An Investment That Went Bad
It’s Friday desk clearing time for this blogger. “Amid the housing market bust, developers are abandoning unfinished subdivisions, leaving hundreds of homeowners with the mess. The city of Nashville is at the center of some of the thorniest problems, both because it has dozens of stalled subdivisions and because city planners allowed the bank guarantees that would have paid for completion to expire on 27 now-abandoned developments.”
“Bril Peete was promised finished streets around her Cane Ridge home in 2007. Instead, manholes now stick up inches out of the rough pavement. They’re frustrated by never getting updates from Metro. ‘I like where I’m living, I like my neighborhood, it’s very quiet and safe,’ Bril Peete said with a weary sigh. ‘But if it takes years? Well, I guess this is where I’ll be, waiting.’”
“In a region where house prices have been cut in half in two years, a handful of investor-driven developments lost much more. Bermuda Dunes condominiums plummeted from an average sales price of $312,000 a unit in 2008 to $62,925 a year later — an 80 percent drop in one year. The 304-unit Cascades complex in Kissimmee has experienced the biggest price drops in Osceola County, according to the property appraiser there. Sales last year ranged from $140,000 to $185,000 a unit, but so far this year they range from $16,000 to $48,000 each — a drop of more than 70 percent in one year.”
“With sales in recent years driven mostly by out-of-state investors, fewer than 10 percent of the units are owner-occupied. Residents have complained that maintenance has been neglected as a result. ‘The homeowner fees are not getting paid, [and] the existing homeowners can’t make up the difference,’ Osceola County Property Appraiser Katrina Scarborough said.”
“‘Maybe, initially, they just had a higher price point, to be kind,’ said Seminole County Property Appraiser David Johnson. ‘Some have called it ‘creative financing,’ with investors putting no money down. … To be cliché, you had no skin in the game.’”
“Values in Bella Collina have dropped faster than a golf ball hit into Lake Apopka. Lots that fetched more than a million dollars each four years ago are selling for about $125,000 — a drop of more than 80 percent from their ‘06 peak. ‘I bought this lot for $700,000,’ said builder Keith Clarke of his hilltop model home. ‘Now I could buy the one next door for $25,000.’”
“With high-end furnishings inside and views of the Steamboat Springs ski resort outside, The Highmark sold the first of its 23 luxury condos for $3.17 million in 2008 and planned to wrap up sales that year. It didn’t happen. The developer’s lender failed in August 2008, and credit markets froze following the collapse of Lehman Brothers a month later.”
“Under pressure from the new lender, The Highmark’s developer will auction off 15 units next month with minimum bids as low as $630,000 — or $407 per square foot, down from $1,185 per square foot two years ago. ‘I kick myself, but what can you do,’ said Atlanta-area businesswoman Sharon Habibi, who with a friend bought a four-bedroom penthouse at The Highmark for about $3.1 million in 2008.”
“Wayne B and his wife are about to do something odd. The couple, with a pristine credit history, have decided to default on their $500,000 mortgage on a townhouse in Livermore. It is not that they are unable to afford the $4,600 monthly mortgage outgoings: they have never missed a payment. But the house they bought for $582,000 in May 2006 — at the peak of the US housing boom — is now not likely to be worth more than $315,000.”
“‘The process towards a default has started,’ says Wayne, whose lender does not yet know it will soon be left nursing losses on yet another foreclosed house. ‘We plan to retire in four years and will not be able to afford the mortgage payments then,’ he explains. ‘The loss if we sell will be so large that, after doing a lot of research, we have made a business decision to walk away.’”
“A few weeks ago, Shasta Gaughen, who works with a Native American tribe in California, stopped paying her mortgage. The one-bedroom condominium she bought for $196,000 in October 2005 is now worth just $60,000 and she has decided to default, ‘after two years of agonising.’ ‘The biggest problem is trying to convince myself it is not morally wrong to walk away,’ she says.”
“‘I’m approaching my home as an investment that went bad. I’m not stealing anything, the bank will get the property. But my parents raised me to be responsible.’ She has decided the ‘responsible’ thing for her to do is get out of the flat and rent somewhere else for less than the $1,200 monthly mortgage payments.”
“Rep. Dennis Kucinich and other members of Congress from Ohio on Thursday called the Obama administration on the carpet for excluding Ohio from a new $1.5 billion program to fight mortgage foreclosures. The program announced last week will redirect money from the bank bailout to state housing agencies in California, Nevada, Florida, Arizona and Michigan. Ohio gets nothing.”
“Gov. Ted Strickland and U.S. Sen Sherrod Brown say it’s unfair to limit aid to states where average prices fell by more than 20 percent from their peak. ‘If Ohio doesn’t meet the criteria in the President’s plan, the criteria are wrong,’ said Brown.”
“Decline in home prices should not be a deciding factor, as that seems to tilt relief to the states with the most speculation.”
“The buyer’s market continues for housing in the Northern San Joaquin Valley. That’s a nice way of saying home prices plunged again in January. There are plenty of buyers for distressed properties. ‘A lot of investors have an appetite to buy these homes, and they pay cash,’ said Larry Matos, president of Century 21 M&M and Associates. ‘Investors pick them up for 20 to 30 cents on the dollar. They fix them up and then flip them.’”
“‘We have double the number of buyers as we have inventory to sell them,’ said Matos. He said Stanislaus has half as many homes for sale now as there were a year ago.”
“Dallas-Fort Worth area home foreclosures for 2009 fell to their lowest level in three years. But the almost 12 percent drop doesn’t mean that fewer North Texans are threatened with losing their homes. Indeed, the number of D-FW homeowners with a loan in default is at a record high, and foreclosure filings continue to grow.”
“‘There are an awful lot of problem loans out there that should be foreclosed on and are not,’ said George Roddy, who heads Foreclosure Listing Service of Addison, which tracks foreclosures in 19 Texas counties. ‘Perhaps they think if they delay long enough, the situation will work itself out. Yes, foreclosures are down, but it’s artificial.’”
