Contagions Of Excitement
The Seattle Post Intelligencer reports from Washington. “Yale Economist Robert Shiller…who characterized the tech and housing run-ups as bubbles before they popped…delivered the keynote address at Seattle Pacific University’s annual Downtown Business Breakfast. Markets really react to psychology, and that’s why we get bubbles, Shiller argued. ‘They are social epidemics. They are contagions of excitement.’ That happened with the real estate market in recent years, he said. ‘We got really excited about housing as an investment, and we wanted to buy two of them, or maybe three.’”
“Shiller supported moves to bail out large companies, saying: ‘The bailouts are there to prevent some big event that would really destroy confidence.’ More should be done, he said. ‘I think it’s troublesome the number of foreclosures that we’ve allowed already to happen.’”
“Prosecutors have filed solicitation to commit arson charges against a Woodinville contractor who was allegedly caught on tape offering to pay his tenant $10,000 to burn down a house in foreclosure. Michael Anthony Poole, prosecutors say, had asked renters at his Woodinville home to burn down the residence several times before one of the tenants contacted authorities.”
“According to police transcripts taken from the recording, Poole said he was ‘dying’ financially and unable to keep up with payments for the business and his real estate holdings. In addition to paying him for the arson, Poole told his tenant he would be hired to rebuild the house after it burned down. ‘I know we’ve got about $270,000 to rebuild,’ Poole allegedly told the man. ‘And that,’ he added, ‘would not only save the house, but it would, um, create a job, too.’”
The Seattle Times from Washington. “One out of every 13 homes has entered foreclosure since 2006 in the Lakeland neighborhoods of Verona, Verona North and Verona South, most in the past year. More and more, Rich Faires’ job as property manager for the Lakeland Homeowners Association is to make foreclosed houses in this planned community of 2,800 homes look lived in. Four years ago, dozens of families competed to buy the two-story frame houses in Lakeland’s new Verona subdivision. The empty homes represent a sad ending to an era when many borrowers got a house without a down payment or even proof of a job.”
“‘It all speaks to a time when … all you needed was a heartbeat to get a loan,’ Faires said.”
“In King, Pierce and Snohomish counties, nearly 6,300 homes received a foreclosure notice in the last three months — a threefold increase from just two years ago. One-third of Washington homeowners who financed with adjustable-rate mortgages are still paying low, introductory rates. Those teaser rates, some as low as 1 percent, will jump in the coming year. In most other states, those low initial rates have already expired, according to the Washington Budget & Policy Center.”
“‘When they reset, it’s not going to be pretty,’ said Glenn Crellin, director of the Center for Real Estate Research at Washington State University.”
“In the Verona neighborhood…the first houses sold in 2004 for about $400,000. By the time the last houses were built in 2006, the same models were selling for more than $600,000. Yet properties in the area seemed a bargain compared with Seattle. In 2005, Marina and Andrey Samoylenko…purchased a $575,000 five-bedroom home on Montevista, with a no-money-down mortgage from Countrywide Home Loans. The mortgage payments were about $3,000 a month, the couple said. Andrey worked for Countrywide as a loan officer and the couple said they could afford the mortgage.”
“In 2006, they refinanced with his employer and dropped their monthly payment to about $1,500. Under the financing terms, the couple was paying a small fraction of the interest owed. The unpaid portion was added to their principal balance. Andrey, increasingly unhappy at Countrywide, left for two new jobs — one at a security firm, the other at a local supermarket. Marina worked with him. Last year, both the security firm and the grocery store cut the Samoylenkos’ hours.”
“By January of this year, their monthly payment had jumped and they said they owed $640,000 on a home now worth about $400,000. A real-estate agent negotiated a ’short sale.’ Despite paying tens of thousands of dollars toward their mortgage over the past four years, the couple will walk away with nothing. The Samoylenkos, who shared their story reluctantly, said many of their neighbors could tell the same tale. ‘Step by step, for 10 years, our dream was getting closer,’ said Marina. ‘Now, it’s like someone is taking our dream away.’”
“Michelle Henry and her husband were part of the early wave of homebuyers in Verona. She remembers being directed to Countrywide and getting their new house with two no-documentation loans and nothing more than a $500 earnest-money check. The builder covered the closing costs. ‘I was really surprised we were able to get a mortgage when we already had two other houses,’ Henry said. ‘Clearly we should not have qualified.’”
“Luckily she and her husband sold their two other homes shortly after they moved into the new one and refinanced. But she didn’t understand how young families could afford to buy: ‘You see people in their mid-20s buying half-million dollar homes and you wonder, ‘How in the world did they get the money to do that?’”
“Janet Rogers thought she was doing everything right. When her income as a real-estate agent plummeted last year and she fell behind on mortgage payments, she contacted her lender to try to avert foreclosure of the Kent home she’d lived in for 15 years. In mid-January, she said, the lender told her it had canceled the foreclosure and worked out a loan modification. Then in February, a stranger knocked at her door and said he had just bought her house at a bank auction.”
“‘Before last year, I’d never missed a payment,’ Rogers said. Now she and her daughter have moved into her sister’s two-bedroom condominium. ‘It’s humiliating.’”
The Idaho Business Review. “Mike Pennington comes across as an optimist, but not a blind one. Not overly hopeful and assuredly not too cynical, he takes caution when speaking about the trends he sees in his work as new homes sales manager for John L. Scott Real Estate in Meridian. ‘There are so many elements at work I don’t think anybody can accurately guess,’ he said last week ‘I think we’ll spend the rest of the year cleaning up this foreclosure/short sale thing,’ he said.”
“But even with foreclosures at levels that were unheard of a few years ago, he thinks home prices are bottoming out. ‘I think that’s probably generally true,’ he said. ‘I think this thing has been squeezed down so tight for the last three years that I don’t think there’s a lot of room to go, unless there’s a total economic collapse – and I don’t think that’s going to happen. I think we’re at the bottom.’”
“On April 10, there were 614 resales pending in Ada County, up 122 units from the previous month. Pending resale numbers haven’t been that high in 18 months. Charlie Nate, president of (a) foreclosure-tracking company, said he doesn’t expect any improvement in the Treasure Valley housing market until the record number of foreclosures is whittled down substantially, which he thinks will probably start to happen in late 2009 or early 2010.”
“Until then he thinks foreclosures will continue at a plateau of between 600 and 800 a month, a wild contrast to the about 100 a month that was normal for 2007.”
“‘Once we see those foreclosures stop hitting the market, we stop seeing an influx of new houses, then the bottom is close and we’ll see that turnaround,’ he said. ‘If you see 800 a month coming on the market, that puts a screeching halt to new build jobs.’”
The Statesman Journal from Oregon. “All we have to do is to get Washington to listen to the best idea I’ve heard to end the decline of housing prices and, thereby, restore our confidence in the most important asset most Americans ever own. The idea comes from economist A. Gary Shilling and real estate developer Richard S. Lefrak.”
“Their suggestion: Don’t think about artificially low mortgage interest rates and other stop-gaps. Instead, eliminate the oversupply of houses. Too many were built during our speculative bubble. And, by the way, don’t spend a dime of taxpayer money doing it.”
“How can this be done? Simple: Open our borders to immigrants who can buy a home in the United States. Let one million immigrants per year do this for two years and the entire oversupply of homes and condos will be absorbed. Supply will no longer dwarf demand. Prices will stabilize. The most important asset owned by the vast majority of Americans will, once again, be a source of pride and security.”
“Scott Burns suggests in his April 19 column that one solution to the housing glut is to allow 2 million immigrants to enter the U.S. and each buy a house…Many homes are being lost because the jobs are gone. Where will these immigrant millions work? Who will not have a job because they took it?”
