Nobody would buy, trade or lend against the number which you propose to call equity, so what is the use of this definition? ”
A conservative, economic appraisal of home equity doesn’t have any value because you cannot get a bank to lend on it? I don’t know what world you live in, but I don’t rely on a bank’s perspective to guide my economic decisions. Thank goodness, or I would have a renovated kitchen, and a fat mortgage and HELOC. No thank you. Unrenovated, fee simple, free and clear feels better.
I intentionally used a tissue example because I thought it might be slightly humorous. Also, I was looking at a box of tissues on my desk as I was typing. It was not meant to be insulting.
Like you, I also disagree with the statment that it equity doesn’t exist unless you cash it out. As I stated above, once you cash it out, it’s just profit or loss; there is no need to make a new word for it.
In the same spirit, I don’t see the benefit for changing the commonly accepted definition of equity to encompass some of the other aspects of the rent vs. own discussion. Your example demonstrates that there is economic benefit to owning. It also proposes a somewhat unique method of quantifying this benefit. I merely argue that this benefit should not be called equity because that word already has a commonly accepted meaning that is very different.
Equity (not only *home* equity) is a distincitively important concept *because* you can quantify it and then buy, sell, trade, lend and borrow against it. You cannot do this with the other benefits of ownership.
I’m simply arguing that the economic benefits you are describing should not be called “equity.” That word already has a meaning that is commonly accepted.
You can come up with all kinds of ways to quantify economic benefits. But calling them by a name that has a completely different accepeted meaning is misleading. It sets off discussions like this one, where people argue about semantics.
Annata,
I do agree with you. However, I am not the only one who invents a notion about an accounting term such as “equity”. My notion at least conveys that home equity is a residual asset. Look at how the banking industry has corrupted the term “home equity” with expressions like “cash out your home equity”. While banks use terms like “cash” (asset) and “equity” (residual asset), they are really talking about selling loans (liablities) that happen to be secured by equity. They market a liablity as if it is an asset. This is just like the consumers who confuse a credit card with cash. There is the expression, “don’t count your chickens before they hatch”. Well the banking industry promotes home loans flying in the face of that advice, as if to say, have your gains now, before you sell your home. Have you ever considered how many people spend their home equity lines of credit for non-capital investments, like cars, general spending and vacations? Theoretically, the IRS should be checking all those reported gains on home sales to see if the debts were accrued for capital investments that would increase the cost basis of the home, and reduce the taxable gain. I suspect everyone is sloppy with these figures, and hardly anyone gets audited. The IRS doesn’t care, as America is on a mission to run up personal, corporate and government debts until the system breaks. Who ever is around when the markets fail will have to deal with the mess, but not likely our elders who will have passed the buck to the next generation.
I would say this is closer to the definition of a Derivative than equity.
From investopedia.com
Equity:
In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.
Derivative:
In finance, a security whose price is dependent upon or derived from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset. The most common underlying assets include stocks, bonds, commodities, currencies, interest rates and market indexes. Most derivatives are characterized by high leverage.
So according to your idea, in my example the apartment’s:
Equity Value = $700,000.
Derivative (Rental) Value = $520,000
I was just choosing the lower number to be conservative.
Both of these are derived values, the first from comparable apartment sales, and the second from comparable rents and tax-free municipal interest rates. Whenever you are assessing a value you are deriving it from some assumption(s).
My original point was that you didn’t need to sell your house to realize its value. That point still stands.
You are still worse than the high rent payer; you need to include the monthly negative ROI in your calculation.
I’m worse off? By your calculation, since I paid $180,000 for a home now selling at $700,000, the apartment PAID ME $520,000, less my monthlies for 9 years of occupancy. By your measure, I was paid to live here, but I don’t look at it that way. I look at the long term, since I need shelter today, and for the rest of my life. Why would I speculate on the volatility in housing prices, when I own something that meets my needs, and that saves me nearly $2,000 per month today. It is not primarily an investment. It is primarily a home. Yes, housing prices may gone down. But we might have hyper-inflation after that. There are no guarantees. But I know I paid an amount I could afford for an home that meets my needs. In my opinion, selling a perfectly suitable home to “cash-in” on “inflated” housing prices is the same type of greed as buying a home just because prices are rising rapidly during the boom.