“Feelin’ lucky? A lot of regular Park City-area workers hope they are, judging from the flood of applications at City Hall for the ski town’s housing lottery. Thirteen lucky winners will qualify to buy — that’s right, buy — houses in Snow Creek with a nice view of ski runs and within spitting distance of the state wine store. Houses are in the mid $200,000-range, a far better deal than anything else around Utah’s glitterati stopover.”
“Mike Strachan is among the workers who keep Utah’s renowned ski town humming, but aren’t able to buy housing in its rarefied real estate market. ‘We’d both like to live here,’ Strachan said of long-term plans with his girlfriend. ‘But most things are too high for us.’”
“The lack of residential Canadian real estate listings is most acute in Toronto, contributing to upward pressure on pricing, according to ReMax Ontario Atlantic Canada. ‘The overall pressure on sales and price is significant across the board – and it’s not likely to subside until more inventory comes on stream,’ ReMax said.”
“There were 2,162 mew houses and condominiums sold last month, representing a stunning 237 per cent increase over January 2009. ‘The market is reasonably healthy, but certainly not frothy,’ said BILD president Stephen Dupuis.”
“With sales picking up in Calgary’s real estate market, realtor Claudia Walz has few doubts about what’s in store in the coming months. ‘It’s about ready to just go crazy,’ said Walz. ‘It’s almost like people want to spend now.’”
“‘Affordability is the catalyst for the vast majority of purchasers in today’s housing market,’ said Elton Ash, regional executive vice-president for Re/Max of Western Canada. ‘While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.’”
“What happens to the cities that host the Olympics. This NY Times article is worried that Vancouver is going to suffer quite a hangover. Kennedy Stewart, a professor of public policy at Simon Fraser University in suburban Vancouver, remains unconvinced that showing potential investors a good time during the Olympics will resolve Vancouver’s long-term economic issues. ‘What’s the substantive thing Vancouver has to offer other than its nice mountains and vastly overpriced real estate?’ Professor Stewart asked.”
“A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by developers, a flip-and-run mindset for speculators and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan.”
“According to Edward Pinto, a consultant to the mortgage-finance industry and former chief credit officer at Fannie Mae, the over-stimulus provided by Fannie, Freddie, FHA and the Community Reinvestment Act created the housing boom that went bust. The response to the bust has been to provide yet more stimuli, which are serving to delay the market clearing process.”
“The ‘market clearing process’ means allowing the traditional housing forces to return to the scene.”
“Just what are traditional housing forces? In a nutshell, it means skin in the game: Make certain that those who can truly qualify to buy a home are also able to produce a down payment and an income that will allow the repayment of the mortgage, taxes, insurance and monthly essentials. ‘All we are doing is kicking the can down the street,’ Pinto said. ‘The loan modification programs that were designed to help people stay in their homes have been abject failures. The recent treasury action lifting the capital support caps did not help. It cleared the decks to use Fannie and Freddie as an open vessel for whatever the administration wants.’”
“The lending craziness of the 1990s and 2000s was not present in any other decade. Sixty years ago, the average home price in the United States was approximately $5,000 and the average debt against it was about $2,500. In the early 1950s, the prevailing loan-to-value (LTV) was 58 percent, while many of the loans made between 2004 and 2006 had an LTV of 97 percent to 100 percent. Some lenders, blinded by the 10-year run-up in home appreciation, were making 125 percent loans.”
“The housing road of the 1980s had its peaks and valleys, but it really took off in 1992-93 when homeownership became more of a priority and the government pushed for creative methods to get people into homes. The challenge is that housing is systemic. What helps you on the way up, pounds you on the way down. Inexpensive loans created demand and inflated prices. When rates adjusted, borrowers could not pay higher monthly obligations and the number of homes on the market (supply) soared.”
“It’s time to let the market correct itself. That means skin in the game for buyers.”
“‘I’m approaching my home as an investment that went bad. I’m not stealing anything, the bank will get the property. But my parents raised me to be responsible.’ She has decided the ‘responsible’ thing for her to do is get out of the flat and rent somewhere else for less than the $1,200 monthly mortgage payments.”
Another one who’s following the advice laid out in University of Arizona Law Professor Brent White’s paper, Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis.
I read the intro about homebuyers bearing more of the burden than lenders from the “collapse”. That is all Leftist hogwash. The entire collapse is from greedy “homebuyers” not keeping their contractual agreements.
While I agree that many loans should not have been made to buyers who simply could not afford them, and the banks should be forced to eat those, this is not the case.
Here, we have a person who took out a loan they could afford and simply wants to walk away from the debt. These people are causing further declines in the market. What if everyone decides to default?
The “bank” doesn’t want the property. They want the money back, on the terms agreed. The solution to the “strategic defaults” is suing them for deficiency judgments. Borrowers who default should be pursued like “deadbeat dads”, wages garnished, licenses revoked, property confiscated, etc. etc.
Mortgages are LOANS and the borrower is personally responsible for the debt. Period. You made a bad choice? Too bad. You set the market price with your “purchase”. Now pay the bank the money you owe!! The property is “collateral”, but in no way excuses the balance owed from any foreclosure sale.
Pursuing “deadbeat borrowers”, like the States pursue “deadbeat dads” will put an end to reckless borrowing and will stabilize prices.
It would be interesting to see the language in some of these morgage contracts. If it says that the bank takes the property if the mortgagor doesn’t maintain payment, and nothing about ability to pay, then walking away is built into the contract.
As someone who believes that contract law is vitally important in society, I would not support pursuing individuals who walk away within the terms of their contract anymore than I would support cram downs.
“The solution to the “strategic defaults” is suing them for deficiency judgments. Borrowers who default should be pursued like “deadbeat dads”, wages garnished, licenses revoked, property confiscated, etc. etc”.
Yep, these walk away because the numbers changed and things didn’t turn out the way I planed is pure BS. She or anyone who throws the keys on the counter because their ‘investment’ went sour should be hammered.
