Real Estate Bubble Trouble In Florida
The Herald Tribune reports from Florida. “It’s a post-boom world out there, and many owners of residential property are experiencing real estate bubble trouble. Some are faced with payments that are about to ‘adjust.’ Others found themselves underwater even before they closed on a house, when the builder or developer started selling similar housing units for less in order to get rid of them.”
“When Jim Willig of Sarasota’s Sire Properties talks about buying opportunities in real estate, he is not talking about paying list price on something in the MLS. Instead, Willig is looking to negotiate a deal between a seller who is underwater on his payments, and the bank that is on the hook for the loan, or a short sale.”
“Willig gave this hypothetical example, which he says is realistic in today’s market. ‘A guy bought at the peak and he encumbered the house for $400,000. The property today is worth $300,000. We can go in and buy it from the bank at a number that is probably closer to $200,000. So there is a great buying opportunity.’”
“Office condos were the hottest commercial commodity going during the recent residential real estate boom. But now that the bust is upon us, veteran commercial real estate agent Carl Wise says there is little to no demand for office condos.”
“Q: When did the office condo market take off? A: It took off at about the same time as the residential real estate market.”
“Q: Why did they buy office warehouse space instead of renting? A: That was always the debate: Was it better to leave money in your business or use it to buy real estate that might increase in value?”
“Q: Why and when did the office condo market collapse? A: It went to pot shortly after the boom ended. When home building slowed, the office condo market just stopped. It will be interesting to see what happens now with prices.”
The Daily Herald. “Harry Heyward, who has been appraising homes in Tampa, Fla., for almost 20 years, says he’s doing about five appraisals per week — down from 10 to 15 at the height of the boom. ‘I keep thinking it’s going to get better, and it never does.’”
“Roughly $370 billion in adjustable-rate mortgages will reset this year, according to First American CoreLogic, and millions of Americans will have to pay significantly more per month just to stay in the same home.”
“Freaked-out lenders are ratcheting up requirements for minimum-credit scores and down payments. Kim Dicce, a Realtor in Tampa, where housing inventory is piling up, notes that lenders now seem to be requiring buyers in her area to put 15 to 20 percent down and have a credit score above 700.”
“‘Now we only have one third of the eligible buyers that we had before, and five times as many houses,’ she said.”
The Tampa Tribune. “The lure of quick money - and lots of it - in the home building business was too tempting for Michael Dizzine to pass up. The St. Cloud native set aside his dream of becoming a firefighter to join Florida’s home construction industry, which promised strong wages for blue-collar work. But after its peak in summer 2005, the housing market began to fizzle.”
“Dizzine’s employer began cutting his hours, a little at first, but eventually laying off him along with all of his co-workers. ‘It was so easy to go into construction out of high school and make $400, $500 a week. Now I’m regretting it,’ said Dizzine, who has been out of work since July.”
“The state has lost more than 14,000 construction jobs in the past year, and some economists are projecting that the housing slump could linger another year or two.”
“In Tampa, bankruptcy lawyer Patrick Smith says he’s seeing a spike in clients who are construction workers seeking bankruptcy protection. ‘I’ve probably handled five to 10 cases in the last six months of construction workers surrendering their homes, packing up and moving out of state,’ Smith said.”
The News Press. “Lee County’s overheated real estate market is being blamed for the collapse of a second credit union. Federal regulators have taken over Fort Collins, Colo.-based Norlarco Credit Union largely because of problems with construction loans on properties in Lehigh Acres and Cape Coral.”
“At issue are the vast numbers of construction loans on First Home Builders houses being built in Cape Coral and Lehigh Acres. Many of those houses are worth less than the contracts to build them and some buyers are refusing to close.”
“Prices have dropped sharply since the market reached its peak in December 2005 with a median price of $322,300 for the sale of an existing single-family home. In July, the last month available, the price was $246,100, a drop of 23.6 percent.”
“As a result, many of the people who made deals to build houses are unwilling or unable to get mortgages on them after they’re built.”
“First Home is owned by national builder Hovnanian Enterprises. The company bought the assets of First Home in 2005.”
“Hovnanian officials have repeatedly blamed the Fort Myers/Cape Coral market for the company’s financial woes in recent months, and J. Larry Sorsby, chief financial officer, has said Lee County is ‘by far the worst housing market that we’re in and I wouldn’t be surprised if it’s the worst housing market in the country.’”
“Norlarco and Hovnanian are defendants in a civil lawsuit filed July 30 in federal court by Timothy and Kerri O’Leary. The Cape Coral couple signed a contract in June 2005 to put down a $500 deposit to build a $296,075 house.”
“The O’Learys allege fraud and misrepresentation by Norlarco and Hovnanian because they were allowed to participate in the purchase despite their ‘patent lack of financial qualifications.’ The suit includes documentation showing the couple was not able to get financing to actually purchase the house.”
“Dominic Naro is tired of looking out his window and seeing grass high enough to cover a small child. His neighbor’s lawn is one of 1,441 vacant properties in Cape Coral that have been cited for overgrown grass since June 11. Fort Myers has had 2,300 lawn complaints.”
“They’re not only an eyesore, but they also cost thousands of dollars in mowing expenses and can bring down neighboring property values.”
“‘They are certainly more prevalent this year than any other year,’ said Joan LaGuardia, the communications manager for the county’s Department of Community Development.”
“Overgrown lawns are an effect of the sluggish housing market. LaGuardia said the problem could be a result of more abandoned properties in the county. Home sales in Lee County are down 24 percent from last year.”
“The county doesn’t know how many of its homes are abandoned, she said, but approximately 15,000 single-family houses are for sale in the county, while more than 1,000 residences are going through foreclosure proceedings.”
The Palm Beach Post. “Developer George de Guardiola is backing off his plans to sell 82 condo-style units at his first big Port St. Lucie project, East Lake Village. Instead, he’s hiring a property manager to rent them as apartments.”
“The 82 units will open in October. De Guardiola hasn’t set rental prices for them yet. Ultimately, 890 homes are planned.”
“The Jupiter-based developer may take a similar approach at his other big Port St. Lucie project, City Center. There, de Guardiola is mulling a plan to convert some of the several hundred condos in the first construction phase to rentals.”
“‘Eventually they’ll go back to condominiums when the market is there,’ de Guardiola said last week. ‘It’s just market response.’”
The St Petersburg Times. “Candice Anderson and her husband got a chance to buy houses in Hernando Oaks at prices even they could afford. The Andersons joined with two friends to purchase five houses from home-building giant Lennar Corp.”
“The couple ended up paying $110,000 and $115,000 for two houses, each of them selling for more than $60,000 less than the market value, according to the Hernando County Property Appraiser’s Office.”
“‘These are the first two houses we’ve bought,’ said Anderson, of Lutz, who is renting the houses.”
