Caught Up In The Easy Money
The Tampa Bay Times reports from Florida. “Seven of the largest investors buying homes here have in two years spent more than $1 billion, amassing 6,800 houses in an unprecedented land grab, a Tampa Bay Times analysis has found. Now, for investors, comes the hard part. They must fix up, rent out and maintain thousands of widespread homes, all the while pulling in tenants and convincing their financial backers this untested business is worth the risk. At the start, some investors went on a leasing spree, renting to ‘anybody who was able to gather a security deposit,’ analyst said David Guarino, a senior research analyst with John Burns Real Estate Consulting.”
“But the plan backfired, with many renters falling behind on their payments. Between October and January, the payments from a highly watched set of Invitation Homes rents fell 7 percent, data from Morningstar show. ‘You have a guy in a huge tower in New York buying homes in Tampa, but they don’t understand the local market,’ said Guarino. ‘They got in thinking it’d be easy, and they’d make a lot of money … but they’re starting to understand it’s not as easy as they thought.’”
“Investors landed here at a time when the average household’s spending on rent is near its highest point in the last three decades, Zillow data show. But even at that baseline, market watchers said, investors have set rents surprisingly high. Peter Murphy, president of Home Encounter, a Tampa property management firm, said investors showed ’some big gaps between projection and reality’ on what renters here could afford.”
“Holding that hard line has crimped the number of homes investors have been able to rent. ‘They’ve been very non-negotiable,’ said Jack McCabe, a Deerfield Beach housing consultant. ‘They’d rather let a home sit empty than taking a lesser amount of rent. Some thought they could raise their rents 10 percent a year, and that just isn’t going to happen. People just can’t afford that … when their income is flat or declining, which is what we have in Florida right now.’”
Click Orlando. “Realtor Ericka Lankford says more homeowners are opting to list their home because of the rise in prices. For buyers there is more out there to choose from. For example, February of last year a little over 7,000 homes were available. February 2014 more than 10,000 homes are on the market. ‘The median price for a home has gone up to $158,000 that’s 18 percent more than last year,’ she said.”
The Sun Sentinel. “Three in 10 Palm Beach County homeowners with a mortgage – nearly 119,000 people — owe at least 25 percent more than the properties are worth, first quarter figures from RealtyTrac show. Broward County has a similar profile, with 30 percent, or more than 153,600 people, seriously underwater. Most underwater borrowers bought or refinanced from 2004 to 2006 and saw their values tumble during the market meltdown.”
“Even with values increasing, these owners can’t sell unless they bring money to the closing table. ‘It’s horrible — your whole life is on hold,’ said David Dabby, a South Florida housing consultant.”
The Herald Tribune. “From the start of the year through the end of March, 69,971 homeowners in the Sarasota-Bradenton-North Port area owed 25 percent more on their loans than the value of the properties used to secure them, RealtyTrac Inc. shows. Those borrowers represent 28 percent of all properties with a mortgage during the first quarter of 2014.”
“Though the region’s median price for a single-family home has swelled from $137,500 in February 2011 to $200,000 this year, housing values have failed to keep pace. Realtors say that is because the rapid price hikes were the result of fewer discounted foreclosures and short sales rather than properties actually appreciating by that much. Those distressed sales are no longer pushing prices to the same degree. The result is an unusually high number of homeowners who are forced to wait out the housing rebound before they can sell.”
“‘There are a lot of people who’re upside down, but they can still afford their mortgages, so they can’t get out,’ said Marcus Vanzant, owner of Marcus & Co. Realty in Manatee County. ‘The days of buying a house and seeing your equity rise like the stock market is long gone. I still see it all of the time. People are taking big losses in order to be able to sell.’”
My Sun Coast. “About one in four Suncoast homeowners still find themselves underwater. ‘It doesn’t surprise me at all. The way everyone’s been buying houses around here and then all of a sudden everything goes downhill,’ said Homeowner Bill Friedman. He says he’s exhausted all his options, and sees foreclosure as inevitable. ‘We had to remortgage. We had to refinance a couple times because of the recession and everything else…losing jobs.’”