“I’m all for legal, controlled immigration so our economy and services are not strained. However, to paraphrase another, ‘If illegal immigration was good for the economy, California would be the most prosperous state in the union.’”
“I would add, Oregon wouldn’t be far behind.”
The Oregonian. “At first glance, the federal government’s all-out attempt to jolt the housing industry back to life appears to be working in Oregon, particularly for first-time homebuyers taking advantage of falling home prices. Just don’t hold your breath. Government lures probably won’t be enough to turn around the cold market. Early 2009 declines in sales prices showed there’s still room to fall, especially as unemployment spikes and other gloomy economic news hammers consumer confidence.”
“‘One of the characteristics of the 2009 market is I don’t think anyone really knows what’s ahead of us in the next seven to eight months,’ says Kathy MacNaughton, a broker…who focuses on property 20 minutes from downtown Portland. ‘The big question buyers have out there is: Will it drop lower?’”
“First-time buyers Jonathan Eng and Lindsay Benson…who couldn’t find much in their price range a couple of years ago, have found plenty on the market these days to fit what they were looking for in the $200,000 to $220,000 price range. They recently closed on a $259,900 English Cottage in North Portland. The price was more than they originally wanted to spend but exactly what they wanted after eight months of shopping.”
“And, because of a motivated seller, they were able to negotiate the price down by $25,000 and got perks including closing costs, a new sewer line and a new furnace. To boot, the couple qualify for the federal government’s $8,000 tax credit. ‘We just luckily timed it right,’ says Eng, a 29-year old personal trainer. ‘There was definitely a lot of options out there. Things got better and better the longer we waited.’”
“With the U.S. Treasury Department’s ‘Making Home Affordable’ program, even more help for existing homeowners could be on the way. Some critics say the program doesn’t give banks big enough incentives to take on the cost of bailing out struggling homeowners. Senior loan officer Steve Emory with Pacific Residential Mortgage in Lake Oswego says the programs still put the majority of the costs on banks’ shoulders.”
“‘It’s not going to help hardly anybody,’ Emory says. ‘This program is designed to save 9 million people. I don’t think so. The lender still takes the first big hit.’”
“Rachel Freed, a real estate agent with a focus on close-in Portland neighborhoods, says at the dizzying heights of the housing market, a home would have 15 offers and prices were inflated by $30,000 or more. ‘Neither I nor my colleagues enjoyed those times or wanted it to last,’ Freed says. ‘Sellers were upset, buyers were freaked out.’”
“Gerry Mildner, director of the Center for Real Estate at Portland State University, says buying speculatively is what got the industry into trouble in the first place. He offers this advice: ‘Pick the house that suits your needs to live in seven to 10 years. Don’t worry about appreciation, it’ll go up naturally. The lesson that we learned over the past two years is it’s not always up.’”
‘They are social epidemics. They are contagions of excitement…We got really excited about housing as an investment, and we wanted to buy two of them, or maybe three.’
I’m curious how Shiller thinks we can prevent foreclosures for people with 2 or 3 houses, when they never had the income to support them, and with prices falling like a rock. He can call it excitement; I call it irrational gambling on borrowed money.
I’ve been trying to get it across for a while that Shiller is talking BS, and this little speech in WA is more of that.
‘One-third of Washington homeowners who financed with adjustable-rate mortgages are still paying low, introductory rates. Those teaser rates, some as low as 1 percent, will jump in the coming year. In most other states, those low initial rates have already expired’
This makes sense and shows more about why the markets that started falling later are falling faster; credit conditions have gotten worse every month for years now. And it also makes sense that WA resets are lagging; their boom was a little later, so the loans were made later.
Agree 100% Ben. Shiller is talking out his arse on this one. The only time I can accept helping someone avoid foreclosure is if they had a medical situation that caused them to be out of work (or similar situation).
But gambling on a house, with no money down? All so you could cash in the big bucks if it goes your way?
Get out of the house. You never owned it.
Amen, banana!
If Shiller feels so strongly about bailing out deadbeats (borrowers and lenders), then why wasn’t he opposing all the “creative finance” more strongly years ago?
I remember how, every time he was on CNBC or writing a new article, I kept expecting him to really knock people over the head with his numbers and arguments, but he would sit there like an abused puppy. He never really got strident about it like Peter Schiff did. He would just act really neutral and let the bulls run over him.
I’m betting that people who get in trouble with their mortgages this year and next are going to walk a lot sooner, vs. what we have seen up to now.
you likely are not still here, but why do you think people will walk sooner now?
Yes, Schiller sounding very Keynesian. Disappointing, because the arguments for moving our political/economic system in that direction seem weak to me.
With the change in power in Washington, perhaps we are now seeing the true (political) colors of Academia revealed.
You apparently just don’t get Keynesian macroeconomics, so let me explain it to you in a nutshell: It is perfectly OK to engage in financially inane behavior, so long as everyone else is making the same mistakes.
‘Keynesian macroeconomics’
I’ve told this story here before, but it’s fun to remember. When I was a freshman economics student, me and some other folks wanted to start a campus group to promote classical economics. We asked every business professor to sponsor us, and they all turned us down. We finally found a liberal arts professor, who was a marxist, that would do it. He said he just wanted to shake things up. Our first poster, that we put all over the business school, said, “Stop force-feeding us this Keynesian swill!”
Ah, good times.
Once a rabble-rouser, always a rabble-rouser, eh?
Professor Philpott by chance?
Tell us more about your college days, Ben!
‘Professor Philpott by chance?’
Whoa, that one hits a little close to home. No, I didn’t attend UT Austin, but I actually rented a room from his son when I was studying for the CPA exam in Austin. We both worked at ACC as tutors. It was PPs house and my friend had inherited it. So one day I asked him what the box was at the back of my closet, and he said ‘get it down and look.’ It was PPs ashes. My friend liked to shock me. He told me this great story, about how his dad had had a couple of drinks one night, and went over to the college presidents manor and hit baseballs at the front of the house until the cops came and took him away.
‘Tell us more about your college days, Ben!’
OK, so what kind of stories do you want to hear? Wild and crazy stuff, or protests/rallies and the like?
OK, so what kind of stories do you want to hear? Wild and crazy stuff, or protests/rallies and the like?
Yes!
OK, just for you OG. I went to UT Arlington to major in real estate, where my younger brother was studying electrical engineering. (UTA was at the time the second best RE school in the great state of Texas, second only to SMU, which I couldn’t afford). Somehow, we got it in our heads we wanted to be Fijis. So we pledged, and after only being in town a couple of weeks, went to our first party. Later that night we were leaving, and found ourselves getting pushed around in the parking lot by some big guys from a rival fraternity.
But little did these college boys know that we had grown up busting knuckles with roughnecks in the wildest, whiskey-drinkingest, oil-field town in Texas (this was the height of the oil-boom, BTW). So we proceeded to mop up the asphalt with these 5 guys. After that, the Fijis thought we could do no wrong. But we couldn’t hang with all the conformist stuff at the frat, so we bailed a couple of weeks later, even though it was a great bunch of guys.
So BJ’s done some asskicking…. I’m not surprised for some reason.
Hooray! I’ve wondered for a such a long time.
*flings self back into wooden chair in order to pay attention best*
Somehow, we got it in our heads we wanted to be Fijis.
Sure, that’s totally understandable. Who wouldn’t?
*nods all understanding-y like *
So we pledged, and after only being in town a couple of weeks, went to our first party.
Hahahaa, that party didn’t know what would happen to it. And don’t think I didn’t notice that you glossed over the details of this party. I bet you signed bosoms and stuff, huh huh.