Guys.. This is the way business gets done today.. I’m not saying it’s moral, or a good system.. Or even that I agree with it. But holding these morons to a higher standard that massive companies (with armies of lawyers) is just, IMHO, wrong. If a company had bought this house, and found it moved against them like this, of course they would stick the lender (the house would probably be under some LLC arm of the company so that no liability could attach). Why should we expect our moron home buyers, who are much less able to afford these losses, to act differently than our biggest companies. Look at Trump, he’s pulled the BK trick about a dozen times, and made millions off the backs of others. Do we really expect differently from individuals (and if so, why)?
I do agree that those who default should have consequences (no buying a house for the next 5 years would be my first, absolute, consequence of walking away). But, frankly, it’s in our best interest (if you want home prices to fall to an affordable level) that these idiots walk away, and walk away quickly. When they are paying, they only parties really helped are the banks and the RE agents (banks get interest, RE agents get higher values).
And what makes you think this won’t happen in the future? The stories are starting to come up about this lately.
Growth industry in the next few years will be in collections.
The bank may not want the property back, but in a non-recourse state, that is the bargain they struck - pay according to the schedule OR give us the collateral. The choice of which one to do is up to the borrower.
The borrower may not have realized they made such a good deal, but that is what they got and they get the benefit of it. In a non-recourse state you can’t even argue that they should be taxed on the debt that the lender can’t recover from selling the house. The borrower was never legally on the hook for the whole amount - as long as they are willing to hand back the keys.
Arizona is a non-recourse state. And the sound of homeowners walking is growing ever louder.
Every one misses a couple little points . First the government
found it compelling to improve the walking homeowners tax liability of forgiven debt by taking away that liability to be applied retroactive . I know someone right now who would not of walked
had the Congress not gotten rid of that penalty so to speak .
Further ,fraudulent borrowers shouldn’t get off the hook if your talking about the letter of the law in which homeowners are just giving the house back . A fraudulent contract changes the
rights of the parties of the contract . In fact ,a insurance company can get out of playing a claim if they can prove fraud .
They couldn’t loan modify many because they were so fraudulent on the income that it wouldn’t work ,and the other fraudulent ones didn’t even show up to try to get modified and they had a poor turn out rate for loan modification requests .
If pretty difficult claiming hardship case when the hardship was that you inflated your income by 100 % on the original application .If you lost your job or suffered a income reversal ,than asking for help or a loan modification is a reasonable request . It’s a reasonable request to ask to have a toxic high rate adjustable loan modified to a affordable loan because of the credit markets and crash preventing normal refinance .
Why is it that you have so many people saying that they can’t
afford their payment when they have had no job change or income change ? I know someone that is making more money than they did when they took out their loan ,but they are still walking ,because they can . People are walking because they can . Banks are screwing us because they can .
But what will happen in the future is that the laws will change and credit will be tighter and more expensive to obtain and
no recourse loans will not exist ,and debt for bail outs will be oppressive and the walker gamblers will of taken their toll out of everyone along with the banks .
Actually in many “non-recourse” states (e.g. CA) the lender has a choice: go after a judicial foreclosure which preserves their right to sue for deficiancy, or go for the easier non-judicial foreclosure which by statute cuts off their right to sue for the deficiancy. It’s the lender’s call.
I’d guess the lenders generally figure the FB has no money so they cut to the chase with the cheaper and faster non-judicial foreclosure.
But if some billionaire wants to “walk away” from some vacation condo, the lender could elect the judicial forclosure and sue the jerk.
“Pursuing “deadbeat borrowers”, like the States pursue “deadbeat dads” will put an end to reckless borrowing and will stabilize prices.”
Suppose you don’t want to “stabilize prices”?
Suppose you want to them to crash so they become “affordable”?
Does the Baroke O’Bummer adminstration have an equal opportunity program for cheaper-oriented consumers, or are they just a bunch of racist sexist neo-progs in the pocket of the big banks?
Inquiring voters want to know!
Dude, you are in serious need of a blueberry smoothie.
..”you are in serious need of a blueberry smoothie.”
Or, a huckleberry smoothie with meyers lemons.
Yum.
While enjoying that, he might contemplate Greece completely imploding fiscally and the very real possibility that it will pull us into a maelstrom of world economic meltdown.
http://thechrg.org/forum/viewtopic.php?f=9&t=18
I guess we should have the same guidelines for the Wall St boys? Please explain how Morgan Stanley “walked Away” from their commercial loan? Millions underwater. They decided to stop making payments, packed up and leave. Home owners should do the same. It would tale 60 years of payments to pay off your current mortgage and $200,000 underwater further debt. Unless of course you calmly wait for the “next bubble ” to bail you out? Many our underwater by higher amounts then this with more to come.
They want the money back, on the terms agreed.
I’m pretty sure the terms are, “the money or the property”.
The banks were a’speculatin’ right alongside the buyers.
xactly
One of the founding fathers - I forget which one - said that liberty and democracy were only suited for a moral population - people essentially inclined to do the right thing. “Strategic defaults” are more evidence, as if more were needed, that the population is as devoid of true principles and a moral compass as the leaders they elect. Not surprisingly.
To me, the only solution to the “strategic walkaway” is to reinstate the tax penalty that goes after FBs for the difference between what they borrowed and what the bank ultimately collects on their property. That might make the flopped speculators think twice. Banks don’t have the clout and coercive enforcement means that the IRS does.
Spot on Sammy . People are acting like these defaults aren’t raising the National debt because of bail-outs . Just because the
greedy unregulated investment houses raised leverage to absurd
levels ,like 40 times ,increasing their loss ,doesn’t mean that
we should bail this out and let all the contract makers off the hook in every way and even reward them . This is not business as usual
so it requires some very painful remedies .
Correct.
20% down would help reestablish responsibility.
FBism has nothing to do with political persuasion, Diogenes. My very conservative nephew is 50% underwater after an interest-only ARM. He blames Fannie, Freddie, and unions. My leftie friend is also underwater. He blames Bush and Greenspan. You are correct that they should blame themselves the most, but they don’t.
It’s always the same with these FBs and their so-called anguished moralizing. The “right thing” for them always coincides with “in my best financial interest.”
