An Educational Experience
The Rocky Mountain News reports from Colorado. “Vacancy rates for rental homes are the lowest in recent memory, thanks to record foreclosures in the Denver area, officials said Wednesday. In many cases, however, people are renting houses they can’t sell for a profit for less than their mortgage payment, said Robert Alldredge, owner of Jericho Properties, which manages properties.”
“‘People tell me this is their monthly mortgage payment, so they have to get at least this amount in rent, but I tell them it doesn’t work that way,’ Alldredge said.”
“It is better, he said, to lose $100 or $200 a month by renting a house, than to carry the entire mortgage payment. ‘It’s the difference between bleeding to death slowly, and hoping the market will turn around, and bleeding to death quickly,’ Alldredge said.”
From KOAA.com in Colorado. “As we’ve reported for months now, El Paso and Pueblo counties have run up some disturbing numbers when it comes to folks facing foreclosure or who have lost their homes. One local mortgage expert says the move may not help.”
“Mortgage Broker, Rebecca Hinds says, ‘El Paso County has serious foreclosure problem, Pueblo as well. Pueblo has one in 10 homes in foreclosure currently.’”
“So far in El Paso County this year, 3000 homes have gone into foreclosure. In all of 2006, there were about 3400 homes.”
“Hinds says; ‘Considering we are on the upslope of the adjustable rate mortgages getting ready to adjust. And we are already seeing the problem we’re having, this problem will only increase.’”
The Arizona Republic. “Foreclosures in metropolitan Phoenix climbed 36 percent in August, the biggest jump so far this year. Last month, 1,093 people lost their homes, according to the Information Market. It’s the first time Valley foreclosures have topped 1,000 in at least a decade.”
“Many more local residents are in danger of losing their homes. Notice of trustee sale filings, the precursor to a foreclosure, took their biggest jump this year. Those notices, filed when homeowners are at least a month behind, climbed 29 percent, to 3,203, in August.”
“It is hard to argue that the north Phoenix area has had a lot of foreclosures, but the number of them has, in some areas, gone up by factors of 10 or more.”
“Foreclosures are up and prices are down throughout the area. The numbers are closely tied, along with the number of sales and number of homes on the market.”
“Andrew Holm, a Realtor who works in northeast Phoenix and Scottsdale, says that with the record numbers of homes currently for sale, pressure still is on to reduce prices. Some homeowners are forced to walk away from their loans, he said.”
Frm KTAR.com in Arizona. “A budget shortfall is another side effect of mortgage mayhem and Governor Janet Napolitano says education money must be protected if Arizona is ever to escape the boom-and-bust cycles of the housing market.”
“‘We’re still too housing economy dependent. That’s why our economy has reacted so quickly to the sub-prime issue, to the housing bubble and all the rest,’ she said.”
“Senator Thayer Verschoor says he’s happy the governor has acknowledged there’s a serious problem. ‘From what it appears to me is that they recognize that it’s a bigger problem than they were thinking it was originally.’”
The Review Journal from Nevada. “Some major lenders have said they may stop or have already stopped making ’stated income’ loans because of the wording in Assembly Bill 440, which is intended to ensure that a borrower is able to repay a loan.”
“‘Stated income’ loans account for a quarter of all home loans in the state, and about half of the loans in the Las Vegas area, according to state officials and the Nevada Association of Mortgage Professionals.”
“Marcie Benvin, a Reno mortgage broker and president of the Nevada Association of Mortgage Professionals, said she hopes the efforts work because ‘we don’t have a lot of time left.’”
“‘People need to understand the gravity of the situation,’ Benvin said. ‘We’re hoping that the problem gets resolved before it turns into a bigger problem.’”
“The news is bad, but it’s not all bad, said Las Vegas housing analyst Dennis Smith.”
“‘Yeah, people are out of work, people are going to lose their homes. But it’s going to turn around,’ the president of Home Builders Research said. ‘I hope we’ll be talking about this as an educational experience two or three years from now.’”
“Home Builders Research reported 1,970 new home sales in August, a 39.9 percent decrease from the same month a year ago. Sales are down 43.6 percent for the year.”
