Maximizing Buying Power As A Bottom Approaches
Several readers are looking for home buying strategies for the future. “Weekend Topic suggestion: How can the average Joe or Jane Sixpak maximize their buying power as a bottom approaches in the future? Lowball bidding is one way I have seen discussed here. What about foreclosures? Is that an area where normal folk can tread to get even deeper discounts? Were in the process is the ‘best’ entry point? Is it Pre-foreclosure, auction, or REO? What are the pitfalls of such an excursion?”
One replied, “I’ve had quite a few friends tell me after looking at repos here in SD during the 1990s that they were no bargain. The discount was very little. They were far too beat up, needed way too much work and the prices did not reflect that. I’m wondering if there will be bargains to be had as the bottom approaches or will it not be worth the trouble?”
Another added, “Bargains don’t have to be repos. There will be plenty of people who will have to sell at the bottom of the market for any number of reasons, including all those who become unable to service their mortgage.”
And another said, “As I understand it, one of the safest ways to enter this segment of the market is to consult the lis pendends list maintained by the county, which identifies homeowners who have received notice from their lender that they face pending foreclosure.”
“You get the benefit of a more typical buying experience compared to an auction (e.g., you get to fully inspect the property before purchasing and you can take some time to make your decision), but you still have a very highly motivated seller who may be willing to make some significant concessions.”
One reader advises patience. “I think the best plan is to simply wait until the media and public is disgusted with housing and everyone is saying RE is a bad investment and then go out and find a nice house, it should be a good price by then. Forget about foreclosures, etc, unless you want to make a business out of it.”
“It will probably take at least a year before anyone should be looking, maybe two or three years. We are not planning to try to time the bottom, since we owned our last house outright. I am expecting at least a 30% drop from today’s prices and we will probably buy when prices reach that point unless they are still falling very fast.”
The Star Ledger. “Joyce Aponte has spent the past 20 years selling single-family homes and properties repossessed by lenders after their mortgages have gone sour, and she is concerned about what she is seeing these days.”
“Families who bought houses with cheap, teaser-rate mortgages a few years ago, when interest rates were at rock bottom, are falling behind on their monthly payments.”
“‘When I started doing this in 1988, we were in urban areas. We were in Newark. We were in Paterson, Jersey City,’ said Aponte. ‘Now we are talking $900,000 houses. $700,000 houses. It runs the gamut. We’ll go from Newark to Holmdel to Upper Saddle River. People are totally in debt. They don’t have two nickels to rub together.’”
“Here in New Jersey, the numbers have been steadily climbing during the past 12 months, as well. During the first quarter of 2005, 6,482 properties entered into some stage of foreclosure. By the end of the fourth quarter, that figure had climbed to 13,487.”
“Already, companies are creating foreclosure units and hosting seminars to teach homeowners as well as investors how to navigate the system. ‘We’re getting calls from nice area such as Princeton,’ said Bryndan Moore, a real estate investor who buys homes from homeowners in distress. ‘I’m seeing it mainly from people who bought their house or refinanced in the last four years.’”
“‘The banks feel like they are going to be having a lot more (distressed) properties down the road, so they are telling me to hire people and to get my staff ready for the properties that are going to be coming down the pike’ Aponte said.”
This is a good topic and a very complicated one. Besides legal differences from state to state, the after market for defaults isn’t set up for the retail homebuyer. It is largely an area for experienced sharks, IMO. That’s not to say that there won’t be opportunities. I hope some readers experienced with these matters will share some of their knowledge. Any related strategies are also appreciated.
That said, as the article notes, this will be a growth industry for the foreseeable future.
How does one get to be an experienced shark except by starting as an inexperienced one?
Sharks are R reproductive strategy species.
Essential it is a spray and pray approach. Make a lot of babies and hope some survive to reproduce.
So to be an experienced shark one must take outsized risks given humans are K selected species.
I actually think Ben meant ’shark’ as in:
Rather than:
But I guess only he knows for sure.
Yeah,
The shark metaphor was a bit thin, but entertaining..