“But such deals have been a curse to local builders, as Hernando Oaks tries to return to its original marketing plan - building custom-made, upscale homes. Local builders worry that Lennar’s sale of more than two dozen houses below market value has devalued Hernando Oaks, where some builders are trying to sell homes for more than $400,000.”
“‘Lennar was brought in with much fanfare and hasn’t done a whole lot, other than building a lot of spec homes and dumping them on the market,’ said Chris Glover, chief operating officer of Palmwood Builders. ‘It hurts the whole community.’”
“Lennar has sold 56 homes in Hernando Oaks since January 2006, according to the property appraiser’s records. Almost all of the 35 sales in 2007 have been below market value, according to the appraiser’s office. Four, including the houses the Andersons bought, were $50,000 or more below market price.”
“That irked not only other builders but also some residents, who had signed contracts designed to limit speculation - forbidding them either to rent their houses or to resell them within a year.”
“Though Andee Clancy has no problems with her neighbors - mostly renters in investment homes - she worries they will devalue her neighborhood. ‘My understanding was that we could not rent the place out. But as you can see, this whole neighborhood is rentals,’ she said.”
“Mark Metheny, president of Lennar’s Tampa division, said the company reserves the right to sell some homes to investors who do not face rental and resale restrictions. Others buyers know this, he said, because it is written into their sales contracts.”
“Lennar has also sold houses in Sterling Hill and other nearby subdivisions for below-market prices, as have other home builders, Metheny wrote in an e-mailed response to questions.”
“‘Price reductions result in reduced profits, or sometimes losses, for Lennar, and we make reductions only when required by market conditions,’ he wrote.”
‘When Palm City resident Sally Curtis heard that state legislators changed property tax laws this year to lower homeowners’ tax bills, she envisioned savings hundreds of dollars. Her tax notice arrived in the mail last week with word she would save $83, barely enough to cover a weekly trip to the grocery store.’
‘This doesn’t amount to a row of beans,’ Curtis said. ‘Eighty-three dollars? For a whole year? I was expecting a couple hundred dollars at least, at a minimum.’
And who would the State fire to reduce their theft by hundreds a year? It won’t happen.
What needs to happen is a few daring residents in each town propping up huge lawn signs scheduling a tax protest — a real, in the streets, at the mayor’s house, at the State offices protest demanding the firing of 50% of the employees of the State. Maybe a return to a volunteer fire department, too.
My own town ($4500 property taxes annually) keeps hiring and hiring and hiring. Now that foreclosures are up, they’ll hire more people for that division. What a waste. If they sent me an $83 refund, I’d send it back. They’ve stolen the money, why would I want to take a small piece back?
here’s mine http://www.fcta.org
Come join the Florida exodus! Everyone is running away!
Does this include… Jeb Boy on his Island “retreat”?
No kidding. Talked to my young second cousin last night, who’s moving his family of four out of state because he can’t afford a starter home here in Florida. While we were talking, he mentioned that his best friend and family are doing the same.
By the time many of these sellers wake up and smell the prices, so to speak, so much damage may have been done that they are even more screwed relative to potential buyers.
Chip;
Look up school enrollments in Fla. Either below projected or below last year.
Look up what it costs to rent a U Haul one way from any Florida city to somewhere in N. Carolina, Tennessee, etc and than look up what it costs to go to Florida from the same city, one way. For example, it cost $996 to rent a 26 foot truck one way from Orlando to Charlotte, NC and $235 to rent the same truck one way from Charlotte NC to Orlando. The old “U Haul Factor”. More people are leaving Orlando and going to Charlotte.
I think there is an exodus from Florida by the younger families.
Sounds like a better market for hearing aids. Servers won’t get much in the way of tips, if they can’t hear the patrons’ orders clearly.
Maybe we can buy the Depends Distributprship.
A.B. - I just hope they’re funding your schools adequately, as I am sure you’re fully supportive of allowing everyone access to a sound education, including support at the university level…fire locally, use the savings for the schools.
“Mark Metheny, president of Lennar’s Tampa division, said the company reserves the right to sell some homes to investors who do not face rental and resale restrictions. Others buyers know this, he said, because it is written into their sales contracts.”
In invisible ink.
no one shares info on a buying opportunity- ever
he’s looking for sckers
” the bank at a number that is probably closer to $200,000. So there is a great buying opportunity.’”
Yeah, here, put this blindfold on and I’ll spin the wheel of death.
“Willig gave this hypothetical example, which he says is realistic in today’s market. ‘A guy bought at the peak and he encumbered the house for $400,000. The property today is worth $300,000. We can go in and buy it from the bank at a number that is probably closer to $200,000. So there is a great buying opportunity.’”
I’m not sure a 50% discount over Sarasota’s current list price will prove to be a good deal in the long run. I know it’s just an example but both coasts of South Florida have experience insane price appreciation. Looking at historical prices in the area for the last 10 years, I’m not sure I’d be comfortable with 30% of todays list.
$200K house means you should have a $50K-60K+ job.
50K= $1k week/40 hours = $25hr.
$60K=$1200 week/40 hrs= $30 hr.
AFFORDABILITY YEAH! ……So how many of these jobs are being created in Sarasota?
NYC, The median wage per household in Orlando is about 41K per year. I use the 2.5 to 3 times median formula. Off hand I don’t know median in Sarasota but one source puts the average wage at $32.1K. Thats per person. My guess would be the median would be close to Orlando. At 41K the median house would be 102K - 123K. 4 - 5 years ago you could buy a house for 125K or a little less here. A cracker box starter home, but affordable. You could get a decent Condo for 65k to 85k
Again, Florida job base is mostly service related and my guess is the same as yours. There’s not a whole lot of 50/60K jobs in Sarasota, or at least not enough to make 200K the median price.
Typical Florida, where there is a wide disparity, where the Lawyer makes 250k a year and his 5 employees make 22K. I have 5 employees and none make 41K and I am paying market.
Two own houses but they are in their 50’s and both bought in the 1990’s. One has a nice 3/2 she and her husband paid 79K for. Similar houses on her block in 2005 were selling for $250K
I would guess Sarasota would be in the same boat. One factor is that Sarasota has been one of the higher priced areas since before the bubble. There is an element of well off retirees that could afford higher prices.
Like I said, if we’re talking about a 50% discount from a 400K list, we’re talking about a house a working guy would buy. I would still be uncomfortable at a 70% discount. There is just to many houses and not enough household to buy them at almost anyprice.
You really can’t do a straight calculation to figure where the median house price should be. The bottom 25-35% of earners historically haven’t been home owners, so the median income doesn’t really “equal” the median home. Then you also have to figure in the folks looking to buy who already have existing home equity. That equity adds to the buying power beyond just median salaries. The 2.5 or 3 X rule of thumb is good IMO for a specific case to figure how much someone can reasonably afford, but you really can’t just apply it to a median salary and come up with anything very accurate because there are just too many other factors that go into figuring where house prices should be.
That being said, I do think home prices are still way too high but trying to determine how much they need to drop to make them affordable to the average home buyer is very difficult in my opinion.
