An Outlier In Terms Of Headline Value
A weekend topic on a trial that just concluded, reported by the Omaha World Herald. “U.S. prosecutors on Thursday put a human face on the collapse of TierOne Bank during the federal criminal trial of ex-Chief Executive Gil Lundstrom. Judith Klinkman, a longtime bank employee, testified that she was encouraged to buy stock in the company’s 2002 initial public offering. She said the other 750 employees at what was once Nebraska’s second-largest bank also were encouraged to buy. ‘By who?’ asked U.S. Prosecutor Rush Atkinson. ‘The executives,’ replied Klinkman, who was Lundstrom’s secretary, as well as the company’s assistant secretary.”
“But the housing bubble was about to blow. Within a year, quarterly losses began to pile up, losses that prosecutors say were made to look not as bad as they were because the bank was hiding $60 million in additional delinquent loans that nobody else knew about. In the end, Klinkman said, she lost it all, never having sold a share of the company she had been with since it was a small thrift institution called First Federal Savings and Loan. Shares fell to almost nothing in 2010 and eventually just disappeared after regulators sold TierOne’s assets to Great Western Bank.”
“That also spelled the end for Klinkman at the company. The transition to Great Western cost her job. ‘I was told I was no longer needed,’ she said. ‘How long had you worked at TierOne?’ Prosecutor Atkinson asked. ‘Forty-two years,’ Klinkman said.”
“The death of TierOne Bank was primary in the mind of ex-Chief Executive Gil Lundstrom even before the bank was seized and shuttered in June 2010, according to evidence submitted in his federal criminal trial Friday. ‘In death spiral,’ Lundstrom penned in a handwritten note that was obtained by the FBI during its investigation. ‘The regulators are putting me in a box.’”
“In another handwritten missive, the banker wrote on a legal pad, ‘Dead without TARP,’ referring to the federal Troubled Assets Relief Program, the government bailout plan for troubled banks that TierOne failed to qualify for.”
“The ‘death spiral’ Lundstrom referred to was one that pressured the bank from two directions at once.”
“On one hand, the federal banking regulator called the Office of Thrift Supervision in 2008 was demanding updated appraisals on the underwater real estate the bank had lent money on for homebuilders to construct subdivisions. Problem was, the housing bubble was long burst and the homebuilders were defaulting in record numbers, to the tune of $60 million in loan losses by 2009 that TierOne was hiding from investors and regulators, according to prosecutors. Stale real estate appraisals that in some cases were years old — elevated appraisals last done at the height of the bubble — were the only thing keeping the hidden losses from bursting into view.”
“On the other, the Office of Thrift Supervision also was demanding that TierOne keep more money in capital reserve accounts. With profit long gone — annual losses became the norm starting in 2007 — there was no source of cash for the reserves, which would be required to increase even more if the proper real estate appraisals were conducted.”
“The jury that found former TierOne Bank boss Gil Lundstrom guilty Friday of criminal fraud had heard and seen volumes of evidence that he kept two sets of financial records to fool investors and regulators into thinking his bank was sound. It wasn’t. The bank’s 2010 collapse was the state’s largest-ever.”
“Former Chief Executive Lundstrom, 74, was found guilty on 12 of the 13 federal counts against him. He faces the possibility of decades in prison if sentenced to the maximum penalties. The actual sentence will be up to the judge. Lundstrom is free on bond for the time being.”
“Damaging to him was a report he ordered subordinates to prepare that showed as much as $114 million in unrealized losses from delinquent loans to homebuilding companies that had yet to find their way into the company’s filings with the Securities and Exchange Commission or banking regulators.”
“‘He lied about it over and over again,’ U.S. Prosecutor Henry Van Dyck said in his closing statement Thursday, referring to testimony and other evidence presented to the jury that indicated Lundstrom told his lieutenants to keep the bad news off the books, signed financial statements that omitted the losses and ordered board minutes to be cleansed of any reference to the underwater loans made to housing developers in places such as Florida and Las Vegas.”
“Two other men have been charged by prosecutors in the case, former TierOne President James Laphen and ex-Chief Credit Officer Don Langford. They pleaded guilty last year to lesser counts in exchange for the possibility of a lighter sentence, and testified last week against Lundstrom, saying he did it.”
