May 26, 2008

A More Affordable Version Of The American Dream

The Worchester Business Journal reports from Massachusetts. “The Falls at Arden Mills, a gated condominium development in Fitchburg, is eventually supposed to have 204 units. So far, though, only one building of the project, with 48 units, is standing, and only 11 of the condos are occupied. ‘It’s slowed down quite a bit, no secrets there,’ said Steve Callahan, president of Global Property Developers Corp. of Bridgewater, which is developing the project.”

“Indeed, Massachusetts condo sales were down 32.6 percent for the first quarter of 2008, according to The Warren Group. With lots of condos in Central Massachusetts sitting empty and more set to be built, Callahan and other developers say there are real costs to the slow market.”

“For some, there’s not much of a silver lining in the current condo market. University Park Lofts in Worcester has received plenty of publicity for selling only eight of its 37 units before going bankrupt. The remaining 29 condos are scheduled to be auctioned off on May 29.”

“Last December, Mark Biller, operations manager at Lifestyle Builders LLC in Holden, gave up on a planned 131-unit condo project in Fitchburg after a fight with the city over improvements to water lines in the area. He said he had already worked on the project for three years at that point, but today he wonders if it wasn’t a good thing that he got out when he did.”

“Biller also…handles three other condo developments in the area, and he said nothing is selling. At the Village at Westminster Place in Holden, he said, Milford-based Fafard Development planned for 125 units, but in the past three years it’s built only 16.”

“‘Unfortunately the market’s not there,’ Biller said. ‘I don’t foresee myself building anywhere.’”

The Morning Call from Pennsylvania. “For nearly a decade, tax-weary people from New Jersey and New York poured into the Lehigh Valley in search of a bigger home on a bigger lot, and developers couldn’t build so-called McMansions fast enough to meet demand.”

“But as a credit crisis sweeps the nation, forcing a record number of homeowners into foreclosure, home building, especially construction of large homes, in the Lehigh Valley has slowed to a crawl.”

“A housing downturn that has made credit more difficult to get, combined with rising energy costs, is pushing the market away from the McMansions built in the Valley the past decade, and toward a more affordable version of the American Dream.”

“‘We’re not looking to eliminate big homes, we just think there should be a balance,’ said Planning Commission Executive Director Michael Kaiser. ‘Most of what we see now is a 3,000-square-foot home with giant rooms and a cathedral ceiling. The typical firefighter, policeman or medical workers can’t afford it.’”

“Last year, the average size of a Valley home declined for the first time since 2001, as the number of new McMansion-style homes fell from a peak of 2,401 in 2005 to 1,088.”

“Bethlehem Township developer Abraham Atiyeh announced two weeks ago that he’s building a downtown Bethlehem development of town homes starting at $129,000, and national builder Pulte Homes has halted its large-home building in the area and last winter began marketing a new home, called ‘The Lehigh,’ with 1,050 square feet and starting price of $139,000.”

“Urban development expert Christopher Leinberger said one of the main reasons people flooded into the Valley to build giant homes is now gone — and it has little to do with the credit collapse.”

“‘That model where people took on a long commute to have a bigger house was predicated on cheap energy, but with $4-a-gallon gas, that market is shut down,’ Leinberger said. ‘This is the perfect time to reshape your efforts in the housing market.’”

“Consider what happened earlier in the decade: Valley population grew by more than 8 percent, largely spurred by the migration of people who work in the New York, New Jersey or Philadelphia areas. So developers, both local and national, began building the kind of giant homes the transplants demanded — the model not-so-affectionately nicknamed the McMansion.”

“The so-called ‘New Jersey invasion’ drove up home prices across the region. At the same time, the demand for those massive homes had developers gobbling up farmland, chewing up more than 4 square miles of open space each year Valleywide.”

“‘McMansion’ is a subjective term with no set definition. Avi Hornstein, part owner of one of the area’s largest builders, Allentown’s Omega Homes, said the term McMansion is more about a cultural trend than a particular size.

“‘The McMansion is an ‘I can have one, too’ product,’ Hornstein said. ‘It’s a production-line version of the mansion. Without the custom touches, it puts a lot of space at a price point that’s within reach of people of middle and upper-middle income.’”

“The average home built this decade in the Lehigh Valley is the McMansion. Of the 16,202 detached homes built since 2000, nearly 40 percent have square footage of more than 2,450.”

“‘Don’t blame us, we’re just building what the current zoning laws allow,’ said Chuck Hamilton, executive officer of the Lehigh Valley Builders Association. ‘If a township requires 1-acre lots, no one wants to put a small house on that. If these planners allow smaller lots, we’ll be happy to build smaller homes, if people want them.’”

“‘In the past 30 years, zoning that was designed to limit development ended up creating the McMansion market,’ Hornstein said. ‘You can’t build a small home on a 1- or 2-acre lot. The costs just don’t add up.’”

The Herald Mail from Maryland. “Geographically, the large duplexes going up behind Hagerstown’s old Pangborn Boulevard neighborhood are on a hillside. Economically, some of their owners are on a cliff.”

