The Best Path To Wealth
A report from WTOP. “According to the latest Delta Associates Mid-Year Washington/Baltimore Condominium Report, condo sales in the Washington region plummeted 43 percent from June of 2010 to June of this year. In fact, there are so many unsold condos on the market right now, it would take nearly two and a half years to sell them off. Steve Cohen, of First Place Bank, points to a rule by Freddie Mac and Fannie Mae that states, ‘more than half of the units must be held owner-occupied, meaning the people that own them actually live there in order for Freddie and Fannie to be able write a loan in the complex.’”
“So when there are a high number of rentals or foreclosures in a condominium complex, the scale is tipped and Freddie and Fannie are unable to write a loan for any units in the complex. Another rule is also having an impact, Cohen says. The rule says a loan cannot be written by Freddie or Fannie if more than 15 percent of unit owners are late on condo fees. Cohen says, ‘In harder economic times, as people are losing their jobs, perhaps they are late on their fees or not paying their fees at all.’”
The Capital in Maryland. “You probably wouldn’t find it unless you were looking for it. The 13,400 square foot mansion, complete with eight bedrooms, a guest cottage and a horse barn, sits on Round Bay in Severna Park. Not surprisingly, this kind of luxury doesn’t come cheap, and that’s likely why the estate sat on the market off and on for five years.”
“The Annapolis plastic surgeon who owns the home originally listed the property for upward of $12 million, but had no takers, his Realtor Warren Prins said. So he dropped the price several times before finally turning to DeCaro Real Estate Auctions Inc., which put the estate on the auction block. ‘Like everyone else, (the homeowner) is chasing the market down,’ said Auctioneer Daniel DeCaro. ‘He’s come to the conclusion that he has to take a more aggressive approach.’”
“The figures seem to back up his theory. According to Metropolitan Regional Information Systems, a real estate tracking company, there were 284 properties listed for sale in Anne Arundel County for at least $1 million between January and June. So far, only 69 of those properties have sold. Another 105 listings were either withdrawn, or they expired unsold. ‘A lot of people are looking for a new way to sell their real estate,’ DeCaro said. ‘The old way isn’t working for them.’”
“At Annapolis Towne Centre at Parole, 25 luxury condos will be up for auction later this month. The units in the GrandView are expected to sell for up to 70 percent off their original prices, according to the company handling the auctions. Auctioning off the GrandView condos, built by Sturbridge Homes, became a necessity, said Mark Troen, chief operating officer of auctioneer Sheldon Good and Co. ‘In 2009, the market died after we sold 45 units,’ he said. ‘People were afraid.’”
“An auction, though, seems to boost their confidence. ‘The price that they’re paying is the market price,’ Troen said. ‘We’re not setting the price. The buyer is.’ As for the sellers? ‘They like it because the units get sold,’ he said.”
The Gaston Gazette in North Carolina. “Robert Stowe England, a product of Gaston County public schools and longtime financial writer, has a real-life thriller headed for bookshelves in September. ‘Black Box Casino’ details government incentives he says drove half of the country’s lending activity into a secretive banking system, leaving the public in the dark — and in danger.”
“We’re still living with the consequences, England says, as the country struggles to overcome high unemployment, a glut of foreclosures pinning down property values and an immobilized construction industry. ‘It is scary because it’s true,’ he says. ‘We all lived through it and the horror was more visible to the financial world.’”
“What inspired you to write the book? A: Over the years as I was writing about the mortgage industry, I had written about the decline in government standards (in mortgage lending). I wasn’t surprised in 2007 when the subprime mortgage crisis erupted. Even I was surprised, however, that this crisis led to the … crash of the public segment, which is Fannie Mae and Freddie Mac.’”
“Can you explain the title? What do you mean by black box casino and what is shadow banking? A: A black box in the financial world is a financial instrument that is very opaque and unless you’re inside, you don’t know what’s going on. The biggest black boxes were Fannie and Freddie. They were under pressure to lend more and more money to increase home ownership. The same thing was happening on Wall Street.”
“So my view is that there was a lot of speculative, risky activity going on inside those black boxes. A lot of the financial activity had moved into shadow banking. The traditional banking system has deposits and loans. In shadow banking, they turn those into securities … which are less secure.”
From WAVY in Virginia. “The rental business is booming in Hampton Roads, and the new trend isn’t leaving a lot of options for sellers in the market. Lock boxes can be seen on homes all around Norfolk, and Newport News City Council just agreed to convert a luxury condominium complex into apartments.”
“‘Right now, people are being forced to rent. When we have a lot of foreclosures people have no choice, but to rent,’ saud Vinod Agarwal, an economics professor at Old Dominion University. Agarwal added, ‘If you were interested in buying a house today and you were talking to me and I said prices are expected to decline more what does that tell you, wait.’”