“The mid-1990s were a turning point for a once-small Nebraska bank that, through a strange combination of circumstances, has come to be one of the marking points of the great mortgage and financial crisis that engulfed the nation. It was 1994 when the Lincoln-based bank that came to be known as TierOne hired an outsider with no banking-management experience as a high executive: Gil Lundstrom, its outside lawyer, the attorney who had handled the institution’s lawsuits and other matters since the 1970s. Several years later he would ascend to chief executive, the top post.”
“Within a decade, the small savings and loan association owned by depositors — First Federal Savings and Loan Association of Lincoln — took on a new name: TierOne Bank. That itself is a banking term, ‘Tier 1′ being a class of bank reserve capital required by regulators, the financial cushion expected of banks consisting of paid-in shareholder money and retained earnings not to be touched for ordinary expenses. A name chosen to reflect financial strength and conservative management.”
“The name change also was a harbinger. Under Lundstrom’s leadership, the bank departed from its course of mortgage loans for ordinary folks and small-business loans for Lincoln outfits. He led the bank into a 2002 initial public stock offering and a massive expansion into lending to housing developers in other states. They, too, were chasing the home-building boom last decade when lending standards were eased and interest rates were low.”
“Lundstrom appears to be one of the only — and perhaps the only — CEO of a housing crisis-era financial institution to face federal criminal prosecution and be found guilty. According to a New York Times investigation published last year, only one executive — not a CEO — from a Wall Street firm was convicted and sentenced to jail for misconduct stemming from the financial crisis.”
“And that makes the TierOne case a bit of an outlier, at least in terms of headline value, raising the question of why prosecutors from the U.S. Justice Department’s Washington-based criminal-fraud division came looking in the Cornhusker State. TierOne was a minnow. At its apogee in 2006 it was the second-largest bank based in Nebraska, with $3 billion of deposits. Still, it was a minnow.”
“The largest bank in the nation in 2010, when most of the shoddy lending practices employed by some banks came home to roost, was North Carolina-based Bank of America, with $2.3 trillion in assets — loans, in other words. For people, a loan is a debt; but for a bank, it is an income-earning asset. And executives of Bank of America and the company itself — whose financial statements from the era were rife with undisclosed losses of the sort that convicted Lundstrom — escaped criminal prosecution amid a $20 billion government bailout from the federal Troubled Assets Relief Program, or TARP.”
“As did many other mammoth-size institutions. New York-based American International Group, at the time the largest insurance company in the world, falsely inflated ‘loss reserves by $500 million in order to quell criticism’ from Wall Street investment advisers that reserves had been declining, according to the Securities and Exchange Commission. The SEC, the federal regulator of publicly traded companies, is a civil body, meaning its penalties amount to fines, not jail time. Criminal prosecutions: zero.”
“The list goes on. Merrill Lynch, then the nation’s largest stock brokerage, announced a loss of about $8 billion back in the crisis era, three weeks after claiming only about half that. Criminal prosecutions: zero.”
“Lehman Brothers, once one of Wall Street’s leading investment banks; Citigroup, currently the third-largest bank in the nation; Countrywide Bank, once the third-largest thrift. All admitted after the fact that they were in far worse financial condition than originally reported. Criminal prosecutions: zero.”
“All are or were deeply connected Wall Street movers and shakers. TierOne, meanwhile, was in Nebraska — home to 1.8 million people, the 37th-most-populous U.S. state or territory. But when U.S. prosecutors came to town, they hit and they hit hard. Was he just unlucky — the lowest-ranking man in the spotlight at a convenient time? Or did his poor business judgment open the door for aggressive prosecutors looking for scalps?”
‘One of the most interesting and uncovered stories these days is the survival of Fannie Mae and Freddie Mac — the giant housing entities created by the government and known collectively as the GSEs (for Government-Sponsored Enterprises). On Sept. 6, 2008, nine days before the Lehman Brothers bankruptcy, Treasury Secretary Henry Paulson put the GSEs into “conservatorship.” This meant that the government would cover their costs, because they were bankrupt. The government’s aid ultimately totaled $187 billion.’