‘People who are ready, willing, and able to buy a house can’t do it because they can’t find a mortgage,’ said Timothy Warren Jr., Warren Group’s chief executive. ‘That’s got to be bad.’
Uh, no. When did desire to commit financial suicide become the leading requirement for securing a mortgage loan. Oh, that’s right 2003-2004…
That’s a nonsensical statement too. If they can’t get a mortgage, then, they are not able. It’s always easy to find ready and willing people, it’s almost always the able part that determines things. I do a few races every now and then, I’m always ready and willing to win the race, but I’m not much of an athlete, so the able part always puts me near the middle of the pack. Being average isn’t so bad, though, you have a lot of company.
‘People who are ready, willing, and able to buy’
- ‘Able to buy’ means that they are bringing cash to the table like it used to be in the old days. If the amount of cash is the correct size, THEN they are ready.
I wish all of these thoughtful ass clowns RE shills who see what is going on now and wax poetically about how it is expected, could of been on the record last year or even 6 months back to hold them to their true feelings. We all know the truth but the retarded news still runs to these morons to find their stories on RE related studies. Then again….who are we going to ask economists…they have been proven to be shills as well. I am sure there are some sane people who are willing to talk who saw what was coming, and still believe in the numbers…Ben, Twist, etc etc etc.
And now for something completely different:
I am still in awe of the denial that exists in the market. How can someone state (with a straight face) that housing price won’t fall much. Demand is being cut by mortgage availability. That funding will not reappear in its previous form (i.e. 100% financing, liar and NINJA loans, etc.) as noone will extend credit that toxic - their fingers have been badly burned. And it is not like the people that took these loans are suddenly going to start saving money for a down payment. Unless the supply of homes drops precipitously, supply will outstrip demand (particularly since more homes are being built every day.) Price must drop from that alone, not to mention the foreclosures, potential recession, and other calamities that await us. It is almost as if “big money” is churning enough positive news so that they can get out without losing their skins. Then the house of cards will collapse. I have always heard that you should watch what the rich people are doing when investing your money. It seems that a lot of them are removing it from the market right now and putting it somewhere safe.
It amazes me too. I have a friend who’s thinking of buying. She asked me for advice and I suggested waiting would be prudent. She saw her financial planner yesterday who told her it was “a great time to buy”. So she’s going to buy.
I don’t support a bailout of any kind. What I do support is a massive flood of lawsuits against idiots like the H&R Blockhead she consulted.
This would be the same H&R Block that just drew down a billion bucks from their line of credit just like CFC did.
“a great time to buy”. So she’s going to buy.
Let’s see her enthusiasm when she applies for a loan with her 510 FICO score. Or did the financial planner forget to run a credit check before giving out “It’s a great time to buy”
Most people want to buy. In a saner lending environment, not everyone can get a loan or the downpayment to buy. That’s what holds prices in check. People who are irresponsible or bad at math don’t get loans.
She may think it’s a great time to buy. Heck she might even be able to get a loan.
But remember - what pushed this market up was the credit bubble. When that goes away, and if the government doesn’t bail out lenders, the wacky financing goes away. And the buyers willing to take on toxic debt won’t be able to bid up prices astronomically anymore.
It’s a great time to buy,…oh and if you are living pay check to pay check like a majority of Americans good luck on bringing 20% down to the table.
About that 20% down:
I had an “ah-ha” moment the other day when a kid I work with (workstudy) came into my office and begged me to talk him out of buying an I-phone. Sounds weird, I know, but he’s an econ major and knows I follow this stuff and am extremely conservative when it comes to personal finance. I went through the usual questionaire of why is this phone unlike any other, besides that it costs about 6 times as much, and he said he knew damn well it wasn’t worth that, but couldn’t pull himself away from wanting something so cool. So I said, fine, but pay cash. Save up $20 a week for the next six months and then walk into that Apple store and pay cash. And he just kind of…froze. “Oh no,” he said. “There’s no way I’d pay CASH for that!”
