How much worse will it (the real estate foreclosure crisis) get? Plenty

[housingcrashsurvivor]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Your market may easily be an exception, but then again the events unfolding are not going to leave any market unscathed.

If your market didn't shoot up that much on the upside, then your downside risk is likely equally minimized (not necessarily low).

Just note that should we see significant interest rate, dollar devaluation, or other 'surprises' - the owners are the ones at risk.

Rentiers don't care because the short term income isn't relevant for them - they have more than enough to live 5 or even 10 years without rent.

Wanna-be rentiers - not so much.

Exception? Hardly. Try the rule. Florida here. I'm just scraping along the bottom, trying to survive. Events unfolded quickly, leaving this metro area a patchwork with some areas having fallen below their prebubble prices (non-inflation-adjusted) by 10% or more but others areas within this same metro not selling too well, so likely will still drop another 35% to get back to their prebubble prices.

As I mentioned, in my neighborhood, there's not a single house for sale. Woops. Scratch that, just checked. There's a 4/2 for sale asking 22% more than the price I paid and very near what others have sold for since I relocated here. I suspect they'll get very near their price if not in full. The last three sales were gone within about 2-3 months. The last one on my block sold in a few weeks.



This particular house for sale on one of our medium sized, 22,000-square-foot lots (10k sq ft is the minimum here) has been owned by the same person since the land was vacant in the 70s. (My smaller house here is from the 50s and one of the first houses built in this neighborhood. I am only the 2nd family to own both my houses as many of these properties are passed down through generations.)

The return on investment of the house for sale, from it's last sale over 30 years ago (before this area became so populated) to its current asking price is just 5.06% annual. The asking price is at a 10.65:1 rent to price ratio (too rich for my impoverished blood) in an area that was 13.13:1 (I think was the figure) in year 2000. The price to income ratio is about 3.2:1.

This is a nice house, though the one right behind it has a pool and tennis court so there could be some noise. It looks like it has more back than front yard, having built closer than mine to its dead end street so probably the neighbor is not a problem.

Though I did not see a Lis Pendens issued on this house, the owner has at least 6 properties in this county alone, most long held with only 2 bought during the bubble. I do see at least one of those two in danger of foreclosure. But it's not like the owner is hurting as none of these look homesteaded so likely the owner has other property elsewhere in the state. I doubt there will be much movement on price here so I guess I'll have to wait for the next one.

EDIT: Drove by. Decent street but not great. I wouldn't buy it but I like the bigger properties. Neighbor's court comes right up to the back property line. Not pretty. Would need 12 ft hedge there, bamboo might do it but a pricey fix. Definitely needs work. My new best guess is it will be lucky to get 10-12% under asking. Estimated return on investment since the 70s? I'm guessing 4.5-4.7% annual. Sad, but maybe not so terrible in the middle of a depression (or whatever this is).

[touchring]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

How low can it get? If you don't create jobs, there's no bottom.

http://www.guardian.co.uk/business/2...oreclosures-80

Detroit homes sell for $1 amid mortgage and car industry crisis

One in five houses left empty as foreclosures mount and property prices drop by 80%


Some might say Jon Brumit overpaid when he stumped up $100 (£65) for a whole house. Drive through Detroit neighbourhoods once clogged with the cars that made the city the envy of America and there are homes to be had for a single dollar.
You find these houses among boarded-up, burnt-out and rotting buildings lining deserted streets, places where the population is shrinking so fast entire blocks are being demolished to make way for urban farms.
"I was living in Chicago and a friend told me that houses in Detroit could be had for $500," said Brumit, a financially strapped artist who thought he had little prospect of owning his own property. "I said if you hear of anything just a little cheaper let me know. Within a week he emails me a photo of a house for $100. I thought that's just crazy. Why not? It's a way to cut our expenses way down and kind of open up a lot of time for creative projects because we're not working to pay the rent."

[sishya]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

I am still trying to figure how Banks will be effected because of recent Title problems because from my understanding the Banks don't hold the loans.
These(MBS/Fannie,Freddie -Agencies) have been passed to pension funds, Sovereign funds, FED, etc... So they are just a pass thru entity.

Wondering why BAC or other Banking stocks are tanking the past 3 months ?