Later that night we were leaving, and found ourselves getting pushed around in the parking lot by some big guys from a rival fraternity.
Those poor boys. I would almost feel sorry for them, except I don’t, because I enjoy a good surprise, as long as it doesn’t happen to me.
But little did these college boys know that we had grown up busting knuckles with roughnecks in the wildest, whiskey-drinkingest, oil-field town in Texas (this was the height of the oil-boom, BTW).
Ooooh, now, there’s more stuff I want to hear about!
*happy, happy sigh! *
‘don’t think I didn’t notice that you glossed over the details of this party’
Well. I left out the obligatory frat-prank we were ordered to engage in at the football game before the party even. The policeman was very understanding and let me off with a warning.
“But little did these college boys know that we had grown up busting knuckles with roughnecks in the wildest, whiskey-drinkingest, oil-field town in Texas (this was the height of the oil-boom, BTW). So we proceeded to mop up the asphalt with these 5 guys.”
The Legend of Ben Jones grows by leaps and bounds
I always knew you never came across as an economic girly man, Ben.
You just described all of Wall Street, in fact all of corporate America.
Before now Academia was in the closet about its liberal views?
Not to worry on the option arms. The Messiah Obama will bail him out.
pizzmo…. you’re quite busy on marketwatch these days. I see you’re a big BO fan…. at least over there.
Still butt hurt about losing eh ?
He appears to be.
Shiller’s math has been spot on; he’s accurately predicted where home prices need to (and will go). The problem is, he seems unwilling to accept his own conclusions.
His research shows that houses have a VERY predictable appreciation through time (the rate of inflation); and that they must revert to the mean (as they always have in the past). This reversion is a 50+% loss in the really bubbly areas, and a 30% loss in most of the “not so bubbly” areas.
It’s as if he’s unwilling to see this through to it’s logical conclusion. Robert, you were right, homes were (and still are) GROSSLY overvalued; and there are going to be years of pain as we revert to the pricing that YOUR FORMULA predicts/promises. You know (as well as any of us) that there’s nothing that can be done to prevent this from happening (as prices and incomes are inexorably linked), so why even try to come up with these “mitigation” plans. Just let them walk, and have the banks take the loss. You knew, as did all of us, that this was going to happen; it’s as predictable as the sun going down every night.
I almost wonder if he has to say those things on the air to continue to get facetime. He’s also not a good public speaker; I’ve been annoyed for YEARS that he wouldn’t come on CNBC and tell them (in these words) “Condo prices in FL are likely to fall 60-80%, single family homes at LEAST 50%; and many of the other bubbly areas are just as bad”. He’s way too “unsure” of himself; almost like he doesn’t trust his own research.
Shiller has become an, er, shill.
He’s also not a good public speaker; I’ve been annoyed for YEARS that he wouldn’t come on CNBC and tell them (in these words) “Condo prices in FL are likely to fall 60-80%, single family homes at LEAST 50%; and many of the other bubbly areas are just as bad”. He’s way too “unsure” of himself; almost like he doesn’t trust his own research.
—————-
This is exactly what I was referring to in my post above. He might have been able to stop some of the damage before it got too big, but he never really made a strong case when speaking publicly. It was very disappointing.
Damage?
I thought the “famous” Shiller/NYT house price chart was all that needed to be said by him…
Anyone seeing that and denying the obvious - well, good luck to them.
No. Idiots don’t do charts, or they come up with all kinds of excuses as to why “now” is different.
He did a very poor job making his case.
Welcome to the contagion of dissapointment.
“They are social epidemics. They are contagions of excitement.”
Weasle word dictionary translations
==============================
social epidemics: The housing mania is a disease that afflicts people without warning, not something they inflict on themselves by purchasing houses they cannot afford.
contagions of excitement: Like the swine flu, nobody could have seen it coming. Rather it was an act of nature akin to a lightning bolt striking out of the clear blue skye. Hence nobody can be held responsible for what happened.
May as well point out here that Bernanke’s “theory” that it the high Asian household savings rate caused America’s debt binge fits right into the category of blaming others for self-inflicted damage.
I am seeing tons of short sales up here in sacramento.Seems like all of a sudden all the speculators now have a hardship.these people are totally gaming the banks.
Is all of the shortfall of debt forgiven in these deals?
I am seeing a crap load in the Phoenix area also. Seeing as the bank probably doesn’t even know the seller needs a short sale, i doubt the banks will even accept a lot of the short sale prices I am seeing.
But who knows?
These are the first wave of speculators that bought cheap last year that are having problems.
You still have people making the same mistake now.
And those ’save your home’ programs…
…don’t apply to speculators…
And those ’save your home’ programs…
…don’t apply to speculators…
=====================
Why not? I doubt anyone checks whether the borrower lives in the house or is an investor. Speculators lied to get loans. They will lie to get the bailouts too.
California taxes the forgiven amount plus taxes the commisions paid etc so it’s not walking away scott free by any means.
Is CA actually enforcing that? I know that the fedgov has given people a pass on forgiven debt….is CA forcing people to pay?
The forgiveness is only for primary residences. Those that bought for ‘investment’ are simply screwed…
Those that bought for
‘investment’screwing other people are simply screwed…Better.
Got Popcorn?
Neil
Excellent! Love it!
CA had a temporary foregiveness law that expired.
Thanks, Mo. I don’t recall hearing they had a forgiveness law. Good to know.
Watching Sac and So Cal. I have a sense that many of the investors buying distressed properties are foreign-born immigrants (Asian, Middle-Eastern) with a cultural attraction to becoming landlords. It may not be a strategy that is necessarily applied with economic sophistication.
Just a theory, though.
You can say that again. There are two Asian landlords on my block.
One moved out, then rented his longtime residence to some doofus he used to work with. And the doofus’ family. And the doofus’ pack of barking dogs. (I especially love being awakened when the dogs bark at someone quietly parking their car across the street at 11:30 p.m.)
The other is a guy who owns two houses right next to each other. To put it mildly, this guy has been a real problem to the neighborhood association. Matter of fact, he once asked the association if it would paint his houses for him. Let’s just say that the association turned him down.
I’m currently dealing with a yappy chihuahua that is owned by tenants in one of the Problem Guy’s houses. It’s being let out for the night, and lemme tell ya, there’s nothing like being yapped out of a sound sleep at 1 a.m. in the morning.
If you’ve guessed that uncontrolled barking is quite a problem in Tucson and Pima County, you’re right. The good news is that a group called Quiet Pima County has recently formed to change the local animal noise ordinances.
If you’ve guessed that uncontrolled barking is quite a problem in Tucson and Pima County, you’re right.
Hey, AZS, Google “stop dog barking”
(sorry to hear you have the problem)
If you’ve never seen the movie “Keeping Mum,” rent the dvd and that will give you an idea of how to get free of a barking dog and other inconveniences.
It’s a brilliant film - black comedy but at the same time rather sweet.
The trouble with Googling “stop dog barking” is that most of the results deal with dog training and the various devices used in training. Purchasing and using those are the responsibility of the neighbors who own the barking dogs, not me.
OTOH, the BarkingDogs.net site also comes up in this search, and that is a site that I’m well aware of. Excellent resource for those of us who are subjected to bark noise pollution.
Sneak up. Plant microphone and speakers in bushes. Record dog barking. PLay back at high volume. Repeat.
I’m not sure what this would help, but it sounds like fun.
Last time barking dogs got to be too much for me, a small digicam was rigged up to record each extended yappest– which was then posted in its entirety on YouTube along with identifying snarky commentary. (Owner was the animal control officer for the area!) Takes only about three weeks for word to get back to the offending owner and for them to shut them up–especially if someone at their place of work has somehow gotten ahold of the link and shared it with the entire office staff. I’ve also had good luck with those ultra-high frequency pulsing devices that go off when the creature starts in with the incessant barking…but you have to install it very close to the source of the noise.