From WFLX. “The days that Bob Domanick and his neighbors can sit at their condo pool in Boynton Beach may be numbered. Each one may be forced to sell their units back to the company that owns the property. If a company owns 90 percent of the condo units on a property, it can purchase the remaining units for fair market value. The problem for these residents is that fair market value is a far cry from what they paid for their homes in 2006. ‘A lot of us are underwater, which means we owe more than they’re willing to give us, and that puts us in a tough position,’ said Domanick.”
From CBS 12 News. “A CBS 12 Waste Watch investigation has uncovered how a South Florida city lost hundreds of thousands of tax dollars handing out mortgages. According to documents from the Boynton Beach Community Redevelopment Agency, almost a third of the homes in the city’s homeowner assistance program went into foreclosure. That money is tax revenue from the city, county and state. ‘You try to make things good for people and give them a hand. Once in a while, it doesn’t work,’ Boynton Beach Mayor Jerry Taylor said.”
“Vivian Brooks, executive director of the Boynton Beach community redevelopment agency, says the city filed judgments against the people in an attempted to collect some of the funds. The program has been discontinued.”
The News Journal. “Former mortgage broker Christopher Mencis — one of the four main individuals indicted by a federal grand jury in a mortgage fraud operation that federal agents said cheated banks out of millions between 2006 and 2012 — testified on behalf of the government Friday. He blamed accused ringleader Jim Sotolongo for bringing him all the business that later materialized into fraudulent mortgage loan applications to banks. ‘I got caught up in the easy money,’ Mencis testified.”
“But Mencis’ testimony was contradicted by another government witness who said he was defrauded by the ring, a Pennsylvania carnival worker named George Goetz. Goetz’s sister used to work for Sotolongo and Garrett in the early 2000s. Goetz’s name and signature appeared on a mortgage loan application for a $1.2 million riverfront house on Coral Way in Port Orange, investigators said. As in many of the mortgage loan applications prepared by Mencis, Goetz’s application stated that Goetz earned $35,000 a month.”
“‘I didn’t even have a savings account at that time,’ Goetz testified after Mencis left the witness stand. ‘I earned more like $60,000 a year.’”
“You have a guy in a huge tower in New York buying homes in Tampa”
For my next move, I will go to the most boring, out of the way place in the history of mankind.
Probably by myself.
“Probably by myself.”
Jeebus, Muggy, I hope you’re OK. You’re good folks. It’s tough raising a family these days.
+1
North Dakota teaching jobs, anyone?
I have a couple clients in the ahem, how shall we say, adult entertainment business who regularly make trips to the midland odessa area. Business is good for them apparently. It’s a dirty job, but somebody’s gotta do it.
Interesting, but how is this related to teaching jobs in North Dakota that might suit Muggy?
This is really an excellent article:
…Those “surprisingly high” rents are $1600-$3700 a month.
You can buy something very nice for that… if you can put a down payment together, which isn’t looking likely if the rents are so high. There is such a thing as rent slavery.
…Some firms were dreaming of increasing rent 10% rent every year to please their wall street bosses.
Wall Street has been spoiled by making money via computer instead of via STUFF.* Did they really think that people, or leaking roofs or watery basements or dog-stained carpet, can be shifted around to provide high returns, like well-behaved electrons and well-behaved politicians and Fed chairs? And all that pay-cutting and outsourcing people, which had been great for Wall Street, suddenly isn’t looking so good if you’re trying to collect rent from those same people.
…”Invitation Homes spokesman Andrew Gallina defended its national rates as 30 percent cheaper than apartments on a square-foot basis.”
30 percent cheaper “per square foot” nationally? But the rents are too high locally. Or did they expect these renters to commute over the Internetz like a high-speed trade?
…They’d rather let a home sit empty than taking a lesser amount of rent.
They have no choice but to keep a house empty rather than to accept lower rents. If everyone’s prices are high, people are forced to pay the high price. It’s a sort of unspoken legal monopoly to fix prices. A “price war” is now where one guy raises his prices less than his competitor.