‘ The GSEs had been — it was widely assumed — “consigned to the dustbin of history,” as financial writer Bethany McLean says in her new book (“Shaky Ground: The Strange Saga of the U.S. Mortgage Giants”).’
‘Well, not yet — and possibly never.’
‘Remarkably, their importance today is unparalleled. In 2013, President Obama said that “our housing system should operate where there’s a limited government role and private lending should be the backbone.” Just the opposite applies now: Government dominates housing finance.’
‘In 2015, GSE guarantees cover about half of new mortgages for home purchases; with other agencies — the Federal Housing Administration, which caters to lower-income borrowers, and Veterans Affairs — the government guarantees three-quarters of new mortgages. By contrast, government’s share in 2006 was slightly more than 30 percent, with the GSEs representing most of that.’
‘We have effectively nationalized housing finance. Private money retreated, and the GSEs have returned to profitability — with all the profits going to the U.S. Treasury. So far, these amount to $241 billion.’
‘To be sure, some profits reflected one-time increases, says housing expert Jim Parrott of the Urban Institute. During the financial crisis, the GSEs overestimated their mortgage losses, resulting in huge write-offs. As the economy revived, it became clear that the GSEs had been too pessimistic. When some write-offs were reversed, profits temporarily surged. In 2013, they totaled $133 billion for Freddie and Fannie together. But these profit bonanzas won’t likely be repeated, says Parrott.’
‘Nevertheless, taxpayers could face billions of losses in another crisis. Doesn’t this suggest that the GSEs should be eased out of backstopping the $9 trillion mortgage market? Apparently not. Two obstacles arose.’
‘One is pragmatic: fear for the housing recovery. All the realtors, builders, carpenters, mortgage bankers and others who depend on home buying worry that dismantling the GSEs would push interest rates up and housing activity down. “Without GSE backing, banks have shown very little interest in lending to American homeowners, even ones with very high credit scores,” writes McLean. Even with the GSEs, housing’s recovery has been sluggish.’
‘The second obstacle is philosophical: protecting the 30-year-fixed-rate mortgage, which Americans prefer. It’s said that, without government guarantees, institutional investors won’t hold loans with such long maturities. The danger of huge losses are too great. If government guarantees end, mortgage maturities will shorten and adjustable interest rates will become more common, the argument goes.’
‘ These are important choices. The GSEs are part of a larger agenda that McLean rightly calls “the cult of homeownership” — that it’s an essential marker of social success. We should be discussing whether this approach still serves our interests. But that’s a debate we’ve evaded.’
‘There’s a wildcard in all this: suits by private investors, who still own about 20 percent of the GSEs. They allege that the government has mistreated them. A legal victory could compel change. Meanwhile, the safest course for the White House and Congress has been to save the GSEs and enlist them in the housing recovery. So that’s what they did — and that’s how Fannie and Freddie survived.’
http://registerguard.com/rg/opinion/33714154-78/why-fannie-and-freddie-survived.html.csp
‘Home prices are on the rise, making it harder for buyers to cobble together a 20% down payment. With the national average listing price for a four-bedroom, two-bathroom home at $302,632, according to Coldwell Banker Real Estate, home buyers need to come up with $60,526 to put 20% down.’
‘But there are options for buyers who don’t have that kind of cash sitting in the bank.’
‘1. Apply for an FHA loan. The Federal Housing Administration backs mortgages that require as little as 3.5% down. At the start of 2015, the government reduced mortgage insurance premiums on some FHA loans, which increased the pool of borrowers.’
“The fee change made more people see the FHA option as a financial alternative,” said according to Jonathan Smoke, chief economist for Realtor.com.’
‘2. Look to see what Uncle Sam offers. The Department of Veteran’s Affairs guarantees home loans with 0% down for current and former service members. The loans come with competitive interest rates and no private mortgage insurance premium, but borrowers could pay some fees at closing.’
‘The Department of Agriculture has a home loan program to increase homeownership in more rural and less-populated areas. USDA loans do not require putting any money down, but there are eligibility requirements, including income and property size.’
