A National Question Everyone Wants To Know
The Chicago Tribune reports from Illinois. “Robert Gabriel never imagined he’d end up living in a virtual ghost town. Gabriel moved into an Antioch subdivision in April, before builder Neumann Homes declared bankruptcy last month. Now, he said, he worries about vandals, thieves and nasty critters creeping around his property, especially at night. Streetlights aren’t installed, roads aren’t paved and half-built homes stand as stark symbols of the builder’s financial woes.”
“‘It’s been like living in a ghost town since we moved in,’ Gabriel, said as he pointed to the skeletal frames of unfinished homes. ‘It can get scary when it’s dark out.’”
The Courier News from Illinois. “The high number of foreclosures in the Fox Valley cannot always be explained simply, as area lawyers and detectives are discovering. Details of a local multimillion-dollar mortgage fraud scheme have unfurled in federal court.”
“According to his plea agreement, Luis Uribe would use the ‘names and identifying information of former clients’ with ‘good credit histories’ to obtain mortgages for people who otherwise would not qualify for a loan.”
“Elgin Police Department Detective Jim Roscher got his first inkling of the scheme in October 2005, when a woman, Olga Trejo went to officials to report a case of identity theft. Trejo had moved to Georgia, and was trying to sell her Elgin home, Roscher said.”
“‘Washington Mutual had called her and asked her where her mortgage payment was. It was late,’ he said. When Roscher and Trejo looked at her credit report, they found four extra mortgages, from four different mortgage companies, listed there. ‘All the sudden, she owns houses up here she never bought.’”
“Trejo owed $551,000, according to the credit report, he said. Released on bond, Uribe went to Florida, where, court documents show, he was arrested on Sept. 5 for the same fraud crimes he committed in Elgin.”
The Journal Reporter from Illinois. “Park Ridge, Niles and Rolling Meadows have all seen foreclosures climb over 100% from 2006 to 2007, according to the RealtyTrac.”
“Jeff Metcalf’s company compiles data on foreclosures, and he’s followed the developments. He said while we’ve heard a great deal about the sub-prime mortgage crisis and unscrupulous mortgage brokers, that doesn’t tell the whole story.”
“‘The programs that were available for people to finance homes were more numerous than ever before. Home ownership has been at an all time high, 65%, over the last five years, and so you’re going to get more foreclosures.’ Metcalf said.”
“Metcalf said the housing boom gave people the impression that skyrocketing property values would make up for the amount of money they were having to borrow. In some cases, he said, people didn’t even have to verify their income to take out a loan.”
“‘The sub-prime crisis, it’s all we hear about,’ said Metcalf. ‘That’s what gets ratings. This daily, hourly pulse is going to make us all insane. The solution is going to be like any other financial problem we’ve gotten into in this country, it’s working through it. Let the market work, it’ll work itself out, it always does.’”
“Metcalf said when he talks to realtors, they say prices are going back to 2004 levels, and that eventually the housing market will turn around.”
“Another factor in the foreclosure situation may be investors buying multiple properties with the intent of ‘flipping’ them or selling them at a profit later. ‘Quite frankly, a lot of the homes that are in foreclosure are investors,’ Metcalf said. ‘These investors just extended themselves.’”
The Detroit Free Press from Michigan. “By springtime, many homeowners in metro Detroit could face an unwelcome and seemingly improbable trifecta: Higher taxes, lower home values and shrinking services. Many communities are anticipating reduced property tax collections in 2008 because of the foreclosure crisis. ”
“Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.”
“‘Explaining that to people is going to be very, very hard,’ said Frank Audia of Plante Moran, an accounting firm that advises dozens of local governments.”
“New development has been stalled or canceled, said Finance Director Todd Drysdale. The city invested more than $1 million to buy and clean an old industrial parcel for a development of 80 homes. After putting up 12 homes and selling just three, the developer has stopped.”
“‘We also have four to five other condo projects that have stalled,’ said Drysdale.”
The Daily Herald from Wisconsin. “Although there currently is a buyers’ market for housing in the Wausau area, people considering selling their homes shouldn’t be scared off by what they hear and read in the national news, local real estate agents say.”
“‘For high end homes, over $400,000, the market is saturated in inventory. It’s a matter of supply and demand. It’s not necessarily a bad market, there’s just too much inventory,’ said Heath Tappe, president of Main St. Homes of Wausau.”
“Competition has brought down home listings here to fair prices or slightly in favor of buyers, said Tappe, who has seen more flexibility in pricing recently than ever before. The company likely will build about eight to 10 ’spec’ homes, starting next spring, he said.”
“‘We see where there is a hole and then try to find lots we can build on in that price range,’ Tappe said. ‘The existing homes that we do are generally in that lower price range, $100,000 to $250,000, and that seems to move well.’”
The Capital Times from Wisconsin. “Dane County home sales dipped again in October, reflecting a downward trend in the market.”
“The Realtors Association of South Central Wisconsin reported that October sales of houses and condominiums reached 362, reflecting a nearly 14 percent decline from the 412 reported a year ago and about 44 percent below October 2005.”
