Market Conditions: Foreclosures Up 36.5% in Cook County in July YOY
RealtyTrac just released data on Illinois foreclosures for July.
Statewide, foreclosures were up 35% to 19,602, the highest jump in the nation. However, last year, Illinois apparently had a 90-day grace period where there could be no foreclosure (which has since expired) so this messed with the 2009 numbers.
1 in every 269 housing units in the state is now in foreclosure, the 8th highest in the nation. Nevada is still #1 with 1 in every 82 housing units in foreclosure.
In Cook County, foreclosures were up 36.5% to 10,846 from July 2009.
RealtyTrac doesn’t see foreclosures bottoming out nationally until 2011.
Foreclosures continue to soar in Illinois, defying nationwide trend [Daily Herald, Anne Marie Kukec, August 12, 2010]
0.371% of homes in Illinois are in foreclosure (1/269) – that does NOT define the market!!! In addition, several of these foreclosures are in areas of the city/state that are undesirable to most buyers. The percentage of foreclosures in “desirable” areas is going to be much lower. The percentage of decent units in those desirable areas is going to be even lower.
So, basically the media continues to manipulate the data and present in the most shocking manner to promote fear mongering amongst the masses who don’t know (or don’t want) to appropriately analyze the data.
I’m going to take a guess and say that alot of these foreclosures, at least for the city are in terrible neighborhoods, studios, and one bedrooms. There are very few reasons to buy studios and one bedrooms when you can live cheaper by renting. Buying studios and one bedrooms only means you rent it from the bank instead, and you get stuck paying assessments and property taxes.
Cook County is one area this article is focusing on, and it’s boundries are pretty accurately defined. Attempting to shift focus and say these properties are in ‘less desirable areas’ is doing nothing to minimize the impact these foreclosures will have on ALL properties in Chicagoland.
Regardless of location of said foreclosures, those numbers represent families who now may very well be homeless…regardless of the who and the where of this story, it is happening.
Most every owner has a chance of this happening to them….so please, save your optimism for another aspect of RE.
Nationwide the trend was down 10% while at the same time Illinois was up 35%…oh wait, that is only homes in the nicer areas…never mind, that changes everything!!!! Let’s all go buy!!!!
I’m now convinced that the banks are doing their best to dribble the inventory out to market, but the shadow inventory is overwhelming them. A while back, I wrote of a friend who was given a ridiculous mortgage, and who then left her job. She’d been squeaking by somehow, but finally last fall the bank filed lis pendens foreclosure. At some point, however, the case was mysteriously “dismissed”, and she now gets to start all over again! Her lawyer thinks there was a “mistake” on the banks part by dismissing the case, but how can there be ANY mistake on a home that hasn’t had a mortgage payment in probably over a year??? Another friend’s kid had a catastrophic illness in the household, and they, too, haven’t paid a penny, and are in foreclosure, yet the case drags on. My boyfriend’s neighbor in St. Charles got foreclosed upon, left that house in the Spring, and the property is vacant and NOT on the market. That’s just the anecdotes I have; 3 properties, none on the market, all in various states of default.
Folks like clio and Mike need to realize that the “class” of folks they’re using as representative a positive state of the market are actually a very select group, (self-selective, actually). Things down here, where the Average Joe is at, are pretty bad. Same with that idiotic stat about wages “rising” over time. I’m college educated, work in tech, and my salary has been flat for 2-3 years, and with furlough days (yeah, academia) I’ve taken a pay CUT this year. I’m not a shlub, a mope or a Joe Six Pack. All y’all doctors, lawyers, and high rollers need to remember you don’t represent the mean, or the masses, and the middle class IS suffering.
grrrr.
I truly feel really bad for everyone out there who is suffering. Obviously there is nothing I can say or do to make anyone feel any better about their situation. However, one piece of advice is to try and NOT concentrate on money/material goods. They will never bring you the happiness that your family, nature and friends will bring. Also, remember to laugh everyday…. (even if it is at yourself).
Nearly every condo building in Chicago, whether it be high end, all studio/one bed building, in Gold Coast or Avondale has one short sale or foreclosure in it or has in the past 6 months. This isn’t just terrible neighborhoods or buildings.
“Nearly every condo building in Chicago, whether it be high end, all studio/one bed building, in Gold Coast or Avondale has one short sale or foreclosure in it or has in the past 6 months. This isn’t just terrible neighborhoods or buildings.”
OK – but everyone out there should really take a minute, take a deep breath and ask themselves: How does this affect me? :
1. For people who own and are not thinking of moving in the the short term – it really shouldn’t affect you at all.
2. For people who have just bought a place – don’t read all this crap. Enjoy your new house and don’t 2nd guess yourself. There will always be better deals out there – but the fact that you are already found a home you like puts you way ahead of the buyers/renters out there who are still looking.
3. For people who have to move or who are struggling w/mortgage, don’t read any of this negative press – it is NOT going to help your situation at all. What will be, will be.
4. For those people who are renting and/or looking to buy, guess what – keep looking – maybe in a few years you can pick up a great 1 bedroom foreclosure on the south side for 50k. Keep salivating and waiting on the sidelines (life is passing you by as you wait like vultures for the market to die)!!
What about DuPage County? One of the richest counties in America. 1,601 foreclosures in July- up 54%.
In the “prime” areas of the city I am seeing more short sales than foreclosures. Short sales are everywhere in Lakeview now- which will bring the prices down the same as foreclosures. I think it was Gary who said this will be the year of the short sale- and that is exactly what I’m seeing.
“(life is passing you by as you wait like vultures for the market to die”
Why is life passing me by if I don’t own real estate? I never understood this way of thinking. I am LIVING there regardless of whether I rent the property or own it. It is my home either way. I’m either paying the bank each month or paying the landlord. It doesn’t affect how I think about my life.
Clio,
You forgot one important thing.
Those who own and are not looking to sell still pay assessments and taxes in condo buildings where others are foreclosing. More foreclosures leads to higher assessments for those “responsible” owners. I also believe all these foreclosures will lead to higher taxes as those who are foreclosed upon are often in arrears on taxes. Someone has to pay for all those public pensions and raises.
I don’t see how short sales hurt the market? They are negotiated regular way deals, just with negative equity that needs to be approved by the bank. Given all the low equity buffers put in on condos, etc., I am surprised we don’t see more of them. There is nothing wrong with the concept and its an orderly way to transact.
The real reason is why did many condo buyers have only 10% down (or less)? Because, they were first time buyers! Ask your parents, how much they put into their first place. I bet the answer would surprise you.
Only difference between 30 years ago and today is the real estate market had not declined in 60 years…
NO ONE can get a mortgage right now. A house that we are looking at-that we can totally afford- has dropped from $130K since Feb. They have 2 mortgages and are basically screwed. We can’t get a jumbo (now priced at $659K) even though we have the highest credit score possible, make good $$, etc. Job is contract so it’s very difficult. SUCKS for all involved. I wonder if they will eventually have to go into foreclosure too… ironic thing is that the house is agent owned, you would think they would know better.
http://interactive.chicagobusiness.com/foreclosures/
“More foreclosures leads to higher assessments for those “responsible” owners.”
Actually, until the owner vacates, they typically will pay their assessments. Condo boards can evict toot sweet for lack of payment, so most strategic and other defaulters continue to pay. In my experience typically it is only when the bank takes over that assessments go unpaid, but upon REO sale most associations get a few months back (banks typically permit up to 6 months I think).
“NO ONE can get a mortgage right now.”
…..which is why seller financing/contract sales/lease-purchase options may be the way for some sellers to help sell their particular property. I’m telling you, it works.
What I find interesting are the not completed, slow to sell or not on the market stuff in my hood. There are a couple abandoned looking former SFH properties, 2 that are for sale on Hermitage just north of Addison and one on Melrose across the street from the library.
Hi JMM,
Short sales do hurt the market from an appraisal standpoint.It becomes the new comp in a building and in most cases,short sales close at below market rates.If I live in a condo building say tier 1,and my condo is on the market for $300,000 and a tier one condo unit sells for 240,000 in a short sale,that becomes the new comp for the appraiser and will kill any chance of me selling at $300,000(assuming that was the market before the short sale).
“Why is life passing me by if I don’t own real estate?”