“The median new home price rose 4 percent to $338,560, largely because of mid-rise and high-rise condos. The resale segment barely outperformed new homes, with 2,062 recorded escrow closings, down 43.4 percent from August 2006. The median price fell to $275,000 from $289,000 a year ago, or about 5 percent.”
“‘Just to remind these greedy (people) about the price drop, it’s all relative,’ Smith said. ‘It’s only dropped from last year and it’s higher than two years ago. It’s not that bad. It’s just bad today.’”
“The Las Vegas housing market experienced the lowest number of foreclosures this year in August, real estate consultant Steve Bottfeld of Marketing Solutions said. The 212 figure was nearly 500 less than July.”
“‘While that is cause for some optimism, it is too early to suggest that the foreclosure rate is slowing,’ Bottfeld said.”
“He urged caution in analyzing foreclosure numbers because existing home inventory has reached a record 27,321 and 46 percent of those units are vacant. The Mortgage Bankers Association estimated that investors defaulted on roughly one-third of Las Vegas properties in foreclosure.”
“Smith said the local housing market needs consistency and it has to start in the lending business. Over time, foreclosures should become a nonfactor. But first, lenders have to be willing to discount foreclosed properties more than they have, he said.”
“Meritage Homes recently lowered prices in some subdivisions by more than $50,000, Smith reported. KB Home is selling a 1,553-square-foot home for $174,990, or $112 a square foot, and a 1,898-square-foot home for $202,990, or $107 a square foot. Rhodes Homes is selling at $125 to $130 a square foot.”
“These prices seem to be ’setting the bottom’ of the value ratios for some of the major home builders in Las Vegas, Smith said.” “Robin Camacho of Direct Access Lending in Las Vegas said lenders are pulling the plug on stated income loans. It’s spreading in large part due to Assembly Bill 440 in the Legislature, she said.”
“‘Some people with homes in escrow right now will see their mortgage commitments disappear if they can’t close quickly. This is really going to hit our tip earners in Las Vegas the hardest. Everyone knows their income isn’t easy to verify,’ Camacho said.”
EDUCATIONAL EXPERIENCE?
I would say a very expensive experience for some.
IMO, the LV housing analysts win the prize for these kind of statements.
This part of the original post bopped me over the head:
“It is better, he said, to lose $100 or $200 a month by renting a house, than to carry the entire mortgage payment. ‘It’s the difference between bleeding to death slowly, and hoping the market will turn around, and bleeding to death quickly,’ Alldredge said.”
From my emergency preparedness training, I know that bleeding is something that needs to be stopped. Doesn’t matter if it’s fast or slow.
Hmmm, bleed to death slowly or quickly. It seems to me that the end result is the same.
Yes, but more importantly, would bleeding a payment once a month making me any less of a man?
I’m confused as to why this is a bad idea. Let’s say you’re losing $100/month by holding and renting, compared to (let’s say) losing $10k immediately by selling it. It would take more than 8 years to lose $10k by holding and renting. Let’s further assume that by holding for 8 years, you could sell at some point during that time without taking the $10k loss.
These assumptions are certainly debatable, but if they’re in the ballpark, why on earth would anyone want to sell immediately? We could argue about the risks of maintaining the property, and dealing with tenants, and market risk and so on, but I don’t think the “bleeding” analogy is really appropriate here. You don’t stop the bleeding by donating another pint of blood.
Well, if everyone is trying to hold, then that will push down rent prices even further which makes the loss even greater…assuming you can find a tenant in the first place.
“[W]hy on earth would anyone want to sell immediately?”
Because after this epic bubble slowly deflates to its predictable outcome, recent FBs will be lucky if they break even in 20 years on a real-value basis. Better for them to sell now than to spend two decades or more as nothing more than an indentured servant to a mortgage lender, or to have to sell at a huge real loss after spending a decade in that state.
“… why on earth would anyone want to sell immediately?”
Uh, so they could maybe once again be able to sleep at night?
