From Start To Finish, A Year Of Slump
The San Francisco Chronicle reports from California. “Beaming with pride, Johnnie Pitts stacked up piles of legal documents on his living room floor the Wednesday before Christmas. The San Francisco Muni driver had just returned from having his signature notarized on agreements that permanently modify his once-exorbitant mortgage to a reasonable interest rate, allowing him to keep the three-bedroom bungalow on Oakland’s MacArthur Boulevard.”
“Pitts started off financially unsophisticated, but he now shows a shrewd grasp of how the system works. ‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ he said. ‘We’re not homeowners; we’re renting from the banks and investors.’”
“Earlier this year when he realized his mortgage was slated to reset to well over $4,000 a month - the same as his take-home pay - Pitts started speed-dialing his loan servicer, banking giant Chase, asking for a loan modification.”
“At the same time, he boosted his income by racking up overtime - an extra 10-hour day every week - to catch up on some missed mortgage payments and property taxes. ‘My family and co-workers said, ‘Why don’t you just do a short sale?’ but this is my house. This is the major purchase of my life,’ he said.”
“Pitts’ monthly mortgage will now be just shy of $2,800. Property taxes and insurance add another $700 a month. The $3,500 monthly total is still quite steep for a man whose base income is about $4,000 a month, although he can earn another $1,000 or so through overtime.”
“Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
“‘I’m going to modify my lifestyle,’ he said. ‘I shop at the dollar store; I buy in bulk and on sale. If push comes to shove, I may have to get a roommate.’”
“How will he celebrate his birthday this year? ‘I’ll be working, the same as on Christmas,’ he said. ‘It’s time and a half on the holidays. I’ll take the money. Renters have a different mentality; they can party.’”
“Jeff Hahn let out a small sigh when a reporter called to tell him that his Fairfield house had been sold at a foreclosure auction two days earlier. ‘So that’s it,’ he said.”
“Hahn and his wife walked away from the house this summer because the $5,000 monthly payments were as much as their take-home pay. They put it on the market and moved to Los Angeles, where Hahn had a good job lined up.”
“They started off listing it for sale at $575,000, then dropped the price steadily over several months without attracting any buyers.”
“‘The last time I talked to our Realtor, her best advice was to try to sell it for around $350,000 to $400,000,’ Hahn said. ‘I’ve talked to friends who still live up there; there are six or seven houses just like mine for sale in my neighborhood from people in foreclosure.’”
“Hahn bought the four-bedroom Colonial in 2004 for $495,000. He later took out a home equity loan to help finance his business of importing high-end auto parts. His adjustable-rate mortgage jumped from $2,200 a month to $3,700 last September.”
“The couple used credit cards to make the mortgage payments while they tried to refinance. In March, the Hahns finally were approved for a refinance at $570,000 with an interest rate of 10.5 percent. But they never made a payment.”
“Jeff Hahn said they accepted the pricey loan because they were desperate to salvage their credit rating and hoped to sell the house quickly. As they rebuild their lives in Southern California, the financial reverberations of losing the house linger, through credit-card debt and lower credit scores.”
“‘We literally are living paycheck to paycheck,’ Hahn said.”
“During the months of struggling to keep up with their mortgage payments, they ran up more than $16,000 in credit-card debt, Hahn said. Once they stopped paying the mortgage, his credit score plummeted from 710 to 490.”
“Tom Kelly, a spokesman for Chase, which was the servicer on Hahn’s loan, said the property reverted to Chase at the Dec. 17 foreclosure auction for $474,750 - far less than the $570,000 loan balance and the unpaid fees and penalties.”
“Lenders generally set minimum bids at foreclosure auctions equal to the amount of outstanding debt. Kelly said he was not certain why it went for a lesser amount, but said he could speculate that ‘given the problems with home prices, now the bank is happy to get less than (is owed) and walk away.’”
“Kelly said the Hahns’ case was straightforward because they made no payments after refinancing and had only minimal contacts with Chase. ‘If a person has never made a mortgage payment, that’s very clear-cut that we’ve seen no good faith effort from that person,’ he said.”
“After his story was told in The Chronicle, Jeff Hahn said he briefly became a ‘poster child’ for foreclosures - appearing on radio shows, getting a call from People magazine. But the couple also was the target of some vitriol by readers on The Chronicle’s Web site. For that reason, they declined to be photographed.”
“‘The number of hate comments we got just floored me,’ Jeff Hahn said. ‘This wasn’t something we chose to have happen to us. I just don’t get how these people can judge me like this and think we completely took advantage of the system. The system took advantage of us. We’re the ones losing our house; we won’t be able to rebound from this.’”
The Lompoc Record. “Arguably the most talked-about issue in 2007 on the Central Coast - indeed, throughout the state and the nation - was housing, particularly the downward spiral of prices and sales.”
“A complex mixture of factors squeezed local real estate, driving home prices down and leaving a glut of new and existing homes on the market as foreclosures rose amid the subprime mortgage debacle.”
“In San Luis Obispo County, a median-priced home cost $454,840 in November. That was down 17.1 percent from the median price in October and 14.6 percent from November 2006, when the price was $532,890, and well below the record $605,158 set in November 2005.”
“The association said November 2007 sales in San Luis Obispo County fell 17.7 percent from October’s level and 28.7 percent from November 2006.”
“In mid-October, a total of 756 existing single-family homes and condominiums were on the market in the Santa Maria-Orcutt area, according to the Santa Maria Association of Realtors. Particularly troubling was the fact that nearly 16 percent of those - or 118 homes - had been lost to foreclosure.”
The Tribune. “The North County median declined to $469,000 from $490,000, a 4.3 percent decrease. In December, the county median was $472,500, down from $529,000 the same month a year ago.”
“‘If you stand back and look at the market, there’s still job growth, attractive interest rates and unemployment is low,’ said Jim Liptak of Country Real Estate in Paso Robles and president-elect of the California Association of Realtors. ‘But you’re still seeing great difficulty in the market, a lot of it caused by the (subprime) mortgage crisis.’”
“Liptak said the housing slump actually started in 2005, the same time record numbers of people jumped into real estate. The oversupply of housing and agents were two things that ‘created almost the perfect storm.’”
“‘Right now, the number of (annual) transactions an agent is doing in California is on average under four. In 2004-05, that figure was 12 to 14,’ Liptak said.”
“There will be winners and losers in the next year, said Kirk Lesh, real estate economist with the UCSB Economic Forecast Project.”
“Renters, for instance, may find that it’s just as costly to rent than to buy, spurring some people to jump into the market, he said. ‘Of course, on the other side of the coin, if you wanted to sell a home now and move, you may not get as much money as you wanted.’”
“Some San Luis Obispo County lenders found that the steady business they enjoyed during the real estate boom had slowed.”
“‘Lenders couldn’t keep doing 100 percent financing and assume that one day (home) values are not going to come down,’ said Leslie VandeWalle, a mortgage broker in San Luis Obispo.”
“‘There are certain people who are doing well, but no one is doing really well in this market,’ said Kyle Allen, a mortgage loan consultant.”
“In November, for example, there were 1,023 trust deeds recorded (includes sales, refinances, home equity loans and construction loans), down from more than an average of 2,000 during the year-earlier period, according to county records.”
“VandeWalle’s firm, which specializes in more traditional loans, started noticing a change when fewer clients sought her services in the latter half of the year. La Casa had been doing about 10 loans every month. Now, they have about four or five, she said.”
“‘We were totally dead for a while,’ she said. ‘We had three months with no escrow closings. Now, now we’re back working again, but loans are harder to make.’”
“In a recent California Association of Mortgage Brokers survey, 41 percent of members said they expected lending standards to further constrict in 2008. In today’s market, potential borrowers with credit scores of less than 680 may find that it’s more difficult or expensive than for borrowers with scores greater than 680.”
“It’s becoming more common for borrowers to provide paychecks, tax returns and bank statements to qualify for a loan. With jumbo loans, potential buyers are asked for 10 percent or more.”
“‘People come to us for loans now that there’s not necessarily a loan product for,’ said Michael Hahlbeck, VP of Mariner Mortgage in Arroyo Grande. ‘I had a client six months ago who could have easily gotten a loan and deserves one. She has good credit and adequate income, but she’s young and has no money for a down payment. She wanted 100 percent financing and would be a success story with it. It bothers me because it would have been a good opportunity for her.’”
The Voice of San Diego. “Where 2006 launched with some optimists downplaying signs of trouble in the county’s housing market, the tenor of real estate shifted to leave such voices in the minority by last New Year’s Eve. And then 2007 proved, from start to finish, a year of slump.”
“‘The problem with the market is, prices got bid up to exceptionally high levels, and this is the back end of that,’ said Chris Thornberg, an economist with Beacon Economics. ‘What we’re seeing is a market in the painful throes of a downturn.’”
“‘I think that basically, this snapshot in time — it’s a real period of unknown,’ said Gary London, a local real estate analyst. ‘We can speculate — ‘this was worse, that was worse’ — but this is just in real uncharted territory.’”
“In 2007, buyers were scared, scarce or both. The number of homes sold each month hit decade lows, month after month. ‘If you look at two houses for sale in the same neighborhood, they’re in competition for the same buyer,’ said Mark Goldman, a local mortgage consultant and broker.”
“When sales activity picked up, it was usually due to an increase in the number of homes sold as repossessed properties or as short sales. And where there were buyers, they paid less for homes than they did last year.”
“Local market consultant Dan Holbrook…recently switched his business from focusing mostly on making mortgages to negotiating short sales and bank-owned deals.”
“‘We, in order to get through this, need to get creative,’ he said. ‘The distressed market is the market. And I’m focused on the distress. I’m almost a distressed real estate evangelist.’”
I want to second Professor Bear’s congratulations to the Voice of San Diego for the reporting this year, and writer Kelly Bennett in particular. Great work Kelly!
“Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
==> I am proud to be a Nouveau Serf
Go for it Pitt!!!
Keep paying more than your monthly paycheck, cos as we all know ‘Renters are Losers’!
What a plonker.
Hang in there Pitts. But, I wish you would default and turn over the keys. My PUTs on DSL will just take a little longer to get in the money.