I didn’t mean it like that – I meant that those who are constantly monitoring the real estate market looking for great deals are spending (?wasting) a LOT of time doing so. If they have been looking for over a year and still wait another year until they think the market will bottom, that is TWO years of their life “in limbo”. Of course they are doing other things, but one’s housing situation always is at the back of the mind.
HD —
Solid resource. 10CH0026707 relates to the woman who quoted in this article from last year:
http://online.wsj.com/article/SB124924069909799645.html
TomB:
Short sales are voluntary arms length sales — the only difference is the bank is taking a hit at the price the seller (and his/her agent) can get in the market. They only hurt your value because that is the market price. Both the bank and the owner have to agree to it.
It would be do different if someone sold on a relo. Or someone had significant equity and decided they wanted to trade up and were willing to take a loss to do so.
“Solid resource. 10CH0026707 relates to the woman who quoted in this article from last year:”
more fear-mongering by someone who doesn’t know WTF is going on. Retrospectively analyzing data and speculating on price declines without understanding the data and true financial situations of those with high end homes often leads to this garbage.
the vast majority of people in kenilworth have sustainable incomes and a significant amount of equity in their houses. most will not drastically lower their prices – they will just wait out the market. sure, they will leave their house on the market in the chance that someone will come by and love their place and buy it, but most of them realize that it may be a few years before they sell.
An individual short sale does not necessarily set the market in a building. Typically, the appraisers will know that a particular unit was a short sale or sold under distress and adjust accordingly.
The issue is when there are multiple short sales or foreclosures in said development and then that truly becomes the market killing any hope that non-distressed properties can sell for any higher.
If the rich stay rich yet the poor get poorer, is this where we’re headed? Is this the end game? I’m going to guess probably not…
Millionaires Get Slum Neighbors in Space-Challenged Mumbai
http://noir.bloomberg.com/apps/news?pid=20601109&sid=aVvLEfBecLaU&pos=12
“The penthouses at The Imperial are estimated to sell for between $13 million and $14 million, according to Jones Lang LaSalle Meghraj, the local unit of the second-largest publicly traded commercial property broker. They boast views of the Arabian Sea, a golf course and Mumbai’s horse-racing track. Flats at the Bellisimo cost as much as $6 million. ”
* * * * * * * * * * * *
“Half of Mumbai’s 18 million residents live in slums — more than the population of Switzerland. The city’s clusters of ramshackle huts made from scrap materials line narrow garbage- strewn alleyways, usually lack proper sanitation facilities and water supply, and residents often use pilfered electricity from tapping into power cables.
The business district is a different world. Mumbai is the world’s fourth-most expensive business location, behind London, Hong Kong and Tokyo, according to real estate services company CB Richard Ellis Group Inc. “
yes HD – we’re headed to living like the people in Mumbai….
also on that link you provided I only see 3 forclosures in my building… I can’t believe that someone in my building paid 220k for a studio with a view of a brick wall… (or the bank allowed equity withdrawals to that amount) He’d be lucky to sell that thing for 120k today… unbelieveable
Mumbia has wage inflation. Oh, HD — check this out — CPI is going up…
http://www.bloomberg.com/news/2010-08-13/consumer-prices-in-u-s-climb-for-first-time-in-four-months.html
Sonies – above I said “I’m going to guess probably not…”
but it is interesting that disparities like that can happen in the world.
in democracies too.
I somehow missed that, my bad!
But I guess some parts of the city could be compared to mumbai?
ok maybe not, I don’t know of any 14 million dollar residential properties bordering englewood or garfield park
“If the rich stay rich yet the poor get poorer, is this where we’re headed? Is this the end game? I’m going to guess probably not”
…don’t worry, w/ Obama in office, he is determined to make the rich poor and keep the poor just as poor. come on people, don’t you guys realize that it is the rich people that keep the economy and this country going. take away their money and EVERYONE will suffer and be poor.
“Why is life passing me by if I don’t own real estate? I never understood this way of thinking. I am LIVING there regardless of whether I rent the property or own it. It is my home either way. I’m either paying the bank each month or paying the landlord. It doesn’t affect how I think about my life.”
Sabrina, to each his own, but I’m sort of surprised you feel this way (since you run a blog about properties for sale and not for rent). For what it’s worth I feel just the opposite. I am 42 and have dreamed of owning my own house for years but was sidelined or chose paths that made it impractical. I’m finally buying, although it is not the most “practical” thing I could be doing with my money. I agree with clio for once: There is a real sense for some people that they are not putting down roots or working toward anything if they are still “just renting.” The downside of having the freedom to move out after 12 months is that you also can’t make the property how you want it and don’t really feel invested in your home. You know the old adage, “Never buy furniture for a rental.” I tend to agree with that, but that means everything you buy should be from IKEA. And forget remodeling, wallpapering, or even painting. If you’re a homebody like me, and also something of an aesthete who likes the home to be “just so,” renting has some real disadvantages. I’m NOT advocating buying, especially in a market that I think is terrible, but at some point I just found I couldn’t put my life on hold indefinitely, bad economy or not.
good points clio
I have never obtained a job from a poor person, have you?
Wow, overwhelming optimism! How about a dose of reality? Banks are NOT lending, small businesses are folding, foreclosures affect value, and even with 20% down, lots of homeowners are underwater. I was in just that situation-and walked. It’s a contract, and the investment was a bad business decision. Stopped paying 18 months ago, and the bank continues to call to “work things out.” My guess? Obama is going to order Freddie and Fannie to write down principle. The saps will be like Clio, overly optimistic and stuck in a place that will eventually be upside down, while still paying the bank.
“Obama is going to order Freddie and Fannie to write down principle.”
That is a scary thought.
“Obama is going to order Freddie and Fannie to write down principle.”
This will NEVER happen b/c, despite all of the fear and panic, the truth is that the vast majority of americans are NOT upside down and several people (both rich and poor) have paid off their houses. People don’t realize this because these houses are NOT on the market and these people have no reason to tell everyone that they have paid off their house, etc. If any politician even SUGGESTED such a thing you will see the uprising and furor of these folks.
We live in uncertain times. Being mobile might have more value than setting down roots at this point. When there is a healthy economy one doesn’t have to worry as much about liquidity.
“There is a real sense for some people that they are not putting down roots or working toward anything if they are still “just renting.” ”
“And forget remodeling, wallpapering, or even painting. If you’re a homebody like me, and also something of an aesthete who likes the home to be “just so,” renting has some real disadvantages.”
I haven’t been in the rental market for awhile, but when I was I found my landlords to be very accommodating with redecorating. We stripped and refinished the hardwood trim in one place we rented for several years. As a landlord, we allowed our tenants to decorate. Even let one family paint their kid’s room dark purple. Sort of regretted that when they moved out.
“The downside of having the freedom to move out after 12 months is that you also can’t make the property how you want it and don’t really feel invested in your home. You know the old adage, “Never buy furniture for a rental.” I tend to agree with that, but that means everything you buy should be from IKEA. And forget remodeling, wallpapering, or even painting. If you’re a homebody like me, and also something of an aesthete who likes the home to be “just so,” renting has some real disadvantages.”
This depends on what kind of place you are renting. If you have a good relationship with your landlord, he might be fine with your painting etc. as long as you were going to use relatively neutral colors, do a good job, or offer to pay to have it repainted when you leave. And don’t see why you wouldn’t buy furniture as long as it was super specific/custom.
“Being mobile might have more value than setting down roots at this point.” For some, or even for most, but not for me, who has been “mobile” for 42 years.
“When there is a healthy economy one doesn’t have to worry as much about liquidity.” True, but then should you EVER buy a home? A “healthy economy” won’t last 30 years — the length of most people’s mortgages.
“Obama is going to order Freddie and Fannie to write down principle.”
Those two will be on life support forever as they try to reinflate the bubble. The banksters will be on continual bailout and will be able to rake in some big bonuses before it all goes under. I despise republicans more than democrats, but they are right on this issue. I saw today that FHA is going to back up luxury New York condos with 3.5% down. Another misuse of taxpayer dollars.
http://www.bloomberg.com/news/2010-08-13/manhattan-luxury-condos-embrace-federal-help-in-game-changer-for-sales.html
Clio:
Shortsales and foreclosures do affect people who are not planning on selling or moving. For example, I live in a condo, people who are in foreclosure or will be are not paying HOA fees. The rest of us who do pay will have to take on the extra burden.