Being in the red $100/month on rent vs. mortgage is not all that bad when you take into account interest and expense write-offs and depreciation. Could be worth it over time. But here in the SF Bay area, even with 20% down you’re probably talking at least $2000/month between what you collect in rent and what your mortgage payment is. More than that if you put less down or financed 100%. Those folks have some tough decisions to make.
He’s right about it being an educational experience 2,3 years from now. He just left out the 5, 7, 10 years from now part.
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With high tuition. Don’t worry we will lending money for the education.
Jas
‘Unemployment claims for food preparation workers across Nevada were up 45 percent in July from a year ago, possibly because of last fall’s smoking ban in food-serving bars and other small slot machine outlets.’
‘And yet, researchers say the economic downturn from the housing slump has made it difficult to quantify the effect of the ban on Nevada’s economy.’
‘Unemployment claims across the board are up 29 percent, while taxable retail sales are down in autos - one of the biggest retail categories - along with eating and drinking places.’
‘Across the board, in every sector of the economy, people are spending less per capita today than a year ago,’ said Jeremy Aguero, a principal with Applied Analysis in Las Vegas.’
Bush reassured nation that economy and/or Iraq will be ok; the headline today. I was confused. Which one was he talking about-economy or Iraq?
“A budget shortfall is another side effect of mortgage mayhem and Governor Janet Napolitano says education money must be protected if Arizona is ever to escape the boom-and-bust cycles of the housing market.”
The taxes moloch is hungry… be afraid, be very afraid…
Are we finally seeing a sharp drop in travel due to declining HELOC’s/MEW? So sales in autos, food, and drink are down in Nevada. Now the question is what is up with the hotel occupancy and gaming revenue? Unless there was a heavy shift to spending on strippers, the Vegas economy just took a nose dive.
Got popcorn?
Neil
Get ready! The OJ trial is coming up. They will need people for crowd control, sign wavers in favor of OJ, sign wavers against OJ. Runners for all the radio and TV people. More limo drivers for the hot shot TV jerks. I believe there will be a spike in pole and lap dancers for all the celebrity obsessed tourists that come to town for the circus. A bit of a spike in employment. Just my take.
I’ve never been a real estate investor, but I have had the experience of renting a condo instead of selling it — three times in the past 10 years or so. For me, the reason for renting was the chance that I might end up using the place, or it would work for a family member in the future. These aren’t $500,000 condos, but under $100,000, which was still available in the Chicago area just a few years ago.
When I figured out my sell versus rent numbers, I didn’t take into account if rent would cover PITI+HOA. It didn’t make sense to me for a renter to cover all those costs. For me, as long as rent was more than Interest + Taxes + HOA and the property either appreciated in value or stayed the same, I had no problem making the difference in payment. As long as the overhead of an investment is paid for by the renter, the principal I was paying wasn’t being lost, and most of the time I still made a decent 5-10% in appreciation in a “normal” market.
Why is it that when we compare renting to owning, we want renting to be the equivalent to the total cost of ownership? Doesn’t it make more sense to just consider the total cost of overhead as long as you are truly paying down equity principal (ie, the market isn’t tanking)?
Because so called “rental parity” is consistent with historical mean prices. Remember, rent reflects supply and demand with an important caveat: ability to pay. Use of leverage (borrowed money with deferred principal pay down) does not apply.
It is a good rule of thumb, but only a rule of thumb. No one ever believes me when I try and tell them it was far, far cheaper to buy residential property in DC ten years ago than it was to rent it. “Mean reversion” in those days meant rising prices. We just went way to high to the other side.
1) NORMAL MARKET IS NOT 5-10% appreciation!!!
Dump that myth from your mind. Median price had been 3x median household income for about 45 years before this bubble started. At teh end of the depression, houses were undervalued. They gained in value rapidly for about 15 years from 1940 to 1955. In 1955 they reached a point where median house price was 3 x median household income, right where they had been before the depression. They stayed at about that ratio for 45 years.
We had an average appreciation of 5-10% for much of the 60-70-80 because TWO INCOME FAMILY GROWTH. That’s it. the invention of the 2-income family allowed household income to rise faster then inflation, and that IS THE ONLY THING that caused house prices to rise faster then inflation over those years.