“Renters have a different mentality; they can party.”
Let’s get this party started!
What is this guy going to do whenever the Overtime is gone? Sooner or later most places either hire more people to properly staff and slash overtime or a slowing economy gets rid of the need for overtime.
In todays world you are nuts to believe that you have a guaranteed paycheck next month, much less build your whole financial plan around having unlimited Overtime available to you for the next 30 years.
Rent = Cash in the Trash
Property Tax, Insurance, Declining Equity = Yer life in the crapper
I’m still a firm believer that rent IS cash in the trash, IF IF IF the real estate market is normal. That is, mort payments not much more than rent, no condo fee, no exotic loan products to drive speculation, no more than 80% LTV, mortgage tax break partially offsets tax/ins, stay in the house 5-7 years, appreciation that at least keeps up with inflation, etc. Then IMO it’s worthwhile to buy.
But in this market? Not a chance.
Agreed. Under NORMAL circumstances, owning is better than renting. However, I dont think we have seen normal in the time i have been looking to buy a house, since about 99-2002.
Absolutely.
Except when you rent, you get a roof over your head and more flexibility in your life. So you know, it’s not a complete waste of money.
If he can hang on a few years - and he sounds able to - it may pay off later, but I don’t think it will be ten years. Maybe fifteen.
Best financial advice I ever got? “Own what appreciates. Rent what depreciates.”
Of course, this was said to me by an auto dealer finance guy as he was trying to screw me on a car loan….
Happy New Year, everyone!
Best financial advice I ever got? “Them that understands interest gets it. Them that don’t understands it pays it.”
Well said, PB. Az_lender mulls over the peculiar circumstances that transfer a couple of dozen people’s hard-earned money into her ML account every month, while those same people send her Christmas cards to thank her for helping them to “own” their homes. I should have sent them cards, but instead, I just slipped in with their annual 1099 form a note congratulating them all on being “superprime” borrowers. Hello HBBers, I have just returned from a delightful vacation in Kenya.
“I’m still a firm believer that rent IS cash in the trash, IF IF IF the real estate market is normal. That is, mort payments not much more than rent”
This is exactly what pushed a lot of people into buying in SF during the bubblicious period. Bloody rents were so high that it often seemed cheaper to buy. Why shell out $2500-$4000/mo for a rental when you can put it toward a mortgage? I guess the answer to that question is finally coming to light.
Happy New Year!
Maliubu: I like that advice.
And maintaince. Now when my rental has minor problems I just fix them but unlike when I owned a house I fix the rental real fast and pay no great attention to how long the fix will last. Its so nice to be able to slap things together and not worry about the future value of this place. I only call the landlord if its going to be a big heavy job like garage door failed, air conditioning is low, etc.
biggest worry is the landlord lets all his homes go back to the bank, I think he is a FB as well as he owns his own business doing Home Apprasials. got to be slow these days.
100K less now, how much less tomorrow. WOW, the “How much’a month it a’gonna cost me’ plan in reverse!!
How long before we again hear that he is a VICTIM not because his payment is increasing but because he has exceeded how much of his monthly income he can really afford for a house and wasn’t properly councilled.
Well, we all know what the redefault rates run for cases like this. What are the odds that, sometime in 2008, Pitt realizes he’s $200K+ upside down and mails the keys in anyway?
Go ahead and laugh, but once the Super Bowl is over this guy will be back on the path to uber-riches!
Okay, so I couldn’t keep a straight face while I typed that.
Happy New Year to Ben and all of the HBB’ers!
Velo
And when you’re eating? It’s just money in your tummy.
OMG, even after they show him the math, he can’t admit it!
Wow, just wow.
6 days ‘o week of workin’. Okay, I’ll play along. But how much of life is he going to have when that 7th day required the lawn mowed, weed whacked, and edged? How is life going to be when the sprinkler system dies or the roof needs some service? Sure that 1 day a week is going to be either work at the ol’ ranch, him sleeping for 24 hours, or a lot of deferred maintenance.
Well as a renter, I guess I’ll take his party line. BTW, he get up now and MOW THE LAWN on his off day! With his payment to income ratio, there is no way he will be paying anyone to do it for him.
This is just a classic example of the fully indoctrinated idiot. He’s been told his whole life that renting is throwing his money away. Never once do fools like this think to pull out a pencil and run the figures for themselves. Oh no, these guys will spend 80% and more of their monthly income to own instead of 35% to rent because they’ve been told renting is throwing your money away. This guy deserves what he’s about to experience. Maybe the lemming will wake up, because, afterall, pain is the great teacher.
Also note that he is effectively out of the consumer market he can barely afford gas and food. So people like him who hang in their are tanking the economy just as effectively as if they had defaulted. So it really does not matter if these people hang in paying 80% in house payments or default.
Well, on the other hand: the man works, works and works and consumes little. Nothing wrong with his contribution to the supply side of the economy.
It continues to floor me that people fail to find value in having a roof over their heads……Throwing money away? I hardly consider paying for servicing my car, for insurance etc as throwing money away. Why would I consider exchanging a portion of my labor for my primary shelter as throwing money away?
‘ “‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
“‘I’m going to modify my lifestyle,’ he said. ‘I shop at the dollar store; I buy in bulk and on sale. If push comes to shove, I may have to get a roommate.’” ‘
Determination.
By the way, Ben, great end of the year Cali thread. It got me rattling the Joshua trees again.
LOL. As I read about Pitts and Hahn, I almost felt the foaming from the feeding frenzy as the Piranas in here smelled blood in the water. Both of these clowns would be a bundle of quivering neurosis if they ever goggled their names and discovered the sentiments in the HBB.
Yeah Pitts had me laughing out loud. Poor guy. A case study of the new “bailouts.”
So long as we are in year-end congratulatory mode, I would like to also compliment both Ben Jones and Rich Toscano for their ongoing efforts to create islands of truth in a sea of REIC-supplied disinformation. Here is a recent post from Rich, which features a graph from which the San Diego housing bubble stares right back at the reader:
http://piggington.com/october_case_shiller_prices
“So long as we are in year-end congratulatory mode…”
Prof, I want to personally thank you for sharing your thoughts and worthy news articles here with us. Please don’t stop!
I second the motion.
There’s a Russian proverb: “In the pond of lies, only dead fish swim.” How true for the MSM. But here on the HBB, truth lives and the piranas are frenzied!
Hello Sammy!
I love your posts, too! You’re another one who should be thanked for your insight that you are kind enough to share with us.
We should do lunch sometime.
What a totally bizarre concept…
Here’s three cheers and an end of year 2007 toast to all the great contributers on Ben’s blogsite, and to You Ben for keeping up this great RE bubble bear blogsite. Expect the upcoming new year 2008 to be filled with more harbingers of RE and economic doom, as the US and the world economy faces possibly the worst banking/financial/economic meltdown since the great depression.
2008 will be an eventful year as the US elections are in full swing, the repercussions of the Bhutto assassination reverberate all over the mideast tinderbox, and oil shoots up to $150.00. Easy credit and liquidity disappears, bringing on a full-tilt recession. Will it be deflation or hyperinflation? Maybe stagflation in 2008. Meanwhile the politicians, both left and right, Hem and haw about doing this and that and effect nothing except to gum up the economy further.
Happy new year everybody!!
Bright evaluations lead to a real case study of american economics 101 plus!!! Great.
The whole idea is to own the house, not have the house own you.
Exactly right
Happy New Year to all market bulls. Just remember, the stock market and housing market both always go up, in the long run!
And a word of warning for 2008: Don’t predict, and you won’t wind up with egg on your face.
MARKET SNAPSHOT
U.S. stocks seen rising as New Year begins
By Carla Mozee, MarketWatch
Last update: 5:33 a.m. EST Dec. 29, 2007
SAN FRANCISCO (MarketWatch) - U.S. stocks are likely to advance in the first week of 2008 as investors pick through equities that have been battered in recent weeks and as they get confirmation from the latest jobs report that the economy hasn’t tipped into recession, said strategists.
http://www.marketwatch.com/news/story/us-stocks-likely-advance-first/story.aspx?guid=%7BAA3A777A%2D72AC%2D4E48%2DAB9A%2D7D94017125EF%7D&dist=SecMostCommented
You both do such great research I am just glad to participate…
My 2008 prediction:
Next year, the fates of Wall Street and Main Street will converge.
U.S. profits squeeze: Recession lurks in ‘08
Job, spending cuts raise risk economy may shrink
By Rich Miller
Bloomberg News
Article Last Updated: 12/30/2007 11:19:05 PM MST
U.S. corporate profits are in a recession, and the entire economy may not be far behind.
Slower sales and higher energy and labor costs are forcing companies from Bear Stearns Cos. to Pitney Bowes Inc. to reduce spending and hiring. Their efforts to keep earnings from eroding even further raise the risk that the economy, already weakened by the steepest housing slide since 1991, may shrink sometime next year.
”The earnings recession has already arrived,” says David Rosenberg, North America economist for Merrill Lynch & Co. in New York. ”We are going to see an economic recession in ‘08.”
…
Scarce credit could make things even tougher for companies such as Brunswick Corp., maker of Bayliner boats. The firm is cutting 170 jobs as it struggles with what Chief Executive Officer Dustan McCoy suggested might be the weakest U.S. boat market since 1965.
http://www.sltrib.com/business/ci_7846105
Ellen Hughes-Cromwick, what a retard. She got her job by ——- or by affirmative action. Any broad with a hyphinated last name is suspect, and an economist to boot?
“Any broad with a hyphinated last name is suspect”
Guess I’m a suspect.
Me, too.
Me three.
Ladies…as George Carlin said, pick a f***ing name. Your father’s or your husbands, but not both. Hyphenated names are so nauseatingly pretentious.
The 10 o’clock news, compliments of George Carlin:
First of all, the headlines.
Twenty-one killed in twenty-one gun salute.
Off-duty policeman shot by on-duty criminal.
And a man with a power saw has been hit by a falling tree.
Police fired over the heads of rioters today. However, they killed 200 people living on the second floor.