I am guessing Dr. Sunset meant to talk about the ecology of investors. Some take great care and effort in each investment (the k-strategy), like we humans do with our kids. Others (r strategists) spray their seed widely, hoping for a success, but realizing most ventures will fail. Like the offspring of a rodent for example.
If this is true, it seems like the latter (r) strategy seems very insane for most people, because any housing deal gone bad is likely to sink your average Joe. I agree with Ben. Leave it to to corporate types, who are well protected from bankrupsy by the recent rules passed by this administration.
I agree. I’m kind of torn. I realize there are a LOT of pitfalls with this stuff and the knife has just begun it’s long descent. I also dislike amateur arrogance, especially the kind we’ve seen in the last half-decade.
On the other hand, how do corporate types get to be corporate types? Everyone’s gotta start somewhere and I think at some point you have to have confidence in yourself — after careful examination of the market and numbers. Take baby steps… but at least take some steps.
If you buy at the right price and you don’t sink your entire fortune into one project you’re ok. And guess what? You WILL screw up the first time. And the second time. And the third time. And the fourth time. And the fifth time. The sixth time maybe not, but DEFINITELY the seventh time. Every project is a learning experience, and you plan it that way.
Looks like there is going to be a flood of homes in the New England area thanks to Mother Nature. What effect is this going to have on pushing stuff down up there.
N.H. Floods Force 100 People From Homes 7 minutes ago
WAKEFIELD, N.H. - Torrential rain washed out roads and forced about 100 people from their homes early Sunday.
ADVERTISEMENT
Some areas of central New Hampshire had seen 7 inches of rain by early Sunday and forecasters said as many as 5 more inches might come during the day.
The state Office of Emergency Management said about 100 people were evacuated from their homes in Wakefield because of concern over the Union Village and Semens dams.
“There are a lot roads closed everywhere and parking lots and basements flooded,” Emergency Management spokesman Jim Van Dongen said.
Officials reported a railroad culvert and embankment washed out in Milton, with train tracks suspended in mid air. And the local emergency management office in Hooksett said the town essentially was closed because so many roads were flooded.
In Maine, dozens of roadways were flooded in southern part of the state and shelters were set up in Kennebunk and Ogunquit.
Massachusetts Gov. Mitt Romney declared a state of emergency on Sunday, activating the National Guard and various state services to help communities respond to the storm.
Boston had picked up 4.35 inches of rain in 24 hours. Farther north, Newburyport collected 5.83 inches over the same period, according to the National Weather Service.
They were saying when all is said and done in the Boston area some places could end up with 12″ of rain (I think they said 15″+ was the all time high ~ 50 yrs ago).
Good time to advertise homes as ‘lakefront property’….
According to NASA, if all the ice sheets melt, the sea level will rise 75 meters or 246 feet. So most coastal lands will disappear. The oceans will continue to absorb more heat too and that will cause stronger hurricanes. The combination of rising sea level with stronger hurricanes means many homes will be wiped out during this century.
”
Where are the world’s two largest ice sheets and why is NASA studying them?
The two largest ice sheets are in Greenland and Antarctica. Together, they contain 75% of the world’s fresh water. If all this ice melted back into the ocean it would raise sea level by over 75 meters. This would change Earth’s surface in a big way: large areas of the continents would be flooded! This is why Earth scientists use satellites to measure the ice levels on Greenland and Antarctica to see if they are growing or shrinking.”
Goleta, did you happen to see SNL with Gore’s intro? Very funny- he talked about that since becoming President in 2000 they stopped global warning but now the glaciers are on attack, invading Michigan and northern ME. The whole skit was very funny.
On the serious side I’m extremely worried about the very things you wrote about. Coastal property will all be gone. Even if it doesn’t happen in our lifetime it is ridiculous not to address it now. Of course, that would involve potentially ‘adversely affecting the economy’, but if we don’t start now, there may not be much of economy to affect.
Comment by Polestar
2006-05-14 08:57:24
On the serious side I’m extremely worried about the very things you wrote about. Coastal property will all be gone. Even if it doesn’t happen in our lifetime it is ridiculous not to address it now. Of course, that would involve potentially ‘adversely affecting the economy’, but if we don’t start now, there may not be much of economy to affect.