———–
*There’s a funny scene in King Corn, a film where two young guys learn about the corn business by renting 1-acre in Iowa to grow corn. In the fall they loaded some of the corn into the bed of a pickup, drove it right to the curb of the Chicago Merchantile Exchange, and invited commodities traders to come out and buy the corn. The traders were either confused, or looked at the guys like they were from Mars.
Maybe the Obamacare solution will apply here. We can just legally compel people to rent those places at whatever rate the landlords set. Problem solved!
“There is such a thing as rent slavery…”
Slim chance of that. There may be $4,000/mo. rentals available, that doesn’t mean you have to go that route. It is only a useful point to justify buying if you are already going to overpay for a house. If you live someplace where there isn’t safe, clean shelter for less than 1/4 of your pay, perhaps it is “job slavery”. Voluntary for sure.
+1, oxide
I sympathize with the emotion, but who’s to say that guys in New York towers won’t buy houses en masse in that place also? They want everything. As someone else here once wrote, “no dollar shall be allowed to escape.”
“90 Percent of REO’s Are Withheld From Sale”
http://www.counterpunch.org/2013/02/19/theres-still-a-foreclosure-crisis/
If you’re looking to buy a house, sit tight as there are an estimated 25 MILLION foreclosures coming to the market. If you buy now you’ll lose alot of money. ALOT of money.
Beware.
If you buy a foreclosure now, you WILL lose a ALOT of money. Any house which is in good condition but financially stressed would have been sold as a short sale by now. Leftover foreclosures need at least $30-40K of work. For a higher-end house, it’s probably worth paying to re-hab. For smaller houses in low-cost areas, it’s cheaper to tear it down and build one of HA’s new $50/sq footers.
That’s some grand fantasy you’ve got spun up in your head.
Would a house bought in 2003 for 260K that is now zillowing for 130K in an area around PHX count as financially stressed? Even where the owner can still pay on the 260K mortgage?
I ran across this situation this weekend with a person I know. I was shocked that was the case and people were still in houses so underwater. I guess Blackstone or whoever didn’t jack up her neighborhood comps. Rows and rows of old folks in tract homes.
Depends on your definition. Some at HBB would call this underwater-but-paying house shadow inventory and believe that the owner is going t put it up for sale any minute now. In my book, a house is financially distressed if only if the buyer misses a couple payments, OR needs to sell right away.
If they still want to pay on an underwater house, it’s a meh. I guess people still pay because the house will be eventually paid off anyway, rent would cost as much as the high mortgage, general inertia… we’ll walk “next year.” And of course you can only walk in a non-recourse state.
Everyone who is in debt is by definition financially stressed. Buying what you cannot pay for isn’t healthy. Owing more than what the collateral is worth is downright unhealthy.
“In my book, a house is financially distressed”
Houses aren’t “financially distressed”. People are and I think you could speak to that personally.
Get another book.
What zip code or what suburb? Sun City West/Grand?
The demographics are really hurting these areas as the stock market crash destroyed retirement accounts.
^LOL
This is total nonsense, this guy is telling you folks 25million homes are coming to foreclosure???
In the height of 2008 the worse of it over 93% of all Americans paid their mortgage on time or had their house paid off.
This is why take these internet sites with a grain of salt, enjoy the banter back and forth, but that is about it.
If that fantasy were true then you’d proceed in quite confidence.
“‘There are a lot of people who’re upside down, but they can still afford their mortgages, so they can’t get out,’ said Marcus Vanzant …”
This is called the game of “Gotcha”, and any number can play. But, just as with the game of Global Thermonuclear War, the only way to win is to not play.
The game begins with the signing of a dotted line and progresses on from there.
“Goetz’s sister used to work for Sotolongo and Garrett in the early 2000s. Goetz’s name and signature appeared on a mortgage loan application for a $1.2 million riverfront house on Coral Way in Port Orange, investigators said. As in many of the mortgage loan applications prepared by Mencis, Goetz’s application stated that Goetz earned $35,000 a month.”
“‘I didn’t even have a savings account at that time,’ Goetz testified after Mencis left the witness stand. ‘I earned more like $60,000 a year.’”
