A Different Kind Of Demand
The Palm Beach Post reports from Florida. “The buyers’ remorse crowd keeps growing. Pre-construction buyers of the luxurious 2700 North Ocean Boulevard condominium being built on Singer Island…are making last-minute attempts to undo their million-dollar purchases just as the condo nears completion and closings are on the horizon. High-profile developer Dan Catalfumo is disinclined to let anyone out of the deal.”
“‘Bring it on,’ Catalfumo said in an interview last week. ‘I’ll see them at closing. They’re not getting out.’”
The Sun Sentinel from Florida. “Levitt and Sons of Fort Lauderdale became the nation’s largest builder to file for bankruptcy as the housing market continues to crumble. The storied company filed for Chapter 11 protection from its creditors in U.S. Bankruptcy Court in Broward County. It lists assets of less than $1 million and debts of more than $100 million.”
“Angelo Palermo is renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. He isn’t optimistic about recovering his $38,000 deposit.”
“‘My attorney told me it looked like they were going to go into bankruptcy,’ Palermo said. ‘But if they go into bankruptcy, I’m at the bottom of the list for collecting money.’”
“Three years ago, home builders held lotteries to deal with hordes of people, mostly short-term investors, overwhelming their sales centers. Today, with housing markets crashing, builders practically beg for buyers.”
“‘During the boom, you were developing strategies to manage demand,’ said Jill DiDonna, a VP of Sunrise-based GL Homes. ‘Now your whole modus operandi is trying to stimulate demand. It’s come 180 degrees.’”
“Q: Can builders afford to keep offering deep discounts?”
“A: Buyers’ psychology today is that they expect to get good deals. We just sold 40 homes in Vero Beach. We knocked anywhere from $60,000 to $100,000 off the price of the homes. If a house is selling for $300,000, and it cost you $250,000 to build, and you have to sell it for $225,000, at least you have some cash flow coming in. Something is better than nothing.”
From Florida Today. “Mortgage foreclosure filings in Brevard County reached a new monthly record, with 590 in October, according to the Brevard County Clerk of Courts, which records foreclosure cases.”
“The deluge brought the total for this year to 3,908 filings from January through October, more than double the 1,868 filings in all of last year, and more than triple the 1,144 filings in all of 2005, data from the Clerk of Courts office shows.”
“Ritch Workman, president of the Florida Association of Mortgage Brokers said the past housing price increases represented ‘unsustainable growth.’”
The News Journal from Florida. “The inventory of unsold homes in the Escambia-Santa Rosa area remains at record highs. As of Nov. 1, there were some 10,000 dwellings for sale, counting all single-family houses, condos and townhomes on the two-county MLS and those for sale by owner.”
“‘What we’re looking at is a huge inventory that’s unprecedented for this area,’ said Al Muller, president of Metro Market Trends. ‘There are fewer buyers in the market, the speculators and investors are gone and people with poor credit are not buying. This tells me is that prices need to keep heading down.’”
The St Petersburg Times. “Mark Kowalick always knew that if he didn’t like where he was working, he could drive down the street near his New Port Richey neighborhood and find another job. At 39, he has been pouring concrete about half his life. It’s what he does.”
“Or used to do. He has been laid off for nearly a year, a victim of the housing slump. And there’s nothing down the street anymore.”
“It’s so bad, Kowalick said, that pawn shops have stopped buying the tools contractors use because they’re overstocked, and some of his friends have been forced to sell their most prized possession: their pickup trucks.”
“‘Nobody talks about what’s happening to us,’ he said. ‘It’s unbelievable that I’m reduced to this. I used to own my own concrete business.’”
“On Wednesday, Kowalick applied for a job that is housing-related, sort of, as a cook at a local International House of Pancakes.”
“‘This is the first time since I was 12 that I haven’t worked,’ he said. ‘Five years ago I could quit this morning and have job this afternoon. Now I don’t even know anybody who’s pouring concrete.’”
The Naples News from Florida. “At a time when a high county assessment of a home’s ‘market value’ can seem like rude contrast to the trends in the region’s real estate market, property owners have sent in a record 3,727 property value petitions.”
“Frustration with the sagging market is one explanation Lee County Property Appraiser Ken Wilkinson has for why there has been a spike in the number of challenges to his office’s work this year.”
“‘It’s true the values are continuing to go down,’ Wilkinson said, adding he’s seeing the steepest decline in the prices of vacant lots in the county.”
“Bonita Springs resident Rhea Corrion made the trip to Fort Myers last month. In the county’s view, the vacant lot she and her husband own in the city’s downtown was worth more than $149,000. She doesn’t dispute that’s what many would like the land to be worth, she sees other lots listed for about that price.”
“‘But they’re not selling,’ she said. ‘The values should go up a little bit, not 81 percent.’”
The News Press from Florida. “Despite reduced tax rates, John Van Voorhis’ 2007 taxes increased 4 percent because his property assessments spiked when speculators bought nearby property at high prices. The 2007 assessed value of his first duplex increased by 37 percent to $334,230; his second duplex’s fell 0.8 percent to $283,300; and his third duplex’s rose by 14 percent to $241,820.”
“He said the property appraiser is not taking into account those speculators are trying to resell their property at lower prices than his assessed values. ‘Now you tell me my assessment is fair market value,’ he said.”
“George Khoury bought a house in Fort Myers four years ago to escape Toronto winters. After seeing his 2007 property tax bill, he’s contemplating fleeing Florida. His taxes shot up 40 percent from last year, mainly because his assessment increased 47 percent, from $440,540 in 2006 to $647,380.”
“If his assessment doesn’t go down, he will try to sell his house and leave. ‘We’ll go to Arizona or South Carolina. There’s absolutely no reason to take this kind of abuse,’ Khoury said. ‘If I pass this around in Canada to the other Canadians who come down to Florida, it’s going to scare the living daylights out of them.’”
“Mary Middleton’s been a real estate agent for 21 years, five years before becoming a licensed appraiser. A Fort Myers native , Middleton from her south Fort Myers home and has a staff of two other appraisers. It was late 2006 when the plunging residential market began to be felt at Middleton Appraisal, she said.”
“‘I’ve been doing this for 16 years and this year’s the worst in all of those years,’ Middleton said. ‘That’s because the schools were turning them out, 70 appraisers a week, so the market was flooded on top of that.’”
“Middleton believes appraisers who grossly inflated the value of homes they examined during the residential real estate explosion have given the profession a black eye. ‘We’re supposed to be protecting the lender, but I always say I’m here to protect the buyer,’ she said. ‘Let’s say you’re buying a house for $350,000, but it was really only worth $300.000. Wouldn’t you be angry?’”
“Q: Why are appraisals receiving some of the blame for the prevalence of upside down loans?”
“A: Ultimately I think it’s the lender. For instance, let’s say the sales price was $300,000 and let’s say the mortgage broker said can we get $360,000 because they don’t want to have to put any money down. There were appraisers that could find that (additional value) and on top of that, there were lenders that accepted it. Even though the sales price was $300,000, they would still accept a sales price of $360,000.”
“A house on paper, that’s not built yet, these appraisers knowingly would use a home that’s worth $50,000 more as a comp (comparison) instead of homes of equal value. So that’s how they would get their values and we didn’t to do that. We would just say we can’t do that. So they, of course, made a lot more money, while we complained.”
“It’s the underwriters, the lenders. That was criminal for those lenders and underwriters, but they wanted those loans because they wanted to pass them off and make money from the secondary market.”
“It does bug me when they blame the appraiser. But every lender has a blacklist of appraisers. Do you think they turn them in to the state? No way. They just don’t use their appraisals anymore.”
The Beaufort Gazette from South Carolina. “Beekman Webb put a classified advertisement in the newspaper a couple of weeks ago for a carpenter’s assistant and ‘had about 50 calls in three days.’”
“‘I was just covered up, and I was the only ad in the paper at the time looking for carpentry help,’ said Webb, who has his own Beaufort-based construction company. ‘I had people from Hilton Head (Island) that told me they’d been in business for 15 years with a bunch of employees and now they’re just looking for a job as a carpenter,’ he said.”
The Post & Courier from South Carolina. “Margaret and Warren Ostergard are ready to try something different. Their three-bedroom, upscale townhouse at The Albemarle in West Ashley, listed at $594,900, hasn’t attracted much interest since it was put on the market a year ago.”