_____________________________________________
Fox News sez global warming does not exist, so therefore, I believe.
We can all move to Vermont and have shore houses.
I know, if only all the signers of the Kyoto treaty would quit blatantly ignoring the protocols they endorsed.
NASA has been measuring the ice sheets…they are getting thicker.
How does that fly with the report 60 minutes did on Iceland with the receeding glaciers?
Bah, they all lie. I don’t even believe in Canada anymore.
The properties have been bid up so high, it’s difficult to get a grasp on what the MSB’s are going to do…
It was one thing to take a $25k hit in ‘90/’91, quite another to take a $200k hit in 2007.
Personally-I’d be lookin’ for a set of 1400SF single story building plans. Small, reputable builders are gonna be starved for business.
Just don’t f*ck up and buy a McMansion because you think it’s a good deal.
These money pits were obsolete the day they were put it.
Never mind the costs to heat and maintain…They will be a target for confiscatory property taxes to pay for the outrageous pensions for legions of unionized public sector retirees.
And pick your location carefully. A decent neighborhodd can go down the shitter in a decade or even a week if a major natural disaster hits.
RE: New England rain…we needed it. Dry March/April. Hordes of people now tapped in to the water systems here.
That’s a good point about McMansions. There will be houses you don’t want to touch. With older houses, auctions are risky because you can’t inspect them.
The risk that you point out in auctions is what gives professional buyers an advantage. If you’re not set up to buy in quantity at auction, you don’t get the advantage of diversifying your risk across multiple properties.
What do you think will happen to the McMansions? Subdivided into apartments, like the Victorians (shame about the Victorians, McMansions lack their… What is the word I am looking for.. Class?)
“What do you think will happen to the McMansions?”
Let’s hope they see the headache ball.
What is McMansion ??
McMansions are purchased by McMillionaires as a place to park their McM1A2 SUVs (Hummers).
Seriously, 3000sqft+ on a lot where you rub shoulders with your neighbor. Thrown together with cheap materials/labor in the last decade or so.
More details in the wiki.
The only good thing about the glut of McMansions is that as their prices plummet, they will put downward pressure on the prices of homes that are worth the cost of owning them.
naw– building will be DEAD for quite a while. And if you haven’t been in HD or Lowe’s lately, check raw mat’l cost. Holy crap, batman. WAY up. Lemme see-copper over $4/lb. ply/studs –40% to 100% up. And in the sneaky realm, the Canadian dollar has really come up over the last 12 months. now at 90cUS.
Certainly some significant dangers in dancing w/foreclosures for the uninitiated. 2-3 years on, I suspect that there will be some screaming deals starting to show up in the bank REO’s. It’ll take that long for a) mkt to fall apart b) foreclosures to pile up c) banks see their REO assets not moving and d) the regulators start whacken them around about having crap on their balance sheets. Pressure will build rapidly for them to complete the cycle–you know binge — purge. Binge, purge.
I have, and interestingly enough I think the slowdown is hitting there as well. Has anyone else noticed how easy it is to get parking there?
I was in Lows today. The garden center was packed.
Personally-I’d be lookin’ for a set of 1400SF single story building plans. Small, reputable builders are gonna be starved for business.
That is the route wife and I will be taking. We have owned a lot in Warm Springs near Sun Valley since 1970’s. My wife bought it in the 70’s for $10,000. Beautiful lot right next to the lifts. Every year (except this one) we get many inquiries from realtors that want to get their mitts on it. It is the only unbuilt lot in the whole sub-division. In a few years not only will builders be hungry but materials should be plentiful and cheap. We have been waiting for the bust for a long time. Might as well make it work to our advantage.
John the only thing I would worry about when carrying vacant land is that someone changes the rules on you concerning what you can and can’t build.
I recall locally here when out of the blue - relative to a persons ability to sell their land - a community decided that all homes needed 1 acre minmum lots. Overnight a lot of parcels lost value.
A couple of things I have learned from reading and discussions with brokers: auctions are pretty much a crap-shoot and you have to bring a lot of cash to the table. On REO’s, key issue is the amount of equity the owner had in the property. Oddly enough, these flippers with no equity aren’t a bargain. And remember, the banks won’t be a source of a windfall until they have a bigger supply on their book.