‘Many cities and municipalities offer down payment assistance programs to help potential buyers, according to Smoke. “Some of the programs are based on profession, where you are living, income qualification ratios … they want to encourage people to buy.”
‘3. Ask family members for a loan. “If a parent has the money in an interest-bearing account earning darn near zero, this might be an option to increase their yield and help their child out at the same time,” said Eric Hutchinson, certified financial planner at United Capital Financial Advisers.’
‘Experts advise laying out the loan terms, including a payback schedule and interest rate, in writing. To make a loan legitimate to the IRS, the interest rate needs to be comparable to what banks charge.’
“Consider your child a junk bond … take a 10-year Treasury note yield and add two to three percent,” advised Timothy Watters, certified financial planner at Watters Financial Services.’
http://www.nbcmontana.com/news/money/how-to-buy-a-home-without-a-20-down-payment/36426638
“Without GSE backing, banks have shown very little interest in lending to American homeowners, even ones with very high credit scores,” writes McLean.
I wonder if Bethany mentions any reason(s) for this lending reluctance in her new book? Could it be that housing prices are simply too high compared to real family incomes?
‘We have effectively nationalized housing finance. Private money retreated, and the GSEs have returned to profitability — with all the profits going to the U.S. Treasury. So far, these amount to $241 billion.’
Small wonder prices are crazy-high again so soon after the 2007-08 collapse!
Realtor Charged With Assault
http://www.washingtontimes.com/news/2015/nov/13/kona-realtor-charged-with-assault-on-plane-gets-pr/
‘Problem was, the housing bubble was long burst and the homebuilders were defaulting in record numbers, to the tune of $60 million in loan losses by 2009 that TierOne was hiding from investors and regulators, according to prosecutors. Stale real estate appraisals that in some cases were years old — elevated appraisals last done at the height of the bubble — were the only thing keeping the hidden losses from bursting into view.’
Compare this article:
‘Jan 16, 2015′
‘Investors including US mortgage giant Fannie Mae holding decade-old residential mortgage bonds are fretting over potentially huge losses on securities where delayed foreclosures could lead to complete write-offs on defaulted loans. Mortgage servicers, whose job is to ensure bondholders receive repayments on loans, have frequently failed to foreclose on delinquent debt in a timely manner, and therefore risk falling foul of legal deadlines which limit the time home-owners can be chased for payment.’
“If a foreclosure runs afoul of the statute of limitations, it’s a problem,” said Bruce Bergman, a partner at Berkman Henoch Peterson Peddy & Fenchel, a New York law firm which represents lenders and loan servicing firms in mortgage foreclosure cases. “If the court says the mortgage is gone because too much time has passed, it’s gone. The loss, if it occurs, is catastrophic because it is complete.”
‘Analysts are struggling to estimate the size of resulting losses in the US$820bn of private label RMBS sold before the financial crisis, and investors are just waking up to how big a problem it could become.’
‘Fannie Mae’s general counsel held a conference call just before the Christmas holidays - all of its retained law firms were required to participate - to ask how the government-run mortgage agency could alleviate such losses, a person with knowledge of the call told IFR. “[Fannie Mae's] general counsel asked: ‘How bad is it?’” the person said, adding that one of the lawyers on the call answered: “We can’t even begin to tell you - there are so many loans.”
‘Investors can comb through outstanding legacy RMBS mortgages coded as “in foreclosure” state by state, but in New York alone such loans stand at roughly US$14bn, according to Intex. And even that figure provides an incomplete picture because not all of what goes on with a loan is reported to investors as it happens.’
http://www.reuters.com/article/2015/01/16/fanniemae-rmbs-idUSL6N0UL2Q420150116#Zi5dwBxFZtkX8UEg.99
‘At its apogee in 2006 it was the second-largest bank based in Nebraska, with $3 billion of deposits. Still, it was a minnow. The largest bank in the nation in 2010, when most of the shoddy lending practices employed by some banks came home to roost, was North Carolina-based Bank of America, with $2.3 trillion in assets — loans, in other words. And executives of Bank of America and the company itself — whose financial statements from the era were rife with undisclosed losses of the sort that convicted Lundstrom — escaped criminal prosecution amid a $20 billion government bailout from the federal Troubled Assets Relief Program, or TARP.’
