An Upside To The Crisis
The Hook reports from Virginia. “With the real estate slump and glut of new houses on the market, it probably comes as no surprise that one of Charlottesville’s many builders has decided to get out of the biz. But few in the home building community could have predicted the first to go would be one of Charlottesville’s most prominent.”
“Randy Wade, founder and owner of R.D. Wade Builder, announced, ‘We have informed our employees that we will discontinue homebuilding as of January 31, 2008.’”
“He explains that his decision was not made hastily or out of financial duress, but rather resulted from his observations over the last several years as the housing market has cooled from the red-hot sales of 2003-2005.”
“‘We’ve taken a restrained approach to building for the last year and a half,’ he says. ‘We’ve already been through the cut-down stage. We hoped things would get better over that time, but instead they’ve gotten worse.’”
“Indeed, in recent days, several other local builders acknowledged they’ve had to cut their own workforce and that in the upcoming year they expect to build about half the number of houses they’ve completed in other years. Mike Gaffney, of Gaffney Homes, says he’s cut his staff by about half and is discounting some of his existing inventory and converting others to lease-purchase options.”
“Randy Rinehart says his ‘very close’ friendship with Wade stretches back nearly 40 years, when both served as presidents of the Blue Ridge Homebuilders Association. Given Wade’s past influence on Rinehart, Kingma, and other builders, could his current decision spark an exodus from the industry?”
“Rinehart…admits Wade’s decision will have an effect. ‘It has to be in the back of individuals’ minds,’ says Rinehart, ‘that someone as strong as [Wade] has chosen this to be the time to close his business because he doesn’t see opportunity on the horizon.’”
“For Wade, his favorite times were the years before the boom began in the late 1990s. ‘Everything stayed in balance,’ he says. ‘Builders knew how many people would be buying and how many [houses] would be bought; it was market-driven. Now we’re pushing the market, trying to make the market do it rather than meeting the demands of the market.’”
In Richmond from Virginia. “Scott and Dawn Loving were able to stop the foreclosure on their house — at least temporarily. The Lovings got into trouble when the subprime adjustable-rate mortgage on their Chesterfield County home reset after two years.”
“Their monthly payment jumped from $1,250 to $1,400, resetting six months later at $1,600, then again at $1,650. Their new payment consumed more than half their net income.”
“‘We were OK the first two years, but we got stretched when the payment went up $400,’ Scott said. The Lovings agreed to a subprime loan because past credit problems limited their options.”
“The number of foreclosures in Virginia soared from 4,354 in 2006 to an estimated 14,000 this year. In 2008, the number could reach 20,000.”
“The Lovings were locked into their original mortgage because it carried a hefty prepayment penalty. As soon as the penalty phase passed, they looked into refinancing. ‘At least a dozen lenders turned us down,’ Scott said.”
“They found one taker. The payoff on the old loan, a combo ARM and fixed-rate mortgage, was $137,000. They walked away with another ARM. This one was for $161,000, which increased their debt. Fees and closing costs totaled $20,000.”
“It included $4,000 in cash. ‘We didn’t feel we had any choice,’ Scott said.”
“The new payment is $1,623, not much better than the $1,650 payment on the old loan. ‘But we had a fresh start,’ he said. The initial interest rate on the new loan is 9.8 percent, 0.1 percent better than the old loan. It, too, has a prepayment penalty — 5 percent of the loan amount. It resets next June.”
“The Lovings kept up with their new payments for a few months. Then one payment was put into escrow and the Lovings were one month behind. Repeated calls to the lender solved nothing. When the couple received notice of a foreclosure sale, they turned to Housing Opportunities Made Equal.”
“Their HOME counselor (did) what they couldn’t — open a line of communication with the lender. ‘We’re in limbo,’ Scott said, as they wait to find out if their lender will work with them. ‘We should find out right before Christmas if we can keep our house.’”
The Washington Post. “The number of recent home foreclosure filings in Loudoun, Fairfax and Prince William counties is up more than 600 percent from a year ago, a much higher increase than in the United States as a whole, according to a national real estate company.”
“Loudoun had the sharpest increase among the three counties, with 1,073 foreclosure filings in July, August and September, compared with 125 filings during the same period in 2006, a jump of 758 percent, according to RealtyTrac. Those numbers represent filings in all phases of the foreclosure process, from the initial default notice sent to a borrower to the repossession by a bank.”
“‘Quite simply, the foreclosure issue is tied very closely to first-time home buyers who got in over their heads,’ said Jeanette G. Newton, CEO of the Dulles Area Association of Realtors. ‘The [higher] variable rates have now kicked in, and they just can’t afford the mortgage payments.’”