[sishya]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Further, if you don't need the money, you can sock away a lot of money into these policies (depending on the face value of the policy), where the $ grows tax free. Then, later on in life, you can "borrow" your own money back, & as long as you a) have enough in them & b) don't ever borrow too much, you never have to pay taxes on it b/c you are borrowing the $, not cashing it out...this shrinks your death benefit but it is basically a gigantic tax loophole being provided.

Great insight and thanks. That is a great tax loop hole. you take out money and when you die, no one pays any tax for the outstanding loan amount.

[BigBagel]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Libertarians started the Free State Project where they move to New Hampshire and change the state into a libertarian paradise. Reason Magazine had a whole series on fixing Cleveland with some interesting ideas. They should move to Detroit. It's easier to gain political power in a depopulated city like Detroit and try out some innovative ideas.

[don]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Exception? Hardly. Try the rule. Florida here. I'm just scraping along the bottom, trying to survive. Events unfolded quickly, leaving this metro area a patchwork with some areas having fallen below their prebubble prices (non-inflation-adjusted) by 10% or more but others areas within this same metro not selling too well, so likely will still drop another 35% to get back to their prebubble prices.

As I mentioned, in my neighborhood, there's not a single house for sale. Woops. Scratch that, just checked. There's a 4/2 for sale asking 22% more than the price I paid and very near what others have sold for since I relocated here. I suspect they'll get very near their price if not in full. The last three sales were gone within about 2-3 months. The last one on my block sold in a few weeks.



This particular house for sale on one of our medium sized, 22,000-square-foot lots (10k sq ft is the minimum here) has been owned by the same person since the land was vacant in the 70s. (My smaller house here is from the 50s and one of the first houses built in this neighborhood. I am only the 2nd family to own both my houses as many of these properties are passed down through generations.)

The return on investment of the house for sale, from it's last sale over 30 years ago (before this area became so populated) to its current asking price is just 5.06% annual. The asking price is at a 10.65:1 rent to price ratio (too rich for my impoverished blood) in an area that was 13.13:1 (I think was the figure) in year 2000. The price to income ratio is about 3.2:1.

This is a nice house, though the one right behind it has a pool and tennis court so there could be some noise. It looks like it has more back than front yard, having built closer than mine to its dead end street so probably the neighbor is not a problem.

Though I did not see a Lis Pendens issued on this house, the owner has at least 6 properties in this county alone, most long held with only 2 bought during the bubble. I do see at least one of those two in danger of foreclosure. But it's not like the owner is hurting as none of these look homesteaded so likely the owner has other property elsewhere in the state. I doubt there will be much movement on price here so I guess I'll have to wait for the next one.

EDIT: Drove by. Decent street but not great. I wouldn't buy it but I like the bigger properties. Neighbor's court comes right up to the back property line. Not pretty. Would need 12 ft hedge there, bamboo might do it but a pricey fix. Definitely needs work. My new best guess is it will be lucky to get 10-12% under asking. Estimated return on investment since the 70s? I'm guessing 4.5-4.7% annual. Sad, but maybe not so terrible in the middle of a depression (or whatever this is).

Don't know what county your in. Guesstimating price of $160,000, rent of $1500.

[FRED]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

A year ago I paid at a price to rent ratio of 6.75:1 (actually purchase price of this dump was less but that number reflects improvements to make respectable). By the time I'm done with the gardens & some extras, I'll be at about 7.58:1. The year 2000 price to rent ratio here was 13.13 (or 12.4:1 in the metro area). Comps, most of which need about as much work though some already renovated with prior ATM $s, have since been selling for about 23% more per sq ft than mine and that's just enough to cover replacement cost. Land and infrastructure are free with purchase.

So, not that things can't tank more, but maybe we're below theoretical bottom here. Are such markets included in calculating
congregate negative equity?

Theoretical bottom in housing? Consider this old Shiller chart from bubble top days, with our comments. Our friend Sean O'Toole noted in a recent post that the message in the chart that most viewers missed is this: if you bought a house in 1955 at the end of the post-war housing boom and sold it 40 years later you lost money in real terms. (EJ talks about this in his book.) Not until 1998 did you break even, not counting the money you spent on interest, taxes, and maintenance over 40 years. Sure, the alternative cost was rent -- paying someone else's mortgage -- so you can argue that buying was better than renting. But an investment? This is an investment?