I knew exactly what he meant.
My point being that when people actually have to pay with “real” money, all of a sudden they get WAY more conservative. I know it applies to me because I absolutely no matter what pay off my credit card every month.
Given this, I think whatever buyers are left are not only more financially stable, but also more reticent about taking chances with their “actual” cash. There’s not just been a quantitative change in the buyer pool, but also a qualitative one.
If that isn’t a “wake up and smell the coffee” moment, I don’t know what qualifies.
Oh, you mean I actually have to pay for that?
There are two classes of people that use credit: those that use it to take advantage of additional goodies being passed out (i.e. airline miles, Disney points, cashback, etc.) and then pay the debt off immediately; and those imbeciles that think that credit is the same as cash.
More credit = I’m rich!
The siggie line from one of the realtors sending me listings automatically says “and remember, it’s a great time buy!” lol.
I’ve been seeing it a lot lately, as the listings seem to be going up! Plus, almost like a little added screen time ploy, now they send me the listing, then two seconds later send me a ‘images added!’ update…I think it’s the electronic version of sign-spinning.
You mean it’s not a great time to buy?! But there’s so much for sale!
Yeah, sure, it’s a great time to buy. Also a great time for U of M to beat the Buckeyes….Either way, I wouldn’t bet on it.
A friend of mine had his financial planner call me for a possible meeting (my wife gave him permission) - when I asked him what sort of education he had all he could do was spout a number of different things he was credentialed for but refused to tell me what his undergraduate major was in. Needless to say I was not impressed with credentials that take about 2 hours to obtain at a cheap seminar. I decided my common sense had about as good a chance at making me money as that bozo.
This just in…
Many houses were actually constructed out of 52 card decks.
I always think of that Brady Bunch episode when I think of this market and the house of cards that it is. At least the Bradys got a canoe when their house of cards collapsed. The FBs won’t even get a paddle.
Does using Brady Bunch references make me old?
Does using Brady Bunch references make me old?
Uh, yeah! Wasn’t that some show out of the early 1970’s?
You old geezer!
And then you had the glorious reruns!
No, it certainly does not. I love the Brady Bunch, and I’m a young sprout. I declare this loftily and firmly.
We didn’t have a t.v. when I was growing up in the wilds of Utah– and I do mean wilds– so when I went to town to the cousins for sleep-overs I would watch t.v. happily until my eyeballs shriveled with dehydration. All those happy little pink kids with their amusing difficulties and prankish ways…ah. Except for cousin Oscar. I always wished he’d get squished.
And I missed the episode you refer to, and that is just sad.
Alice the maid who had only the one blue dress. The happy little kids running around and solving mysteries…they looked like me, except I had no adorable lisp, and no cute clothes either.
Nowadays I have lots of cute clothes but still no lisp. Hey, I do get to solve mysteries, such as ‘The Mystery of Where the F*%# did the Wetland Report that Ought to be in This Project Application Go?’ It’s pretty exciting, but not as darling.
You know, I’m going to go get on Netflix and see if I can get re-runs of Brady Bunch.
Thank you, nycityboy, for giving my day purpose and meaning.
Uh - no - I watched them first time around. Which means I am as old as Cindy
I’m going to regret this…
Actually they ended up with a TV. The boys wanted a rowboat. The girls wanted a sewing machine. The girls won but bought the family a TV as a compromise.
Geez, I’m pathetic!
Alice is a nun.
I haven’t seen the rental price drops but we resigned our lease about 4 months ago. We will be bargaining hard next year.
did you have to pay the broker fee again? i heard some leases you pay it every year
Again? I wouldn’t pay a broker fee at gunpoint. It costs 15% of the first year’s rent to get one of those fools to help you. If I can’t find an apartment on my own then I will live on the street.
