Market Conditions: Has the Green Zone Avoided the Worst of the Distress Sales?
We’ve had a lot of chatter recently about how the foreclosures and short sales seem confined to the areas of the city that are NOT the Green Zone (aka, the neighborhoods encompassing the South Loop, the Loop, River North, Streeterville, the Gold Coast, Lincoln Park, Lakeview, Bucktown, Wicker Park, Lincoln Square, Ravenswood and North Center- to name a few).
Some believe that foreclosures will not have much impact in the Green Zone neighborhoods so therefore prices won’t drop further.
Crain’s recently reported on a foreclosure lawsuit filed on a 31-unit development called Sheffield Condo Living at 3808 – 3816 N. Sheffield in Wrigleyville.
Only 8 of the 31 units have sold.
The Lakeview condo market has been slow, with distressed properties selling far below average market value, said Gary Reidy, a broker associate with Chicago-based brokerage Conlon who was not involved with Sheffield Condo Living.
In the last four to six months, a lot of foreclosures and shorts sales have crept into this neighborhood,” says Mr. Reidy, who lives less than a block from the project. “We thought we were immune to it, but obviously not.”
Only condos that are priced right are selling now, Mr. Reidy says.
And when I say the right price, I mean 2002 values,” he says.
Are the distress sales really a non-factor in the Green Zone- or are they just starting to heat up?
Spire veteran named in lakeview foreclosure suit [Crain’s Chicago Business, Mary Morrison, July 26, 2011]
Perhaps there are many shades of green. Simply being on the north side (were more new condos really needed in Wrigleyville?), or in formerly edgy areas with lots of hip restaurants and boutiques (the only reasons I’ve visited, say BT), or within close proximity to the city’s professional center (SL, WL) might not be enough to weather an historic real estate downturn.
This is where I actually tend to agree with Clio. I’ve got tons of data that show that % distressed sales and price changes are very much dependent upon the area. Stuff that I’m interested in is only down 15% from the peak.
Here is the data on distressed properties vs. price:
http://www.chicagonow.com/getting-real/2011/04/with-all-the-foreclosures-and-short-sales-why-cant-i-find-a-deal/
Very informative chart Gary. A picture is worth a thousand words.
Wrigleyville does not equate to a Green Zone (whatever that means) in my estimate. It is a nice neighborhood but I do not equate it with “solid high end with stable return on investment construction”. Price it for the general neighborhood and it should sell in time. Wrigleyville demographics of 30 yo + have been hit hard.
“Wrigleyville does not equate to a Green Zone (whatever that means) in my estimate.”
So, then, you would also discount prices in the area around DePaul as many 20-somethings live there and that has also been hit hard?
What about the area around Old Town? Many 20-somethings living there. That would also not be Green Zone?
What about the area near Printers Row? Lots of students there because of the colleges. Lots of young people whose parents bought condos while the kids went to college. That also wouldn’t be Green Zone?
So- basically- any area where there are “wrigleyville demographics” of 20-somethings and 30 somethings have been hit hard. That describes just about every single condo neighborhood on the north side, west town and Bucktown/Wicker area.
I’m with Sabrina on this one.
Wrigleyville has been a stable area for 25 years. Before 1985, it was quite edgy, but not since then.
“Very informative chart Gary. A picture is worth a thousand words.”
I think the chart is also very interesting but it doesn’t tell you whether or not you’ll get a “deal.”
If the $2 million house with a $1 million in downpayment is now priced at $1.2 million, which is a huge haircut off the prior selling price, isn’t that a “deal?”
I’ve said this many times. Sure- you’re not going to get a $100kk 2/2 in most parts of Lincoln Park. But if the 2/2 was $550,000 at the peak of the bubble and now it’s selling for $375k- isn’t that a deal for someone? (depending on if you believe prices have bottomed or not.)
It never shows up as a short sale becuase they had the equity into it- but it’s still a major price decline.
I’m seeing this all over LP and Lakeview now. Properties previously priced at $650k are selling or $500k (or lower- in some cases.)
By the way- these are the ONLY people able to sell right now (without going the distress route.) Everyone else is skipping the short sale and are renting it out (or staying put) as Clio has argued they should do. They are betting for some kind of recovery in the next few years (whatever that may be.) That is why inventories are low.
Too many people in the GZ are underwater and would have to do a distress sale. They have the assets/income to take the monthly loss by renting it out (unlike those in other neighborhoods which just go straight to the short sale/foreclosure.)
