At First It Was A Bonanza, Then It All Went To Hell
The Napa Valley Register reports from California. “Napa issued building permits to 2,456 residences during the decade, including two large, upscale apartment projects and a growing number of attached townhomes. With builders hammered by the recession, the city issued just 15 residential building permits through the first 11 months of 2009. This is a record low. Home values fell significantly over the past two years with the collapse of a national housing bubble. ‘We’re back down to 2002 levels. The equity of the past seven years has been wiped out,’ Randy Gularte of Heritage Sotheby’s said.”
The Manteca Bulletin. “All value gained – and then some – in the past 12 years for Manteca resale homes based on median price at the close of escrow is gone. Back in the high rolling times of five years ago, such borrowers simply refinanced their homes as the median value of existing homes shot up in Manteca by more than 125 percent from 1998 to 2006 when it peaked at $413,000.”
“Realtors are now citing cases of people who bought their homes in the mid-1990s when prices were lower than they are today who are now losing their homes because they over leveraged homes with debt as equity grew. The year 1998 was when the resale market lurched forward with sales doubling and value going up by roughly 30 percent over the previous year of 1998 when 259 homes sold with a median value of $131,000. It was also when the median price for the 243 single family homes built that year sold was $177,000 or just $375 more than what the median price of an existing home sold for in 2009.”
“‘The fairly quick turnover of foreclosed homes shows the American Dream of owning a home is still alive,’ noted Realtor Tom Wilson.”
The Fresno Bee. “University of California professor Ruth Mostern bought a 1920s house on a tree-lined street near downtown when she moved to Merced about five years ago. Her employer — the new UC Merced — was sprouting six miles away on an old golf course rimmed mainly by cow pastures. ‘I feel like I’ve really found a way to make myself a part of the community,’ said Mostern.”
“But the campus also drove speculation that has factored into Merced’s foreclosure rate, which leads the nation. Several officials recount stories of outside investors shuttling between real estate open houses in vans, buying up investment property ahead of UC construction. Then the bubble burst.”
“‘People went too fast and a little too aggressive in the housing market because they were going to make some pretty good money,’ said former mayor Ellie Wooten. ‘You can’t really blame the university.’”
The Sacramento Bee. “As a branch of Sacramento’s Nehemiah Corp. of America prepares to break ground on Township 9, one of the most significant developments planned for the capital region, an earlier condominium project funded in part by the organization faces litigation by disappointed buyers. In April 2008, 20 percent of the 272 units were classified as uninhabitable by the property manager – only three years after they were first put up for sale. A lawyer for the homeowners association, which is rapidly burning through its reserves, says it may soon be too broke to pay water and sewage bills.”
“Nehemiah expressed regret about the outcome of the Rollingwood Commons condominium conversion but said it had no control over the fund’s management of the project. ‘It was done with the best of intentions, and circumstances beyond anybody’s control led it to be a failure,’ said Peggy Jones, the head of the Nehemiah Community Reinvestment Foundation.”
“Flush with cash, the fund went shopping for properties from Fair Oaks to Truckee. Six years later, Nehemiah and other investors have lost much of their equity. ‘At first it was a bonanza, and then it all went to hell,’ Jones said.”
“‘The money they were going to use to fix this place up, they skimped on that for profit,’ said Alan Baryak, an owner and member of the Rollingwood Commons Condominiums Owners Association.”
The Merced Sun Star. “Entering the new year, California continues to be the blue lagoon for the mortgage mess. It is one of five states leading the nation in ‘underwater’ mortgages. That situation extends the housing meltdown to homeowners with good credit. Thirty-five percent of California mortgages are under water, according to First American CoreLogic. In the Sacramento metro area, it is 44 percent.”
“Law professor Brent T. White, in an important new paper, ‘Under Water and Not Walking Away,’ describes the problem: A young professional couple with excellent credit and a solid income bought an average three-bedroom house in Salinas for $585,000 in 2006. Their monthly payment is $4,300. Then the housing bubble burst and their house now is worth only $187,000 — though they still owe $560,000 on their mortgage. He estimates it would take them more than 60 years just to recover their equity.”
“In White’s example, the couple could continue to pay $4,300 a month. Or they could go into foreclosure, rent a place for $1,000 a month, and in a few years buy a home selling at a pre-bubble price of $180,000 with monthly payments of $1,200. Or they could approach their lender/loan servicer and attempt to get a loan modification that reflects the home’s real value, voluntarily writing down some of the principal.”
“The latter is the best solution for everybody. The problem is, such loan modifications just aren’t happening.”
The Bakersfield Californian. “The residential real estate market hit bottom last year and we’ll likely see some ‘flattening out’ this year, said Nance Fillmore, president of the Bakersfield Association of Realtors. Prices plunged in 2007 due to a massive influx of foreclosures, but modest price increases resumed last year and will continue, she said. ‘It’s not going to be another boom like we had before,’ Fillmore said. ‘We’ll just return to slow, steady growth. That’s going to be the new normal.’”
“Fillmore said she isn’t too concerned about another big wave of foreclosures depressing prices again. ‘It’s been the rumor for months, but seeing is believing, and so far they just haven’t appeared,’ she said. ‘The president is pushing the banks to do loan modifications to keep people in their homes, and I don’t think we’re going to see a flood of shadow inventory. Banks are letting them trickle out slowly at a monitored rate. It really is in their best interest to continue doing that, because if they dump them all at once, they won’t get as much for them.’”
The Voice of San Diego. “San Diego County home prices rose again in October, continuing a streak of monthly price gains that began in the spring. Why the price increases? Can they and will they continue? There’s a common player in many of the factors linked to the increased players: the federal government.”