Not to mention taxpayers (and I presume you are one) have been bailing out irresponsible lenders and buyers for years now. Putting your head in the sand and pretending all is well is not going to help anyone. Americans who play by the rules and are fiscally responsible need to start getting angry and demanding change.
“A “healthy economy” won’t last 30 years — the length of most people’s mortgages.”
People keep forgetting that when you lock into a 30 year mortgage, your payment is fixed and not affected by inflation. Ask your neighbors who are in years 20 -30 what their mortgage payments are – you will be surprised at how low they are. The same will hold true if you buy now (especially b/c prices are low). A 300k mortgage at 4% is going to run you a little more than 1000/month (obviously taxes, upkeep are extra). Do you think in 2020 or 2030 that 1000/month for P & I is going to be a lot? OF COURSE NOT!!! Rental prices, on the other hand , WILL be much higher in 2020/2030 than they are right now. I can guarantee that!!!
tomaso and DZ. As I said, I’ve rented all my life. I’ve lived in 30 places in 42 years (I had to count them up for an application for the bar). “he [my landlord] might be fine with your painting etc. as long as you were going to use relatively neutral colors, do a good job, or offer to pay to have it repainted when you leave. And don’t see why you wouldn’t buy furniture as long as it was super specific/custom.” Why would I bother painting when I’m just going to leave? The reason I would not buy furniture is because it should go with the type of place you have, in my view, and because scale/room dimensions are important in deciding those things. Again, this was just a personal perspective I was giving.
True enough, clio. I was responding to tomaso’s note about the value of “mobility” in an unhealthy economy, and my point was, you will still have to make the 30 years of payments if you buy in a “healthy” economy, because the cycle will turn. So your alternative to facing the scary scenario of being immobile in an unhealthy economy is, basically, RENT FOREVER.
I find it hard to believe you didn’t find the perfect landlord/apartment condo after so many years, where you could be a long term tenant and enjoy making it feel like home.
“tomaso and DZ. As I said, I’ve rented all my life. I’ve lived in 30 places in 42 years (I had to count them up for an application for the bar).”
condo = combo
Its a question of liquidity if you buy in an unhealthy economy. Liquidity becomes more important. If you buy in a healthy economy, you have time to build up a cushion. And you can feel more confident that you could sell if circumstances changed. Hopefully you won’t have to wait 30 years for things to change.
“True enough, clio. I was responding to tomaso’s note about the value of “mobility” in an unhealthy economy, and my point was, you will still have to make the 30 years of payments if you buy in a “healthy” economy, because the cycle will turn. So your alternative to facing the scary scenario of being immobile in an unhealthy economy is, basically, RENT FOREVER.”
Clio,
Sorry I don’t have a link, but Mon-Tues journal this week had stories about “big” August news from Geitner, that everyone was guessing would be principal writedowns. It will happen-think about it-force market to bottom, borrowers now have hope that they can salvage home. Of course, borrowers that are current are screwed. Kinda fits Obamanomics, doesnt it?
Also, good site given the times:
http://builder-implode.com/
“It will happen-think about it-force market to bottom, borrowers now have hope that they can salvage home. Of course, borrowers that are current are screwed. Kinda fits Obamanomics, doesnt it?”
If it DOES happen (which I don’t believe it will) concessions will have to be made to people who are on time w/ their payments as well as people who have paid off their homes (in the form of credits, etc.). That is the only way I could see this type of plan working.
“I’ve rented all my life. I’ve lived in 30 places in 42 years (I had to count them up for an application for the bar).”
Have you moved so much because you’re renting or renting because you’ve moved so much. If you know you’re moving every 1.4 years, then not much point in owning anything in the first place, let alone putting much money into it even if you owned. If you’re moving, I agree why bother painting, but that’s not primarily a functioning of owning/renting.
But if you know or think you might live somewhere for 4-5 years and want to rent, then it’s not that hard to find a place you can customize to a fair degree. As for furniture, I dunno. We bought dining furniture, couch set and bedroom furniture when we moved into our rental. Will probably be fine most places we would buy.
I agree there are advantages to owning. We are looking to buy, after all. I’m just not sure that a lot of the impermanence you’ve felt isn’t due more to personal circumstance (as was my case for many years) rather than fact you were renting.
DZ, I could not control my constant changes of address as a kid, and that wipes out about half the addresses. I was married to a husband who refused to buy in a great market (he was not from this country and never wanted to commit to a mortgage). When that ended I went back to school. I have two advanced degrees that took many years to complete, and I rented the whole time and was usually asked to vacate during the summer months. But enough about me!! My point was only that for some people at some times the “freedom” of renting also has a downside. I did not realize that would be a controversial statement. Why marry? You can always date (and still have a family; it’s perfectly respectful nowadays). Why have kids? You can always play with someone else’s kids. Why do anything that would limit your freedom? In some sense it is totally irrational, and that is why I say that many times people will buy for reasons that are not wholly financial.
“If it DOES happen (which I don’t believe it will) concessions will have to be made to people who are on time w/ their payments as well as people who have paid off their homes (in the form of credits, etc.). That is the only way I could see this type of plan working.”
IF it does happen–and I believe it may–it will be thru Bankruptcy. But that can’t come from Treasury or POTUS.
What *can* happen coming from POTUS is something like this:
http://www.marketwatch.com/story/could-the-government-create-a-backdoor-stimulus-2010-08-04
How bout those that don’t have a mortgage? Where’s MY bailout?!?
“If it DOES happen (which I don’t believe it will) concessions will have to be made to people who are on time w/ their payments as well as people who have paid off their homes (in the form of credits, etc.).”
tomaso: “I find it hard to believe you didn’t find the perfect landlord/apartment condo after so many years, where you could be a long term tenant and enjoy making it feel like home.”
What an statement! I won’t even try to rebut this.
OK – I have to contradict my comment about the government paying down principal. I actually also think that this will happen but it will not be as straightforward as people may think. As with anything in government, they will make you jump through hoops, over hurdles, etc. etc. There probably will be no concessions to those responsible folk who are diligently paying their mortgages or to those who have already paid off their homes (the only thing these people have to be happy about is not having to go through all of the hoops for government help. We all should get used to it – we are hurtling towards socialism. November can’t come soon enough…..
uhhh…okay. Anecdotally, we had tenants that were there when we bought our building and were still living there 11 years later when we sold it. Their place was decorated to their distinct taste and was anything but cookie cutter condo.
“an statement! I won’t even try to rebut this.”
The funny thing about all this renter talk is someone still owns the building the rent in. So, there is always an owner — every dwelling (outside of public housing) is owned by a private individual or a business, which is ultimately owned by private individuals.
The theory with owner occupied housing is — someone has to own this place, might as well be the guy who lives there. Much more control over destiny, etc. The public policy motivation for owner occupied housing is that it is better cared for and fosters strong neighborhoods.
A writedown would be interesting. I’d support it. Especially if there is some teeth for people who have defaulted or walked away. Some sort of semi-permanent black mark would be just fine with me. For those who benefit, it would free up and enormous amount of discretionary consumer income. That is good for rich people.
The only way I could see this being fair is if any future proceeds from sale of bailed out real estate be used first to pay off the government funding. Otherwise it would be ripe for gaming.
“A writedown would be interesting. I’d support it. Especially if there is some teeth for people who have defaulted or walked away. Some sort of semi-permanent black mark would be just fine with me. For those who benefit, it would free up and enormous amount of discretionary consumer income. That is good for rich people.”
I have to agree that this is a good time to buy. I mean, prices are 50% off in some places. Please just perform your due diligence on the property. Don’t take on risky debt. Make sure you have a cushion. Don’t live above your means. Make sure it’s a place you can carry even if God forbid the “worst” happens. I saw the links to houses in Avondale for 100K and lower the other day. Avondale is a decent neighborhood. Can prices go much lower?
Right on logansquarean!
“Folks like clio and Mike need to realize that the “class” of folks they’re using as representative a positive state of the market are actually a very select group, (self-selective, actually). Things down here, where the Average Joe is at, are pretty bad. Same with that idiotic stat about wages “rising” over time. I’m college educated, work in tech, and my salary has been flat for 2-3 years, and with furlough days (yeah, academia) I’ve taken a pay CUT this year. I’m not a shlub, a mope or a Joe Six Pack. All y’all doctors, lawyers, and high rollers need to remember you don’t represent the mean, or the masses, and the middle class IS suffering.”
grrrr.
clio,
How nice is your fixed mortgage if we have deflation? You know, the thing that the Federal Reserve is worried about right now.