Or you could try what my old rancher neighbor swore by. 1# of really cheap commercial grade hamburger with high fat content. Mix thoroughly with 8 oz of engine coolant, roll into bite sized treats and scatter for “the coyotes.”
Never got the nerve to try this, as I have my own dogs, cats, raptors, on the property and don’t want to deal with the vet bills, but apparently it’s pretty effective. Try Barkingdogs dot net for more suggestions….Good luck!
Agreed, Az Slim…painting with a broad brush again, sorry–the same cultures seem (apparently) mystified by local building/zoning codes and quality-of-life standards (like noise issues). It was part of the reason I had to move to the boonies (fortuitously timed, early ‘06).
Yep. And a lot of those short sales are closing now. Cripes.
A PNW thread! Thanks, Ben.
And let me add more, from just a cursory inspection of today’s local headlines:
‘Former WaMu employees sue FDIC, claim contract breach’
http://tinyurl.com/d7c6rq
‘WaMu sues JPMorgan Chase’
http://tinyurl.com/co6q6h
‘Seahawks’ Curry found inspiration in mom’s eviction’
http://tinyurl.com/c76u3y
“Our house was gone, just like that,” Curry said. “There was no debate, no waiting to see how long we could stay. It was just, ‘Get out now.’ In the blink of an eye we had nowhere to stay.
“I realized then not to take anything for granted. Because anything and everything can be taken away from you. It can be a house. It can be a car. It can be the game of football. It can be your degree. It’s just amazing how that happens. Once you realize that, that’s when you look at life differently. So everything I do now, I do with the same passion and emotion and work ethic that I play football with.”
He’s not embarrassed by the circumstance, just enlightened.
“Nothing negative came out of that situation. We didn’t have any place to stay, but that was short-term,” Curry said. “If I look back on it long-term, I benefited so much more from that situation than I lost. My mentality about life just changed ever since then.”
See? Foreclosure can be a good thing!
“See? Foreclosure can be a good thing!”
You’re cold farmgirl, cold.
And here I thought I was being positive!
wha??? They can take your degree??? How does that work?
Yikes…perhaps my extra-curriculum BS courses in Anatomy in Braille didn’t fly per review by the new Dean of Resgistrar…I had A- average and I did party hard!?!
Hey, I used to actually teach a mountain biking class at a local community college.
Hey, I used to actually teach a mountain biking class at a local community college.
Get out! For years in the late ’80’s, early ’90’s, I kept saying that I should teach a “City Survival” bicycling class for people who wanted to get the benefits of riding, but might be a bit, shall we say, clueless about not becoming road kill.
The main reason I didn’t was my worries about liability issues.
We had a great time, we spent a number of classes learning how to maintain bikes, read topo maps, that kind of thing, then the rest of the classes were actual riding. And I got PAID for it. Dream job.
(Disclaimer: the pay was LOW).
I was invited to give a lecture and a presentation at my old undergad university two years ago. I got a long standing ovation by some 240-250 students , faculty and local residents. Wow…was that ever humbling !
I was paid with some great company and as much beer and pizza as I could eat that night.
…and to think, both my mom and old Dean swore I born to be hung by my neck …until dead
Well, you ain’t dead yet.
I agree, money isn’t the only reward and often not even the best (unless you’re tracking down outlaws).
OK Mikey, what was the topic of your lecture? I must know.
Perspective of a 50 year history of US War, Propaganda and Foreign Intervention Doctrines.
Who’da thunk, Mikey? You are a HBB expert and a US history expert! Fortunately for you, the two have merged recently.
If you’re a Div I college football player, odds are that you didn’t deserve the degree you got.
How do they take your degree away from you?
Because your coach forced the English department to give you a passing grade? *shrug*
Olympiagirl,
I perfectly understand the PNW animosity towards developers ( particularly those on the SOD with self-igniting homes ) as well as realtwhores etc. but I’m not sure I understand all the contempt for rank and file NW’s?
Having a sideline biz is almost a necessity here and although we had a gentle ramp up earlier than most parts of the country, we had a fair pause during the post 9/11 recession. Sputtering recovery, weak employment. We were just beginning to spike when MA and FL were starting to crack.
Virtually EVERY market outside of ours had their advantages! Re-fi? Straddling multiple residences and then walkin away from the former and on and on! Now when borrowers ‘here’ find themselves in trouble everyone is tired ( understandably ) and just as willing to throw them under the bus as the flopper that bought in FL in ‘02 and stopped making teaser payments in ‘05 and was JUST foreclosed on.
Instead of having the advantage of benefitting from others mistakes, the options here became more limited as lenders -finally- became more leery. In many cases, we bore the brunt of their “revised” lending standards, PMI etc.
I think the best analogy for what happened ‘here’ is a lot like a r-e-a-l-l-y rowdy Senior class where the kids are -totally- out of control!
The teachers sat around the lounge scratching their heads over “what went so WRONG with ‘this’ class” and come to the reality that -nothing- that can be said nor done at this point… is going to bring these little BRATS back in line!
Oh… but NEXT year! ‘Those’ little punks are going to get WHIPPED into shape!
( Does ‘that’ make sense? )
‘Pick the house that suits your needs to live in seven to 10 years. Don’t worry about appreciation, it may depreciate like any consumable asset like the car. The lesson that we learned over the past two years is it’s not always up.’
There… fixed it for ya.
I can’t believe the inherent “go up” mentality ingrained into our society and academics, even when they say it doesn’t go up, they’re saying it’ll go up.
Sigh.
Before the FED and persistent inflation money held value well enough to show the depreciation of a house. Now money is so fleeting that houses appear to be not just standing still, but actually appreciating which is a total crock of crap if you just look at a typical 75 year old house in nearly any American City.
It’s all a big hoax.
Open our borders to immigrants who can buy a home in the United States. Let one million immigrants per year do this for two years and the entire oversupply of homes and condos will be absorbed. Supply will no longer dwarf demand. Prices will stabilize. The most important asset owned by the vast majority of Americans will, once again, be a source of pride and security.
I got news for ya… The US immigration law already allows anyone with wealth to easily get a citizenship in the country. It’s been there forever. If they wanted to come and buy your stupid house (to bail you out), they would’ve already done so, and is now part of the bagholder clan.
On the other hand, if we’re opening up the this to a home defrauding crowd, with no provable means to income and lied to come to the country, then I say open up; coz the taxpayer reaming you’ve been experiencing is nothing compared to what’s coming.
What utter stupidity. We’re at pure exhaustion; why can’t bubble blowers get that into their heads? You cannot let the bubble reflate anymore, it has to deflate fully first.
THEY ALREADY BOUGHT HOMES!!!!!!
Why do you so many were bought in Cali?
I know of realtors who sold to illegals. There are plenty of stories about this already. The one person I know that sold to illegals is now ‘nice’ enough to help them with their short sales.
Did selling to illegals help then?
Will it help now?
“I’m all for legal, controlled immigration so our economy and services are not strained. However, to paraphrase another, ‘If illegal immigration was good for the economy, California would be the most prosperous state in the union.’”
“I would add, Oregon wouldn’t be far behind”
…and Texas and so on..,
I would have to ask, why isn’t Mexico a economic powerhouse?
Hey, what about Arizona? Scott, you left our state out of this list!
“If illegal immigration was good for the economy, California would be the most prosperous state in the union”
The irony here is that California is indeed the most prosperous state.
I guess that begs the question of how we define prosperity. Is it the number of rich people? The percentage of rich people? The ratio of rich people to poor people?