While the % of two income families continues to increase, we’re at the point of diminishing returns where there are already so many duel income familes that it is nearly impossible to get large gains in that rate.
So, just accept that house prices will be 3 x income, and income is now likely to gain at about the rate of inflation, so median house price will gain at the rate of inflation!!!!
BUT, as your houses ages it moves down the scale on medain. A new house should be above medain for the size, but an older house will be below medain for size. So, the value of any given house should appreciate at a rate below inflation.
Once you accept that 5-10% appreciation is not normal, the simple answer to your question is “oppertunity cost”.
Let’s say you could sell for $10K profit. You chose to rent it out for cost - principal…. just enough to cover interest, tax, insurance, repairs, hoa, etc.
Okay, you are negative, say $100 a month, but building equity at $100 a month. What that means is that you are depositing $100 a month into an account that is paying interest below the rate of inflation.
There are other investments that will pay better than inflation… so, you are losing the oppertunity to make more return in investment elsewhere.
You need to ensure the property is cash-flow positive enough to generate a decent return on investment, assuming the property will appreciate SLOWER than the rate of inflation.
Can this be right? “Pueblo has one in 10 homes in foreclosure currently.” Doesn’t seem possible. My neighborhood in Colorado Springs has 3 foreclosures within 2 blocks of me, but it’s hard to visualize ‘one in 10′.
It probably is. These areas have been down a long time and are horribly overbuilt. Could this be the IE in a year or two?
Never underestimate the Empire…
D. Vader
Ben, you are far too bullish. The foreclosure rate in the IE will be 2 or 3 in 10 a year from now.
Joe,
You are probably going to be right. I know a coworker today whom for some reason is being allowed to refinance into a really low rate 30 year by his bank. Could it be the bank realized he was going to default and is trying to keep as much as possible?
The IE is toast.
Neil
“Vacancy rates for rental homes are the lowest in recent memory, thanks to record foreclosures in the Denver area.”
Looks like the former occupants are returning to the market faster than the houses. I wonder what this means for the homeownership vacancy rate?
I seem to recall the Census Bureau reporting that the homeownership vacancy rate is at an all-time high.
It’s the difference between bleeding to death slowly, and hoping the market will turn around, and bleeding to death quickly,
It may be better to use a tourniquet to stop the bleeding and lose the limb than to continue to bleed and then die.
A reminder now that football season is well under way…
You can punt on 1st, 2nd, 3rd or 4th down.
The downs representing levels of Panic
Don’t Panic Last.
p.s.:
turn/a/quit
The problem with punting is they first have to untangle the dog pile on top of the FB. There seem to be about two thousand “players” on top of the guy.
Got popcorn?
Neil
I think our governor is on to something:
“‘We’re still too housing economy dependent. That’s why our economy has reacted so quickly to the sub-prime issue, to the housing bubble and all the rest,’ she said.”
“Senator Thayer Verschoor says he’s happy the governor has acknowledged there’s a serious problem. ‘From what it appears to me is that they recognize that it’s a bigger problem than they were thinking it was originally.’”
Problem is that the REIC has its tentacles into all branches of Arizona government, and not just at the state level. Same goes for the car dealers. It’s going to be very hard to knock these guys (and they are mostly guys) off their thrones.
“‘We’re still too housing economy dependent. That’s why our economy has reacted so quickly to the sub-prime issue, to the housing bubble and all the rest,’ she said.”
This is slowly sinking in with our gov Crist in Florida. But no one seems to quite know what to do about it. Same old tired stuff: we need to improve education and get more tech and scientific jobs.
FLA and AZ have something in common: snowbirds and retirees. FORGET EDUCATION and TECH, it’s a lost cause in these states. Build on existing strengths. Instead of punishing snowbirds and retirees, make a more attractive environment for them. So what if people call us “God’s waiting room”. Who cares? That’s one thing I can say for Tampa, we’ve now got a major Alzheimer’s research and treatment center, that’s a step in the right direction. Bio is the only tech that makes any sense for AZ and FLA. Build that up, along with health care and whatever tourism can be mustered up. The one thing I can say for AZ, it is taking a proactive stance on illegal immigration. Snowbirds and retirees will feel safer in a state that’s doing something about crime. Florida ought to follow that lead, because the folks over in Sun City Center are starting to get a little freaked out about the recent break-ins.