“But the Ostergards, who work for Weichert Realtors-Dean-Kelby in Mount Pleasant, say being flexible and open to a different kind of transaction — a lease-option contract — could help them catch a buyer’s eye.”
“The fallout from today’s real estate slowdown has opened a gap between buyers and sellers.”
“Mortgage lenders have tightened their standards, cutting a portion of aspiring but riskier homebuyers out of the market because of their less-than-perfect credit scores. At the other end, many homeowners have had trouble selling their houses, leaving some with second-mortgage payments for other properties — some of them far from Charleston.”
“For some buyers and sellers, one solution is a contract known in industry parlance as a ‘lease to purchase option’ agreement.”
“The lease-option concept is a by-product of the boom years, when speculative investors acquired options to buy homes, waited for real estate values to appreciate and sold their options for a profit, said Rachel Lindsay, CEO of P&L Management Properties in Summerville.”
“Since then, she said, the idea ‘has been plagiarized and altered to meet a different kind of demand.’”
‘On Wednesday, Kowalick applied for a job that is housing-related, sort of, as a cook at a local International House of Pancakes.’
One of the reasons I started this blog (never even thinking the public would see it) was the memory of what happened in the Texas RE bust. Grown men with families were reduced to fighting for newspaper delivery jobs (yes, 5 applicants to each job that had been done by 12 year olds before) to try and bring in $20 a day. And to those out there who post how ‘we got this coming’ and how great this will be, try looking these people without a job in the eye and say that.
And for the main-street media here today, consider that as Mr Kowalick tries to find a way to feed his family this morning, Alan Greenspan is sitting down to his breakfest feast, waited on, limo outside to take him to his $75,000 speaking engagement. The housing bubble is not an academic issue. I wonder what you should report on today?
Testify, Ben! I am sick of this whole “we got this coming” stuff myself. Lots of people who didn’t participate in the bubble fun and games are going to be hurting. We have one poster in particular on here who sounds like he’s positively drooling over the prospect. I’ll chip in to buy him a lead bib.
No, “we” don’t “got” this coming. But we’re going to have to live with it and help do something about it.
You mean to tell me we should hold accountable those responsible for this mess and not blame J6Pack? /sarcasm off
In the “Dumbass Ranch” thread, I said I entirely blame WS for engineering and profiting from this mess. You have to remember that most people are not economic and market wonks like us and actually devote their mental energy to going to work every day, schlepping their kids around, etc. It’s not my choice of lifestyle but I can understand how someone could fall into the trap of thinking this bubble was real.
What I can’t stand is the cynicism inherent in the creation of this bubble and the obscene profits diverted to a very small group of players. I know people here probably roll their eyes when I go off on another hedge fund tangent but look at the evidence: dumping a $6M NY apartment for a $20M one after last years bonuses, 72M paintings, and other trappings of ridiculous amounts of money with nowhere to spend it. Even I got a solicitation last week from a “private aircraft” vendor! I had to laugh!
You notice that truly wealthy people like Gates and Buffett are giving a lot of their money away. This is the right way to handle wealth.
Okay, I’ll stop now. You get the idea.
So the question bears asking; Without the housing stupidity, what kind of economy have we had for the last 6 years?
I didn’t roll my eyes. Keep ranting. When you are right, you can rant all you want.
I know this makes me a capitalist pig, but I’d much prefer Gates and Buffet create jobs with that money instead of giving it away. Buffet won’t even give his kids money because he knows it will “enable” them, and prevent them from reaching their potential. I honestly believe that if we gave jobs to people even if those jobs were at a slight net loss, or break even we would be doing them a world better than a handout. Yes feed the starving in Africa, but make sure they have something productive to do with their day where they can look back and say “Hey I built that, I am worth something!”.
I’m actually going to try and start getting involved in the micro-loan business to people in Africa. I’m sure I’ll get ripped off some, but I won’t loan more than I would be willing to give anyways. I would like to know that I have created wealth and hope where there was none rather than just filling a tummy for the day.
Hopefully they are doing this and I just haven’t heard about it from said “mainstream media”.
I hope you have a strong stomach for feel good psychobabble. I’ve had some involvement in microfinance which included witnessing a bunch of very rich Dallas women weeping over the plight of the downtrodden in the third world and then going to the shops and spas to indulge themselves. This was in Vail
Maybe we need a new WPA program financed by the uber rich. The infrastructure is crumbling and it seems we have a lot of construction folks available. The unemployment numbers are such a sham - there are so many others that have maxed out of unemployment or aren’t counted to begin with. Gates, Buffett and Turner are at least trying to do something for the poor and sick.
Why go all the way to Africa to microfinance?
The way things are going, Africa will be microfinancing us.
LOL. That thought crossed my mind too. Maybe microfinance would work in Mississippi.
Without sarcasm, yes, we should hold accountable those responsible for this mess, of which Greedscam is one. One of the things forgotten here is that “J6Pack” does most of the working and taxpaying in this country and what does “he” get for it? He gets laid off, kicked around and treated with contempt. “J6Pack” has been taught from an early age that such as Greedscam and daBoyz are his betters and so sometimes he tries to grab for the gold ring they hold out to him, only to find out it is brass.
Frankly, I’m sick of the contempt displayed for the average American by Congress, the administration, daBoyz, lobbyists, developers, brokers, foreign parasites, etc. Not too long ago, a person could trust his neighbor and get good advice from more successful people. Now, the more “successful” rub their hands gleefully over the scams they perpetrate. Some people may deserve to get taken, but there will be lots of collateral damage.
No one’s immune. Any one of us could see their investments and savings disappear overnight, if banks and financial institutions shut down. Oh, but I have metals stored away, you say. Really? If things get bad, don’t go flashing any of that around, because you just might get followed home by someone who wants what you’ve got. Got food stored away? Well, eat sparingly and don’t call attention to it, because some hungry neighbor might be wondering where his next meal is coming from.
The point is: sure people were greedy and stupid, no argument there, but if they vehicles for them to be greedy and stupid had not been provided by even greedier types, there would have been no opportunity to indulge these impulses.
I actually think you could see a repeat of this in some other basic necessity of life - water maybe.
“I actually think you could see a repeat of this in some other basic necessity of life - water maybe.”
Maybe. The day that happens is the day palmetto goes Skink (ref. Carl Hiaasen character Clinton Tyree) on developers and daBoyz.
The housing bubble symbolizes how acceptably predatory our economic culture has become. Periodically there will be an expression of astonishment at how a mortgage broker lied and destroyed the solvency of a young family so that a $5,000 commission could be pocketed, but IMHO there are a surprising number of people who will sell you down the river for $100.
We need to stop glorifying celebrity and participating in it. We have a society with the only goal of being rich and ostentatious. We have girls growing up thinking their only value is their looks and desirability and boys that think the goal in life is to be a sports star or wall streeter. It’s hard to teach character if at the same time you’re pushing the kid to do well in school solely so they can make money later. There’s no love of learning, no learning from history, no real connections between people, no sense of helping those less fortunate. It’s the old every man for himself. Woke up with cold - rant off.
atc,
I couldn’t agree more. The best thing the people in this country could do is turn off the boob tube. Most of what’s on it is pure garbage. If enough people did it, all that crap would grind to a screeching halt.
The rich cats who caused this mess, and who benefitted from it, will not pay the price. They never have, and they never will. The Corp. executives who told their employees to loan to anyone who had a heartbeat, and who made millions in bonus’s will not lose their jobs. And the few CEO’s like Prince who are punished, will walk away from their jobs will 100s of millions. Don’t pity them.
We can’t force anyone to hold the right people accountable because the rich protect the rich. So, although I feel sorry for joe 6pack, the only way I can attain my dream of homeownership requires that joe 6pack suffer. I’m sorry its true, but there you have it.
Where was the regulation of these outfits? Where are the laws? Where is the OBLIGATION of our govt. to PROTECT people when entering lop-sided big dollar transactions? WHERE?
‘although I feel sorry for joe 6pack, the only way I can attain my dream of homeownership requires that joe 6pack suffer. I’m sorry its true, but there you have it.’
I am the first to stand up for letting markets correct, and I have papers published on the web stating that deflationary recessions, to the extent that they eliminate malinvestments, are a natural and neccesary thing.
But there are people out there right now, saying bubbles are a good thing!