“Jed Kolko, research fellow at the Public Policy Institute of California, said it’s not possible to conclude the housing market wouldn’t be turning around on its own two feet without the government boosts. ‘Reports about the housing market suggests that we’re still sort of either bottoming out or prices are increasing slightly,’ Kolko said. ‘We can’t see what would’ve happened to the housing market without these programs or these credits.’”
“‘What’s moving the market now are stimuli and supports,’ said Mark Goldman, local mortgage broker and real estate lecturer at San Diego State University. ‘What’s going to move the market in general over time is going to be jobs and income.’”
“But there’s a backlog of distressed properties that could tip that balance — commonly referred to as the shadow inventory. As of Tuesday, there were 8,801 homes that had received notices of default — the first stage of foreclosure — within the last four months that had not yet progressed to the next stage, according to ForeclosureRadar. And there’s an even bigger backlog in the second stage. ForeclosureRadar said 10,652 properties in the county are actively scheduled for foreclosure sale — Notice of Trustee Sale, the second stage of foreclosure — but haven’t yet been sold or canceled.”
“Those combined 19,453 active foreclosures total more than twice as many homes are currently on the market. Kolko sounded a cautionary note about San Diego residents who bought their homes in the last several years. ‘How many mortgages have adjustable rates that reset in 2010?’ he said. ‘Many borrowers took out … loans that haven’t reset yet and when they do, there may be people who can’t afford the payments.’”
“Those resets are the biggest question for many San Diego homeowners. Jonathan Heller bought a three-bedroom house in Tierrasanta in 2006, placing a down payment of $35,000. Now he thinks the house he paid $480,000 for is worth about $427,000. ‘If you look at it that way I’m definitely in the deep end,’ he said.”
The Union Tribune. “Economists and market analysts who watched the decade’s gyrations can imagine both a worst-case scenario or a best-case outlook, but they stress the need to return to market fundamentals. ‘Over the long haul, house prices can’t grow faster than people’s income,’ said James Hamilton, an economics professor at the University of California San Diego. ‘Many people ignored that lesson over the last decade and paid a pretty high cost.’”
“Some economists say prices could dip in 2010 as foreclosures and defaults multiply. But over the long run, many expect appreciation of a few percentage points over inflation — roughly 6 percent annually. San Diego’s year-over-year price change in November was 6.6 percent. If that rate persists, the peaks reached several years ago will be seen again by 2018, said Robert Kleinhenz, a former Cal State Fullerton economics professor and now an economist at the California Association of Realtors. ‘Whether we hit that mark or not, I’m not making a forecast,’ Kleinhenz said.”
“Christopher Thornberg, a former UCLA Anderson Forecast economist and co-founder of Beacon Economics in Los Angeles, rang early warning bells about a pending real estate bust — calls that he said were usually met with laughter at his speaking engagements. Thornberg said he believes San Diego is well-positioned with a diversified economy to recover from the recession and the real estate debacle.”
“‘In the long run, I’m optimistic,’ Thornberg said. ‘I worry about the next couple of years. … We have not escaped the consequences of our actions quite yet. I wouldn’t call the new decade a clean slate by any stretch of the imagination.’”
The North County Times. “In early 2008, Steve and Lisa Daniels, along with their six children, were afloat in the housing market bubble. An adjustable-rate mortgage allowed them to springboard from a Corona condominium to a $630,000 home on Sherry Lane in Murrieta, where they lived while construction finished on their $1.5 million, custom-built house in the nearby community of La Cresta.”
“When they moved to La Cresta in November 2008, Steve had a thriving small business, and everything seemed to be going great. But even as they packed up to move, the construction market in Southern California was falling apart, and its demise took the Daniels family down with it. By the end of 2009, the La Cresta home was in foreclosure… Steve’s business was barely bringing in any money, and they were in default on their mortgage for the Sherry Lane house.”
“An adjustable-rate mortgage allowed them to springboard from a Corona condominium to a $630,000 home With property values still rocketing upward at 10 percent a year, they figured buying a house was better financially than renting. Armed with an exotic loan from JPMorgan Chase & Co. that let them choose how much they wanted to pay…they spent $660,000 on a 3,500-square-foot house on Sherry Lane.”
“They decided to pay only the interest on the loan, and then sell it when they moved to the new house. If they were lucky, they figured, they might even make some money on the deal.”
“When the construction loan for the custom house converted to a mortgage, the interest rate leapt to 8.5 percent. There was no way the Danielses could afford the $10,500 monthly payments, so they didn’t make them. They tried for a loan modification. Their lender, National City Bank, called Steve with their analysis. ‘They said, ‘You’re not making $32,000 a month anymore.’ I said, ‘When was I ever making $32,000 a month?’ Steve said.”
“‘There was fraud,’ Lisa said.”
“Lisa and Steve have no idea what the future will hold. ‘I don’t know what we’re going to do now,’ Lisa said. ‘I’m not sure when they’re going to come and kick us out of this place.’”
“Back in the high rolling times of five years ago”
Have we really been in this controlled crash for half a decade now? Judging by that, we’ve been in a correction almost as long as the boom.
listening to cnbc I get the impression we are in a bull market again.There was not enough pain in this downturn.all the govt did is borrow money and throw it at the mess.Taxpayers will be real excited to start paying the bill for wall streets party.There is way to much optimism out there right now.
There’s optimism on Wall St. but not on Main St.