“Foreclosures in Dane County hit a record high in October at 101 filings, 38.3 percent more than the 73 from October 2006.”
“Projections show that this year’s total sales will reach those of 2002, according to association Executive VP John Deininger, an all-time record at that time.”
“It’s customary, according to Deininger, for home sales to decline in the fall and early winter period. This year’s lower decline suggests ‘renewed confidence’ in the market on the part of consumers, Deininger said.”
“‘We have weathered the ‘mortgage meltdown,’ the foreclosure statistics, the national press and still have a consumer base that believes that buying a home is a great investment and lifestyle enhancement,’ stated Deininger.”
“The fifth annual First Business Economic Survey of Dane County conducted by the UW School of Business released today showed continued optimism among most local executives. But it also reflected the national economic slowdown.”
“Nearly 4 in 10 respondents said the housing slump has hurt their bottom line.”
“David Ward, president of Madison-based North Star Economics, said the slowdown in home building and home sales affects many sectors. ‘It runs deep into all areas you normally don’t think about like plumbing supplies, the guys who sell carpet and lay it, painters, wallpaper,’ said Ward.”
The MinnPost from Minnesota. “A bike ride down Chicago Avenue in Minneapolis feels like a tour of an abandoned city. Foreclosures have decimated a 10-block area of homes, duplexes and condos. A few blocks away, giant ‘buy here!’ banners wave in the wind and do dances of desperation on downtown condo facades.”
“Minneapolis condo owners, in particular, are getting pummeled as the subprime mortgage saga unfolds, prices continue to fall and the glut grows.”
“Minneapolis now has a four-year stock of condos, according to a recent report by Metrostudy, a housing market-research firm. The 13-county Twin Cities area is suffering from serious condo overdose as well: There are 4,608 brand-new condos on the market and more than 3,000 previously owned units for sale, according to Metrostudy. That adds up to a 30.8-month supply of condos for the entire area.”
“Given the current slump, expensive condos will likely wind up empty for a while. Even if you could afford to snatch up one of the thousands of vacant spaces (just 49 of the 1,044 brand-new condos on the market in November were under $150,000), according to the Minneapolis Area Association of Realtors, the new requirements make it such that you’d have to perform various acrobatic acts just to get approved.”
“Take, for instance, Sam Osterhout, who has a credit score of 780, a well-paying full-time gig, and was willing to put down around 37 percent of his condo’s value. He simply wanted to move into an uber-modern window-filled condo on Washington Avenue that smells like fresh paint and new shoes.”
“His loan process, which began in mid-August, became such a hassle that his first mortgage consultant quit, saying he couldn’t find a single lender in town who could guarantee a closing.”
“So why were banks turning away such a stellar candidate as Osterhout? Because Osterhout was buying into a downtown Minneapolis condo building that is zoned 60 percent commercial and 40 percent residential. Even Osterhout’s wad of cash and payment history couldn’t keep banks from running from him like emus under attack.”
“Condo sellers aren’t faring much better. Paul Stepnes spent more than $500,000 restoring a building overlooking Lake Calhoun. He turned the duplex into two high-end condos.”
“The pristine condos, reduced since they first went on the market by as much as $200,000, have been sitting vacant for more than a year. ‘We’re going to have to sell them at a loss; we do realize that,’ says Stepnes, whose rehab work has appeared in magazines like Midwest Home. ‘What else can you do? They’re at a great price. It doesn’t make sense.’”
“Buildings with even as little as 10 percent in rentals are considered risky. Yet in an effort to not eat dirt, many developers are turning those could-be condos into rentals. The result? Further exacerbation of the condo glut.”
“It’s worse for condo owners trying to sell: ‘A building that has more than 15 to 20 percent commercial-use is also higher-risk because of the number of businesses that fail,’ says Ronny Loew, a mortgage banker in Edina. Put another way, you’re considered more of a loan risk if you have what ‘could’ amount to lousy neighbors.”
“Add investor concentration — where investors still own a large share of the units — to the volatile mix of cut-and-run neighbors, appraisal rules and increasing rentals, and the problem swells. ‘Investors still have control of so many buildings,’ says Vince Hunt, a senior mortgage consultant in St. Paul. ‘That makes it much harder for owners to sell.’”
“So, how many condos ’sold’ in the Twin Cities currently are investor-owned? That’s the million-dollar question. ‘There’s no way we can know that,’ says Ryan Jones, the Twin Cities director of Metrostudy. ‘That’s a national question. Everyone wants to know that.’”
“Yet another neighbor issue is compounding the condo problem. If a neighbor is forced into foreclosure or has to sell quickly, it affects the price of every condo in the building. And foreclosures show no sign of abating any time soon. In the third quarter, there were 2,363 foreclosures in Hennepin and Ramsey counties, according to RealtyTrac. That’s a 102 percent increase from the same time last year.”