Ain’t it great? Get a schmuck to sign a dotted line and I immediately receive some big bucks, and if anyone happens to end up in jail because of this, why it is the guy who signed the dotted line.
Bahahahahahahahahahahaha … You can’t lose with the stuff I use.
Carnival workers make $60k a year?
No kidding…
Yep, I know it’s hard to believe. It’s sort of interesting to live between two carny/circus towns. There’s Gibsonton to the north of me and Sarasota to the south. Gibsonton is carny town, Sarasota is Ringling town. You’d be surprised how much some of these folks make, or did make. Gibsonton is the more rough and tumble of the two, but some of those carnies worked pretty hard and saved their money and purchased some nice property in the area and retired. I met one lady (quite a character) with a large home and land on the Alafaia River. Her place is full of memorabilia, fascinating stuff. She did some sort of tightrope/acrobatic act, and was a real babe back in the day. Now she’s a bit of an old bat, but she can tell some great stories.
A former co-worker used to regale me with tales about Gibsonton residents, saying that locals included the infamous “Lobster Boy” and a bearded lady. Here’s a good summary, including reference to the former Giant’s Fish Camp, run by a 7′11″ man and his 2′9″ wife.
http://www.vice.com/read/gibsonton-florida
I’ll wager we can find a transexual named Lola strolling around Gibsonton.
Jose, I thought Winter Park was carny/circus town? What did I miss?
Winter Park is an older, upscale neighborhood near Orlando. I generally am not a fan of Orlando but that area is desirable.
“According to documents from the Boynton Beach Community Redevelopment Agency, almost a third of the homes in the city’s homeowner assistance program went into foreclosure. That money is tax revenue from the city, county and state. ‘You try to make things good for people and give them a hand. Once in a while, it doesn’t work,’ Boynton Beach Mayor Jerry Taylor said.’”
“Homeowner Assistance Program”
Bahahahahahahahahahahahahahahaha
How about calling it what it really is, which is The Banker Assistance Program.
But wait, that wouldn’t fly. Better to call it a program to aid homeowners (homebuyers, actually) rather than bankers.
‘Hundreds of thousands of your tax dollars are gone thanks to the city of Boynton Beach and its homeowners assistance program which handed out more than $2.4 million in subsidies. The only problem, more than half of the recipients went into foreclosure or ended up losing their home in a short sale.’
‘Looking for answers, we went to the Boynton Beach Community Redevelopment Agency, the group that approved the loans. Records provided to CBS 12 from the CRA show the program lost $872,000 from foreclosed homes and $384,000 from short sales’
‘The data also shows the city took massive losses on short sales. In one case, a homeowner got $117,000 subsidy from the program but the city only recouped $4,000 in a short sale. The CRA has filed judgments against these people.’
“CRA has filed judgments…”
Oops!
I hope they have a good turnip squeezer.
was thinking along the same lines.
Yeah, poof! Tax money up in smoke. It’s sort of like “what the heck, oh well, shrug” to gummint offishuls. It’s not their money.
This is really gross.
It’s kinda funny. They stiff the lenders, and they’re victims. Stiff the government; Kablooie!
How about calling it what it really is, which is The Banker Assistance Program.
Careful, Mr. Banker. Your fellow bankers might not appreciate your candor. You might find yourself “committing” suicide.
Poor guy,climbed all the way up that lamp post to hang himself.
“The days that Bob Domanick and his neighbors can sit at their condo pool in Boynton Beach may be numbered. Each one may be forced to sell their units back to the company that owns the property. If a company owns 90 percent of the condo units on a property, it can purchase the remaining units for fair market value. The problem for these residents is that fair market value is a far cry from what they paid for their homes in 2006. ‘A lot of us are underwater, which means we owe more than they’re willing to give us, and that puts us in a tough position,’ said Domanick.”
“Gotcha!”
This is what the guy who runs the game of Gotcha yells out when he has you where he wants you.
“But the plan backfired, with many renters falling behind on their payments. Between October and January, the payments from a highly watched set of Invitation Homes rents fell 7 percent, data from Morningstar show.”