A man has barricaded himself inside his house. However, he is not armed and nobody is paying any attention to him.
A Milwaukee man has been arrested for trying to use food stamps to mail a watermelon.
The Food and Drug Administration has announced that saliva causes stomach cancer. However, only when swallowed in small amounts over a long period of time.
Here are the results of the latest Gallup poll: 48% of the people were not home, 32% of the people made believe they weren’t home and 20% of the people have no front door.
Seventy-one people suffered numerous gunshot wounds in the feet today as two armed midgets ran amok in a downtown bar. Patrons of the tavern claim that the two entered riding horsey-back and the trouble started when the one on the bottom began to get drunk. In addition to the foot wounds, extensive damage to the baseboards and electrical outlets was also reported.
Out at the lake at City Park today, police arrested a one armed man who was bothering the other boaters by continuously rowing in a circle.
A dog exploded on a busy downtown street corner. No one was killed, however twenty people were overcome by fur. In addition, police estimate that between a hundred and a hundred fifty fleas also lost their lives in the blast. To kind of wind up the news tonight, a team of medical scientists announced today that they have discovered a cure for apathy. However, they claim that no one has shown the slightest bit of interest in it.
Hyphenated names are so nauseatingly pretentious.
We aim to please.
I did it so long ago now that I hardly even think about it. (And usually simplify things by using my husband’s name.) Who knew that George Carlin (and Sammy) had such a strong opinon on it?
Royalty and wealthy in Britain have been doing it for centuries. Went that Hyphen once and it took forever for inner company workings to get it right when it got reversed. Not it is My name on legal docs..
“you can call me anything but don’t call me late for dinner…”
who said that?
oops bad spelling.
‘went that route once,hyphenated, ..’
Now it is My name on legal…
sorry.
IPOS
Credit Crunch Clouds Coming Deals
After Bad Quarter, Listings May Find A Rough New Year
By LYNN COWAN
December 31, 2007; Page C3
Three months of steadily deteriorating prices for initial public offerings of stock, a growing list of cancellations, and uncertainty even for Chinese stocks made the fourth quarter a period that many investors and bankers are glad is over.
But whether the new year will start much better could depend on relief from the credit problems that have dented investor confidence.
The quarter began on a strong note, with investors believing the worst of the summer’s subprime-mortgage meltdown was behind them. One of the month’s hot stocks was beauty-products retailer Ulta Salon, Cosmetics & Fragrance Inc., which gained 66% on its debut. Every China-related IPO that came to market seemed to rally 50% or more.
But as it wore on, the atmosphere soured as the credit markets remained skittish and banks began another wave of write-downs. Bankers were increasingly forced to cut prices to get deals done, corporate executives backed out of plans to list shares, and offerings that investors would have embraced months earlier were spurned.
“In September and October, people felt that maybe most of the bad news was already priced into the market. But then more tough news kept coming out,” says Stephen Pierce, head of equity capital markets for the Americas at Goldman Sachs Group.
http://online.wsj.com/article/SB119906443555558687.html?mod=googlenews_wsj
This Wednesday is clearly the time to buy the dip.
Dow Jones Industrial Average
INDU (INDEX)
13,265
Change:-101.05-0.76%
Volume:164.57M
4:02pm 12/31/2007
News Headlines about Dow Jones Industrial Average (26099400) 4:03pm 12/31/07
Dow Jones industrials close up 6.4% at 13,262 in 2007 - MarketWatch 4:00pm 12/31/07
Dow Jones prelim close: down 112, or 0.9%, at 13,252 - MarketWatch 3:10pm 12/31/07
Stocks under pressure but still on track to post yearly gains - Carla Mozee
http://www.marketwatch.com/tools/quotes/news.asp?symb=indu&siteid=&doctype=2006
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
LOL. Have fun working on NEW YEAR’S EVE sucker~!
that line bothers me alot…cash in the trash…his money just vanished too.
He should check his amortization schedule. How much of his payment goes to principle! LOL!
I actually like Mr. Pitts - at least he’s willing to pay off his debts by working hard. But he’s wrong about everything else. I hope that eventually he comes out ok. My parents bought a house in Southern California in 1986 for a then very inflated price: $86,000. They paid it off in ten years and enjoyed low property taxes and no mortgage ever since.
He’s not going to come out okay, and we shouldn’t hope he should. Hard lessons need to be learned and circulated so the fools of tomorrow will know better.
Banks looooove this guy
Why on earth shouldn’t we hope the guy comes out okay?
He has a decent work ethic, and aside from the loan restructure he’s doing fine on his own.
I hope he does make it, and that his hard work in rewarded in 2008 by the sense of accomplishment that comes from setting a goal and attaining it. It might not be the goal that you or I would choose, but if he wants the house enough to do what he’s doing to hold onto it, hats off to him.
A roommate or two would help though.
“Kelly said the Hahns’ case was straightforward because they made no payments after refinancing and had only minimal contacts with Chase.”
———————————————————————————-
So this FB took out a $ 570 k refi in March and made no payments on the new loan which promptly went into foreclosure 8 months later in December…… and this guy’s the “victim”?
2008 is going to be interesting!!
No doubt . . . how this clown still has debt astounds me. What was he doing with his income all these months. Oh yeah, either had no income or was financing his business which is probably also doomed to fail.
If I ever had a borrower who made NO payments, I’d be madly seeking exnnv’s real name to order up some JT attacks.
“Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
“‘I’m going to modify my lifestyle,’ he said. ‘I shop at the dollar store; I buy in bulk and on sale. If push comes to shove, I may have to get a roommate.’”
Wow… it will take another year before idiots like this realize they should walk away.
But it also illustrates another point. Many FB’s must rent out a room to survive. That will undermine the low end of the rental market. The large number of ‘failed flips’ and speculative homes being offered for rent will drive down the high end of the renting market.
And somehow renting is throwing money in the trash? Chuckle.
I read how the comments aren’t being nice to the foreclosed FB’s… lol. They were trying to screw the next buyer as soon as they had their two years of residence in. So pity is lacking here.
Sit back and relax. 2008 is the start of the sellers mindset change. 2009 will drive it home? A bottom? Far out. We’ll talk about that when its within sight.
Got popcorn?
Neil
I hope the SFC follows up with this guy next year. I’d bet money he’ll walk in 2008.
I agree with you there Ben!
I think he’s fighting the internal psychological battle already. Eventually his pea brain will begin to understand the concept that he’s deep underwater.
I’m betting quite a few will walk in the next two years. How many? I’m not ready to guess. Easily over 3 million. But will it break 10 million? (Yikes!) I don’t know. So I won’t pretend I do. But I do know its time to spectate.
Got popcorn?
Neil
At least you gotta admire his work ethic. Most people would hand in the keys. Who said there was no sense of honor left in this country?
Kinda like the guy who willingly grabs his ankles and adjusts to your height. What a guy!
tee hee.
Off topic, but you reminded me of a poster I once saw:
It’s a picture of Fred, the mouse, who is lying on the ground with his head stuck in a mousetrap, and his butt frozen in an arch up in the air. Behind him, 6 “friends” with Truman Capote smiles on their faces are lined up behind 1 “friend” who is fu*king poor Fred in the ass.
The caption says “My Buddies!”
Senator Larry Craig, is that you?
Pitt reminds me of a poor dumb moth.
He missed the hot bright flames the 1st time and so he is circling for another determined pass INTO it.
Keeps them busy and controls their breeding I guess
It’s funny because when we bought our home I would have done anything I could to keep it - regardless of what the neighbor’s home sold for. A deal is a deal.
Boy am I living in the wrong country.
No, the option to walk away is part of the contract.
There is no “honor” involved. This is not like defending a woman against a rape, or saving a baby from a burning house.
The lender understands this and that’s why they are charging you an interest rate in the first place.
Well, I think there is “honor” in contracts. Doesn’t put ‘em on the same level of saving a baby, and doesn’t mean it’s necessarily in his interest to honor the contract. As they say, a contract is only as good as the people writing it, and these days, it doesn’t seem like there’s many good contracts out there.
“No, the option to walk away is part of the contract.”
That’s funny. Can you point me to that clause in any real estate contract?
It’s in the “mortgage” contract, if it’s a “no recourse” loan with the house as collateral.
Yes these buyers are furiuosly trying to rationalize continuing to ‘own’ thier homes. 2008 will indeed shake out a lot people who think this downturn will not affect them.
Popcorn + time =’s financial bliss to those of who wait!
“Pitts started off financially unsophisticated, but he now shows a shrewd grasp of how the system works. ‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ he said. ‘We’re not homeowners; we’re renting from the banks and investors.’”
‘My family and co-workers said, ‘Why don’t you just do a short sale?’ but this is my house. This is the major purchase of my life,’ he said.”
He doesn’t seem so much shrewd as confused. And wouldn’t he have done much better with a short sale, especially in light of tax forgiveness of short sale income?
The tide is rolling out and he’s running around naked not realizing it + doesn’t believe it when someone tells him.
My take on it.
And now that he is no longer “financially unsophisticated” because he graduated magna cum laude from J.T.U., I’m sure he’ll be “Beaming with pride” for a few more months . . . until a HUGE dose of reality knocks him up the side of the head.
I thought he attended the dear school Benjamin Franklin founded:
“Experience keeps a dear school, but fools will learn in no other.”
I think that one of the (at this point) overlooked long-term consequences of this mess is the psychological impact of millions of Americans having to come to terms with the fact that they “failed.” Not to mention their kids have to recognize that, as well.
Yes, the flippers and the scammers couldn’t care less. But many of the ill-informed, unthinking folks who took these suicide loans did so thinking that they were making the right move to get their family a house. Their failure to keep their homes is going to hit them hard, and affect their decision-making for the rest of their lives.
Insofar as that keeps them from taking on more suicide loans, fine. But many people will end up emotionally paralyzed from this experience, with repercussions for their families and their communities for decades to come.
Remember how parents and grandparents who lived through the Great Depression wouldn’t open their wallet for anything? We’re going to have a new generation of Americans just as affected by this. And in complex ways that very few people can anticipate at this stage.
This is a good insight, and the consequences for the economy could be quite negative. On the bright side, the less we consume the less we polute.
