Getting Burned, Cutting Loses On The Sacred Cow
The Associated Press reports on California. “San Diego broker Colleen Cotter began knocking on doors this year after scouring property records to find homeowners who didn’t owe money. If someone answers, she makes an all-cash bid on behalf of investors who don’t even visit. Nearly one of three homes sold in Southern California is paid for in cash, putting borrowers at a disadvantage. Some buyers write sellers about how they would cherish a home, hoping to spark a personal connection.”
“Josh Martin, 26, discovered homes he and wife considered buying had changed hands less than a year earlier at much lower prices. The first-time homebuyers lost nine bids since August- many to cash buyers - until finally landing a home in May for $250,000 in the San Diego suburb of Chula Vista. ‘It was very stressful because the prices just kept going up,’ said Martin, who recently left the Marine Corps. ‘Our lease was about to end and we didn’t want to sign another year.’”
The Desert Dispatch. “Barstow is one of five incorporated cities in San Bernardino County to see a decline in property tax assessments this year over 2012, according to a report by the assessor-recorder-county clerk. Barstow suffered a decline of 4.6 percent, the report showed, and Twentynine Palms, Needles, Yucca Valley and Big Bear also saw decreases.”
“Realtor Cesar Vasquez of Exit Strategy Realty in Barstow believed the low home prices locally could probably be attributed to the city’s remote location and a lack of jobs to draw in new residents. Many of the buyers in the area, he said, are out-of-town investors who turn properties into rental homes.”
“That apparent lack of demand isn’t a problem elsewhere in the High Desert, according to Larry Trombley, a private notary who works with cities in the Victor Valley. Trombley thinks a lack inventory might explain how cities such as Adelanto (4.7 percent) and Hesperia (4.3 percent) saw increases in their assessed value compared to 2012, according to the report. ‘With the lack of inventory, you put a property on the market,’ Trombley said, ‘and within a few days, you get multiple offers.’”
The Victorville Daily Press. “Regional research economist John Husing is skeptical about local economic recovery. Husing says the High Desert is lagging behind the rest of the country. Reached by phone Tuesday, Husing said very few homes are being sold to families because private investors and large Wall Street firms are buying up homes and giving a boost to the local housing market. According to Husing, High Desert housing prices are artificially rising due to the influence of investors.”
“Local real estate broker Caroll Yule supported Husing’s statements. ‘In the High Desert, 30 to 40 percent of the buyers are investors,’ Yule said. ‘We know that because of how many cash sales there are. There is a very limited supply.’”
“San Bernardino and Riverside counties have a long ways to go until we reach the levels we see nationally,’ Husing said. ‘Of all the areas in the country with a million or more people, we have the highest unemployment rate in the United States.’”
“Nonetheless, some local residents are opening their wallets a bit more freely these days. While enjoying lunch at Applebee’s in Victorville, John Garza said he has been more flexible with casually spending money. Garza, a Victorville resident, said that with the price of his home on the rise, he was able to make the perfect investment two years ago when he was able to buy his home while the market was still struggling.”
The Fresno Bee. “At the end of 2009, in the depths of the housing bust, more than half of Fresno County homeowners with a mortgage owed more than the house was worth, according to a recent real estate report. Now, only 35% of mortgages are underwater. Chris Blumen was one of those underwater homeowners whose equity finally climbed back into the black. Blumen sold his northwest Fresno condominium two weeks ago for $110,000. That’s what he owed for the three-bedroom, two-bathroom home he bought in 2007 for $187,000. In 2010, the home was only worth $75,000, Blumen said.”
“For Blumen, who has lived in Reno since 2010, it was just a waiting game. He never considered walking away from his home or selling it in a short sale. The responsible thing to do was to continue making the payments, he said. His Realtor put the home up for sale late last month and in two days got two offers, both for more than the asking price of $105,000.”
“‘I’m glad that the home prices have risen in the area since 2010,’ said Blumen who made enough in the sale to pay back his mortgage. He had to chip in a little extra for closing costs and to pay his Realtor fees. ‘Right now I am cutting losses. I’m happier. It’s a relief.’”