How can you expect anything else from them? That’s what we’ve banged into their heads, and they get everyday when the read the paper or watch TV. It’s all about what’s in MY financial best interest, or the companies best interest, or whatever. It’s just the world we live in today, and these underwater borrowers are fools not to realize it and take advantage of it.
Now.. Taxing the folks on the forgiven debt? That I can get on board with; it is a gain to them, any way you look at it. They still get a 60-70% discount from the real loss, but, at least it makes them share in the pain with the bank (or declare BK, which, frankly, is what most of these people probably should do).
This country has, long ago become an “every man for himself” endeavor, there’s no idea of community anymore, just get rich and then get richer.. And then you won’t have to deal with anyone anymore. The more money an area has, the more obvious this becomes (as people put up 25 foot gates around their house to keep out the neighbor, who also has more money than God himself, and could care less about “stealing” your stuff). When you go to less affluent areas, you start to see the beginnings of a community again, but; even that has started to deteriorate as those who worship at the alter of money come into those areas and change the values all around.
Is it sad? I don’t know.. I’ve always been a very financially driven/motivated person, and never really understood why people did things that weren’t in their financial best interests (no interest loans that won’t get paid back to friends/family, having children young (or at all for lower-middle class), etc), so, frankly, the world makes a lot more sense to me as we move more and more to a “dollar denominated” since of morality and right/wrong.
However, that said, I do see the downside of this, I continually witness (out my front door) the breakdown of community values, and, frankly, I think that we (as a society) are really losing something there. This is what the “era of bubbles” brings, a crazy fascination with get rich quick schemes and a national obsession to find the “next big thing” .
+1
Michael,
+1. Of all the things we’ve lost over the years, maybe the most grievous is the loss of real neighborhoods and communities. I suspect people behaved better when they grew up knowing the same people for much of their lives. Bankruptcy and foreclosures would have been shameful things, when they came from greed and overreaching. I agree, Michael, it seems like society is becoming a bunch of amoral, atomized individuals out to grab what they can, and without regard for their neighbors - strangers, most likely - or communities. Half-friendships, half-sincerity everywhere you look. No real bonds of family, friends, places of worship, community, etc.
This is going to end up costing us in a big way, in the not-too-distant future.
It’s all that, plus the advent and intrusion of technology into every corner of our lives.
Cell phones, portable video cameras, Blackberries, etc., are destroying the ability of the young to communicate face-to-face and solve even the most simple social problems at the street level.
We have a very wealthy local businessman, who has the largest real estate company in NW Arkansas. He has been inducted into the Arkansas business hall of fame. Like all such big realestate business’ they are involved in everything, property management, R/E brokerage, managing large wholly owned apartment complexes, property development, red dirt mining, etc. Last week, the son of this businessman, who runs the speculative, leveraged side of the business, declared chapter 7 bankruptcy, with estimated debts of between 100 and 500 Million$. The father expressed remorse at his sons loss, and the effect it would have on the local economy, inluding virtually every local bank. Now, it’s pretty clear that dad covered his own tail, and that Jr’s is a vey strategic default. I’m sure this is happening all over the country. My question is, how can we chastise the FB flipper who walks, when Jokers like these two can preserve most of their family net worth, and walk away from hundreds of millions?
Wow. Good post, rusty.
‘We plan to retire in four years and will not be able to afford the mortgage payments then,’
So why did he but this house if he wouldn’t be able to afford the payments after he retires?
Obviously he planned on selling it and “making a killing”. But even that logic’s flawed:
If housing prices did break the laws of physics and go up each year, allowing him to sell it, where, exactly would he live? Did he think that only condos in Livermore would appreciate while (for example) Los Altos Hills prices would plummet?
‘he planned on selling it and “making a killing”
This little fact seems to escape the media/govt with all the boo-hooing about FBs these days.
I don’t know, Ben. I’m always a bit wary of divining the motives of people I’ve never met. They certainly bought at the worst possible time. Maybe they got wrapped up in the whole “buy now or be priced out forever!” meme that was circulating at that time. And perhaps the RE sold them on the “real estate always goes up!” mantra.
I know lots of basically good people who got wrapped up in this mania. Not everyone who got burned was a greedy flipper.
I see all sorts of things in the foreclosures I visit. Letters or notes to each other, etc, that show various types of emotion. So I know this isn’t any one group we’re talking about.
San Francisco: Wayne B, a 62-year-old executive who works at an airport, and his wife Orapin, a dental assistant, are about to do something odd.
Let’s look at the back of the envelope FACTS
Age: 62
Payment: $4,600
Purchased: “…they bought for $582,000 in May 2006″
Quote: (from “the-horses-mouth”)
“We plan to retire in four years and will not be able to afford the mortgage payments then,”
Time Frame: 2006 -2014 = 8 years
So ,when they bought @ $4,600 per month (at the lowest interest rates in 80 years) they “FIGURED” … what exactly would happen… 8 YEARS DOWN THE ROAD?
I await an “HBB education” to be slapped upon my arse…
Georgesalt,
Your “basically good people who got wrapped up in this mania” may not all be “greedy flippers,” but they signed their name on the dotted line of their own free will. I’m not aware of any cases of people being hypnotized, drugged, or forced at gunpoint to sign mortgages. I’m aware of many cases of people too stupid or lazy to do a proper due diligence on the biggest financial obligation they would ever take on. Or taking a Realtor or some other pitchman with a vested interest in selling them something, at their word when they said prices would only go up. So they may be good people, but it’s their own damned fault they bought at the peak of the market - which, by the way, they played a major role in driving up, and pricing out more cautions, responsible people.
I have no sympathy. They were part of the problem any way you slice it.
They were part of the problem any way you slice it.
OK half the problem. But the other half of the problem, Banks/Wall Street, got a pass and bonuses.
Part of the concept of justice includes the element of fairness. In the reality of half getting a “pass”. Why should not the other half get a pass?
I say punish the FB’s if we take back the bailouts and start putting bankers in jail. Other than that, it is not just.
The whole thing stinks but fair is fair even when thing are unfair.