I think the best way to figure it would be to look at the historical relationship between median home price and median household income. I’m sure you’ll find that there is some long-term ratio that the market seems to reset to.
Wherever that should be right now based on median income is where prices should fall to. However, the longer this correction draws out, the more inflation will eat away at that difference.
Nova;
I disagree.
Historically, the median price of a house is a function of median income, in any specific area. There are some variables by area, taxes, insurance, interest etc. but when it comes down to it, can the Buyer make the payments from the household income. That varies by household, but that’s why “median” statistics were invented.
Fannie Mae recognizes this when they say that
PITI should be no more than 30% of the household income. That pretty much says that approx 3 times median will buy the median house. In practice it’s between 2.5 and 3 times median, you can stretch it to 3.5 in some cases. In Orlando, in the 10 years or so previous to 2003 the median price was about 3 times median income.
Your income determines what you can pay, which in the case of a house determines its price because you have an option to rent. You won’t or can’t buy a house if you don’t make enough money, not withstanding the last few years of insane lending practices. You have to buy food at whatever price because you have no option but to eat. Not so with a house, it’s optional. So the prices will have to revert to affordable, which is the median income can buy the median house.
Rule of thumb is the median income should be able to buy the median house. Conversely the median income determines the median price. Works every time.
I have predicted a 67% drop from peak prices. A $400k house at the peak is worth $133k, not $200k.
Bye - At least 67%. 133K is still a stretch for the median income.
Well that was 1998 prices for a nicer house. You will be able to get a starter house for under $100k in a few years, the middle class, median income earner can afford that.
I agree. 200K is not a deal, if the house in question peaked at 400K
I say the best way is to look at pre-2002 prices and just where prices need to fall back to. They say many people today make the same or less than they did in 2000. I looked at one particular community in central FL in 2000 and prices were $102-139 sf now prices are $200-400sf. This is a little above average community, but I saw on Zip realty yesterday that they have 11 short sales. Out of the 427 houses for sales 137 have reduced prices, and I could tell by the MLS numbers that some had been on the market almost 2 years. Many more probably were also, but they’ve been relisted. These people are going to be in a world of hurt before they finally get the message.
What you say is true. I see it every day. It has been happening for the past year or so but Realtors would mask price reductions by relisting the property at the lower price, so it didn’t show up as a price reduction. It looked like a new listing. Subsequently NAR’s numbers were skewed. That’s before NAR worked over the stats.
Now they don’t bother. Half the listings or more say “price reduced”. The Realtors have got to get on board at some point. I hear a lot of complaints from Realtors about Sellers stubbornly holding price. If I listed houses, I wouldn’t take a listing if the Seller didn’t take my price recommendation.
As far a 2002 prices, I’ve been saying 1999/2000 but 2002 did have normal appreciation.
As far as these people being in a world of hurt, they already are. They just don’t know it yet.
200K house means you should have a $50K-60K+ job.
I’d be a little uncomfortable buying a 200k house on $50-60k salary. House should be more like 125-150k on a 50k salary and $150-180k on a 60 k salary. I’m not sure banks are going to loan over 3x income anymore.
Well they might if you have a large down-payment, but not with just 10% down.
Well said! I couldn’t agree more.
Regarding the home builders, between Lennar, Hovnanian and others, ultimately the names of the big home builders will be trashed, IMHO. Not just big home builders, but maybe even many large corporations in general. They will become, rightly or wrong, synonomous with defective product, fraud, greed and just general untrustworthiness. After all the horror stories, I doubt if too many people will be buying in ugly, gulag HOAs. Perhaps the old subdivision model will become popular again.
And I hope Toll Brothers is the first to go. I guess it’s kinda okay to build cookie cutter stuff for starter homes, but cookie cutter McMansions is just an insult. And it’s even worse to hawk to buyers that “you deserve this” monstrosity. For the prices people were paying for these under-landscaped, overdressed and overchieving center-hall colonials (that’s what they are), they could have built a homestead that looks like a Kinkaid painting. (I like Kinkaid, sue me.)
Ghost;
I like Kinkaid too.
Think about making some money on the stock of the big publically traded home builders, Pulte, KB, Toll Brothers.
If you do your homework, it’s a safe bet that most of these guys will come out of this downsized but ready to start building.
I bet we see all these stocks below $5 and probably around $2. At $2 per share long term there is money to be made.
Remember there is life after the bubble.
I wrote here back in February after I had spent a weekend in southwest Florida. The completed and in-progress construction that I saw going on there made Montgomery Ward and the Easter Island statue builders look foresighted. What an utter destroying waste of time, resources, money, and the environment. The subdivisions, in particular, had the appeal of a row of fast-food restaurants.
I kept trying to figure out who would buy something in such a banal and unfulfilling setting, and all I could conclude was that it would be someone not intending to live there.
snake charmer, I don’t know if you’ve seen any of the development in South Hillsborough county. Pee-yew! It is just like you describe it. BTW, I’m not 100% sure, but I think the Centex development that started up about a month or so ago, might have ground to a halt. Sure looks that way. I predict some of these places will be plowed under. I don’t know how it could happen, but for the sake of public safety, the environment, etc., I think if you have two half empty developments, move people from one into the other and knock down the empty one. I know, I know, the legal ramifications of that would make it all but impossible, but hey, if they can jigger the eminent domain laws in one direction to accomodate developers, they can do it in the other direction to accomodate the community.
Welcome to Hernando Oaks, where everyone’s understanding of “market value” is below average.
But just remember, at Hernando Oaks, your home will never fall below market value.
Classic… Don’t worry, it’ll get back to “market value” in another 10-15 years…
Yeah, because market value is what it sells at. LOL
How do below market sales take place? Does the buyer come in and offer $350k and then the seller says “I’ll do you a favor, I’ll take only $300k?”
No the Buyer says I’ll give you 300K, take it or leave it.
And if the Seller is not an idiot, he takes it.
There is an old RE saying that goes, “The first offer is usually the best one”. In this market any offer is the best one, because if you get any offers you’ll proably only get one.
“Overgrown lawns are an effect of the sluggish housing market. LaGuardia said the problem could be a result of more abandoned properties in the county. Home sales in Lee County are down 24 percent from last year.”
I guess that’s the suburban equivalent of the boarded up windows in urban America — overgrown lawns.
Nope, overgrown lawns come first… the boarded up windows a couple months later.
The O’Learys allege fraud and misrepresentation by Norlarco and Hovnanian because they were allowed to participate in the purchase despite their ‘patent lack of financial qualifications.’
Well this is different. I am suing you because you enabled me to do something I should not have done. The nerve of some companies.
If this is successful, what prevents a class-action suit against the credit card companies for extending credit that consumers could not pay back?
If these lawsuits prevail I’m gonna sue my ex wives for “enabling” me to do something I should not have done, marry them.
Seriously, this will become a political football while the politicians fall overthemselves to present their plan to bail out the poor, defrauded, innocent home buyers.