‘I’ve got tons of data that show that % distressed sales and price changes are very much dependent upon the area.’
Exactly Gary. I’d go further and say it’s also a block by block, house by house basis now. If someone thinks they’re going to get a LP (the real LP) *quality* renovated single family with a 2 car garage for a song… think again.
Gary, interesting graph but not surprising. The places that go as short sales and foreclosures are often the less desirable (and therefor cheaper) properties, otherwise owners would be more likely to be able to sell them for what they owe. Also as sale price goes up, the owner is more likely to have some sort of savings/income/way of bringing $$ to closing to prevent a short sale or foreclosure.
While people keep talking about doing shortsales or walking away, I doubt my bank would ever let me do a shortsale instead of bringing $$ to closing or not come after me if I just walked away and I doubt I am the only buyer from 2006 of a higher priced property in this situation. People in “cheaper” units are more likely to be truly distressed than the loud complainers/whiners who are in the middle.
“Too many people in the GZ are underwater and would have to do a distress sale. They have the assets/income to take the monthly loss by renting it out..”
That is the key – and these people understand it and have the patience to ride out the storm. All key people “in the know” I have interacted with are predicting prices/market to come back slowly – with steady 1-2% appreciation for the next 3-5 years followed by larger gains thereafter (the “lag” effect is what they call it).
Everyone I know who wants/needs to sell is hanging on for a couple of more years. Sure they may lose a little money then, but it won’t be as bad as it was in the past year. Also, they still need a place to live!!
“I think the chart is also very interesting but it doesn’t tell you whether or not you’ll get a “deal.””
If anything, it tells you that you WON’T get a deal. Unless you are looking in the lower price ranges.
“But if the 2/2 was $550,000 at the peak of the bubble and now it’s selling for $375k- isn’t that a deal for someone?”
Sure. It might also be a deal for someone if the $550K only dropped to $450K.
Let’s say Clio, HD and Anon are watching LP. Clio can afford the $550K price tag, but he doesn’t buy. HD is waiting for that $550K to drop to $300 and he loses out because Anon snaps it up at $400K.
Does anyone here know of anyone who went through a short sale (or foreclosure)? I actually know two people and the emotions are very interesting. Although they could have afforded to rent out their unit or stay in place (both had stable jobs), and listed it as a short sale. When the sale actually went through, they were so happy and relieved…..for about 2-4 months. Then they realized what they had done and now are miserable. Why? Because they realized that they weren’t in that bad of a shape to begin with and realized that if they just had stayed put, they would be in a much better situation. Why? because:
1. they didn’t realize how much rent they would have to pay for a new place (their PITI on their condo was 3700 for a 3/2 in LP – their rent for a smaller, yuckier place in wicker park is 2400 – only a savings of 15k/year – a large amount, but not that much when you consider the loss they took on their condo)
2. their credit took a massive hit – with that hit, their credit card interest went up, their car insurance went up….
3. they realize they are not going to be able to buy a place for 7 years. This significantly limits their housing options
4. the stigma of a short sale is weighing on them (this is ridiculous and shouldn’t be the case, but, for some reason it is). Honestly, I think they have lost a lot of confidence and self-worth/self-esteem – it is really sad.
All said and done, people will always think the grass is greener on the other side – but when you really analyze the situation, you will see that sometimes you should just stay put and ride it out…..
the former HD would suggest that Anon’s $400k purchase is merely a signpost letting him know that prices are heading in the right direction.
the bottom calling HD says that Anon won’t get that property at $400k because there will be so many bids at that price that it ultimately sells for $450k.
The real issue in play here is supply and demand. both banks and underwater sellers are holding back inventory, leading to a lack of supply; and there is demand for good properties as evidenced by multiple bids.
The market unfortunately will remain stagnant for years.
“#Icarus on July 27th, 2011 at 7:06 am
“But if the 2/2 was $550,000 at the peak of the bubble and now it’s selling for $375k- isn’t that a deal for someone?”
Sure. It might also be a deal for someone if the $550K only dropped to $450K.
Let’s say Clio, HD and Anon are watching LP. Clio can afford the $550K price tag, but he doesn’t buy. HD is waiting for that $550K to drop to $300 and he loses out because Anon snaps it up at $400K.”
Yes, me. I bought an apartment in Washington DC in 1994 and sold it at a loss in 1998. I regret it to this day. Clio is right. You’ve got to hold onto stuff long term. I’ve lived through a few real estate downturns. I regret selling that apartment to this day. I would never be able to buy such a cute apartment in such a nice location in DC again.