Another choke point is information. Title companys and realtors are a big source for local info.
I just asked Realty Trac to give me 10 subscriptions for one month so a few readers and I can see how their service works and put up our observations on my foreclosure blog. I hope they take me up on it.
What’s the url of your foreclosure blog… is it linked to this site?
http://getforeclosures.blogspot.com/
It’s also in the links section of the sidebar.
I think it’s WAY too early to even be thinking about ‘the bottom’. In the stock market this is called the slope of hope. The beginning of a long downward slide in prices. The hopeful buy on the way down, still thinking the previous upmove will soon resume, only to see prices resume their downward path.
Excesses of the magnitude reached in the U.S. housing bubble will take years to work themselves out, with much collateral damage to other areas of the economy. In Japan it took about 14 years for this to happen…and they had personal savings!
ken-
japan had savings, the u.s. does not. that’s precisely why prices will correct a lot faster here because there’s not much left to hold this thing up.
In early 90s I was doing foreclosures in south CA, and bought two condos at foreclosure auctions with cashier’s check at hand. My observations are as follow.
1) 90% of defaulted foreclosure cases DO NOT go to auction, either because the owner sells the property on time or file for bankruptcy. If it goes through bankruptcy (BK) then it goes thru long court procceding and you will not get the property. Most owners are sophisticated enough to avoid foreclosure by filing BK.
2) In auction frenzy the bidding can go pretty high and price becomes rather normal market price, not discounted one that you may hope for.
3) In today’s environment where most recent buyer have put nothing or very little down payment AND when prices already started to decline, you will have very little chance of finding any foreclosure property with any equity on it. In this case there is no point of bothering with BKs.
4) During auction you will see many sharks bidding on the property.
5) Bank’s do not sell their REO at discounted price.
I have lots of cash at hand now, But I don’t think I will bother myself with foreclosrues. I will buy a property when market goes to the shit hole.
I would say 90% of the properties I have followed that were going into foreclosure ended up NOT going to sale. You can try to contact an owner to buy the property off of them at the notice of default stage, but usually they have so much debt that you would end up paying more than the property is worth anyway. The best deals IMO are just on the MLS, during bad times for RE. Also in the LA Times.
Inspect at least 50-100 homes for sale in your area, and deal only with the listing agent. Do not tell them to call you if they hear of a deal with another agent, else you will be deluded with calls. In fact, warn them that they should not call you unless they have a listing. You will only deal with the agent that has the direct “ear” of the seller.
Hire a buyer’s broker on a fee consulting basis to represent you when you find the house that meets your deal. Have him negotiate directly with the seller and seller’s agent, and have him manage the transaction through closing.
In conjuction with the above, find a good sample buyer’s “Purchase Contract”, not the stock contract furnished by the local MLS or Realtor. Hire an attorney to make any modifications or customize to your taste and preferences.
Walk away from any deal that doesn’t make you feel absolutely confident that you are getting what you want for the price you want. Become a “don’t wanter”. Learn to say “No thanks. No Deal.” and walk…
Thanks a lot for the advise. Everything you said sounds logical and reasonable. I am thinking of pdfing this thread
During a down market, most foreclosures are no bargain. They are generally people only 1-2 years into their mortgage.
Imagine: Family buys a $500k home and finances $475k. They fall behind in payments, and by the time the foreclosure comes, all the unpaid interest and penalties reaches $480k. But the market has turned, and the house is now worth $400k on the open market.
And I’m not even figuring unpaid real estate taxes, city fees, repair cost, holding cost into this.Quite a deal, huh?
That’s why you let the banks get title. Let the bank dump that same house off for $350k and maybe it’s worth the bother.
The only problem I see with Pre-foreclosure, is how much equity does the person have in the house? It’s going to be hard for anyone who bought after 2000-2001. For the most part they just wont have the equity.