The O’Learys allege fraud and misrepresentation by Norlarco and Hovnanian because they were allowed to participate in the purchase despite their ‘patent lack of financial qualifications.’
If they’re smart enough to figure out they shouldn’t have participated, then they’re dumb enough to lose the $500.
At a 700 credit score and 15-20% down, they wont find many buyers for that 200000$ house anyway.
$200,000-20%=$160,000/3=$53,000 annual income, IF their current debt level is below $530 a month before the mortgage. Ain’t gonna happen at historically-acceptable debt cap levels. Other than myself and one of my business partners and my father, I don’t know ANYONE else in my life who can truly afford a $200,000 home.
We just bought a falling knife at $135k for cash because we’ve been watching the place for 10+ years. I wouldn’t have bought it with a loan until it fell to $110k or more (down from $170k at peak), but it is the oldest house in the community with the oldest oak tree in the yard
All my friends, and employees, are screwed. So be it.
That’s why prices have to drop over 50% in most locations. Ill be buying a nice house with acreage for $50k
$135k is too much, you may lose alot of that equity.
Actually, we won’t lose any equity, because we have no desire to ever sell the house. I own a few properties because my business requires me to travel where the market needs me. I have a home in Poland and a home in India, too, and both are in bubble-states but I could care less if the value falls to zero.
For my wife and I, having the home we’ve wanted for 10 years at a price we were willing to pay is priceless. We were willing to pay upwards of 1x our annual income for the home we bought. We paid well under that figure, and being based where we are will immediately increase our income nearly 20% a year because of the immense amount of clients I have within a 10 minute drive.
Where we were living before, I had to drive an additional 20 minutes each way. 40 minutes x 5 days x 52 weeks = 173 hours lost a year. 173 hours x $150 billable proceeds = $25,950 extra savings a year (or income), which pays for the property it under 6 years by itself. Since I figure my income also has an additional 20% kick annual due to being even closer to my U.S. action, the cost of the home should be fully realized in 3-4 years, with absolutely zero hit to my pre-house income.
Make sense? For SOME people, the cost of the house is secondary to what the house will actually generate in better life, income and security. We _almost_ waited another 2 months for a full foreclosure, but REOs can be a pain to deal with. Instead we bought for the remainder on the loan because we forecast the savings versus expenses over years of watching. It was the #1 choice out of 25 properties we’ve been eyeballing for years, plus it was owned by a handyman who really beefed it up (foundation work, roof work, bathroom upgrade, kitchen upgrade, etc).
I’m a property contrarian who tells people never to buy unless they are paying a realistic cost. I started my True Mortgage Calculator site to show people what is wise versus what is dumb.
That’s why prices have to drop over 50% in most locations. Ill be buying a nice house with acreage for $50k
A nice house with acreage for 50k is going to cost you alot in gas. You’re going to be living a h*ll of a long way from anything.
story quote:
“Though Andee Clancy has no problems with her neighbors - mostly renters in investment homes - she worries they will devalue her neighborhood. ‘My understanding was that we could not rent the place out. But as you can see, this whole neighborhood is rentals,’ she said.”
So now Andee Clancy, since she played by the rules but others did not, and they are greatly affecting her life, and there is no repercussion for the cheats, feels like a sucker.
A chump.
A fool for believing in a system that let her down.
And now, her experience & justified anger permeates her actions, and she also will tell many other people, who will shake their heads in outrage & swear now to fall victim to the snake oil salesmen, so they too will have no motive for playing it straight when the cheats get away with crime.
Now magnify that by thousands, millions of people, and you have the sorry state of our nation in its present day. Heading swiftly towards a perpetual latin america style graft & corruption where it is just easier, and mostly impossible to buck, to just bribe your way or placate those bribed because you will have no effect otherwise. Or get nothing accomplished.
hilarious, actually
I’ve gone from just keeping my powder dry to putting it in those seal-a-meal shrinker things. Started out a couple of years in bank money markets and 90-day CDs. Gradually moved to mostly 6-month CDs. Now am wondering about licking in 12-24 monthers, before the Fed diddles the rates. This assumes that CDs would track down with Fed funds easing, but I don’t know if that is an automatic, directly proportional cause and effect relationship.
Keep the maturities short, 6-months or less. As more and more banks face liquidity problems the spread of insured CDs to T-Bills will widen. This will be especially true of S&Ls because they can’t access the Fed’s discount window.
It is imperative though that the CD principal and anticipated interest remain within FDIC insurance limits.
Tuxedo — thx. I’ve been careful about spreading them around. The folks in the banks talk about up to $400K per couple, based on beneficiaries and all that, and they offer FDIC booklets to back that up, but I stick with $100K per, except for about $150K in one bank MM account with no CDs there.
“In Tampa, bankruptcy lawyer Patrick Smith says he’s seeing a spike in clients who are construction workers seeking bankruptcy protection”
Is this for shoddy construction? Is it too late for protection?
‘I’ve probably handled five to 10 cases in the last six months of construction workers surrendering their homes, packing up and moving out of state,’ Smith said.”
surrendering their homes- I really like the way that sounds.
I would think that construction workers would be apt for this. They move to a new area to get work during the boom, they need a place to live, they are surrounded by builders, contractors, RE people who constantly shout “Now is the Time To Buy”.
The disconnect continues:
Construction Spending Plunged in July
Construction activity plunged in July by the biggest amount in six months as spending on homes fell for a record 17th straight month.
http://tinyurl.com/2d5v4n
Stocks up on the news……Stocks lifted modestly Tuesday after investors appeared unfazed by drops in manufacturing growth and construction spending.
BW: This probably WAS already priced into the market. Anybody surprized by this must have been a George W.
Money is still looking for a home and ANY stock not associated with housing is perceived safe haven. Note I say ‘perceived’.
Actually, I bet that the news was considered good because it gives the Fed more reason to cut rates, which is considered good for equities. Of course, the market doesn’t seem to understand that cutting rates will likely not help the fundamental situation one iota.
Thanks, HS. Sometimes I need to be reminded that things are not what they appear to be. I am reminded of the following classic:
Bullwinkle: “Hey Rocky, watch me pull a rabbit out of my hat!
Lion: “GRRRRowl!!!”
“Bullwinkle: “Oops, wrong hat.”
Rocky: “That trick never works!”
Sorry about the cartoon reference, but it seemed appropriate today.
Another cartoon reference from The Far Side; The dog is pressed behind the door waiting for the cat to follow the trail of “CAT FUD” signs into the clothes dryer when, presumably, he’ll slam the door and hit the start switch. Like today’s home sellers hoping with their lame incentives, he’s thinking, “Oh, please. Oh, please! Oh, please!”
>The Commerce Department reported Tuesday that construction >spending dropped 0.4 percent in July, compared with June, the >weakest showing since a 0.6 percent fall in January.
It doesn’t seem like fractions of percents is going to do it.
Are they just keeping the crews on jobs hoping things will turn?