Buy a house as a place to live and put the rest of your money into something else. The idea of a home as an investment is pure, unadulterated bullshit.

[jk]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Theoretical bottom in housing? Consider this old Shiller chart from bubble top days, with our comments. Our friend Sean O'Toole noted in a recent post that the message in the chart that most viewers missed is this: if you bought a house in 1955 at the end of the post-war housing boom and sold it 40 years later you lost money in real terms. (EJ talks about this in his book.) Not until 1998 did you break even, not counting the money you spent on interest, taxes, and maintenance over 40 years. Sure, the alternative cost was rent -- paying someone else's mortgage -- so you can argue that buying was better than renting. But an investment? This is an investment?

Buy a house as a place to live and put the rest of your money into something else. The idea of a home as an investment is pure, unadulterated bullshit.

[/CENTER]

the INVESTMENT was the 30 year fixed rate mortgage. while your house went nowhere in REAL terms, it appreciated nominally, while the nominal value of your mortgage was fixed. [i know you mention a 40 year holding period, but you could refi along the way.]

the real value of the debt shrank to become de minimus. the profit was in the mortgage, not the house.

[housingcrashsurvivor]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Don't know what county your in. Guesstimating price of $160,000, rent of $1500.

My apologies if I offended. I do not understand what strikes me as your hostility but the part of the country I'm in is Florida, as I mentioned. Your price is probably right, based on its condition, as I adjusted my guess upon driving by the place, as shown in the EDIT section where you just quoted. Though the last three or four sales have gotten more, per sq ft, than this guy's asking price and they sold quickly. Zillow thinks it peaked at 250k. Probably that number was higher, however, when things were so crazy and sales I've studied from that time indicate that is the case. I would think it might get $1400 in rent these days. Prices are down about 50%. Rents have probably come down but not by as much and they do not seem to be down at all from a year ago.

Theoretical bottom in housing? Consider this old Shiller chart from bubble top days, with our comments. Our friend Sean O'Toole noted in a recent post that the message in the chart that most viewers missed is this: if you bought a house in 1955 at the end of the post-war housing boom and sold it 40 years later you lost money in real terms. (EJ talks about this in his book.) Not until 1998 did you break even, not counting the money you spent on interest, taxes, and maintenance over 40 years. Sure, the alternative cost was rent -- paying someone else's mortgage -- so you can argue that buying was better than renting. But an investment? This is an investment?

Buy a house as a place to live and put the rest of your money into something else. The idea of a home as an investment is pure, unadulterated bullshit.

Yes, and if someone bought at the height of this bubble then they did not even have to wait 40 years to lose money.

Sorry I must have offended you also that you would bother to intimate that what you think I said is unadulterated bullshit. You are too kind. Probably I deserved worse treatment, troll that I am. But I explained that I am not very educated in finance so that what I meant by theoretical bottom was that I'm trying to understand some fundamentals that might still be or eventually come back in play (rents, income, values over long periods of--not just selective--time, neighborhood improvements or deterioration, types of demographic changes of an area, etc), because it now seems so difficult to know what anything is worth.

What I said is that I'm seeking streams of income, even to the point that I want my own house to provide it to me by bringing in a housemate. I've sold my smaller home elsewhere and relocated here to this one, in part so I'd have that now. I could not care less about capital gains if that is what you mean by investment and I never not once even suggested gains coming on any real estate horizon. I don't trust any of that in any catagory at this point. I trust my ability to work for money and so I'm back in school to start my upcoming third career. I trust that I can collect rents from property under my feet or near enough to keep an eye on it and if I get a little more from that then from a savings account, I'm a happy camper. I'll do a little metal and a little market to diversify but I do not like the casino. I want to see what I've earned. I won't get rich but hopefully I won't get poorer or ulcers.

All I originally questioned of the original post which was about how much mortgages are underwater is: "Are...markets (which seem to have significantly dropped below their prebubble prices) included in calculating congregate negative equity?" to which I have received no answer, some interesting and appreciated conversation and a few hits below the belt. But that must have been my fault. Not only am I bad at finance, I'm also not a very good communicator. So, again, my apologies.