“There are a few hot spots for sellers in Hampton Roads. Red Mill Commons and Church Point in Virginia Beach are a couple neighborhoods where those with money and good credit are taking advantage of deals. One home for sell on the Lafayette River came on the market at $1.2 million. It’s now down to $960,000.”
The Free Lance Star in Virginia. “Throughout most of my lifetime, the conventional wisdom has been that owning your home is the best path to wealth. Don’t throw away your money on rent, the thinking went. Instead, slowly build equity in your home so that you’ll be mortgage-free in your golden years. At that point you can even pull money out of the house to finance your retirement. Plus, it was said, housing prices always go up and keep pace with inflation.”
“The housing crash of the past few years has challenged that conventional wisdom. This attitude shift has increasingly shown up in the media. The Wall Street Journal ran an op-ed Monday titled ‘A Home Is a Lousy Investment.’ It was written by Robert Bridges, professor of clinical finance and business economics at the University of Southern California’s Marshall School of Business. Bridges based his analysis on the California housing market over the past 30 years.”
“In the op-ed, Bridges concedes that home-building has an immediate economic benefit. But he said the positive effects are fleeting, whereas business investment creates permanent jobs and income. Bridges concludes that housing should take a back seat in importance to creating sustainable jobs. A solid labor market should lead to a good housing market, not the other way around.”
“‘Owner-occupied homes will always be the basis for healthy and stable neighborhoods,’ Bridges writes. ‘But coming generations need to realize that while houses are possessions and part of a good life, they are not always good investments on the road to financial independence.’”
“The best path to wealth.”
Spend less than you make.
“Owner-occupied homes will always be the basis for healthy and stable neighborhoods”
Only if the owner/debtors can truly afford them.
Gamble with other peoples’ money. Heads you win, tails you dump the bad debt on the US Government… Repeat until you get heads.
Here’s a detailed article on North Carolina that I could never find a way to work in:
‘By most accounts, calling Art Williams a hands-on developer would be a pretty fair description. For decades, Williams was in the business of subdivision building, first in Florida and then in Western North Carolina. In pretty much everything, his word was the final say. He picked the land to be developed, he divvied up the plots, he instructed engineers and construction crews. He even sold many of the lots himself.’
‘Even as his health failed, said his wife Anne, her husband was routinely on the scene at the developments. His regular contractors said the same. He was there when the pavement was laid on the roads in Alarka Creek Properties, one of the Williams’ first developments in Swain County. And it was he who approved the words “state-approved paved roads” in brochures advertising the developments. He signed off on the erosion and sediment control plans for the 5.5 miles of roads that crisscross the development.’
‘But it was not Williams who footed the bill when some of those roads began to deteriorate and slide from the mountains they were cut steeply into.’
‘Of the homeowners in the subdivision, many bought their properties directly from Williams and believed the state-approved-roads pitch, until they were left with $40,000 worth of repairs and roads that were, in places, perpetually in peril.’
There it is. We’re only talking about asphalt. Image what the subgrade prep was like?? The storm system is probably non-existent. When you remove tasks that are best left in the hands of municipalities, contract engineering firms and REAL construction labor, this is exactly what you get. JUNK.
Here’s the money quote;
“In pretty much everything, his word was the final say.”
Now this is the clueless clown that profit is the ONLY motivation. Not public safety, not an end product that accurately reflects the contract documents. In fact I doubt there were any construction related documents. Just wing it because “his word was the final say”.
So what recourse is there? I’ll wager there is no bond insurance, no responsible party….. The clown took the money and ran.
Welcome to Bulgaria.
Well said, exeter.
I use to attend local BIA meetings, and the builders like to pass the infrastructure costs on to the older tract homeowners, who didn’t want the stucco canyons in the first place. The one redeeming benefit of new developments is the nice community shopping centers they bring. The traffic is usually a nightmare. Say goodbye to the topography, too.
Site work and site utilities are high dollar high risk tasks. You can make a killing at it or just as easily lose your a$$. It becomes a problem when developers hire “site development” contractors instead of the local governments requesting bids from utility construction outfits. Neither developer or site development outfits know jack $hit about utilities and it’s all overhead to them. Worse yet, nobody is watching the work because it’s all private in the case of housing developments.
One word comes to mind: Hack.
The Wall Street Journal ran an op-ed Monday titled ‘A Home Is a Lousy Investment.’
HBB maintains that the time to buy is when people say real estate the worst investment to make. Does this mean we’re getting close?
“Does this mean we are getting close?”
Close?
Close as in people can afford the new down payment requirements, can afford the monthly nut even though their wages are shrinking?
Close now that such hype as “buy now or be priced out forever” that had previously driven the market has vanished?
No, I don’t think we are close.
The Wall Street Journal ran an op-ed Monday titled ‘A Home Is a Lousy Investment.