“The jump was 694 percent in Fairfax, from 229 filings in the third quarter of 2006 to 1,818 in the same period this year. Prince William filings rose 624 percent, from 212 to 1,535.”
“Dozens of advertisements for foreclosed Northern Virginia houses have been posted on real estate agents’ Web sites. One ad early this week offered a three-bedroom, two-bathroom single-family house in Sterling for $325,000. Another trumpeted a four-bedroom, three-bathroom house in Centreville for $356,500.”
“‘Most of the people running into trouble either can’t make their payments or are being forced to sell for some reason or another,’ Newton said. ‘Or they are being forced to sell in an economy where they are not going to make any money on their homes, and they have to bring money to the table to sell their houses, and they just don’t have the money.’”
“Newton said there’s an upside to the crisis. ‘There is more inventory of properties and the interest rates are low,’ she said. ‘It really is a good time to buy as long as you are looking for a long-term home investment.’”
“‘If people can hold on to their homes, they are going to be okay,’ Newton said. ‘The market is going to come back. The market always does come back.’”
The Virginia Pilot. “The real estate market in Ocean View is depressed, as evidenced by the hundreds of for sale signs and lack of construction in the community nestled along seven miles of the Chesapeake Bay.”
“But at least one project is moving forward – a plan to build a 54-unit senior condominium on East Ocean View Avenue.”
“Virginia Beach developer Janice Key said she is moving ahead because the project, limited to residents 55 and older, will fill a niche in Ocean View. ‘We believe there’s a demand for this housing,’ she said.”
The Baltimore Sun from Maryland. “Maryland’s housing market spiraled further downward this past summer, registering the fourth-biggest drop among all the states as home sales fell nearly 30 percent from a year earlier.”
“Indications are that the market isn’t getting better. Home sales in Baltimore and the five surrounding counties plunged 31.74 percent in October from a year earlier, the most in the eight years that Metropolitan Regional Information Systems Inc. has tracked sales through the MLS.”
“‘At one point, homes were selling very fast, and now the inventory is catching up and overtaking the demand,’ said Daraius Irani, director of the applied economics group at Towson University’s research and consulting arm. ‘It’s somewhat of a concern that it’s fallen.’”
“Only three states — Nevada, Florida and Arizona — had greater slumps in home sales than Maryland.”
“The sales picture in Maryland deteriorated over the course of the year, the NAR data show. In the second quarter, the year-over-year decline was 21.1 percent, the fifth-worst in the nation.”
“‘There’s a disconnect between sellers and the buyers’ expectations,’ said Marc Witman, a Baltimore County-based realtor. ‘Until the sellers come down with their pricing, the buyers aren’t going to jump off the bench.’”
‘Quite simply, the foreclosure issue is tied very closely to first-time home buyers who got in over their heads,’ said Jeanette G. Newton, CEO of the Dulles Area Association of Realtors. ‘
‘If people can hold on to their homes, they are going to be okay,’ Newton said. ‘The market is going to come back. The market always does come back.’
‘There’s a disconnect between sellers and the buyers’ expectations,’ said Marc Witman, a Baltimore County-based realtor. ‘Until the sellers come down with their pricing, the buyers aren’t going to jump off the bench.’
I wonder how many of these FB first time buyers rode around with a realtor who was telling them buy now or be priced out forever and RE always goes up. And now that they need sales, they shamelessly spout that it’s a great time to buy, the market always comes back AND sellers need to lower their prices. Unbelievable.
‘If people can hold on to their homes, they are going to be okay,’ Newton said. ‘The market is going to come back. The market always does come back.’
Will the MSM ever stop printing this drivel without at least asking the “expert” to back it up with some historical data that is remotely close to where we stand today? No wait that can’t be done either, we have never been in a predicament like this before.. Never mind.
The Washington Post would never say anything else. Probably Haggerty added those final paragraphs.
I was at Thanksgiving where my brother-in-law was getting worried because they’d used the equity in their house to buy a lot in a nearby retirement community near a lake. The plan was to sell their house — I think they were counting on selling it for a lot more — I told him to list it early in the Spring, like February. But he really thinks waiting another year or two will help.
His son who’s majoring in business put up his heels and said “bah — it’s just a business cycle. These things always come back”.
“I wonder how many of these FB first time buyers rode around with a realtor who was telling them buy now or be priced out forever and RE always goes up.”
While I’m not a first-time buyer, I can assure that the Realtor(tm) group of agents i dealt with had the same story line……….when I said the property looked to be grossly over-priced, I was told: “That’s the result of fundamental demand from rich baby boomer’s moving to Florida. The price was going up and would keep going up and if I didn’t buy now, I would be PRICED OUT FOREVER.” I didn’t buy.