[jk]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

So, not that things can't tank more, but maybe we're below theoretical bottom here.

given your interest in getting income streams, i'm not sure why you're interested in the "bottom." i think part of the misunderstanding here is that "the bottom" sounds like the concern of someone trying to get capital gains, and calls for an equity-like analysis. while "income streams" calls for more of a bond-buyer's approach. i suppose if prices drop further then rents might be affected, but the relationship isn't simple. [i.e. if people are driven from their homes, many will seek rentals. otoh, empty homes become potential rental properties. but there's a lot of friction in these processes.]

[karim0028]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

My apologies if I offended. I do not understand what strikes me as your hostility but the part of the country I'm in is Florida, as I mentioned. Your price is probably right, based on its condition, as I adjusted my guess upon driving by the place, as shown in the EDIT section where you just quoted. Though the last three or four sales have gotten more, per sq ft, than this guy's asking price and they sold quickly. Zillow thinks it peaked at 250k. Probably that number was higher, however, when things were so crazy and sales I've studied from that time indicate that is the case. I would think it might get $1400 in rent these days. Prices are down about 50%. Rents have probably come down but not by as much and they do not seem to be down at all from a year ago.



Yes, and if someone bought at the height of this bubble then they did not even have to wait 40 years to lose money.

Sorry I must have offended you also that you would bother to intimate that what you think I said is unadulterated bullshit. You are too kind. Probably I deserved worse treatment, troll that I am. But I explained that I am not very educated in finance so that what I meant by theoretical bottom was that I'm trying to understand some fundamentals that might still be or eventually come back in play (rents, income, values over long periods of--not just selective--time, neighborhood improvements or deterioration, types of demographic changes of an area, etc), because it now seems so difficult to know what anything is worth.

What I said is that I'm seeking streams of income, even to the point that I want my own house to provide it to me by bringing in a housemate. I've sold my smaller home elsewhere and relocated here to this one, in part so I'd have that now. I could not care less about capital gains if that is what you mean by investment and I never not once even suggested gains coming on any real estate horizon. I don't trust any of that in any catagory at this point. I trust my ability to work for money and so I'm back in school to start my upcoming third career. I trust that I can collect rents from property under my feet or near enough to keep an eye on it and if I get a little more from that then from a savings account, I'm a happy camper. I'll do a little metal and a little market to diversify but I do not like the casino. I want to see what I've earned. I won't get rich but hopefully I won't get poorer or ulcers.

All I originally questioned of the original post which was about how much mortgages are underwater is: "Are...markets (which seem to have significantly dropped below their prebubble prices) included in calculating congregate negative equity?" to which I have received no answer, some interesting and appreciated conversation and a few hits below the belt. But that must have been my fault. Not only am I bad at finance, I'm also not a very good communicator. So, again, my apologies.

I dont think anyone was offended and i dont think FRED or anyone else meant to offend you... It sounds like you are the one who took it as something offensive. He is saying the concept of housing as a capital gain investment is bullshit, not the fact that you are saying it...

[housingcrashsurvivor]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

given your interest in getting income streams, i'm not sure why you're interested in the "bottom." i think part of the misunderstanding here is that "the bottom" sounds like the concern of someone trying to get capital gains, and calls for an equity-like analysis. while "income streams" calls for more of a bond-buyer's approach. i suppose if prices drop further then rents might be affected, but the relationship isn't simple. [i.e. if people are driven from their homes, many will seek rentals. otoh, empty homes become potential rental properties. but there's a lot of friction in these processes.]

I dont think anyone was offended and i dont think FRED or anyone else meant to offend you... It sounds like you are the one who took it as something offensive. He is saying the concept of housing as a capital gain investment is bullshit, not the fact that you are saying it...

Thank you both for clarification. My seeking bottom has not to do with gaining more but with trying to not lose what's left. I don't know that stocks won't crash tomorrow. I don't know that I'll be able to sell gold in time and without being taxed to death. I don't know that there won't be runs on a bank. But at least I can google-map my property and I need some armchair comfort.

