Real Estate Apocalypse?

[blazespinnaker]

http://thehousingbubbleblog.com/?p=1530

"A report from the Wall Street Journal. “Federal and state authorities are investigating allegations of an elaborate mortgage fraud involving about 100 people living in or near Martinsville, VA. who say they unwittingly took out loans to buy houses at inflated prices in Indiana. Now, many of the loans are in default, the borrowers’ credit ratings are in ruins, and lenders are pursuing the organizers of the purported investment group in court.”"

“Companies stuck with the defaulting loans include Countrywide Financial Corp., the nation’s largest home lender, and Argent Mortgage Co., another big lender. Representatives of the borrowers put the total value of loans involved at about $80 million, which would make it one of the largest mortgage-fraud cases ever"

Lordy. For all our sakes, I hope this is not widespread.

[blazespinnaker]

Re: Real Estate Apocalypse?

original wsj article:

http://online.wsj.com/article_email/...zQyMDcxWj.html

Check out this graph, *wow*

Note that the sar could be a result of patriot act additions.

[blazespinnaker]

Re: Real Estate Apocalypse?

S&L crisis anyone?

http://en.wikipedia.org/wiki/Savings_and_loan_crisis

[Jim Nickerson]

Re: Real Estate Apocalypse?

It seems that most of the focus is on home loans and the potential effects of a collapse in that sector of real estate.

Does anyone has a sense of how such a possible collapse in residential RE will affect commercial RE?

[hayfield]

Re: Real Estate Apocalypse?

It would stand to reason that as residential housing weakens, the residents of those houses (whose spending power was derived from the continuing asset appreciation of their house) will reduce spending. That's got to have some knock-on effect for retail. Whether that would knock-on through to commercial/industrual... it would stand to reason.

Here in Central Ma., with a completely unscientific analysis, there appear to be as many "for lease" and "build to suit" signs as homes for sale. But my sense is that much of the vacant office space is the residue from the dot.com implosion.

[SeanO]

Re: Real Estate Apocalypse?

It seems that most of the focus is on home loans and the potential effects of a collapse in that sector of real estate.

Does anyone has a sense of how such a possible collapse in residential RE will affect commercial RE?

No doubt that there will be less demand for commercial as a result of the housing market change. Just look around at the number of real estate offices, mortgage companies, granite stores, etc. But remember that commercial real estate is largely priced based on the annualized return from rents. Right now you can buy pretty nice property with a fortune 500 client and a 10 year lease that pays 6-7% annually. Expected returns have been increasing (they got as low as 5%), which effectively lowers prices, but these declines has been somewhat offset by increasing rents, which effectively raises prices.

Bottom line, I expect a correction, but I don't think it will be as severe as housing. With some exceptions (like speculative land deals), commercial prices and lending practices have stayed relatively sane when compared with residential.

[SeanO]

Re: Real Estate Apocalypse?

“Companies stuck with the defaulting loans include Countrywide Financial Corp., the nation’s largest home lender, and Argent Mortgage Co., another big lender. Representatives of the borrowers put the total value of loans involved at about $80 million, which would make it one of the largest mortgage-fraud cases ever"

Lordy. For all our sakes, I hope this is not widespread.

With corrections in some areas of more than 20% already it is going to be really hard to sort out what was or wasn't fraud. The article notes the need for a corrupt appraiser, but that is no longer necessary. I've got homes that I'm having to drop 10% below the last comparable sale to get sold. The appraiser does his job largely based on past solds, so they are 10% high right off the bat. The latest trend is for fraudsters to scan the MLS for this scenario as on the surface everything appears just fine. I rarely sell a home now that doesn't include $10-15k in non recurring closing cost credits, which essentially line the pockets of the combo loan broker / real estate agent. Is that fraud? Everything is being disclosed to the lender.

Note that this also inflates price statistics. Don't believe what you read folks. I just saw a report that CA had 1.6% y-o-y appreciation. A year ago there were no closing cost credits, and commissions were heavily discounted. Now they are severely inflated. And really dumb buyers and lenders are going to be left holding the bag.

[BK]

Re: Real Estate Apocalypse - Commercial Real Estate

In New Jersey the building of commercial strip malls has exploded in the last 24-36 months. These mini malls need a vibrant retail sector in order to pay their Commercial Loan Mortgage - my quess is trouble for residential housing leads to trouble for Commercial Real Estate. Within 1-2 Miles of where I live 4 new strip malls have been completed in the last 24 months. Keep in mind that this is on the edge of farm country (should be interesting to see if the vacancy rate increases for these malls).
If you remove the liquidity of the Housing ATM from the Retail sector - you must end up with lower Sales number for all the Retail stores that sell home furnishings, Kitchen appliances ,Kitchen supplies, and Bed/Bath supplies (so many ways to spend money to enhance the value of your home ;-) ).

[blazespinnaker]

Re: Real Estate Apocalypse?

Sure love to know how much of this is really going on:

http://www.tbo.com/news/metro/MGBXTU3SKTE.html