And we had the one guy who said ‘bubbles just happen.’ Well, yeah, maybe every 2-300 years. Think about it; Japan had a stock and RE bubble. Then we do the same. And now the entire globe has a RE bubble and I think we need to get to the root of this problem and solve it. It’s terribly destabilizing.
I would like to start this Root Cause Analysis discussion by saying: It wasn’t my fault!
Well, maybe, but First Data had their hand in the internet bubble.
The root cause for all bubbles is of course speculation in a market where fundamentals do not support valuations in the given commodity or service. They generally start with a perceived shortage which drives up demand which is somehow widely publicized. This has been the case from the http://en.wikipedia.org/wiki/Tulip_mania until present.
What you are talking about with “solving” bubbles is an interesting point. How exactly do you stop a bubble and still allow economic freedom, and how do you stop a bubble without causing more damage to other markets in the process? That is some serious macro economic brain teasing. You can do price controls, but that seems to be a poor solution in almost every case I can find of it being used (gas lines, bread lines, toilet paper lines, etc). You can limit the supply of capital, but that generally applies to all markets, not just the target market.
Even when there is a public emergency and anti-gouging measures are taken it just leads to the first people who get to the store with the batteries/water/food buying everything and hoarding it so there will be no goods available to anyone for any price. If the stores are allowed to gouge it financially taps the people, but there are goods available to anyone who is willing to spend say 20 dollars a battery.
It seems to me that the best way to handle bubbles will have to change for the particular bubble at hand. With the housing bubble if the president and both leaders of the houses had stood before a microphone in agreement they could have warned the citizenry and kicked the leg out of the pro-bubble media. Of course that’s unlikely to happen because of policies in place to increase home ownership at all costs, and states getting more tax for higher home prices.
Personally I don’t think there will ever be a bubble stopped by anyone, and I think that’s why some people just shrug and say “bubbles happen.”
My assertion is this housing boom/bust was planned long ago beginning in 1998 with cap gains exemption boost. No friggin way did “free markets” play any role in this. Greed certainly did when the masses drank the Wall Street BS that real estate is a can’t lose “investment”.
How else is the govt. to renew housing stock in a hollow economy without speculative fervor?
I recall someone said “it’s the economy stupid” back in 1991.
“The rich cats who caused this mess, and who benefitted from it, will not pay the price. They never have, and they never will.”
Yeah that’s what the French nobility thought at the beginning of the French revolution. If people start starving all bets are off.
I don’t agree with your definition of the root cause.
‘I don’t think there will ever be a bubble stopped by anyone, and I think that’s why some people just shrug and say ‘bubbles happen.’
If something is prevented from happening, how could you know it has never happened? BTW, I am working on a chapter about bubble solutions, which is why I am thinking about it a lot these days.
“I am working on a chapter about bubble solutions, which is why I am thinking about it a lot these days.”
I’m a fan of education on this one. Why not? $$ and effort are put into anti-drug programs and safety programs for kids. Early, sensible financial education ought to be required in school, IMHO, as part of life skills. Some may say it should be taught at home. I call BS on that. Why do we send kids to school, after all? So that they can be educated to become employed so that they can support themselves financially, right? So wouldn’t it make sense to teach them some practical rules of the road? Wouldn’t it make sense to teach them that the likes of Greedscam and daBoyz are the financial equivalent of the perverts standing on the edge of the playground with nothing on under their raincoats, going “Want some candy, children?”
Very interesting, I’m looking forward to reading it. I’m rereading the undercover economist now.
However, how do we know that the bubbles would have happened if they were cut off before they got going. Maybe they would have fizzled on their own like many bubbles surely do every year.
Growing up in the country we left most of our property as non-watered prairie grass most of the year, but on the 4th of July we would always saturate the surrounding area by the dirt road where city people would come out and pop fireworks. Can I honestly say that I prevented a fire for sure? Most of the time fireworks don’t start fires, but I was acting in a preventative manner. I think that’s where we are at with bubbles. We can act in a preventative manner, but we wouldn’t be able to 100 percent stop fires from starting without scalping everyones fields around me. That would be like limiting the monetary supply to the entire market to stop people from spending foolishly on housing.
By the way in the Texas panhandle law enforcement did actually start scalping everyones fields a couple years ago when we had the largest wildfire in Texas history, so I can say that global limitation of resources (fuel to the fire/money to the bubble) does work, but it can be heavy handed and cause greater problems in other areas. In the case I’m discussing how do the ranchers who had to scalp their fields feed their cattle?
Bubbles cannot be eliminated because they exist constantly. Prices rarely reflect precisely the costs of manufacturing, distribution, profit, etc. They fluctuate above and below this point. However the size of these bubbles are contained by the balance between greed and fear.
Larger bubbles form when the fear is mitigated. This is the effect of the Fed stepping in to cure the ‘87 crash, the dot com bubble, the banking crisis of ‘98, etc. They have removed the fear from the markets and enabled the greedy (or ignorant) to act recklessly.
Unfortunately, now it seems the Fed has enabled a bubble so huge, they have very limited means of resolving it.
There is a fair amount of evidence (drop me an email if you want specifics) from agent based simulations of markets that bubbles do ‘just happen’. A santa fe stock market simulation with agents programmed to act purely following a rational expectations strategy, produced bubbles. So it may well be the price we pay for using markets to determine prices - my personal contention is that markets are beneficial economically, but not for the reasons we think they are.
That said, what we’re currently living through is more than just a normal bubble, and i think has been brought about by a confluence of events, some understood, some not, which resulted in the effective global money supply being increased far beyond the ability of the system to absorb it. Consequently as many here have said, what would have been a normal bubble is trending for something much worse. Far too much monetary leverage has been introduced into the system, from diverse sources including stock option printing, hedge funds, equity removal, at the same time as money supply was generally increasing - simply because the speed of circulation of money increased as electronic communication dropped communication latencies across the whole system.
I like the idea that some unknown organisation did all this deliberately. It would be nice to live in a world where any group of people could be that competent.
At some point people WILL go balistic. It’ll be quite the sight to see when 6 million really pissed off people start marching on Washington and Wall Street and physically removing people from political office and the corner office with vigilante style trials.
‘I like the idea that some unknown organization did all this deliberately. It would be nice to live in a world where any group of people could be that competent.’
Great insight. We all try to find patterns in the static, it’s human nature to not accept that we are inherently affected by things out of our control.
Mr. Warlock: you just about described my favorite tinfoil hat Truman Show scenario. It also involves such players as Michael Jordan and Britney Spears but I’ll save that for a weekend
Bubbles happen all the time as prices go up and down and the market tries to price items. Considering all value is relative as there is no such thing as a unit of value, the biggest bubbles occur when the value of money is not appreciated. The value of money is directly related to interest rates and interest rates in a free market are a function of societies available savings. The big bubbles we have today are caused by artificial interest rates that have no correlation to the supply of savings.
Eliminate debt-based money and the printing of money and you will re-introduce the natural corrective forces that prevent bubbles from getting anywhere near as big as the great depression, 70’s stagflation, 90’s housing, 2000 dot-com and the 2005 housing/debt bubble.
Sure we had bubbles and recessions in the past and speculation (gold rush), but none of these speculative bubbles were big enough to bring down the world economy.
Ron Paul understands this, we need to support him every way we can.
Yeah that’s what the French nobility thought at the beginning of the French revolution. If people start starving all bets are off.
Correct. The uber rich don’t get it until they are facing a firing squad. Only then do the realize that they went too far.
“Ron Paul understands this, we need to support him every way we can.”
I have been life-long conservative Democrat (I’m 29). And no, that is not an oxymoron. I am fiscally conservative, but socially more liberal. After reading Ron Paul’s campaign website, he’s the first Rebublican I have ever seriously considered voting for. Except for our differences on the 2nd Amendment and some social issues, I agree with him.
When I read his views on monetary policy I wondered, “Why doesn’t this guy have a better shot of being the Republican front runner?” Don’t get me wrong. Terrorism and Iraq are important, but when our federal balance sheet looks like that of a developing nation heading for collapse, I wonder why the people who want to be President don’t talk about it more often.
I have to thank whomever posted the link to the the Money Masters on Google video. After I watched it, I started think more deeply on where our country is really headed and why.
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“So the question bears asking; Without the housing stupidity, what kind of economy have we had for the last 6 years?”