‘As did many other mammoth-size institutions. New York-based American International Group, at the time the largest insurance company in the world, falsely inflated ‘loss reserves by $500 million in order to quell criticism’…Criminal prosecutions: zero.”
‘Merrill Lynch, then the nation’s largest stock brokerage, announced a loss of about $8 billion back in the crisis era, three weeks after claiming only about half that. Criminal prosecutions: zero.’
‘Lehman Brothers, once one of Wall Street’s leading investment banks; Citigroup, currently the third-largest bank in the nation; Countrywide Bank, once the third-largest thrift. All admitted after the fact that they were in far worse financial condition than originally reported. Criminal prosecutions: zero.’
‘All are or were deeply connected Wall Street movers and shakers.’
And where is the main-stream media on this conviction?
Seems like Uncle Sam sacked an easy target where there would be no risk of political retaliation.
28,977 nearby properties found Los Angeles, CA Real Estate and Homes for Sale
http://www.realtor.com/realestateandhomes-search/Los-Angeles_CA?ml=4
20,194 nearby properties found Los Angeles, CA Real Estate and Homes for Sale
http://www.realtor.com/realestateandhomes-search/Los-Angeles_CA/show-hide-pending?ml=4
b—>70% of LA area sellers slashed their price at least once.
The correction is well underway.
75,168 nearby properties found New York, NY Real Estate and Homes for Sale
http://www.realtor.com/realestateandhomes-search/New-York_NY?ml=4
25,268 nearby properties found New York, NY Price Reduced Homes for Sale
http://www.realtor.com/realestateandhomes-search/New-York_NY/show-price-reduced?ml=4
33% of all NYC sellers reduced their price at least once
Scripps Ranch, CA Housing Prices Dive 5% YoY
http://www.zillow.com/market-report/11-15/117980/scripps-ranch-san-diego-ca.xls?rt=14
“He led the bank into a 2002 initial public stock offering and a massive expansion into lending to housing developers in other states. They, too, were chasing the home-building boom last decade when lending standards were eased and interest rates were low.”
How many similar situations will come to light when Yellen and crew initiate liftoff?
Do you remember when HUD restricted loans to condo projects dominated by flippers? No more:
November 13, 2015
‘FHA EASES CONDOMINIUM PROJECT APPROVAL REQUIREMENTS’
Temporary guidelines will increase number of condominium projects eligible for FHA approval
WASHINGTON – The Federal Housing Administration (FHA) today published new guidelines under its condominium approval process intended to increase affordable housing options for first-time and low- to moderate-income homebuyers. Effective immediately, FHA’s temporary guidance will streamline the agency’s condominium recertification process and expand the eligibility of acceptable ‘owner-occupied’ units to include second homes that are not investor-owned.
smally MEL watts keeps on giving
http://bit.ly/20UPJVd
Buyerz needs mo credik!
http://picpaste.com/mel_watt.jpg
Big Fish:
“The SEC, the federal regulator of publicly traded companies, is a civil body, meaning its penalties amount to fines, not jail time. Criminal prosecutions: zero.”
Little fish:
“Former Chief Executive Lundstrom, 74, was found guilty on 12 of the 13 federal counts …unrealized losses from delinquent loans to homebuilding companies that had yet to find their way into the company’s filings with the Securities and Exchange Commission or banking regulators
‘In death spiral,’ Lundstrom penned in a handwritten note that was obtained by the FBI during its investigation. ‘The regulators are putting me in a box.’
And the feds came down on this guy like a pallet of bricks. I’m not saying he is innocent. But the hypocrisy is embarrassing. Why him, and not all the others? Why do they go through his emails, his handwritten notes? Why are his executives forced to testify against him under plea agreements, and not those at Countrywide or BofA? Not only weren’t they put in a box, appraisals updated, they got the foam.
The lesson of Mr. Lundstrom is not that crime and fraud are wrong. The lesson is that some of the proceeds need to be invested in political influence. Had his bank purchased some legislators, or ingratiated some powerful people, this never would have happened. Look at Jon Corzine.
“The lesson is that some of the proceeds need to be invested in political influence.”