The Mercury News. “The Bay Area’s frenzied housing market, marked by soaring prices, short supply and a scramble for homes, is showing signs of cooling. Some buyers, fearful of a new bubble or worried about higher interest rates, are putting their plans on hold, while new listings of homes for sale have been increasing since March, which should put the brakes on spiraling prices.”
“Masa Shiohira and his wife are among the Bay Area buyers who have hit the pause button. Concerned about a possible housing bubble, they have stopped looking and plan to rent for a while. They’re selling their home in Montclair and a condominium in Foster City and putting the money aside for a year or two. They bought at the top of the market in 2006-07, and while they aren’t short selling, they are losing a little money on the sales.”
“‘We’re seeing something very similar to the situation we got burned in six years ago,’ Shiohira said.”
The Times Herald. “Fewer Solano County residents are losing their homes to foreclosure each month, a new real estate industry report shows. Solano Association of Realtors President Elect Toni Foster said that ‘given the federal incentives that banks are receiving by modifying old, high interest and underwater loans, it makes sense that our foreclosure rate has dropped. Many homeowners that were underwater have gained equity, making it a little more palatable to make that house payment, and less compelling to walk away.’”
From The Signal. “As part of ongoing talks over U.S. tax reform, Congress has been debating making major changes to — if not eliminating outright — the mortgage interest deduction. The negative domino effect would extend beyond the recovering housing market if Congress were to eliminate the mortgage interest tax deduction, Santa Clarita Valley Realtors and other financial experts agree.”
“Both the National Association of Realtors and California Association of Realtors have called on Congress to ‘do no harm’ to existing and future homeowners. ‘Home prices would fall over the country, which would destabilize the economy,’ said Paul Gonzales with Troop Real Estate. ‘The mortgage interest deduction is a sacred cow.’”
“Even if home ownership didn’t sink catastrophically, the move could mean a longer-term financial hit, said Mike Meena, president of August Financial in Santa Clarita. ‘Many Americans have trouble saving for retirement,’ Meena said. ‘They can at least pay off their homes and use that equity as another retirement vehicle and income source.’”
“Thirty-one percent of the city of Santa Clarita’s general fund is based on property taxes collected by Los Angeles County, said Darren Hernandez, Santa Clarita deputy city manager. Such a change could potentially drive down home ownership rates, drive up the cost of financing, and push down the value of real estate, he said. ‘Repealing the deduction would be bad for homeowners and it would be bad for cities and school districts that rely on property tax revenue,’ Hernandez said.”
“A major drop in property values — and thus taxes that can be collected — would mean an even greater blow to communities, he said. Fewer owner-occupied residences would have a negative effect, Hernandez said. Another impact, he said, is that a big portion of peoples’ net worth is the value of their home. If values drop, so would individuals’ net worth, he said. ‘There is a positive correlation between higher owner-occupancy rates and the quality of a community,’ Hernandez said. ‘People who own their homes tend to be more invested in the property they occupy.’”
“Both the National Association of Realtors and California Association of Realtors have called on Congress to ‘do no harm’ to existing and future homeowners. ‘Home prices would fall over the country, which would destabilize the economy,’ said Paul Gonzales with Troop Real Estate. ‘The mortgage interest deduction is a sacred cow.’”
Oh the tangled web of lies and misrepresentations these two organizations weave…….
They sure work hard at distorting reality on the internet on a daily basis.
I LUV it!!!
Do “no harm” to future homeowners….
Make them pay 300% of what they really should be paying without the insanity of government easy money and government housing programs (TARP, HAMP, HEMP, CRA, Fannie, Freddie, etc.)
As ridiculous as his claims are about destabilization of the economy, he’s right about the MID being a sacred cow. There may be some modifications to the MID for extremely high mortgage amounts or second homes, but for most people with a mortgage, no change will ever happen, it’s just too popular.