“The houses they moved into just a year or two ago are now worth as much as 24 percent less than they paid. ‘We don’t know what to do,’ said Armita Varjavand. Their savings gone, a loan from her mother is the only way they can pay the rising mortgage that the lender refuses to refinance as the property loses value.”

“Michael Davis, who lives a few doors away, is applying for refinancing because his mortgage is set to readjust this fall. ‘Yeah, but I know a lot of these people have tried,’ he said, gesturing up and down the street. ‘That’s why they have the ‘For Sale’ signs out.’”

“Such predicaments are typical among the more than 1,000 families who bought the houses that popped up quickly in Washington County during the market’s recent boom, an official said.”

“‘For a lot of these people who purchased with an adjustable rate, they now have a house of less value, they’re looking to refinance and they now have less equity,’ said Sharon Disque, executive director of a nonprofit organization whose work includes counseling families facing foreclosure.”

“Worse yet, Disque said, ‘a lot of the people that bought in ‘04, ‘05, ‘06 and ‘07 are from areas east of here,’ and they still commute to jobs there.”

“So when gasoline prices began to spike, ‘we had a convergence of a housing boom that went bust, and then, it was compounded by a sustained rise in gas prices,’ she said.”

“Kensington Villas is a 100-lot development on a long, skinny, 20-acre tract bought for $5 million in late 2004 by national home builder K. Hovnanian Homes. Since 2005, K. Hovnanian has been building large two-story duplexes.”

“Ten families moved in in 2005, 30 more in 2006 and 24 more in 2007, records show. Robert and Sharon Lopez were among the first. Lopez said he and his wife were living in ‘the ‘burbs of Washington’ when they decided to move here in 2005.”

“They read a study showing ‘that Hagerstown had the right growth potential, property values were going up,’ recalled Lopez, who began investing in real estate at least eight years ago.”

“In October 2005, they paid $324,650 for the 2,731-square-foot house at 215 Brynwood St. Looking back, Lopez said he can see now it was very much the wrong time for them to buy - as prices were soaring to their peak and just before they began to drop.”

“‘Of the investment properties we have,’ he said, ‘this is probably the worst. We put 20 percent down, and it’s (the loss of value) probably eaten up most of that 20 percent.’”

“According to a Herald-Mail examination of new property tax assessments in the Kensington development, Lopez’s house has lost 19.9 percent of its value already. The house’s worth sunk to just $259,780 in January, when the latest assessments were issued by the Maryland Department of Assessments and Taxation.”

“Fifty-six of the 64 Kensington houses assessed by January were actually worth less than what the owners paid. The combined value of all 64 properties has fallen 11.3 percent. The homeowners paid a total of $18.4 million but, by January, the properties were worth just $16.3 million.”

“Sitting in his Kensington house, Robert Lopez said he has seen the up-down of the economy firsthand. ‘We bought the first unit here and the (sales) girl told me, ‘Almost every time we sell, we raise the price,’ Lopez recalled. ‘But they started trickling down, trickling down. And here we are today. And, who knows where we go from here?’”

“Several houses up the block is the four-bedroom home of Malick and Brenda Thiam. The Thiams wanted something larger than the town house they had in Montgomery County, Md. Washington County offered ‘more home for less money,’ Brenda said.”

“They were happy in November 2006 when they paid $343,283 for the house here. Then came January 2008 and the assessment notice, saying the house is now worth $257,930 - a 24.8 percent drop in just less than a year.”

“Brenda and her husband were incredulous and outraged. ‘We wanted so badly to blame someone for the situation we’re in, but no one put a gun to our head,’ she said.”

“So now, they are resolved to work through the situation, pay down the debt and eventually, perhaps, sell and move elsewhere. But some of their neighbors are worse off. Lenders have foreclosed on at least two houses - including 254 Brynwood St., which is next door.”

“One homeowner still hoping not to have to sell is Varjavand. She and her husband bought their four-bedroom house for $306,413 early in 2006, according to assessment records. Now, the assessed value is $238,450 - 22 percent less.”

“Varjavand said their first real sign of trouble came when the interest rate on their mortgage rose from 8.5 percent to 11.5 percent, which is more than they can afford.”

“When their lender refused to lower the payments, the couple used their savings. Now that that is gone, she said, they’re borrowing from her mother. They don’t know where they can turn next.”

“To cope, ‘we try to use less water and electricity,’ she said. And, ‘less driving.’”




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68 Comments »

Comment by Ben Jones
2008-05-26 06:07:48

‘In the past 30 years, zoning that was designed to limit development ended up creating the McMansion market,’ Hornstein said. ‘You can’t build a small home on a 1- or 2-acre lot. The costs just don’t add up.’

It’s amazing that the media can’t see these trends for what they are; a by-product of the housing mania. The ‘costs don’t add up’ because the land is priced too high. Whether it’s moving into condos because the single family is too high, or ‘driving to qualify’ or wanting some gigantic house, the increase in prices played a role.

From the Maryland article:

‘Michael Schemm, a supervisor for a bus transit system in Leesburg, Va., and his wife are among Kensington’s newest homeowners. Just last month, they paid $261,566 for the house at 120 Brynwood St.’