And the banks can’t even price properties correctly. Which sucks for everyone involved.
http://www.redfin.com/IL/Des-Plaines/1787-Webster-Ln-60018/home/13644419
I agree with clio. Especially this: “1. they didn’t realize how much rent they would have to pay for a new place”
Some friends of ours are trying to rent on the north side now and are finding the rental market extremely tight and super competitive. They were forced out of their condo rental and had no idea how much the rental landscape had changed in 4 years.
Other friends of ours were renting out their Green zone unit and had 15 rental applications (with checks) over 2 days of showings. They picked the best tennant, and there was one offer over thier asking rent.
I know many people here will brag about how cheap their rent is. But when they must leave they will find that it is more difficult out there.
“All key people “in the know” I have interacted with are predicting prices/market to come back slowly – with steady 1-2% appreciation for the next 3-5 years followed by larger gains thereafter (the “lag” effect is what they call it).”
clio – 1-2% is fairly bearish with inflation running at about a 3.5% clip. You sure those people are “in the know?” Additionally, my inlaws own a 4/2 east of Tokyo – can you ask the people in the know when that will return to 1991 pricing? Who knows, though, if Uncle Ben keeps stomping on the dollar, when we inherit that place I might be worth tens of millions of dollars if Yen to Dollar parity is achieved.
Interesting observation by Clio on someone who went through a short sale. I’d love to see demographics on who are doing short sales and how much they differ from their neighbors (if at all). If I were the person in Clio’s example, I wouldn’t have done a short sale — I would stay or rent it out assuming my finances permitted. Among people who aren’t in deep financial problems, I think short saleonly make sense for those who are going through a major life change (e.g., divorce) and want to just move on.
HD, please tell me you were not considering that Des Plaines abortion for yourself!
Whoa, is the old old HD back?
Yeah, I just don’t like renting. I had a series of short-term rentals my first year in NY. That was a disaster. I’ve always owned.
“Although they could have afforded to rent out their unit or stay in place (both had stable jobs), and listed it as a short sale.”
Then how did they get approved for a short sale?
Oops, posted this in wrong thread:
“2. their credit took a massive hit – with that hit, their credit card interest went up, their car insurance went up….”
I call bs on the CC part. Only poor people keep a balance on their credit card. I couldn’t care less if my rate was 99%. I pay in full every month.
1) the old Hd is not back, not yet at least; the real issue will be long term, what happens to all the foreclosures and the modified loans? Yes many of them are in less desirable areas but there are plenty in good areas too. as these become walkaways in the future (and they all will) it will keep prices affordable in those areas. BUT the better areas are not as affected by foreclosures, so they’re prices remain high. However, will there be a two tiered property market? Will the invisible pricing line between two neighborhoods start to blur as buyers realize they can cross from evanston to skokie and save a bundle? or will those defined boundaries remain in place, and crossing western will result in a bigger disparity than exists today? 2000 north, 2399 w = $800,000 vs. 2000 north 2401 W = $80,000? its possible.
2) I spent some time in my life in des plaines and I never want to return.
“I call bs on the CC part. Only poor people keep a balance on their credit card. I couldn’t care less if my rate was 99%. I pay in full every month.”
Coming from someone who just met with a client in the financial services industry who earned $400,000 a year every year last decade except 2010; this is the dumbest thign I’ve ever heard.
the problem is when you’re making $400,000 a year and it’s just not enough so you don’t pay the taxes, and you charge up $200,000 in credit card debt, and the mortgage is nearly a million dollars, and then for various economic reasons your income resets to ONLY $150,000; everything falls apart.
“the problem is when you’re making $400,000 a year and it’s just not enough so you don’t pay the taxes, and you charge up $200,000 in credit card debt”
Bullshit. What % of people making 400k a year have ANY credit card debt? You are talking about the exception, not the rule.
Clio:
“3. they realize they are not going to be able to buy a place for 7 years. This significantly limits their housing options”
I don’t think this is true. Everything I read says maybe four years, tops.
you can get a short sale approved if your income is just barely or not sufficient to cover your debts, and you have no attachable assets. coming from my line of work you would be surprised how many people have high incomes and no real assets to back it up. vacations, steak dinners, foreign suvs with secured liens, underwater homes, 401(k)s are exempt, stupid jewelry, big screen tv’s in multiple rooms with ethan allen furniture, none of these are attachable assets. I don’t care how much paid for your ethan allen bed, no creditor is going to put your bedframe and mattress on ebay to covert it to liquid cash. I see this ALL the time.