Nobody could have seen it coming!
“Investors landed here at a time when the average household’s spending on rent is near its highest point in the last three decades, Zillow data show. But even at that baseline, market watchers said, investors have set rents surprisingly high. Peter Murphy, president of Home Encounter, a Tampa property management firm, said investors showed ’some big gaps between projection and reality’ on what renters here could afford.”
The closing of the ‘big gaps between projection and reality’ is going to result in whoever gets left holding the bag getting badly burned.
Backfired? I mean, hello. This is a low-wage town.
In other news, I was walking back to my car from church yesterday when I passed an attractive 3/2 house for sale. Research shows that it was bought last June and is being offered for $65,000 more just ten months later. Flip city here we come. Thank you government for bringing this back!
“these owners can’t sell unless they bring money to the closing table. ‘It’s horrible — your whole life is on hold…”
A mortgaged house is a debt prison.
“I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.”
You better believe it.
“A mortgaged house is a debt prison.”
With a large, ever-flashing vacancy sign.
“Room for one more, honey.”
Minneapolis, MN Housing Demand Craters 7.2% YoY
http://www.zillow.com/local-info/MN-Minneapolis-home-value/r_5983/#metric=mt%3D30%26dt%3D1%26tp%3D4%26rt%3D8%26r%3D5983%26el%3D0
Abilene, TX Housing Prices Plunge 13% YoY
http://www.movoto.com/abilene-tx/market-trends/
Abilene?
Uh oh, you know the old saying ‘as abilene goes, so goes the nation’.
And as prices reverse in more and more locations, your losses grow.
Never heard that. They must only say it in Abilene.
True story; my high schools basketball team went to Abilene for a tournament. The first night some of the players missed curfew. For punishment, the following night the coach made the whole team stay out of their rooms until 9 PM.
There isn’t anything to do in Abilene but f*^k or fight, and if you aren’t go at one or both, life will be tough.
Abilene or Austin…. a distinction without a difference.
Waco, TX Housing Prices Sink 9% YoY
http://www.movoto.com/waco-tx/market-trends/
Meanwhile, D-FW home foreclosure filings down by more than 40 percent for May -
http://bizbeatblog.dallasnews.com/2014/04/d-fw-home-foreclosure-filings-down-by-more-than-40-percent-for-may.html/
Which says nothing about the millions of excess empty housing units.
Temple, TX Housing Prices Collapse 31%; Inventory Explodes 133%
http://www.movoto.com/temple-tx/market-trends/
‘Thirty-eight percent of Ocala metropolitan homes during the first quarter of this year were worth at least 25 percent less than what owners borrowed to buy them, according to RealtyTrac. Of Ocala’s 163,797 homes this quarter, 34,742 were underwater, according to the report.’
‘During this first quarter of this year, 13 percent of area homes were owned by people with at least 50 percent equity in their homes.’
Gresham’s law –> Bad money drives out good.
So does cheap credit drive out home ownership.
Back in 2008 that area’s thoroughbred horse farms were in rough shape, with many looking for buyers. Not sure what’s happening now, though.
‘Wells Fargo will cut its Jacksonville mortgage division by 46 workers “to better align with current volumes… including improvements in delinquency and foreclosure rates and reduced demand for mortgage financing,” according to Kathy Harrison, vice president of corporate communications for the North Florida/Tampa region.’
‘It is the third time in as many months the bank has laid off mortgage staffers in its Jacksonville branch. In February, nine employees were cut, followed by 17 in March and 46 in April, bringing the total number of workers reduced in that department since the beginning of the year to 72.’
‘Florida was the third-worst state in the nation for mortgage layoffs for the fourth quarter of 2013, according to Mortgage Daily. Harrison said the cutbacks were made after carefully evaluating market conditions, as the bank does every 90 days. “The mortgage business is changing every day, so this is a direct result of that,” she said.’
Kathy Harrison, vice president of corporate communications…”so this is a direct result of that,” she said.’
Spoken like an illiterate.
I think nearly everyone in that line of work could be replaced by an algorithm. The chief qualification is the ability to spout canned phrases.