‘The amount of money we spent on this house, we couldn’t have touched it in Frederick,’ where they had been living, Michael said. As to his new longer commute, he said, ‘fuel prices suck.’ But for now, he said, he isn’t worried about falling home values.’

‘Unfortunately,’ he added, ‘thing is, if you look up and down this street, there’s a lot of them for sale right now.’

Comment by aNYCdj
2008-05-26 06:44:25

What i find shocking is why they never zoned these places for 2 family residences? A big 2 fam on an acre would seem like a no brainier, at least you would get rental income to help pay off the mortgage.

I was raised in a 2 fam. house until i left for college, my father was a bricklayer and reasoned it would help smooth out the unemployment in winters, and banks at that time were more eager to lend money to working people for 2 fam. homes. Amazing how many of my school mates had 2 fam homes.

While i never considered us rich or poor we never seemed to do without. We always had bikes sleds toys, not the newest but functional. But i think the best part we had dad home usually by 430 pm sometimes by 330 in the summer, because he would start work usually by 7-730am , so we did get up early for school, no way to sleep late with the coffee pot gurgling and mom making breakfast..at 630.

And i am back renting in a 2 fam with a great landlord. But it takes a lot more respect of the landlord to live like this, i met someone the other day in Astoria living in a 3 room shoebox apt. for $1100, i said i get a 5 room apartment and double the size for the same price less then a mile away…..then she said no way am i going to live in the same house as my landlord….oh well….now that is throwing away money on rent.

 
Comment by Maryland_Mess
2008-05-26 06:48:22

“One homeowner still hoping not to have to sell is Varjavand. She and her husband bought their four-bedroom house for $306,413 early in 2006, according to assessment records. Now, the assessed value is $238,450 - 22 percent less.”

To Amrita Varjavand: You bought at the wrong time at the peak.
My guess is that the price will come between 150K-170K for you property in a year or two. You can be in denial mode still but you’ll not see 300K till 2020.

Comment by Martinsburg_WV
2008-05-26 07:00:54

I recently made three offers to bank owned property in Kearneysville, WV and the bank rejected all. The bank is stuck on appraisers value which is close to 350K. My offers were 70K less than bank’s 350K. I think prices in this part of WV (DC suburb) will fall more than Frederick or Hagerstown. These banks have employed a bunch of jokers who made a mistake initially by giving out loans on unworthy assets and when there are serious people wanting to buy at reasonable prices today, they have employees who are stuck with their stupidity by not letting these houses sell. Time will bring sanity to these bankers and they will not be greedy again for another decade at least.

Comment by Ben Jones
2008-05-26 07:28:38

Thanks for the REO info. Very timely. Can you tell us which lender it was, or say if it is a national bank, etc.

I’m curious why you were making the offer. $280k still seems pretty high for WV.

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Comment by Martinsburg_WV
2008-05-26 14:34:42

My wife wants to live in “OUR” house. The realtors never told me the bank name and didn’t even let me talk to the bankers. I finally got off my realtor making one final reduced offer of 245K and the bank has listed the property for 335K. You can search it in area code 25430 and address is 15 Ticonderoga Drive, Kearneysville, WV.

Previously Indymac bank and Countrywide have rejected my offers on other houses. I’ve been simply asking them to sell me the house for an average of similar houses sold in our neighbourhood in the past 2 months. What a bunch of losers these banks have employed. I’m glad that after my MBA I didn’t join one of these unethical corporations..

 
 
Comment by ric
2008-05-26 08:23:49

I’m sorry, but not be any stretch of the imagination can any part of WV be considered a “DC suburb”.

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Comment by SDGreg
2008-05-26 10:11:35

“I’m sorry, but not be any stretch of the imagination can any part of WV be considered a “DC suburb”.”

Commuter rail service from DC does extend to WV and you do have people that make that commute. The “Locality Pay” area for DC area federal workers is so broad as to include parts of WV, Baltimore, and the Maryland eastern shore as well as what most would consider the true DC metro area. This is done to include lower wage areas around the DC metro area so as to suppress the wages of those Federal workers. While it’s hard to view any part of WV as similar to any part of the DC area, people do make the commute and in that sense a small part of WV is an extended suburb of DC.

 
Comment by iftheshoefits
2008-05-26 10:38:23

Downtown DC is a stretch from W.Va. Eastern portions of the WVa panhandle to Reston, Fairfax, Chantilly, etc, is absolutely being done. I know people who have done it.

I know of people, 25 years ago, that were using charter bus service to commute from Hanover Pa. to DC.

Far flung exurbs are going to be hit hard with increasing energy prices. I wouldn’t want to own there, anywhere, no matter how much or how little a given region was affected by the bubble.