I am not ready to be half way through yet. Prices in my area have not come down the way they need to yet. Since prices tripled in 8 years time here, there is a lot more room for more air to come out of these windbags.
I think it varies from one region to another. SF Bay Area house prices didn’t start contracting year-over-year until early 2008, which puts us only two years into the correction. Judging by the still very high ratios of house price vs. income and house price vs. rent, the correction here probably has several more years to go.
Also worth noting that Japan is 20 years into its residential RE and still counting…such is the nature of “controlled crashes”…
“Realtors are now citing cases of people who bought their homes in the mid-1990s when prices were lower than they are today who are now losing their homes because they over leveraged homes with debt as equity grew.
What does it matter WHEN you bought your home? 10, 20 or 100 years ago? It only matters when and how much you pulled out in an equity loan.
These “homeowners” found out that debt does not equal wealth.
I thought refinancing was just “buying the house from yourself”.
Therefore, the date of purchase should be updated each time a person refinances.
Especially with regards to the county assessor’s office. He, he
Pick an’ shovel…huh,
am so heavy…huh,
Heavy as lead…huh,
heavy as lead…huh
Pickin’, shov’lin’…huh
pickin’, shov’lin’…huh
Till I’m dead…huh
till I’m dead…
An old Gandy Gang or track laying crew’s work chant, but I suppose that it could sung by today’s homedebtor’s digging their own holes.
As far as I am concerned, “pulling out equity” is no different from selling your home and then buying your home (from yourself). The mid 90’s price and equity are no longer valid. It’s a 2005 sale, exactly the same as you had been a first-time buyer.
“Fillmore said she isn’t too concerned about another big wave of foreclosures depressing prices again. ‘It’s been the rumor for months, but seeing is believing, and so far they just haven’t appeared,’ she said. ‘The president is pushing the banks to do loan modifications to keep people in their homes, and I don’t think we’re going to see a flood of shadow inventory”.
The real-a-tors appear to be holding out a lot of hope, loan modifications are going to be a cure all. Sorry sister, it’s been a miserable failure to date, as it should be.
I thought we already had a “flood of shadow inventory”. Maybe she needs an eye-opener.
I think the banks are going to trickle these homes out over time to keep prices up.From what I’m hearing there is another real estate boom in s. california.They never learn.
My impression is that there is another real estate investment boom in SoCal. It may be different this time, but historically, echo bubbles have ended with echo busts.
Yep, every well-heeled person I talk to over age 60 thinks RE is making a “comeback” here in SoCal. Mix 30 years of mostly boom times with some government alchemy and media BS, and it’s hard to convince people otherwise.
Just talked to a co-worker who is in the process of jingle-mailing a few investment properties. He contacted a BK attorney who also does some work for banks. According to this atty, the banks are hanging onto properties in an effort to not flood the market. I know we on the HBB knew this was happening, but I figured this anecdote was worth posting.
Important question: Are the banks acting on this plan individually, or is collusion involved?
Perhaps the Congressional audit of the Fed can shed light on this…
With a few notable exceptions in the oil, music, medical, and ag businesses, the economic classes of Bakersfield are in serious do do. The lower end new houses were purchased by groups of Mexican workers, who are returning to Mexico now that jobs are gone, leaving one or two people left to cover a mortgage formerly paid by five or six. By young military families– whose enlistments, along with those handy checks and bonuses are nearly over, whose ARMs are about to reset, and by sundry unskilled labor whose fast food/scavenger jobs are either vanished or in jeopardy.
The middle priced homes were purchased by clerks and truck drivers, and civil servants who thought their jobs and pensions would be secure. They’re not. Furloughs were just the beginning of the pain, and then there are those niggling mortgage resets to deal with.
And the “upper end”– such as that may be for the likes of Bakersfield– was purchased by real estate “professionals” who sold back and forth to each other, wanna-be developers and shop owners who are now underwater on both their commercial and residential “investments,” and who as we all know, are FBB (F’d Beyond Belief.)
Job losses are mounting, people are leaving in droves, businesses are drying up, and city/county employees are telling themselves that “it can’t happen here” as the tax base tanks.
I don’t think Ms. Fillmore’s “new normal” means what she thinks it means.
Ahansen,
Sheesh…with that colorful discription and a few minor changes, you’ve rolled poor old Bakersfield back to 1965.
Only then of course, their local economy and eye towards the future seemed a little brighter.
If I lived near Bakerfield, I’d live on a hill with my trusty hand me down pre-1964 Mdl 70 scoped Winchester 30-06 bolt plus lots of ammo. I’d also have a small herd of large dogs and my own H2O supply….
Ooops …never mind.
Hugs
Didnt they film deliverance in bakersfield?
Nah, dude. The film crews were too scared of the locals so they had to shoot it in rural SC where folks were “friendlier.”
Where is gary watt on this ? I’ll wait til he expounds and tells me what to do !!! hehehehehehe
“‘The fairly quick turnover of foreclosed homes shows the American Dream of owning a home is still alive,’ noted Realtor Tom Wilson.”
Successful speculation is the new American Dream.
And the desperation amongst the participants is growing rapidly.
Who’s going to be the one to tell them they can’t all be winners?
It’s like musical chairs at $1 a round, winner takes the pot. Except the gov’t keeps adding chairs to replace the ones being taken away and skimming from the pot. Keeps the losers happy, except nobody but us notices that’s keeping everyone paying $1 over and over again and nobody ever gets the suspiciously undersized pot.
Good one.
My thought, too (see my post below, submitted before I read yours…).
“‘The fairly quick turnover of foreclosed homes shows the American Dream of owning a home is still alive,’ noted Realtor Tom Wilson.”