For that half of the problem you have to point your finger squarely at the idiots who mindlessly vote for “representatives” who are on the take from the Banksters. Goldman Sachs was Obama’s #2 biggest contributor - go down the list of Republicrats who voted for the bailout and then “follow the money.” When taxpayers start pulling their heads out of their collective ass and paying attention to what their elected officials are really doing, and holding them accountable, then we might have REAL hope ‘n change.
I know lots of basically good people who got wrapped up in this mania.
———————————————————————-
And you didn’t tell them about Ben’s blog? Shame on you.
den, people won’t listen. I lectured people starting in 2003 about the bubble, and they didn’t care. People until 2008 thought the HBBers were tinfoil-hat-wearing wackos. Nobody took my advice about not buying. By 2007 some people were receptive to my advice to sell to lock in profit, but not all.
I can’t believe their house hasn’t doubled in value during the 4 years they/ve owned it.
What’s this world coming to?
Seriously. They were ENTITLED!
All the boo-hooing for the FBs seems to coincide with shifting the blame from the borrowers to the banks and the government. It was much easier to get people on board with blaming everyone else. The idea that people would be forced to change their lifestyles or become aware of how finances work at all was just pie in the sky. All the whining about bailouts to fat cats, while out of the other side of their mouths they’re screaming what about helping the poor FBs. Or the new mantra that everything will work out if we just bring back those high paying manufacturing jobs. Oh wait - a shiny object to distract me - health care for all is socialist-yeah about as much as having fire departments. Rant off. Have no idea where that all came from.
What ever happened to the idea of a mortgage burning? The idea of having a mortgage when retired makes no sense to me whatsoever.
WHYoung
You’ve got that right. Older generations bought a home, raised a family in it, and paid it off. We’re Baby Boomers paying cash for a sensible one-story REO (hopefully soon). Mortgage payments and retirement don’t mix, unless you are quite wealthy. Most of us will not fall into that category.
And I suspect the truly rich only have mortgages if there is some tax or cash flow advantage.
I knew a very successful economist who liked to ridicule people who paid off their mortgages as idiots. He knew that a rational actor should constantly refinance, max out on the interest deduction and put the money into the stock market where it could get a real return.
Because we all know there isn’t any risk in the stock market, right?
shoot, all the wise guys were saying that up until 2006.
And the Vampire Squid will do its best to make sure we’re not wealthy…
Mortgage payments and retirement don’t mix
lol…”Reverse mortgage!”
Reuven had the right concept. They did not intend to have the mortgage. Lots or places were bought as “investments” with the plan of “flipping” them to you or me for an extra $150,000 cash to their retirement plans.
These people should be pursued for any loses the bank suffers from their “other” investments. The solution to the housing crisis is to put more money into Settlement Courts, just for foreclosures. Find out what assets the buyers have and get them to cover their debts.
This will fix the banking problems and stabilize the market at “affordable” levels.
…flipping them to you or me for an extra $ 150,000 cash to their retirement plans.
BINGO! that’s the damage from doing away with guaranteed pension plans. The bubble frenzy mentality is fed by fear. Sheeple started to realize that they needed a few million in a retirement plan to retire comfortably. Therefore, speculative behavior by ,normally, rational adults.
Absolutely spot-on, Kirisdad!
What ever happened to the idea of a mortgage burning?
It’s called mortgage interest deduction. I hope everyone realizes that people live off these tax refunds. There are people I work with that receive $15,000 refunds. They can’t save, so they use these refunds for summer vacations and paying Christmas cc debt. Stupid? absolutely! it’s become the American way. The moral hazards of the bubble mentality are too vast to contemplate. The entire country needs a giant enema.
If housing prices did break the laws of physics and go up each year, allowing him to sell it, where, exactly would he live?
Oil City, PA.
…or any one of a thousand small towns in flyover country with low taxes and cheap farmettes within 20 miles of a Super Wal-Mart. It’s amazing the options you have when you’re not tied to an office.
Sorry, Baby Boomer Greedhead. Going to have to find some other way to have some younger person pay for your retirement.
Going to have to find some other way to have some younger person pay for your retirement.
It ain’t right but I understand that behavior in a country where pensions were gutted for 401K’s, (which tanked in 00) cost of living skyrocketed, jobs pay less and we’re constantly told we’re on our own.
(Understanding is different than condoning.)
In the long-run we’re all dead but we’re all “capitalists” now.
“‘I’m approaching my home as an investment that went bad. I’m not stealing anything, the bank will get the property. But my parents raised me to be responsible.’ She has decided the ‘responsible’ thing for her to do is get out of the flat and rent somewhere else for less than the $1,200 monthly mortgage payments.”
She just admitted this was an investment property and not a primary residence! Maybe the IRS will take away her mortgage interest deductions, and the bank won’t let her walk away with no recourse? (Fat chance!)
“Investment” may have been her motivation; however, if she resided in the house for the period of time stipulated by law, then she is entitled to the mortgage interest deduction, regardless of her underlying motivation.
All homes were sold as “Investments” in the past 10 years before the bubble burst, how else could you justify paying a premium over just renting ? 20% Returns until you sell !
All homes were sold as “Investments” in the past 10 years…
Heck, not just homes. How many times have you heard someone say he or she was going to “invest” in some speakers or shoes or furniture?
was promised finished streets around her Cane Ridge home in 2007. Instead, manholes now stick up inches out of the rough pavement ??
Bonds are required “In Advance” to complete any public improvements prior to issuance of any building permits around here…
Some of the ways that developers get around the bonding requirement which can be quite expensive is to “privatize” the ownership of all the infrastructure and govern it with a maintenance agreement with all the owners…
Some cities have turned to this “Privatization” of streets etc., to eliminate the maintenance, repair & replacement responsibility by the municipality…
However, it creates a potential problem not only in completion of all infrastructure but in maintaining it similar to problems that arise in a HOA…
Privitaization of subdivision streets seems to have become the norm around here (Cincinnati, Oh) in the past decade or so.
Becomes real interesting when the snow falls. The cities/towns/counties are constantly telling residents which subdivision streets they will not plow due to the private ownership status.