I still haven’t bought and figure it will be another 1.5 years before pricing makes any sense at all.
I will try to avoid the sleaze-ball Realtors ™ in any transaction if at all possible. If not, I will cut their real estate commission as a term of the sale.
That will really PO the seller if the deal falls through.
These red meat 1st time FB’s were Doomed as soon as they listened to the RE’s agents speals of home appreication, Pride in Ownership BS and let’s see ‘How much House can YOU afford”. The bloody Greed was already in the water provided by NAR and the MSM.
They were then turned over to the friendly Bank Loan Sharks in the infamous “Pre-Approvals” racket for suicide loans who then washed the hands of accountability and passed to the new lenders so they could have a they could have a very tastey meal as well.
By the time of the re-sets, the friendy property tax man, keeping up with the Jones consumer spending, and miscellaneous up-keep took their bites, these proud new American Home owners made a Startling Discovery…
they were on the BOTTOM of the RE Industry’s FOOD CHAIN !
Gulp, gulp…Smack, smack..great Feast
BURP !
“The Lovings were locked into their original mortgage because it carried a hefty prepayment penalty. As soon as the penalty phase passed, they looked into refinancing. ‘At least a dozen lenders turned us down,’ Scott said.”
Luckily, the 13th Lender came through for them…
This made me screaming angry! The idiots…grrr…got another ARM.
Oh Dear God, my head hurts. Stupidity knows no bounds.
And to think Leigh they paid $20,000 in fees just to get a a new ARM…i’ll keep repeating —this is “THE MORON GENERATION”
Right, this guy earns in the 50’s, pays 20 and gets 4 back in cash?
‘We didn’t feel we had any choice’
I say we bring back the asylums!
http://www.abandonedasylum.com/
Ben sure knows where to push the buttons! This is beyond moronic! I don’t know if they’ve invented a word for this type of reasoning…insanity comes close, but not quite.
And now they’re looking to give the house back. Some jerk made off with $20k in fees, and these…grrr…knot heads pocketed $4k!!
Leigh
“This is beyond moronic! I don’t know if they’ve invented a word for this type of reasoning…insanity comes close, but not quite.”
Actually, this is typical behavior of many people who realize all is lost, but hope by some miracle that they can delay the inevitable long enough that it won’t really happen.
Captain to passengers of Titanic: “we’ve struck a berg and are taking on water. The ship will most assuredly founder and sink. Please man the life-boats!”
Passengers: “Everything looks okay here. Calm water, still floating. I’ll wait a while and make my move when I see the water washing over the decks. Load those other people. She’s unsinkable, you know.”………………..blub, blub, blub.
I think of it in even starker terms. They paid 15% in fees to get an interest reduction of .1% per year? So in 150 years they break even on the deal? Such a bargain!
This is pure theft on the part of the loan agent. They should go to jail. Some people will say they didn’t force the FB to sign the new ARM, but its a case of one person taking advantage of another because they know how the game works and the FB doesn’t. A black belt in karate gets in a fight with a wimp - he is judged by different standards than two wimps beating each other up. This should be no different.
Be thankful they got to refinance. Their refinancing will push their date of foreclosure deeper into the future. This action will ultimately benifit us all.
This pending economic decline needs to be slow and drawn out so the deflationalry effects can be more readily absorbed.
’slow and drawn out so the deflationalry effects can be more readily absorbed’
Yeah, sure. That’s what we got in Texas in the 80’s. Slow and drawn out. It never seemed like it would end.
But if it ends all at once, as in a crash, then we are all screwed because the economy would freeze up.
If it ends slowly then the economic damage will mostly be restricted to the players who caused this whole mess in the first place.
Yes. We need knife catchers, not taxpayers to take the hit.
“Only three states — Nevada, Florida and Arizona — had greater slumps in home sales than Maryland.”
One just normally think of Maryland being in the same league, as the other slump leaders…
Interesting!
Yes, this is amazing! I’ve always thought of MD as fairly stable, but they did have rampant development, even in the late 1990’s. They must have continued full speed ahead after I left. (Come to think of it, I visited Rockville in 2005 or so, and yes, they did. Gack.)
Northern Virginia is probably in as bad a shape as Maryland…The locations mentioned in the articles (Dulles, Fairfax, Sterling, Manassass) are going to see 50% haircuts in real dollars over the next 10 years. Manassass is probably looking at a 60% + haircut as there are so many POS townhouses out there that sold for north of $350K a few years ago and will probably fetch less than $125K in inflation adjusted dollars in 10 years.