Good points made here. As a consumer society we have become accustomed to buying far more than we truly require. It may not be so bad to simplify and tighten the purse strings a bit. Now selling apples out of baskets would be a bad thing for all, but a psychological shift away from overconsumption and back to the basics would be positive IMHO.
My grandfather lived through the depression, and he would walk down to the gas station on the corner to take a dump, because water costs money.
JTU……..beautiful.
J.T.U. That’s really funny!
Does JTU have t-shirts?
Stars End
This will become more and more common and may even be one of the big themes of ‘08.
Two reasons for this:
People are going to realize that paying 650K on a 300K home is worthless. We all new that.
However, reason two is that once people pay for 2, 3, maybe even 4 years and realize that not only are they paying 650K on a 300K home, but that after 4 years, they still owe on that 65K note…645,978.65, they are going to wake up to the fact that they will never pay that sucker off.
Heck, can you blame these people? In theory and ethically yes. In reality no. Should they have done the math? Yes. However, I will blame them for their stupidity. However, even more stupid would be paying 1.8 million (prin + interest 30 years’ worth) on a piece of property and building that should never have sold for more than 250K to begin with. So, walking away. Can’t blame that when they get there. In other words, front end the blame. At that back end, better to toss the keys on the roof, as we say here.
The Zillow sales history for his home is as follows:
Sale History
08/23/2005: $460,000
11/01/2000: $60,000
04/01/1998: $115,000
Realistically, the house should have a value of no more than $200K. But, as the saying goes, a house is worth what someone is willing to pay for it.
“…what someone is willing to pay for it.”
Recent addition to the constraint list: Ability to pay.
Neil, perhaps a little OT, but I’ve been holding out 2 years now to buy a house in Southern California. I believe the next 6 months the market will be in freefall (hopefully at least another 10 percent), but I can’t hold out forever. My hope is the market continues to take a drastic haircut before going down more gradually over a longer period of time. I don’t need to time the market perfectly; If I lost another 10 percent after I buy, so be it, but much more than that, I wouldn’t be too happy. Any advice/strategies?
“Any advice/strategies?”
If you are not worried about another 10 percent down, then buy now, as Wells Fargo is predicting only another 10 percent drop, then back up to the sky…
Well that’s a relief. As long as Wells Fargo/NAR/San Diego Union whoever is only predicting another 10 percent drop, I’ll just sign away on the dotted line right now! Not. Everything I’ve read here tells me otherwise. After the market doubling in SD, and only dropping 12%(?) so far, I think it has a ways to go. It would be nice to know how much and when of course, but that is the million dollar question I guess.
Cayo_ron,
Right now I’m predicting a 10% to 20% drop in 2007 and a 20% or more drop in 2009. I understand the desire to jump in. My wife insists that we’ll wait only one more year. But neat thing… the more home prices drop, the more her timeline slides.
Here is what will happen in 2008:
However, after the announcement homes won’t even be on the market until the summer selling season.
1. A return to more ‘normal’ mortgage underwriting: proof of income, cDTI’s in ’survivable’ ranges, and demand for greater and greater down payments.
2. Continued slowing sales. I think about 20% to 25% slower than 2007 on a nationwide basis. In other words, in round numbers, 4.0 to 4.5 million sales. That is quite a few Realtors ™ who won’t be making their mortgage payments.
3. Job flight from soCal. Expect an announcement in March.
And then rinse, spin, and repeat. I’m expecting desperation in early 2008 and the real price drops to be in 2009:
my blog article: (warning, my blog is definitely 3rd string):
http://recomments.blogspot.com/2007/12/real-estate-emotions-december-update.html
Since there is plenty to rent everywhere… I’m not sure about the rush… But I do understand the ‘nesting instinct’ to settle down. If you really want to jump in early, low ball in January/February 2009 Me? Same idea, but in 2010.
I don’t care about being $100k under-water.
Funny, considering how excited I am to negotiate a car for $620 less than what I considered ‘market price.’ So I’ll negotiate… and if required walk. But peak inventory in SoCal is a while away… I at least want the best selection.
Got popcorn?
Neil
Neil, thanks for the advice. I’m going to print it out right now and refer back to it. I just got married in July 07 and that nesting instinct IS strong! Heck, I’ve rented most of my life and always had roommates so never paid much but it was always a frustration that I couldn’t fix up a place to my liking. I especially appreciate your comment about how the wife’s timeline slides as the prices continue to do so as well. Right now, I’m getting a killer deal from my sister — renting a really nice 2BR guest house from her for $700, but I don’t think that’s going to last forever as she would like to have it for “guests” (what a concept). Can’t even touch a crappy place for twice that here in Escondido.
Cayo-ron - with a bit of training, spouses can be made to wait
The husband has been panting for more room, and a shorter commute, for about 18 months now. However, he knows I come here for all the REAL news in the world, and has conceded that now may not be the best time to buy a house…
However, I’m willing to throw him a bone by agreeing to rent a place nearer to work (and with a less, erm, ‘eccentric’ floor plan) for the intervening time between now and the actual buying process - preferably in an area we’d consider buying in. This seems to work.
Brutha Neil-
No way do we return to normal lending guidelines next year. Expect the lenders sphincters to go major ballon-knot as guidelines go puckerbutt to the extreme. And the more they talk of bail-out, the worse it will become. (by the way, add to that the prediction of auto loan and credit card defaults going through the roof. Ahhh, the credit markets are going to be awesome to watch….in a sick way, of course)
cayo_ron-
Another 10%??? I’ll tell you what, mid-way through ‘08 you’re going to be saying to yourself ‘what the heck was I thinking’. I’ll ask you this, though. Will another 10% put you where the payment (piti) on a fully amortized 30yr or less fixed mortgage is 35% of your monthly income? (My personal preference is 25%) Do you have at least 30% down? Now you might think that I ask that because of todays qualifications standards, but I don’t. You need at least 30% down so that when this market drops another 30% after your 10%, and some unforseen circumstance forces you to move, you’ll still be able to sell your house for at least what you owe on it. So happy ass-poundings to ya!
by the way, add to that the prediction of auto loan and credit card defaults going through the roof.
There’s another item no one talks about - student loans. Colleges have been increasing their tuition rates way faster than the rate of inflation because of the easy availability of student loans. Student loan providers have been cratering because of an inability to get financing. It’s quite possible that colleges will see enrollments plunge if they don’t do something about those tuition rates.
“Expect the lenders sphincters to go major ballon-knot as guidelines go puckerbutt to the extreme.”
I now have bourbon and coke on my computer screen and up my nose. Thanks a lot.
That sentence gets my vote for “comment of the year” on this blog, which is pretty amazing considering it’s 4.7 hours til 2008 here in Texas.
And, to you, ex-nnvmtgbrkr, happy new year, thanks a lot, and keep on a postin’.
:}
back from dinner:
omment by cayo_ron
2007-12-31 14:24:50
Neil, thanks for the advice. I’m going to print it out right now and refer back to it. I just got married in July 07 and that nesting instinct IS strong!
First, thank you. Do read the later comments. I was married in May 07!!!
:) 
So we’re about on the same timeline.
ex-nnv. If you’re right (and there is a good chance you will be), then my time line and discounts all get changed that bit. Its going to get scary next year. Thankfully, I’m an optimist.
However, I’m still expecting 2009 to have the greatest price decreases.
Happy new year everyone!
Got popcorn and booze?
Neil
Oft-repeated rules of thumb here:
1) Wait until home prices are below 120 X rents on comparable properties (currently, if the incredibly high Zestimate near $600K on our San Diego rental home were to be believed, then our multiple is 600,000 / 2300 = 260 = 116 percent overvalued). A drop to a multiple of 120 would appear to require a decline in home sale prices to 120 X $2300 = $276,000, but it is important to recognize that rents can go up as home prices go down, thanks to a relative increase in rental demand as would-be buyers avoid falling knives.
2) Wait until median home prices divided by median incomes are at a level below 3 (six if you live in a highly desirable coastal area). For SD, where the median SFR is currently listed at $510,000 and the median hh income is maybe $65,000, the ratio is currently 510/65 = 7.85, and getting down to a ratio of 6 (where prices bottomed out in the early 1990s bust) requires a drop to a median sale price of $65,000 X 6 = $390,000 — another 23.5 percent drop from current median seller wishing prices of $510,000.
I cannot foresee the market adjusting by the amount needed to bottom out in 2008 unless (1) price declines accelerate by a lot and (2) govt bailout efforts stop. Since I predict neither (1) nor (2), I don’t think 2008 will be the time to buy.
And I really don’t get the idea that “I am willing to live with a 10 percent price decline.” You must really believe that real estate always goes up? Why don’t you interview a few Japanese citizens who bought circa 1990 before you decide whether this is a reasonable belief.
Thanks for the advice as well, PB. I’m printing it out right now! However, I guess I’m still not understanding what is wrong with a further decline after I buy, provided it’s not a huge amount. Granted, there are no guarantees as to what the future decline would be, but again, if I overpay by 40-50K at some point, say 8-12 months from now vs. waiting another 3 years on top of that, I would opt for paying the extra $.
Since I don’t know your area very well, this may or may not be useful to you.
Hubby and I are renting in a decent neighborhood (SFH, mostly owned). Just a few rentals. Ours is a 3/2/2 car garage.
We entertained family a few weeks ago and they were impressed with the “rental” LOL.
Is there a nice neighborhood near you with a decent rent rate?
Leigh
Happy New Years HBBers!
“but I can’t hold out forever”
and why not? Why would anyone ‘have to buy’ when they can wait until the best buy time comes around?
OK, theoretically I could hold out forever, but at some point it becomes a quality of life issue for me, and now that I’m married, I would like to get a place as soon as it is financially expedient. I’m not rich but could comfortably afford a place around 450 - 500 K with a conventional loan. I wasn’t ready financially to buy a place before prices went crazy, but now the problem is of course that $450,000 still is a pretty crappy house in SD for the most part. Prices still need to come down quite a bit IMO, but I’m hoping the curve is going to be steep this next year. My point is, if it levels out somewhat and the market continues to bleed gradually after that for a couple of years, OK, so I paid another $40 or $50 K than I had to but didn’t wait another couple of years. Now if I paid like $200 K more than I had to, that wouldn’t be good.