The economy would have never fully recovered from the 2001 recession and we would have been in Japanese-style depression. But, delaying the depression at an idiotic cost has laid the foundation for the Greater Depression. There is no way to avoid it.
“Lots of people who didn’t participate in the bubble fun and games are going to be hurting.”
Welcome to America! The govt., including the Fed, will intervene only on behalf of the crooks at the very top and the irresponsible part of the population.
Now, a simple question arises: Who are paying the price for the govt. intervention?
The law-abiding and responsible part of the middle-class.
The war on middle-class is on! It will be reduced from 50-60% to 10-20%. The number of unemployed, including those who stop looking for a job, would be 40-50M within the next 4 years.
Jas
if you’re not a fed gov worker , you are taking a hit. period
I totally agree. That aspect of the your post really made me wince.
I had a flashback reading that. I remember friends of the family taking paper routes 25 years ago. I hate to dwell on it but it is very depressing. We will also see a rise in alcoholism and domestic violence. Will CNBC, and the other big business shills, report on that? Thought not!
I was in Pittsburgh during the 1980s. Speaking of depression, that was a city that was just full of it. Not to mention high rates of alcoholism, divorce, drug abuse, domestic violence, you name it.
At one point, after several years of slugging it out in crapjobs because that was all that was available, even for college grads like me, I sought treatment for depression. The guy who did the intake said that I had low self esteem.
Well, duh. I would have liked to have seen HIS what his self esteem would be like after several years of underemployment.
May be a farfetched analogy, but this particular Bubble is like the wildfire situation in the West. We’ve been tamping down natural fires for the past 100 years, and ignoring the dangers of building in fire zones in the midst of a record drought, so when fires do happen, they are monster fires that feed on extraordinary amounts of fuel. So, yes, Bubbles will happen during the course of an economic cycle, but now, because of a confluence of stakeholder interests which artificially tamp down natural market adjustments, we get a Mega Bubble.
Some people have it coming. Not everyone that has it coming will get hit. MANY, many who get hit have not done anything to deserve it.
A month ago or so, a new Vegas casino got 50,000 applicants for 425 jobs…
1 out of 117 could expect to get hired on.
I posted months ago about seeing the pain first hand. I specialize in foreclosure appraisals and have since the early 90’s. The usual caseload for HUD in my 7 counties was about 130 a month. In about 2003 the cases dropped off a cliff. The specuvestors were all in and climbing. HUD disappeared. Now this was a scenario never seen before. HUD always had a lot of borrowers as so many people had poor credit and no money. This was HUD’s niche.
We began to see amazing increases in sales prices but they were funded through the mainstream. We could not understand what was going on. Banks were loathe to lend in these areas.
I began to meet people who told me about this new lending frenzy that acted like HUD. HUD always had a 5-7% foreclosure rate but they went through peoples records pretty carefully and alot of people got turned down as they NEVER paid down their loans. I asked HUD how many buyers were we talking and they estimated 20% of the people who applied to HUD were “no pay, no way, types”. These people were turned down outright.
I asked HUD if they kept a database of these deadbeats and they said no as that would be discrimination. Imagine that!
HUD began a program of counseling to help people work out their issues. A huge BUST! It only delayed the foreclosure and put the physical house in worse shape. Believe me these places are a sight to behold once vacated.
IN the HUD areas, and there are those here, values actually began to decline as HUD had so many foreclosures pending but not done due to this counseling. Foreclosure was, in the end, a good thing as it got the housing back into the black and pride of ownership was evident for these worn down properties.
Here is the rub. I ran values in a couple of areas we worked for HUD in 2002-2003 and the mean price of housing was $78k. This is a 3/2 with a 2 car garage having about 1200 sf. A basic box.
At the height of the boom this same house ran up to $195,000 and is now down to about $160,000. HUD is now the only lender again. Incomes have not changed but buying power is down and a lot of these people worked in the construction industry.
Based on my calculations we have a long way to go to the bottom. Resets will hit the supercharger on these properties in the downward spiral next year and walkaways will go through the roof.
I must again tell you guys how sad it makes me to go through these houses. I know people are and can be idiots but this takes on a different feel when you walk through an empty house with balloons on the walls and the height of each kid etched on a doorjam. I have a plaque in my house that was left behind by a family. It speaks of life as not so much about the arrival in the station but enjoying the journey. It is a simple statement and one worth understanding. It saddened me that they left it on the wall as I felt that the journey was not being enjoyed but escape was the only thing left for them.
I fret not for the speculator but I do feel for the people who are in these neighborhoods, who thought that the dream of a lifetime had arrived through appreciation. Paper as it was, it gave them hope. Some, but far from all, got their paper equity and pulled it out. Maybe it was for braces for Suzi, or medical insurance or for clothing. I doubt that all that many blew the money. Some needed it and had delayed some of the basics. This was their chance to live a little and improve their lot in life a bit. Noone, save here, saw this coming. The average Joe just doesn’t have the ability to discern a dream from reality in these climes. Most are just plain folks working to make it everyday. I am sure a lot of us grew up in such homes.
They have neither the education nor the time to spend hours a day or a week analyzing the monetary trends. Their mode of operation is discussion around a lunchroom table. This is their database. “Look what Ginny and her husband did.” “It must make sense as she is my supervisor.” I know this is silly but this is the world of many people.
Did they get caught up in a bad deal? Oh yeah. Are they totally responsible for their plight. I am not so sure. They were hammered daily with Ditech, and the like, about how low their payments would be.
Would they have jumped out there if the commercials had said, “Oh by the way your payments will double in a year or two.” INstead of braces you will need another job and hopefully not lose the one you currently hold.”
When you buy a house there must be full disclosure down to the possible existence of ghosts. Yet a mortgage broker can gloss over the fine details and saddle you with a lifetime of hell.
Talk to a plumber about the financial tables and time value of money and resets and his eyes will glaze over as though he was victim to a brain shot.
This is clearly a case of big business screwing the little guy. When you are bent over a barrel it is hard to see what is coming up behind you.
I am not advocating anything here. Hell, I just don’t know how this will play out but being in these places everyday creeps me out. There but for the grace of God go I, runs through my head. I also wonder if it could happen to me in any event. Is it too late? Are we destined to go into a full depression? Could these people decide to take rather than wait? Could people end up in the streets like the war protestors? Anarchy?
There are no models for me to address. There is history but they are all predicated upon societies easily controlled. I suggest there are more guns in pickups than in Mercedes and there are sure as hell a lot more pickups.
I read Washington and the financial pundits as not so much putting on a happy face for gain but for control at this point. I think there is “REAL” fear about the masses if this thing gets out of control. Better to make us work harder in an inflationary economy than have hundreds of thousands sitting around cleaning their guns.
“I think there is “REAL” fear about the masses if this thing gets out of control.”
A most excellent write up DD. But the above sentence strikes the most. The CrimeSyndicate should be afraid. The masses have been lied to, robbed blind, decieved and then had their jobs yanked. But this is nothing new. It’s been going on since 1981 with little in the way of resistance from the masses. The robber barons have accelerated their theft dramatically in the last 6 years, all the while delaying/debating and creating subterfuge instead of providing leadership to solve REAL problems. Angry denial as a means to defend these criminals ain’t gonna work folks. The jig is nearing the end…. The tune is up…..
Payback is a b!tch.
Great write up. None of us know how this will work itself out.
I know prices will come crashing down. I know that the economy based on comsumers spending 110% of their paycheck through debt generation will crash. Will the debt be inflated away? Will the rabble eise up against the barrons? Will I lose my job and my house? By the time they get to me, there will be so many empty houses and so many homeless people that they would not be able to keep us from squatting.
Is this the “Fight Club” moment.
“Our generation has had no Great Depression, no Great War. Our war is spiritual. Our depression is our lives.”
Is this the time where our generation gets a real depression? Will it give meaning to our lives, or will it lead to a real great war?
And, during these boom times, why was life so depressing. Study after study has shown that it is not what you have in life that determines happiness (assuming basic needs are met). The happiness of a society, and the happiness of a person within the society is the station of people within the society. When the middle-class is constantly bombarded with the messgae that if you are middle class, you can’t possibly be happy, then the middle class is not happy becuase the station of being middle-class has been turned into a lowly station in life.