“Experts predict the current glut will reel us into the 1980s condo crisis all over again, when the excess left behind a string of unsold condos and loan defaults that caused downtown home prices to sink deep into the Mississippi.”
“But so far there is one glaring difference between the two decades of condo-a-plenty: Few of the condo leftovers this time around could be refashioned as affordable rentals. According to the Realtors Association, nearly 70 percent of the newly built condos in Minneapolis are priced at $250,000 and above.”
‘Competition has brought down home listings here to fair prices or slightly in favor of buyers, said Tappe, who has seen more flexibility in pricing recently than ever before. The company likely will build about eight to 10 ’spec’ homes, starting next spring, he said.’
‘We see where there is a hole and then try to find lots we can build on in that price range,’ Tappe said. ‘The existing homes that we do are generally in that lower price range, $100,000 to $250,000, and that seems to move well.’
All over the country, there are builders nipping away at the market, finding any arrangement of prices and model to stay in business. Price controls won’t work, and only lower prices will stop the overbuilding.
“… only lower prices will stop the overbuilding.”
But what the builders are now building are lower priced houses.
It looks as if the McMansion models are being replaced by the economy sized models. The next step is the bulldozing of the McMansions leaving the smaller-is-better houses as replacements.
See, it’s all good.
But they are still charging too much for what are probably very small, poorly built boxes. When the market corrects, you will be able to buy a VERY nice home in Wausau for $250k.
I used to live near Wausau, in the Point area, and trust me, when the market corrects, you will be able to buy a nice house there for alot less than $250,000
What I mean by VERY nice, is just about the nicest house in town.
My college roommate sold a completely remodeled 3/2 with basement on 5 acres of woods between Point and Rapids for $170k a couple of years back before the bubble really exploded.
So yes, you will be able to buy a nice, updated 3/2 house in Wausau for $150k before too long.
” only lower prices will stop the overbuilding.”
Sigh. I know it. But that doesn’t stop me from being filled with enormous rage every time I drive by a development in progress. Sure, I know people say that’s good, because it will cause more of a price decline. But I’m watching perfectly good land and open space get poisoned by fugly developments. Makes me think of a bunch of gang bangers furiously pumping away when the victim has long since died.
Like Bruce Norris said in 2005. Forget about the existing home market. It’s the defaults that are the market in a bust, to which I’ll add, watch new construction in an artificially inflated housing bubble.
I sense a sea-change in our society that is going from gaudy McMansion lifestyle to a more practical, simple, down-to-earth approach to living. Smaller, more functional houses will reflect that sea-change.
Sorry, no links or any other supporting evidence, just my vibes.
“Smaller, more functional houses will reflect that sea-change.”
That’s what we had for a long time in FLA. Small, concrete block shacks with terrazzo floors. Easy to live in , easy to maintain. Before that, old frame houses made of Dade County pine and cypress, two woods that were resistant to termites and mold. I remember seeing some old aerial views of parts of Florida after Hurricane Camille. Even the old shotgun shacks were still standing while some of the concrete block shacks had been blown apart by the storm. The explanation was the the wood structures breathed with the storm and didn’t offer resistance like the concrete did. I’m not an architect or engineer, so I don’t entirely understand the principle, but now I’m reading that houses made of bamboo (which they call “vegetable steel”) are most appropriate for areas that have earthquakes, typhoons, hurricanes, etc.
the prime financial motivation behind these behemoths was “buy all the house you can,” not creating a reasonably comfortable living environment. it made a warped sort of sense as long as “prices only go up.”
a declining market coupled with skyrocketing heating costs reverses that mentality.
watch for subdividing mcmansions, not to mention the bullodozing of whole mccommunities that no longer make economic sense.
who says the value of real estate can’t go to zero — and, in many cases, lower than that!
‘who says the value of real estate can’t go to zero — and, in many cases, lower than that!’
We are already seeing this. The Illinois ‘ghost town’ story with half finished houses; who’s gonna buy those and complete? In all likelyhood, we should soon read about local govts. bulldozing these as they are a public liability. It only takes a few months for these sites to fall apart. That’s how it happened in Texas.
… now just waiting to see the en masse subdividing of these mcmansions.
ready for “mcpartmenting” and “mccondo-ing”????
Anybody that’s spent any amount of time down under, down Mexico way…
Knows that partially started/almost finished buildings are par for the course, there.
As they will be here…
‘As they will be here…’
In Arizona, they are leaving by the tens of thousands, and it only took one little law.
So this is where America reclaims the high ground and gets back to work, replacing the guest workers?
We’ll see…
Arizona was simply put on the front line of this by the changes in Californias border control. We found out that ‘cheap’ labor wasn’t really cheap. I suspect the other states will figure this out in time.
I wonder how the migration back to Mexico is going?
Last in first outs, going back now.
It is cheap for the people that benefit directly. It is not cheap for the rest of us that have to subsidize the hidden costs. The builders made out like bandits on the backs of this “cheap labor” pool. I saw it in my own McMansion neighborhood that was built by major corporate builders.