I’m happy for you if you’re a Californian and consider your state to be prosperous today. But it is difficult for a non-Californian like me to think of a state that didn’t have enough cash (out of the cash it collected) to pay income tax refunds and that is rumored to be near default on state obligations, as prosperous.
The irony here is that California is indeed the most prosperous state.
To which I say…
Populous does not = prosperous
Quantity does not = quality
One million millionaries + 35 million broke-ass, barely making it peons does not = a thriving middle class
On a per-capita income basis, Cali does seem to rank nicely –8th(http://en.wikipedia.org/wiki/States_of_the_United_States_by_income). However, her cost of living places her second most expensive out of all 50 states (after HI). Add to that the fact that much of the population and income (illegals) is underground and not counted, and I bet that 8th per-capita income ranking would fall precipitously.
I agree HARM. I love this state. Never considered it rich and it’s not rich now. Not sure 85701 what you are comparing CA with.
Hey, 85701, you downtown Tucsonan you . Wanna get a Tucson HBB meetup going?
And would anyone else care to meet up here in Tucson? Come on. I know you’re out there .
“…….opening up this to a home defrauding crowd…….”
Been there, done that already
“…..it’s a free for all, and I heard it said
You can bet your life
Stakes are high, and so am I
It’s in the air tonight…..”
If this is done, the supply of houses might not dwarf demand, but the demand for education, hospitilization, jobs, infrastructure, etc. etc. will certainly outstrip the supply!
Which is already happening here in Arizona. Big story in today’s local rag about enabling law enforcement to ask people if they’re in school legally.
Slim - not being facetious - do you know if there’s anything more to it, than the question, “Are you in school legally?” That seems a bit naive. Of course, back when you and I were kids, our folks had to produce a birth certificate to get us into school. Presumably naturalization certificates were a valid substitute. But when did proof of one’s status in this country cease to be required as a prerequisite to enrollment in taxpayer-funded government schools?
I believe that the “legally” in this case has nothing to do with immigration status (which federal courts have ruled is not a legal reason for removal from public schools), but rather with place of residence. It is my understanding that many middle class mexicans cross the border every day to drop off their kids at American public schools.
Colorado - that makes sense. I suppose it is a broader version of, “Do you qualify to be in this particular school versus another one in this district, or another district altogether.”
I’d be interested to learn how this plays out.
Some articles Ben posts make me laugh, some make me snarl, and then there are those that make me want to slam my forehead into my keyboard repeatedly until the space bar breaks and the pieces work their way into my brain.. performing a qwertal lobotomy.
Bink, stop making me laugh so hard. You’re making me, um, excuse me, I need to visit the room behind me before I have an accident.
I would be more in favor of allowing any immigrant that will be willing to invest $1 million or more in retired beanie babies. I think that would benefit more Americans, as I am sure many owners of beanie babies rent their homes.
The lack of concern by our elected officials over the collapse of the beanie baby market is very disheartening.
That you, ByeFl???
Funny, my maintenance guy (maybe 40 yo male?) and I were chatting a while back. He mentioned having storage, and having beanie babies and other collectibles.
No talk of Oil City, PA though.
I used to work with a lady from Oil City. I should say that she was FROM Oil City. She was so-o-o-o glad to be outta there that place.
“The lack of concern by our elected officials over the collapse of the beanie baby market is very disheartening.”
ROTFLMAO!!!! Thank you for that remark! I needed a good laugh today.
Indeed, articles have already been posted about Chinese buyers doing the foreclosure bus tour, why move here when you can simply buy ?
Oh, goodie. Just what America needs. More absentee landlords.
“Hey, honey! Is this a note from our landlord or instructions for the drywall?”
Even better, more neighborhoods where 20 people live in a 3/2 SFH (with converted garage, naturally) and park their cars on the dirt that was once a front lawn.
That’ll bring prices up for sure!
“Open our borders to immigrants who can buy a home in the United States….The most important asset owned by the vast majority of Americans will, once again, be a source of pride and security.”
Why do I feel the sudden urge to punch someone? I can’t figure it out.
Then he’ll wonder where all the taxes are coming from when today’s infrastructure fails.
And another thing: QUIT WITH ALL THE INCENTIVES! When will we recognize that incentives and assorted bailouts are inflationary and are the cause of these things, and start focusing on encouraging people to buy things they can afford at their level of income?
Any chance that after this is over we can do away with the notions that the average Joe should BLINDLY put money into a house, or BLINDLY buy into 401K’s, or otherwise delegate investment decisions to Realtors and “financial advisers”?
Okay, probably not.
For me it’s not punch. I want to line them up and SHOOT THEM.
‘Pick the house that suits your needs to live in seven to 10 years. Don’t worry about appreciation, it may depreciate like any consumable asset like the car. The lesson that we learned over the past two years is it’s not always up.’
“Depreciate like any consumable asset like the car?” Great. Sign me up for a 30 year mortgage, plus endless property taxes, insurance and maintenance.
Would you like a car with that?
Lisa - good observation. Begs the question of why any lender would lend money against a depreciating house unless they can be certain (clever devils) that debasement of the currency by their buddies and revolving-door former co-workers will make the problem appear to go away. The house-debtor loses, the buyers of the mortgage paper lose, but the bank and/or the loan servicer don’t lose. Makes ya wanna go to Vegas, where the odds are better.
…and you might get laid, instead of just screwed.
And the Lake Oswego report is…whoops, it’s NOT different here. House down the street from me, built 2 yrs ago and sold for approx 2 million, is now bank owned and on the market for just under 1 million. Still way overpriced, but hey.
All you regular readers here would have loved the folks who lived there–they had every possible big-ticket item under the sun…. big powerful truck, camper shell to go on the powerful truck, ginormous trailer to be towed by powerful truck, ATVs to go in ginormous trailer, sleek powerful speed boat to be towed by powerful truck. Did I miss anything? Oh yeah, an Escalade and a couple of additional matching SUVs.
What kills me are the pink curtains at the windows upstairs–a 6-yr-old girl lived there. It’s not her fault her parents are fools.
It’s not her fault her parents are fools.
Yar. There really are many true ‘victims’ in this mess. They weren’t the ones signing the papers, but they get to experience the aftermath of the bubble craziness anyway.
Olympiagal,
I can only ask you read the Seattle Times article. Not… to say there weren’t GF’s and FB’s galore, but some very… different wrinkles. The one gal ( Debra Dahl ) put HALF down! Pretty remarkable, yet -still- found herself facing FC.
A Federal gov. employee and an accountant couple w/ three homes? You’d think at least the accountant would have done the math? I just found the scale of 2,800 home development a little staggering. I’ll refrain from even commenting on the LUNACY of allowing 2 mil. more into the country for the sole purpose of buying homes.
Accounting and mathematics are not always related.
And only one of those things hangs out with logic on a regular basis.
Jean S,
How many times over the last few years have you driven past a home ( usually -new- home ) and wondered if they weren’t recent contestants on The Price Is Right?
And it doesn’t have to be L.O, you could go through Gervis and find ‘that’.
no kidding.
the neighborhood rumor mill had it that they were lottery winners. I kept thinking, “I smell HELOC money.” Maybe some combo of both…
Jean S,
Don’t be silly! ( They’re the same thing! )
We used to guess that some of our “prosperous” neighbors with giant houses and fancy cars — but only one modest income in the household — must have hidden sources of financial backing, like rich parents or in-laws.
As it turns out, none of them did.
Funny, my mom and I thought maybe drugs were involved. How the heck else could they afford to buy those expensive houses here in the Bay Area. Of course this was before I found out about subprime, no documentation, lying etc…
There are For Sale signs all over the numbered/lettered streets in ‘downtown’ LO. And they have been that way for two years I’ve lived in this hood. I doubt asking prices have dropped much hence the continued lingering, and in some cases leaning, of signs.