+1 Indeed… nothing is free even if you steal it.
West Coast Investor Snaps Up Hot LoDo Site
‘Integrated Properties could have developed “Block 47″ itself—on the corner of 16th Street Mall and Market Street—but company CEO Bruce Deifik tell us the price was right, so his company sold the LoDo site.’
“Block 47 is ideal for a quality new development. The purchaser was able to see the value in the land.” He declines to name the investor who acquired the parcel, but does note that it’s a West Coast company and “a visionary developer.”
“The lack of supply in the LoDo neighborhood is one of the triggers for high investor demand,” says CBRE’s Mike Winn, who repped Integrated Properties in the deal. Specifically, Denver’s generating interest among investors used to paying relatively high prices for dirt on either coast.’
CBRE Denver’s Occupier Advisory & Transaction Services SVP Sam DePizzol tells us. “Downtown Denver remains a good value compared to markets like Seattle, San Francisco and Chicago.”
https://www.bisnow.com/denver/news/office/west-coast-investor-snaps-up-lodo-hot-site-52409
‘The stock of Senior Housing Properties Trust (SNH) hit a new 52-week low and has $11.12 target or 20.00% below today’s $13.90 share price. The 8 months bearish chart indicates high risk for the $3.29B company. The 1-year low was reported on Nov, 14 by Barchart.com. If the $11.12 price target is reached, the company will be worth $658.00 million less.’
‘Senior Housing Properties Trust has declined 35.22% since April 13, 2015 and is downtrending.’
http://www.financialmagazin.com/whats-next-for-senior-housing-properties-trust-after-reaching-52-week-low/
“Right now, Portland is hot,” said Winslow, who has been a landlord for 43 years. “Up to a point, you can pick and choose” your tenants. That’s an understatement. By several measures, this is the best of times for landlords in Maine’s largest city.’
‘Average asking rents in Portland have shot up 40 percent in the past five years, and most of that growth has come in the past three years, according to historical data from the Maine State Housing Authority and a Portland Press Herald analysis of current rents. The newspaper’s analysis of apartment listings in September and October found the average two-bedroom apartment in Portland renting for $1,560 a month, up from a 2010 inflation-adjusted average of $1,115.’
‘Brit Vitalius, president of the Southern Maine Landlord Association, said gross income generally is up, and that many owners are taking advantage of the market to make fire code and energy upgrades, and cosmetic improvements to meet tenant demand. And, he said, the rising market value of apartment buildings has pinched overall return on investment, a key measure of the profitability of a rental property.’
‘Vitalius said returns that had been in the 9 percent range for Portland landlords in recent years are now 7 percent or lower, meaning that a three-unit building worth $500,000 generates $35,000 or less in net annual income.’
‘At the same time rents are rising, some landlords are now asking tenants for the first and last month’s rent, on top of a security deposit, all of which can mean forking over an upfront sum of more than $4,700, based on median rent levels. In addition, some landlords are charging non-refundable application fees of between $25 and $50, and using Web-based background screening services such as Tenant-Net that search rental histories and financial profiles.’
‘In June, Winslow was at a monthly meeting of the Southern Maine Landlord Association, where Vitalius was talking about how to make an apartment ad more appealing online. Cozy images of a wood floor and fireplace could help, he said.’
‘Then, noting that the market was “insane,” Vitalius added: “You probably could paint your walls pink.”
‘Against this backdrop, some landlords are taking advantage of the lack of competition by neglecting their properties, subjecting their tenants to conditions that violate city housing codes, from unsanitary buildings to missing smoke detectors. Others feel a responsibility to be flexible with tenants, and at least one said he’s making a special effort to work with housing hunters who otherwise would be priced out of Portland.’
‘Apartment Mart has a high bar for tenants. It asks for first and last month’s rent, plus the security deposit – equal to three month’s rent to move in. It requires three years of good rental history, good credit and no criminal record. Typical rents for two-bedroom units have gone up this year, from $1,000 to $1,100 or so to $1,200 to $1500, Adam Rice said. Over the summer, the company took advantage of turnover when college students moved out to renovate many units “to compete with new local developers,” he said.’
http://www.pressherald.com/2015/11/15/landlords-use-power-hot-market-charge-pick-best-tenants-upgrade-properties-sometimes-neglect/
‘Average asking rents in Portland have shot up 40 percent in the past five years, and most of that growth has come in the past three years…the rising market value of apartment buildings has pinched overall return on investment, a key measure of the profitability of a rental property.’