It appears that some, if not most, of these private subdivision streets eventually become public streets after say, 20 years. But I don’t live in a subdivision, so I’m not sure what the rules are.
The private street thing + HOA fees is such a load of BS… You still have to pay the taxes PLUS the HOA fee, and all you get is shoddy service in return. Such a deal! Sounds like most other aspects of life in the US these days - pay more fees, get less in return.
Well, that’s what happened when folks wanted shiny brass lettered monuments at the entrance to their development, lots of rolling greenbelt landscaping, and those fancy schmancy gates keeping the riff raff contained within.
My subdivision here in Boise - and I believe it’s the local rule - deeded the streets to the Ada county highway department (ACHD) as part of the development. ACHD is on the hook for all repairs and maintenance.
ACHD has a “rainwater dumping” easement into our three parks in the commons. The parks are lower than normal ground level by a couple of feet and the storm drains can dump water there during the infrequent heavy rains. Our HOA would probably deed the parks to the city/county too but they demand flush restrooms as part of the deal.
was promised finished streets around her Cane Ridge home in 2007. Instead, manholes now stick up inches out of the rough pavement ??
Yes, but those elevated manholes will make great defensive positions when the zombies come.
those elevated manholes will make great defensive positions when the zombies come
‘It’s about ready to just go crazy…It’s almost like people want to spend now…While home ownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.’
From a historical viewpoint, these housing bubble “bounces” are very interesting. Why has Canada seen this, or Australia and the UK a few years back? Manias seem to collapse under their own weight, or get cut off at the knees by financial forces, but always go on if left to do so.
In any case, it is my opinion that those markets that fall early, hard and fast are the ones that will be considered lucky after this all shakes out.
Bubbles seem to collapse under their own weight, but they do so in a series of dead cat bounces which lure greater fools to catch themselves falling knives on the long and bumpy ride to the bottom.
Enjoy the ride, fools!
Besides serving the purpose of tempting greater fools to catch themselves falling knives, dead cat bounces on the downside give strong hands the opportunity to unwind untenable positions and find refuge.
…give strong hands the opportunity to unwind untenable positions and find refuge.
Hey! No fair. I didn’t see the strong hands finding refuge in unwinding positions until just now. I coulda used that.
Anyone see the NASDAQ chart during the dot.com implosion? Great example of what dead cat bounces look like.
And isn’t NASDAQ still around 50% below the high it reached in early 2000?
Bubbles seem to collapse under their own weight, but they do so in a series of dead cat bounces which lure greater fools to catch themselves falling knives on the long and bumpy ride to the bottom.
-or-
Weighty collapsing bubbles full of bouncing dead cat falling knives seemingly lure greater fools making for a long and bumpy bottom ride.
Whew!
“In any case, it is my opinion that those markets that fall early, hard and fast are the ones that will be considered lucky after this all shakes out.”
I think the places that restructure to a sustainable level sooner and begin to build a new economy will fare better. I don’t see that happening anywhere so far. A faster fall could drive home the imperative of making those permanent changes. The pressure of a
slow motion decline doesn’t seem enough to force those changes.
“In any case, it is my opinion that those markets that fall early, hard and fast are the ones that will be considered lucky after this all shakes out.”
Let me understand you… financial freefall is a “lucky” thing??? .. This sounds like the Kool-aid of Wall Street. I guess that means every day I’m reading the stories of lucky Americans on this blog. I’m so envious for them now.
I’m sorry to disagree. I still believe that this is all very criminal behavior in the US, caused in large part by undoing regulations put in place after the 1929 financial freefall. A society based on greed and gullibility.
Granted, there is a grain of truth in your thinking in that yes, you will have deflated the cost of living making it more in-line with diminishing job stability and dropping wages that comes with a computerized globalized economy. But another way of saying that is … you now have a competitive advantage, to say Australia and Canada, because you quickly gutted your economy and lessened expectations to Third World standards. Again, greed and gullibilty.
“In any case, it is my opinion that those markets that fall early, hard and fast are the ones that will be considered lucky after this all shakes out.”
That’s certainly the view from New York, where the decrease has been late and slow.
IIRC, NYC condos had a brief tumble in late 2006, only to recover, probably on the back of wall street bubble money.
Massachusetts was one of the first to drop, but were quickly passed by Florida, Nevada, Arizona and California in roughly that order. If I’m right, MA should lag these states in true recovery.
Agreed, NYC is in for some interesting times.
Think the denial is a little deeper here as people are used to paying outrageous prices for rentals and purchases.
It’s one of the few places in the world you can get a yuppie to live in a studio apartment (that is barely bigger than a dorm room) for several thousand dollars a month and have them think life is great.
The early 90’s saw some de-yuppification, perhaps the 10’s will see some de-hipsterfication.
‘people are used to paying outrageous prices’
Yes, even today I listen to people saying, “but prices in California have always been higher than XYZ.” As if a history of foolishness insures more expensive houses.
“…wall street bubble money.”
I would love to see somebody’s effort to trace bubble money from the Fed’s printing press, to members of Wall Street’s Megabank, Inc banking cartel, and into local neighborhoods around Main Street America.
Perhaps Dr Ron Paul could request a flow diagram from the Fed as part of the audit.
I think you would find the trail goes through Fannie and Freddie, the agencies set up to provide a secondary market for “affordable” housing, that used to be about $125,000 or less, but went to $417,000 “Jumbo” loans during the “boom”.
The congressional proposed solution from idiots like Pelosi, Feingold, and the other’s in California…..raise the limit to $625,000. Frankin Raines and his cronies raked in Millions in bonues to buy up the mortgage loans and their was lots of kickback money to Barney Frank, Chris Dodd and others in Washington.
Aside from providing hundreds of Billions to the GSE’s, the trail from the Banks goes straight to the FED. They have now purchased $1.25 TRILLION, that’s 1,250,000,000,000 in mortgages, awaiting the day when the “values” are somewhere near the number that the property sold for.
decrease has been late and slow ??