Maybe we’ll see a return to boarding houses. Used to be very common and has mostly disappeared. Great way for single older women to subsidize retirement. With the ability to do background checks via the net these days it could be done safely, I think.
Another way to look at it is the bubble was the blow off top from the Bubble Boomers trying to keep up with their neighbors. Now they wake up and retirement is staring them in the face. The mentality will shift to “how do we avoid eating Alpo for the next 20 years?” I know, get a smaller home, more energy efficient, etc.
Even Bubble Boomers eventually figure it out.
I’ve been watching the small house movement for about 4 years. We bought a small mountain home in 03 and I was looking for ideas for redoing (after infrastructure mostly cosmetic). There are several excellent books about them. Never wanted a McMansion - too much to clean, heat, cool and fill.
Similiar to the transition from huge, gaudy Victorians a century ago to smalller, more efficient Craftsmen bungalows. History repeats itself.
“All over the country, there are builders nipping away at the market, finding any arrangement of prices and model to stay in business. Price controls won’t work, and only lower prices will stop the overbuilding.”
With the big builders all now writing down the value of their land, we should see them rolling less expensive homes over the next couple years. Lower prices are the only way for them to compete with existing homeowners for sales. For the builders their subcontractors and suppliers, cooperation in getting prices down is a matter of survival. Smart builders are already moving in this direction. If your a builder you better be ahead of the crowd.
Exactly right. Builders will chase the market down too. Another reason the market will almost certainly over correct. But the PTB prefer to focus on lost cause FBs stuck at impossible to maintain pricing. It doesn’t matter what gets refi’ed, etc. Prices will fall for years, and these schemes will be distant memories people will laugh at, IMO.
Ben: Good morning. Next we will see homedebtors competing against the builders building the smaller houses by saying you can get twice the size house for the same money if you buy from them. So many people are so pissed at the builders competing against them. It will be interesting when you see the tables turned. In fact, maybe it will be the bank REOs competing with the builders.
I’m on the western edge of West Des Moines and there’s an upscale ghostown across the street, then farmland. They’ve spent the last 3 months finishing more upscale houses and now more streets, sewer hookups for more building. I’m only here for the caucuses, so not up on the fine points of WTH they think they’re doing, but it can’t work. I’m so sick of the forest of real estate signs I entertain fantasies of going through the neighborhood after dark and putting them all in my Jeep.
” I’m only here for the caucuses,”
so if any HBBer’s see they’re favorites lines being muttered by the pols….
Lower prices dont mean building cheaper homes, it means slashing prices on existing homes, but you smart ppl already knew that.
’slashing prices on existing homes’
In theory, the builders should pick up lower and lower raw land/lots and keep working until they hit breakeven. That could be years away. After that point, existing homes will be forced to compete amidst the over-supply, and that’s when the serious slashing should begin.
Dollar cost averaging is a great stategy in volatile markets that are expected to have an overall upward swing (at least from your avg expected investment price point, not necessarily from any peak) during the relevant time period (i.e., buy on the dips). The question, however, is will they survive until we reach the upward swing. Otherwise, they are in trouble. I dont see upward swings until 4 years at most. Are they poised to handle 4 years of losses. Im told there is no profit margin cushion right now.
One other thing to keep in mind is that most existing builders have financial covenants under their revolving credit lines which they are currently failing to meet because of standing inventory they cannot get off their books or for selling at a loss. Thus, many are not in a position to take advantage of new deals that may present themselves. They are simply too leveraged as it is. I know dozens of major builders whose credit lines have been shut down until further notice. This is going to be really, really bad.
Minor builders as well… These guys are now begging for custom work at spec home prices because that is the only way they can keep building. Can’t get the cash to build anything on their own or they would.
So Ben, you are saying the real price cuts for existing homes are still several years away? I hate to say it but I think you are right about that.
Ben,
We’ve been to many communities up here. They are all overbuilt. Tiny little towns with condo’s for crying out loud!
From what I’ve seen first hand, there are plenty of smaller homes on the market, no need to build more of them.
Of course, affordability is another matter.
Notice how the press does little coverage on housing compared to other areas?
They definitely didn’t get the memo here, yet!
Leigh
They were really trying to push major condo development on the St. Paul waterfront. My understanding is that they built some and have stopped many of the phases dead in their track. Buying a condo in Manhattan might make sense. I will never do it but there is no alternative. Buying a condo in Wisconsin is just stupid.
I would never buy a condo any where any way any how at any price. They can so easily go to pot and you are left being the bagholder.
I agree, condos are a bad option whenever there are single family housing alternatives within a reasonable distance. I dont see this being the case with the Twin Cities. Condos are too risky except in neighborhoods like Manhatten or San Fran where there really is no alternative at certain price points.
There has been all this talk about urbanization and the desire to live in the core of the city, and downtown condo projects are usually the center of the dicussion. The fact of the matter is that much of the demand was investor driven as they are easy to rent (although at current prices they would have negative cash flow), little maintenance, and investors had a few years of no taxes or hoa if it was a new construction project. These projects will clearly be the hardest hit.