What politician is going to get on TV and make the case for eliminating it? They’ll be looking at each other and saying “You first”.
Krusty The RealTurd,
The MID will cease to exist 4 years from now. I know that’s a disappointment for you as you will no longer be able to use it to blow smoke up a suckers a$$ but get used to it.
And if you’re dumb enough to pay the current massively inflated prices for a house, don’t expect to use the MID.
Why do you keep saying the MID is going away? Is this just your opinion, or is there a factual basis?
http://www.Taxreform.gov
And they’re looking to close loopholes/raise cash. MID is in the cross hairs.
http://www.census.gov/compendia/statab/cats/construction_housing/homeownership_and_housing_costs.html
There are about 50 million mortgages in the total U.S. for owner occupied properties. My only question is, do you really think a majority of the house and senate, plus any president, has the political will to raise taxes on all these people?
I’m not even going to get into whether the MID is good or bad.
‘the political will to raise taxes on all these people’
They already did. Everybody’s taxes have been raised.
Ben, I think you’re talking about the payroll/SS tax rate. If so, I think there’s a big political difference. The SS reduction was originally intended to be short term, the MID has its 100th birthday this year.
Again, I’m not saying nothing will ever happen to the MID at all. But the changes that do happen will not affect 98% of those with mortgages. It definitely will not be eliminated.
‘It definitely will not be eliminated’
It won’t change anything at my house one way or the other. It’s these CA realtors that are squealing like little girls at a horror movie.
The Mortgage Interest Tax Deduction will cease to exist within 5 years.
The fallacy is that eliminating the MID raises taxes on 50 million families.
A lot of these families don’t exceed the standard deduction, so they get $0 in tax benefit.
“My only question is, do you really think a majority of the house and senate, plus any president, has the political will to raise taxes on all these people?”
If they had the political will to restore the 2% of the payroll tax that was temporarily rescinded, hitting every working American household in the process, why wouldn’t they be able to muster the will to end a welfare program for wealthy people?
The payroll tax break was recent enough that people still viewed it as a temporary cut, and the money is specifically going to social security. Even my VERY left leaning MIL thought that the cut was a bad idea for the long-term in the first place (even though it benefited the little guy disproportionately). She saw it as an informal raid on Social Security.
The MID has been around for so long that it has become considered a right. The screams will be far louder than with the payroll tax.
hitting every working American household in the process, why wouldn’t they be able to muster the will to end a welfare program for wealthy people?
Does that simplify it?
In other words, there are more than 250 million people who are currently being ripped off by potential MID users.
“In other words, there are more than 250 million people who are currently being ripped off by potential MID users.”
Try the math again.
There are 50 million mortgages. The average household size is 3.5 people. Which means somewhere around 175 million people benefit from the MID. There are 310 million people in this country. Which means a majority benefits from the MID. Which means it is political suicide to get rid of it.
Sorry renters.
There are 50 million mortgages. The average household size is 3.5 people. Which means somewhere around 175 million people benefit from the MID.
Did you miss the point that quite a few of those 50 million households don’t actually benefit from it?
id you miss the point that quite a few of those 50 million households don’t actually benefit from it?
Oh AlphaSlithers…….
or second homes ??
That puppy is gone…That will be the sacrificial lamb that is offered in return for leaving the MID in play for your personal residence…I also think the will lower the max Cap…
“…it’s just too popular.
What politician is going to get on TV and make the case for eliminating it?”
Yeah, really — what politician would poke a stick into the eyes of NAR members and forego their bribes in order to do the right thing and admit the MID is WELFARE FOR THE RICH.
The Home Mortgage Interest Deduction: Who Benefits?
Author: NPP Intern on July 8, 2013 in Taxes & Revenue
By Jackie Stein
When Chris and his wife decided to buy a house, the Home Mortgage Interest Deduction (HMID) allowed them to buy their dream home. “It was a deciding factor in how much we thought we could afford to borrow,” he said. Chris’ story is the story of many Americans who dream about and finally become owners of their own homes. And for a long time, the HMID has been considered key to encouraging home ownership among those who might not otherwise buy.