How about in real dollars now?
1926 WILLOW LN WOODBRIDGE, VA 22191
List Price: $115,000
Prior Sale: $315,000 4/25/2005
Listing Date: 04/21/07
-63.5%
8153 COMMUNITY DR MANASSAS, VA 20109
List Price: $124,900
Prior Sale: $287,000 12/20/2005
Listing Date: 10/10/07
-56.5%
14323 FULLERTON RD WOODBRIDGE, VA 22193
List Price: $179,000
Prior Sale: $395,000 6/12/2006
Listing Date: 07/17/07
-54.7%
1612 MAURICE DR WOODBRIDGE, VA 22191
List Price: $224,900
Prior Sale: $465,000 8/18/2006
Listing Date: 10/15/07
-51.6%
Italics off
WOW…. Those are some realistic haircuts. Vindication is sweet…
With numbers like these, there’s not much the government can do, thankfully.
Ha ha, touche, Arwen, touche….Wow, those are some really scary numbers you posted. Manassass/Centerville will be a case study in how a mid-level income communities can rapidly deteriorate in to a ghetto in just a few years.
The Zestimate
is 370,000 for the one on Fullerton sold at 179K
14323 FULLERTON RD WOODBRIDGE, VA 22193
Holy Smoke!
Once they’re completely ghetto-ized, HUD will move in to clean it back up again.
Zillow is showing this as the sales history for the one on Fullerton:
Sale History
08/20/2007: $293,850
06/12/2006: $395,000
01/19/2005: $283,000
Still a big drop
Where are you finding those current list prices? Thanks.
Zillow. You can search by address. I post them at the NoVA Bubble Blog under my other pseudonym “harriet”.
Sorry — my brain is out to lunch today. I find them at the other “Z” - ZipRealty.
43015 Beachall St, South Riding, VA 20152
List Price: $324,000
Prior Sale: $454,000 11/08/2005
-28%
Built and sold in 1998 for $158,000
Thanks Arwen_U. I found the NoVa blog - those price reductions are amazing.
It seems reasonable. Some of the most insane speculator storys came out of that area. Remember the Cash Flow Freedom Bus? People were driving by and purchasing all kinds of stuff. IMO, part of it may be due to the low prices in run down areas.
“One just normally think of Maryland being in the same league, as the other slump leaders…”
There are a lot of government jobs in MD. The Greater Washington area is different
I’m in MD (somewhat FB’er [price trends] but content b/c I bought a house primarily to live in and not to make money) and I’m curious/hesitant to have a front-row seat on how the ‘lots of gov’t jobs’ factor plays out when we have a full-blown national recession. I’m still of the opinion that one is better off in a local area with lots of relatively high paying, safe Fed (and S&L) jobs than in an area w/o them. I can’t see how a large gov’t presence would be a negative. For those of you w/ much more experience keeping tabs on these things, how did the gov’t/metro areas fare compared to the other mkts during the last significant housing and/or economic downturn?
I think that the stability of the job market and workers in a gov’t area, or perhaps even just the opportunity for a job during a down period, will keep/attract people to gov’t areas and be some sort of positive factor in housing (all else being equal when compared to other areas facing the same deteriorating economies). We’ll see. Gov’t workers don’t get fired, they just stop hiring/replacing attrition during ‘lean’ years. Contractors are another story though.
IMHO, and local mkt observations, having lived in NOVA (Tysons area) and MD (Columbia area) for the last 15 years: almost everyone who bought in a ‘commuter’ area like Gainesville, VA/Frederick, MD/WV cities/Southern MD/York PA etc, as opposed to an area closer to the actual job location is getting, and will continue to get, hammered from both ends (housing and transportation) with no end in sight. The actual job cities and true suburbs are still declining, but it definitely not as pronounced at this time. I’m still amazed at how many people actively avoid including commuting costs in their housing decisions as if the avg car wasn’t $25K, gas wasn’t $3/gal, their time has no value, etc.
I also think that the overall population has failed to truly grasp how bad this situation is and how long/how far everything is going to deteriorate.
A bit OT: Are the Brits/Europeans blind? Do they truly think that this mess is isolated to the US? That’s the impression I get from MSM, but their ARM wave/#’s are just as bad, if not worse, than the US. I’m stunned that people can still get the “no-docs 10x I.O. etc” loans across the ‘pond’. We’ll see how attractive that Euro is in about 12-18 mo. I’m very interested to see the potential contrasts in how their gov’ts handle a similar subprime meltdown vs ours.