Yes, I do look at my house a bit like how I think I understand a bond works. My plan is to get income from a housemate until I am in my 60s, or if I still enjoy the company, of course, I'll continue with that. And then I might reverse mortgage it so that it continues providing a stream of income beyond that (decision pending), while I'm wasting away in a bar in Pattaya. This and my little house, as I've shown, provide a pretty good return on the money I've got in them. I simply said that if I find another similar deal, I'd take it. And not just for a stream, certainly not for gains (I'd like if it keeps up with inflation though I know there are arguments for and against that) but most importantly so that I know where my money is. Seriously, how else do I know that I even have money. If it is in the bank or with Vanguard or Fidelity or where ever. I get a statement? Big woop. I don't even have any actual stock certificates to show I'm really in the market. I get monthly statements online. Ah, security. That could disappear tomorrow.

How can I trust what I can't even find on google maps? (They caught me on their latest updated aerial moving into my new-to-me house with my u-haul filled with garden plants, how fun!)

As to offense, when someone asks what country I'm in, as if I forgot to emigrate with all my marbles, or accuses me of advocating real estate as the next great bubble to invest in, yeah, no offense taken. I've got to stop reading into things. I don't know when I became so paranoid.

[ThePythonicCow]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

... I don't know when I became so paranoid.

Paranoia is well deserved, my friend.

The trick is to figure out whom to be paranoid of.

I suspect the ones to be wary of are the elite oligarchs running this con game, not the members of iTulip ... just my guess.

Take care.

[FRED]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

the INVESTMENT was the 30 year fixed rate mortgage. while your house went nowhere in REAL terms, it appreciated nominally, while the nominal value of your mortgage was fixed. [i know you mention a 40 year holding period, but you could refi along the way.]

the real value of the debt shrank to become de minimus. the profit was in the mortgage, not the house.

How can you profit from a mortgage? The prices that Shiller uses are not net of interest expense. $22,000 was the median price but no one paid that. If you bought the home 20% down ($2000) and financed the rest with a 4.5% fixed rate 30 year mortgage you spent $44,731 for the home over 30 years, including $15,831 in interest. In 1995 you received $21,000 1955 dollars for a home you paid $44,731 on for the first 30 years. Inflation was higher than the 4.5% mortgage interest rate for much of those 30 years, so less income was consumed on housing than if you'd instead paid rent that increased with inflation. However, maintenance and taxes increased with inflation and continued to even after the mortgage was repaid. Plug it all into a spreadsheet and you'll find that buying a home is more economical than renting for 40 years, but compared to the returns on money in the S&P 500 over the same period, a home purchase cannot qualify as an "investment" nor can the mortgage, unless the mortgage was invested in the S&P 500 or some other asset that returned more than $4.5% per year instead of the home.

[flintlock]

Re: How much worse will it (the real estate foreclosure crisis) get? Plenty

Depending on how old you are, I would tell you I have done two things (and I own my house, but its on some acreage w/woods) - i own precious metals, & I own several different whole life insurance policies at Northwestern Mutual. They are currently paying 6.5% dividends tax free. That dividend rate can move around, & i suspect it will over time, but they have been very good stewards of capital. So i have a barbell strategy. And NML is a mutual company, owned by policy holders, & bought $500mm of gold in June-09, so just in case we have a case of hyperinflation, there is some protection.

Further, if you don't need the money, you can sock away a lot of money into these policies (depending on the face value of the policy), where the $ grows tax free. Then, later on in life, you can "borrow" your own money back, & as long as you a) have enough in them & b) don't ever borrow too much, you never have to pay taxes on it b/c you are borrowing the $, not cashing it out...this shrinks your death benefit but it is basically a gigantic tax loophole being provided.

Further, life insurance is easy to borrow from any time, & is creditor-protected (they can take your house, car, etc., but never life insurance.) Downside is that fees are higher & that once you check in, you have to borrow, but borrowing is at a ~1% rate - a no brainer. Also, the younger & skinnier you are, the better this strategy works given time value of money & mortality tables...but it could work at any age, depending on your resources & your health.

There was a WSJ article about this a few weeks ago - one of the last great tax loopholes. Get in before they close it....they often grandfather those in ahead of any changes...

I bet Life Insurance salesmen love you!