I think you should set a goal of getting the house you want for $450,000 and settling for nothing less. Take a look at the places that sold for $650-700k a few years ago, and keep offering $450,000 for one until someone bites. I’ll bet you get one in the next 12 months.
I think your strategy is good. I have been looking at houses now that are in the 650-700 range as a target of what I can hopefully get with a little tracking, patience, and shameless lowballing for perhaps 450K. It wasn’t too many years ago that 450 was a pretty nice house in SD.
Cayo: how much do you have saved for a down payment? If you have a nice chunk, like $200,000, are you really willing to watch it shrink by $50,000 if prices fall by 25% in the next two years? Think of how long it took to save that much money! If you don’t have much saved, then you should be very motivated to wait until prices fall further, to keep your loan as small as possible.
If he buys a 500k house with 200k down and the house goes down by 25% he has lost not 50k but 125k of his down payment.
I think my previous reply to this got eaten by the system so my apologies if it eventually comes through. My main point is simply that I am not trying to time the market perfectly especially if I had to hold out 2-3 years to save $40-$50K. Granted, I think the market has to bleed a lot more before it settles down to a softer decline, but there comes a point where the extra waiting is not worth it for me.
y especially if I had to hold out 2-3 years to save $40-$50K
First, congrats on being newlyweds. Second, owning a house waay over rated.
We owned a fixer-upper for 7 years and it’s a ton of work and money. It is completely unnecessary to have a house even when the kiddos come along - we rent now with our kids.
So to that end - I would ask you how long would take to earn $40K-$50K for your household. Scratch that - figure out how long it would take to earn $40K with a reasonable interest rate for 30 years after taxes. What if simply waiting 2-3 years prevented 2 years of work in paying back the mortgage? I don’t care if you live/work in CA, $40K is still a tremendous amount of money. *grin*
Ultimately, these are personal choices. You may decide that it’s not worth waiting after all. However, I find it’s really helpful to look at purchases in terms of time costs. It’s angle that relates a resource that will never return to you and (at least to me) does a good job in balancing the now with the future.
This is an excellent point. Of everything in the world, including art and one-a-kind baseball cards, TIME IS THE ONE RESOURCE YOU CAN”T GET BACK AT ANY COST!
And long life, well, let’s see what good is being in bed suffering at 103? Now, if we could get extra years in our 20s and 30s, sure.
That is why the old adage “Time is money,” may be true in financial terms, but not in terms of quality of life.
You might also want to think about the cost of spending that money. Even if my wife and I had say 200-300K in the bank, I still wouldn’t bite. This is a time to have money at hand. Parting with a down payment, esp. a lot of money, is going to be hard to do for me. What about you?
As one with 200-300K in the bank I wholeheartedly agree OC. If I have my way I’ll make it a cash deal to drive the price to rock bottom or pay just enough down to get an ideal interest rate.
Cash is king going forward so it’s best to either have as little fixed living expense as is practicable or have lots of cash on hand.
BTW, I got bumped from my long CDE at for .65/share gain at 4.65. I had a trailing stop of 5%, go figure. That position should have been good through the second week of Jan.
Dude’s anti bubble deflation spec. hedge fund ended the year up 58.5%. Not too shabby for a poor farm boy out of Idahole.
You also have to factor in interest rates. How long can rates be held down by the FED. If the economy goes south and the dollar tanks you can bet interest rates are going to go up. If you plan on living in the house for a long time next year might not be that bad if rates remain low. Crunch the numbers with 6%,8%, and 10% loans.
And how do higher rates hurt someone with cash in the bank?
Besides, as has been stated many times here. One can refinance an interest rate but one cannot normally renegotiate a purchase price.
” I believe the next 6 months the market will be in freefall ”
A LA radio loan company predices mortgage rates at 7.5% in 6 months, and the 10% freefall you are waiting for, will not make up for the cost of money. I do belive these interest rates are heading much, much higher.
And that is a big concern for me — the seesaw of rates vs. prices. I’m no expert in either. Of course, a loan pimp on the radio isn’t going to convince me though. Aren’t long term fixed rates predicted to remain low?
Repeating something said here often, you can renegotiate interest rates, but you cannot renegotiate the price of the house.
Agreed - higher mortgage rates will fuel lower prices for houses.
More free advice from a LL
There is no profit: none-zero-nada in the SFH housing rental business.
In fact, if you ignore potential appreciation (which there will not be any of for quite a while now), you can rent an SFH for less than its net cost per month, assuming that it’s not owned free and clear. So there is absolutely no point in buying a house now or any time soon.
I own multiple properties (not SFHs), but I live in a rented place…
If you absolutely must buy something (why?), look for a triplex, a fourplex, or something larger ,that you can convert part of to your own home.
Landlords right with the rent vs. buy trade off….However, I hear cayo…..Just a guess but Mrs. wants to start a family I’ll bet…
Cayo, if scdave is right about your motivations, do your future family a favor and rent a place to start off. You’ll need all the money you can get to save up for the kid’s education, and as long as you are capable of saving your extra money, you’ll be in a position to buy a nice place in a few years for far less than it would cost today, in real dollars as well as bogo-dollars. Put your accumulated down payment money in TIPS if you want to play it safe with the money you have already accumulated.
Houses are basically money pits.
That’s our strategy for now. Most of my money is in conservative investments that will keep pace with inflation. I guess the key is knowing when to jump in. Without even looking at a graph, the wishing prices for the crap out there right now tells me we’re not even close yet.
“conservative investments that will keep pace with inflation”
Hmm, cayo, we’d all like to know where you find those!
Exactly, I don’t know why so many idiots thought they could be trumps renting out a SFR. You would have to own just too many of them to make up for the problems. A fourplex is perfect for the smalltimers. Live in one, rent the other three and you are set. (Last time this penciled out okay was 2000-2001 and it will eventually pencil out again)
If you live in one, just don’t piss off your tenants.
I agree, buying an SFH to rent it out doesn’t make sense now. And it’s cheaper to rent rather than own. It’s also cheaper to go to McDonalds than to cook something yourself. some folks prefer owning, there’s more to life than increasing the bank statement number.
Why can’t you hold out forever? Start a savings account (or online checking - something with yield) and calculate the difference between rent payment and mortgage. Set that aside. That way, each month, as things decline, your fund grows, and you can be “poised to strike.” Make a game of it!
cayo, don’t forget about buying new. The builders will cut to bottom priceing years before the resale croud. It won’t be long before bankrupt builders dump land at firesale prices and surviving builders throw up affordable 1,500ft 3/2s for less than $200k (yes in Cali). Won’t be long before (dropping materials and labor) large tract builders will be able to make money or break even at around $80/ft. The price of land is going to plummet and local taxing vampire are going to capitulate on their crazy fees just to appease business.
After the 89′ collapse the new builders here in Stockton were cranking out decent affordable homes (1,350ft 3/2s) for 80-125k depending on the area by 93′-94′. This was while resale stuff fell from $170k in 89′ to $86k in 96′.
Point being, your insane to touch resale till ALL these FB are dead and buried. New will be an option several years before the last FB throw in the towell and resale truely bottoms.
My husband just did an ins. audit on a small builder in a city just north of us. Guy just bought a building lot, all utilities in/avail. The lot - and half a dozen like it - had been listed for $150K. This builder just purchased the one for $70K.
Where are you Mary?
The market freefall will stop the day that you buy.
GIve this guy 6 months and he will walk - guaranteed!
The revolution has been called off–gotta work OT!
Happy New Year!!!
‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ he said. ‘We’re not homeowners; we’re renting from the banks and investors.’”
Spoken like a true FB.
No one actually owns property anymore. Look up allodial title and see what you get with regards to RE.
I know this comes up about once every 2-3 months, but it is always an excellent reminder/refresher. Yeah, miss that property tax installment and see who owns what, even if that mortgage is paid in full.
Does anyone know the percentage of FBs that actually own their home free and clear?
Um, 0% ?
By definition, of course, 0%.
I don’t exactly understand crazy’s question, unless it was a joke. Maybe he meant to ask how many mortgagors end up paying off their mortgage in full. Some of mine do. (My notes are only 10-15 years.) Some SFH-owners do too; some of these free-and-clear owners have posted on HBB. But “FB” is a term that should be reserved for those who will certainly not be able to pay off their home loans. Mostly very recent borrowers or re-fi-ers.
My bad - I used wrong terminology. I was wondering what percentage of people live in paid off homes. It seems everyday I see more and more stories of folks that HAD paid off homes and refied them into foreclosure.
40% of homes do not have mortgages. (At least that was the data published this year for 2006.)
I think it was Jas sometime ago that said one-third of homeowners have their house paid off, one-third have mortgages but can handle the payments okay, and one-third are screwed.
Whether this is accurate or not, I haven’t a clue.
“When sales activity picked up, it was usually due to an increase in the number of homes sold as repossessed properties or as short sales.”
Can someone tell me how foreclosures play into the sales/price numbers?
For example bank forecloses on house w/ $500,000 owed - no bids, bank gets house. Is this counted as a sale w/ the price @ $500,000? And if so does this inflate both the sales numbers and the price numbers?
Very good question, wish I had the answer. If deed transfers are counted as sales, then yes the numbers are distorted - big time (both in terms of number of sales and sales prices). I’m not sure what criteria is used for a “sale”.
Bank forecloses and a new deed to the property is recorded transferring the property from FB to bank. Then bank sells the property and another new deed is recorded transferring the property from bank to bottom feeder or knife catcher. Looks like two “sales”, but really is not.
This might be the case because if there were an all-cash buyer, the only way to track the sale would be via the deed (not a mortgage filing).
Anyone else?
Who is this idiot, Liptak? If he had been paying attention to this blog, it would have been no mystery that the top of the market was in the fall of 2005. Typical no brain realtor. Goes in hand with Yun, Lereah, and L.A.Y.
“Once they stopped paying the mortgage, his credit score plummeted from 710 to 490. We’re the ones losing our house; we won’t be able to rebound from this.”