The HMID is one of the largest tax breaks in the tax code; the White House estimates that it will cost the federal government $101 billion this year. For comparison, all federal spending on education programs this year will total around $70 billion.
As Congress begins to consider tax reform, they are re-evaluating the effectiveness of the HMID in promoting homeownership. One problem raised by analysts is that the main beneficiaries of the HMID are upper-middle-income households (making $75,000-$500,000 a year). They get 77 percent of the tax savings, but are already the most likely group to buy a home without a tax break. Consequently, according to the Tax Policy Center, the HMID mainly provides an incentive “for those who would own a home without a subsidy to purchase larger or more expensive homes.”
Chris’ experience confirmed this. He said that the HMID made the difference in terms of which home he would buy, not whether or not he would buy a home. “Is it a luxury thing?” he asks, “Sure, yes, absolutely.” He would likely have bought a home anyway, he said, “just maybe not this one.”
…
“77 percent of the savings….”
Dammit, they aren’t “saving” anything. Those bootstrappers/”eff you, I’m an Island” types just have less money “stolen from them” by the government.
Call it the “Starter Castle” subsidy.
That’s an extra $101B for more Section 8 and SNAP. Conclusion: MID is racist for taking food out of the mouths of minority children. It must be done away with ASAP.
Because of state tax deductions, it is easier for people with a mortgage in high-tax states to get a benefit than people in low-tax states.
When you overlay the political map with high income tax states, you’ll see that a LOT of those states are blue (NY, NJ, MA, CA, etc., etc., etc.).
So, if the Democrats push to eliminate the MID, they will be disproportionately impacting their own constituents.
I suspect they’ll try to raise taxes in other ways.
“You first”
You bring to mind the 2012 presidential candidate discussion of housing issues: NADA, ZILCH.
‘There is a positive correlation between higher owner-occupancy rates and the quality of a community,’ Hernandez said. ‘People who own their homes tend to be more invested in the property they occupy.’”
Unfortunately, Blackstone is determined to turn the entire country into a rental market:
Blackstone Raises $5 Billion Rental Bet With Lending Arm
Blackstone Group LP (BX), the private-equity firm that has spent $5 billion on more than 30,000 distressed houses, is preparing to expand its bet on the housing recovery by lending to other landlords.
By increasing its stake in the rebound through lending, New York-based Blackstone Group LP could benefit from smaller landlords already investing in what Goldman Sachs Group Inc. estimates to be a $2.8 trillion market.
The firm, which already owns more rental homes than any other investor, has set up B2R Finance LP to offer loans starting at $10 million, according to four people who reviewed the terms. B2R is reaching out to landlords with portfolios of properties seeking to grow in the burgeoning industry for single-family homes to rent, said the people, who asked not to be identified because the discussions are private.
The world’s largest private-equity firm said last month that it was entering the later stages of its buying spree after leading a group of institutional investors who’ve spent at least $17 billion on more than 100,000 homes over two years, helping fuel the fastest price gains since 2006.
From Bloomberg: http://tinyurl.com/lx9a96p
Is Blackstone to big to fail?
Blackstone Group LP (BX), the private-equity firm that has spent $5 billion on more than 30,000 distressed houses, is preparing to expand its bet on the housing recovery by lending to other landlords.
The world’s largest private-equity firm said last month that it was entering the later stages of its buying spree after leading a group of institutional investors spent at least $17 billion on more than 100,000 homes over two years, helping fuel the fastest price gains since 2006. “The more financing that comes to the space, the better to legitimize the industry,” said Sudha Reddy, chief executive officer of Haven Realty Capital LLC, an investor with 1,500 rental homes backed by Leon Black’s Apollo Global Management LLC.
http://www.bloomberg.com/news/2013-07-08/blackstone-raises-5-billion-rental-bet-with-lending-arm.html
I always thought that a ‘bet’ was speculation. I guess the ‘new normal’ for ‘investment’ is a bet. My father always said, ‘the race is not always to the swift, nor the battle to the strong, but that’s the way to bet’. Are we missing something, or are they looking at crazy in the rear view mirror?