“#chukdotcom on July 27th, 2011 at 7:47 am
“Although they could have afforded to rent out their unit or stay in place (both had stable jobs), and listed it as a short sale.”
Then how did they get approved for a short sale?”
“3. they realize they are not going to be able to buy a place for 7 years. This significantly limits their housing options”
Also not true with a short sale.
“you can get a short sale approved if your income is just barely or not sufficient to cover your debts, and you have no attachable assets.”
Yes, but that’s not what happened in clio’s “story”:
“Although they could have afforded to rent out their unit or stay in place (both had stable jobs)”
Is this coming from your personal review of your neighbor’s and co-workers credit statements, or, is this just your own personal intuition.
You are making the HUGE logical fallacy assuming that because someone earns $400,000 a year they are going to be fiscally responsible.
That’s necessarily true. sure, there are less people in the $400k income range with CC balances, but it’s far more common than you think. I work for a place that handles these types of debt counselings, i don’t work for some place that you see on TV. if you were making $400 a year (or there abouts) you get referred to someone like me, you don’t thumb through the phone book looking for an attorney.
the CC balances start to rise especially as the income starts to decline – they ratchet up the CC use to keep the same lifestyle thinking “things will pick up next year” when in fact that don’t.
“Bullshit. What % of people making 400k a year have ANY credit card debt? You are talking about the exception, not the rule.”
“The homeowner must be three or more months past due on the mortgage note for lenders to consider a short sale. The home must be worth less than the amount due on the mortgage note. A homeowner can work with a realtor or conduct an internet search to provide comparable sales prices of homes in the area.
Homeowners must provide documented proof they are having financial difficulties in order to obtain short sale approval. Bankruptcy, medical conditions, death, divorce, and loss of income are financial situations where a short sale might be approved. A financial statement which details income and debts of the homeowner must be provided. A short sale hardship letter which explains the circumstances which led to financial distress is required.”
Just being “underwater” is not reason enough, and that sure sounds like what clio was describing.
“Is this coming from your personal review of your neighbor’s and co-workers credit statements, or, is this just your own personal intuition.”
Again, you are talking about the EXCEPTIONS. And the person making 400k you are describing IS poor. You can make 400k a year and be poor. If your expenses are 500k, and you have no assets, you are POOR. Clio’s “friends” were clearly not described as being “poor”.
“• By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.”
http://sportsillustrated.cnn.com/vault/article/magazine/MAG1153364
mortgage brokers, builders, small business owners, laid off middle managers, etc. people who were making hundreds $100k+ up and far more who lived the high lfe thinking it wouldn’t end, and if there is anything I’ve learned, it’s that the good time will inevitably come to an end for most people.
I often have this discussion with a co-worker who calls the firm’s clients lucky strikes, as a mad men reference. if draper’s firm lost lucky strikes, they would be totally screwed. on tv the partners work hard to save the firm and garner new business, but in reality, many people lose lucky strikes and with it goes their career. but the debt, the housing payment, it all stays. not everyone obvously, and maybe not in the circles where you travel, but there are plenty of circles like this. not everyone who spends a month a year in california for vacation has the cash in hand to pay for it and I know that from watching some I know well still living the life despite having taht lucky strikes moment about 18 months ago.
http://www.fha.com/fha_requirements_credit.cfm
“FHA insured mortgages are generally not available to borrowers whose property was foreclosed on or given a deed-in-lieu of foreclosure within the previous three years. However, if the foreclosure of the borrower’s main residence was the result of extenuating circumstances, an exception may be granted if they have since established good credit.”
“• By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.”
Yes. Those people are poor. Poor people have credit card debt.
I have to 100% agree with HD – all of my friends/neighbors/acquaintances are in that income category (300-600k) and you all would be surprised how many of them are teetering on the edge. One or two paychecks away from disaster….. and before anyone judges, you really cannot understand how easy it is to get sucked into these expenses:
1. Group of 9 goes out to dinner every week – tab: 1000. This becomes common after awhile
2. Neighbors/friends have parties and invite you to their beautiful house – the wife then feels pressured to return the favor and encourages you to buy an equally beautiful house (not to out do them, but to fit in).