All the asperational advertising intended to drive corporate profitabitability has resulted in a nation of unhappy people, uncontent with their stuff, hating their jobs, envious of thsoe that have more, convinced they can’t be happy unless they have the stuff that the advertisers convince them they must have….
But what happens when it comes crashing down? Do people become happy, or do they go to war with those that have made them so unhappy?
It’s easy to obsess (I’m guilty!) about the annoying home equity-besotted carpetbaggers who lorded their fake consumerist lives upon those of us who value thrift and simple living. But as DimeDropped eloquently points out, there are so many more who’ve been just trying to eek out a living, and for a brief few years, this bubble represented hope beyond their limited means. Check out “Nickled & Dimed” by Barbara Ehrenreich for a different perspective on folks who may not have had the luxury of safety nets (stable familes, smarts, mental health) that allowed many of us to succeed.
Check out “Nickled & Dimed” by Barbara Ehrenreich for a different perspective on folks who may not have had the luxury of safety nets (stable familes, smarts, mental health) that allowed many of us to succeed.
Also check out her other book “Bait & Switched” which documents how corporate america is throwing their middle aged employees under the bus. The sheep skinned like to think that they are better off, but they really aren’t, as the only customer for their skills is corporate america. At least a plumber has marketable skills.
I read Washington and the financial pundits as not so much putting on a happy face for gain but for control at this point. I think there is “REAL” fear about the masses if this thing gets out of control. Better to make us work harder in an inflationary economy than have hundreds of thousands sitting around cleaning their guns.
I agree with you, but someone needs to send a memo to corporate america to tell them to give the employees real cost of living increases, otherwise the gun cleaning will begin in earnest. If they want to inflate out of this mess, then we need raises.
Spent 30 years or so with CalVet homeloans, and even in the best of times we had foreclosures on loans. $48 a month payments, and we would have to take the house away.
In the Great Depression, in San Francisco, people would come in to the office with the keys to the house on which they owed $1,750 because the could get a better one for $1,000 down the street.
some people never understand that you can not get out of debt by borrowing money and that has been what the lenders have been advocating. Refinance now and save money to get out of your debt.
Can’t be done!
Mainstream media has little interest in the whole truth.. they are only interested in the marketable parts of the truth. They are a business and must sell their product.
The parting shot will be something like:
“The recession has hit the station very hard and, sorry to say, this is our last broadcast. Thank you for your patronage.”
The viewers will stare and wonder.. what recession??
I think the signoff will be more along the lines of “Habla Espanol!”
Standard of our society…the rich get richer and the poor get poorer…as you stated their are many souls on Wall Street who got millions of dollars in bonuses for the housing market…while everyday people were just happy to have a job and get a paycheck…no different that when we say that the FB had it coming..well what about the 78 year old who refi his home into an exotic mortgage(which he really did not understand nor had that as a product during his days) to pay for his sick wife medical bills? Did he deserve to be screwed by a mortgage broker?
If you’re gonna be stupid, you’d better be tough.
I know this isn’t quite the correct version, but didn’t a John Wayne movie character say, “Life’s tough if you’re stupid.”
Education is the answer, but the old saw about a horse and water applies. I don’t think it’s possible to protect someone from his/her own stupidity.
I wouldn’t mind so much if the fatctats were going down at a comparable rate. I also believe it’s part of the divide and conquer plan - pit us all against each other - buyers vs. renters, generations, middle class vs. poor, etc. While we’re all busy blaming ourselves, the fat boys are raking it in. Alot of the investors are saps that believed the whole ownership society line and are your friends, family and neighbors. When you have the majority of folks suffering, it can’t end well for all of us except the uber rich.
Bullseye crazy…. You hear the blame in the language of the idealogues…. It goes something like this..
“American workers are lazy”, “Why are they striking, they make enough money as it is”, “We don’t need unions”, “why can’t american workers build cars like the japanese”, “if you’d only work a little harder, you’d be rich too”, “social security is broken”, “we have the best healthcare system in the world”, “illegals to the work lazy americans won’t”…. and the lies get repeated and repeated and repeated.
You also hear the term “class warfare”. There are few HBBs that use that has part of their blame language.
thank you for writing that. the gleeful comments about the pain coming due for this financial meltdown are unseemly. i recall the late 70s/early 80s with families living under bridge abutments; or out of storage facilities; or in the final act of desperation — murders and suicides of those seeing no way out.
i suspect some of those stories will be going public in the months to come.
Who’s been gleeful abou the coming disaster? A lot of posters here have been glad to see specuvesters bleed, but I can’t think of anyone here who has said they want common everyday people to get slammed.
?????
Since this thread has devolved into “who’s at fault” let me suggest our GOVERNMENT!
By trying to meddle in a free-market and making homes “affordable” with easy credit (Fannie and Ginnie) and mortgage interest deductions, they fanned the bubble.
And now, with raising the limit of “conforming” loans to $1M, they’re pouring gasoline on it.
Certainly, requiring any mortgage with any Federal support to meet traditional lending requirements (20% down, no more than 3.5* income) would have stopped this bubble in its tracks.
The only reason “securitized” high-risk loans could be sold so easily to the hedge fund guys was because of the government backup of the first 417K of each of them.
Also, don’t be so quick to blame “the rich”. While the “2 and 20″ crowd did get away with a lot (and should be taxed differently! You shouldn’t be able to pay capital gains tax alone on money you didn’t “risk”), don’t forget that the top 1% of wage earners pays 20% of taxes.
And most of the dumf*cks trying to flip condos, esp. on the low end, are in the “non-taxpaying class”. Basically, anyone who pays less than 20% of their total wages in taxes is a “lucky ducky”. Because there are SO MANY people like this in the US (40% of the population?) it’s hurting our democracy because they are the most important constituency. Politicians on both sides need their support, so the “taxpaying class” ends up paying more.
I should also mention that not requiring income tax on “forgiven debt” (including not counting the income to determine eligibility for AMT, and deduction phase-outs) is also fanning the flames.
Also, the exemption on capital gains when selling property should be limited to the rate of inflation for the period you held the property and no more. The original intent of this was to prevent someone who had a house for 40 years from paying “capital gains” on an amount that was basically static with inflation factored in. With people making 200K in a few months during the height of the boom, this deduction was being used outside of its original intent. (By and large, any “tax deduction” is dangerous and has unintended consequences).
They weren’t trying to make housing “afforadable,” they were trying to sell loans to any breathing body in order to make profits and commissions. They could have cared less about helping poor or middle class own homes. The tax rate of workers is about 30% while investment taxes are only around 15% - fair? not so much.
Oh please.
Corporate America runs America. We don’t have capitalism, but rather crony capitalism. When you have people who run our government stating ‘Gov’t is the problem’, is it any wonder they don’t know how to run a government?
“Certainly, requiring any mortgage with any Federal support to meet traditional lending requirements (20% down, no more than 3.5* income) would have stopped this bubble in its tracks.”
You are absolutely correct. The reason this bubble got out of control was because ‘the rich’ aka, the Republic party, defunded the enforcement mechanism. Until we have a government that enforces the rules against the big boys as well as against us, we get the government we deserve.
The people who should be held accountable are often let go with a multi million dollar severence package or remain active in their positions while those in lower positions are let go.. Those at the bottom of the rung are forced to find a job, any job because they lack skills that are marketable across many industries.
It is the ones at the bottom who suffer the most because of fraud, unethical business activity or outright criminal activity by the handful at the top of the ladder. One would think that we would have learned a lesson from the dot com bust where thousands of highly educated professionals lost their jobs. Let’s not forget about those who lost their jobs due to jobs being exported to low wage countries such as India and China. These people are having a difficult time living on the low wage jobs that replaced the higher wage manufacturing jobs.
It’s time for the American people to demand that ethical business conduct be restored back in America!
Appraiser Mary Middleton: “Let’s say you are buying a house for $350,000 and then found out it was only worth $300,000. Wouldn’t you be angry?” Answer: Yes, Mary - I would. However, I would be more pissed off if I bought a house for $500,000 and found out it’s only worth $250,000. Which is what will eventually happen by the time this mess is over.
That is already happening..there was a auction in Miami about 1 month ago where townhomes were auctioned at $150-160K…the original buyers paid $300-$350K. OUCH!
If they had taxed gains then they could count the losses as a tax write off. Why should someone be able to write off money lost in stocks but not money lost in housing? This one change would also solve the “debt forgiveness tax” because their extra income would be offset by the investment loss.