882 foreclosures in queens out of over 1 million people that live here
did some checking and my apartment is up over 15% in queens year over year based on real selling prices from last month
the part of queens where they are skyrocketing has been targeted by predatory lenders since the 1990’s and the only reason foreclosures dropped is because of the RE market in the last few years. people have been scammed into ARM loans there before this blog was started.
queens has more people living in it than some US states have people. it’s not one market.
‘882 foreclosures in queens out of over 1 million people that live here’
Yeah, it’s a low base, which is what everybody used to say about California.
all of these are in the same neighborhoods that have always had high foreclosures going back to the 1990’s. aka elderly, minority and the usual targets of predatory loans.
if you look at craigslist for homes and condos for sale maybe 1 in 10 is going to have an ARM on it and 100% financing. at least in my part of queens it did. for co-ops almost every co-op board will not allow a ninja loan except in the worst neighborhoods.
Queens is screwed. There is no question in my mind. If you want my thoughts on Brooklyn, refer back to my thoughts on Queens.
i remember trying to buy a place in 2001. it was a recession and all was supposed to be lost. prices dropped a bit after 9/11 and then up they went again.
this is after all the investment banks laid off more people than the total population of most towns in the US
and then there was Lucent laying people off in NJ along with all the hotels. hotel rooms were dirt cheap back in 2002.
Disagree. First off, you can’t refer to Brooklyn like its a single neighborhood. Parts of Brooklyn are still fantastic bargains compared to Manhattan prices. Full brownstones can be had for just above a million bucks — which on a square footage basis, is a fraction of Manhattan prices. The subway system is excellent and the taxes are a small fraction of Manhattan taxes.
Queens is toast. Staten Island is toast. Jersey City is toast. Westchester is in for hard times, and Manhattan will pull through just fine. And for all those people praying that bankers will get their due and that Wall St. will be toppled …. sadly, it ain’t gonna happen.
only part of brooklyn NY Times ever talks about is the northwestern end. there are other parts where the homes are a lot more expensive than park slope or carroll gardens and look a lot better because they have just been rebuilt by the owners
all the foreclosures in queens are in jamaica and a few other pockets. when i go out on weekends i can usually count on one hand the number of open house signs i see on a typical summer saturday or sunday
“Full brownstones can be had for just above a million bucks ”
Yeah, and those brownstones are in or abut BedStuy or Brownsville. Great choice in a falling market. Sure, move the family in and become targets for street crime and burglaries. Manhattan crashed hard in 90-92. Google the NYTimes RE section and see the many articles on how to rent out your apt., for some percentage of the carrying costs. Those who bought in the late 80s got creamed.
And those brownstones require extensive renovations to bring them up to snuff. Figure another 100k minimum to clean them up and upgrade plumbing and wiring.
I remember this so well because I stayed on the sidelines in 91 and 92…and friends who bought them did amazingly well. Though it was a long, slow climb until 2001.
Those figures are just for one month - foreclosures have shot up in queens since 2005 —
http://www.nedap.org/pressroom/documents/2007-August-16_QueensCourier.pdf
Also Ben, want to thank you for a great NYC roundup of info — finally the ‘it’s different’ crowd may be eating their words
‘In July 2007, New Haven County had the highest number of filings, at 706, followed by Hartford County at 450 and Fairfield County at 403.’
Any locals care to tell us what’s up in Fairfield Co.? 403 sounds mighty high.
403?? I think we have more than that here a week in Wayne County, Michigan these days (Detroit and ‘burbs).
Fairfield Co. - Safe bet that 90+% of those are in the Bridgeport area.
Connecticut is our very own homegrown South Africa, without the cool accent. Tiny pockets of vast wealth surrounded by some of the worst slums in America. Biko lives.
very interesting and evocative analogy, sadly…
FF was more bubblicious than Hartford as a % of pop due to its commutable distance to NYC and of course the higher paying jobs in Stamford. New Haven - somewhat ditto - could be commutable (but more heinous), plus waterfront specuvestors along the 95 corridor.