Well, I really like Janet, but hell, every city council in the state gave special concessions when the builders came to town. And many of those concessions were never honored by those at-the-time-oh-so-community-minded builders…people in Pinal County are still waiting for the builder-promised road improvements.
AZ bent over backwards (or frontwards, depending on your mindset!) to let these rampant developments take over. Everyone in government (including Janet) MADE this state real estate dependent.
Another day-late, dollar-short quote.
Applying a foreclosure tourniquite to open wounded houses, may stop the suffering…
“It is better, he said, to lose $100 or $200 a month by renting a house, than to carry the entire mortgage payment. ‘It’s the difference between bleeding to death slowly, and hoping the market will turn around, and bleeding to death quickly,’ Alldredge said.”
I thought the point of shooting the horse was to be nice to the animal.
But I guess some would want the FB’s to suffer…
Got popcorn?
Neil
But you can’t shoot an open house, to put it out of it’s misery…
In the space of just a month, we’ve gone from describing the housing market in kid’s game terms, to a very visual representation of fiscal amputation…
…amputation? Maybe fornication or defecation?
Senator Thayer Verschoor says he’s happy the governor has acknowledged there’s a serious problem.
‘From what it appears to me is that they recognize that it’s a bigger problem than they were thinking it was originally.
- The key word is ‘Thinking’ …. for politicians this is a home run. Juan Sixpack will view the evening news (to catch the Raiders score) and will be mollified that a ‘BIG EFFORT’ is being made on his behalf to solve the problem.
“This is really going to hit our tip earners in Las Vegas the hardest. Everyone knows their income isn’t easy to verify,’ Camacho said.”
———————————————-
especially the tip earners with 6 or 7 investment properties…..
Easy to verify tip income - just have the applicant submit their last tax return… oh, you mean the income they reported on the tax return is different from the income they want to report on the mortgage application?
Exactly. Tax returns and bank statements will verify your income quite nicely unless you put all your money under a mattress. It’s amazing all the BS you hear from people who want the party to continue.
I think the implication of Camacho’s statement was that people in Las Vegas are not in the habit of reporting their tip income accurately to the IRS, and therefore can’t document their real income.
I have actually heard this as a defense of stated income loans - “what if your client has income he doesn’t want to disclose to the tax authorities”. Now, that’s a person I want to lend hundreds of thousands of dollars to - someone actively engaged in massive tax evasion. The mark of a good credit risk!
My husband and I both own our own business and I also worked for years as a waitress in Las Vegas making decent tips, income which we reported on our tax returns. We never had any problems buying homes, vehicles, etc., and were able to get them all with fixed rate loans too, using stated income after we provided our tax returns and bank statements. But man, some of the waitresses and casino workers that I knew, who made good tips and never reported them had a hard time just renting an apartment.
There is nothing wrong with stated income, as long as the lender actually does some research to verify that the income is correct. This nonsense of illegal immigrants and food service workers owning 3 or 4 investment houses all financed through stated income , no downpayment, is just ridiculous and inexcuseable.
However, the real problem in the housing market is not interest rates, according to Keith Gumbinger, vice president for HSH Associates, a mortgage industry publisher. It is that there is not enough money available for making loans.
“The liquidity problem hasn’t changed,” Gumbinger said. “The primary issue is trust between buyers and holders of debt.” Investors holding worthless or heavily discounted paper are not eager to buy more.
As a result, Gumbinger said problems in the housing market problems are too entrenched for a Fed rate drop to have an immediate impact.
Where do they get these IDIOTS? It’s not the money Stupid! It is that people do not make enough to pay for the over priced houses.
Repeat cause it doesnt seem to be sinking in…
“It’s not the money Stupid! It is that people do not make enough to pay for the over-priced houses.”
Ya’ll will like this
http://www.minyanville.com/articles/bernanke-ron+paul-testimony-wall-street-america-dollar/index/a/14185
I saw this. I’m very close to voting for Ron Paul. I just have a few concerns.