From the Idaho Business story…
Ask Greg Manship, CEO of the Intermountain MLS, which tracks residential real estate transactions across Idaho, and he’ll shy away from declaring the uptick anything more than a cyclical upswing.
“We had an uptick in March, and whether or not that’s a short-term uptick or if it’s a long-term uptick, I don’t have a crystal ball,” he said. “But I will say that there are a lot of incentives in this housing market that are going to bring buyers.”
These guys don’t understand the concept of “statistical noise” which is probably what March’s uptick was all about.
I drive around the Boise area a lot and have several observations.
Resales in subdivisions which are mostly or completely built out are much higher than in subs which are only about 20% built out. No mystery there - would you want to live in a solitary house in a sea of weed filled vacant lots?
The people who really appear stuck are those speculators who bought vacant lots in new subdivisions presumably to flip even before building occured. There’s a sub called “Kingsbridge” in Meridian which is about 20% built, but about half the lots were purchased from the developer. Most of those vacant lots now have “for sale by owner” signs on them and nothing appears to be moving.
Along with regular developers, there’s another kind in Boise: developers who oversee the sub but don’t build any houses themselves. Instead they sell lots to independent small house builders. In these kinds of subs construction has completely stopped.
Construction still takes place in the subs for integrated developers like Hubble and Cory Barton. I guess their financial situation may preclude putting on the brakes.
Notice how the developer is trying to “spin” the situation.
http://www.kingsbridgemeridian.com/map.asp
Most of those red dots - “sold” - are not houses but rather vacant lots owned by speculators who have posted “for sale” signs on them. There are only 12 actual houses built in the subdivision which opened in 2007.
DennisN,
The -only- change I am seeing in speculative activity is that it’s simply gone from being a “one shot, one kill” mentality to “volume”!
So rather than flipping a McMansion every other year or so, it’s now “discounted lots” ( and lots of them! ) or mfr. home repo’s or..?
I took a drive over to Kingsbridge after I posted above.
That map at their site is bogus. In the block at upper right, only the leftmost portion even exists. The streets shown aren’t there at all. The paving ends and there’s a barricade with a sign stating “street to be extended in the future”.
I don’t get it. They show “lots” that don’t exist being “sold” - when you go there and look there’s nothing but a plowed field.
Dennis - I’d imagine that the lots were platted as approved by the county zoning board. Presumably they then were sold to speculators, many like the “ranch” lots in 1960s magazine ads to people who never set foot in Boise. Sounds like the buyers didn’t research the developer’s or county’s obligation to put in paved streets and utilities, not that anyone is likely to want to put up a house right now.
‘I think it’s troublesome the number of foreclosures that we’ve allowed already to happen.’
I think it’s troublesome the amount of loans that Megabank, Inc’s securitization sump pump allowed that will never be repaid, and even more troublesome that the kneejerk policy response is to make the housing bubble enablers whole at the expense of anyone who is long dollar obligations.
Shiller is starting to look more and more like just another Wall Street apologist. Is he vying for a future position at the Fed?
Well, I said he was a hack back in 2007 and people jumped all over me. His tune changed at some point. This is my question, since he is the economist that the media turn to over and over; how about a debate on IF what he is proposing would even work! It seems to me that should be the first step, given how big this issue is in the world today.
I’ll take him on. How about it Mr Shiller? We could have a debate on the SPI, online.
Yeah, Ben! Bring it on!
We could have a debate on the SPI, online.
I think you should debate him online in Sim City, or Second Life, where NONE of the housing is real.
(Gor, I crack me up)
Ben,
from what we have seen and heard in the videos and on this blog, you are intelligent, thoughfully calm, and down to earth enough to totally repo his Phd, punch his ticket and banish him to wander the sheltered Hallowed Halls of Yale Academia stunned and dazed seaking a realistc re-education…forever.
This ground-level Housing Crisis is your field and his name and funky econ Phd sheepskin would offer very little protection should he care to duel with you. Of that, I’m a beliver.
Shiller got served!
It all turned sour for me reading his “The Subprime Solution.” Part 1- How it happened– OK.
Part 2 “What to Do about It” — WTF!?
Go get him, Ben.
SPI? What does it stand for?
Thanks
It’s frustrating to see foreclosures talked about like it’s something the “homeowner” is afflicted with….if they can’t afford the house, they can’t afford the house. Period. Foreclosure isn’t something that need be avoided in that case. Sigh.
Why can’t people talk about such things realistically, intelligently, and consider all the facts?
Do “people” think that those who fail to make car payments should get to keep their car? Why are houses different?
I know this one person who recently got her car repossessed. She’d had it for three months. I asked her, ‘why did they take it?’ She replied, ‘I never made a payment.’ So, I said, ‘what did you expect was going to happen?’ She said, ‘I figured I’d drive it until the wheels fell off.’
True story.
Hahahahahah!
My sister did that with her cars, but she always owned them. She never changed the oil or anything, just got another when the wheels fell off. Blew a rod in one in the middle of the AZ desert, no oil. Left it sitting and hitchhiked home. She actually got mad at a big pickup that blocked her into a parking space and rammed him a few times with her car, didn’t hurt the truck but damaged her car a bit. I’ve been with her when she would actually drive down the sidewalk to avoid traffic jams. She wrote detective novels under a pseudonym for Ballentine and always drove old beat-up VW Bugs.
Glad it’s not genetic.
(I did total one of her Bugs when I was 18, she was pretty cool about it, didn’t seem to faze her a bit, just went and got another.)
Lost In Utah:
That story is hilarious!!!
Women + Vehicles = Entrophy…
However, she sounds cool in the end!!!!!!!!!
Lostie,
That was funny. Don’t you just love your siblings. I love mine.
Great story, Lost!
She moved to Hawaii, lived in a condo right on the beach and pretty much gave up driving. Probably a good thing. She was older than me and taught me how to drink saki, slip in through back doors, and play poker for big stakes (I won the QEII several times, then lost it, ditto with Buckingham Palace). We climbed lots of mountains together, both real and symbolic. I miss her, she died a few years back. But she lived life to the hilt, a real inspiration and a real neat person.
Hug your sister (or brother) for me in her honor.
Sorry to hear that, Lost.
She sounds a lot like my sister, who also died some years ago. Very wild gal, but everyone loved her because she was exciting to be around.
God bless the wild ones…
“Despite paying tens of thousands of dollars toward their mortgage over the past four years, the couple will walk away with nothing.”
Didn’t they live there in exchange for what they paid, which didn’t even cover the interest? I am confused.
No no, they were paying dues to the “You’ll all be rich” club! Join the club, pay the dues for a year or two, and you’ll be rich! Now they’re mad that their membership was rejected, but nobody bothered to tell them. Unfortunately, all dues are non-refundable.
Okay this is funny. It is easy to see how our county imploded. Deceit is the normal way of doing things.
The fragrance of sage-scented candles and sounds of jazz fill the air of a 2,600-square-foot house a block from the beach. Tiger-striped chairs flank tables crafted from exotic woods. Photos of a chubby baby hang on the walls. Whoever occupies 211 Windward Way, they seem to live the good life.
Too good to be true, in fact. The house is owned by a builder, who hasn’t been able to sell it for more than a year. And while someone really does live here, it’s as part of an elaborate bit of stagecraft aimed at moving Southern California’s echoing inventory of luxury vacant homes.