To me Tom, that sure sounds like an invitation to one endless merry-go-round ride with an expensive cover charge but then, what do I know ?
I’m just eating my popcorn, backing Freddie and Fanny and waiting to see what the funny DC Boyz in their tiny clown car roll out next.
“When the construction loan for the custom house converted to a mortgage, the interest rate leapt to 8.5 percent. There was no way the Danielses could afford the $10,500 monthly payments, so they didn’t make them. They tried for a loan modification. Their lender, National City Bank, called Steve with their analysis. ‘They said, ‘You’re not making $32,000 a month anymore.’ I said, ‘When was I ever making $32,000 a month?’ Steve said.”
“‘There was fraud,’ Lisa said.”
Yes Lisa, you folks are frauds!
Perfect example of why so many loans will fail, no ‘modification’ is going to fix this type of mess.
In October, the electric bill came due, and Lisa called Edison to find a minimum payment that would keep the lights on.
She sent them $300, but Edison hadn’t told her that they’d also included the leftover bill from the La Cresta home, upping the balance to $1,600.
Utilities are clever - they don’t bill a property, they bill a customer. You can’t shuffle off debt on one unpaid bill to them.
Too bad mortgages don’t work this way. Default on one mortgage: default on ALL that you have. This would prevent the refi-and-buy-another-house-at-today’s-market-price types from gaming the system.
Kind of confused on their whole story? Can’t speak for others but who do ‘you’ know that thought November 2008 was “just peachy!”
Murrieta was like Crash Central! ( Didn’t they get the memo? ) I mean after all, they -live- there. So the guy sells ins. policies for contractors and const. types, didn’t get ‘that’ memo either?
With a half dozen kids and facing possibly the worst economic collapse in human history, you decide to go out and build a $1.5 mil. home! Hmm…?
“…Default on one mortgage: default on ALL that you have….”
THAT, DennisN, is an EXCELLENT idea. It would go a long way to ensure that developers go out of business for the next two generations, and maybe give the land time to recover a bit before they reconstitute and start dozing the pristine places again.
On the other hand, guess Who would end up owning and managing all that un-purchased real estate?
Wow…just Wow
My head is still spinning after reading the North County Times article. If you didn’t read it scroll back up and read the entire article.
I am still too stunned - I don’t even know where to begin on the level of stupidity of this couple. I first feel sorry for the six kids involved, and secondarily that our tax dollars and the future of my child will ultimately pay for the stupid greed that allowed this.
I wouldn’t trust this couple with a dull butter knife.
Go read the comment section of this NCT story. “Lisa” left a rambling, incoherent reply to those expressing little sympathy. Her Realtor grammar and spelling skills truly shine.
Oh, and these fools were on one of those nanny shows as their kids are out of control (more like, the parents are mindless turds).
Manteca in Español and Lard in English.
Too funny.
“Jed Kolko, research fellow at the Public Policy Institute of California, said it’s not possible to conclude the housing market wouldn’t be turning around on its own two feet without the government boosts. ‘Reports about the housing market suggests that we’re still sort of either bottoming out or prices are increasing slightly,’ Kolko said. ‘We can’t see what would’ve happened to the housing market without these programs or these credits.’”
But we certainly can look at the past for empirical evidence. I defy Kolko or anyone else to provide evidence that a housing recovery has ever before in history occurred against the backdrop of double-digit unemployment and absent government intervention. I am open-minded about the possibility, but my skepticism is extreme.
Too long away, but now out of a year’s lurk.
Don’t see it that way, PB. The language is messy but isn’t he simply stating that the gov’t programs have so screwed with the current status of housing that we can’t see what it’s normal would be. A whole lot of political Heisenberg at play
“A whole lot of political Heisenberg at play”
Totally agreed. But assuming previous housing busts were not similarly greeted with ‘political Heisenberg,’ we can presumably use the way they played out as in indication of what might currently be occurring without the unprecedented level of market intervention.
For a simple example, try to find a previous example in the modern history of the U.S. housing market when home prices started moving upwards against the backdrop of rising unemployment, particularly in areas where unemployment was already above ten percent and still increasing. I bet you cannot…
try to find a previous example in the modern history of the U.S. housing market when home prices started moving upwards against the backdrop of rising unemployment, particularly in areas where unemployment was already above ten percent and still increasing. I bet you cannot…
I can: About 1980 through 1982 on a national basis in nominal terms. Since this was even true on a national basis it is assured that there were many regions where such figures played out, even in different years.
Long term unemployment rate chart:
http://www.businessinsider.com/charts-30-years-of-unemployment-2009-11
source: BLS
Long term median home price chart:
http://mysite.verizon.net/vzeqrguz/housingbubble/
(We are almost back to the long-term trend line after a heck of a drop since 2006)
Because: A pre-fudged 1981 unemployment rate of 8% is equal to or greater than an 11% unemployment rate now. Shadowstats
One can argue 1980’s and today’s nominal vs inflation adjusted home values objectively only if one can determine the true current inflation rate. (I can’t)
A pre-fudged 1981 unemployment rate of 8% is equal to or greater than an 11% unemployment rate now.
Better said: An 8% unemployment rate using current criteria would be about 11% using 1981 criteria, but adding that the numbers are so contorted that a case can be made that certain types of unemployment were higher in the early 80’s than they are now. But do I believe it? I don’t know.
The Wall Street Journal points out that another more comprehensive gauge of unemployment ticked up even more. The government’s broader measure, known as the “U-6″ for its data classification, hit 17% in September, 0.2 percentage points higher than August.