That said I would not feel right about not making fair offer to someone who is about to be foreclosed on (assuming it’s their home). When I say fair I am talking about 2000 or 2001 price. IMHO taking advantage of someone when they are down is just as bad if not worse than what speculators have done. Interestingly enough, I have no pity for the speculators, and would have no problem taking advantage of their bad fortune.
Most of the people who will be foreclosed on are speculators.
And I have no problem making any offer. If I don’t, someone else will. The person isn’t required to take my offer. The seller, realtor and broker who put them in the house took advantage, you are helping clean up the mess by taking it off their hands.
I made out great in ‘95 with a bank repo but that don’t mean squat this time. We are in truly uncharted territory. The first round won’t even be comparable to the general market. Banks don’t know how to lose money, they just don’t. It will take time for them to learn. Understand the first one’s to work through the system are going to be those that were most overpriced and overleveraged at the top of the market. The banks on the steps of the courthouse are going to be asking for the loan balance. Get outta here. It won’t be until the last of the foreclosures when the unlucky people with low mortgages and a few bad breaks end up at auction.
I believe Cote is correct…Until the banks are loaded up with inventory I say keep the powder dry…
I bougtht a Detroit paper today and went thru the real estate ads with a fine-toothed comb. I hadn’t read the ads in several months, but with the article linked to the blog here, I got curious. 4000 forecloses in my county, etc. I did see some nice houses going to auction ( in CA/AZ, these houses would be 650,000-800,000 based on what I am seeing. Here, they are $190,000 to $275,000 ). No screaming bargains, though. We will be hanging onto our cash. The best bargain I saw was an older, genuine mansion in W. Bloomfield for sale by owner- gorgeous architecture ( not a McMansion here ), quality build, beautifully landscaped lot, 3600 sq feet, 5 br, 3 1/2 baths, at least 30-40 years old with quality materials and stone trimwork around the windows/doors, FSBO, $ 369,000. Geeze. This place would have gone for $500,000K easy in better times. Can’t afford it, but it’s nice.
Once again you’re on the money. Nothing will be a deal until everything is.
Foreclosures are bad “feng shui”…I look at a foreclosued house the same as one where a murder occurred. The pain and suffering of someone who lost the house seeps thru the walls are vents, it can’t be erradicated. Look at listings 6 months old, find out what seller paid for it, and if there is any equity left, you might have a highly motivated seller who will walk away with a few thousand over purchase price
We ain’t seen nothing yet. It will be one or two major headlines that will precipitate the slide in prices. Considering the graft and criminality associated with GSE’s and leaders in DC and the scores of republicans facing indictment soon, it will likely be a tidal wave of events that will push the entire stinking mess in the other direction.
You misspelled republikkkans.
Comment by fred hooper
2006-05-14 08:17:04
Do not tell them to call you if they hear of a deal with another agent, else you will be deluded with calls.
______________________________________________________
Deluded with calls eh? [lmao]
You go freddie.
Question: If you buy a house on the downslope that then becomes embroiled in a lawsuit regarding fraud in the transaction from the previous purchase, does that put your ownership at risk?
Be sure you buy title insurance.
Absolutely! But I still wonder if this is part of the uncharted territory R. C. brought up….. thoughts?
I have always understood that is what title insurance covers. Someone who has some type of clame to the properity you buy. The tilte company should check that out, and if the make a mistake, that is where the title insurance comes in.
“if the make a mistake”
Should read
If they make a mistake
Good luck getting title insurance ot pay anything. The are in the business of collecting premiums, not paying claims.
Thats why its the territory for proffessionals only….Need a lot of past experince to navigate the potential mine field of a forclosure sale…
I remember house hunting in the Boston suburbs in 91-92. A realtor brought us to a house that was foreclosed. Walking through it, we came across a small room. There was nothing in it. The realtor said “last week this was a bathroom”. Whoever had owned it, as it was being foreclosed on, took EVERYTHING. Toilet, tub, sink, pipes, doors, hardware. The house had literally been stripped of everything of value. It was quite a sight. I guess the owners took everything they thought they could get a buck or two for, and gave what was left to the bank. Taught me a bit about the extremes of foreclosure.
I think it is best to just sit and wait. If you don’t know what you’re doing, the foreclosure business will hand you your head.