That’s a little too generalized, dontcha think? I’m not going to retire to a house I’d prefer when a quadplex or condo is more appropriate. It’s not apples to apples. A house priced the same is not in the neighborhood the smaller condo’s in. If I want security in the Chicago exurbs, I need to look in mixed-dwelling developments and pay for clubhouses, trails, et al to get a reasonable solution for senior years.
I think you misread it. I did not say a condo in the city v. a house in the suburbs. I said a condo in the city v. nearby single family home alternative. Homes have historically appreciated faster then condos. This is especially true of land in the city. I brought my bungalow in 1999 for 200k sold in 2005 for 550k for land value. Nearby condos didnt rise nearly as fast. Show me a single study that shows that condos are a better investment then single family houses over an extended period and taking into account the same neighborhood. Always remember in cities land is king as it has many uses. I think you are getting confused by focusing on a single buyer, as opposed to looking at all buyers as a group representing demand for your purchase. Therein lies the problem. I am not focused on a particular buyer, I am focused on supply and demand principals with respect to urban environments.
Sure, I see what you’re saying, but there is a huge cohort about to retire, be widowed, etc., single instances multiplied by our largest generation. It’s hard to imagine every boomer living alone in a house into old age. Urban vs suburban vs rural isn’t the distinction, it’s the square footage.
I hear you, and I agree that buyers have different motives for a purchase besides just maximum appreciation potential (and that huge demographic shifts such as the retirement of baby boomers have an impact on such potential). I was thinking, however, solely in terms of which properties would do better in terms of resale value through the bust, and was not attempting to address lifestyle choices. Also, I feel that the demand for these intown condo projects is not what the realtors like to believe. Yes, many would find it great to live close to restaurants and bars, and walk to work. The fact of the matter, however, is that most 20 somethings can’t afford 500k or more for a two bedroom in the city, and many retirees would prefer something more quiet and affordable. I think more investors were sold on the dream rather than the reality with respect to intown condos then with respect to other housing alternatives, and thus, they will be particularly vulnerable to downward swings. Please feel free to argue with me any time.
I am an attorney and naturally argue. Never take anything I say personally.
We had this discussion a couple of days ago re: retirement living. I prefer a small single story home/cottage for privacy reasons and no HOA. I can buy the same maintenance I would receive in a condo.
I also think there would be high demand for SFHs with a granny flat or guest house.
If a developer ever decided to build “green” developments (double-plumbing/water recycling, solar panels, **larger lots**) that were zoned for SFH + 1 or 2 guest houses, they would strike it rich.
Also, if they wanted to be **really** smart, they would just prep the lots and have a varitey of designers, architects, suppliers, etc. so the buyers could actually have a say in the home design. The builders could charge a fee to the service providers/suppliers for being on the developers list of recommended companies.
“All over the country, there are builders nipping away at the market, finding any arrangement of prices and model to stay in business. Price controls won’t work, and only lower prices will stop the overbuilding.”
I’m holding my breath to see what is offered when that hits locally. At present what I see offered for smaller homes are for empty nesters. They are two bedrooms that are chock full of high end flooring, granite, and appliances yet are only 1300 -1500 sq feet and offered w/just a sliver of land. They then ask $75-$100k more than your 15 year old 2500′ colonial on an acre.
My husband and I are actually thinking of replicating this 150 year old farmhouse we’re renting. The owner’s son did all the upgrading and is a builder so we’re going to ask him to price it out.
This house is less than 2000 sq ‘ but is laid out very efficiently and has all the amenities and space a family of 4 needs. I find it so much more exciting a layout than anything new I’ve seen out there. With laundry room on the 2nd floor, way more sunlight than I’ve seen in any modern home w/o high end windows, 3 spacious full bathrooms and tons of storage space, there isn’t much more a young family needs. Now affording this view might not be in the cards for us nor the 80 acres of land surrounding it but if we wait 2-3 years, who knows?
“Trejo owed $551,000, according to the credit report, he said. Released on bond, Uribe went to Florida, where, court documents show, he was arrested on Sept. 5 for the same fraud crimes he committed in Elgin.”
And that’s why God made Florida. Haven for shysters. Never a dull moment.
“Metcalf said when he talks to realtors, they say prices are going back to 2004 levels…”
Realtors wish prices would only go back to 2004 levels. I won’t buy at 2004 prices.
I checked my house, that is a 20% haircut from here. That sounds about right, though. The townhomes i was watching went from 195k in the spring down to 170k now. Another 20k and the bottom might be in.
a bottom? really?
alls i can say is don’t bet your HELOC money on it..
‘Realtors wish prices would only go back to 2004 levels. I won’t buy at 2004 prices.’
It is interesting to watch the line be redraw.
I’ll be ready to buy when and only when it makes sense financially. Renting a 4 yr old 3bd, 2bth right now, love it here, for $750/mth. (I do live in a teensy tiny town) To buy something comparable here, the PITI would be over $1500, thats assuming a 6.5% interest rate. What happens if rates go up again? The first house we bought was at 8 or 8.5, which was a good rate at the time. If interest rates go up, the prices HAVE to come down to compensate. Anyways, I’m happy renting now, so feel no pressure to buy unless it makes sense.