By the way, I took a look at Cook County Chancery Court and there were only 772 foreclosures filed so far this week. At this pace, August will only have a third as many foreclosures as July. So clearly we are out of the woods and on to a full recovery.
“How nice is your fixed mortgage if we have deflation? You know, the thing that the Federal Reserve is worried about right now.”
pretty nice when you refinance… if you can get an appraisal that works
“Some sort of semi-permanent black mark would be just fine with me.”
A black mark like the people w/section 8, food stamps, medicaid have right now? Who are we kidding – there will be NO repercussions for these people!!!
“How nice is your fixed mortgage if we have deflation? You know, the thing that the Federal Reserve is worried about right now”
Yes, there will be delation for a little while, but the deflationary period will NOT be anywhere near 30 years – and remember what follows a deflationary period……..
I’m sorry but you guys are off your rocker if you think that principal will be written down or there is going to be a massive wave of underwater refinancing going on.
Doing so would require banks to recognize the true value of the loans they hold and would expose them as completely insolvent. It was not a mistake that the FASB suspended the rule that forced banks to report the true value of their loans back in 2008.
“A black mark like the people w/section 8, food stamps, medicaid have right now? Who are we kidding – there will be NO repercussions for these people!!!”
Those people can get loans and take vacations and not get hassled by the cops? And they can live in safe neighborhoods where their neighbors treat them like their other neighbors? And send their kids to good, safe schools?
And you regard them as productive members of society? … oh wait, they don’t care what you and others think about them, so that one doesn’t count.
“Yes, there will be delation for a little while, but the deflationary period will NOT be anywhere near 30 years – and remember what follows a deflationary period……..”
A ton of homeless people and failed businesses?
There is absolutely zero chance of deflation, unless the government specifically wants it to happen, which would also not occur.
Sorry but I will post it again.
http://www.bloomberg.com/news/2010-08-13/consumer-prices-in-u-s-climb-for-first-time-in-four-months.html
Someone should look at commodities recent run. Wholesale supplier input prices are driven by this.
From Clio:
“A black mark like the people w/section 8, food stamps, medicaid have right now? Who are we kidding – there will be NO repercussions for these people!!!”
There were 3 friends in front of me in line at the Whole Foods in Tribeca on Monday night. Each paying separately. Each with an electronics benefits card (food stamps). Each going over the limit and having to pay the difference on their credit cards. Each buying single serving portions of Vitamin Water and fancy yogurts. No bulk bags of rice ‘n beans here. Each well-dressed.
This is why my tax burden is so high.
“A ton of homeless people and failed businesses?”
Hiliarious – thanks for the laugh, tipster
Absolutely agree. But every time I think “there is no way”, I am proven wrong. Desperate times demand creatively desperate measures. It has been before that accounting standards can be compromised. To believe that gubmint will find a way to avoid booking the writedowns is not too much of a stretch. Bernanke will find a way to be helpful. Circle jerk.
“I’m sorry but you guys are off your rocker if you think that principal will be written down or there is going to be a massive wave of underwater refinancing going on.”
“. It was not a mistake that the FASB suspended the rule that forced banks to report the true value of their loans back in 2008.”
because mark to market is a joke because you can never find fair value for all the loans…
for example, how do you value a loan created for some local dry cleaning shop in NYC and compare it to other loans on the books, would anyone buy it the second it was underwritten? probably not.
Its no coincidence that the FASB mark to market enaction was the peak of the market in 2008 and the removal of the rule once again in march of 2009 was the bottom of the market…
“I’m sorry but you guys are off your rocker if you think that principal will be written down or there is going to be a massive wave of underwater refinancing going on.”
The industry has been trying to figure out the right way to handle it for 2+ years now. They’ve been playing around with some sort of Junior First/B piece (ie, not a true 2d position) lien that would be repayable only upon a sale or refi of the written down note for more than the outstanding balance of the written down note (thus recapturing the write down when there is future appreciation). The problem seems to be that regulations/law are at best unclear about the enforceability of such a structure, esp in a BK context, so the private(ish) lenders are hesitant to be the first to try. If Fannie/Freddie were to start something like that, they’d have more latitude in getting past the reg/legal issues, b/c they’re owner makes the regs.
So, plausible, but complicated, at best, and it would have a bunch of hoops. And, lien stripping in BK is also *very* plausible, but not something Geitner can implement by fiat.
Anon(tfo) there already is a second lien stripping in bankruptcy as long as you are underwater on the first mortgage.
But in my experience the debtors are usually too far gone on the first mortgage too for stripping the second to really even matter.
JMM – if you believe there’s inflation then we’re all f’d and housing has nowhere to go but down down down. If I got $5 in my pocket and the cost of living increases more than my salary – then there’s there’s less and less left over to pay for housing.
tomaso, congratulations on your long-term rental with your tenants of 11 years in their “non cookie cutter” place? Reread your remarks to me, prompted by my post that I had a need to buy (partly to stop feeling like a wanderer) and perhaps you will see how inappropriate your comments to me have been this morning. Not all of us have stayed put in the same city for 11 years, for goodness’ sake; I am finally ready to do so and to OWN my own home (as I strongly suspect you do, while feeling your long-term tenants ought to be content).
“Anon(tfo) there already is a second lien stripping in bankruptcy as long as you are underwater on the first mortgage.”
Yeah, but the discussion was about 1st lien mortgages, or so I thought. Maybe everyone else was talking junior mortgages, in which case there’s no need for any change–Geithner should just tell the UW owners to just file their damn BK already.
“JMM – if you believe there’s inflation then we’re all f’d and housing has nowhere to go but down down down. If I got $5 in my pocket and the cost of living increases more than my salary – then there’s there’s less and less left over to pay for housing.”
HD — you have no idea how inflation works do you? Increasing nominal wages are a big chunk of what drives the end product cost inflation. People make more, but in real terms it doesn not increase the standard of living. No one is saying inflation is great — it reduces the value of corporate earnings and stifles investment — but it certainly solves the housing mess. And some modest inflation is a good thing.
But yes, your rent will certainly increase at a faster pace. Those with fixed mortgages will not experience this, however. And housing should appreciate in nominal terms.
HD —
I am not picking on you, but your ignorance of econonmics is dangerous insofar as you assume things in your rants.
If you want to argue the economy will enter a prolonged depression, then fine.
But please don’t post something that is fundamentally untrue about a basic economic phenomenon. Broad inflation causes the values of goods and services to rise, and that includes real estate (owners equivalent rent — specifically cited in the CPI calculation).
IMO, with the huge overhang in housing, and little if any growth in GDP or employment, many more of the housing units that banks have hiding out on their balance sheets will eventually find their way to the rental market and prices will certainly continue to go down.
“But yes, your rent will certainly increase at a faster pace. Those with fixed mortgages will not experience this, however. And housing should appreciate in nominal terms.”
Never heard of stagflation, did you son? You should read up on yer economics.
“But please don’t post something that is fundamentally untrue about a basic economic phenomenon. Broad inflation causes the values of goods and services to rise, and that includes real estate (owners equivalent rent — specifically cited in the CPI calculation).”
What if, instead of writing down the principal, the government made it easier for underwater owners to return their keys and walk away? Only as a temporary measure, of course, for a few years. This would get people who have no business owning the expensive properties out of them, and force them to either buy within their means or rent for a while. And the banks who have helped to create this mess will have to deal with it, and get rid of those properties at more reasonable prices.
I realize that it will screw over the owners who bought within their means and paid their mortgage on time, but they are already bailing out the irresponsible ones, in the form of taxes and stimulus payments.
Linda you do realize the bankers control the government? Why would they at all be interested in taking their lumps sooner rather than later. Makes no sense to them.
blah blah blah blah. blah.
(fingers in ears)…if I don’t hear it it won’t be true.
“blah blah blah blah. blah.”
“What if, instead of writing down the principal, the government made it easier for underwater owners to return their keys and walk away?”
Inconsistent with 60+ years of Federal involvement in housing and housing finance. The underlying purpose of the Federal involvement is to get *more* people to own homes and thereby create more stable communities, while making an indirect transfer to the housing industry and mortgage lenders. Helping people walk away defeats all of these purposes *and* hurts other homeowners. That won’t happen.