The lasting housing downturn in NoVa, the early 1990s, hit the high-end hardest. McLean, Great Falls, upscale Alexandria, etc. took 20-25% hits. Mid-level properties dropped 5-15%. Surprisingly, at least for me, 2br/2ba condo apartments not only held their value but those close to Metro train stations actually went up in value. Back then you could buy a 2br/2ba, 1200 sq ft apartment in Oakton/Vienna for 125K and rent a similar 1100 sq ft apartment for about $950. So for NoVa, at the bottom, condo apartments sold for about 130 times monthly rent.
Sorry, should begin “The last housing downturn … “.
“Across the pond is” is a little general, there is not ‘one’ Europe, despite the (almost) common currency. In Germany, there is not the kind of ARM wave as in US. The culture is different, in such that when people think about buying, they also think about ‘paying’.
Just a few months ago, a German weekly (something like Time) made a lame attempt at pushing ARM’s (written by some stupid journalists who probably thought they needed to educate their backward audience on the next financial innovation)…you should have seen how quickly they were ripped apart by individual readers.
So, situation is different here. Conspicuous consumption is less ingrained, long term value (security) more treasured. The flipside is that Europeans find it very difficult to get an idea of the magnitude of the problem in the US. For them, is it difficult to get a grasp of how the magnitude of any US boom and bust play out in the every day life of America. They do not know the excesses to that extent. To them, it is simply not conceivable to buy a house and sell after two, or five, years…to ‘throw away’ realtor fees…They often will not even move from their home town for a job. Plus, there is still a generation which has known hunger in WWII and they are very fiscally conservative.
The crisis will come from the exposure to global financing, at least here in Germany, and not from home grown subprime.
Here is a graph: Mortgage burdens per country…consider that Switzerland and Denmark are very small:
http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=9828217
taxpayer funded ?
“Their HOME counselor (did) what they couldn’t ”
what , make someone else pay
a councilor in every pot
http://www.phonehome.org/partners.htm
the left is groovin on the idiot borrowers
it will be like Keynes anti capitalist rhetoric
A lot of squatters in the Great Depression, and the judges and politicians started backing them up.
A warning to capital not to get greedy … because you will lose everything.
No they won’t “lose everything” they will simply not invest and the economy will come to grinding halt. What you are speak of is why the deppression became great. When you attack the investors they fight back by not investing then everybody is toast.
Never do business with poor people.. They will screw you every time….. They stop paying what they owe and it’s your fault for lending them the money….
Let’s all say it together “Never do business with poor people”
If only it were that simple … never do business with people who bilk their creditors, and never loan more than a person can reasonably repay.
A lot of “rich” people are going to be bilking their creditors soon …
There is also this guy who got the Nobel prize for what: …microloans.
The two “never do business with” I discovered over the years are people who make a show of Christianity and the excessively obese. I think it works because the symptoms are easy to read and both are signs of extreme emotionally instability. Schizophrenics are no good either, but the symptoms aren’t clear for a salesman. Poor people, no problem - you can figure where you stand and make your risk assessment.
Christians who make a ’show’ are unstable. Good grief.
Showmanship Christianity has a short half-life. People who get involved in it have a tendency to alter their personalitites over time way more than the average individual. Thus, similar to schizophrenics, you may find yourself dealing with Person B who is not interested in honoring the promises of Person A.
Unless they pay cash up front or with credit cards (poor people don’t know about charge backs).
Loving vs. Virginia Mortgage Scam Houses
I think they lose this time.
Refreshing to hear about one builder that clearly “gets it”.
“For Wade, his favorite times were the years before the boom began in the late 1990s. ‘Everything stayed in balance,’ he says.”
I like this quote because most homeowners and builders thought that the boom was in their best interests, and did everything in their power to fuel it. The fact of the matter is that unless the builders were downsizing during the peak rather then expanding, or the subject homeowners were investors in real estate, the benefits they received were illusionary.
Many builders became over leveraged at the peak, and are now in a world of hurt. As for the homeowners. For those that just brought a place to raise a family,and had hopes of moving up in the same area later, the boom did nothing but increase their taxes and insurance, and encourage them pull out equity to buy even more things they couldnt afford, putting them in financial peril. The only real ppl that benefited were investors that knew when to get out, homeowners that downsized or sold and moved to a lower cost of living area or decided to rent and ride the bust down, and the realtors. Note that although brokers, banks and wall street also benefited, they were so blinded with greed, they didnt realize the ultimate end game was that at best business would hit a wall and start declining, or they would lose their jobs in the bust (albeit some knew it was a short term play and had golden parachutes).
For the majority the boom was harmful all around. The sheeple welcomed the trojan horse into their homes dancing and cheering, and couldnt wait to go to work to brag about.