Fairfield real estate is so high and overblown that almost nobody can truly afford it other than captains of industry. Small crappy raised ranches can set you back a mil. Therefore, I would estimate a high % of toxic loans - especially if mummy didn’t give them a big old down payment….
“‘People who are ready, willing, and able to buy a house can’t do it because they can’t find a mortgage,’ said Timothy Warren Jr., Warren Group’s chief executive. ‘That’s got to be bad.’”
I thought affordable housing was a major policy goal? Why does everyone think a realignment of home prices with end-user incomes is such a terrible thing?
Because Joe6P’s underwater HELOC’d a*s can’t bear to watch his precious “equity” disappear.
“‘This is not a cause for concern,’ the chief operating officer of the Real Estate Group, Daniel Baum, said. It is more a sign of ‘property owners becoming a bit more rational about what the market will bear for their properties,’ he said. Mr. Baum said the rental market has been ‘overheated’ and that the drop in rents is a sign that potential tenants are simply unable to pay the prices being offered.”
From here on out, any declaration that something ‘is not a cause for concern’ should be interpreted to signal the exact opposite.
1 bedrooms are like $2500 in the area plus a $3000 broker fee
soho is very nice. 25 years ago it was a toilet and you tried to avoid it. now it’s full of the snobby stores that charge a lot of money, one of the original Apple stores is in the area and i got my $1500 wedding cake there a few years ago from one of the best cake bakers in the world
Try closer to $5k for most 1 bedrooms. Unless you’re over by Sullivan st., somewhere close to Canal, or over on Crosby.
how much roommates do you have to have to pay that?
ooh…drop the cake-baker name, do! I love cake…:-)
http://www.weddingcakes.com
He did cakes for Donald Trump’s parties. Unlike others, his cakes are fresh.
This cartoon was in our paper this morning. It is a bunch of bubbles coming out our stacks on top the FED building. They’re popping and each bubble has a name. Check it out, it is so true as to what’s happening with the FED’s interference.
http://www.cagle.com/politicalcartoons/pccartoons/archives/trever.asp?Action=GetImage
How do we find it?
Trever’s here.
There are some good ones in there. I had to click on the numbers above the first comic to get to the rest.
First comic.
There are some good ones in there. I had to click on the numbers above the first comic to get to the rest.
First comic.
I liked this one.
http://www.cagle.com/news/HousingMarket07/images/matson.jpg
“The nation’s housing foreclosure crisis has walloped Manhattan with a vengeance this summer, as the number of filings leaped 184 percent in one month alone, according to new statistics.”
It sounds like Manhattan is suddenly experiencing a crash landing. I have repeatedly heard how it’s different there, and now I understand the reason –IT’S MUCH WORSE!
I’ll bet most of those are way uptown, but it’s coming. Even if the kool-aid is still gushing. Manhattan will be just fine, SoHoNYC? It’ll always be more pricey, but today’s comical prices have got to go back, for a little while, at least, to merely painful.
Looking at Bloomberg, you can see at a glance how the market (and thus the NYC real estate market) are running on fumes. There are 6 downer stories headlined, topped by exactly one “positive” one about takeovers … and the market shoots up 100 points! How desperate is that?
Manhattan will do great, because Wall Street bonuses always go up.
Oops…spoke too soon.
City and Wall St bonuses to tumble
By Lina Saigol in London
Published: August 22 2007 21:39 | Last updated: August 22 2007 21:39
Investment bankers on Wall Street and in the City of London face a cut in their year-end bonuses of 10-15 per cent because of the credit crunch, compensation experts say.
Structured credit bankers, last year’s highest-paid performers, are expected to be hardest hit – with remuneration specialists predicting up to a 25 per cent cut for them.