The fact that you were so transient doesn’t mean everybody is. The couple who were my long term tenants were a cop and a nurse. They weren’t moving around. You seem to think that feeling like you are going to be around for a number of years is a good reason to buy. Go for it, but if it were me, I’d wait.
“Not all of us have stayed put in the same city for 11 years, for goodness’ sake; I am finally ready to do so and to OWN my own home (as I strongly suspect you do, while feeling your long-term tenants ought to be content).”
I don’t think I have ever been in a more sour mood on RE than I am right now after reading through this.
“I don’t think I have ever been in a more sour mood on RE than I am right now after reading through this.”
don’t be in a sour mood – there are TREMENDOUS positives and intangible benefits in owning real estate (especially if you are talking about personal home ownership). Investment properties…not so much, but home ownership – ABSOLUTELY – don’t let the nay-sayers get you down…..
@a
its worth it, otherwise nobody would to it… (I’m happy at least)
But there are a few overpriced properties out there so do your proper due diligence as with all major financial decisions.
‘there are a few overpriced properties out there”
understatement of the week.
Clio – YOu’re totally stuck in 2005 but that’s a different story.
“don’t be in a sour mood – there are TREMENDOUS positives and intangible benefits in owning real estate (especially if you are talking about personal home ownership). Investment properties…not so much, but home ownership – ABSOLUTELY – don’t let the nay-sayers get you down…..”
Let me count the blessings of RE ownership. Record foreclosures, bankruptcies, evictions, broken families, destroyed credit, loan mods, failed lenders, unemployment, job losses, divorces, etc.
Where can I sign up for joys of RE ownership post-2005?
Maybe in 2015 RE will be the RE joys that JMM of 2005 so fondly remembers.
“Let me count the blessings of RE ownership. Record foreclosures, bankruptcies, evictions, broken families, destroyed credit, loan mods, failed lenders, unemployment, job losses, divorces, etc.”
and if you pay your mortgage on time and don’t overextend yourself… you don’t have to deal with those things, so your point is as usual, pointless!
the only thing pointless is your relevance to the 1 in 8 people nationwode who haven’t chosen to follow your advice, Sonies.
“the only thing pointless is your relevance to the 1 in 8 people nationwode”
12.5% of Americans are in default on a mortgage? With 65% ownership and ~1/3 with no mortgage, around a third of mortgages are in default? News to me!
1 in 8 mortgage holders, sorry. You know what I meant.
“1 in 8 mortgage holders, sorry. You know what I meant”
Where do you get this data – it simply isn’t true. I would be willing to bet money on this – that is how sure I am.
“IMO, with the huge overhang in housing, and little if any growth in GDP or employment, many more of the housing units that banks have hiding out on their balance sheets will eventually find their way to the rental market and prices will certainly continue to go down. ”
Exactly, rental prices track *wage* inflation, not general inflation.
HDD is right. If he only has $5 in his pocket and it doesn’t cover the rent, he moves into Mom & Dads basement or rents a room from a friend, etc. But now he has a little extra left over every month since he doesn’t have to cover the entire rent on an apartment, so he’s free to spend a little extra and contribute to general inflation.
The supply and demand economics of housing are different than other necessities. One pound of beef feeds the same number of people no matter how much it costs. One dwelling unit houses a variable number of people depending on how much it costs.
“One pound of beef feeds the same number of people no matter how much it costs.”
Really? Never known genuinely poor people, have you?
Regarding how many mortgage holders are delinquent:
“Some 9.39% of all loans were 30 days or more past due, down from 9.54% in May, according to LPS Applied Analytics, which tracks loan data. An additional 3.69% of mortgages were in some stage of foreclosure, down from 3.72% in May and the record high of 3.81% in March.”
http://blogs.wsj.com/developments/2010/07/26/mortgage-delinquencies-fall-in-june-still-near-record-highs/
I remember seeing a stat from the wsj that was similar if not worse than this one from the ABA. Not in foreclosure, but late OR in foreclosure.
http://www.huffingtonpost.com/2009/05/28/mortgage-crisis-12-are-la_n_208645.html
Stagflation would still solve the housing mess.
HD — I’ve owned my house outright since 1998 so I have no dog in the hunt here. It does not represent a significant portion of my net worth. Either does my Geo.
The one pound of beef example makes little sense to me. People can consume less food or purchase less costly alternatives. Instead of beef, they eat rice and beans. Similarly, the family of 6 can live in a 3 br house by doubling up. People can drive one car to work or they can carpool or take the bus. Means fewer purchased cars.
I don’t get that example at all. The economics of goods and services consumed is not radically differenent across the CPI basket. If it were, you would have different inflation measures.
“I remember seeing a stat from the wsj that was similar if not worse than this one from the ABA. Not in foreclosure, but late OR in foreclosure.”
I’d say that 9.39% + 3.69% (“an additional”) is worse than the 12% from the aba.
And that is more than 1 in 8. And the decrease is probably mostly b/c more of the mortgages are going away, rather than being brought current.
“The one pound of beef example makes little sense to me.”
It’s a banner week; we’re agreeing again.
How so? Please enlighten me.
“Stagflation would still solve the housing mess.”
“one gallon of gas takes your car X miles no matter the cost of gas”
would have been a better example (I think?)
Fixed liabilities decrease in real terms while nominal asset values and incomes increase and stay constant in real terms. Real growth remains the same — flat.
“would have been a better example (I think?)”
Substitution effect was like the first chapter in your HS econ class (ok maybe at New Trier, but anyway)…
People take public transportation, or walk or ride a bike.
hey now I have a degree in econ from one of those B10 “cow colleges”
But my brain is only working at around 10% today, im sick and I want to die and not be at work right now
In an ideal world. No evidence of it actually happening though. The Keynesians are trying hard to make things look like their models but its just not working.
“Fixed liabilities decrease in real terms while nominal asset values and incomes increase and stay constant in real terms. Real growth remains the same — flat.”
And if all you can do is copy passages from you econ textbook, this isn’t going to be much of a conversation.
I’m not copying anything from a textbook. It isn’t my fault you don’t understand the difference between real and nominal prices.
If every dollar is suddently worth $1.50 what do you think that does to the value of a 30 year fixed mortgage?
Said another way, if your $4k / month HHI is suddently $6k per month, that $1500 PI doesn’t look so bad.
“No evidence of it actually happening though.”
No evidence because interest rates have been kept artificially low to stimulate the economy. At some point, that reverses as soon as the government decides.
Okay, if you have a fixed mortgage and you don’t have to sell, you don’t have to worry, provided you have job security. But if you have to sell or lose your job, not so rosy. Then you have to face the fact that you own a depreciating asset. Real wages and housing values could continue to slip while commodity prices go up.
“If every dollar is suddently worth $1.50 what do you think that does to the value of a 30 year fixed mortgage?”
You do realize how extremely f***ed the financial system is if rates go up, right? Or isn’t that covered in your text?
“No evidence because interest rates have been kept artificially low to stimulate the economy. At some point, that reverses as soon as the government decides.”
tomaso – actually theres uncertainty behind the thought if rates go up the world will end because the banks will generate more profit thus allowing them to take greater risk which in turn allows for more mortgages to be issued thus decreasing housing supply.
The main reason why the finacial sys is fubar is because wages have not increased at the same rate as prices (the value of a dollar earned does not equal that of a dollar spent).
Though the counterpoint to my argument regarding rate increase is that the consumer will be less likely to afford the property.
The counterpoint to my counterpoint above is that then hopefully, housing prices will fall in accordance with the rate increase and create an equilivant value with the banks making more profit while the consumer can stil afford the now re-established housing price.
but I do agree that the financial sys is fubar regardless – (+1 for 3 posts in a row!)
I don’t really understand what anyone is saying in the above posts – all I know is that over the past 20 years, people continually predict/expect the worse and it rarely comes true.
Housing is VERY different than most commodidities/investments because:
1. everyone needs to live somewhere
2. americans take particular pride in their homes (appearance and location) for some, it defines who they are.
3. americans love luxury
For these 3 reasons, housing WILL recover and, in the long run will be a good investment. Lock in a low rate now b/c in 2-3 years you WILL be kicking yourself for not buying in 2010/2011.
Clio – many do not understand what you are saying, I do, and couldnt agree more. They all like to rent. We like to make money.
I’ve made this analogy before, but I like to repeat myself.
Becoming a homeowner for the first time is like getting into the hot tub. Circa 2004, all kinds of people were taking running leaps into the hot tub. And soon they were trading their spot in the tub for a nicer, hotter one. All the while reporting back that the water feels terrific, suggesting that I get in along with everyone else.