The comprehensive measure of labor under-utilization accounts for people who have stopped looking for work or who can’t find full-time jobs. The U-6 figure is the highest since the Labor Department started this particular data series in 1994. But, similar to the headline unemployment rate, it likely isn’t as bad as it was in the 1980s.
U-6 only goes back to 1994, but a discontinued measure has a longer history. That old U-6 measure peaked at 14.3% in 1982. Through some calculation, a comparable measure can be determined in the current report. Under the old U-6 methodology, the September rate would be 13.5%, the highest rate since 1983, but still below the peak.
Source: The Americano
I suppose with the amount of continuing economic pain, one would expect people to migrate toward lower cost options for housing. With rental vacancy rates rising and rents falling, renting is still cheaper than owning and in some places still much cheaper than owning. Those people that need to lower their housing costs don’t appear to be buying.
Perhaps more telling is how many of these purchases are by people that intend to occupy the properties rather than investors? I suspect the demographics of the purchasers is not typical of a typical recovery. That’s probably the smoking gun that any ongoing “recovery” in housing is driven significantly by government intervention.
“…renting is still cheaper than owning and in some places still much cheaper than owning.”
Especially given govt financial engineering to prop up housing prices.
“Perhaps more telling is how many of these purchases are by people that intend to occupy the properties rather than investors?”
My guess would be that many of the recent buyers are speculators trying to collect a slice of the government’s price support subsidies. These equity locusts will naturally be the first to default should home prices begin heading south again.
In the bay area, there seems to be quite a few ads stating cash only. Its my feeling that most of the home sales are going directly to investors, who are turning them around and putting them back on the market. And yes, they are selling, much to my chagrin!
Township 9 sounds a little like “District 9,” only populated with real estate speculators instead of marooned aliens.
News from behind “The OC” curtain…
It’s a good thing that so many people get sick living in “The OC” …just think what would happen if their “Medical Industry” had lay-offs!
O.C. builders near worst year since WW II
January 4th, 2010, by Jeff Collins, OC Register
Orange County’s homebuilding slump continues.
“…That decrease means it all but certain that 2009 will be local homebuilding’s newest “worst” year.”
Have the PTB in OC ever considered building a large SuperMax debtors prison for California’s numerous mathematically and financially challenged, crooks and other assocaited “victims”. That would create some jobs. “More corporate prisons solve community problems” is my motto and one can never have too many of them.
Oh Rats…they’d never find enough guards with everyone locked up upon it’s completion!
Back to my Estch A Sketch drawing board.
And even the mighty Irvine Company, which has a veritable monoply on large chunks of OC, can’t completely intervene.
“‘People went too fast and a little too aggressive in the housing market because they were going to make some pretty good money,’ said former mayor Ellie Wooten. ‘You can’t really blame the university.’”
No, Mayor Wooten, you are to blame, you bloodsucking parasite. And she thinks it’s funny.
“Among those trying to adapt to this miserable new time is the mayor. Mrs. Wooten, 74, has been selling real estate for three decades. In the old days, she worked for people selling their boom-inflated homes and moving into something better. Now she mostly represents banks, selling their foreclosures. She has 27 at the moment.
In her windowless city office, she takes a call from a man in Seattle who is interested in a 1947 home in bad repair in a bad neighborhood, but which has a large yard for his dogs.
In November 2005, the house sold for $126,000. The bank, which took it back last spring, is asking $59,000. The Seattle man offers $40,000.
The mayor says the lender is not desperate enough to take that big a haircut. “Not going to happen,” she says. “Not this year.” She laughs. “Call me in January and I’ll let you know.” Mrs. Wooten is wearing a red shirt that says, “Merced: Invest in California’s Future.” Which is pretty much how all the trouble began.”
I see, the Mayor a sworn official, is refusing to present an offer that she by law is obligated to present, time for a big painful lawsuit.
“In White’s example, the couple could continue to pay $4,300 a month. Or they could go into foreclosure, rent a place for $1,000 a month, and in a few years buy a home selling at a pre-bubble price of $180,000 with monthly payments of $1,200. Or they could approach their lender/loan servicer and attempt to get a loan modification that reflects the home’s real value, voluntarily writing down some of the principal.”
“The latter is the best solution for everybody. The problem is, such loan modifications just aren’t happening.”
For everybody but those who acted responsibly. I vote for the former.
You are so right. Obama Mods are costing us $181,000 each. What a farce. But, you feel good about it. hehehehehehe
What will they find to rent for $1,000 I wonder?
“‘The fairly quick turnover of foreclosed homes shows the American Dream of owning a home is still alive,’ noted Realtor Tom Wilson.”
How does he know he is not staring at the lingering euphoric belief that real estate investments will make you get rich quick?
PB,
I wish they’d just call it what it is.., “The American Dream ( Part II )” or How to become independently wealthy off the misfortunes of others?
Very little of what ‘is’ moving is to the benefit of “end users”. Just as before this is all the product of specuvestors! It just saddens me that rather than focus on what we need to do to move forward as a nation, we can’t get easy money out of our heads. Can we drive a wooden stake thru the heart of this thing once and for all?
This article on Cape Coral says that THREE QUARTERS of sales are all cash. Specuvestors alive and well.
http://www.nytimes.com/2010/01/03/business/economy/03coral.html?em=&adxnnl=1&pagewanted=1&adxnnlx=1262638812-Ik8Hy4ihF2P88JXWxGY3xA
THREE QUARTERS of sales are all cash. Specuvestors alive and well…
I don’t quite get your reasoning..