“It’s so bad, Kowalick said, that pawn shops have stopped buying the tools contractors use because they’re overstocked, and some of his friends have been forced to sell their most prized possession: their pickup trucks.”
“‘Nobody talks about what’s happening to us,’ he said. ‘It’s unbelievable that I’m reduced to this. I used to own my own concrete business.’”
In a broke America, who exactly is going to buy those nice 2 to 4 year old 4×4 pickup trucks, when the auto dealers stop buying them, because they are overstocked?
It will be me, perhaps i’ll have to pay $3k, maybe $4k tops for one, this time next year.
To make that worse, sellers of used trucks have to compete with crazy low prices on new ones. Met a man two weeks ago who bought a brand-new regular-bed Chevy pickup for $12,000 and change. It has roll-up windows, manual locks, no a/c — but it has an automatic transmission. It will be pretty painful to have to undercut prices like that.
Roll up windows manual locks what a novel idea……sorry i cant live without ac in the car, i live in a very sunny area, maybe thats why they called it sunnyside, and getting into a sunbaked car at 3 in the afternoon with no ac…well….i’m a wuss
Exactly Chip… I’m trying to dump a Jeep that I priced 30% below real book and have no buyers. It makes no sense to buy used.
Aladinsane:
Didn’t you write last week about there being tons of used vehicles laying around in six to nine mos.?
I sold off my car this weekend for about 30% less than the book (but it was pretty beat up) - and it’ll be bike and bus from here on out.
Cars will be the most valuable item that many people possess, and with gas heading towards $5 a gallon, that will only persuade more people to sell theirs…
It’s all about liquidity. Pawn shops in St. Pete have all decided they don’t need anymore specialized tools, that contractors use, because they found out there are no buyers.
It’s a bit of a vicious broken circle…
Maybe I’m wrong, but I told my kids this am that they should back off of paying down debt and start to save cash for a little while until they have a cushion. My reasoning is that as the dollar devalues, they can pay back with cheaper dollars. Also, being debt free, with no savings is not a good strategy for the coming months. I know in the long run they should pay off debt (student loans mostly), but in the near future, having cash to pay for necessities is more important. Did I do them wrong with this advice?
Did I do them wrong with this advice?
Depends on how fast their debt is compounding. If they’re paying 4% interest on a student loan, not much worry. If they are paying 18% on a credit card, that’s not so good.
Ben has touched on the following subject previously, but I’d like to follow up.
“Mortgage foreclosure filings in Brevard County reached a new monthly record, with 590 in October, according to the Brevard County Clerk of Courts, which records foreclosure cases.”
“The deluge brought the total for this year to 3,908 filings from January through October, more than double the 1,868 filings in all of last year, and more than triple the 1,144 filings in all of 2005, data from the Clerk of Courts office shows.”
Lol, monthly record??? 590?? 3,908 in 10 months?? Deluge??? Gimme a break. These are INSANELY low numbers, folks.
As I posted over the weekend, 1 county in the Detroit area currently is running at a pace of 1,000 a WEEK, not even including the other 5 counties. Granted, things have sucked here for a while, still is there any reason to think that places like Florida and California won’t go through something similar, given their much greater populations??
And what will happen in those areas if NOD’s run in the thousands monthly, or even weekly??
That number, 590, is significant when you compare it with 442 residential sales in the county in the same period. The actual number is probably higher than 442 when private sales are included, but, 590 is not INSANELY low for Brevard County. It is INSANELY high.
How many people live in Broward County?? Thanks.
The 590 filings for BREVARD county is significant; Brevard county has about 550,000 people. It would not be significant for BROWARD county, which has about 1.8 million people.
I’m curious what keeps a person in a place, as dismal as Detroit?
Teenage kids that need their dad. Period.
Good for you Blano. I watched 2 hours worth of a “cops” type program on CourtTV over the weekend. That place is rough….
It certainly can be. Plenty of areas I won’t go into, and I’m over 6 feet and not exactly little.
Ironically though, the most gruesome murders/crime is occurring in the suburbs this year…spouse killings, murder/suicides, beheadings, kids attacked, etc. Detroit doesn’t have a lock on it by any means.
Comment by palmetto
2007-11-12 08:54:07
“For me you still can’t beat west Michigan in the summer. Lake Michigan in the summer is just like being on the coasts, only without the hurricanes, wildfires or droughts.”
Dang right, Blano. I’ve been giving some serious thought to actually moving up there. Winters would be tough, though. But there’s nothing like the spring, summer and fall in Michigan. Apples and cherry trees aplenty. Great place for water sports.
Comment by ET-Chicago
2007-11-12 11:26:34
I was in Michigan this weekend for a wedding in the Three Oaks area right over the border. Lovely. (Though Three Oaks has a bubble, too, thanks to Chicago-area folks.)
But I really, really love the Upper-Lower and Upper Peninsula areas of Michigan. Some of the most beautiful places in America are in Michigan, in my opinion. I’d like to move up there eventually if I can swing it (I’m OK with some winter).
Palmetto and ET-Chicago
Take some advice from someone who LIVES on the eastern shore of Lake Michigan about 4 hours north of Grand Rapids
DO NOT MOVE HERE UNLESS YOU HAVE ANOTHER SOURCE OF INCOME.
This is a tourist area which carries all kinds of implications for your budget.
(1) In a village of 350 people, the median listing price for houses right now is $428,000. Up the road 20 miles, the median listing price is over $600,000. And that is NOT on the Lake. And that is NOT on even an inner small lake. That is in the middle of a field. The local governments get by through taxing the hell out of real estate. Permanent residents get 50% but the rate is still $40 per $1000 of assessed value and assessed value is exactly what it sells for. And that $428,000 gets you a ½ acre lot with a 1500 –2000 sq ft house.
(2) Forget making money. The median household income of these areas which you admire so much range from $39,000 – 52,000. Less than 10% of the population have incomes over $75,000. IT types make $10-12 an hour. Bank staff make under $30,000. Small touristy businesses like souvenirs and galleries are folding left and right because tourists are coming less and spending less.
(3) If you waltz in here and pay more for a home than the median household could afford, you will have real problems being accepted by the community. Most of these small towns are still largely populated by the same families that have been here for years. They hugely resent those who come into the area and drive up prices by purchasing 2nd homes or ‘retirement’ homes. They don’t want a lot of 50-60 year olds moving here. They are losing their younger people because of housing costs. Unless you are of an age to join the volunteer fire department, you are considered a burden – unless you are willing to take part-time jobs in the tourist-oriented businesses.
They hugely resent those who come into the area and drive up prices by purchasing 2nd homes or ‘retirement’ homes. They don’t want a lot of 50-60 year olds moving here. They are losing their younger people because of housing costs.
_____________________________________
This is exactly what has happened to my home state of Vermont.
Hey AnnScott, I know people that grew up in the Upper-Lower, so I’m aware of those issues.
My favorite non-urban places in America tend to be tough places to make money, so I’ve never quite figured out how I’d make a living in those places.
Right now, I’m perfectly content where I am anyway.
No worries, Blano. Michigan is actually a great state and even if Detroit is having difficulties, it’s a city well worth reviving, IMHO. Once a great creative center of American music and of American manufacturing. The best resource of Michigan are the people.
Some years ago I traveled to Michigan for work. It was a real surprise to encounter so many nice people. Grand Rapids had some impressive early 20c sculptures carved into the buildings. (Can’t recall if they were govt. buildings or banks.)
Anyway, Blano, I’ve observed that living in a so-called “desirable” area doesn’t improve dismal people very much.
I have to admit that even though I plan to move on there’s certainly things to like here, especially outside the Detroit area, but that’s ’cause I’m still a country boy at heart.
For me you still can’t beat west Michigan in the summer. Lake Michigan in the summer is just like being on the coasts, only without the hurricanes, wildfires or droughts.
At the farm my family still leaves their doors unlocked at night, and when I go into town I don’t take the keys out of the car (old habits die hard). Something to be said for that, maybe.
phillygal, I have to totally agree with you about Grand Rapids. Amazing people and lovely surrounding areas.
Our farm is about an hour north of GR. Growing up that was the “big city,” lol. It was cool just to be able to pick up Detroit and Chicago radio stations.