Don’t worry. Once the Arabs, Chinese and Europeans agree on a rating system to rate American borrowers and mortgage-backed bonds, to replace the failed system we have, his credit score will probably be about average for the United States.
He works hard and is entreprenurial (started a company) but lives beyond his means and doesn’t worry about the future. That’s average or better here. Below, people who don’t work hard and are not entreprenuerial. Above, a few people who are responsible and plan for the future.
Heck, he’s above average for the U.S.
I was thinking that FICO and other credit scores will become meaningless because there will be so few with a decent credit score soon. Between foreclosures, credit card debt, rolled over car loans, student loan defaults, bankruptcies, etc., there won’t be enough qualified borrowers left to keep the money train going for the banks.
Where do I begin??
Pitt is $100K underwater on his mortgage and thinks RENTING is “just cash in the trash”?
In the past year that his house has dropped $100K in value, I have only spent about $15K on rent. He has spent almost that on taxes and insurance alone.
I’ll let you all do the math…
‘You can’t win no way when you’re renting.’”
Keep thinking that way Johnnie. You are busting your ass for a depreciating asset that you could rent for 1/2 the price.
Is it that he (and millions like him) are expecting/hoping/praying for some mythical upturn in the market? IMHO the first half of 2008 should put that one to bed. It ain’t getting better - not for a while.
When he says “you CAN’T win NO way,” that’s a double-negative, and therefore what I think he is actually trying to say is “you CAN win.”
‘In the past year that his house has dropped $100K in value, I have only spent about $15K on rent. He has spent almost that on taxes and insurance alone.’
Oh, it’s even better. He will pay interest on that 100k (if he doesn’t walk) for over 20 years. So it’s really closer to $300k!
Ah yes, assuming that his interest was about 8% (something tells me that he’s sub-prime), he also paid over $34K on interest.
So in one year, Pitt’s totals are…$100K in equity lost, $34K in interest and about $10K in taxes and insurance.
If my $15K in rent is “cash in the trash”, he’s going to need a dumpster!
“Renters have a different mentality; they can party”
Damn right!
Happy New Year!!!!!
Yup, my cousin is yelling up the stairs for me to hurry up and come down to go across county to NYEve party. Bye now HBB
More wishful thinking.
—————————————–
“Renters, for instance, may find that it’s just as costly to rent than to buy, spurring some people to jump into the market, he said. ‘Of course, on the other side of the coin, if you wanted to sell a home now and move, you may not get as much money as you wanted.’”
“Renters, for instance, may find that it’s just as costly to rent than to buy, spurring some people to jump into the market, he said. ‘Of course, on the other side of the coin, if you wanted to sell a home now and move, you may not get as much money as you wanted.’”
Soooooo, by that logic I shouldn’t sell because it’s going to cost me just as much to rent???? Something must be in the air, let’s put Gore on it.
Yeah, I love that: “you *may not* get as much money as you wanted” — try “you *WILL NOT* get as much money as you wanted”. Why not just come out and say it? Can people really be this stupid..?
Actually, it should say that sellers are finding that they have to set selling prices lower because it’s so much cheaper to rent. How can this guy say this when rent is 1/2 the payment of buying? He thinks that rents will double when sooo many flippers are desperately looking for renters?
That’s not likely. Unlike homebuyers, tenants can’t count on appreciation to save them at some future date and are more likely to search for cheaper housing or double up rather than pay prices that are two to three times the rental rates in our area (Sacramento, California). I also did the the mortgage calculator and found that rents would have to rise more than 10% a year for the next seven years to make buying a house a break-even proposition for us. (I assumed 2% appreciation per year and, yes, I was being generous.)
I sold my previous home (an old dump( for 2 1/2 times what I paid for it and put 50% on my current house(newer lake house). I’m willing to take a hit selling this house. I’m thinking of paying cash for a modular/mobile home in a co-op park. People think I’m nuts. I would rather own the modular outright and pay $350/month in park rent which includes water/sewer and maintenance. Fellow Bloggers - Do you think this is nuts? I live in northern Essex county in MA and the RE market still has some life in it. I’m seeing lots of “sold” signs in my town.
Doesn’t seem nuts to me… but most people have just decided to rent for awhile. I’m thinking the depreciation on a modular/mobile home might be significant, though not as significant as dropping RE values. Guess you would have to crunch the numbers and decide if one of these co-op parks is a place you’d like to make home for awhile…
I don’t know what the people are like in trailer parks where you live, but unless the quality of neighbors is better than the ones in LA, you might not want to do that.
I’m assuming that things are different where you live or yeah, you are crazy!
At least half our Trailer park residents are Snowbirds and revisit 6 months per yr. And mostly senior citizens, so living in a Mobile home park ” trailer” park wouldn’t be so bad, not so bad at all. That is in the Desert though.
Not nuts at all, the key being a CO-OP park so the land can’t be sold out from under you. We bought a MF home new in 2002 that’s been just fine with two exceptions: It’s a 3-section home and I had to fix the roof where the sections meet (capped on a two-section home) and I would have ordered 2×8 or 2×10 floor joists and plywood subfloor. Other than that, it’s been great, and you can’t argue with the price ($45 a SF set on a concrete slab).
A writer I admire named Gary North highly recommends it as the most cost-efficient way of living comfortably.
“Let’s say you just want cheap living space. You can buy a used single-wide mobile home for $10 a square foot, either at a mobile home sales facility or at an auction for repossessed units. You will have 1,200 square feet of living space: three bedrooms, living room, kitchen, 2 baths. This is more space than you get in all but the nicest retirement facilities.
A double-wide home at 1,500+ square feet is not much more if you buy at an auction for repossessed units. Your competitors will be mostly mobile home retailers, who will not pay more than 50 cents on the retail dollar.”
Is that the same Gary North of Y2K bugaboo fame?
Do you think this is nuts?
Nope. My Dad lives in a mobile home. He has more square footage than I do. One of my only quibbles with them is the less than spectacular quality of fixtures, etc.
The other quibble I have is that you are renting the part that appreciates (land) and own outright the depreciating empty box that sits on top. If you can find one cheap enough at auction, though, it might be worth it. Good luck.
Ive talked alot about mobile homes but I found a better option: relocation. One can buy a real house in a location such as NW Pennsylvania for as little as $15,000 and at the $50,000 mark theres dozens of houses to choose from. A mobile home the same size as the $50k house would set me back $25k and I would not get a basement, attic nor own the land. In Gainesville(FL), lot fees would run me $250 a month. Property taxes for my $50k house in NW PA would be $1500 a year which is half of lot rent. I would save very little, if any by staying anywhere in Florida and getting a mobile home. House prices are nuts, you need $150k to touch a decent 3/2 home. I can get that house for $50k in NW PA!
Vermontergal has hit on the exact reason why I never lend on MH’s unless I am also receiving a deed of trust on the land beneath them.
NW Penna: the prices look good IF you can stand the weather.
Happy Hogmanay, one and all!
I’m going to First Foot the neighbours in a little while, armed with the obligatory lump of coal and bottle of Single Malt.
Have a great 2008!
“Gies o’ your white bread,
An’ nane o’ your grey!”
“Renters have a different mentality; they can party.”
Well, sure I could party…
But really, I choose to live comfortably, spend time with my family, be able to afford the necessities, save up some for a rainy day, and enjoy a few of life’s luxuries.
Well said and true!
Has anyone else noticed that a lot of news stories are now stating that the downturn started in 2005?
I call that revisionist history. Things were going gangbusters through most of 2006 as I recall. And prices have just now notched their first drop in the Seattle area.
The idea is to deny there even was a bubble through 2006 and then in 2007 say it all started in 2005. It makes people think the bust has gone on longer. The next step is to roll out all the stats supporting that no downturn has ever lasted more than X years, so…
IT’S TIME TO BUY!
I guess we shouldn’t expect our MSM to be any more legit than our government. Or our professional athletes. Or the Corporate aholes, etc. etc.
It’s all BS.
That’s exactly what I was thinking. Push the whole mess into the past tense so that the salesdroids can claim it’s all over with. The manipulation of information is positively Orwellian.
The downturn didn’t start at the same time in every place. In Seattle it’s just starting, in Florida, it started in 2005. My guess is that nationally, the downturn started September 2005.
In Detroit it started December 1976.
“Things were going gangbusters through most of 2006 as I recall.”
Different indicators of the bubble peak occur at different points in time, due to lagged correlations. For example, I believe the U.S. national used home inventory correction dates all the way back to January 2004. By contrast, some local San Diego markets (e.g. Rancho Bernardo 92127) did not see used SFR list prices peak until spring 2007. It takes sellers a long time to figure out what is going on on the demand side of the housing market…
Maybe my focus is just too local, but when was the peak in loan origination nationally? I believe it was mid to late 2006 - do you have numbers on that?
Excluding Detroit, of course. They’ve been down so long that some smart speculators started seeing a *bottom* there in spring 2007. We’ll see how smart they really are, of course.
sm landlord,
I’m pulling this from the cobwebs of my brain, but think that 2003 marked the peak for mortgage originations — largely because most everybody refinanced that year. In San Diego, 2003 marked the peak year for sales as well. Our downturn began in 2004.
Sales slowed in 2005, but prices peaked, so you could argue either way. But I agree that the RE industry is using the 2005 start date to argue that the housing mess has been going on for a long time, which suits their purposes.
Saw Lawrence Yu on CNBC today for the first time. He is truly a dork.
I haven’t noticed that. The tail end of 2005 is when prices stalled, and the bubble ended. 2006 to be fair, when any kind of pattern could be called. Through 2006-7 inventory has grown. But except in the most bubblelicious areas, prices have just begun to budge downward.
Condos in my gated spot … spent a few minutes on MLS and checked prices Listed and Sold for 01/06- today and the prices in 01/06 highest was $525,o0o/$512,ooo.
Year later, condos on market for $345,ooo.
I expect it to be more than 100 k less next year.
But HOA went to $500. mo. yikes.
Still renting…wait for $200.00o off!!