I cannot think of a single factor that would put upward pressure on home prices, but can think of dozens for downward pressure. I want to buy too, but will begin looking in two years. There are absolutely no postives in the current market environment on the buy side.
“Even Osterhout’s wad of cash and payment history couldn’t keep banks from running from him like emus under attack.”
Im getting out the blackboard and multiplying this story times all the downtowns in America. San Diego and LA get in line.
$300k luxury condos in Pullman, WA. Even small, off-the-beaten-track towns have been infected with luxury condos. Not one of these units have accually been occupied, and the whole project will eventually end up on the rental market at $1200/mo… A good investment at $130k perhaps.
I couldn’t believe it when we were driving through a rough neighborhood in Newark back in October and saw a sign for “luxury condos”. Now that is good humor.
In the 80s, my grandparents dumped the big old fashioned BH house and bought a 3000 sq ft condo in WLA on Wilshire. Had huge terraces, valet parking, maid service and all the amenities. Those were “luxury” condos not because of all the fancy finishes (not) but because of the space and because they were built so you never heard another person.
The location doesn’t hurt, either.
Can’t have a “luxury condo” in Compton. No such thing.
They built some ‘downtown’ condos here in Snohomish, it takes me 1-2 hours each way to commute to downtown Seattle. There isn’t even a Grocery store downtown, although there are plenty of bars. I can’t find it on craigslist, but I saw one of these offered for rent at about $1600.
I’m a computer programmer, making more than the average wage, and I don’t see how one could afford a house around here at these prices. And the odd thing is you could buy a normal house much closer to Seattle for about the same price. At least now my wife admits it’s a good thing we are renting for the moment.
RainingSeattle…another downside of living nearer/on the foothills is more rain and clouds. Closer to the water you get more sun because of breaks in the clouds. Rents range from a low of 700 to whatever you are willing to pay around Belltown, Uptown, and QA. You can easily catch a bus downtown and sell the extra car ( get a flexcar membership for those times you need an extra or larger one). I walk everywhere, even at night.
In regard to all the posts in the bits bucket about taxpayer this and taxpayer that; the Fed calculated total US govt. liabilities of $54 trillion.
With a negative savings rate and borrowing $3 billion per day, there is no way it will ever be paid. Worry about what you will, but personally, I have no fear of ever paying a dime of that off.
it’s just baby fat.. we’ll grow out of it..
The 3rd World States of America…
(or how I learned to stop worrying, and love the debt bomb)
I’m not saying we should love it, or not resist profligancy, but at some point, probably a decade or two away, this country will default on the debt, IMO. I wish it wasn’t so, but the numbers and the demographics are what they are.
Well, I guess in the past, there were debts that we forgave other countries, too, so maybe we can just call it a wash, since everything is “globalized” now. In a way, this is similar to how everyone was hyperventilating how Japan was going to “own” the US back in the 1980s and then Japanese companies really took it on the chin with their US investments. It’s just on a bigger scale now.
I agree with your concerns about our Country’s debt problem.
I’m afraid that in 20 years, Social Security may consist of an apple a day for food, and a cardboard box for shelter.
Depends on how much more money we waste on bombs, bullets, and invading countries, or building military bases around the world - take that money and we have enough for health care for all instead of just government employees, congress critters, etc
of course we’ll never pay it off. question is, how long (and at what interest rate) can we continue to find anyone to purchase the debt?
I agree, that’s the big question. And what that does to our currency and living standards in the meantime.
Tango, Argentina o Tango SIV?
They’ll invest enough to keep us afloat pending development of their own domestic consumption. Then…kersplat. They can actually finetune our return to feudalism fairly smoothly. Nothing goes straight up or straight down, but I sure sleep better holding H shares in Hong Kong than I did trading the NYSE.
Funny, I have the opposite reaction: I have no doubt that it will be paid off. I just don’t think that the $54T (= 4x GDP) will be paid in $$ with nearly as much purchasing power as today.
Yep. No way they take the nuclear option when inflation can do it stealth style.
I don’t know how many times this has to be said:
***Money does not exist until it is borrowed into existence.***
How do you pay off the debt when the money to do so must be borrowed?
The dollars in your wallets are Federal Reserve Notes - Notes are DEBT!
Robert Hemphill (was the Credit Manager of the Federal Reserve Bank in Atlanta):
“If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible — but there it is.”
Real estate was the main driver of debt creation - mortgages/helocs/cash out refis. Now that it is gone - so is life as we knew it.
We’ll “print the money” is a dream sold to you so you won’t sh*t your pants.
““If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible — but there it is.””
Is a gold or silver coin a debt?
Let me add that it’s $54T with a $14T economy. As I ahd psoted before, a nice 4:1 ratio .. it was 2.5 in 1929.
And the credit woes are spreading quickly.