3. Neighbors/friends go to Europe for vacation and invite you to join them (there goes another 10k)
4. Neighbors/friends have a 50k car – it is embarrassing to drive your minivan, so you trade it in for a lexus or bmw suv
5. kids – oh god, don’t get me started on kids’ stuff (schooling, clothes, extra-curricular activities, camps, tutoring, lessons, sports) –
6. clothes/attire – you have to look good so there goes several more thousand dollars
People that don’t live in these areas don’t understand – there is a HUGE pressure for people to conform and if you don’t – you are ostracized (in a subtle but certain manner). The alternatives are to move to a cheaper area (where you may not have that much in common with your neighbors – ie financial issues, educational level, expectation of children, background) OR you can move to Oak Brook (where everyone is INCREDIBLY private) and all homes/subdivisions were built for little neighbor interactions. Believe me, I love sitting in my house behind my driveway gates on my little 2 acres of paradise – I can wear my wife-beaters and “holey sweat shorts” and walk around my yard with impunity.
chuk – I’ve seen it too, HD is right in this case you would be surprised how stupid some high earners are with their money and have extraordinate amounts of CC debt. Most of the time its because high earners have high earner friends, so they have to keep the lifestyle up.
also GOOD NEWS EVERYBODY!
employee pay will increase 3% in 2012!
http://finance.yahoo.com/news/Employee-pay-set-to-rise-3-in-cnnm-2749680794.html?x=0&sec=topStories&pos=8&asset=&ccode=
by the way, is anyone disturbed by the amount of propaganda being spun by both parties these days in the media? sheesh, I barely watch any news and its getting ridiculously unbearable for me
“Yes. Those people are poor. Poor people have credit card debt.”
OK, so your definition of poor is different than my definition of poor. Poor for me means an income within a few multiples of the federal poverty guidelines combined no real assets. The types of people who live in englewood or roseland or rural IL.
Poor for you has an unorthodox meaning. i’m glad we cleared that up.
“by the way, is anyone disturbed by the amount of propaganda being spun by both parties these days in the media?”
“these days”?!!!! sonies, where have you been for the past few centuries?!!!
“Poor for you has an unorthodox meaning. i’m glad we cleared that up.”
Not sure how its unorthodox. Being poor doesn’t mean you don’t make a lot of money. It means you don’t HAVE a lot of money.
http://tinyurl.com/3khqhuk
“People that don’t live in these areas don’t understand – there is a HUGE pressure for people to conform and if you don’t – you are ostracized (in a subtle but certain manner). ”
this is my problem with teh north shore (although i’m sure it’s everywhere including oak brook, barrington, inverness, park ridge, etc)
Even if you could afford the $500,000 house; your 16 year old daughter is still going to say “daddy why can’t i go to breckenridge for spring break with all my friends?” “daddy, XXXXX drives a convertible and my boyfriend drives a jeep, why do I have to drive your old car?” or the cocktail party chatter that starts out with “so I just returned from my safari in kenya and wow is it beautiful there…”
“chuk – I’ve seen it too, HD is right in this case you would be surprised how stupid some high earners are with their money and have extraordinate amounts of CC debt.”
1) I’m sure the % is far lower than people that make 50k
2) Credit card debt is for poor people. Period. If you could afford to pay the credit card, you wouldn’t be poor. If you can’t pay it, you are poor. I don’t care if you make 500k a year.
I know someone that makes 300k+ a year and they are much poorer than another one of my friends that is lucky to clear 85k. For all of the reasons clio, hd and you list.
Clio, maybe you can clear this up. Were your short sale friends poor?
taking directly from your LEt me GOOGLETHAT FOR YOU LINK:
“poor/po?or/Adjective
1. Lacking enough money to live comfortably in a society.”
are you seriously suggesting that $400,000 is ‘lacking enough money to live comfortably in a society?’
this discussion is stupid, I could tell ou the sky is gray this morning and you would argue it is some other shade of gray.
“Even if you could afford the $500,000 house; your 16 year old daughter is still going to say “daddy why can’t i go to breckenridge for spring break with all my friends?””
Well, you aren’t just buying “the house”. You are buying into the lifestyle. Landscaped lawns, nicer cars, etc. It’s not enough to say “ok, I have 100k, now I can buy a 500k house”. Can you SUPPORT a 500k house, and all that comes with it.