So Johnnie is beaming with pride as he bends over and takes it up the . . . whatever.
I love the headline about WS enduring a “painful year”. Unless my fever has rendered me incapacitated, I believe all the indices were well up for the year and the NDX was up like 20%. This whole financial system needs some tough love like it never has before and I hope it is delivered in spades next year.
Happy New Year to all bears and HBB bubble sitters!
Agree on the tough love part. But it was a painful year, if you price the indices in terms of gold or take into account the falling dollar.
Two questions. One - Where does one WORK in Paso Robles? Two- what kind of job in Paso Robles allows them to buy a house?
Just curious - I always figured it for a retirement/outside-money kind of place.
1. Real estate, food service, or at a motel
2. Real estate jobs surely did between 2003 and early 2007
[Phyrric victory: real estate agents own investments in housing caused a big chunck of the price increases and sealed their own doom.]
worked in Paso for a production Cabinet Shop back in 97, they actually closed the plant down in SLO to get a larger facility in Paso for less rent….. after the owner came to me for for 20k to make payroll….I never went back, business folded in 90 days.
Interestingly, I met a guy who founded a “mobile Vinter” business, and always wished I would have gone in on that one… he sold it for a tidy sum a couple years later.
Just down the 101 from Paso is SLO. There are a bunch of tech and light manufacturing companies there. Paso itself is mostly wine industry. I have considered starting a company up there (SLO area) to get away from the blight of LA. And I know people who have already done so.
“‘The number of hate comments we got just floored me,’ Jeff Hahn said. ‘This wasn’t something we chose to have happen to us. I just don’t get how these people can judge me like this and think we completely took advantage of the system. The system took advantage of us. We’re the ones losing our house; we won’t be able to rebound from this.’”
One of the problems causing this whole mess is because of people with attitudes like this. Did anyone make him take out that home equity line for his business? No. He chose to do it, but instead of paying back that line of credit, he walked. And now he thinks he is the victim. What a sorry excuse for a human being. He reaped what he sowed.
I completely agree, melon. Can’t you just imagine the look on his face on the day he took out the home equity line? Total greed. Of course his business failed - he didn’t work for it. And obviously he didn’t learn a thing from it.
“This wasn’t something we chose to have happen to us.”
What a silly little man. Let me guess, you chose to play “RE Only Goes Up” and when it didn’t you took your HELOC, waved your midle finger at the lender and walked. People are free to judge you because you have made yourself available in the newspaper, dummy.
And yes, you did completely take advantage of the system, annoying as that is, as you seem too witless to realize it.
Don’t you just hate a guy from the short bus who games the system for hundreds of thousands and doesn’t know his luck.
Now this makes me a bitter renter.
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
What Mr. Pitts doesn’t realize is that housing isn’t the best investment going today. It’s much smarter to rent cheaply and invest your excess income. To use his analogy, “You can’t win unless you invest.” The key is what to invest in. My choice is gold and silver mining stocks.
He has a good income. I’ll bet he could invest $1,000 a month if he was a renter. While he is renting (and investing), the price of housing will go down (10-30%). If he invests well, he can buy something with a nice downpayment.
The problem is that people are too impatient to wait. They want a house today no mater what the cost. They refuse to rent.
There are a lot of intelligent people who have sold their houses and are now renting (and investing). But they are in the minority and are too a certain extent ostacized.
“There are a lot of intelligent people who have sold their houses and are now renting (and investing). But they are in the minority and are too a certain extent ostacized. ”
Not on this blog.
“people renting … to a certain extent ostracized”
Not ostracized the same way as they were a few years ago. As we become objects of envy rather than of scorn, we will be treated more respectfully.
Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
Let’s see - when I moved out of the Bay area (10 miles from this dude), my rent was $1150. I think I would much rather watch the $2500 per month pile up in the trashcan and then I can take it to the bank and invest it in something other than a POS which has dropped $100K since purchase and still taking a nosedive. What an idiot.
Lawrence Yun, chief economist for the NAR:
“It’s difficult to say affirmatively whether or not we hit the bottom, but I can say most of the declines in existing home sales have likely already occurred and any further decline from this point onwards will be more minimal and at the same time we could see some unleashing of pent-up demand, early demand in 2008.”
This picture was taken just after above statement was given to press and NAR year end meeting in San Francisco.
Yunny is on your left. His left if he knows left from right.
http://www.shunya.net/Pictures/Himalayas/DharamsalaMcLeodGunj/People57.jpg
Questions Mr. Yun:
Would you bet your life savings or 10 yrs. of work on your prediction?
When I worked in sales, we would always ask the sales guys about their sales forecast. Are you willing to stake your paycheck on that prediction?
‘If you look at two houses for sale in the same neighborhood, they’re in competition for the same buyer,’ said Mark Goldman, a local mortgage consultant and broker.”
Wow, that’s profound. Do these guys go to college to learn stuff like this?
http://blogs.wsj.com/economics/2007/12/31/liquidity-threat-eases-solvency-threat-still-looms/
Moron of the Year!
““‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
The condo I want is depreciating at $20K per year.
My rent is . . . $18K per year.
Free rent.
Yeah, but it is still “Cash in the trash” to Mr. Pitts.
That’s precisely the way I look at it. Until I feel the expected depreciation is significantly less than my rental costs I will rent. I can even accept some depreciation, as I prefer owning, but right now renters are actually in the sweetest spot yet in terms of the depreciation/rental trade-off as prices are finally starting to fall nicely.
What do you think of Prof. DeLong’s policy prescriptions (esp. the likelihood a respiking operation will come off smoothly)?
[See post below...]
“Free rent.”
But you can’t paint the walls!
““‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
Thats the Inflation expectation mindset that the FED doesn’t want to get entrenched, whoops too late. And now it changes 180 degrees and we are looking at Deflation. This guy will walk unless he put money down.
That’s comedy gold.
Pitts remains “financially unsophisticated” on a grand scale.
The financial community is going to fleece Mr. Pitts for years.
Poor Pitts. Assuming he never refinanced before just recently, he had the option (under California no-recourse law) to walk away from his original loan, with no financial consequences other than a tarnished credit record. But that option no longer exists. Now if he walks, the bank has the option of pursuing him for a deficiency judgement, which he can only shake by going through a chapter 7 bankruptcy, and that route might be closed depending on how his income relates to the median in his area. No wonder the bank was eager to “help him out”!
“Tom Kelly, a spokesman for Chase, which was the servicer on Hahn’s loan, said the property reverted to Chase at the Dec. 17 foreclosure auction for $474,750 - far less than the $570,000 loan balance and the unpaid fees and penalties.”
Wow, less than the unpaid fees and penalties! If the bank would have only charged Hahn a lot more fees and penalties for non-payment, then the house would have been an even better value at auction, I guess. Roll up, roll up for the bargains.
The way forward? Happy New Year to Professor DeLong!
Three cures for three crises
By J. Bradford Delong
Tuesday, Jan 01, 2008, Page 9
…
Since late summer, the US Federal Reserve has been attempting to manage the slow-moving financial crisis triggered by the collapse of the US housing bubble.
At the start, the Fed assumed that it was facing a first-mode crisis — a mere liquidity crisis — and that the principal cure would be to ensure the liquidity of fundamentally solvent institutions.
But the Fed has shifted over the past two months toward policies aimed at a second-mode crisis — more significant monetary loosening, despite the risks of higher inflation, extra moral hazard and unjust redistribution.
As Fed Vice Chair Don Kohn recently put it: “We should not hold the economy hostage to teach a small segment of the population a lesson.”
No policymakers are yet considering the possibility that the financial crisis might turn out to be in the third mode.
J. Bradford DeLong is a professor of economics at the University of California at Berkeley and was assistant US Treasury secretary during the Clinton administration.
http://www.taipeitimes.com/News/editorials/archives/2008/01/01/2003395186
Because no policymakers believe we are in mode three, there is no cause for concern about future nationalization of the private banking system nor about massive helicopter drops of liquidity fueling inflation.
By the way, how did the historically unprecedented housing price inflation from 1998 through 2005 serve the price system’s capacity to guide resource allocation?
“The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won’t solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency.
When this happens, governments have two options. First, they can simply nationalize the broken financial system and have the Treasury sort things out — and reprivatize the functioning and solvent parts as rapidly as possible. Government is not the best form of organization of a financial system in the long term, and even in the short term it is not very good. It is merely the best organization available.
The second option is simply inflation. Yes, the financial system is insolvent, but it has nominal liabilities and either it or its borrowers have some real assets. Print enough money and boost the price level enough, and the insolvency problem goes away without the risks entailed by putting the government in the investment and commercial banking business.
The inflation may be severe, implying massive unjust redistributions and at least a temporary grave degradation in the price system’s capacity to guide resource allocation. But even this is almost surely better than a depression.
…
No policymakers are yet considering the possibility that the financial crisis might turn out to be in the third mode.“
It is truly comforting to know that financial crisis management is no more complicated than prescribing medication to treat common cold symptoms.
Oops — I just thought of a conundrum. If housing prices are reflated without reversion to debauched lending standards and/or more-than-commensurate wage inflation, then nobody will be able to afford them. Solvency problem not solved! Further, builders would be emboldened to add to the standing inventory glut if the (residential real estate) assets underlying the devalued subprime loans are bailed out by inflation creation.
Time to go have a drink. Happy New Year to all who read here!
My guess is that if they inject enough cash eventually wages will rise, but there will be a lag.
“Renters have a different mentality; they can party.”
And the problem with that is…..?
That bus driver Pitt needs to listen to Billy Joel’s “Movin’ Out”:
“But workin’ too hard can give you a heart attack…ack…ack…ack. You ought to know by now who needs a house out in Hackensack…is that all you get for your money?”
All too often people confuse working hard with working smart it seems. But paying interest for the priviledge of losing money is no way smarter than renting - ever!
Happy New Year All! Party on!
Mr. Pitts clearly has an emotional attachment to an failed idea and a piece of easily replaceable real estate. I save my emotional attachments for my family and to a much lesser extent, my pets. The old adage “you can’t reason a person out of a position they did not reach through reason” comes to mind. Isabel
>>“‘We literally are living paycheck to paycheck,’ Hahn said.”