Ditto here in “SFR’s” particularly in some hot spots…
With all the carnage that has occurred in the labor market I am befuddled (if you will) by the continued high cost of housing…
“The city of Nashville is at the center of some of the thorniest problems, both because it has dozens of stalled subdivisions and because city planners allowed the bank guarantees that would have paid for completion to expire on 27 now-abandoned developments.”
In light of this story, can we add Nashville to the long list of Grounds Zero for the Housing Bubble?
Good thing it was a Housing Bubble rather than a nukular attack.
One of the first articles I found on big declines related to subprime loans was in Memphis.
Not so long ago, Nashville was a small city that just happened to have the state capital in it and a music industry. (Even the Unniversity of Tenn is Knoxville.)
Then it began to explode. Now, you can attribute this growth to the rise of Country music in the ’80s. Or you can attribute it to the expansion of state government. But me, personally, I attribute it to the phenominal growth of one of its local restaurants - Cracker Barrel.
What about Vanderbilt University? It seems like it’s been growing in recent years.
BTW, one of my clients left the University of Arizona a few years ago. Wasn’t as much because of his salary as it was due to the UA’s internal politics and bureaucracy. And this guy was a major grant-getter for his college. We’re talking mucho millions in grant money each year.
Well, the UA’s loss has been Vandy’s gain. You should see the research program he’s built up there.
Also the Saturn plant in Spring Hill helped the area increase in size.
Great news for T-bond investors. Perpetually worse-than-expected economic news fueled by dying green shoots is ideal for keeping T-bond yields nice and low.
Bond Report
Feb. 26, 2010, 12:44 p.m. EST
Treasurys head to best weekly gain since August
Weak data, month-end buying support prices as February ends
Treasurys gain on weak data, good auction
Interpublic feels the global economic pinch
By Deborah Levine, MarketWatch
NEW YORK (MarketWatch) — Treasurys gained on Friday, pushing 10-year yields toward the biggest weekly decline since August, after a pair of reports showed consumer confidence slid this month and existing-home sales declined in January.
…
“A decade of cheap money and incredibly flexible loan programs offered by many lenders sparked overbuilding by developers, a flip-and-run mindset for speculators and unrealistic expectations for first-time home buyers blinded by the low payments of a short-term loan.”
“According to Edward Pinto, a consultant to the mortgage-finance industry and former chief credit officer at Fannie Mae, the over-stimulus provided by Fannie, Freddie, FHA and the Community Reinvestment Act created the housing boom that went bust. The response to the bust has been to provide yet more stimuli, which are serving to delay the market clearing process.”
What does the DC crowd have in store to remedy the situation?
Let me restate what Edward Pinto so diplomatically said: Hair-of-the-stimulus to lure greater fools into purchasing falling knife real estate investments…
At some point,real estate is not”the falling knife”.
Rather than calling a bottom,it might be better to describe any given market in terms of normalizing,where prices are in a range governed by supply and demand.
Perhaps years before some markets get to that point, but some may be there already.
I can build and make a profit at 85 per sq.ft.Use that as a rough guideline.
Rehabs are another matter.Each case is different.
I like the “caretaker”business model.Pay me to watch your property.
I might even live in it if you ask nice.
“I can build and make a profit at 85 per sq.ft.”
Sounds good. Recent Radar Logic SD MSA daily average sale price per square foot (12/17/09): $189.67
We only have $104.67 in further declines needed before SD becomes profitable again for building.
You know — I reread my comment and realize now that it makes no sense. My suggestion to builders: Build homes in SD now, while the price is above $85/sq ft, so you can hurry up and drive the price down for any remaining bubble sitters who are still in the long-term market for buying a home here. The faster you build them, the sooner affordability will come.
I can build and make a profit at 85 per sq.ft.
ooh, could you elaborate? Is this a custom house, a manufactured house, does it include land and hookups? Quality materials or just the basics? Do you bloat the bedrooms to decrease the number of kit/bath sq ft?
At the 2007 Ohio State Fair a housing company set up a full-size mod home. 4 small beds, 2.5 ba(?), ~1800 sq ft, appliances included. ~$90 K, but you had to supply land, foundation, hookups. People were remarking how reasonable it seemed.
“Yes, even today I listen to people saying, “but prices in California have always been higher than XYZ.” As if a history of foolishness insures more expensive houses.”
It’s amazing what people will pay to avoid rain and snow here in San Jose. I for one am looking forward to moving somewhere out of California for the bad weather “discount”. I’ve had about all the perfect weather I can stand.
“‘A lot of investors have an appetite to buy these homes, and they pay cash,’ said Larry Matos, president of Century 21 M&M and Associates. ‘Investors pick them up for 20 to 30 cents on the dollar. They fix them up and then flip them.’”
Whether it’s flipping houses, or driving up prices in commodities, speculators have really hurt ordinary people. I’d like to see house prices reflect what working families in need of shelter can afford, and commodities represent true real world demand, not the prices greedy pigmen need in order to buy new yachts.
Amen.
oxide:
I Built one home in Fla.-the other in Wv.Both custom.
A lot of my own labor which i dont count.
I like to finish em slow to get the interior the way i like em.
The Fla.one is block and stucco
Wv.is frame on a cinderblock crawl.Both about 1600 sq.ft.
Seems odd but the cost was about the same.
“Seems odd but the cost was about the same.”
Land and labor would be expected to vary locally, but wouldn’t materials be quite comparable?
Thank you for the info, Frank. It’s nice to see that there are still builders who build “custom” in the traditional sense, as opposed to the McMansion sense.
Walk away? Most of these people should “run” as fast as they can.
He!l they should just wait until they are “carried away” with their cooler 1/2 full of Squatter’s Brew!
Speaking of investments that went bad, I foresee great opportunity for Winter Olympics gold medalists to appear in future Gatorade ads.
Gatorade Drops Tiger Woods
By THE ASSOCIATED PRESS
Published: February 26, 2010
Filed at 5:22 p.m. ET
NEW YORK (AP) — Add Gatorade to the list of endorsement deals that Tiger Woods has lost.
A spokesperson for the drink, sold by PepsiCo Inc., confirmed late Friday that it had ended its relationship with the golfer.