What have we been reduced to? I cant believe how poorly this mess was handled. We sounded the alarms, and they called us fools.
NO Tim its EVEN WORSE:
We are not FOOLS….we are Negative Thinkers, you don’t know how hard it is to get a job today it you think outside the box.
People say i’m so negative, which in reality is just thinking ahead looking at all sides of the issue. This is going to turn out even worse then Ben thinks because of all the cute little chicky-poo airheads they hired who are totally useless in a crisis.
We are all going to ask, where are the adults?
———————————–
What have we been reduced to? I cant believe how poorly this mess was handled. We sounded the alarms, and they called us fools.
Spot on aNYCdj - this is why I fear coming back to the States, unable to find a job b/c I don’t believe in the same fairy tale land that others do who would be employing me…
Tim and NYCdj,
I agree 100% with your comments. What really amazes me is how many people with a good understanding of finance/economics could have been so wrong on this housing bubble.
My step mom, for example, is a professor and chairwoman of a department in the business school at a well-known university in the ACC conference. My dad is a financial advisor for an institution whose name has appeared in the news lately b/c of billion dollar write-offs. I have a step brother who worked 10+ years at FNM….I also have several classmates from business school with good work experience and solid resumes who got caught up in all this madness….And whenever I brought up the Housing Bubble topic a two years ago, they all thought I was some pessimistic dip-shit….you know, they were totally repulsed by my argument that getting rich/making money wasn’t as easy as just taking on a ton of debt to buy some POS investment property.
When I talk about the bubble, I’m told I’m one of those guys that miss the 600% run-up because I’m afraid of the 20% decline.
Or… You’ll still be working at 70 and I’ll be retired by the time I’m 50.
If you enjoy fighting traffic to get to a cube where you work to make someone else rich, fine for you, but I choose to work for myself and make myself rich.
How do you compete with such moronic statements? You just have to shake your head and get a good seat from which you can watch these idiots skydive without a parachute.
My job is to review securitizations for legal problems and exposure. I have lost lots of business in the last few years because I was “notorious” for writing memos that I believed there was inadequate disclosure and that I didn’t agree with the models and assumptions used to calculate the exposure projections. It got back to me several times that the hot shots that wanted the fast commission specifically asked that I not be assigned to review the documents because I am too negative and see too many issues. Since many of the issues I had raised previously are now in fact actual legal, tax and/or accounting problems, most of those that refused to work with me before are now calling to help with the latest “crisis” or “emergency” that is beginning to show up as the industry is imploding. Interesting times.
I see… dancing people!
Never do business with poor people.. They will screw you every time….. They stop paying what they owe and it’s your fault for lending them the money…. Let’s all say it together “Never do business with poor people”
Actually Sam Walton became one of the richest men on the planet doing business with poor people. But he did it by taking THEIR money not loaning them HIS money.
Therein lies the difference.
I personally believe that lenders could make money loaning to any group, provided they are legally permitted to set the interest rate at a sufficiently high level to cover the risk of default, and provided they have legal recourse if default occurs. However, that is not the way our credit markets presently work.
But they do. They’re called payday loan shops. Of course they make their money from “fees” and not “interest”, but at the end of the day the difference is merely a legal one. The meteoric rise of these lenders was a sure sign to me that the “sizzling economy” with its “low unemployment rate” was any but.
In Loveland the local paper published an article that claimed that local unemployment was only 2.5%. A few days later they published a reader’s letter challenging that claim. He mentioned that he applied for a job that pays $16/hr and that 200 people applied for that same job.
‘Actually Sam Walton became one of the richest men on the planet doing business with poor people. But he did it by taking THEIR money not loaning them HIS money.’
Did Sam Walton sell sub-prime loans?
“Actually Sam Walton became one of the richest men on the planet doing business with poor people.”
The Walton family never could have managed their vast expansion without the rise of the “relational database coupled with point of sale inventory system” that became cost efficient and reliable in the early nineties. The timing was right.
“‘If people can hold on to their homes, they are going to be okay,’ Newton said. ‘The market is going to come back. The market always does come back.’”
If the ‘Market’ is going to come back, will wage increases come back?
No way. In most major cities a starter POS home is 500k now. The average starter income is 40-50k. I see no problems with these numbers.
“…will wage increases come back?”
Some combination of lower home prices and higher wages is necessary for home prices and wages to get back into equilbrium, since all end-user real estate demand is local.
Could the ongoing correction of the dollar’s foreign exchange rate be sufficient to result in higher wage inflation (as this could happen quickly)? Otherwise, we may have to wait a few years as the U.S. economy reallocates its production activities away from its recent top-heavy emphasis on real estate (an inherently slow process).