Just thinking the same thing.
When we see Time/Newsweek/NYT etc. say “Never buy a house - it is the worst investment possible”
We will be close to the bottom
With the addition of the Government getting completely out of the home housing market, 20% down payments and 30% debt/income ratios…
This is the shoe-shine boy moment concept. I don’t know that it works in reverse. I’m reminded of the saying that people lose their minds in herds, but get their minds back one by one.
On the other hand, the article simply runs some numbers on California housing and comes to a conclusion. It could just be a matter of fact report that doesn’t signify anything about the greater mindset. After all, ‘One home for sell on the Lafayette River came on the market at $1.2 million. It’s now down to $960,000′
900k is still a lot of money.
Also, it depends a lot on what they mean by “investment.” Compared to buying stocks, or buying Congresscritters, buying real estate IS a lousy investment. With the exception of 2002-2006, real estate has always has been a lousy investment.
The question is whether real estate is a lousy purchase vs. renting. In my area, sadly the answer is, NO. It’s not that house prices have fallen; it’s that rents have outrageously risen to the meet the outrageous prices. And no, rents are NOT falling, not for comparable properties. They are increasing 4% - 12% a year. Yes, you may get lucky with one unit or another, but on the whole, people in this area are stuck.
With the exception of 2002-2006, real estate has always has been a lousy investment.
ISTR reading that, over the long run, the real appreciation rate on a house is around 1%. Or, put another way, it’s just a hair ahead of the inflation rate.
Which tells me that, except in very low interest rate environments like the one we’re in now, you’re better off investing in a passbook savings account.
Agreed, oxide. Rents started rising here in 2005. I think a lot of people recognized the bubble was peaking (yes, I think there were quite a few of us), and tried to get out. All of a sudden, the slow rental market was on fire, and we saw rents rise dramatically in the 2005-2008 period. They seem to have stabilized somewhat since then, but they are still WAY too high.
If not for the fact that I predicted this rise in rents (and got in our LL’s good graces by pre-paying rent 6-12 months in advance, and helping to pay for repairs and maintenance), we’d be in a world of hurt right now. Our wonderful landlords haven’t raised our rent (though I have, just to stay in control of it) and our beloved rental is the only thing keeping us sane as we work our way through this housing/debt mess.
It’s easy to spend OPM.
No. The time to buy is when buying is cheaper than renting. Housing will still be a lousy investment even after everybody recognizes it. But if you can buy your housing consumption cheaper than you can rent it, then you are saving money. Houses are still nice places to live–just don’t confuse it with investing.
There is a great ad for a foreign exchange day-trading scheme now running on CNBC International. At the very end the barker says, very quickly so you might not notice…”not suitable for investors”. An honest ad at least–nobody, but nobody, can accurately predict short-run foreign exchange rate movements. Housing ads should carry the same caveat.
Will
P.S. I do own my home. It is a great place to live, even if it needs a new feul tank, roof, furnace, and refrigerator. All of these will add to my housing costs, but renting still would have been more expensive.
“The housing crash of the past few years has challenged that conventional wisdom.”
ARRRRGGGGHHHH!!!! the past few years?
the frackin past FEW years challenged convention?
lord have mercy!
Hmmmmm. So this guy truly believes that the high unemployment is being caused by the foreclosures? How so? Pfizer has to replace its American employees with Chinese employees because of high foreclosures? Really? Is he sure it’s not because we stopped charging tariffs on imported goods from China, making it possible for Pfizer to recklessly profit from wage arbitrage? Methinks England is late to the book-writing party, and has a shallow understanding of the way the world works.
I don’t think he is indicating a cause and effect of foreclosures causing unemployment, but just listing factors that are hurting the housing industry.
I, however, do think that falling house prices are hurting employment. In the past, people could continue to shop even if they were out of money. All they would have to do is whip out the HELOC check book. Now, forced to live within their means, less shopping, fewer retail jobs, etc. etc.
An economy based on ever increasing amounts of new debt has lost the major source of new debt needed to fuel it.
Our massive trade deficit economy based on increasing profitability through job offshoring and yper consumption of imported goods can not function without new debt.
We are down sizing and have put our place on the market. At the same time, we’re looking for another place to purchase. So….we find a nice place, on the river like our present home, and check it’s history.
2007 = asking price was 950k, then 8, then 7, then 600k
2009 = offer of 535k was rejected
2010 = price now down to 325k, by the bank.
Owner walked, no taxes paid for three years, unoccupied for 2 and a half years and now needs some work.
Short sell offer of $280k rejected by Chase….
how do you know what someone offered and was rejecected?
or was that your offer?
An honest realtor. No kidding. There has been
seven short sell offers from $140k to $280k with Chase
coming back with a bottom of $324,500 for the place.
Exactly the same number as the county’s assessed
value.