Jim Markham writes for MSN/MSNBC :
In another morph, individuals scrambling to pay rising mortgage rates on houses that are declining in value are also punking out on their auto loans, student loans and home-equity lines of credit. According to a Lehman Bros. survey, 4.5% of auto loans issued in 2006 to well-qualified borrowers were 30 or more days delinquent through the end of September, up a whopping 3% from the previous month. Lehman said that was the largest single-month delinquency leap in eight years and that auto-loan delinquency rates are now the highest in a decade. Meanwhile, 12% of subprime auto borrowers are delinquent on their 2006 loans, according to Lehman Bros., which is the most since 2002.”
This is Page 2 of his article on the bailout, etc:
http://articles.moneycentral.msn.com/Investing/SuperModels/HomeownerBailoutIsALousyIdea.aspx?page=2
But we all will pay. Those $54 trillion will come from someone. It may come from inflation. It may come from radically reduced social services. So even though your taxes may not rise, you will pay it back one way or another. We all will.
I read an interesting analysis of spending by each president. It turns out that Democratic presidents actually had an overall surplus, while Republican presidents (mainly Reagan and Chimp) created most of the deficits.
So when the bill does come due, and it will, remember that the “conservatives” spent all the money.
We all have free will to put our assets in non-dollar places, so act according to what you think will happen.
Agree 100% Ben. Place your bets.
Yes, but we are all forced to gamble this way.
We have almost 10% of our money in FC CDs and ETFs, some in gold & GLD, etc. but even those markets can be manipulated. That’s what svcks.
I’ve never been so “diversified”: long, short, stocks, bonds, options, CDs, ETFs, foreign currencies (6 of them because I’m afraid of what other currencies will do), etc. Feel like a dang chicken with its head cut off.
Without a doubt, we are all gamblers, now.
The $54 trillion will not come from anyone. That debt - just as the mortgage debt, car loan debt, and credit card debt now - will be defaulted. It will not be paid. The benefits/services ‘promised’ will not be delivered. The country will be sold out to pay the foreigners/banks holding the debt. War/terrorism/starvation will eliminate the surplus population that depended on the benefits/services.
You, your pension fund, your IRA/401k, your children (the ones who survive what’s coming) - will be left holding the [empty] bag. Those stuck in the real estate market aren’t the bagholders - we’re all bagholders.
We all - every last one of us - created the debt. We’re a nation of parasites. And we’re in the process of getting what we deserve.
You can’t have your cake and eat it too.
There’s a way out of $54T.
1) Take the major write-downs now.
2) Stabilize the Fed’s policies by watching the money supply or the real CPI inflation, not the 1993 Rubin-Greenspan invention.
3) Privatize Medicare and SSI for those willing to opt out.
4) Lower taxation/regulation to increase the real (not cooked by Rubin/Greenspan GDP growth) economic growth much like Ireland, Hong Kong or mnay of the former Eastern Block nations did.
5) Keep cutting discretionary spending and lowering the national debt.
6) Within 25-30 years, the US could be as good as new.
Basic rule of economics: the value of currency is based on what society produces - now. Not what we produced in the past, but what is currently being produced and what we will produce in the future.
We all can’t retire on our investments at the same time; somebody has to actually produce something for our investments to maintain their value or to increase in value.
Ben,
It’s not a matter of the govt actually paying it off, it’s how they suck out what’s left in our pockets in the name of “Saving America” or some such nonsense.
Some of us are worried that those who save and/or have some assets will lose whatever we might have to make it through the recession/depression.
Personally, I resent this bailout talk because it will invariably mean a ratcheting-up of the War on Savers.
Those of us who’ve been trying to live within our means and do the right thing are getting screwed, big time.
“By springtime, many homeowners in metro Detroit could face an unwelcome and seemingly improbable trifecta: Higher taxes, lower home values and shrinking services. Many communities are anticipating reduced property tax collections in 2008 because of the foreclosure crisis. ”
“Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.”
The parallels to the early 1930’s are all over the place, and as things are happening regionally, it gives us a chance to see what will become of us?
Detroit is the ultimate test…
Their auto industry is on auto-destruct mode, and the hoi polloi lines up to get in on the holy grail of employment, a McJob, any job really.
And property taxes are going up, and services aren’t there?
fe fi fo fum, I love the smell of revolution…
http://en.wikipedia.org/wiki/Tax_revolt
This idea that local gov’ts are going to be able to jack taxes, cut services and sit back collecting a decent wage and retirement while the unwashed masses mill about trying to make ends meet will be interesting to watch play out.
I guess it will be like parents who have promised college to their kids and now say sorry - we spent it all. On the other hand - it’s really uncool to have people that put their time in on a job and planned according to the promised retirement benefits and now to tell them sorry, we spent it all and you’re on your own to figure out how to live and buy medical care. A lot of the last generation and boomers that were close to retirement age have already gone through the bait and switch when so many corps switched from pensions to 401Ks.
“I love the smell of revolution”
Patriot Acts I & II and the Homeland Security apparatus will take care of that little fantasy.