That would be the drop in re-fis. Everyone who could or wanted to refi already has.
‘Wells Fargo will cut its Jacksonville mortgage division by 46 workers “to better align with current volumes… including improvements in delinquency and foreclosure rates and reduced demand for mortgage financing,” according to Kathy Harrison, vice president of corporate communications for the North Florida/Tampa region.’
In the previous 8 months we’ve observed mortgage industry layoffs by every bank out there. Thousands are being furloughed.
Got collapsing housing demand?
Tyler, TX Housing Prices Dive 16% YoY On Sinking Demand For Housing
http://www.movoto.com/tyler-tx/market-trends/
San Marcos, TX Housing Prices Crumble 8% YoY
http://www.movoto.com/san-marcos-tx/market-trends/
“Holding that hard line has crimped the number of homes investors have been able to rent. ‘They’ve been very non-negotiable,’ said Jack McCabe, a Deerfield Beach housing consultant. ‘They’d rather let a home sit empty than taking a lesser amount of rent. Some thought they could raise their rents 10 percent a year, and that just isn’t going to happen. People just can’t afford that … when their income is flat or declining, which is what we have in Florida right now.’”
My former LL was like that. I never understood it. Week after week he’d advertise a property in the local fishwrap (costing him money) holding on to “his price”. If he’d dropped $50.00 he could have rented the place easily. I really don’t get it.
We think of the market as rational and only about profit…but sometimes ego trumps profit.
I think that the fear is that if they undercut another LL, that they in turn will lower their rent even more, starting a race to the bottom. So they all sit tight and hope they will be the lucky LL who snags a renter.
If the landlord waits long enough, inflation will drive the market rent up by $50 and he’ll get what he was asking for. Then he’ll think that his stubbornness was sensible.
“Seven of the largest investors buying homes here have in two years spent more than $1 billion, amassing 6,800 houses in an unprecedented land grab, a Tampa Bay Times analysis has found.
Keep in mind that none of this has to do with anything except for inventory management. The hedgies were paid to manage inventory (get it off the market) and the profit is in the management fees. There is no profit in the model itself.
“Realtor Ericka Lankford says more homeowners are opting to list their home because of the rise in prices. For buyers there is more out there to choose from. For example, February of last year a little over 7,000 homes were available. February 2014 more than 10,000 homes are on the market. ‘The median price for a home has gone up to $158,000 that’s 18 percent more than last year,’ she said.”
Follow along….
Here’s a 5 year chart of housing demand in Orlando, FL. Falling demand 4 years running and headed for 5.
http://www.zillow.com/local-info/FL-Orlando-home-value/r_13121/#metric=mt%3D30%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D13121%26el%3D0
Have you ever tried to offload a used piece of _____ at a grossly inflated price?
How did it work out for you?
Bail Set at $1.25 Million for Fugitive Realtor
http://stthomassource.com/content/news/local-news/2014/04/05/bail-set-125-million-fugitive-realtor-rosemary-sauter-frett
wow MSM fne/fre calling for flat re market- contrarian indicator?
Good point. As we’ve seen before, when they say flat it really means a downward spiral.
Vacancy rates are high in Florida.
There are lots of “zombie” foreclosures (empty homes waiting to be added to available supply of shelter).
Homeowner vacancy rate of 2.4% (more than 2x California’s rate), Rental Vacancy Rate of 9.5% (just under 2x California’s rate).
Simple supply and demand of shelter. There is too much supply for the demand…not conducive to the market being a “landlord’s market”.
Underwriting 10% market rent growth in a market with high vacancy rates is simply poor underwriting.
The corporate landlords may be able to raise rents 10% a year. One of the ways to do this is to rent to people at the edge of, or slightly over the edge of, affordability. If you allow tenants to pay 40% of their income for rent, they won’t be able to save any money, and given that moving costs, the 10% increase is the best of bad options. We checked out one of the corporate landlords and discovered that they would allow us to pay 42% of our income in rent, a sum about $1,000 more a month than I thought was sensible. But many people may not have the option of “no, I don’t think so.”