 
Comment by Martinsburg_WV
2008-05-26 14:41:11

I’VE TALKED TO SOME PEOPLE IN CHARLESTOWN, KEARNEYSVILLE AND MARTINSBURG. I THINK AROUND 40-50% PEOPLE IN AT LEAST CHARLESTOWN AND KEARNEYSVILLE WORK IN DC AREA. MOST PEOPLE MOVED HERE TO LIVE IN BIGGER HOUSES. NOW WHEN THE GAS PRICES ARE GOING UP, MORE ARE MOVING TO USE THE TRAIN. SOME PEOPLE ARE EVEN BACK TO DC AND TRYING TO RENT. EVEN PLACES LIKE VA AND IRS THAT EMPLOY CLOSE TO 15,000 PEOPLE, 80% LIVE IN MARYLAND OR VIRGINIA DUE TO BETTER SCHOOLS IN THOSE AREAS.

I DON’T THINK THE PANHANDLE CAN BE CALLED A DC SUBURB UNLESS THERE IS A HIGHWAY THAT CONNECTS IT TO DC AND COMMUTE TIME IS NOT MORE THAN 45 MINUTES.

 
 
Comment by Houstonstan
2008-05-26 09:46:01

Mike Morgan (Someone who called it for what it is) has a great REO site.

He is also running a blog again http://realestateandhousing2.blogspot.com/ that gives some brief updates on what he is working on. Read some of the earlier blogs for what he says about banks being out of thouch and their unwillingness to deal with it.

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Comment by taxmeupthebooty
2008-05-26 10:05:38

W VA will fall so hard you here it clear in DC

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Comment by reuven
2008-05-26 07:11:15

There’s a snooty town adjoining mine with 1-acre zoning. The actually had a program to subsidize houses for firemen, teachers, etc.

Instead of taking some land and zoning it denser, for apartments or rental housing, they wanted to hand-pick the types of people who lived in their “affordable housing”. God forbid the *wrong* type of lower-income person should move into their neighborhood!

Comment by Frank Hague
2008-05-26 07:52:11

That seems to be a pattern all over this country. Whenever you hear a municipality complaining that teachers, cops and firemen can’t afford to live there it is a sure thing that zoning laws make it impossible to build multi family housing. The local powers then create housing subsidies to “solve” a problem of their own creation.

Comment by reuven
2008-05-26 13:37:04

Agreed. But nobody challenges the limousine liberals who live in ritzy CA neighborhoods that subsidize housing for firemen and teachers. They don’t want poor people of the wrong type living among them. How liberal is that?

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Comment by Faster Pussycat, Sell Sell
2008-05-26 09:40:43

Let me guess.

Atherton? Woodside? Portola Valley?

Comment by reuven
2008-05-26 13:38:32

I was thinking Los Altos (Hills). But Atherton/Woodside probably does the same thing.

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Comment by Pondering the Mess
2008-05-27 09:16:35

“Wrong type” being: people who work for a living and who live within their means… at least these days, that’s the case.

 
 
Comment by BanteringBear
2008-05-26 09:12:57

Ben Jones posted:

“The ‘costs don’t add up’ because the land is priced too high.”

From the article:

“Kensington Villas is a 100-lot development on a long, skinny, 20-acre tract bought for $5 million in late 2004 by national home builder K. Hovnanian Homes.”

Now I know nothing about this parcel where “Kensington Villas” now lies, but I have to believe that the $5M which Hovnanian paid was absolutely absurd. These @$$holes drove up the price of land to unconscionable levels, fully expecting to pass it on to consumers when it never penciled out to begin with. From Hawaii to Maine, Alaska to Florida, and all states in between, these maggots were loading up on land like it was gold. I hope they all go BK. I can’t stand these greedheads.

Comment by Hold Out In Texas
2008-05-26 10:35:50

From Hawaii to Maine, Alaska to Florida, and all states in between, these maggots were loading up on land like it was gold.

I started looking in Central Texas (Waco area) for one acre parcels in 2005. Builders already owned practially anything decent. It could be bought from them but if you did not use them as your builder it would cost you an extra 10k to 15k. I had never heard of such a thing. I bought gold instead.

Now the MLS is flooded with land. Some local builders are trying to sell their own personal residences. Prices are coming down and sales are down to a trickle.

Comment by ric
2008-05-26 10:59:44

and your gold buys a lot more land than it did

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Comment by Pondering the Mess
2008-05-27 09:07:35

That’s Maryland, the land of “starter homes” costing 5 times median household income, and 50-mile one-way commutes being standard. It’s mess, and our Dear Leaders are working hard to “fix” the problem with higher taxes and bail-out plans to stop foreclosures. Housing prices have double to tripled since 2002 or so, which is insane, but “housing always goes up!” and “everyone in Maryland is rich because we live near DC.” Right…

The only solution to the “affodability issue” is LOWER PRICES, not more toxic loans or horribly built condos that are barely affordable and filled with “infestment” buyers.

 
 
Comment by aNYCdj
2008-05-26 06:23:05

Seriously what really happens to the people in these places? What recourse do they have? How do they pay the kondoze fees? Who plows the snow? Takes out the garbage? If they were supposed to have a doorman/security who pays for that when so few are occupied?

———————————————————
Milford-based Fafard Development planned for 125 units, but in the past three years it’s built only 16.”