If i were a speculator, I’d prefer to risk the least amount of MY money on a property. Instead, I’d do my best to borrow and leverage to the max.
——–
For instance, if someone “invested”, say, $200K in cash on a property and expected to sell it and make a $20K profit, the gain on their money is only 10%.
But if they spread that same $200K cash between 4 similar properties, putting only $50K into each, and borrowing the rest, they make 4 X 20 = $80K, which is a return of 40%.
——
Cash is precious, especially to an investor. Aside from the high risk of unnecessarily putting all the eggs in one basket as well as other downsides, the objective should be to maximize the return on one’s money. Paying all cash is a very poor speculation strategy, imho.
Nobody said they were *intelligent* specuvestors.
Nobody said they were *intelligent* specuvestors.
True… but speculation in this market?
While it might make one feel smart by branding anyone who buys in this market a speculator, there have to be far more likely explanations of why people are paying cash than that they are senseless, cash-speculating idiots.
—–
maybe..
Credit is tight. Prices have fallen significantly.
A large number of baby-boomers parents (octogenarians or older) are recently dead and have left estates.
So, a cash purchase is made possible and is far preferable in an unusually large number of circumstances.
Choosing the path that offers no mortgage to pay in the coming bad years would a wise decision, imo.
I think the mentality has changed from flipping to “buy and hold”, but I don’t think these sales are owner-occupied, and I sincerely doubt they’re getting rents that would justify the cash outlay, so there is still a big element of speculation here. They’re betting on significant gains in the next few years, just not overnight anymore.
..<They’re betting on significant gains in the next few years…
I’d almost agree with that because it sounds possible, it’s consistent with history (prices eventually rebound), and who knows for sure…
But then I recall how the “investment” herd reacts to falling prices in the stock market: They SELL.. en masse.. They panic and head for the exits. They want o-u-t.
Have we reached the point where many folks look upon their jobs as mere pesky obligations that only distract them from house hunting? Just think of all the HGTV shows and trips to HD that the unemployed get to enjoy!
edge,
It strikes me that the -last- thing any out-of-work FB would want to do is dump more money and effort into a house they’re probably going to lose anyway?
But… I imagine many of them are. Looking for quick and easy last minute curb appeal projects to lessen the sting of the short sale.
IMHO, the (wo)man on the street still views houses as being the most accessible avenue of wealth open to her/him - more than any other investment vehicle, save the 401k perhaps.
Making all real estate sale gains taxable would help dispel that myth. It might not be as politically difficult as it once would have been, seeing as how most people have no gains to speak of at this time.
“Making all real estate sale gains taxable would help dispel that myth.”
I’d be up for that, or at least increasing the amount of time during which one must be an owner occupant to be exempt from tax on the gains from 2 years to, say, at least 15 years.
So is the City of Napa, CA going to invest in the Riverfront? All the faux-Venetian facades going to waste? The humanity!
Speaking of bonanzas, how is the world’s largest hedge fund doing so far this year?
And why is it that any economist with the balls to speak the plain truth is summarily labeled ‘outspoken’?
Jan. 4, 2010, 1:15 p.m. EST
US economy may face new crisis due to big bank power-economist
By Luca Di
ATLANTA (MarketWatch) — How the U.S. economy will fare over the next few years will depend on the outcome of a likely power struggle between politics and finance, an outspoken economist said Monday.
The U.S. economy could face a similar financial crisis to the one it’s emerging from now if the government doesn’t tackle the problem of some banks remaining too big to fail, Simon Johnson, economist at the Massachusetts Institute of Technology, told a panel at the American Economic Association.
The U.S. Congress has proposed legislation to drastically overhaul financial sector regulation, including measures to seize control of troubled big banks and to cut the powers of the Federal Reserve, the U.S. central bank.
The crisis that ended in 2009 has only exacerbated the problem because of the resulting financial sector consolidation, Johnson said. There are now six big banks that could soon engage in the sort of excessive risk-taking that led to the recent crisis because of a belief that the government would bail them out if they’re in trouble.
“Goldman Sachs has become the world’s largest hedge fund underwritten by the U.S. government,” the MIT economist said. The other five banks he mentioned as posing system risks to the economy are Bank of America Corp., Citigroup Inc., J.P. Morgan Chase, Morgan Stanley and Wells Fargo & Co..
It will be harder to deal with any new crisis because the Fed has likely exhausted its ammunition to counter a financial meltdown after it cut rates close to zero and took other emergency lending steps, Johnson warned.
“A crisis strengthens the oligarchs who survive,” Johnson said.
It sounds like the problem of systemic risk in the U.S. banking system could be largely eliminated by busting up just six megabank trusts.
Thoughts?
A wise man recently mused about a possible consumer boycott of these six banks. If only a significant percentage moved their money out of these six into other local banks or (better still) gold and other near-money substitutes, the megabanks would topple like the upside-down fractional-reserve pyramids they are. No government regulator required: just informed Americans willing to endure a short-term inconvenience for long-term financial security.
Whoops, there’s the rub.
Timothy,
I suggest you start a blog called EndMegabank.com (or something similar), and collect funds to start a mass political campaign to this end. I promise to send you a contribution if you do this…
And while you’re at it, hire an elite security team and go into hiding.
GO FOR IT!!!
http://www.EndMegabank.com/
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“San Diego’s year-over-year price change in November was 6.6 percent. If that rate persists, the peaks reached several years ago will be seen again by 2018, said Robert Kleinhenz, a former Cal State Fullerton economics professor and now an economist at the California Association of Realtors. ‘Whether we hit that mark or not, I’m not making a forecast,’ Kleinhenz said.”