You don’t have to wait very long now. The dead cat bounce is over.
Yup, rising mortgage interest rates are deflating the echo-bubble. It will be interesting to see what the central bankers around the globe do as real estate markets on the five continents falter.
Some of the sentences in the qoted article literally make no sense, neither grammatically nor linguistically.
‘Our lease was about to end and we didn’t want to sign another year’
Well that’s a compelling reason to borrow $250,000. Yes, these Californians do seem very comfortable with borrowing/spending large sums of money for a shack that would cost much less elsewhere:
‘In Santa Cruz County, the median home price in May — $625,000 — reflects a 29 percent increase in home prices since January — $485,000 — of this year. The faster property values increase, the harder it is for an appraiser to justify the higher price of a current sale.’
‘It is not uncommon in today’s real estate environment for an appraiser’s value to come in below the sales price. Since the mortgage industry uses the sales price or appraised value, whichever is lower, the loan amount that we will allow could decrease from the original plan. When the appraised value does not meet the sales price, the buyers need to decide whether to follow through with their purchase. The buyer and seller can: Agree to lower the sales price; The buyer can bring in more cash; or The buyer may be able to back out of the transaction (this depends on the details of the purchase contract). It is a time for negotiation; none of these strategies is appealing to all parties.’
The Manteca Bulletin:
‘The fate of Union Ranch School is in limbo. It is a victim – just one of many – of the mortgage meltdown and foreclosure tsunami whose life-changing path of fiscal devastation continues to ripple today.’
‘Don’t go looking for this campus because it’s not there – yet. There are those who doubt that classrooms will ever rise from the nine-acre dust bowl that it still is today since the Manteca Unified School District purchased it before the housing bubble burst. The brown sprawl of dirt is literally right in the middle of new homes in the Union Ranch subdivision located right across Union Road from the burgeoning age-restricted Woodbridge at Del Webb development.’
‘It is a victim – just one of many’
See, even a patch of dirt can be a victim.
“Well that’s a compelling reason to borrow $250,000. Yes, these Californians do seem very comfortable with borrowing/spending large sums of money for a shack that would cost much less elsewhere:…”
Yes, in Chula Vista, no less. I lived in San Diego for 4 years and it was known as ‘Chula-juana’ even back then for its quality of life and proximity to that border-town beacon of prosperity. Stay classy, San Diego!
Another fun nickname was Cholo Vista. “Cholos” being Mexican gang bangers. Of course there are even worse places in San Diego county: Spring Valley, National City and my favorite, the border community of San Ysidro (AKA San Ee Skid Row)
Then again, 250K doesn’t buy much, if anything, in communities further north of the border.
I have driven through this development many times Ben…Back in 2009, there were 6 model homes under construction and they just stopped…All the infrastructure was complete for the whole development…Street lights and all….Those model homes sat there incomplete for a year or two…I think they had to tear them down….
Now, across the street at the age restricted Del Webb development they appear to be doing pretty well…Last time I went through they had released the third phase of the development…Prices in the mid 3’s….
Well that’s a compelling reason to borrow $250,000. Yes, these Californians do seem very comfortable with borrowing/spending large sums of money for a shack that would cost much less elsewhere:
When we left the golden state years ago our friends were mostly aghast and couldn’t believe that we would give up “paradise” to live in a place where is snows in the winter.
‘The fate of Union Ranch School is in limbo. It is a victim – just one of many – of the mortgage meltdown and foreclosure tsunami whose life-changing path of fiscal devastation continues to ripple today.’