The fractional increase in unsold houses appears much larger.
Doesn’t make sense.
“Doesn’t make sense.”
There likely are a number of builders, including smaller ones, who are able to continue building and selling because re-sellers are so stuck on their “old” pricing model. Meanwhile, the builder can cut his profit margin to almost zero, from record highs during the boom, and construction materials and labor costs are down. Land already bought is a sunk cost, so there’s little disincentive to building on it and virtually none to selling it, and fresh land is cheaper, if they need some. So the builders just continue to undersell the FBs who bought at the top and financed the whole thing. The really-screwed builders presumably are the ones who are too far along in the vast large tracts for which they paid a fortune in development fees and started huge numbers of houses, simultaneously, at just the wrong time.
Hope that doesn’t sound too contradictory. Just IMO.
Thanks
Did you see “Instant Analaysis” on CNBC this morning? Jim Cramer bashing. Four analysts against 1 (Cramer). Cramer blurts out that people CAN’T sell their homes, and one analyst SHOUTS back, ” sure they can, they need to lower their prices!” Cramer laughs and startted on a rant. Cramer will only feel he is winning the debate by yelling the loudest. Funny SH%t.
That one analyst who stood up to Cramer basically said Cramer only understands people with multi-million dollar portfolios. That pissed Cramer off.
The consensus is that Fed’s should really tread water and that the Fed fueled this bubble. The reasons: rates cuts and liquidity.
Am I the only one who doesn’t believe that the Fed honestly fueled this bubble based solely on their FFR and liquidity injections? Folks, it isn’t free Fed money that makes bubbles, and it isn’t artificially low interest rates that make bubbles — as I’ve said in other posts, it is the fraudulent fractional reserve banking system that is the true demon in the mix.
I’m against the Fed, as I believe that market economy rules dictate interest rates based on the availability of money and the risk the savers/investors are willing to take. I would never loan someone my money for 30 years on a depreciating asset for only 5%, but you might.
The Fed can inflate the money supply, inject liquidity, and lower rates to 0%, but if the fractional reserve banking system was ended, banks would be VERY careful where they loaned money — even recently borrowed money from the Fed. It is their ability to create 800% new credit from recent deposits that makes the whole system bubble and bust. That is the madness of the Fed, not just interest rate setting and liquidity injections to force that rate.
Limited gold supply is limited products and services. Economic systems should be rewarded from creativity, innovation, and service - not what people can dig out of the ground. Nuff said.
“Economic systems should be rewarded from creativity, innovation, and service - not what people can dig out of the ground. Nuff said.” ??? You’d rather be rewarded with something that takes no effort to make than something which requires a lot of labor? How about this, I’ll trade you pretty fancy paper with my own innovative decorations for all the silly stuff like diamonds and gold that you may have. I will use all the innovation and creativity I can muster to decorate your paper.
No, it just increases the value of gold. It means that items are valued with a relatively valued interchangeable commodity. There is still an underlying value to the goods and/or services. In other words, two chickens and a pig will still get you the same amount of gold that it takes to buy a goat. You should stop using straw man arguments to defend the non-use of gold as a backing to our currency.
The real estate market didn’t go nuts because of the fractional banking system. The fractional banking system was around long before this mania hit.
In my view the market went nuts when financial risk was disconnected from its rewards. Sanity is returning as the connection is once again establishing itself.
“…banks would be VERY careful where they loaned money — even recently borrowed money from the Fed”
Bugs: “Eh, I don’t think so…”
Maybe careful lending to a FB with an overpriced POS…but not the the US of A Gov’t that …own’s small pieces of property like that $ 24.00 USD investment in a small piece of land called Manhattan. I think the Banks would know how to “collect” on that “owner”
Everybody, all together now:
“This land was your land …this land was my land…from the Redwood forest’s to…Manhattan Island…this land was sold for you & me
I’m confused by this ABD. Others argue that there are essentially no reserve requirements any more. I thought we were on reserveless system. I also wonder how a banking system without reserve allowance (a 100% reserve?) could lend any money. Wouldn’t they have to keep it all in the vault?
They could lend out money that was lent to them for that purpose, for no longer a time period. That is, if they borrowed 1 million dollars for a 6-month period, they could lend it out for up to 6 months. Of course, the depositor couldn’t get it back until the end of the 6 months, because they wouldn’t have it.
Demand deposits couldn’t be lent out at all.
Can you make money running a bank like that? Yes, but you have to charge a fee for demand deposits because you can’t lend them out. It’s not as profitable as fraud, but it’s a lot safer.
Yea it was great! One of them even suggested raising rates to “crush the bubble economy”.
Some time ago, I suggested that the question should be: “What would Paul Volker do?” The answer is “Raise the rates.”
After discussing the housing bubble for several hours with a mutual fund manager 5 months ago I suggested the same remedy. You should have seen him go white.
Here’s the clip. They did mention Volker in the conversations.
They start talking about construction and housing at the 4th minute. Jim Cramer suddenly jumps in at the 5th, shouting matches throughout. Very interesting. (10 minute clip)
Postcard to God:
Please make mortgage loan rates go to 14%
PS,
Please hurry, there’s a lotta left over temptation pain down here.
That analyst is Rick Santelli. He is the only sane person at CNBC.
“Dominic Naro is tired of looking out his window and seeing grass high enough to cover a small child.”
Stop whining and cut the grass yourself if it bothers you that much.
Years ago a friend of mine decided to sell his house in San Ramon. The house next door was owned by an elderly woman in her 80s and the house looked shabby. My friend paid to have her house painted and landscaped and then put his house up for sale. His house sold in a week.
We have a house like that in our neighborhood. Two houses on that street are for sale. My husband and I can’t figure out why one of the bonehead sellers doesn’t just get out there and mow the front yard.
Kaylaw;
Are the houses bank owned? If so, you better mow the lawn.
Darth — agree 100%. Also with KayLaw’s “boneheaded” observation. If it’s in your financial interest, and you’re not prohibited, mow the lawn. Who knows, a neighbor or two might help out.
Before I bought my house 11 years ago I rented an upstairs apt in a house. There were 3 units overall in the house, mine being one of them. Anywho, the owner never mowed the lawn and one day I got so sick of it I went down to the Berlin Farmer’s Market here in Jersey and bought a POS mower for $20 and brought it back and cut the lawn. While cutting the lawn the other tenants came out and started scratching at the flower beds and stuff like that. As soon as I finished they dissappeared back under their rocks. Anyway, while mowing the lawn my a-hole landlord happened to stop by. He was quite nice to me after that. LOL
Hey JerseyAndy
I got a similar tale of renting a room in a large house. Years ago a bunch of us mormon boys all rented rooms in a large 3-story victorian her in Fair Oaks, CA. Very nice neighborhood, and we generally kept the place up . . . except of course the dishes.
Communal plates & silverware were always dirty & piled up.