”We no longer see a role for Tiger in our marketing efforts and have ended our relationship,” a Gatorade spokeswoman said. ”We wish him all the best.”
…
Hey Ben,
Thanks for all you do with this Blog. I have been reading on and off for a long time and I remember, when people thought I had a tinfoil hat for thinking housing prices might come down. This blog helped me feel sane and understand what was going on. I think this blog is still very important as the massive amount of housing propaganda out there is still hard to cut through. Great work.
Yes, I took a moment today to give props, but the post hasn’t shown up yet. This has been a very hard month to get through, but I will (with the help of this blog).
Speaking of investments that went bad, if this stock chart were instead an EKG, would the patient be declared dead?
(You may need to click on ‘5y’ under the chart to get the right perspective…)
Is it fair to say at this point that bailouts don’t work, or is it just that they don’t work for companies whose initials are A.I.G., F.N.M. or F.R.E.?
AIG’s Less Worser Results
Posted: February 26, 2010 at 8:05 am
24/7 Wall St Real Time 500
AIG announced two bad pieces of news but each was framed as good.
The insurance company which has benefited from a $180 billion US bailout reported a net loss attributable to AIG common shareholders of $8.9 billion for the fourth quarter of 2009, or $65.51 per diluted common share. Last year in the same period AIG a net loss of $61.7 billion or $458.99 per diluted share . The number is believed to be the largest single quarterly loss in American corporate history, so the improved results are relative but still spectacularly poor. Insurance division losses were the primary culprit during the latest period.
AIG is freaking $24/share? WTH?
Would you feel better if I told you its price was nearly $1500/share in 2007?
Open wide and say ‘ahhhh,’ Main Street American tax payers!
* FEBRUARY 26, 2010, 5:36 P.M. ET
Fannie 4Q Loss Narrows; Requests Another $15.3B From Govt
DOW JONES NEWSWIRES
Fannie Mae (FNM) reported a narrower fourth-quarter loss, as the mortgage financier posted higher revenue and fewer credit loss provisions, as year-earlier results were stung by the deteriorating housing market.
On Friday, Fannie said the fourth-quarter loss resulted in a net worth deficit of $15.3 billion as of Dec. 31. As a result, the company said the Federal Housing Finance Agency on Thursday submitted a request for that amount from the Treasury on the company’s behalf. It is seeking the funds prior to March 31, and the request would put the total received by the government to $76.2 billion.
Fannie and Freddie Mac (FRE)–which on Wednesday reported a narrower loss–were placed under conservatorship in 2008 to prevent potential implosions at the height of the credit crisis.
Meanwhile, Fannie posted a loss of $15.2 billion, or $2.87 a share, compared with a year-earlier loss of $25.2 billion, or $4.47 a share. The latest results included a $1.2 billion dividend payment to the Treasury Department. The year-earlier results were stung by securities write-downs, credit-related expenses and other losses, as well as the deterioration in mortgages, home prices and the credit crunch.
…
Prices in Canada have increased YoY. In Winnipeg prices are up 17% from last year to 235k or so on average. The housing here is substandard with most of it in need of repair because it’s so old. I think the people buying now are thinking it’s their last chance to get in the game and they must be thinking the govt is going to help them if interest rates go up and they can’t afford to pay the mortgage. The govt can’t sit by and do nothing while thousands of people are foreclosed upon. If you rented 10 years ago and you still rent you are a fool as house prices have more than doubled in that time.
Rents aren’t so bad as we have a 1% max rent increase law but owners are granted higher increases if they show cause. My rent has increased from $646 in 1986 to $930 today. In addition we had an adjustment 10 years ago where the rent was dropped 80 dollars and in return we now pay the electric bill. Free and unlimited electricity with electric heating led to high hydro bills for the owner.
The govt can’t sit by and do nothing while thousands of people are foreclosed upon.
Why not? It was government meddling and easy credit that enabled this Bubble to reach its current proportions.
Thanks to everyone for the years of ideas, support, banter, etc. This has easily been the most frustrating month or so of my bubblesit.
FWIW, we need a 3br. to keep the kids separate when they sleep. Our son has already climbed into our daughter’s crib, and since he’s huggy and likes to lay on people, that’s a bad combination. We also need to get off of a busy road as he becomes faster and explores more.
I really have had a lot of anger in the last week, which is not good. I still can’t get over the short sale we offered on; the guy can’t pay his mtg., didn’t pay his 2009 taxes, and he *ucking counters?
“I really have had a lot of anger in the last week, which is not good.”
Also not worth it. Enjoy those babies, and don’t worry about the housing equation so much.
P.S. Given that HBB posters are still working through the anger phase of the housing bubble stages of grief, I am wondering when it will overtake the rest of the U.S. citizenry. I am thinking with any luck, it will hit roughly concurrent with the midterm elections next fall.
Muggy,
Do you think a mesh crib tent would keep your oldest away from the baby? At the least, it would keep your son from shoving chokable toys into the baby’s bed. Later on, a crib tent can keep the baby from climbing over the crib rail and falling (that was my main motivation. Crib tents are on the expensive side for what you get (mainly tent poles, mesh, and a zipper), and in my experience last only for one child. I had to get one for each of my kids, since eventually they start deteriorating. But for a couple of years in each case, it was literally a life-saver.
Trying to cover his realtor fees?
An anecdote more appropriate for the bits bucket, but it’s friday evening, and I don’t know if I’ll be around to post this tomorrow…
Lots of posts lately (and items in the news) about bank fees, etc. I just logged into my account and realized that I overdrafted my checking account (still not sure how that happened - clearly I messed up my math somewhere and having my COBRA plan provider hold my check for a month and just cash it now didn’t help - totally forgot about that). Anyway….
The overdraft fee? $10 for transferring money from my savings account to my checking account. Not so bad, considering what the fees would have been if they hadn’t transferred the funds - an NSF fee plus the returned check fee. I’m sure there are some outrageous fees out there, but Wells Fargo was reasonable on this one.
Of course, I’d deserve a higher fee and just consider it a “stupidity tax” for not paying closer attention. Oh well…