University Park Lofts in Worcester has received plenty of publicity for selling only eight of its 37 units before going bankrupt.

So far, though, only one building of the project, with 48 units, is standing, and only 11 of the condos are occupied.

Comment by Matt_in_TX
2008-05-26 07:10:53

Buy a real estate franchise! (The farthest I can go without insulting Ben’s advertisers ;)

Comment by Faster Pussycat, Sell Sell
2008-05-26 08:54:32

Please. That is so 1977.

You need to buy at least 15 real-estate franchises to be a playah.

 
 
Comment by polly
2008-05-26 09:04:44

I think the developer is still on the hook for that stuff until some amount of the housing is built and sold. The developers need that because they don’t want to risk owners voting to pull back on maintaining the amenities when the developer still owns a substantial number of units. They transfer to the home owners association at some point in the process. All controlled by the legal documents.

 
 
Comment by reuven
2008-05-26 07:08:33

The houses they moved into just a year or two ago are now worth as much as 24 percent less than they paid. ‘We don’t know what to do,’ said Armita Varjavand. Their savings gone, a loan from her mother is the only way they can pay the rising mortgage that the lender refuses to refinance as the property loses value.

It’s amazing how the reporter takes these statements at face value. When I bought my house 17 years ago (now paid off), after putting 20% down, we made sure the fixed payments were easily affordable, and we had enough saved up (excluding retirement accounts! It’s crazy to dip into those) in case both of us lost our jobs. We’d be able to live on one salary if we had to.

So, if my house had “lost” 24% of its value, I wouldn’t have even noticed! In fact this is the way it was until 2002 or so when this E-Z financing started.

The fact that this stupid woman can’t pay the debt she obligated herself to has NOTHING to do with house prices falling. It has to do with the fact that she’s a greedy schemer who wants the Taxpayers to bail her out if her schemes don’t work.

Comment by reuven
2008-05-26 07:21:16

Ooops! I didn’t close italics after the first quoted paragraph

 
 
 
Comment by NYCityBoy
2008-05-26 07:48:03

“‘Don’t blame us, we’re just building what the current zoning laws allow,’ said Chuck Hamilton, executive officer of the Lehigh Valley Builders Association.

And don’t blame us when you mother-f’ers have nothing to eat.

Comment by Olympiagal
2008-05-26 09:11:08

Hahaha! Funny.

Oh, goody–you’re back. The other day losty and I were missing our beloved NYCityboy and we wondered if maybe your liver had gotten so big it had you pinned down, and maybe you were too busy to post since you were training your cats to do stuff like haul you bacon from the fridge and so forth.
Although this just occurred to me–maybe you’re still pinned down and are sinply dictating your posts to your cats so they can laboriously type them out with their cute little paws. Is that it?

Comment by Olympiagal
2008-05-26 09:13:24

I meant ’simply’, not ’sinply’. Too much Memorial weekend fun. Hmmm. Maybe I’d better start training my own cats.
Nah. They’d just eat me when they saw I couldn’t get up.

 
Comment by NYCityBoy
2008-05-26 09:22:45

The cats are great, and pretty smart, but I still have not been able to teach them how to type. I love them dearly. I just wish their tongues weren’t so rough. Happy Memorial Day everybody!

Comment by Faster Pussycat, Sell Sell
2008-05-26 09:32:46

Just where exactly are they licking that you find the tongues so rough? :-D

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Comment by Faster Pussycat, Sell Sell
2008-05-26 09:11:41

Tell us how you reaaally feel, NYCityboy. :-D

 
 
Comment by foo
2008-05-26 08:14:54

When their lender refused to lower the payments, the couple used their savings. Now that that is gone, she said, they’re borrowing from her mother. They don’t know where they can turn next.

This kind of quote comes up again and again. Why the heck would the bank renegotiate if they can get your life savings out of you first (and those of your mother)? If you are going to approach the bank about renegotiation, you need to make a credible threat. Say you will stop paying immediately, and then if they don’t budge - STOP paying
(and be prepared to move to a rental). The banks are hosed - these sheeple don’t realize how strong a negotiating position that they are in.

Comment by polly
2008-05-26 09:05:49

What is mom going to live on when they lose the house? They going to move in with her?

Comment by Faster Pussycat, Sell Sell
2008-05-26 09:13:35

Mom has these magic beans that give out free money forever.

Oh wait! That was mom’s house not mom.

Sorry, Mom. It’s Alpo-time in your dotage.

 
Comment by foo
2008-05-26 10:17:34

Using Mom’s funds is doubly idiotic as the bank would not be able to get a claim on those funds even if the loan is recourse (unless Mom co-signed?!….Ugh.)

“I have a follow up question…Oh wait no I don’t I am a reporter who doesn’t know what I am writing about.”

Comment by oxide
2008-05-26 11:47:59

More like “oops I’m a reporter whose salary depends on realtors and builders buying ad space in my dead tree rag. Better not rock the boat.”

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Comment by Pondering the Mess
2008-05-27 09:30:09

Um… well… she’ll buy a BIG house! And, housing only goes up, so she’ll be rich, and… oh, wait - it’s not 2005 anymore. Nevermind.