I once saw a foreclosed family rip out an air conditioner and cart it. Your words are wise, when buying a foreclosure you must magnaflux every square inch of the property. Cement in the plumbing, random wanton destruction. People losing it all get really really mad.
The house right next door to us has been in foreclosure for a year. It has been stripped down to the studs, and holes were made in the walls to reach the pipes in one of the bathrooms. Right now, the toilet from one of the bathrooms is sitting in the living room. There is no carpet, needs paint, needs flooring, and we heard all of the water pipes in the basement have burst. No appliances. No electrical outlets or covers. That’s what we can see from the windows. The broker bought it from the bank, and is now going to “flip” it. He’s hired these dudes to come in and do things to it, but it is a cheap lipstick job. The front entry is full of dirty cigarette butts and old newspapers. Looks like hell. The landscaping should be blasted to Mars. Ask price ?? $ 192,000. You can come into this neighborhood ( a nice one of detached condos ) and get a turnkey move-in ready house for $ 175,000. Good luck, Mr. Flipper/Broker. We have been enjoying the use of the extra driveway periodically, and the Arabic engineer on the other side of us who has a side business reconditioning lawnmowers and weedwhackers uses the beat up landscaping as a testing ground. They use the driveway too, sometimes. The guy the flipper hired to paint the trim got white paint all dripped all over the roof. The Arabic guy & I were thinking of going in together and rehabbing the house if the price was low enough, but now it’s being done for us, and it’s a terrible job. We just stand outside sometimes and laugh about it.
Remember when all real estate markets were local, and only the hot coastal markets were in danger of a sharp correction? What a difference a year makes … Q. Is there a sharp distinction between falling land values and dried up demand? What am I missing?
For readers who are unfamiliar with options, note that when land prices fall, the value of options to buy the land (which homebuilders own) plummet far more quickly, due to the effect of leverage.
——————————————————————————————
Housing slowdown appears to be spreading beyond hot markets
By Janet Morrissey
DOW JONES NEWSWIRE
May 14, 2006
NEW YORK – There are signs a housing slowdown that has gripped certain high-growth markets during the past few quarters is now spreading nationwide.
Preliminary reports from builders Hovnanian Enterprises and Toll Brothers, whose quarters ended April 30, indicate demand is falling faster and more sharply than previously thought, and that the pullback is no longer confined to hot markets that had seen sharp home price run-ups in the past few years.
…
Some builders, such as Centex Corp. and Hovnanian, have started taking write-downs in connection with land options. In general, when builders take write-downs to walk away from land options, it is a sign that either land values are falling or demand in that market has dried up.
…
Majestic Research analyst John Tomlinson, in his monthly report that tracks new-home sales in 40 major markets, found sales fell year over year in every market during February and March, with the average decline being 25 percent.
http://www.signonsandiego.com/uniontrib/20060514/news_1h14slowdown.html
My, oh my… the inventory rocket in NoVA is still headed skyward. Just blew through the 20,000 marker with ease. Now at 20,420 active listings - a 14% increase in 14 days. Looks like the NoVA market is in a race to the bottom with San Diego.
And the finally updated the inventory charts. Take a look at this one, for Loudoun County. Actually, it’s already out of date because it shows the inventory as of the beginning of May. Today, the inventory bar is very close to the 4,500 line.
OMG, This real estate bubble is much bigger than anyone had thought before. Popping sound should be very loud.
Dude, San Diego totally rules man, we’re going to the bottom FIRST and HARDEST!
West coasters 4ever!
DenverKen> I think it’s WAY too early to even be thinking about ‘the bottom’.
Well said! ALL we’ve seen so far are the first undeniable signs of decreases in selling price and sales volume from stratospheric levels. There are any number of huge timebombs ticking away - the GSE situation, the inevitable US dollar crisis, the US stock market that’s been seriously overvalued for eternity, a bond market that has not priced in default risk and interest rate risk for eternity, our massive unfunded future liabilities (SS & Medicare) etc etc. I have a hard time believing that not *one* of these big timebombs will go off within the next 2 to 3 years, perhaps prematurely setting off some or all the other timebombs. I’m not even considering the geopolitical situation here, that is just way too unpredictable.