The government wants me to get in the hot tub… so do my parents and friends. In fact, I’m ridiculed for standing on the sidelines in my dry swimsuit holding my towel. But something always smelled funky to me.
Now in 2010, a significant percentage of the hot tub sitters look to be pretty ill. Do I want to finally get my toes wet, or should I wait until the vomiting, drowning, and screaming have subsided?
There is a good possibility that I might remain in the chaise lounger and never even step in. That wouldn’t be such a bad outcome.
all you have to remember danny, is that hot tubs are fun!! Don’t miss out on the party.
“We like to make money.”
Who’s making money in housing? There are some rehabbers who are buying foreclosures, fixing them up and flipping them for profit. They are mainly the professionals though.
Other than them, all I see every single day running this site is utter devestation to people’s financial lives. Heck, in my own workplace, every single condo buyer in the last 5 years is under water and some of my colleagues will lose $50k to $100k downpayments when they try and move (and many want to now that they’ve had children.)
Two of my colleagues have shortsaled due to job changes. One’s condo is selling for 50% less than he paid in 2005. The other one is just about to list his house for $80k less than he paid in 2004 in the suburbs. Both will have their credit ruined for three years (but it could be worse.) Both are now renting in their new cities but will have to pay both rent and their mortgages until the banks actually get around to closing on their deals- which, in one case, has taken over 6 months so far.
Where’s the great money again?
Yeah- you need a house to live in. And yes, some professional investors are making money off of flips.
But if you’re not going to live in the house at least 10 years, don’t buy it. For most buyers, that pretty much means they shouldn’t be buying the 1-bedroom or 2 bedroom condo as the odds of them staying there 10 years are basically nil.
Yet parents, friends, spouses all continue to insist that people buy real estate. It’s so fascinating. The stock market obsession lasted nearly as long though. It wasn’t until the 2008 sell-off that people finally figured out that the Nasdaq wasn’t going to “come back” for like 20 years.
It’ll probably be 2014 or 2015, and more and more people “losing” money, before people figure out that housing will only appreciate at its historic norm- 1%-3% a year- and that it’s foolish to put your entire life savings into it.
But in the meantime, it’s interesting to talk about it.
Also, to me, it’s obvious we haven’t hit the bottom of the market yet or else we wouldn’t be talking about the government doing cram downs. Cram downs are the last resort and indicates to me that the housing market cannot stand on its own and will see further declines.
“But if you’re not going to live in the house at least 10 years, don’t buy it.”
Possibly the best advice on this site!! I want to add my opinion that, if you have a stable job and know that you will need a bigger place/different neighborhood (b/c of family, children’s education, etc.) that NOW is the time to buy. Seriously, rates and home prices are at or near the lowest they will ever be – IF you find something that you like, lock in to a 30 year mortgage. You won’t regret it.
The suburbs w/ good school districts (though they never experienced a huge hit in the first place) are seeing an increase in the number of sales and interest because people are thinking long term, and realize that home prices and rates are at or near their lowest levels.
Seriously, how many people who took out 30-year mortgages in 1980 are still living in that house now and throwing “Burn the Note” parties?
Heck, how many MARRIAGES last that long nowadays?
The 30-year amortized note is one of the biggest wink-and-nudge practices in the financial industry.
The vast majority of homeowners (at least in major urban/suburban markets) Ltrade up” their dwelling places every 5 years or so, which is why the 5-year ARMs made sense as the preferred method of financing (esp for singles and young families) during the 1990s and 2000s.
How and why it all went so spectacularly wrong is something we’re still trying to figure out.
But it really was one of those “It seemed like a good thing at the time” ideas.
“Seriously, how many people who took out 30-year mortgages in 1980 are still living in that house now and throwing “Burn the Note” parties?”
I totally agree – but I think that people kept “moving up” because they could sell their house, make money and move somewhere bigger (ie, the opportunity was there). Now, people’s attitudes might be changing. Many of them WILL stay in their houses for 30 years (because the opportunity is not there). Think about it – many of people (born in the 30s, 40s and even early 50s) HAVE stayed in the same house for over 30 years (how many of our parents still live in their original house?). It is because they suffered through similar recessions and never expected their house to be a cash machine. It is really only the people who bought in the late 70s, 80s, and 90s who kept moving “up”. I think that we will revert back to 30s/40s mentality and see people staying put in their houses for a long time.
It’s interesting that all the condo owners I know are stuck, and 2 of them even own 2 units (renting one out at a negative cash flow). They are so underwater that they will have to stay for many more years.
Most of the renters I know are saving big bucks, and after 5-6 years of working have way more in terms of liquid assets than the owners (60,000-100,000)
How is it that buying is better than renting?
“How is it that buying is better than renting?”
short answer: timing and patience
long answer: in today’s world of expected instant gratification/easy profit, people forget that timing and patience are so incredibly important. Real estate is like a marathon (not a sprint). While your friends probably bought at the peak and are “down” right now, they will likely be “ahead” in 10 years if they stay put. The renters you talk about have 60-100k in liquid assets but no permanent home. Assuming they are eventually going to buy a home (as the vast majority of people who can afford homes do), they are taking a risk that housing prices are not going to go up. Rents ARE going to go up, real estate prices ARE going to go up. In addition, by renting, they cannot take advantage of the mortgage interest/tax deduction. So, I bet that in 2015-2020, you will posting on another site stating that your friends that stayed put are way ahead and the renters are struggling. Your new question will be ” How is it that renting is better than buying?”
Sabrina – The post about 3041 N Honroe, the seller just made money! A good ivestment in housing will always make money! Renting always will result in loosing money – it’s just how much – and thats a given because there is absolutely no chance that you recover the payments.
BUT, the quirky part to each their own right? Would you wanna loose 25k in a year for $2k/mo rent or roughly loose the same amount (possibly for a lessor place) OR potentially profit that and then some over the next few?
Come on, that’s the oldest and weakest argument the book.
Buying right now is like throwing money in the toilet. Sales volume has collapsed, prices are dropping *even more* and everytime a home owner makes a payment, the portion that goes towards principal is flushed down the toilet. It disappears. It goes away. Never to be seen again.
At least the renters (those who rent for less than the cost of owning), hopefully they put the save the difference. I know I’ve been. And when this whole mess is nearly over, I’ll swoop in and get myself a deal.
Oh, did I mention that sales collapsed after the tax credit expired? What do you think that does for home prices?
I’m pleased to say that eventually, within the next few years, in good ole’ US of A, housing will be cheap, plentiful and there for the taking, just like nearly everything else in this wonderful country, the best place on earth. I’m happy to report that we’re already halfway there, and this housing price collapse will be the final half of our national journey towards plentiful and cheap and abundant housing for everyone.
Go ahead, flame away.
“Renting always will result in loosing money – it’s just how much – and thats a given because there is absolutely no chance that you recover the payments. “
a-fed: “A good ivestment in housing will always make money! Renting always will result in loosing money – it’s just how much – and thats a given because there is absolutely no chance that you recover the payments.”
Nonesense! This is Just more real-estate platitudes that are tossed about like religion. The only way that real-estate is a good investment is if you are able to sell at a higher price than what you bought. It’s that simple. And no one can guarantee what prices will be like in 5, 10, or 30 years. Historical trends really mean little (especially financial instruments like derivatives didn’t even exist). A 20+ year slump happened in Japan (complete with walking zombie banks propped up by the gov’t). It very well could happen here too.
And I never understand that statement that “renting is throwing away money”. I pay a given amount of monthly, and I get a dwelling to live in for a month. Very simple. Money is exchanged for a service.
Is a gym membership “throwing away money”? Is a CTA monthly pass “throwing away money”? No… they are basic economic transactions. Just like renting an apartment.
Mortgage interest, association fees, and real estate taxes are all “sunken costs” that do not add to your equity. How is this not “throwing away money” comparable to renting?
“The post about 3041 N Honroe, the seller just made money! A good ivestment in housing will always make money! Renting always will result in loosing money – it’s just how much – and thats a given because there is absolutely no chance that you recover the payments.”
How do you know they did?
The bathrooms had been redone (not sure when that happened) along with some other upgrades. So I don’t know what was spent on the house.