“For me you still can’t beat west Michigan in the summer. Lake Michigan in the summer is just like being on the coasts, only without the hurricanes, wildfires or droughts.”
Dang right, Blano. I’ve been giving some serious thought to actually moving up there. Winters would be tough, though. But there’s nothing like the spring, summer and fall in Michigan. Apples and cherry trees aplenty. Great place for water sports.
Well Palmy I appreciated the invite to Florida, so I’m extending the same to you if you actually ever wanted to come this way and take a looksee.
Thanks, Blano, I’ve been thinking of travelling up that way during the summer.
I was in Michigan this weekend for a wedding in the Three Oaks area right over the border. Lovely. (Though Three Oaks has a bubble, too, thanks to Chicago-area folks.)
But I really, really love the Upper-Lower and Upper Peninsula areas of Michigan. Some of the most beautiful places in America are in Michigan, in my opinion. I’d like to move up there eventually if I can swing it (I’m OK with some winter).
I should mention that I like Detroit, too, but it’s just a little too over the edge for me in its current state to imagine living there full-time, as opposed to visiting.
It’s a city with a lot of potential, and I hope it reflowers again sometime down the road.
“‘Bring it on,’ Catalfumo said in an interview last week. ‘I’ll see them at closing. They’re not getting out.’”
I love this quote. There is nothing like a business that treats its customers as the enemy. Those businesses don’t tend to last so long. Good luck jerkoff.
funny quote. I think this greedy bastard is screwed. TO cost on a million dollars waterfront condo is insane. If you give me that condo for free, I would not take it. The insurance and taxes will be around $30K a year (can someone give a better estimate?). No thanks.
Carrying costs are gonna be the deciding factor in terms of ownership. Big square footage and big lots are in the cross hairs of the taxman.
That’s what keeps me at bay — even if I can afford the purchase price, the sum of condo fees and taxes is a deal-killer. Used to be that condos were an inexpensive alternative to SFRs in Florida — you could live in a very nice paid-off condo ten years ago for fees and taxes of about $375. Today, it can easily run $1,400.
Actually the cost of taxes would be around $20K and the cost of insurance around $16-18K..almost $40K and lets not forget HOA…
My thoughts exactly. If that developer somehow withstands this downturn, they won’t do so well when things start picking up again.
First of all GOOD LUCK getting a bank to give you a loan on the condo, second GOOD LUCK getting it appraised at $1Million…
Its guys like this ‘Catalfumo’ that we all would like to see suffering delivering papers. There is nothing sadistic about thinking this way - it it pure justice. Imagine Mozilo delivering your paper if you have trouble with the concept.
I don’t know where you guys are coming from on this one.
I’m on Catalfumo’s side.
He developed and built condos based on the CONTRACTS he had with the NEW owners. It was a business deal. They all agreed to it.
Now, obviously, the BUYERS want to back out, as they see their scheme to profit $100,000’s will not work out like they planned. They need to be held accountable. They are the enemy. They are trying to find any lame excuse to welch on their bets. I’m with the builder. He performed on the deal, and deserves to be paid. The weasels trying to back out should be taken for all they have.
I agree, too. Assuming he didn’t make any false statements to the buyers, they need to fulfill their end of the contract.
Our country would fall apart if you could back out of contracts!
I agree with you.
I feel that way too. I don’t think much of people like this developer, but when buyers thought it was “all good” they couldn’t wait to throw money at these guys. Trying to get out of these contracts is avoiding responsibility for your actions.
My only concern is they were putting down deposits on a condo with a sales price of say $1m, but now the condo is only worth 1/2 (just using made up numbers). The builder is not supplying what they bought so isn’t he breaking the contract to begin with? If the value had gone up, would he still be willing to sell if for the price he originally offered it for?
“I love this quote. There is nothing like a business that treats its customers as the enemy. Those businesses don’t tend to last so long. Good luck jerkoff.”
Testify, NYCityBoy, you are so right. This jerk deserves to be turning on a spit with an apple in his mouth. You’ve made a very good observation, which is that many businesses in real estate and finance seem to be treating their customers as enemies.
Of course, I just never understood pre-construction deposits. Too risky, IMHO, given today’s business climate. When irresponsible corporations can go out of business at the drop of a hat, why given them any money up front?
Palmetto — you raided the point I was thinking about when I read the article: how does anyone have a house built in this environment without risking the loss of big deposit bucks? My preference would be to escrow the money with a title company or other fiduciary, but I suspect builders may not be able to work with that. Especially since I’d be a cash buyer and don’t want a mortgage. Makes me wonder if I “can’t get there from here.”
Chip, I think you should go with your idea of building something for yourself when the time is right. Why get involved with a HOA these days?
I keep toying with the idea. Found a waterfront lot in Georgia that we like, but my wife is afraid of building, even though we can get the plans for a house that we thought was close enough to perfect. And like most places, GA is screwing around with their taxes, so the future of that is very uncertain this year. Come to think of it, with the drought so bad, I ought to drive back up there and see if it’s still waterfront.
BTW, been scouring listings regularly for the past couple of years. It seems that the 2007-built new houses are being listed at noticeably lower initial prices than the ones in 2006 or 2005 did. Not low enough, but refreshing that they’re headed down everywhere I look. 2008 should be pretty interesting. A friend of mine is worried that foreign investors will swoop in with their cheaper dollars, but I’m not overly worried. Who are they going to rent to, at positive cash flow? They forget that the rent will be in cheaper dollars, too.
If it’s on Lanier it’s not waterfront anymore…
Since I am from the Palm Beach County area I will fill you in on this bully. He has been arrested for beating the he!! out of several girlfriends. Always seems to get off. A real piece of work.
BP, it kind of figures, he sounds like that sort of guy. I remember during the late 1980s or early 1990s, some big time jerk developer in Miami offed his wife and hid the body. I think he was one of those hairy chest guys who wore their shirts open to the navel with gold chains and medallions hanging down.
You just described 1/2 of Miami-Dade!!
It seems to work OK for Best Buy to treat their customers as the enemy. But seriously, I wonder how this piece of excrement will force people to close when they can’t get approved for a loan anymore. I bet his greedy ass didn’t think of that when he conceived the idea.
BX - Blackstone reports a loss. Shares down almost 10%.
The president of Blackstone says they are going long on Subprime.
Did you see the Time Mag article I posted yesterday with an interview with Sam Zell? These people still think it’s contained and that they can buy in and make money on this stuff.
I read that Zell interview this morning and my gut reaction to it was that it was deliberate misinformation, stagecraft to mask what he really thinks while he prepares to make another couple billion off this mess.
Then again, every big player/gambler has their day at the table when their gut instinct fails them. Zell is, after all, trying to buy a newspaper company.
Yep…. till they lose their asses.
Well… There is one thing to keep in mind. So far Zell made no big mistakes in RE. This might be his first one but so far he has the results needed.
“Nobody can do what Countrywide can” - I just heard the commercial. That is really their slogan. Does that mean we can blame this whole thing on them?
Yeah the tan man is talking out of both sides of his mouth in the NYT piece. He claims he built the company, but the borrowers forced him to make the exotic loans.
“We knocked anywhere from $60,000 to $100,000 off the price of the homes. If a house is selling for $300,000, and it cost you $250,000 to build, and you have to sell it for $225,000, at least you have some cash flow coming in. ”
I have no feel for house cost. Here is GL Homes idea of a 300K house in Vero Beach.
http://www.glhomes.com/plan.aspx?id=43 ~2600 sq ft.
Does it look like it cost $250K to build?
LOL! I guess this is one of the guys who plans on making it up on volume.
“Does it look like it cost $250K to build?”
Depends mostly on the lot value. This looks like a stick (wood frame) house, versus the more desirable concrete block. The interior shots always include almost every high end option you can imagine — base price is plain-as-mud, berber, etc. My sense is that at the peak these builders were making comfortably more than 20% gross profit. If I really wanted a house like that (spec, already built) and the lot was nicely positioned, I’d offer $60/sq. ft. plus what I think the lot is worth in a very distressed market. For their Tiffany model, their largest, that works out to about $190K plus the lot and upgrades. But that’s just me/IMO. No idea whether the builder would laugh at you, shoot at you, cry, or grab the check.
Back in 2004-5 many Florida builders were making 50% proffit on homes, as long as it was land they had purchased pre-bubble.