Successful transfer of multiple life savers to bankers complete: now entering “live on the streets” mode for these F’d buyers.

 
 
 
Comment by spike66
2008-05-26 08:16:10

“Varjavand said their first real sign of trouble came when the interest rate on their mortgage rose from 8.5 percent to 11.5 percent, which is more than they can afford.”

I’d suggest the first sign of trouble was a mortgage rate of 8.5%. What kind of credit history did these folks have to get stuck with a rate that high?

Comment by Housing Wizard
2008-05-26 09:07:06

I’m sure it was a loan that you didn’t have to qualify for it , or put any money down ,and the couple was told that they could just refinance in a couple of years, after real estate goes up, but they needed to get in now because real estate always goes up . Instead of going out to Sunday breakfast ,the couple bought a house instead after getting numerous calls from the market makers .

 
 
Comment by Olympiagal
2008-05-26 09:07:33

“Varjavand said their first real sign of trouble came when the interest rate on their mortgage rose from 8.5 percent to 11.5 percent, which is more than they can afford.”

I would think that their first ‘real sign of trouble’ would have been when they read the papers the nice mortage broker handed to them and wanted them to sign.

Comment by Faster Pussycat, Sell Sell
2008-05-26 09:38:10

Technically, the “real sign of trouble” may have been when they “dreamed” about their “dream house” without doing any calculations on how much they could afford.

Or it could’ve been when their momsy and popsy decided to pop a sprog out.

That’s the dang problem with these “first real sign” things. Where does it all begin? :-D

 
 
Comment by Doug in Boone, NC
2008-05-26 09:13:57

This might be off topic, but yesterday my son and I went looking for an old copper mine from the 1880s that operated near here. We found it. While we were looking for it, the owner of the house which was located over it demanded to know what we were doing. You should have seen the look on his face when I told him that his expensive McMansion was sitting on top of an abandoned copper mine, something the RE agent never told him.

Comment by Richard
2008-05-26 10:00:35

But, is that bad or good these days?

I’d imagine any copper left in the mine has got to be worth more than the house. Commodity prices are high right now…is copper one of those commodities? (I haven’t been been following it)

You should have made an offer on the spot for “the house & all the land” before saying anything…

;)

 
Comment by taxmeupthebooty
2008-05-26 10:07:46

did he immediately set fir to the Mcmanse to start digging for the copper ?

 
 
Comment by BanteringBear
2008-05-26 09:17:10

‘We don’t know what to do,’ said Armita Varjavand. Their savings gone, a loan from her mother is the only way they can pay the rising mortgage that the lender refuses to refinance as the property loses value…Michael Davis, who lives a few doors away, is applying for refinancing because his mortgage is set to readjust this fall.”

While these people are as stupid as they come, I still find it repulsive that the financial institutions can legally engage in such predatory lending practices. They knew good and well that NONE of these people would be able to afford the ever increasing rates. This is absolutely despicable. People like Mozillo should be burned alive at the stake. I’m not kidding.

Comment by Faster Pussycat, Sell Sell
2008-05-26 09:49:02

Tell us how you reaaally feel, BanteringBear! :-D

Not to defend the contemptible worthless jerk but if you had a situation where people were lining up to sell you 30 years of their livelihood, and clamoring to get your attention to boot, what would you do?

He may have spiked the Kool-Aid™ but they drank it.

I feel no compassion for him but I’d prefer a trial to the stake.

Actually, he’s not that smart. He’s greedy. The smarter CEO’s all “resigned” while the getting was good. I foresee that trial in his future.

 
 
Comment by Mike
2008-05-26 10:05:40

I read this recently and, if true, it’s yet another interesting example of the many mis-information scams the NAR use to pull in the suckers. Be the market going up like a rocket, “Now is a great time to buy before it’s too late!” or be the market going down like stone in a pond, “Prices have bottomed and now is a great time to buy!”

Here’s an example of how the NAR mis-information propaganda works:

An auction offers 100 bank owned properties for sale. At the auction, only 2 of these properties sell. The bank “buys back” the other 98. However, those “buy backs” are reported as sales. Well, in a manner they were sales but, truth is, only 2 of the 100 sales were kosher. Thus, when the NAR reports, “Sales are up and it’s a great time to buy!” ……..run for the hills ’cause they are (as usual) lying. We are still 2 to 3 years away from this market bottoming out IF we are lucky.

As a side-bar: My next door neighbor, aged 73 and widowed living alone in a 4 bedroom house with a swimming pool she never uses and a garden which she’s too old to look after, told me early last year she was thinking of selling and down-sizing to a retirement community. I told her to sell - FAST. She didn’t listen of course. Value of her house at the peak was $750,000.

Update: Now a realtor has talked her into selling. I know prices have dropped around here by about average $125,000 from the peak BUT there are FOR SALE signs going up all over the place, very few “SOLD” signs and inventory is building every week. I will be interested to see what the realtor figures her house is worth now. Information to follow when I get it. This is in the Thousand Oaks area of Southern California, 30 miles from Los Angeles.