So many terrible consequences of the mortgage meltdown and foreclosure tsunami, so many eager homebuyers willingly signing up to become tomorrow’s foreclosure victims when the next wave of the foreclosure tsunami washes inland…
I DEFINITELY would not buy right now but a year or two ago a $250K 3/2 house made sense for me, at that time with 50K down the payment would have been about $1000/mo vs. the $1450 I pay in rent for half of a duplex (and yes I do realize insurance, property tax, and maintenance would add substantially to the $1000/mo, have owned before and the tax deductions covered quite a bit of that)….but it was not to be, on several occasions could not get an offer even looked at thanks to the speculators and flippers…am now on the sidelines waiting for Bubble 2.0 to pop and hope to see some of the parasites in the RE business get badly burned, todays Blackstone story was especially heartwarming ;-(
“Realtor Cesar Vasquez of Exit Strategy Realty in Barstow believed the low home prices locally could probably be attributed to the city’s remote location and a lack of jobs to draw in new residents.”
The reason it is remote is that nobody save for horned toads, rattle snakes and gila monsters want to live in the middle of the broiling high desert.
“Reached by phone Tuesday, Husing said very few homes are being sold to families because private investors and large Wall Street firms are buying up homes and giving a boost to the local housing market. According to Husing, High Desert housing prices are artificially rising due to the influence of investors.”
“Local real estate broker Caroll Yule supported Husing’s statements. ‘In the High Desert, 30 to 40 percent of the buyers are investors,’ Yule said. ‘We know that because of how many cash sales there are. There is a very limited supply.’”
Thank God for those Wall Street investors who are stepping up to keep the mania alive in the High Desert housing market!
The reason it is remote is that nobody save for horned toads, rattle snakes and gila monsters want to live in the middle of the broiling high desert.
Bartsow is a real world version of Mos Eisley
‘Exit Strategy Realty’
The name says it all. But seriously, does anyone here doubt that there are bidding wars in Victorville? And now we see why it’s so busy at some dining establishments:
‘While enjoying lunch at Applebee’s in Victorville, John Garza said he has been more flexible with casually spending money. Garza, a Victorville resident, said that with the price of his home on the rise, he was able to make the perfect investment two years ago’
Try the chili fries John.
‘Exit Strategy Realty’
I thought the name was hilarious.
And an apt name as well, whenever we stopped in Barstow for gas or whatever, I would always feel eager to get out of the place. There’s a McDonalds there that is housed in faux train cars. It’s been ages since I’ve been there, but that had to be the dirtiest and nastiest McDonalds I’ve ever seen.
This is my favorite name:
https://www.facebook.com/RisingBidRealty
“Try the chili fries John.”
Bwaaaaaa Ha Ha!
Might as well just call themselves “Pyramid Scheme Investments”.
You will never see a more wretched hive of scum and villany…
“Josh Martin, 26, discovered homes he and wife considered buying had changed hands less than a year earlier at much lower prices. The first-time homebuyers lost nine bids since August- many to cash buyers - until finally landing a home in May for $250,000 in the San Diego suburb of Chula Vista. ‘It was very stressful because the prices just kept going up,’ said Martin, who recently left the Marine Corps. ‘Our lease was about to end and we didn’t want to sign another year.’”
With buyers this desperate, you can bet your bottom dollar they are overpaying by ALOT.
$250k for Chula Vista? Eww.
Both the National Association of Realtors and California Association of Realtors have called on Congress to ‘do no harm’ to existing and future homeowners. ‘Home prices would fall over the country, which would destabilize the economy,’ said Paul Gonzales with Troop Real Estate. ”
how about we translate into street lingo.. ” if take the heroin junkies off the junk and the junkies may die”..
frankly, I see the same fate sometime down the road on the current path, especially in CA..
The sky would fall! Dogs would settle down and get married to cats!!
how about we translate into street lingo.. ” if take the heroin junkies off the junk and the junkies may die”..
We tried massive doses of methadone, but the patient managed to smuggle in heroin and is now addicted to both.
As long as junkies vote for the people that give him/her their next government cheese fix - nothing will change.
$500k mortgage at 4%=$20k per year in interest cost. At a marginal tax rate of about 35% (Fed PLUS CA), the savings from the MID (assuming you are over the standard deduction anyway) is $7k per year.