GL homes are CBS. Very well built homes. I bought and lived in one from 2001 to 2004. If given the chance to move back to Florida, I’ld live in one again.
Florida is crammed with those things. The doors and “wood” trim are made of plastic, and the “architectural details” are made of styrofoam with stucco sprayed over it.
At least termites can’t eat the plastic!
Does not sound good for those home debtors who are formaldehyde challenged…
Canary in a goal mind?
. “Beekman Webb put a classified advertisement in the newspaper a couple of weeks ago for a carpenter’s assistant and ‘had about 50 calls in three days.’”
I think the canary has been suffering for awhile now:
http://www.simplyhired.com/a/jobtrends/trend/q-carpenter
shows that carpenter jobs are down 60% since March ‘06 (beginning of their job data)
The testimony I watched on CSPAN yesterday of Bernanke’s testimony was quite disturbing. (Yes, there are crazy people who actually watch and listen and make up their own mind rather than parroting MSM). Ben was particularly calm in the face of one of the greatest debacles in history. I fear that we will look back on this year and recognize that it was the beginning not near the end of the problem. The issues will be further exacerbated by the fact that the next bubble is a related one. the Credit Card Bubble! Since we are a nation of overextended and undersaved people that bubble will be even worse.
Does it concern anyone else that all we hear from the democrats in Congress is how they are going to tax us out of the situations?
“Ben was particularly calm in the face of one of the greatest debacles in history.”
Like a duck. Perfectly calm on the surface, but paddeling like heck under the water.
“Does it concern anyone else that all we hear from the democrats in Congress is how they are going to tax us out of the situations?”
They want to remove the AMT that is hitting more and more middle class as interest deductions get larger and larger. But, they have a policy of not dropping revenue without making it up somewhere else.
So, the “tax us out of every situation” is really an attempt to change who gets taxed.
Reminds me of the scene in Braveheart that does something like this..
“Do you think we will be ok?”
“I spoke to the good Lord..I’ll be fine but he says your all f*ked.”
I’m going out on a limb and predict Bernake is replaced within a year.
Exactly my thoughts Mo. This dude cannot stand up to what is headed his way.
“Ritch Workman, president of the Florida Association of Mortgage Brokers said the past housing price increases represented ‘unsustainable growth.’”
NOW you tell us.
Everyone really is leaving Florida. Here’s the latest U Haul index, 26 foot truck for pickup November 24.
Sarasota to Nashville $2,002
Nashville to Sarasota $296
Holy cow!
Time for me to update the Redondo Beach U-haul index.
Got popcorn?
Neil
Guess it’s worse if you’re leaving Michigan. 24 foot Uhaul with car tower.
Fort Myers to Grand Rapids 1,035
Grand Rapids to Fort Myers 1,404
Credit troubles spreading.
http://www.heraldtribune.com/article/20071112/BUSINESS/711120487
One thing I think is overlooked in this whole housing bubble (or any kind of bubble) thing, is how did most J6Ps become J6Ps? IMO, they became J6Ps because that was exactually what the Pig Men wanted. By manipulating J6P’s news, etc. they were hoping they could create a country full of blind followers, instead of a country full of people who could think for themselves. The Pig Men are to blame, and not J6P, because J6P was merely swallowing hook, line and sinker the propaganda that was being fed to them.
Found this article this morning:
http://www.nysun.com/article/66268
I saw that this a.m. Glad to see that he at least recommended gold and Japanese yen …. That’s where I’m hiding.
“If his assessment doesn’t go down, he will try to sell his house and leave. ‘We’ll go to Arizona or South Carolina. There’s absolutely no reason to take this kind of abuse,’ Khoury said. ”
We did this in 2005…taxes doubled so we sold the house…during the violent RE upmarket. Been renting ever since. Our current land lord has a $1200 month mortgage and we pay him $1000/month. I guess the landlord pays the property tax for us now.
One wonders how long the landlord can afford to keep losing $200 a month.
My in-laws told about losing $300/ month on property for years. They held the property long enough that they could convince themselves that the equity the gained was worth the cash loss. I didn’t see enough of the math to decide whether it had really worked out for them or not.
You have to realize that a lot of folks just waste most of their money. Even a cash flow negative property can accumulate wealth for folks like th is. Eventually an amortizing loan will be paid off, and even if they could have done better they at least have more to show than if they’d have bought another pool table or a trip to Cancun.
Some people are just adverse to saving, but they’ll happily pour $10k into a rental property to have $2k returned back to them later. Even though it’s a terrible “investment” they are still better off than if they’d have frittered it away on HDTVs and designer clothing.
I’m in a similar situation here in Boston. I’m renting a house for $2,650/mo from a landlord that has monthly expenses on the property of about $3,000 by my estimation. I’ve been here 2 years and hoped to renew the lease for another year when it expired last month. Well, the landlord says he wants to sell, so I may need to move. He’s offering to sell to me directly, without a broker, for the price he paid in May 2004. No thanks.
“The lease-option concept is a by-product of the boom years, when speculative investors acquired options to buy homes, waited for real estate values to appreciate and sold their options for a profit, said Rachel Lindsay, CEO of P&L Management Properties in Summerville.”
“Since then, she said, the idea ‘has been plagiarized and altered to meet a different kind of demand.’”
Sorry Rachel, the lease to buy option is not a product of the boom years. A friend of mine used this route to homeownership in Detroit (Westland actually) in the 80’s. It’s an old concept and one that is useful in certain market conditions. My friend rented the house for a year. At the end of the year the seller of the house gave him his entire year’s rent back to use as a down payment on the house. He got a good price on the rent and a good price on the house too. The real estate market was slow at the time, but the seller was an older gentlemen who was genuinely trying to help a young family get into a house.
Yeah, but the trouble with R2O is that a lot of the sellers aren’t as good-hearted as the one your friend dealt with.
My main point is that rent to own is nothing new.
The other point was the the “plagiarizing” was done by greedy bubble-heads, not by people actually trying to work out a deal in difficult times.
The biggest issue of rent-to-own is that any action against the owner could result in attachment to the property, which would superceded the rent-to-own.
I know that we like to talk about how we saw the current housing slump coming from a long-ways-off, but…
…I thought everyone would enjoy this article:
County unit hit by housing slump
HBB levels of snark and outrage in the comments that follow the story
“Q: Can builders afford to keep offering deep discounts?”
“A: Buyers’ psychology today is that they expect to get good deals. We just sold 40 homes in Vero Beach. We knocked anywhere from $60,000 to $100,000 off the price of the homes. If a house is selling for $300,000, and it cost you $250,000 to build, and you have to sell it for $225,000, at least you have some cash flow coming in. Something is better than nothing.”
Now these home builders are learning that something from nothing yields nothing.
Now that the losses in REIC are gaining momentum I fully expect to hear a lot of “but they get it all back in their income tax.” I can’t stand hearing this $hit.
Got 10% down?
“Levitt and Sons of Fort Lauderdale became the nation’s largest builder to file for bankruptcy as the housing market continues to crumble. The storied company filed for Chapter 11 protection from its creditors in U.S. Bankruptcy Court in Broward County. It lists assets of less than $1 million and debts of more than $100 million.”
Levitt had two developments outside of Atlanta. An article in the AJC last Friday was saying that many retired couples were in some stage or other of construction and the builders have just dissappeared. The engineering company I work for designed the MEP for two club houses they built about a year ago. We’ve yet to collect the entire fee. The architect is in even worse shape with them than we are, so I hear.
dimedropped, that was an eloquent and moving post, indeed. I remember going to my first foreclosure, years back when I was in RE, and being moved to tears by the sight of three lovingly tended bird feeders in the tiny but well-kept yard. Something about that — the only things the owners left behind — just spoke so powerfully about the peoples’ hopes and dreams for their life there; I actually could feel myself starting to cry and had to leave, and my boss said, “I know, it’s hard, but you have to get used to it. You can’t think about them.” How can you not, I wondered? I did get used to it, and I saw some real dumps of foreclosures where the people living there had obviously had major problems (like drug and child abuse), but I never forgot that first experience, and I never was able to view these homes with dispassion. Just my 2 cents, and it’s one reason I’m glad I left the bizness.
“… the chief economist for the country’s largest real estate trade group told reporters Tuesday that …”
Who cares what this guy says? Whatever happened to the days when journalists interviewed “experts” instead of “salespeople” for information on industry expectations?