Comment by Giacomo
2008-05-26 12:26:56

And let’s still not forget, although we’re well past the peak, it’s STILL better to sell a house today than to wait, cargo-cult-like, for some future bull market. Too many house-holders are so burdened with regrets at not having sold for top-dollar, they’re missing the opportunity to snag a knife-catcher before they’re all gone!

 
 
Comment by FakeHandle
2008-05-26 10:24:13

The statistics are going to get worse. That is, all of the old implicit assumptions won’t work. First the government (OFHEO) realizes that refinance and purchase are not equivalent. Now, there are so many foreclosures that they cannot be ignored when summarizing data. Next (I think), the number of houses that become unlivable will grow more quickly than expected due to theft, vandalism, and neglect. And, when those houses are sold, nobody will know how to treat those sale prices. For the intellectually honest, this is a series of real tricky problems and the solution to each problem raises other questions. The biggest question will be “how to construct data that can be compared to earlier times?”

We may have to throw away all sales history and start over. And, for a while we will have to depend on the judgment of local experts.

Too bad there are few (if any) local experts… and none that I trust.

Comment by Faster Pussycat, Sell Sell
2008-05-26 10:36:26

Uncertainty of information means that the risk premium will be much higher (in other words, the price will be much lower to compensate for this lack of information.)

 
 
Comment by awaiting wipeout
2008-05-26 10:47:20

We are renting in Thousand Oaks, after selling a super-sized Wood Ranch McMansion.

 
Comment by Giacomo
2008-05-26 10:53:48

“‘That model where people took on a long commute to have a bigger house was predicated on cheap energy, but with $4-a-gallon gas, that market is shut down,’ Leinberger said.”

Urban-planning academics trot out this mantra every time there’s fuss over gas prices, but it’s still a red herring. The annualized cost of gasoline for commuters is still small compared to the huge numbers involved in a home purchase. A dollar increase in the price of gas is what, about $1K annually? We have a long way to go ($8? $10?) before that’s a major factor, and we’ve only just begun to consider serious fuel economy measures which would mitigate the problem.

The bigger house in the suburbs was predicated on cheap home loans and speculation, NOT cheap energy.

Comment by tresho
2008-05-26 11:24:46

The bigger house in the suburbs is also predicated on abundant energy. Besides uncertainty concerning the future price of motor fuel, there is concern about its availability. If/when motor fuel is rationed, some homeowners may find themselves in an untenable position. Just my opinion.

Comment by Giacomo
2008-05-26 12:12:14

“The bigger house in the suburbs is also predicated on abundant energy.”

Sorry, that just doesn’t ring true to me either. I’d like to understand WHY I should expect shortages or rationing before I make important decisions based on that assumption. In any case, I don’t believe that most American consumers are preparing for that contingency, and they provide the demand in the housing market.

Americans will get used to $4, $5, $6 gas, just as Europe has been carrying on despite $7+ fuel plus for years now. We may give up our giant SUVs and muscle cars, but we’re not going to move into town to live next to a subway stop over a few thousand bucks a year.

Comment by grumpy realist
2008-05-26 13:49:15

Well, no one thought about energy when thinking about heating/cooling those 5,000 sq-ft McMansions located 1.5 hrs drive away from work, because energy was, y’know, cheap.

Now oil will probably reach $150/bbl by end of 2008 with the accompanying knock-on effects to EVERYTHING.

Take some poor slob who’s house-rich and cash-poor, driving a SUV that gets 12 miles to the gallon, and suddenly tack on an extra $500-$1000 cost/month for standards such as gas, heating, and food. Add to that an ARM that’s just about to reset, and, um, yeah, it’s going to get mighty ugly out there.

(BTW, I’m very very happy that I live 1 block from the CTA here near Chicago and can take it into work every day. I suspect that we’re going to see real estate in urban areas start to have pricing like what’s in Tokyo: the closer you are to a train station, the better for your property.)

(Comments wont nest below this level)
Comment by Giacomo
2008-05-26 16:12:25

Yes, folks who live in cities always seem to think that the world revolves around them. And we’ve been hearing predictions of the death of the suburbs regularly since the early 70’s, always on occasions when the public is stirred up over a jump in the price of gas or a temporary supply interruption. (Today’s price of gas, by the way, is only just now higher than levels established in 1981, if adjusted for inflation. See http://zfacts.com/p/35.html )

I have to believe that long before the suburbs are abandoned for city crime and grime, people will give a try to driving vehicles that get 40mpg instead of 18mpg, which would effectively cut the cost of fuel in half. Or carpool. Or do both. C’mon, we haven’t even made an effort yet.

As regards the “McMansions” : at some price point, someone will find a use for them.

 
 
 
Comment by Giacomo
2008-05-26 12:16:48

It is interesting, I see more and more “green” advocacy in housing articles and blogs. All’s fair, I guess, but I think the connections to the housing bubble issue are tenuous.