Our place is the largest privately owned parcel on the river within the city limits. The city want’s it for a new
park and it’s priced to sell. We’ve put a time limit on
how long we’ll keep it on the market and if it’s not sold
by then, here we stay. It’s free and clear.
Aren’t you worried the city might condemn it? seems like that possibility would put a crimp in things.
Nope…..not in the least.
Get what you can get for that shanty today because it’s going to be less tomorrow for many many years to come.
Downsizing already? Didn’t you just buy the place?
‘A lot of people are looking for a new way to sell their real estate,’ DeCaro said. ‘The old way isn’t working for them.’
“New” Way to Sell: LOWER THE LIST PRICE UNTIL A BUYER STEPS UP!
(AKA Dutch Auction…)
‘A lot of people are looking for a new way to
selltry to get fantasy prices for theirreal estatesh!tboxes…The Annapolis plastic surgeon who owns the home
a) makes waaaaay too much money, especially in view of his lack of brains;
b) should have decided to stay in the estate once he built it;
c) perhaps should have thought about the tiny market for a place like that before building it (see b. above).
I suspect that the plastic surgeon did very well during the bubble years. After all, why not take out a HELOC to finance a facelift? Or some work on another part of the body?
Nowadays, the housing ATM is gone. And, since cosmetic surgery isn’t covered by insurance, people will have to come up with their own money to pay for it. And they don’t have any to spare.
It’s only gonna get worse in DC. The young people who moved out there for a job (like us) will leave when a better job opens up back in or near their hometown. Too many people are balking at the prices here and decided “I like it here but not that much”.
Then the old soon-to-retire folks will put their houses on the market and move out (since they purchased it back in the 70s/80s and it’s quadrupled in price) because their retirement over the years has sagged, and their 401K is their house.
“But Sean, the government is here, and they ain’t going anywhere. DC has a stable job market because of the government!” Yeah, I can give you 14 Trillion answers to that question.
When the jobs end, it’s back to the farm for lots of people if there’s a farm to go back to.
A house is a roof over your head, maintain it, make good freinds on the block, prompte a safe neighborhood by watching your neighbors house, save money for a rainy day.
If you think your house is a bank and cash cow those days are now over adjust your thinking enjoy your home and if you have to sell in the future be happy maybe you can make a profit but you won’t make a killing.
doom
I don’t see a profit from a home sale unless you bought in 2002 or prior, and you didn’t take $ off the table by a refi or another instrument. I think this correction will overshoot the reversion to the mean. Don’t forget most people use listing and buyer brokers (6%). We did a *MLS service and listing (all paperwork included) ran $650.00 We sold a pricey home .(Saved serious dough, just paid the buyer’s side.) I didn’t want to deal with O/E insurance.
A home from now on is just that, a home. We’re in So Ca.
Comment: *MLS services online save you a bundle, but you have to do some of the work.
“The units in the GrandView are expected to sell for up to 70 percent off their original prices, according to the company handling the auctions.
…
An auction, though, seems to boost their confidence. ‘The price that they’re paying is the market price,’ Troen said. ‘We’re not setting the price. The buyer is.’”
It sounds like the company handling the market expects the current market price to turn out to be 70 percent off the original market price.
“…company handling the
marketauctions…”Professor Bear’s anti-monopolistic lender paranoia generates a Freudian slip…
“At Annapolis Towne Centre at Parole, 25 luxury condos will be up for auction later this month. The units in the GrandView are expected to sell for up to 70 percent off their original prices, according to the company handling the auctions. Auctioning off the GrandView condos, built by Sturbridge Homes, became a necessity, said Mark Troen, chief operating officer of auctioneer Sheldon Good and Co. ‘In 2009, the market died after we sold 45 units,’ he said. ‘People were afraid.’”
Military intelligence. Jumbo shrimp. Luxury condos.
“In the op-ed, Bridges concedes that home-building has an immediate economic benefit. But he said the positive effects are fleeting, whereas business investment creates permanent jobs and income. Bridges concludes that housing should take a back seat in importance to creating sustainable jobs. A solid labor market should lead to a good housing market, not the other way around.”
—————–
So glad somebody is finally saying this.
Housing is NOT what makes our economy healthy! Jobs make it healthy!
What if our world is changing in ways that make our old assumptions about work and work ethic break? As an example there is a technology which will in the next 10 - 20 years make grocery clerks completely irrelevant (RFID) - You will literally walk out of the store with a cart full of stuff and the money will deduct from your bank account at the door.
OOPS Millions out of work. Cheap overseas labor technology etc makes our notions about inflation and its effects on costs irrelevant. China alone can scale up production to meet demand and there are still hundreds of millions of starving Chinese workers waiting to make you something cool for your life.
In other words what if we all suddenly had another $100k in our bank account? Some inflation yes, but a lot of problems solved too…