Loudoun and Western Fairfax (Herndon and Sterling right now) seem to be getting hammered… it’s a matter of the time until it reaches inside the Beltway…
as war spending comes down DC area could get hammered
RE prices off 12-15% so far
Yeah i’ve had some interesting conversations with friends lately, last year they thought i was an idiot… this year a tone of resignation in their voices…
Probable change of administration might have some additional impact as well… 2009 might end up being worse than 07-08.
Yes. The outer suburbs take the first hit because a lot of the homes out there were purchased by ppl that couldnt afford a decent place in the city, drove out to the burbs one weekend, and saw all the big houses at prices 25% or more less. After they signed the contract, they realized that the hour and a half commute sucks, and perhaps they should have done some due diligence before investing more than 5 times their gross salary on a single crappy egg in a dirty basket. Follow the numbers. Foreclosures and inventory are increasing in virtually every U.S. city. Prices cant rise in that kind of environment during the next few years no matter what NAR says. There is a lag to flush the millions of fools still in the market looking to invest, and then almost a year of stalemate with sellers refusing to lower prices before the decline occurs. Its not that other cities are doing better, it just that they havent hit the decline stage of the cycle yet. The coasts have always been the trend setters, and the rest of the country eventually follows.
“and the rest of the country eventually follows.”
Over the holidays I was talking with an Uncle that is a tenured professor at a tier-2 B-school in NYC (long island). He told me only the big cities are going to feel the pain, the rest of the country will be fine.
Hahah… I didn’t feel like arguing and just politely smiled and nodded.
There are so many condo and townhouse developments in these counties, way too many. Typical units were selling for 400+ during the bubble, post bubble prices will be in the high 90’s…already seeing tremendous downward pressure.
My brother lives in Rockville and recently purchased another house. Get this, he pulled out all of his equity in his primary residence to purchase the second home. He intends to rent out the property. My brother has always been one of those get rich scam artist that so many on here cant stand. What bothers me most about his latest financial wizardry is he has 3 children and they are going to suffer. I could care less about my brother losing his shirt, but I know his children are going to have to pay for his financial misdeeds.
Hi John,
Sorry to hear that your brother was able to pull out equity in his first home recently.
If you could please shed some light…how recently?
I’m keeping an eye on what these darn lenders are doing!
Thanks,
Leigh
Leigh,
I dont know how he did it. He has always done things that were less than honest. He did this in the last month.
John
Last month!!
I know there are some shady ones still operating, but I would have guessed your answer to be a few months ago!!
Bloods a boiling this morn!
LOL,
Leigh
“For Wade, his favorite times were the years before the boom began in the late 1990s. ‘Everything stayed in balance,’ he says. ‘Builders knew how many people would be buying and how many [houses] would be bought; it was market-driven. Now we’re pushing the market, trying to make the market do it rather than meeting the demands of the market.’”
That sounds like a spot-on description of the vaunted new business model, where builders only built homes under contract rather than on spec. So how come this firm is going out of business, then?
I’m from the area; I believe Wade built his business up over 30 years or so and is at least in his late 50s. Why not bag it - building custom houses is hard work filled with managment hassles and Charlottesville/Albemarle County is pleasant for relaxing. It’s similar to my former RE agent walking away last year. If you’ve only got a few years left and have made good bucks, getting out if you expect those years to be lean makes sense to me.
Yep I agree. Like I mentioned to you a few days ago that location is one of my favorites. A beautiful area that I’d think would be a great place for retirement.
I am from and still in this area - I’m genuinely surprised to see Wade closing down. But, in spite of the fact that we’re in a very wealthy county (a steady stream of outside money) with UVa at the center, it is not different here. We are getting hammered. I’ve been watching for 3-4 specuvestor parents who put their children in $400k+ homes in our nice residential neighborhood as their undergraduate housing. You can imagine what this does to your neighborhood quality of life. The really sick part is, after covering the 100% financing for a few years, they would then cash out for enough to recoup what they’d spent and cover tuition. I do admire the economic cleverness, but the whole business of Biff and Buffy having a nicer house and car for their college flop years…while trashing the neighborhood…well, it kind of turned the stomach.
Of course, the music has stopped and a couple of these are in real distress…just sitting…hopefully they’ll remain empty and not turn into rentals…that really slums things out.
Is anyone else amazed at the way the builders were able to mobilize in such a short time and slap these houses up? It is truly amazing that they were able to construct all these units in a period of less than 5 years.