 
 
Comment by polly
2008-05-26 13:46:10

However, the emotional impact of a cost you pay often is bigger than one you pay only occasionally. Which is to say, that even if the extra money for gas is smaller than the extra money you would pay to live closer to work and shopping, because you are always aware of it (checking tank, passing gas stations, possibly even paying for it in cash) it has a disproportionate effect on your behavior.

I still think the effect of the end of the HELOC atm machine is larger, but don’t dismiss the effect of higher gas prices because logic says it shouldn’t matter that much. Most people aren’t rational.

 
Comment by jane
2008-05-26 15:49:26

It sort of depends on discretionary income, and on distance travelled. If you are driving 60 miles per day to work, in these parts, that is 20 gallons per week. We are talking traffic, no such thing as the EPA max on the highway. Add to that the soccer mommy toting the sprogs about. (”Can’t have Muffy listening to bad words on the school bus”) Saves the trouble of actually having a relationship with them. The gas costs effectively double. There’s a multiplier effect, regardless of the dollar amount per gallon. Consider: 1) the McMansionite Olympics consists of credit card juggling, and 2) food has actually increased more than the CPI would suggest. Any increase in job-required expenditures becomes catastrophic.

Comment by Giacomo
2008-05-26 16:44:51

No doubt we are entering a period of greater austerity (or maybe just lesser indulgence); but that is different from concluding that some mass migration into the cities is imminent, or that outlying communities are becoming unsustainable. That sort of prediction needs more supporting evidence than a bump in fuel prices.

 
 
 
Comment by PJ
2008-05-26 11:18:38

Should Greenspan still be called the Maestro, or maybe just the idiot central banker instead ?

Martinsburg - take your dollars, convert half of them to Euros. Wait two years. The Greenspan legacy has still to run it’s course, and poor Bernanke is completely flumuxed. If McCain wins the Presidency, and Iran is invaded, you will at least be safe knowing that the Germans, Italians, Austrians, French, Belgians etc.. do not have an apetite for war any more. And if the Hope Pope makes it, you can be glad you have your money abroad, when Obama raises taxes to pay for another expansion of government programs, bureacracy and employment, for “all 57 states, plus Alaska and Hawaii”.
Then convert the other half of your dollars to Indian Rupees. Because there is enough gold in India to make the IR a gold standard currency. Or the Vietnamese Dong. Because you take comfort that these countries are conservative countries where people don’t take big financial risks, and where the whole structure of government is supposed to serve the people, rather than lie to them. And this makes these currencies stable.

And then when the inflation problem has run it’s course you can go to Frankfurt, take your Euros home. And you can make your way to Mumbai or Ho Chi Minh city and take your Asian money home also. And you can tell whoever is left in the banking business that you want to buy your house. This has not finished yet by any means. Inflation is destroying the share of incomes that people can use to pay off their rents/mortgages. And Inflation is getting worse, not better. Bernanke will not fight inflation. If you check what Jim Rogers or George Soros has to say about this, then you will see why inflation is not a concern for Bernanke.

Because a bank is the same as a discount store-you just pick the one that gives you the best deal. As a taxpayer you have already paid the banking sector, and it’s overpaid fast talking executives enough.

Greed has overcome civility. This is the real problem. Both the Republicans and the Democrats behave like as if this is not the real problem, that it is lack of a suitable response that is the problem. Such arrogance.

 
Comment by Martinsburg_WV
2008-05-26 15:47:42

Thanks PJ. How do we convert dollars to Euros?
Also, I would be stay away from Indian Rupee as it is highly manipulated by the Reserve Bank of India. They want it low so that they can benefit more from all their foreign earnings.

Moreover, India is in a big housing bubble, stock bubble and reality will come there soon after sanity reaches US housing and stock markets.

 
Comment by Expat
2008-05-26 19:40:00

blaming high gasoline prices for falling house prices is stupid. If gas has doubled over the past two years, that adds $4000 a year to someone’s gas bill if he fills up one and half times a week. If someone bought a $650k house but can’t afford $4k a year more in gas, they couldn’t afford their house in the first place.

Comment by KeithOk
2008-05-26 21:21:38

How is an extra $4000 a year in gas not going to affect the price of a house, or at least some houses? Of course the effect is going to be less, in percentage terms, on a $650,000 house than on a $200,000 house, but $4000 spent on gas can’t also be spent on a mortgage.

In a world of financially conservative home buyers, maybe the buyer of that $650,000 would have enough of a income cushion to accept take that $4000 a year hit, but in the real world housing prices have been driven by buyers who bought as much house as they could qualify to buy. (Even then, many of them are finding out they can’t afford the house they qualified for). If you pushed the envelope to buy your house, $4000 a year will make a difference. Prices are set at the margin, and even if these buyers are a minority, removing them from the buying pool or reducing what they are able to spend will lower prices in general.

Even for the financially conservative buyer, at middle income levels $4000 is going to have an impact if you’re comparing houses in the outer suburbs to ones closer in (assuming you commute to somewhere near the city). If I think I’m going to have spend $40,000 extra in gas over the next ten years, this further-out house suddenly becomes less desirable than the one with a shorter commute. And if I think a little further, I’m going to realize that the next buyer will be making the same calculation.

 
 
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