Oh, you thought that was for the terrorists?
The wall they build
to keep them out
will someday keep us in.
Tappe’d out.
“‘For high end homes, over $400,000, the market is saturated in inventory. It’s a matter of supply and demand. It’s not necessarily a bad market, there’s just too much inventory,’ said Heath Tappe, president of Main St. Homes of Wausau.”
“Tappe said. ‘The existing homes that we do are generally in that lower price range, $100,000 to $250,000, and that seems to move well.”
Well, no sh*t Sherlock. The median household income in Wausau, WI is $36,800, Average salary is 28,690.
“‘For high end homes, over $400,000, the market is saturated in inventory.”
This crap grates on Californian’s nerves. 400k used to buy the works. Now its a 35 year old apartment turned condo. Yeck.
“Robert Gabriel never imagined he’d end up living in a virtual ghost town. Gabriel moved into an Antioch subdivision in April, before builder Neumann Homes declared bankruptcy last month. Now, he said, he worries about vandals, thieves and nasty critters creeping around his property, especially at night. Streetlights aren’t installed, roads aren’t paved and half-built homes stand as stark symbols of the builder’s financial woes.”
“‘It’s been like living in a ghost town since we moved in,’ Gabriel, said as he pointed to the skeletal frames of unfinished homes. ‘It can get scary when it’s dark out.’”
So to recap…
The loan apostle Gabriel lives alone in a darkened manger, abandoned by his friend Neumann, Alfred E.
“And property taxes are going up, and services aren’t there?”
Very soon there will be no money to take care of non legals. In a way this bail out is all about handouts to help elections.
Can we read these contracts with a fine tooth comb? Will these folks get a pass on paying prop tax too? Probably.
The solution is going to be like any other financial problem we’ve gotten into in this country, it’s working through it. Let the market work, it’ll work itself out, it always does.’”
- Sorry Jeff, Big Brother must bow to pressure from Wall Street and and put together a hair brained sit com.
1- Propose solution, have press conferences and stir up press.
2- JuanJoe Sixpack responds ‘Good, it’s about time.’
3- Juan gets distracted, Raider game on - Brittney arrested etc
4- Move along now, pay no attention to real solution.
5- ‘Must See TV’, next week local / state bailout proposal
6- Repeat steps 1 -5.
Did one of Hoz’s pigs get loose?
This gent appears to be applying numerous shades of lipstick, all over it.
“It’s customary, according to Deininger, for home sales to decline in the fall and early winter period. This year’s lower decline suggests ‘renewed confidence’ in the market on the part of consumers, Deininger said.”
“‘We have weathered the ‘mortgage meltdown,’ the foreclosure statistics, the national press and still have a consumer base that believes that buying a home is a great investment and lifestyle enhancement,’ stated Deininger.”
Yeah Deininger, Rave On…I’ll bet there were plenty of fair weather optimists like you destined to be splattered on the pavements of Wall Street or strolling upon the decks of the Titanic in the early 1900’s
“Even Osterhout’s wad of cash and payment history couldn’t keep banks from running from him like emus under attack.”
I’ve got a visual…
For high end homes, over $400,000, the market is saturated in inventory. It’s a matter of supply and demand. It’s not necessarily a bad market, there’s just too much inventory,’ said Heath Tappe, president of Main St. Homes of Wausau.”
OK, so maybe you’re unclear on the concept of supply President Tappe…. when there is lots of supply, and zero demand, that’s pretty much the definition of a bad market. Oh, wait, I get it - you think when prices drop to meet the demand curve that THAT’S a bad market - actually, that’s a functioning market…
“Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.”
It’s always been amusing to me that people don’t realize that their assessments only determine the proportion of the tax pie they owe. It’s more about what your assessment is in “relationship to other properties”. From there that proportion is only applied to the ever changing figure of your town’s final budgets. If the town is receiving less state or federal aid….if your school is putting in new lights and turf on their football field…..if your town is losing tax income due to loss of businesses in their area…..the void in the budget gets filled by Mr. Propery owner’s pie. Now, there’s a reason to get involved in local politics and have a voice in how money gets spent and understand how coffers are filled.
I’m homeschooling and am explaining these concepts to my 4th and 5th graders.
I’ll also teach them property is spelled with a t. (Blush)
Anyone else hate editing while they’re typing on the fly? Always seems I’m fitting in 30 min increments to blog.
Seems we have an unusually high number of homeschoolers on the HBB. I’m guessing it’s because we’re more inclined to be cynical, contrarian & unwilling to follow the herd. Interesting…
Fellow HS’er here.
I always find it strange that people are excited to increase prices, and freak out when any talk of lower prices comes up. I guess people love paying an arm and a leg for things, including taxes.
I like low prices. Makes me feel like I received good value for my labor. Makes me feel good about the future for my kids.
Our government and news media are panicked about lower prices. Tells you all you need to know.
Guess you didnt pull that equity out to go on an unwarranted spending spree. Therein lies the problem.