Also- if you think a “good investment in housing will always make money” you’re clearly not really aware what is going on out there. I thought buying in Lincoln Park or Lakeview was a “good investment”- but most who bought even in the last 7 to 8 years – not even just 5 years anymore- is losing money. Not everyone- but many. Even in the upper bracket. You’re much better off investing in other asset classes if you want a real return- like stocks.
This looks like normal volatility in the numbers to me. It’s been around this level since October of last year. What’s interesting is that the % of sales that are foreclosures has been dropping in Chicago – pretty dramatically. Now, maybe the banks are sitting on them longer.
Homedelete – it may the be the oldeset but certainly isn’t the weakest. If business models from 100+ years ago still hold water, than so does this.
Sabrina – Yes I agree the stocks and other asset-based investments but provide decent returns, but as Clio mentioned above, you cannot live in a stock. You cannot cook dinner in a mutual fund. Many people got caught up in the bubble and weren’t thinking logically, there still was decent housing during 2005-2008 that people are returning profits from..
Danny – My point was with renting, you have absolutely no chance of recoving the capital. Comparing to basic transaction, housing should be basic yes, I agree, basic as in a fundamental requirement. But what if you could BUY that gym membership and then have a chance of selling it for a profit?
Gary:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aUTf5Ac3P7jY
US Home Resales Due For New Low
Citi says that resales will set a new record low, lower than nov 2008 and &an 2009, when even Steve Heitman conceded that the world was imploding for a short period of time. G called that time period that time period out. As as volume hit ‘generational lows’ yeah, we might be lower than that, nationally.
Another point – when the cost of renting is 1/2 the cost of buying, assuming you save that other half, you will come out ahead. Plain and simple. The only way you wouldn’t is if appreciation reaches an unsustainable level again – this is very unlikely. Build up a sizeable cushion by renting for 5 years, then go buy your home. It may hurt realtors because it decreases sales volume, but who cares. In the long run it helps the economy, because the owner with the sizeable cushion can weather the storm better when they are an owner, and there would be less people to have to bail out.
HD couldn’t home resales be so low due to so much new construction sitting out there cheap? got any data for new home sales? I’m sure they are up from 09 numbers
Actually new home sales volume in June was the lowest for any June since they started keeping records in 1963.
http://calculatedriskimages.blogspot.com/2010/07/new-home-sales-june-2010.html
I’m a broken record, I know I know, but prices are STILL too high and IMHO, have another 20 or 30% drop that is currently happening as we speak, and will be reflected in stats later this year.
That sucks for a lot of people but its great news for patient buyers.
“Sonies on August 15th, 2010 at 6:44 pm
HD couldn’t home resales be so low due to so much new construction sitting out there cheap? got any data for new home sales? I’m sure they are up from 09 numbers”
“
“Another point – when the cost of renting is 1/2 the cost of buying, assuming you save that other half, you will come out ahead.”
Of course – but renting is nowhere near 1/2 the cost of owning(unless you are comparing 2 different types of homes). Also, if you wait 5 years, home prices WILL be higher and interest rates WILL be higher at that time. These increases could wipe out any savings realized by waiting and renting in the meantime. In addition, you are putting your life “on hold” for an additional 5 years. Overall, not a great suggestion – of course, don’t rush into anything, but the time to buy is in the next 6-12 months.
I have never argued that you can live in a stock. You invest in them. But a house is not an “investment” either (in the traditional sense.) Over the last 100 years, it has, for the most part, barely kept up with inflation. You are not buying a home to become rich or send your kids to college.
But, sadly, the boom of the last 10 years has twisted the story about what housing truly is- a place to live. That is all.
I wish they would bring back the 20% down requirement. It brought stability to the housing market and people thought long and hard before they purchased their properties knowing that they had so much at stake.
“You’re much better off investing in other asset classes if you want a real return- like stocks.”
That is also a bunch of B.S. that the financial world wants us to believe.
First of all, my stock portfolio (like millions of other Americans) is still down about 25% (the dow is still off more than 30% from its highs).
Second of all, the “8%” returns in the stock market that all the financial gurus talk about is based on a relatively short time period (1985-2000) – but if you take a closer look at the previous years, there was a 20 year period where the Dow stayed absolutely flat (1961-1982 the dow went from 762 to 811). Had you invested in an index fund during this time, you would not have made anything!!
My point is that there is risk in every investment – the positive thing about real estate is that you actually get to “use” and get pleasure out of it.
At the end of the day, buying is really like renting from the bank, especially when you are way underwater on your home due to the decline. It has set a lot of people back a long way financially, so much so, that young people these days are hesitant to buy, because they don’t want to end up like their friends who lost their shirts.
I guess I’d rather be in the position of having a ton of cash on the sidelines, than have wasted it on a depreciating asset.
Renting is about 1/2 to 60% of the cost of buying, when you look at all-in costs, including PTI, insurance, and upkeep costs. Housing is still 15-20% overvalued, and will continue to fall. It’s interested that all these people said last summer was the time to buy. Now you can get an even better deal, and I think next year more of the same.
“Second of all, the “8%” returns in the stock market that all the financial gurus talk about is based on a relatively short time period (1985-2000) – but if you take a closer look at the previous years, there was a 20 year period where the Dow stayed absolutely flat (1961-1982 the dow went from 762 to 811). Had you invested in an index fund during this time, you would not have made anything!!”
That’s actually NOT correct. From 1982 to 2000, the S&P 500 returned an annual return of 18%. If you were a baby boomer and in the stock market you got rich.
From 1957 to the end of 2009, the S&P 500 has returned about 11%, even including the horrible returns of the last decade. Of course there were bear markets. It’s like any asset class.
Clio, you shouldn’t be on here touting housing, you should be telling people to buy stocks as they will come out of their bear cycle well before housing ever will.
But, of course, you can’t live in it. I’m speaking solely as an investment.
My grandfather bought a half acre of land in 1951 in one of the nicest south suburbs and built his family a home. It cost him $5,000. A few months ago, my uncle sold the family house, still on that half acre of land and within walking distance of the metra, for $119,000.
During those 60 years, that south suburb has had its ups and downs, like any neighborhood. At one time, it was very ritzy, but, in the last 20 years, not so much.
Can’t say it was a good “investment.” My grandparents moved to Michigan 25 years ago. Their property there is worth much more than the south suburban home ever was. But they never once thought of any of their houses as “investments.” They have stocks for that.
“Renting is about 1/2 to 60% of the cost of buying,”
where are you getting these figures? They don’t make any sense at all.
A 300,000 condo at 4.5% interest and no down payment = 13,500
Taxes will be about 3500 and assessments would be about 300/month. All told, the buyer will be paying aobut 1725/month. Take the mortgage interest/tax deduction (assuming 28% bracket) and the effective monthly payment comes to about 1328/month. ARE YOU TRYING TO TELL ME THAT THIS UNIT WOULD RENT AT 50-60% of that cost (530-650/month)??!!!!
“It’s interested that all these people said last summer was the time to buy. Now you can get an even better deal, and I think next year more of the same.”
I know someone who bought in 2008 because he paid $25,000 less than the previous owner who bought in 2005 and thought he was getting a “deal.” Now he wants to sell because he and his wife had a baby and they discovery they will lose at least $50,000 but most likely $75,000 or more. They are underwater and can’t sell and are stuck in the property. His “deal” really wasn’t.
I’m seeing a lot of hesitant buyers now. Remember when the developer price cuts used to mean quick sales? Now, very few buyers even care anymore (at least about the 20% to 30% reductions.) Perhaps if we see 50% off in some of these buildings that might spark more interest.
Clio- who is buying a $300k condo with NO money down? Even the FHA requires 3.5%.
“Clio, you shouldn’t be on here touting housing, you should be telling people to buy stocks as they will come out of their bear cycle well before housing ever will.”
I agree – housing for investment purposes is very risky and I wouldn’t advise ANYONE to do so without thorough evaluation, etc. However, I do believe that if someone is looking for their own personal permanent long term residence/house that now (or the near future) IS the time to buy as prices and interest rates are sure to start increasing in the next few years.
Sure. If they’re going to live in it for at least 10 years. There are plenty of great deals out there all over Chicago and the suburbs. People who before where shut out of, say, the North Shore, can now buy there. Same with the “prime” north side neighborhoods.
“Clio- who is buying a $300k condo with NO money down? Even the FHA requires 3.5%.”
I was just using this as an example to make it easier to compare the monthly/yearly costs of renting vs. owning. I guess I should have said, someone with a 300k mortgage (375 purchase price).