This $1.2 million seaside pied-a-terre is occupied by Johnna Clavin, a 45-year-old Los Angeles event planner and decorator who has seen business slow. In exchange for giving the townhouse a stylishly lived-in look, she gets to stay there at a steep discount and stands to earn a bonus if the house sells fast.
“This is the perfect scenario for the times that we’re in,” she says.
I agree. Everyone is ripping everyone else off. It’s the sign of the times.
http://online.wsj.com/article/SB124051998145749625.html?mod=yhoofront
I saw a few commercials trying to get applicants for a home staging school recently. I wonder if you can get a minor in professional house occupation.
http://www.homestagingresource.com/training.asp
True story from the Arizona Slim File:
A few years ago, a member of our city council ran for re-election. And, but for the fact that she tried to sue some teachers who (she thought) had said things that were harmful to her campaign, she might have lost by a narrower margin than she did.
With her political career in a shambles, she launched her new career. As a home stager.
She tried that one in Tucson for about a year after her defeat, then she and the hubby moved to northern Arizona. Last I heard, she had re-activated her real estate agent’s license. (Look out, Prescott. She’s your problem now.)
Hows about in squatting?
(Me and Dude will be the profs. This might beat teaching mtn bike classes…)
There were stories a few months back of builders holding ‘open house’ weekends with free food and booze… and actors hired to pretend to live in some of the homes so you didn’t realize the entire development was empty.
Good stuff!
This $1.2 million seaside pied-a-terre is occupied by Johnna Clavin, a 45-year-old Los Angeles event planner and decorator who has seen business slow.
Life imitates, uh, art:
Marketplace.org
“‘Step by step, for 10 years, our dream was getting closer,’ said Marina. ‘Now, it’s like someone is taking our dream away.’”
Instead of dreaming
I Sleepwalk
Cause I lost you
Sleepwalk - Santo and Johnny
“Rachel Freed, a real estate agent with a focus on close-in Portland neighborhoods, says at the dizzying heights of the housing market, a home would have 15 offers and prices were inflated by $30,000 or more. ‘Neither I nor my colleagues enjoyed those times or wanted it to last,’ Freed says. ‘Sellers were upset, buyers were freaked out.’”
————————————————
Now would anyone like to step up and tell me that realturds aren’t the most lying bunch of pukes you’ve ever laid eyes on?
Oh my gosh, $30k or perhaps EVEN MORE? And those poor, poor Used House Salespeople, who could do NOTHING to stop the insanity…
Okay people, somebody needs to talk me down. I am starting to entertain thoughts of buying a home in the Phoenix area. Let me tell you my reasoning and then you guys can talk me down!
1. The total cost of the house would be below $300k. On a price per square foot basis, it would be around $90.
2. The home was built in 1995 so I don’t have to worry about Chinese drywall. Overall it is in very good condition, with a pool, north/south facing, 3 car garage, etc.
3. We can easily afford the payments, and the AC bills.
4. It is in a safe area, with excellent schools.
5. The government will give us back $8,000 as long as we buy this year (could be more next year though!).
6. Interest rates are pretty low, and we can get below 5%.
7. Prices in the Phoenix area are already down 51%, which means 100%+ of appreciation was wiped out.
Now, I know what you are thinking, because I am thinking the same thing too. Why buy now if prices are just going lower in the next year or two? I can only think of a few reasons.
1. Interest rates are going to soar. And to be honest, seeing the trillions being printed scares the shit out of me.
2. The market could start going back up in some areas. I think Phoenix could be one of those that has a slim chance.
3. It could take many years for the market to bottom, and in the long run I am dead.
4. Assuming my downside is 20% I am looking at around a $50k loss, which is around $300 per month at current interest rates. That assumes that interest rates stay around these levels. If they go up 1-1.5% I would break even on the payment. I don’t buy things based on the payment, but this would probably be my last home so it is relevant.
5. If I am wrong and the place drops 30-40% I am sure there will be a government program to help write down the balance of my loan.
6. Of course, I would negotiate hard and get the seller to pay for a lot of closing costs.
Okay talk me down!
What if you want/need to move?
The wife and I are self-employed, so I don’t think the location will be a problem for us. The nature of our work means we can live just about anywhere. But we plan on putting very little down in the event this happens.
Arizona is a non-recourse state.
I say “go for it,” banana!
banana,
you’ve articulated the risks/benefits pretty well so, clearly, you aren’t going into this with rose colored glasses on.
This might not work out but, on the other hand, we could end up with a very big dose of inflation….down the road and having a leveraged, hard asset, at low rates would turn out to be a reasonably good place to be (from a total investment perspective).
My sister is doing the same thing now. I’ve just told her she needs to understand she could take a 25-33% hit over the next five years if it doesn’t work out (she’d be paying cash). She seems to be okay with an exposure of 100k or so. Heck, is there any certainty in any other asset category, right now, where that another 25% or more loss is a possibility?
If you’ve got a reasonable chance of sticking this out over five years….my opinion is that you’ve defined your likely risk pretty well.
“you’ve articulated the risks/benefits pretty well so, clearly, you aren’t going into this with rose colored glasses on”.
LOL!!!!
Did you not read # 5 ? Dude or Dudette hasn’t a clue if they think the gubmint is going to even try to ‘clean’ up mortgages going forward. Ain’t working now, won’t work then.
Of course section 8 may be an option.
Realistically, I do not expect or even want any help from the government. But that doesn’t mean there won’t be additional tax incentives for people upside down. How easy would it be to see a new tax break for people upside down? I think the gov will continue to add incentives, like the $8k tax refund for 2009. All I am saying is I think the chances are good the gov will soften the blow.
In many ways they already have.
“This might not work out but, on the other hand, we could end up with a very big dose of inflation….down the road and having a leveraged, hard asset, at low rates would turn out to be a reasonably good place to be (from a total investment perspective).”
Just keep in mind, with inflation will come higher interest rates, which will put additional downward pressure on home prices. Your down payment today will go that much further against a lower price, so you end up with a stronger equity position. The next time rates cycle down, you re-finance. The minute you’re under-water, you’re stuck.
Personally, I wouldn’t buy at a time of record low rates, as it’s likely they will only go up after a year or two of the Fed’s printing presses running 24/7. Interest rates come and go, but your purchase price stays with you for good.
Hi Lisa, I fully understand the relationship between interest rates and prices, and with regards to refinancing. In a perfect world I wouldn’t buy either. But we could be waiting another 5 years to buy, and we have waited a long time already. In the long run we are all dead.
Time does matter.
And assuming we decide to stay in the place for another 20 years, prices may actually recover by then! And I don’t need the equity to extract, so if I can afford the payments and my downside is a few hundred a month, maybe it isn’t that big a problem.
Obviously I missed the major haircut, with prices down over 50% from the peak. This won’t ruin me. But I do understand a significant haircut could still happen. I think my downside risk is 20%. My strategy is to use little down, buy far less than we qualify for, and buy something we do not have to put a lot of money into.
I put my downside risk at $50k max, and that assumes I don’t just walk away. I’ll probably put down no more than $10k. If the value of the home was cut in half in 2-3 years (worst-case scenario) I might just walk away. Hey, the lender agrees to the deal. They know i have that option. I’m not putting a gun to their head. If the loss is manageable I would ride it out.
Look the government is trying hard to entice me. They are giving Wall Street a get out of jail free card. Why would I not take the same deal?
Thanks for the feedback Jag. It is a total crap shoot, but you are right, I don’t have rose colored glasses. Reading too much here the last few years!
5. If I am wrong and the place drops 30-40% I am sure there will be a government program to help write down the balance of my loan.
Riiight! I would cross that off the list, a whole lot of folks are counting on nanny and will be SOL. Watch and see.
bananarepublic…”You have mail”
Buy it now and send me your address. It has a pool and my rubber duck and I both need a roadtrip. Bargain hard for a good deal and regardless what the wife says, invest the savings in booze and find some cute chicks.