Given all of this, the only strategy a prospective buyer can reasonably adopt for now is: keep the powder dry - and safe! Wait for front-page news that changes the entire macro picture.
Finding good value in a foreclosure is a tough business. Non-profits and not-for-profits tend to get a weeks worth of lead time from the banks to pick and choose before Joe & Jane Q. Public find out about them. The only way I know of to level the field is to have an inside source at the bank. I know plenty of people in the rehab/flip and rehab/rent business and they all have insider information. Otherwise they couldn’t find the bargains that they do find. In a few years when comps have dropped like a stone and foreclosures are everywhere it will be different (like back in the RTC days). But right now there is still far too little supply and far too many bargain hunters.
Here are some more related comments from the topics thread:
‘I have a fellow investor friend that has made a lot of money…He did well in the 90s run up in the stock market and has done very well
in real estate…He is currently purchasing tax delinquent properties.
Can anyone glean some of their wisdom about whether this is a good
investment. My friend claims there are a lot of properties in distress
and you can pick them up for just paying the taxes…’
‘Do you know if these are IRS seized or are they delinquent on property taxes? I do know that for IRS seized they have like 6 mos or something like that to take the property back, not sure for delinquent prop. taxes though. Also obtaining title insurance is hell for either situation.’
‘These are just tax delinquent. You just pay the back taxes and the property becomes yours. The caveat: The original owner can has a year to pay back the taxes and some interest and get the property back.’
‘It depends on the area of the country. Towns in Upstate NY have tons of property tax delinquent properties that are auctioned off a couple times a year at the city halls. They auction off several hundred properties per year and it’s a real extravaganza. I bet there’s places in the South where the same thing’s happening. As to whether it’s a money-maker, it’s like all RE. Location location location and where that particular area is heading economially/socially. And timing.’
I would also add that when the bottom is reached, housing will be cheaper, but it will not be more affordable. Banks will require high down payment % and rising interest rates will not lower monthly mortgage payments.
Yes it will. Save save save. Have a downpayment at least 20% and buy when the price is low, the selection plentiful, and the interest high. You can always refinance a payment down if interest rates drop. The only way to lower the debt is with cold hard cash. Also, taxes, etc will all be lower on a lower purchase value.
I guess you don’t believe that Helicopter Ben will inflate away savings until they are worth nothing, or just accidently devalue the currency for the same effect only with overnight expedience? Or do you recommend some form of insurance for savings (many here would recommend purchasing gold or foreign currency instead of staying long in cash, for instance…)?
Under the inflation scenario, why would the price of the house fall? If the Fed keeps inflating the money supply, resulting in higher prices for everything, why would houses be immune? If you think that will happen, then you should take on as much serviceable debt as you possibly can at a fixed rate right now and just hope you can keep your income flow, because tomorrow the debt will be worth less but because of inflation your income will theoretically grow. If you think your income will not grow but prices for everything else will inflate with the money supply, then yes you should buy gold as a hedge because then your downpayment will at least maintain its purchasing power in real terms.
1) If inflation comes directly, it will arrive with higher interest rates. This will slaughter the ARMS and the financing orgy of the last few years, killing prices of financed assets while wages and commodities rise. Savings can continually be rolled in interest bearing products while waiting for the bottom.
2) It is possible the inflation will be a direct FED response to a deflationary crisis. In that case any current savings will be worth even more, though you have to catch the inbetween point to borrow when no one else is. This is what will happen in my opinion.
feepness, I think you are right. That is why I have my $300k of savings in treasury bills, safest and higher yield than savings accounts. I regret I missed the oportunity to buy gold in December (despite reading what some people said in this blog and Ben’s metal blog), but at least I did not lose my savings either.
“I would also add that when the bottom is reached, housing will be cheaper, but it will not be more affordable. Banks will require high down payment % and rising interest rates will not lower monthly mortgage payments.”
By the time all is said and done, I don’t plan on having to borrow squat to buy my 3/2 in San Diego.
I would also add that when the bottom is reached, housing will be cheaper, but it will not be more affordable. Banks will require high down payment % and rising interest rates will not lower monthly mortgage payments.