I never used em because I preferred paper plates & plastic forks. The quick “eat-n-go” method, but a few times I would pitch-in to wash the stack. Well one day, after asking the house tenants politely for months to clean up after themselves, I bought a date(future wife) over for some steaks & when I couldnt find a single clean fork I lost my temper and threw ALL the plates, silverware, pots, pans, the whole shibang out back into the cement pool.
The plates were flying like frisbees. Made me laugh & cooled me off too! Remarked to my guest ” they’re clean NOW ” !!
Well, wahttya know, after some other tenants fished out the items, they magically were cleaned AND put away promptly.
Not a WORD was said to me about the whole thing. Wise of them, too.
I always tell the spouse: “there is a time for talk, then there is a time to take action to back up the talk.”
hilarious, actually
” I ‘BOUGHT’ a date (future wife)”…..
Freudian slip??? : ) (sorry, I couldn’t resist)
Blano
Yeah, I saw that typo as soon as I posted …. hehhe .. it looked too funny to change. Glad you got it !!
For a while, the house had a “For Sale” sign out front, now it’s just weeds. I walked up to the front door and there are a lot of freebie papers and ads, and, curiously, a business card from the county enviromental people. I wonder if they let their pool go?
When I said the sellers should mow, I meant the other two wannabe sellers on the street.
Where I live, houses need to drop 75% in price to be fairly tagged. The run-up was so ludicrous, the crash needs to be comparable. But, nobody in my neighborhood seems to have caught on yet that their crappy houses are not worth what realtors and mortgage agents claimed. Also, they are oblivious to the fact that this is Tampa, a hell-hole, not Beverly Hills, with 100% humidity most of the time, and a population that is only about 60% literate.
Meanwhile, some fool bought a small, ugly townhouse on my father’s street for 600k, and the realtor immediately sent out a flier to announce the fact. I don’t know what is more charming about the place: the tawdry Home Depot crystal chandelier hanging from the low-ceiling in the dining room, or the fact that all the townhouses in the row have a radon gas problem.
What area are you in? My friends in Tampa are complaining their homes are devaluing by the month.
Hyde Park
“…the fact that all the townhouses in the row have a radon gas problem.” Hmm, so they all want to live forever?
Roidy
Oh, Lord. Incredulous, I’m glad there are other people out there who see Tampa for what it is. I moved to Palma Ceia from the midwest a couple of years ago (so not my idea). People here have the approximate IQ of spider monkeys. I remember when I was sitting for the FL bar, I was at this table in the middle of this huge room at the convention center, and I was all stressed out about the exam. There was this girl behind me talking to the douche-y guy next to her about how she and her boyfriend had just bought a condo (this is 2005, folks, a GREAT time to buy) and she was telling him all about how she read over the contracts soooo carefully, and made sure she crossed all her “I”s and dotted all her “T”s. I just looked at the guy next to me (a nice, normal looking guy who was from Georgia) and we burst out laughing. God bless the curve. After that, I had no doubt in my mind that I passed that test with flying colors.
And in my experience people here are STILL so pro-real estate. They think that this will all be over with a couple of years of +/- 1% annual price adjustment. They are all smoking crack. If they need some more, I can tell them where to find it too. All I gotta do is call a couple of clients–they got rock. South Tampa is toast, and it’s not nearly as crappy as other parts of Tampa. I won’t even comment on the Central Tampa, Sulphur Springs, Temple Terrace area. Or S. of Gandy. Or pretty much anywhere in the New Tampa/Brandon area. Can’t comment on NW Tampa because I’ve never been there. But I did take the Veterans last week at about 6:30PM–F%@K that. Town ‘n’ Country makes my skin crawl.
BTW–there is this groteque new condo building on MacDill just north of Bay to Bay on the east side of the street–it has some Spanish city name–Barcelona Townhomes maybe?–it has had a giant Smith and Assoc. sign out front for months, with “Price Reduced” in big letters, and a red sticker on it that says “only 3 units left”–that red sticker has been there for months. My husband and I drive past it at least a couple of times a week and giggle. We feel a real sense of urgency to run out and buy one now before they’re all gone.
Hyde Park will be a great place to live when you can buy one of those big, fully-restored Victorians for $300K again. I’ve kept on eye on prices there, and those houses are now listing at $100-200K MORE than 2005. It’s gonna take a swift kick to the head to get those people to see reality. Half of them bought in 2004-05 and are still trying to get huge profits.
“Though Andee Clancy has no problems with her neighbors - mostly renters in investment homes - she worries they will devalue her neighborhood. ‘My understanding was that we could not rent the place out. But as you can see, this whole neighborhood is rentals,’ she said.”
Welcome to the NEW America: You play by the rules ..YOU LOSE!.
“Developer George de Guardiola is backing off his plans to sell 82 condo-style units at his first big Port St. Lucie project, East Lake Village. Instead, he’s hiring a property manager to rent them as apartments.”
“The 82 units will open in October. De Guardiola hasn’t set rental prices for them yet. Ultimately, 890 homes are planned.”
I wonder what the cap rate will be on this deal. 2%? 3% tops?
Not a pretty prospect when the cost of capital is 7+%……
Dada wrote:
“Am I the only one who doesn’t believe that the Fed honestly fueled this bubble based solely on their FFR and liquidity injections? Folks, it isn’t free Fed money that makes bubbles, and it isn’t artificially low interest rates that make bubbles — as I’ve said in other posts, it is the fraudulent fractional reserve banking system that is the true demon in the mix.”
Dada is wrong. M3 as a percentage of debt has only gone from 78% of GDP to 90-odd% of GDP since 1990. The problem has been OUTSIDE THE BANKS = i.e. structured products (CDO’s) and derivatives. They basically didn’t exist in 1990. So total money has gone from less than 100% of GDP globally to about 1000% of GDP in the last 17 years. That’s due to the products that don’t require any money down in the fractional system (how much money down is required to contract a derivatives contract? A: less than 1%, much more than the 10% reserves required by the banks). Thus, you’re getting a bank run on products outside the banking system.
But you are right in one sense. The Fed wasn’t wrong in the 1930’s and the BOJ wasn’t wrong in the 1990’s. The was wrong in the 1920’s and the BOJ wrong in the 1980’s. That is, they allowed rates to be negative, which resulted in malinvestments in assets that made no sense unless asset inflation continued. On a cash flow financing basis - the investments never made any sense. And we see the exact same thing in the past 3-4 years in US residential investments. All to the tune of more than US$ 2 Trillion.
“The problem has been OUTSIDE THE BANKS = i.e. structured products (CDO’s) and derivatives. They basically didn’t exist in 1990″
Exactly, why those investors should have to take their loses. The market will punish them for their malinvestments.
fed was wrong in 31 when the raise 300 basis points
My point is that at that point, it was too late. The malinvestments had already been made 2-5 years earlier. Higher or lower rates were pretty much irrelevant once deflation took hold and lending became like pushing on a string.
I tried to explain fractional reserve banking simplistically, which also will have a certain amount of “deniability” by those in the know.