Assuming that these people who worked on the units are now pretty much out of work why aren’t the unemployment figures in the tank now? Was it all illegal aliens doing the work? I have no idea how many units were built nationwide but here in Orlando there are many thousands of new homes.(bunch of empty ones too)
I would peg the number of illegals from Mexico and other Latino countries at not less than 50%.
Probably higher.
They are still mostly here, wandering around Ruskin, Palmetto, Tampa, Clearwater and the outer areas of the tri-county region…………Lakeland, Polk City, Wimauma, Bradenton…..ad nauseum. Just look around.
Yes, I find it a little perplexing, too. Part of the explanation has to be that slapping up tract housing is less complicated and less labor-intensive than it appears, and has tremendous economies of scale. Thus, there is somewhat less employment in it than it appears. Think how many developments you need to equal the economic impact of one large Boeing jet.
Was it all illegal aliens doing the work?
It was out here. The only work I saw being done by gringos was electrical, plumbing and trim carpentry.
Does anybody else agree with this statement: “Shelter is not overvalued”.
I mean I keep sitting here looking at my rent. Since Jan 2006, I’ve basically rented a house at the equivalent price of what homes in my area were selling for in 2000 and now 2001-2002 (rent increase) when you factor in today’s property tax and today’s mortgage rates of approximately 6.5% on JUMBO’s (being VERY, VERY generous).
Meanwhile my income is higher. I know that doesn’t apply to many people in real terms (even more stunning giving house price inflation) but certainly in nominal terms it does.
I’m just reminiscing about all the talk of “unaffordability” and the fact that non-thinking bozos commuted 2 hours just to buy shelter. As a father of two, I would go insane being away from my kids any more than I have to - as it is they are 1 hour from bedtime when I walk through the door - and my commute is 25 minutes.
Why are people so stupid?
Houses havent been thought of as shelter for over 5 years. They have become a source of credit and/or part of a get rich quick scheme as the benefits of leverage were played up by those with a financial interest without an intelligent discussion of exposure or risk. Hence the problem.
Tick….tick….tick….tick. Do I hear something in the distance? Even in the less bubbly areas of upstate NY the sounds of financial strain are being heard:
Counties facing dip in sales tax revenue
http://tinyurl.com/39oe8b
Thirty-seven of the 57 counties outside New York City saw sales tax revenue in October dip below what was collected in October 2006, and county officials said this month’s sales may be even worse.
While the holiday shopping season may serve as a boost, counties say the downturn in sales tax growth could have a crippling impact as they grapple with growing costs for services and put the finishing touches on their 2008 budgets.
“Counties are relying more and more on sales tax as opposed to property taxes because our property taxes are the highest in the nation,” said Stephen Acquario, executive director of the state Association of Counties. “That’s troubling when your local budgets are contingent on the state’s economy. If the economy is not yielding the sales tax growth so necessary and so vital to funding state mandates, that’s troubling.”
I have worked with builders and all kinds of contractors for over 22 years. My impression is that this fellow Wade is going to retire. He has been on this game for a long time and usually these guys get burned out in this type of business within about 12-15 years. Building companies that are mom and pop usually do not get sold. There are no buyers for these companies. If he does not have any children in the business, this guy is pretty much done.
Btw many builders and contractors are a real greedy bunch, their main objective is to hang the customer upside down and shake them for every thing the customer has. People will be surprised what might cost a contractor less than $500, they can charge upwards of $20,000 (Twenty thousand for it). They can make realtors look like saints.
“…their main objective is to hang the customer upside down and shake them for every thing…”
Doesn’t Wharton inculcate their MBA graduates with this philosophy?
The Washington Post also ran the following article about die-hard “renters by choice”. They’ve really done a complete 180, at least as much of a 180 as can be expected from a medium that has substantial income from RE.
At Home, but Not in Their Own
Renters by Choice Say Their Situation Puts Them on Top
A bit off topic, but this really got me steamed:
http://money.cnn.com/2007/11/19/real_estate/foreclosure_fix_Stutzmans/index.htm?postversion=2007112112
These deadbeats have had a previous bankruptcy, which the MSM refers to as brushes with late payments. Then after Countrywide agrees to forgive $25000 in debt and convert their mortgage to a fixed rate, the tramp has the nerve to state: ‘Stutzman more reserved about the outcome. “It sounds good, but I think it’s something that should have been done a long time ago,” she said.
What good is being done by helping these ungrateful, irresponsible burdens on society? This makes me sick.
what are the odds that this family will default on their new loan? what incentive do they have to timely pay their mortgage?
is the 25k forgiven taxable income? will this couple report it to the IRS?
So is this a signal to all those with arms to stop paying? won’t such a program, whereby only those who are behind on their payments qualify for forgiveness create a avalance of defaults? Uh oh.