Well d’oh! Economic forecasting normally involves systematically examining past patterns in the data as the basis for making a reasonable prediction about the future. I would love to see some evidence from Kleinhelz or anyone else regarding how often over the entire history of the U.S. real estate market that bubble-era appreciation rates of 6.6 percent per year held up over an entire decade. I am thinking they might be fairly hard to find pre-1996.
P.S. Assuming he means nominal appreciation, a 6.6 per annum appreciation rate over a decade translates into a cumulative nominal price increase of (1.066^10-1)*100 = 89.5 percent — a near doubling of prices over a ten year period.
It sounds to me like this real estate prostitute is performing a trick.
“performing a trick”
and it’s not called math.
Prof’s first name is John.
Where are Casey and Nancy today? We need them back to inflate the market so you can get out. Remember, RE only goes up !!!
What perfect timing for an epic commercial real estate bust!
World’s tallest building opens in Dubai
The world’s tallest building has been opened with a dramatic fireworks ceremony in the Gulf emirate of Dubai.
The Burj Khalifa was revealed to be 828m (2,716ft) high, far taller than the previous record holder, Taipei 101.
…
Can’t help thinking that it will share the same fate as the Ghost Towers of Bangkok.
I also recall reading that it took years to rent out all the space in the Empire State building, which was also built during the depression.
At least the Empire State has (and had) a manufacturing economy to justify office space. What does Dubai have, aside from castles in the sand?
If they can get just one rich idiot Saudi prince to rent an entire lower floor for his wives and lacky’s business/vacation spot, this would naturally shame all the other idiot rich Saudi/ME princes and their wives.
They in turn, would naturally, have to try to outdo that rich idiot Saudi prince by renting the more and more expensive floors ABOVE him…do you see where I’m going with this…?
This ME giant middle finger pointing towards the heavens and stars would fill up in no time flat…providing some crazed holy man didn’t recognize it as a giant middle finger pointing to the heavens and POINT that out!
Harbinger of economic doom duly noted:
World’s tallest building: Is the Burj Khalifa a herald of economic woe?
The world’s tallest buildings usually open when the economy has crashed, just like Monday’s opening of the Burj Khalifa in Dubai.
Do skyscrapers cause crashes to happen (te he he…)?
The Burj Khalifa-aka the Big BK
Burj Babel.
Supervisors at bottom could not talk to workers on top.
Finely tuned on the way up. This is not an engineering feat, it is a technician’s feat. I do wonder how loading with 10,000 lb per resident will change the “tuning”.
Sand, that is a good foundation if you keep it dry, right?
HAHA!
* The Wall Street Journal
* REVIEW & OUTLOOK
* JANUARY 5, 2010
Of Burj and Babel
Building prosperity on foundations of sand.
The Burj Dubai tower officially opened yesterday, six years after construction began on the $4.1 billion, half-mile-high skyscraper. Conceived as a monument to the Arab city-state’s economic ambitions, the Burj today looks more like a modern-day Tower of Babel. Dubai has been wracked by a debt crisis, and the building stands mostly empty and unwanted by the international tenants for whom it was supposedly built.
…
If the past century has taught us anything, it’s that there will always be another, bigger building built somewhere, and Dubai cannot hope to keep up indefinitely. By contrast, in cities such as Houston and Hong Kong the skylines are not the cause of their economic prosperity, but merely one visible manifestation of it. That’s a prosperity that has been built over the years on the basis of those old reliables: economic freedom, the rule of law, hard work and sound management. Without these, nations and cities alike build on nothing but foundations of sand.
Big players are taking seriously the Fed’s stated plans to phase out quantitative easing. What would happen if the Fed ended up not following through with this loudly-announced plan?
The Financial Times
Funds cut US and UK bond holdings
By David Oakley in London and Aline van Duyn in New York
Published: January 4 2010 19:53 | Last updated: January 4 2010 19:53
The world’s biggest investment funds are cutting exposure to US and UK government bonds amid fears that rising public debt and the withdrawal of central bank support for their economies could scupper the global recovery.
The funds fear that a big rise in government bond yields, or interest rates, triggered by market concerns about public finances, could quickly feed through to higher mortgages and business borrowing costs. As yields rise bond prices fall, devaluing the funds’ holdings.
Pimco, one of the world’s biggest bond funds with $940bn under management, warns that the record levels of government bond issuance in the US and UK and the end of loose money will put financial markets under intense pressure.
Other big funds, such as BlackRock, Barings Asset Management and Standard Life Investments, also warned of the danger of a US and UK government bond market sell-off.
In contrast, many fund managers are more upbeat on the eurozone markets because the European Central Bank’s support programmes have been less aggressive and inflationary expectations are lower.
Richard Batty, investment director at Standard Life Investments, said: “The risks have heightened sharply in the US and UK government bond markets. There is a risk of a sell-off in these markets.”
Paul McCulley, managing director of Pimco, said: “For interest rate exposure, or duration, we are currently cutting back in the US and the UK.”
He identifies rising government bond supply and the end of central bank buy-back programmes – which have kept government bond yields lower – as the key reason for reducing exposure to the US and UK.
…
Where can I buy some nice land and live in a trailer and a couple of 40′ sea containers? Not too cold, not too hot.
US?
Puerto Rico?
Depends on your definition of nice land, too hot, and too cold.
What are the sea containers for?
I am thinking 2 containers for storage and an outdoor shop between them. sleep in the trailer.