Fractional reserve brokeraging goes hand-in-hand with fractional reserve banking. Both are fraudulent, and both are accelerated because the law allows them to. Making a new law restraining fractional reserve brokeraging won’t help as long as we continue to have fractional reserve ANYTHING.
Fractional reserve brokeraging is the equivalent of fractional reserve banking with a 0% reserve (or a 0.01%-0.1% reserve if you will).
So many people think bubbles are caused only by Fed-based liquidity injections that are used to target their FFR. The reality is that fractional reserve banking/brokeraging is the real culprit, both legal yet immoral.
HK, A.B. and all — that was a very interesting exchange, for me at least.
I know for a fact that many of the local mortgage brokers are going out of business in Northern Virginia. A few have already defaulted on leases and several more appear poised to bail out. Those which are maintaining their operations have empty parking lots and nobody going into or out of their brick-and-mortar stores. They’re going from a dozen or more settlements per day to a handful per month. They’re doomed.
This will impact commercial properties. There are many properties still being built which are intended for retail as well. Those builders will probably be VERY disappointed.
‘This doesn’t amount to a row of beans,’ Curtis said. ‘Eighty-three dollars? For a whole year? I was expecting a couple hundred dollars at least, at a minimum.’
This is a good representation of those who do not keep up with the local and state news. The tax credits were from $0 up to $200 that the consumer would realize.
Methinks the condo market will go Chernobyl in FL. If we have a mountain of condos that we can’t sell, especially in Florida of all places, might we have a bigger problem than having housing merely go back to 1999 prices? Ask Cramer about that one (isn’t he the same guy that was caught fudging over some financials 20 years ago?). I wouldn’t be surprised if condos are practically given away in another couple of years. I’d have to say that the FBs who are holding condos are probably even more delusional than the ones holding Hummer castles. Who would pay $250K to be able to listen to your neighbor go to the bathroom or fight with their boyfriend/girlfriend/whatever of the week? I get a kick out of the younger people flipping condos and the like in the big city. They think they are so slick and sophisticated simply because they have a college degree (in Psych probably) and they drive a Hummer and they stuck granite countertops in that motel room/condo they just bought. I’d have fun with them when I make my offer. In reality, I’d say the granite countertops are worth more than the condo itself. The condo itself I might give you $4.99** for given that it’s not a real house anyways.
Off topic, I think the whole stock market run up is a scam. The Dow Jones should be 6000 not 13300 because none of the major companies in the USA are making that much revenue. I’d say most of the major stocks have to lose %50 or more to be affordable.
** Approximate value of a Big Mac Meal (#1) at McDonalds not including tax.
I said a couple of months ago that when taxes, fees, maint etc on a condo are 1000/month and the rent is 1000 - 1200, the condo is WORTHLESS because there is no money left over to service debt
I wouldn’t be surprised if condos are practically given away in another couple of years.
Didn’t I hear somewhere that no one wanted to loan money on condos in FL?
Aeyra
Well Said. Very Well Said !!
aeyra;
Excellant rant! You can take Kramers place when he keels over from a heart attack while screaming at people who disagree with him.
The condo thing is a whole other world, my friend. All over Florida it’s train wreck. It’s a huge variable. No one knows where that ones going, except down.
In todays business news the Fed is urging lenders to “work with borrowers to avoid defaults and foreclosures” this is in accordance with Bush’s assistance(not bailout plan)
“and some economists are projecting that the housing slump could linger another year or two.”
The housing slump won’t last that long, I give it six months, after that it will become a housing depression.
11 quarters= depression ,so it’s IN THE BAG !
where oh where has Gary Watts gone, oh where oh where could he be?
He’s in the bag
Perhaps a body bag that is..
The News Press. “Lee County’s overheated real estate market is being blamed for the collapse of a second credit union. Federal regulators have taken over Fort Collins, Colo.-based Norlarco Credit Union largely because of problems with construction loans on properties in Lehigh Acres and Cape Coral.”
I’d like someone to explain to me why a Colorado CU is doing construction business in Florida. In my past life I did a ton of consulting work for CUs here in Cali and they were very reluctant to do business outside their lending domain. I work for a decent size regional bank now and we would never partake in construction projects outside of So Cal. and we are much bigger than this CU.
The fraud runs deep during this joke of a bubble as everyone knows on this blog. Greed, greed and more greed as the middle-class contiues to get pummled into oblivion. Sad…
The same applies to those foreign banks who bought up all that American RE debt but did not seem to realize that loan originators were giving out loans to anyone who could fog a mirror and some who could not even do that.
But then again I wonder about individuals who buys “investment” RE out of state, how are you suppose to keep an eye on property worth hundreds of thousands of dollars when you are that far away and who will you trust to do that for you? Seems like you are just asking for trouble.
Exactly right Graspeer. If we don’t know the market, we simply pass on the deal. And for the most part, banks and CUs don’t know sh*t about markets they don’t have retail branches in or near. Certainly they don’t know sh*t about a project 1500 miles away.
What happened to banks and CUs being fiscally conservative? Oh yeah for the most part it was someone else’s $$. And when it was their $$, the result is a bank or CU closure.
Lost;
I agree. That will become a big problem. Rule of thumb should be don’t lend money for RE more than a 2 hour drive away. We have lenders in Florida from most if not all 50 states.
Remember when you built a house and the bank actually put a sign in front of it? These guys probably never layed eyes on the property.
I just got off the phone with my friend, the Realtor, regarding my broken microwave. I’ve known her for about 14 years. Clearwater Beach is over - fini. The only thing keeping her head over water is the property management. She says that they’ve caught people renting for a few days or a week in buildings that have a 3-month minimum clause. Owners are doing anything to try to bring in some income. One of the new buildings with 50 units has closed only on 5 and about 30 people walked away from their deposits. People that paid 800K are furious that the developer is now selling the same units for $600K. She knows this area’s real estate and doesn’t think it’s going to start turning around for at least another 3-4 years.
Those units that are selling are at 2004 prices and falling. It’s about freakin time. More foreclosures - pleeze.
Nothing new, as it’s been mentioned here several times in the past, but what a shame they tore down all those nice old Clearwater beach buildings, to make way for this.
I’m with you Chip.
It kills me that all this crappy development has taken the place of florida’s history.
I’ll take a florida cracker house built for capturing breezes and withstanding hurricanes any day over the McMansion garbage that has taken over our state.
Chip;
Wasn’t it great to drive down S. Gulfview and see all those great little motels, tacky restaurants and gift shops? They are not all gone but a lot were bought, 3 or 4 at a time to make way for these huge condos. There are deals on Clearwater condos, but I’d like to buy one of those old motels and refurb it.
I was at Clearwater yesterday.
the SandPearl or SeaPearl, or whatever it’s name is was opened yesterday. According to the restaurant owner next to the 2 massive buildings, it is over 50% sold off. i think some of it’s gone to rentals.