______________________________
This is the Realtors’ rally cry, and I call hogwash on it. If this were about interest rates alone, monthly payments would be about the same as before the bubble took off (should adjust with wage inflation which has been basically flat). Right now, we have record **prices** AND record **monthly payments**. That is because people viewed housing as a very wealthy second or third “income earner” for the household. During the bubble boom, houses in San Diego were going up $8,000 to $10,000 PER MONTH. Let me say that again, so people can mull that over and over again…housing prices were going up $8,000 to $10,000 per month. Now, how much would you be willing to pay in order to get that much “equity” increase EACH AND EVERY MONTH? I’d say most would gladly pay 50% to 100%+ of their monthly income (able to do this with stated-income, neg-am loans which were refi’d/HELOC’d on a regular basis to pay off ever-increasing debt). The catch is this only works if housing prices move up more/faster than your debt. That movement has stopped, and Greenspan’s highly-touted “equity cushion” will evaporate very, very quickly.
We will go back to 20% down, and DTI ratios of 28-33% of gross income, at most. Not only will prices come down, but monthly payments will drop drastically once the idiot sheeple grasp how badly they just got fleeced.
Right now, we have a negative savings rate. People have survived because there was always ample credit to support their lifestyle. At some point, the lenders are going to want their money back, plus interest.
I agree with those who have said foreclosures tend not to be bargains - for now. Occasionally you will find a low-value mortgage where the borrower has passed away or where there is a divorce or other major problem, and you can take the property for a reasonable price. For the past five years, however, private bidders have been up against professionals who take the property up to 80% of market before dropping out. Prospective homeowners have only been winning auctions at the 85%-90% level, which isn’t really any bargain with the overvalues we’ve been seeing.
On the way down, there probably still won’t be any bargains. Most banks must bid in at 80% of loan to call their guarantors, and sometimes the terms of the guarantee require 100% bids. The only ones who will have real pricing power will be the REO departments and they won’t reduce prices until very late in the decline when their inventory becomes burdensome.
I think the only sources of value will be from deals involving a) assumable loans such as VA loans which are fixed and at good rates (looking for loans in the 2000-2002 time frame before the major run-up); and b) “creative” arrangements such as cash-for-deed and lease-to-own. The deal must be structured carefully, of course. If it is a lease, it should be with option to buy at market price at end of lease. Otherwise you won’t be able to take advantage of the decline and you’re not protected if the decline takes longer. I think speculators will be keen to take this type of deal since they will urgently need cashflow and they tend to believe that the market always rises over the long run. Tie them up now while they are desperate, live cheaply, save your cash and hammer them in two or three years (or longer - you can usually extend) when you exercise the option.
Wrong context, people. Everyone’s making statements based upon experiences from the last few decades.
This will be a depression; the agency ultimately set up for resolving the tsunami of defaults will make the RTC look like a garage sale.
Wasn’t supposed to be in italics. KIA, please close your tags.
Let’s try that again.
Okay, not working.
Sorry about the open tag, can’t seem to get in to edit.
Looks like Ben fixed us up. Thanks, Ben!
Just had an interesting discussion on this topic with a friend. We believe there will be a lot of action in the bankruptcy court involving lien stripping and cram-downs as speculators seek to reduce the security on their properties to falling values. I really don’t believe lenders are fully prepared for a falling market nor do they appreciate that the supposed absolute security offered in MBS programs can be stripped away by the BR court. This means that the prudent investor will look to the Bankruptcy Courts to see what liens are being stripped, how low, and for what purpose (usually sale). This probably won’t happen for a year or so until investors are absolutely out of cash, however.
There is a lot of talk about the bubble being on the two coasts, and every market being regional. I disagree with this, because we sold our Albuquerque house when the californians came to town, and our home went up 30% in one year. This thing is going to be national, and it’s going to get ugly. I also had a condo in the past that I lost some money on. It took a year of it being on the market, with us paying two mortgages, before we said, “the hell with it”, and started lowering the price bit by bit, until it sold. It’s going to take awile for the loosers to admit their mistake, and lower their prices.