My comparable unit to buy would be $450,000 or more in my neighborhood. I also factor in the other costs of owing as well – rising property taxes, opportunity cost on the down payment, upkeep of the unit, and other costs like the monthly maintenance fees.
As I take the standard deduction (married filing jointly), the tax savings wouldn’t be that significant at all with a mortgage interest deduction.
My exact unit with granite countertops and a second bathroom and central AC (but the same number of sq ft) sold for $270,000 in 2006; $240,000 in 2009; yet I pay slightly less than $900. You can keep your granite countertops and central AC; I’ll stash away that $1,000 and pay off student loans and/or save like I’ve been doing for years now.
And when the time is right, after this second price decline I will probably buy a SFH.
“The suburbs w/ good school districts (though they never experienced a huge hit in the first place) are seeing an increase in the number of sales and interest because people are thinking long term, and realize that home prices and rates are at or near their lowest levels.”
Clio, I am not seeing this.
Asking prices are still propped up by multiple sources: 1. banks holding onto shadow inventory, 2. stubborn sellers, 3. realtors. And #2 and #3 claim that distressed sales shouldn’t be considered comps in any way, only to salvage themselves and their clients.
It seems like we are going around in circles with this whole “rent vs. buy” argument.
It reminds me of a story that a financial advisor told me. He said that someone who graduated from high school at age 18 and directly went into a plumber’s apprenticeship (making 60k by age 20) would be much further ahead (financially) until age 60-65 than someone who went to a four year private college, 5 year PhD program and came out at age 29 making 100k/year (assuming similar savings habits).
The point was that “money isn’t everything” when considering a jpb/career. Well, in housing the same holds true. Other factors in life are just as important in deciding whether to buy or not. Each person should analyze his/her situation and decide for themselves whether to buy or rent (just as each person should decide whether to be a respected professor or plumber dealing w/sewage every day).
wow those numbers are crazy HD, well hopefully the numbers in sales volume improve since they can’t really get much worse. Thankfully I don’t need to sell for a while!
as for the dumbarse that said the stock market has been flat for the last million years, you’re wrong you are completely forgetting one huge part of investing… dividends
“as for the dumbarse that said the stock market has been flat for the last million years, you’re wrong you are completely forgetting one huge part of investing… dividends”
yeah – the dividends on stock pay SOOO much.
/facepalm
cleo you sir are an idiot and should just stop talking about money period you poser
For some places (perhaps especially in the higher brackets??) owning can look almost twice as expensive as renting. Here’s a partial rehab of a Victorian in Lakewood-Balmoral, one of the most elite areas on the north side:
Asking price: $925,000
http://www.rubloff.com/property/chicago/07583208.cfm?searchId=186957a9-a344-4149-9f15-afb7d6651cfc&page=1&pageSize=20&sortType=1
Asking rent: $3700
http://www.domu.com/lakewood-balmoral-apartments/5340-n-lakewood-ave-chicago-il-60640
Russ mentioned Lakewood-Balmoral in the Andersonville condo post, though I would amend it slightly, since it’s not really from Clark to Broadway, but only Magnolia, Lakewood, and Wayne (from Clark to Glenwood is mostly 2 and 3 flats, with many rentals; L-B is just about exclusively SFH’s, and very nice ones).
Also not sure who would consider A’Ville a secret (in 2010?!??!), but I have lived there and it’s one of my favorite neighborhoods in the city. It can be a tough commute driving if the Drive is backed up, which it often is.
Danny,
Factor in the most important part. Drum roll please……
After a set period of time you are no longer “renting from the bank” but actually OWNING an asset. Renters will never have that luxury or piece of mind. I know that you want to side with the “I told you so and the sky is falling crowd” but If I recall correctly you are in your early 40’s. In the end there is no doubt that buying now and owning a property outright in 15 years would put you in an enviable position. Sure there will still be the annual cost of upkeep, updating finishes, and paying property taxes but those costs would also be reflected in the cost of your rental property.
Danny, don’t feel like you have to sit out this market forever. The reality is that as owners we were all playing musical chairs for a decade and now that the music has CLEARLY stopped everyone has sat down! Those that are still sitting in a comfortable chair may need to stay seated for a while. Those that could not are out of the game. They bought the wrong home at the wrong time. Hopefully in time the music will start again and we can all move around looking for the “perfect” chair!
jp3chicago,
I couldn’t have said it better…… but of course I will try – (no, just kidding)
Jp3, sure, you’re sitting in a chair – a deckchair on the titanic and the boat is sinking. My rent and the money I’ve saved being a renter is my life preserver. Sure, I might own in 15 years (or most people, 30 years, or better yet, never for borrowers with interest only balloon mortgages)… But who pays off a mortgage nowadays anyways? When was the last time you went to a mortgage burning party?
“Renters will never have that luxury or piece of mind.”
I really don’t know how to respond to JP3’s post–its quite comical. JP3chicago not sure how distant you are from reality or whether you really did step out of a cave that you entered in ’05, but most owners my age have quite the opposite of “piece of mind” compared to me and others who never bought at inflated valuations.
Your post is almost like a glossy brochure from 2005 along with the Realtor(tm) talking points from 2005. Note the lack of any numbers or analysis in your claim that ownership is the way to go. Just don’t wind up as one of those who “bought the wrong home at the wrong time.”, right?
“But who pays off a mortgage nowadays anyways? When was the last time you went to a mortgage burning party?”
Duh – that was JP3’s point. In the past 10 years (when the music was going) it was too easy for people to keep moving up/moving around. Now that “the music has been turned off”, they have to stay put. In fact, I bet you will see more people “staying put” until their mortgage is paid off.
For some places (perhaps especially in the higher brackets??) owning can look almost twice as expensive as renting. Here’s a partial rehab of a Victorian in Lakewood-Balmoral, one of the most elite areas on the north side:
5340 n Lakewood
Asking price: $925,000
check redfin, i can’t include two links or my comment gets held in moderation purgatory
Asking rent: $3700
http://www.domu.com/lakewood-balmoral-apartments/5340-n-lakewood-ave-chicago-il-60640
Russ mentioned Lakewood-Balmoral in the Andersonville condo post, though I would amend it slightly, since it’s not really from Clark to Broadway, but only Magnolia, Lakewood, and Wayne (from Clark to Glenwood is mostly 2 and 3 flats, with many rentals; L-B is just about exclusively SFH’s, and very nice ones).
Also not sure who would consider A’Ville a secret (in 2010?!??!), but I have lived there and it’s one of my favorite neighborhoods in the city. It can be a tough commute driving if the Drive is backed up, which it often is.
roma
you are right – right now there are some good deals on rentals – but BEWARE, it is because the owners are timing out the market. When the market comes back (and it will), the owners will kick you out and sell and you will be left out on the street. Rents will go up and you will be S.O.L. Seriously, don’t be fooled by the artificially low rents – they WILL NOT be around forever. Buy now or run the risk of being priced out of the market.
hahahahahahahaha, i’ve been waiting for almost 3 years for someone here to utter that line non-ironically (assuming clio is not a hoax)! Finally!!!
Just when I thought that with Heitman gone (forever?) I’d never get the chance…
By the way, here’s the other SFH for sale and rent in L-B: 5440 N Magnolia.
Asking sale price: $1.2 Million
Asking rent price: $4500
I’d wager even Clio can do that math…
“Asking sale price: $1.2 Million
Asking rent price: $4500
I’d wager even Clio can do that math”
Of course I can do the math – it doesn’t add up: the only reasons someone would do this is:
1. the own the place outright (or bought a long time ago and their monthly costs are not that great)
2. they are taking a hit but can afford it
Either way, they ARE timing out the market and WILL sell when the market comes back. Think about it – if that happens, renters will really be out of luck – because not only will they be “kicked out” but rents will be much higher (b/c of stiff competetition) AND if, at that time, renters decide to buy, home prices will also be much higher. Again, NOW is the time to buy.
clio,
While NOW has never been a better time to buy, this has coincidentally also been true with each passing month over the past decade. So if each month is the best time to buy, what criterion should someone use to get off the fence?
Or be forced to sell when they run out of money.
“Either way, they ARE timing out the market and WILL sell when the market comes back.”
And just to add my .02 about equities, if I followed my feelings about the integrity of the stock market I would be flat. The flash crash just confirmed it.