The place was mostly vacant, along with the many other big developments that actually got out of the ground.
Go down Brightwater drive and look at all the townhouses for sale….about all of them.
At the end is one of the new condos. It’s been on the market for about a year………its empty.
Next to it are vacant lots with foundations that never got to the first level. Prices are absurd.
The Realtors ™ that bought the townhouses for about 250k have been asking 600-800k. NO Sale.
And to top it all off……….the AQUALEA, the Hyatt resort area that Clearwater Beach re-routed the traffic around to give them more beach frontage is just getting out of the ground. This place is a disaster.
I am waiting on the sideline.
I think the best thing coming out of the housing market is the truth out about these builders and how their promises of keeping home value is just crap. Now many of these builders will be remembered for the devaluing of the communities they suckered people into buying. Even in my own community where some homes have not yet been completed I am seeing the spec homes being built with alot of extras and the prices not so blown up. The company here says it refuses to allow incentives and to devalue the community because it is a local builder and is afraid that it will build up a reputation of doing that. I agree. The good thing is that my home is the lowest price “built” home. My husband and I have always felt it is better to be the lowest price guy in a high priced community. Yours will always sell faster than the next guy who has to ask $100K more than you just to get out..home values here luckily are pretty good and holding..(also helps that the community only consist of 35 homes on large 2 acre lots)
I, for one would be very leary to buy anything in a development that isn’t already completed and pretty much sold out, including pool, clubhouse, etc.
Lucky for us the property has 30 of the 35 sold with many a lookers on the weekends. All areas of the development are finished and already in use. I think it helps that we are the “poor” development price wise among million dollar communities and A rated schools. Th next new development being done will be at 1 million + as is the norm around this area. Our development just sort of sneaked in under the wire.
The guidance said that appropriate strategies to ward off defaults could include modifying the terms of the loan or deferring payments. Those modifications could include converting the loan from an adjustable rate loan, one in which the interest rate resets are periodic intervals, to a fixed-rate mortgage, which would keep the monthly payments from going higher.
Other possible modifications would include extending the length of the loan and rolling the amount of payments that the borrower has missed into the total loan amount that must be paid off.
“Reworking these loans will achieve long-term sustainable obligations to provide stability to borrowers, investors and the marketplace,” Barr said.
The joint statement also encouraged the mortgage servicing companies to consider referring borrowers in trouble to qualified homeownership counseling services.
Fed Governor Randall Kroszner said that the joint guidance was meant to encourage the companies that collect payments on mortgages packaged into certain debt securities and sold in debt markets to “reach out to financially stressed homeowners.”
“Keeping families in their homes is a matter of great importance to the Federal Reserve,” said Kroszner, one of the Fed board members who has taken the lead in dealing with the current mortgage crisis.
————————————————–
Translation on the last line. The Federal Reserve does not want a massive write off of commercial paper that will threaten the U.S. banking system.
How does putting people in fixed mortgages when they could not afford a reset to 6 or 7% save them if they have bad credit? I just don’t get what keeping these people in their homes and giving them 50 year mortgages solves except by making more money off borrowers. Wouldn’t this make commercial paper worth less and less? Wouldn’t it have to be written off at some point?
My grandfather looked at homes down here this weekend and he says, “It isn’t a buyers market, who are they kidding. When it is 50% less will it be a buyers market.”
The problem is that most of the distressed borrowers can only afford the introductory payments, and then just barely. The only workouts that would probalby “work” are 30-year amortization with a 2% interest rate, or 10-year I/O with a 4% interest rate.
As an excercise, calculate the NPV of such loans using a 7-year balloon model and a 6.5% market rate. Then note that GAAP requires an immediate loss reserve for the difference between the loan balance and the fair market value of the workout.
If they’re giving out 50 year loans, they better have cures for every disease imaginable, because many of these people are going to have to live into their 90’s and 100’s. Even if you give a 22 year old a 50 year loan, it won’t be paid off before they retire.
Been looking to buy an office condo for myself in Cooper City/Davie Florida.. Prices are in the 300 psf range and not even built out.too much..anybody got any advice or knowledge in that neck of the woods.
Unless it’s changed a lot, isn’t Davie a bit like Kissimmee was before Disney? $300/sf sounds mighty high to me, given the current and projected state of the South Florida economy. Those areas were very low land, long ago - water management district folks should be able to tell you what kind of boat you’d need, to get to work in, in a bad storm. Have you checked into the insurance rates for such a condo? Presumably, you’re not interested in leasing while you keep an eye out for a great bargain. Sorry to sound so negative, but $300 just “feels” outrageous at this time in the market, unless you’re getting a heck of a lot of perks.
Wait Wait..office condos are dying right now..around January when things are deader..make a low ball offer…
This is my neck of the woods. Don’t be foolish. Office condos are overbuilt. Drive around Stirling and Griffin, you’ll see many sites barely getting off the ground. Now is not the time to buy. My husband needed more space for his practice. He was planning on buying and leased office space instead. Davie also has ample supply of million dollar mcmansions. I’ve been tracking several neighborhoods for approximately a year now. Very little is selling. I’ve seen homes in the 4,700 to 5,000 sq. ft. range reduce their prices from $1.7mil. to $1.2mil. and sell at $1.1mil. I think that will probably come to end now that jumbo mortgages are in short supply. The last few recorded sales in that range during July and August had mortgages in the $900,000 range. Talk about catching a falling knife. There are vacancies and foreclosures popping up everywhere. I suspect October will be a very bad month in Davie and Cooper City along with the rest of South Florida.
We just came back from three weeks in Central Europe and I was going through the mail and saw this stamped on the envelope;
“Home values are dropping so get your home equity loan Now!” or words to that affect.
Also got notice of a class action against Finance America.
Spent the 3 weeks away from the “net”, cell phones, TV etc., newspapers…
Poland is still building but they have a serious problem with the lack of infrastructure.
Reading a novel by a Russian who mentions real estate speculation in Moscow and how it hasn’t worked out so well. Half finished apartments with no appliances etc…
Spent the 3 weeks away from the “net”, cell phones, TV etc., newspapers
Ah, true paradise. I just got a home equity fake card in the mail today from Chase, along with an application.
400k property in N Fresno, very nice area, sold for 245k after bank took over and phony auction
had buyers– but none qualified.
The St Petersburg Times. “Candice Anderson and her husband got a chance to buy houses in Hernando Oaks at prices even they could afford. The Andersons joined with two friends to purchase five houses from home-building giant Lennar Corp.”
“The couple ended up paying $110,000 and $115,000 for two houses, each of them selling for more than $60,000 less than the market value, according to the Hernando County Property Appraiser’s Office.”
Now these desperate FBs are using their noggin. If they can’t go broke anymore buying one unit that’s overpriced by 200% they’re determined to go broke buying 5 units that’s are still 40% overpriced. I’m impressed. LOL
All this, and we haven’t even seen the bulk of ARM resets yet! I’m just renting and waiting.