That’s not exactly literal. That would mean they are just able to pay their bills on time. In other words, that would mean they ARE able to service their debt- they are solvent, but just unable to save.
They are way beyond that point. They are literally not able to pay their bills. They may however be literally living minimum-payment to minimum-payment, which only means they are literally sinking deeper every literal day. Literally.
‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ [Pitts] said. ‘We’re not homeowners; we’re renting from the banks and investors.’”
No s___, Sherlock. But’s here’s the difference between us “classic” renters, and you, Mr. Pitts:
1. We won’t miss a payment, because we’re paying a lot less than you for the same or better house.
2. If something on my house needs to be fixed, I call my landlord and it’s taken care of, pronto. Try that with your lender.
3. I’m not working insane hours to keep up with my house payment (and don’t kid yourself that just because you got a break on the interest rate, your debt just got smaller or more manageable). I have time for a LIFE, and to spend time doing the things that MATTER, especially time with my family. In the larger scheme of things that’s orders of magnitude more important and a greater measure of success than keeping your alligator afloat.
4. I’m watching the imploding housing bubble with serenity and amusement, not to mention, schadenfreude. How’s that negative equity thing working out for you, Pitts? Isn’t THAT “cash in the trash”?
I almost feel sorry for this poor gum-bah, as it’s painfully evident he lacks to sophistication, or smarts, to realize that he’s bought into the RE hucksters’ brainwashing, but is just one illness or economic downturn away from being sucked completely under.
3. I’m not working insane hours to keep up with my house payment (and don’t kid yourself that just because you got a break on the interest rate, your debt just got smaller or more manageable). I have time for a LIFE, and to spend time doing the things that MATTER, especially time with my family. In the larger scheme of things that’s orders of magnitude more important and a greater measure of success than keeping your alligator afloat.
Absolutely on the money Sammy!
In the 80’s I had the opportunity to rub elbows with some of the Titans of industry. Presidents and CEO’s of Alcoa, Dravo, Gulf Oil, Mellon, PNC (Pittsburgh National then), etc. I always asked them one question, “What is your biggest regret?” And to a man (sorry ladies - there were no ladies in that group yet) each told me they regretted that they spent so much time working while their kids were young that they missed out on being part of their life as they grew up.
And that is why I choose to work from a home I rent and take care of my son. It’s is open of the prime reasons I have turned down executive level job offers and choose to work as a well paid staff engineer.
Happy New Year everyone.
Here is another issue Professor DeLong and friends at the Fed might want to consider: Bankers, lenders, borrowers, investers and speculators are all mammals, and mammals habituate to their environments. A highly-predictable pattern of serial bailouts naturally leads to speculative activities which take into consideration the likelihood that future bailouts will provide downside risk protection. The absence of a healthy fear of failure leads to stupid and wasteful speculation. The stupid gambles that bankers and private individuals made in recent years make far more sense when viewed in context of the likelihood that Fed-engineered bailouts (including punch bowl respiking operations via helicopter drops of liquidity) would make them look shrewd.
THE LECKEY FILE
Financial industry runs afoul on speculation
BY ANDREW LECKEY | Tribune Media Services columnist
December 30, 2007
The nation’s financial institutions have an image of stability occasionally marred by worrisome instability.
Every holiday season, George Bailey, protagonist in the 1946 film classic “It’s a Wonderful Life,” is shown protecting his humble Bailey Building & Loan from the clutches of the evil, money-grubbing Mr. Potter. In doing so, the character played by James Stewart barely manages to survive crises of a run on the bank and misplaced money.
…
Will banks ever learn that being too speculative to gain a jump on the competition can lead to serious trouble that damages confidence and the bottom line? Subprime loans made to less-than-creditworthy borrowers are the latest example of poor banking judgment.
The mighty have fallen, notably Citigroup Chief Executive Charles Prince, who stepped down after the worldwide financial-services giant took an $11 billion write-down. New Citigroup CEO Vikram Pandit was immediately greeted with a downgrade of the bank’s long-term debt ratings by Moody’s Investors Service on the likelihood of continued losses from subprime mortgages and other problem securities.
The nation and the financial system manage to survive the biggest banking blunders, though it usually costs taxpayers a lot of money to fix the damage and years to work the problem out of the system.
I recently received some nice comments from readers after I quoted humorist Mark Twain on the perils of stock investing. So, I now turn to Twain’s still-prescient views on banking and speculation:
- “A banker is a person who lends you his umbrella when the sun is shining and wants it back the minute it rains.”
- “There are two times in a man’s life when he should not speculate: when he can afford it, and when he can’t.”
Past or present, undue speculation by bankers leads to stormy weather.
———-
Andrew Leckey is a Tribune Media Services columnist.
http://www.chicagotribune.com/business/yourmoney/chi-ym-leckeyfile-1230dec30,0,3882954.story
“The Greenspan put” yes it pays to take risks with other peoples money when you beleive you can just bail or get bailed out if things don’t work out. “Moral Hazard” new buzz word for not taking your debts seriously. Lenders probably don’t like that too much? I don’t know much but I do know back in Cali that was considered savy investing. And now no taxes on the forgivin debt? Oh boy.
“Lenders probably don’t like that too much?”
But I like watching subprime lending kingpins write down bad gambling debt at $3-$10 bn a pop. Maybe a lesson will be learned before the great helicopter drop reflation effort kicks into overdrive?
If re-inflation works there will be not a single lesson learned, only a tremendous transfer of wealth from the weakest to the strongest.
The only outcome that teaches lessons is a deflationary recession, and those lessons last 80 years or so…
Got cash?
Re-inflation always works out so well.
As I recall, the Weimar Republic had a jolly good run with it in the 1920’s and the early 1930’s …
This all goes back to the guy above who wanted to buy a house next year ?Cayno. If you really believe a helicopter drop is in the near future. Taking out a massive loan is the right move. Lock in a 30 year rate of 5-6% this year and put the rest in short term treasuries, gold, insured money market CD ect. If there is a helicopter drop at some point interest rates will rise dramatically. Yes the value of your property might drop but your cash will return a higher interest rate and you’ve locked in your monthly payment. I’ve been considering paying cash for a house next year but now I’m thinking It might be better to borrow 80%.
meatson
This is what I’m thinking too (heavy inflation on the way and therefore wanting to have my biggest expense [housing] at a low fixed rate). I don’t see this point discussed very often. I’m certainly no expert, but I would think that strong inflation benefits the homeowners (FBs or not) at the expense of renters. ?? Any overall negatives to the general economy would be the same to both groups. Anyone w/ some insight to how this played out in the early 80’s? I know that 14% interest rates wouldn’t help home prices or the market but for those that already had ‘good’ 30 yr rates …? Would seem to be a huge benefit to get 10% T rates when you’re paying a 5 or 6% mortgage.
“‘The number of hate comments we got just floored me,’ Jeff Hahn said. ‘This wasn’t something we chose to have happen to us. I just don’t get how these people can judge me like this and think we completely took advantage of the system. The system took advantage of us. We’re the ones losing our house; we won’t be able to rebound from this.’”
UMMMM,…. correct me if I’m wrong here, but “the system” did not sign the loan papers, you did! So, in a manner of speaking, you did chose this outcome. Stupid bloody sheeple. The burst has only just started and I am already loosing my patience for this kind of nonsense!
Happy New Year!
Stars End
I had a client six months ago who could have easily gotten a loan and deserves one. She has good credit and adequate income, but she’s young and has no money for a down payment.
No NO NOO! She has not saved a penny and has no money for a down payment. She does not and should not qualify for a loan and has exactl;y what she deserves, if indeed she does have a substantial enough income to qualify for a loan at current real estate prices. The sooner we get back to 20% down as a standard, the sooner those of us who have saved can buy a home and we can all go about our business.
While the real estate person is busy expressing here sympathy for this ‘client’ of six months ago, I am sure she stopped answering phone calls from the ‘client’ the instant she found out the ‘client’ was not qualified to buy anything.
At the same time, he boosted his income by racking up overtime - an extra 10-hour day every week - to catch up on some missed mortgage payments and property taxes.
I wonder, how exactly did this guy get his overtime? By getting legit assignments, or by padding his timecard?
cayo_ron, have you considered relocation? This is my strategy and millions others are doing just that too. People are fleeing CA, FL, NY, NJ, MA for cheaper states like TX, TN, Carolinas, GA, PA, etc. When house prices bottom out, you will lose maybe 20% in a cheaper location but save over 100% in an expensive location. My move to NW Pennsylvania has many other reasons and I might like that location enough to stay a long time and if not, in a few years from now, Florida will become cheap again and ill be getting this huge house for $100k
SoFla is back to the ~ 2003 levels, if you shop smartly.
It needs to go another 25-30% to drop to the 2001 levels. Give it another 6-9 months for that.
Let’s see, being a slave to the banks, working ten extra hours per week and not taking vacation is better than working no overtime and paying much lower monthly checks in a rental to some landlord? Mr. Pitts is not the only one with screwed up logic. I have been called a rent slave by a colleague who is overweighted in real estate (two Miami condos, 160 acres of Iowa farmland, a house being built in Jamaica, and no more than $100,000 in tax deferred retirement investments at age 45). It’s amazing how people depend on extreme audacity to make absurdities seem plausible - it’s “spin” on steroids.
Pitts said:
‘If you think your house is all yours, just miss a payment or property tax bill, and you’ll find out who it really belongs to,’ he said. ‘We’re not homeowners; we’re renting from the banks and investors.’”
Then he said:
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
Anyone else see the problem in his two-faced statements?
Anyway, Happy New Year All….let’s hope this year is FILLED with people like Pitts who are going to crash and burn so we, the people who deserve better and have been patient, get our fair share.
Good luck to us all.
“Does Pitt really want to continue working six days a week to keep a house that is now valued at about $330,000 - $100,000 less than he paid for it? He insists that he does.”
“‘When it comes to renting, it’s just cash in the trash,’ he said. ‘You can’t win no way when you’re renting.’”
Hey Pitt, I am a renter and I laugh in your face!!!!!!!!