If you can’t find a way to absorb $7k per year in your budget, you have no business borrowing $500k.
Today is the PERFECT day to get rid of the MID. With low rates already, the MID matters less today than at any time over the past several decades.
Or……
Maybe the federal govt could spend $100B less and not have to get rid of the MID?
Nah. Too radical and idea.
Nope, just print another $100B per year. Party on.
A rise in 10-year Treasury yields above 2.7 percent on Friday for the first time since August 2011 is just the start of a long-term upward trend, Goldman Sachs said, with the investment bank forecasting yields will now enter 2014 at 2.75 - 3 percent and will climb to 4 percent by 2016.”
This should slow things down a bit.
According to this article, Chinese nationals account for half of all house purchases in the Golden State and 18% nationwide.
http://money.cnn.com/2013/07/08/real_estate/chinese-homebuyers/index.html?iid=HP_LN
That is not what the article says, those percentages are of foreign buyers, NOT all buyers…but very interesting and scary all the same
You’re right, I should have read it more carefully.
I wonder what they consider “foreign”? Is it anyone who isn’t a US citizen?
I was once told that “foreign” is anyone who does not reside in the state, but I’m not sure.
So, Bubble 2.0 is going pretty much like the original.
Except it’s hedge funds and private equity buying overpriced houses with cash. I’m sure our too-big-to-fail investment banks are azz deep involved as well.
Eventually, this bubble will implode……next up after that, Bailout 2.0.
Unless……..they generate an artificial “Manufacturing/Employment Renaissance” in SoCal and the bubble cities, Joe Q Schmuck moves there to get work, and buys up all of the bankster-owned homes.
At which time, the plug will be pulled, Joe Q stiffs the banks, and the government buys all of the houses again.
Is it possible that around 1990 or thereabouts, the Earth entered some kind of effed-up parallel universe?
“So, Bubble 2.0 is going pretty much like the original.”
In my opinion, this has the potential to be Bubble 2.0, but we’re not there yet. There is no prevalence of Option ARMs being used as an affordability tool, no prevalence of no-doc loans, and no prevalence of “piggy back” loans that allow a lot of people to get loans up to 100% (outside if the current government programs).
Without free money to everyone with a pulse, generally speaking, Bubble 2.0 will peter out long before we get to levels reached with Bubble 1.0.
Plus prices remain flat in most of flyover.
I’m not sure many understand just how “hedge funds” work, and where the money comes from. Your states pension fund is starving for yield, and return, and the percent being allocated to “alternative strategies” has never been higher. Along comes a master of the universe and convinces your states pension board to invest with them, and after massive fees, your retirement fund is bidding up homes. The potential pool of money is enormous, maybe equal to all the old pay option ARM, and sub-prime money. This time when it blows, it won’t be mortgage backed securities that implode, it will be your already under-funded pension plan. Brace yourselves, this one is going to leave a mark.
Yup, you’ll note how quiet pension funds were during the bashing of Bain Capital during the presidential election…many were investors in those funds…keep your head down, don’t piss off the guys who are trying to make your ridiculous 7.75% long-term actuarial returns work.
This is starting to shape up to be a dead-cat bounce, since inventory is already increasing just about everywhere.
“A major drop in property values — and thus taxes that can be collected”
Can’t they just do the utterly unthinkable and collect taxes like my hometown?
(Next years budget income from prop tax) * (Your assessed value) / (Total of all assessed values in the district) = (your bill)
There is some amount of corruption in the assessment office, especially as relates to zoning and big campaign donors, but overall its more or less fairly enforced and is somewhat less corrupt that most other taxation systems.
In my case its never been much above $3500 or below $3000 in well over a decade. I get my moneys worth for what I’m paying; of all the taxes I pay, I’m OK with this tax.
Its pretty basic math, which is probably why real estate people can’t figure it out.