I’d vote for him too but he’ll pull votes away from the Republicans, and that’s not a good thing. He could put Hillary in the White House like Ralph Nader put Bush in. Something to think about.
Not a Hillary fan, but pulling votes away from some of the Republicans out there doesn’t sound like too bad of an idea, given their overall performance during the last 6 years.
An interesting article!
http://www.minyanville.com/articles/bank-loans-housing+reforms-arms/index/a/14146
I’m glad to see so many people here reading Minyanville now. It is head and shoulders the best information available for non-institutional prices. They have more stock bulls on there now than I would like
but it’s a small price to pay in annoyance for the rest of the super commentary.
“‘Yeah, people are out of work, people are going to lose their homes. But it’s going to turn around,’ the president of Home Builders Research said. ‘I hope we’ll be talking about this as an educational experience two or three years from now.’”
Whoa. How cavalier. I’m thinking he needs a stick in the eye from one of those people out of work and out of a house.
Man, how quick the rats hit the deck running.
It’s like the soul of David Lereah has come back as the president of Home Builders Research.
He sounds like a major douch*bag, that’ for sure.
OT. In this morning’s hearing, Paulson commented as such:
He noted that 50 percent of foreclosures occur without borrowers ever talking to their lenders, and said that he has gotten reports that lenders have tried to reach distressed borrowers to work out more affordable loan terms. “Yet those calls rarely get returned,” he said.
Duh. The main reason for non returned calls was they are mostly fraud on first payment defaults. Those owners are somewhere in the paradise enjoying the money.
” He (Paulson) noted that 50 percent of foreclosures occur without borrowers ever talking to their lenders, and said that he has gotten reports that lenders have tried to reach distressed borrowers to work out more affordable loan terms. “Yet those calls rarely get returned,” he said.”
Folks are subprime for a reason. Once a house is worth 10%, 15%, 20% less than what they paid for it, the keys will be left on the granite countertops faster than you can say “foreclosure.”
test
Really, how would he know if 50% of foreclosures occur without borrowers ever talking to their lenders? Oh, he’s gotten reports. BS. This is the sort of crap that the bankstas used to get their little bankruptcy law amendment package passed in Congress. Why, those horrible deadbeats out there. We screwed ‘em and they don’t wanna play our game. We’re now offering a little warm vaseline along with the screwing and they STILL don’t wanna play.
Remember how the bankstas got up on their hind legs about the fiscal irresponsibility of “the people”? Who the hell do you think is setting the example? Hand me a vomit bag.
LOL!!!!!!!!!!! I swear I didn’t write this but how many times have I said this was going to happen?
http://dallas.craigslist.org/com/427316980.html
Tx,
You should become freinds with them under the guise of being a San Fran liberal. Go out to dinner a few times, have them over. Then go camping (one of their listed pastimes), and after it gets dark and you’re all around the campfire telling ghost stories, tell them you have something very horrible to reveal about yourself…
.
.
.
.
.
“I’M REALLY A TEXAN!!! YEHAAAA!”
They will probably turn as white as sheets and run off into the woods screaming, never to be seen again.
I didn’t realize aladinsane had moved to Texas.
Rumors of my move to Dime Box, Texas…
Can be neither confirmed, or denied.
Hilarious. Friends in Redondo Beach moved to Houston a few years ago because they could buy what we in California consider a mansion. They lasted six months. Not trying to put down Texas, but it IS a different world if you grew up here.
Whoa! Now that’s a cry of distress. And I would expect the marriage is heading south too.
Ahahaha, I’d rather rent in Heaven than own in Hell.
Hmmm, I think a remake of “Straw Dogs” is in order, starring Toby McGuire as the mild-mannered San Francisco transplant to Fort Worth….
Sigh, I wish they felt the same about Colorado and Coloradans!!!
test
Wooden Daggers come in all sizes and guises…
Goodbye Vampire City
“‘Some people with homes in escrow right now will see their mortgage commitments disappear if they can’t close quickly. This is really going to hit our tip earners in Las Vegas the hardest. Everyone knows their income isn’t easy to verify,’ Camacho said.”