‘Vitalius said returns that had been in the 9 percent range for Portland landlords in recent years are now 7 percent or lower, meaning that a three-unit building worth $500,000 generates $35,000 or less in net annual income.’
Rents up 40% and returns are down? This is because there is a bubble in multi-family housing, financed by the federal government, which recently “redefined affordability” so they could finance even more.
“Rents up 40% and returns are down? This is because there is a bubble in multi-family housing, financed by the federal government, which recently “redefined affordability” so they could finance even more.”
Yes! It is magic! It is a miracle!
Prices can go up and at the same time affordability can go up!
So, how can this be? If a high price cannot make something unaffordable then … then what is it that is going on here?
Psssst … monthly payments, the secret involves monthly payments … monthly payments and other entry fees such as down payments. Keep them down and - presto! - the previously unaffordable suddenly becomes … AFFORDABLE!
Affordability offers up the ability to buy and rising prices offers up the incentive to buy, and when you add these two ingredients together you get a BOOM!
A boom in rising prices that translates to a boom in rising equity which in turn translates to a boom in wealth for those homebuyers who have gotten aboard this never-ending WEALTH TRAIN!
Wealth that is represented by price. Keep the price up and you will keep the wealth up.
Some people think this whole thing is crazy (and I am one of them).
It’s not affordable considering the cash flow doesn’t cover the expenses.
The miracle of ever-rising prices (which translates to ever-rising equity) will offset the unpleasant effects of negative cash flow.
The problem with that theory is the debtor runs out of cash quickly. Besides, “equity” is evaporating.
This phenom of accepting negative cash flow in trade for the hope of rising prices is quite common here in Southern California along the beaches - along beach front properties.
Since the most optimistic buyer is the one who will pay the highest price and since they are not making any more beaches the prices for beachfront proper can get quite scary. Prices are paid and later on rents are collected but there is no way the rents can offset the prices - but nevertheless this phenom continues on largely because it continues on.
Just ask the hoards of fools who lost their ass when Malibu sale prices plunged 40%+.
Sometimes it isn’t about money; Sometimes it’s about “specialness”.
If one has all the money that he will ever need and he wants to feel special (and allow everyone else to feel that he is special) then he may end up being one of the guys that will pay a very hefty price for some beachfront property - maybe even in Malibu.
Malibu is special, very special; If you live on the beach in Malibu you do not actually own a chunk of the Pacific Ocean but the illusion exists that you do, and this illusion is enforced by the local police. Outsiders will be chased off of the beaches of Malibu even if they approached the beach from the ocean. This happen to a member of BASK (Bay Area Sea Kayakers).
It’s always about the money. Always.
Malibu is special, very special; If you live on the beach in Malibu
I don’t think Oracle Ellison gives a rats a$$ if his four houses go up or down in value…
this illusion is enforced by the local police. Outsiders will be
chased off of the beaches ??
Not Any More;
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&uact=8&ved=0CD0QFjAEahUKEwiVgNXO85LJAhVH8GMKHSavBTQ&url=http%3A%2F%2Fwww.cnn.com%2F2015%2F07%2F17%2Fus%2Fbillionaires-beach-malibu-public-access%2F&usg=AFQjCNEx6HqvH1aI0TMdNoSiXhoABN9vpw&sig2=fyekIDRWFy0R2re-hxZOCw
“I don’t think Oracle Ellison gives a rats a$$ if his four houses go up or down in value…”
And there is where youre wrong my friend.
If Broke Larry understood how housing is a depreciating asset, he wouldn’t be on the hook on four of them.
“If Broke Larry understood…”
Mr. Wiggly gets fed gorgeous Stanford University graduates.
‘While Boston experiences a boom in luxury housing, construction costs have made it prohibitive to build housing for the middle class, according to The Boston Foundation, which released its Greater Boston Housing Report Card for 2015. Bluestone looked at more than 100 rental housing projects built over the last decade in Massachusetts and other states. He found that developers cannot build new housing in Greater Boston at reasonable price points.’