Your Best Friend,
mikey
Banana - assuming you are not seriously counting on #5 working out for you, then I think you are in a better position than many here because your market has already taken the hardest hit. Comes a point where, even if prices continue lower, they continue lower for everybody and relatively you are not worse off.
But the big assumption is that a 4.5-5.0% fixed mortgage is Nirvana. Could be, but only taxes are certain. I’d be more for buying if you could do so for cash, because then you’ve covered the risk for your cash and your asset value is just relative to everyone’ else’s.
The other suggestion I think most of us make is that you be wary that there is always something unseen that can bite you. I agreed to a new lease starting June that four months ago was an incredible deal. Today it is only a “very good” deal because rent rates in this area collapsed in just a matter of months and I didn’t expect that. Will I lose sleep over it? Heck no - I’m a renter and the pain of any error lasts for one year only. Not so with buying.
Hey Chip, I am actually dead serious about #5, and the last thing I would want to do is use all cash. Here’s why. Let’s say I put down $100k, which I can. If the house I buy craters, I am SOL. Do you really think anyone would help me? Never going to happen. But if I put say 3-10% down, I can walk away if the shit hits the fan. That is the deal the lender makes. They take the house, I get my a ding on my credit. And that doesn’t take into consideration that there is a decent chance I could have the balance of the mortgage written down. Might not happen, but it isn’t impossible. If I put all cash up it is all at risk.
I also hear you about the better deal tomorrow. I know with certainty I won’t be buying the bottom. But I also know I won’t be buying the top. It is just the way things go.
Thanks for chiming in. Appreciate the different views. I will also add that my mind is definitely NOT made up. I am still on the fence.
I’ll pick #3 on the negative side plus, Arizona is still in a long term drought.
Banana,
As an infrequent lurker, I have no credibility here but let me chime in anyway as (at least in my own mind) have a pretty good feel for the Phoenix market.
It is true that price declines have been huge, sales have spiked much higher in the last couple of months and inventory is shrinking very fast. But I don’t think these facts paint a completely accurate picture of what’s going on. This blog has discussed many times the impending wave of foreclosures, and that of course will have a huge effect but the thing which hasn’t been discussed much is mix of houses which are selling.
Phoenix (more so than most areas) is seeing a huge divergence between low-end and high-end homes - both in price and # of sales. Basically the only thing selling right now is the very cheapest houses and the price difference between low-end & high-end is MUCH bigger than at any time in the past. This is true even in absolute dollar terms but as a percentage the difference is huge. Said another way: For years when you compare say a 3br 1800sqft starter house in decent areas of central Phoenix to semi-luxury 2500sqft house in Scottsdale, you’d expect to pay a premium of maybe $150K = 75% more. But now, those starter homes can be found for $75K while the later will still set you back $350K for a difference of $275K or more than 300%.
Obviously I can’t comment on the specific house you’re looking at, but it is a bit unlikely (though possible) that a house currently priced at $300K has dropped 50%, more likely in the 30-40% range. 50% drops are largely reserved for houses currently in the $200 range while those under $130K or so have largely dropped 60-70%.
Is there any possibility you could find a house you’d be happy with under say $200K and maybe under $80/sqft in a neighborhood which has already seen substantial price drops? From an investment and risk perspective, I believe there’s a lot less downside in these caliber of houses. Indeed, I believe it is likely that the low-end of the spectrum is very close to making a bottom in price and the higher tiers will then “stack” on top over the next couple of years. The further up the pricing chain you go, the longer you’ll have to wait for the bottom and the further you’ll have to fall before getting there.
I may be in a similar situation as we may lose our rental in a few months. Eventually we would very much like to buy a nice place in or near Scottsdale currently going for around $300-400, but I think there is still 25-35% downside risk for these properties and that is just too much for me. So we’ll have to choose between moving into another rental for a couple of years or purchasing somewhere with a lot less downside. In a few years, we could then upgrade and turn the cheaper house into a cash-flow rental.
I wish you luck with your decision.
RJK, thank you very much for your insightful comments. I have also noticed a huge gap between the lower and upper end, in terms of pricing. Scottsdale and the surrounding areas haven’t gotten the memo yet. Actually the same thing is happening in a lot of higher priced areas across the country. The upper end folds last, but fold it will.
I actually like your strategy about buying a cheaper house and then making it a rental once the upper end caves. I will seriously consider that. Can you recommend any neighborhoods that you think might qualify? We have a teenager, so schools and safety are critical. We have looked in Gilbert, Chandler, and Peoria, but they all tend to be a bit higher than your $200k and below range. But we are focused on sub $100 per sqft. houses. I think we can get something in the $90 range pretty easily. Any thoughts on that?
Again, thanks for the insight. I appreciate it!
From Yahoo:
Specter’s switch puts Dems near filibuster mark
WASHINGTON – Veteran Republican Arlen Specter of Pennsylvania switched parties Tuesday with a suddenness that seemed to stun the Senate, a moderate’s defection that pushed Democrats to within a seat of a 60-vote filibuster-resistant majority with President Barack Obama’s key legislative priorities on the horizon.
We live in interesting times
http://news.yahoo.com/s/ap/us_specter_switch
Yep, and there’s a picture on the White House website showing Barack and Arlen talking on the phone. And, yeesh, what a phone it is. I want one just like it. Except I want mine in a cordless model, please.
The photo also made me wonder what exactly is going on with Obama’s head. Not only is his hair thinning rapidly (which wreaks havoc on my bet that he’ll leave office looking like Nelson Mandela), he’s also going gray.
No, I don’t know about you, but I’m just on the north side of 50, and dang if I can turn gray. I mean, it’s just not happening. Yes, a few gray ones make an appearance on my noggin, but the rest of my hair envelopes them. Sort of like anti-aging immune system for hair.
So, what should I do? Become President so I can look, er, more distinguished?
I think we’re ready for the first shaved-head President.
The hedge against my aforementioned bet was that President O would leave office looking like Mr. T.
What about Ike?
I liked Ike.
Think he always kept the fringe, though.
I think he knows that after the damage the Republicans did to this country, combined with our short attention spans and memories, switching parties was an easy decision.
I would do the same thing. The GOP is SOL for a generation, maybe more.
…combined with our short attention spans and memories…
The GOP is SOL for a generation, maybe more.
These things seem contradictory.
In 2004 after Bush was reelected, I consoled myself by saying, “Either things are going to get a hell of a lot better, or it will be the end of the GOP as we know it”
Thanks, Lavi, now let’s cue up the REM!
“It’s the end of the world as we know it, and I feel fine…”
So for some reason the short attention span applies to Republican Senators from Pennsylvania, but not the Republican party itself?
Its still a long 1,283 days till the next Presidential election.
Most people are capitalists who cannot stand Bible thumping. If they cannot have all, they take some. Republicans deliver neither capitalism nor leaving religion out of politics. Hence Democrats fill the vacuum.
Republican Party is pure stupidity. Still does not figure out that it’s the stance on abortion, religion, prayer in schools, and so forth that turn most voters to the Democrat party.
The Libertarian Party still has done a lousy job at showing that they are the only party of individual freedom. I cannot figure why. I’ve been voting that one most of the time.
Libertarians, by their nature, don’t like compromising their views or taking direction.
To make a large (and viable) political party one needs sheeple, and plenty of ‘em.
Specter’s switch puts Dems near filibuster mark
Great. We just had six years of Republican-on-Republican government and we saw how well that worked out.
The Democrats will let the power go to their heads and totally screw things up. Repubs will be back.