Aidan Kennedy, partner at Christian & Timbers global executive search firm, said: “Those fixed income divisions with the highest exposure to the mortgage-backed securities arena will be forced to decide between scaling back bonuses by more than 25 per cent in the directly affected credit derivative teams, or spreading the pain.”
http://www.ft.com/cms/s/0/822bf222-50eb-11dc-8e9d-0000779fd2ac.html
Volatile Markets Spook
Money Centers’ Landlords
By JENNIFER S. FORSYTH and MOLLY DOVER
August 22, 2007; Page B1
For the past two years, financial institutions fueled the robust office markets of New York and London.
Rental rates soared to record highs as hedge funds and a few other financial institutions elbowed each other out of the way for offices with amenities that reflected their presumed power: grand views of parks or waterways, easy commuting access and world-class restaurants nearby for entertaining clients. The vacancy rate for top-quality space plunged below 6% in both lower Manhattan and the City of London, the British capital’s financial district.
But now the two cities’ heavy dependence on financial-sector jobs has real-estate brokers and analysts debating whether the gusher will shut off. Caveats abound, with experts saying the answer depends on how long the turmoil continues, how much bad debt financial firms end up swallowing, and how many hedge funds go under. One thing market experts agree on, though: Most finance firms will take a timeout on real-estate decisions until they see how everything shakes out.
http://online.wsj.com/article/SB118774687716904874.html?mod=todays_us_nonsub_marketplace
That was 184% over the previous month. The Year over Year increase is a much more reasonable 12%. FYI We are talking about a total number of foreclosures per year of around 250 or just over 20 per month. This is in a borough/county of 1.5 million residents.
Nearing 500 signatures. if you have not signed, please do so. I don’t know how much weight this carries, but the more the better.
http://www.petitiononline.com/bailout/petition.html
Also, pass it along or “pay” it forward
“People who are ready, willing, and able to buy a house can’t do it because they can’t find a mortgage”
So the only thing that keeps “able” buyers from completing the purchase is lack of money? How unfair!
I guess the definition of “pent-up demand” is now “people who are willing and able to buy, but who lack the motivation and money to do so.”
Highest Late Loan Payments in 17 Years…
“U.S. banks and thrifts suffered the biggest increase in late loan payments in 17 years as more homeowners fell behind on mortgages, the Federal Deposit Insurance Corp. said.
Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly rise since 1990, the FDIC said in its Quarterly Banking Profile released today.”
(Bloomberg).
Now that I think about it ,I would rather the bail-out go to the savers insured by FDIC insurance . If the Gov. keeps bailing out gamblers they won’t have enough money left to bail out the savers that might get caught in this meltdown . SAVE THE SAVERS SAVE THE SAVERS .
Wizard,
What makes you think the Fed could not just print more, thereby bailing out the savers as well as the gamblers?
One guy on CNBC said that Bank of America, JP Morgan, and Citigroup were taking advantage of the carry trade and providing liquidity to Wall Street firms. They are using the commercial paper market as collateral. (Yes, mortgages that really aren’t AAA but no one has fixed yet).
He says, it seems like the credit crisis is abating and there is light at the end of the tunnel.
weird, today’s stock market action doesn’t say that
Oh yes, on CNBC any crisis is over in a matter of days no matter how long the crisis took to build up. Amazing stupidity on the stock buying public. Boo-Yah !
oh, indeed…yahoo’s finance frontpage all day has been saying “stocks up as appetite for risk returns…”. Mergers can move ahead again! Consumer spending is fine! Everything’s rosy again, BB fixed it, phew…and BofA and Citigroup and all those folks decided to show how his munificence has allowed the party to continue, so drink up!
I wonder what Cramer’s up to rhetoricwise lol. I’m enjoying his name lately…keep hearing Jerry Seinfeld say it in my head.
“If U.S. home prices fall by 10 percent, it would be the worst asset deflation in the U.S. since the Great Depression, according to Gross.”
BULL $hit!!! I live in Irvine,Ca and my house fell 35% from the top in 1989 to 1995. It is all scare tactics by these bastards who created this mess. All I can say is live with it and let the markets work this out. Teach them a lesson so we can all live within our means!