There is some cheap land near Yosemite, CA in Mariposa.
Just a place to hang out, fish from…get away.
Just get a light trailer and go wherever. If you store stuff in the boonies, someone will steal it when you’re not there, guaranteed. I wouldn’t buy raw land ‘off the grid’ unless it was really something special, and at a really good price.
The thought has crossed my mind… Remote location living in a trailer or mobile home, while building a house. But then one gets to thinking about road access, providing water and electricity.. food and where to get it, and how to store large amounts of it.
No (or few) neighbors can be good or bad. No hospital, no supermarket, airport.. no lot-of-things I’d prefer to have close to me..
I’m sure that some day-to-day creature comforts might be totally unavailable. I haven’t tried living in the boonies so I couldn’t list them, but I’d certainly talk to someone who has before trying it myself.
Sure, i could hack it, but would I still want to after the first year or so.. ?
btw, according to Weather Underground, last year Mariposa had a high of 106.5 °F (hits at or near 100F from May to Sept) and a low of 27.5 °F… not exactly a Mediterranean climate, if that’s what you’re looking for.
The places with really pleasant mild weather year round tend to be overpopulated or expensive, or else there’s something really wrong with the place.
Still, the idea is appealing. Do it and find out if the reality is equally appealing.
Mariposa’s real fun in the summer when they have the POISON OAK festival. Hehehehehehe
For UC Merced, the housing bubble and its crash is a hidden blessing.
First, the bubble encouraged lots of housing to be built around the campus.
Now, with the burst, those housing are way cheaper.
So, cheap housing for UC Merced. Yeah!
Great, the students can put the savings towards the recent 32% increase in UC fees!
I’ve thought of this myself - that UC could pick up places cheap for student housing.
But it can’t happen. California is broke.
“Those combined 19,453 active foreclosures total more than twice as many homes are currently on the market. Kolko sounded a cautionary note about San Diego residents who bought their homes in the last several years. ‘How many mortgages have adjustable rates that reset in 2010?’ he said. ‘Many borrowers took out … loans that haven’t reset yet and when they do, there may be people who can’t afford the payments.’”
This market is constipated. Administer Ex-Lax immediately!
‘It was done with the best of intentions, and circumstances beyond anybody’s control led it to be a failure,’ said Peggy Jones, the head of the Nehemiah Community Reinvestment Foundation.”
“Flush with cash, the fund went shopping for properties from Fair Oaks to Truckee. Six years later, Nehemiah and other investors have lost much of their equity. ‘At first it was a bonanza, and then it all went to hell,’ Jones said.”
Conclusion: The path to hell is paved with the best of intentions.
‘The president is pushing the banks to do loan modifications to keep people in their homes, and I don’t think we’re going to see a flood of shadow inventory. Banks are letting them trickle out slowly at a monitored rate. It really is in their best interest to continue doing that, because if they dump them all at once, they won’t get as much for them.’”
Banks have proved themselves to be reckless, self-serving and not giving a rat’s behind about anyone but their immediate profits. These same banks are going to orderly communicate with all other banks in thier region and restrain, plan and release their non-performing inventory at a “monitored rate”? I don’t buy that. I think the banks are a clueless as ever and have no plan.
It is difficult to convince a person that if they buy a house for $500,000 with no down payment, that that buyer is a 1/2 millionaire, and if he bought two of them he would be an instant millionaire, and could spend money like a millionaire.
I have found few people who will accept the fact that their house with a big mortgage does not show how wealthy they are!
But, perhaps, they will learn!
JackO
True.. the value of the property a person owns is not exactly a gauge of their “wealth”.
But it costs money to own things, no matter what the things are or the quantity. The shepherd with 10,000 sheep has a huge liability and a lot of responsibility regardless if the herd’s original cost is “paid off” or not. Even an old car consumes money. Some costs, like property taxes and maintenance costs, never go away.
Likewise, the person who owns $100 million worth of property.. They may be (most likely are) many $$millions in debt on paper. But the beneficial thing is that the “owner” has control of that property. Control is key.
He/she can do whatever they want with the property, any time they want, even if they haven’t yet paid for it.
One might sell all or part, trade some or all of it, use it for collateral, rent some out, modify it to suit different economic or business uses, etc. Ownership is being in control, and control has value in itself. Control is power and offers certain ways to build wealth..
It’s possible that someone could control lots of property without actually owning it.. and that person’s being “penniless” on paper might be most advantageous.
———
Regardless of how things look on the bottom line, someone who controls property and can maintain control is not poor in my view, nor is indebted ownership necessarily a detriment in any sense.
Of course, if one cannot find ways to adequately fund one’s property, that property could well be a serious burden, economic and otherwise… but that would apply no matter if it’s mortgaged or not. The lack of necessary funding threatens the loss of control.
Equating real wealth strictly to dollars in the black is a mistake, imo.
2010: The year people sober-up and realize their wealth-building is limited to any money saved from their work incomes after expenses and .03% earning on savings/CDs.
Which screws the tax man because there is little nominal interest income to tax.
Read up on the United Nation’s Agenda 21 and you will find that the destruction of US middle class wealth is intentional and also necessary for the creation of regional world governments overseen by the UN (similar to the Lisbon Treaty which just passed in the EU). The international central banker oligarchy that owns the IMF, World Bank, Federal Reserve and all the central banks worldwide is aggressively pushing and backing Agenda 21.
Steve and Lisa Daniels would seem to deserve what has happened. They abuse the system and expect no consequences: http://realitytvmagazine.sheknows.com/blog/2008/02/13/supernanny-the-daniels-family/