The other thing is Harry Howmuchamonth median 50% percentile J6P is going to pay $1500/mo mortgage. The bottom feeding middlemen can fight over how its distributed, but only $1500 is coming out of his pocket. You collapse house prices and Harry Howmuchamonth can obviously now pay more taxes because the previous owners and the banks get less of the money. So what exactly is the problem with lower prices vs taxes?
“Can’t they just do the utterly unthinkable and collect taxes like my hometown?”
Nope.
Prop 13 restricts that. Other than special assessments that can be voted on locally, prop taxes are limited to 1% of assessed value, and that amount paid can only be increased by 2% per year…assuming the assessed value has gone up by at least 2% per year.
Your mortgage payment doesn’t change when the value of the house changes.
I don’t understand why the housing bubble caused so many cities to suddenly need extra money from property taxes. How did they get by before the bubble started? Why can’t they get by with just normal tax increases (in line with inflation and population growth)? Why do they suddenly require bubble taxes to operate?
Because like all govts the second an extra $1 came in from higher property taxes that extra $1 was spent. But not was it just spent in that year, it was added to the budget for next year, and the year after that and the next 20 years. Then when property values dropped and tax revenue dropped that extra $1 still had to be spent. And if anyone suggested that hey maybe we shouldn’t spend that $1 after all, it was racist, anti-woman, anti-children and all around mean spirited.
All these problems stem from too much spending by govt. It is never a tax issue, it is ALWAYS a spending issue. At the local level, county level, state level and federal level.
Mr Smithers:
I wish more people could see the gov as a 400 pounder riding a skinny little horse.
And worse than that, they took the $1 per year, and low interest rates, and figured they could borrow $20 to spend right now and pay it back over 20-30 years.
At least if it was just added to the budget, they could presumably cut the budget…once they borrow the money and spend it, it becomes hard to cut that debt payment back out of the budget.
Housing Sentiment Sours as Mortgage Rates Rise
Just as America’s homeowners were finally coming up for air, they are suddenly turning more negative on the housing market. Fewer people think now is a good time to buy or to sell a house, according to a monthly survey in June from Fannie Mae.
http://finance.yahoo.com/news/housing-sentiment-sours-mortgage-rates-164209170.html
7-5 Rates “Carnage” Summary…Housing & Mortgage Significantly Impacted
We have been raising red flags on the spike in rates for weeks now. But today, the back of the market was broken, as “real rates” used by the majority of buyers / refinancers — not the “bait & switchers” quoted in your local rag, by the GSE’s, or by organizations that don’t realize people don’t take out mortgages that cost 3 points — rates shot over 5% today with conviction…3% 10s and 5.75% mortgage rates look to be in the bag.
http://mhanson.com/archives/1324
7-6 Houses are Back in a Mega-Bubble…51% More Expensive to “Buy” than in 2003 to 2007
Houses are 51% MORE EXPENSIVE to buy today using a 30-year fixed mortgage at 4.75% than in 2003 through 2007. I know this sounds crazy but the math is the math (see items 1 through 4).
House Prices have no upside from here…just like in 2007 and 2010 — when there were “credit events” that reset the market — “the surge” in rates is highly disruptive to this stimulus-driven housing market
The 2003-2007 “Bubble Phenomenon” — when a minority of buyers using high-leverage “exotic loans” created incremental “comparable sales” that increased the value of all houses — was recreated in 2012-2013 by “exotic rates” and PE firms. All it takes is 3 sales to change the value of 300 houses!
Homebuilders, Existing Sales, home improvement/rehab, mortgage-centric banks et al in a lot of trouble. The past couple of weeks were a gift if you are structurally negative this sector, as the sudden loss of the largest stimulus in housing market history dwarfs the loss of the Homebuyer Tax Credit in 2010…a look what happened then
“This” Housing Market Can’t Digest this Spike in Rates / Can’t outperform without constantly easier rates/credit
http://mhanson.com/archives/1329
“Even in the absence of the excess empty housing inventory estimated in the tens of millions, historically housing prices fall. Why? Because houses depreciate. ALWAYS.”