“Unless we can find ways of bringing down land costs, zoning costs, construction costs, it will be almost impossible for any developer to put up housing in Greater Boston that working families can afford,” he said.’
‘The report card shows that in the city of Boston, it takes an income of $100,000 to comfortably afford Boston’s median rent. But median household income in the city is just $58,000.’
‘Because of the disparity, Bluestone argues that it’s virtually impossible for supply to meet demand. Instead, as population growth outstrips new housing, home values and rent prices are going through the roof.’
http://wnpr.org/post/report-construction-costs-make-it-prohibitive-build-middle-class-housing-around-boston#stream/0
I recently saw two shitboxes in the elite Boston suburbs, neither of which has sold in over 1.5 months:
http://www.zillow.com/homedetails/110-Oak-St-Wellesley-MA-02482/56617761_zpid/
Last sold: 07/15/04, $599K. Listed 06/19/15 at $775K, before multiple price reduction to current ask of $739K. After inflation, these idiots are not even going to make back what they put into the house and their crappy, pointless renovations. Why put in new floors when the kitchen is the size of a broom closet and the house sits on a hill overlooking what is essentially a 2-lane highway?
http://www.zillow.com/homedetails/112-Wendell-St-Winchester-MA-01890/56379117_zpid/
Last sold: 03/24/05, $550K. Listed 09/30/15 $725K, now asking $710K. Idiots ripped out all the grass and put gravel on the entire back “yard”, which is a series of terraces cut into the steep hill on which the house sits. They threw on an addition, reno’d the baths, etc. Place still needs a new boiler. What are the chances they make back what they put into the house?
About time these jackasses lose their shirts.
With the way prices are falling in metro Boston, it sounds like they’re already losing their ass.
Merrill Lynch
My cousin’s husband worked at their Chicago office, he got a 7 figure bonus in 2007
LOLZ
‘The downturn continues as Fort McMurray saw its October housing sale numbers slip further from September levels. October housing statistics released by Fort McMurray Realtors show single family detached home sales in Fort McMurray are down 43.94% from the same time in 2014, as opposed to a 37.97% decrease in September.’
‘Average prices for single detached family homes have slipped 10.75%, from $768,464 in 2014 to $685,835 in 2015.’
http://www.fortmcmurraytoday.com/2015/11/11/housing-sales-slip-further-in-october
Those double-wides are getting cheaper!
‘Pure coincidence or impeccable timing? Either way, Hong Kong billionaire Joseph Lau has just pulled off a twofer for the history books.
On Wednesday night he paid 48.6 million Swiss francs (USD48.4 million) at Sotheby’s in Geneva for a 12.03-carat blue diamond, the most ever spent on a gem at auction.’
‘Then, less than 24 hours later, his company Chinese Estates Holdings Ltd. sold an office tower in Hong Kong for HK$12.5 billion ($1.6 billion), more than twice the previous record for a commercial sale.
Lau, 64, who made his fortune in real estate, has been on a buying spree, collecting paintings from blue-chip artists as well as jewelry.’
‘He also generated headlines last year when he was convicted in Macau for bribery and money laundering in a trial he didn’t attend. He’s appealing the conviction.’
http://macaudailytimes.com.mo/hk-billionaire-lau-sets-two-records-in-24-hours.html
‘Anecdotal reports from agents that buyers are increasingly struggling to get their funds out of China coincides with the Chinese government’s moves to tighten controls over the flow of capital out of China.’
“China’s move to tighten controls over the flow of capital out of China seem to be working,” said Dr Oliver. “The foreign exchange reserves don’t directly reflect capital inflows but are a good indication of it, and figures from August show outflows were at an estimated US$200 billion and dropped to about US$50 billion in September.”
“Now those flows look set to have reversed slightly in October so that China could actually be looking at capital inflows,” said Mr Oliver. “And that’s going to impact on the Australian property market.”
http://www.domain.com.au/news/chinese-prestige-property-buyers-ditch-sydney-for-melbourne-20151113-gkxl4i/
crater