Someone that inherits 500k can buy a 500k house. But can they afford to live there?
your definition of poor, which is not the link you sent me to, is insulting to poor people.
go drive around austin for a few minutes. that’s poor. $400k+ RMBS traders now making $150,000 at a different desk but stuck with $150,000 CC debt is not poor, they’re just profligate
HD – I totally agree -HOWEVER, there is some importance in raising your kids around successful, motivated people. Unfortunately, these people tend to live in these higher income/higher wealth areas. Sure, you can move to aurora/elgin/schaumburg where people are incredibly nice and down-to-earth, but you may be doing your children a disservice (if you can afford better). I’m telling you, the children of Hinsdale, Winnetka, Kenilworth, Lake Forest ARE different than the children of Aurora/Elgin/Schaumburg – and that difference can really take them very far (through improved motivation, exposure, expectations, etc.).
Honestly, though, the best environment may be the U of C lab schools (where you get all the good (education, motivation, exposure) without the bad (no overt emphasis on money,wealth)
i agree with you about buying the lifestyle part. that we can agree on.
“1) I’m sure the % is far lower than people that make 50k”
this we agree on also.
Credit Card Debt Levels Relative to Income, 2004 (from http://www.americanprogress.org/kf/creditcarddebtreport_pdf.pdf)
By income
Bottom quintile
9.5%
Second quintile
6.8%
Middle quintile
5.2%
Fourth quintile
4.4%
Top quintile
2.3%
clio – have you ever seen the movie ‘born rich’? who is the DB billionaire who says “i want to be the first in my family to graduate college?”
“Clio, maybe you can clear this up. Were your short sale friends poor?”
I don’t exactly know their finances but I DO know that their combined income was 130k, they are aged 32 and 30, and have no kids. Their condo was a 3/2 in Lincoln Park bought with little or no money down in 2006 for 525k.
I also prefer the privacy Clio describes. I have no interest in competing with my neighbors nor do I care if I am subtly ostracized. I don’t earn much money, mostly by choice and I don’t care if my car is nearly 10 years old, while my neighbors have nicer cars.
I suppose all of these things change for people with kids though. I remember being so embarrassed by my parents’ second car as a kid that I refused to let them drive it when my classmates were in the car with me. I look back on this with utter shame at being such a brat.
“I don’t exactly know their finances but I DO know that their combined income was 130k, they are aged 32 and 30, and have no kids. Their condo was a 3/2 in Lincoln Park bought with little or no money down in 2006 for 525k.”
130k income can not support a 525k mortgage. So your premise is flawed. They didn’t “choose” a short sale. They could not afford to stay in that place.
I tell you what, I’d rather be 400k a year poor than livin it up sellin crack to feed your family in Austin/Roseland poor
I love how we have wasted like 50 posts arguing about someone’s different definition of the word poor
“I remember being so embarrassed by my parents’ second car as a kid that I refused to let them drive it when my classmates were in the car with me.”
My parents had a station wagon where the seats folded down into the car. If you opened them up, you could use them as small seats. The only problem was, the bottom was completely rotted out, so when you sat in them, your feet dangled over the road. My friends loved driving in that car and fought to sit in that seat.
“I love how we have wasted like 50 posts arguing about someone’s different definition of the word poor”
Well, that’s part of what is wrong with America today. People think if they have lots of “stuff” that they aren’t poor. Taking on too much debt, and taking expensive vacations on your HELOC is what got us into this mess.
“I have to 100% agree with HD – all of my friends/neighbors/acquaintances are in that income category (300-600k) and you all would be surprised how many of them are teetering on the edge. One or two paychecks away from disaster….. and before anyone judges, you really cannot understand how easy it is to get sucked into these expenses…People that don’t live in these areas don’t understand – there is a HUGE pressure for people to conform and if you don’t – you are ostracized (in a subtle but certain manner). ”
Yeah, and most of my friends and acquaintances are in this range as well, as am I. They all think I am the cheapest guy in the world because I drive a Nissan Sentra, bought a place for under 1X my annual income in the ‘burbs so the permacubs won’t have to go to private school and when I have people over it’s for bratwursts and beer. However, I explain it away as growing up poor. My kids aren’t going to be raised in a trailer park like I was. Leverage + insufficient assets + job loss = poor house. It’s a simple equation and if someone thinks their friends are only friends because of their house, BMW SUV, the school where they send kids or their desire to drop a grand a week at Joe’s, they need counseling. Or maybe I do because I am for the most part impervious to the signals on material crap society is allegedly sending.
You need some new pals, clio. Hell, I bet none of your acquaintances could cook a bratwurst the proper way if their life depended on it.
my parents had a brown nissan(or datsun?) station wagon that actually talked to you
I thought it was dope as hell
“130k income can not support a 525k mortgage. So your premise is flawed. They didn’t “choose” a short sale. They could not afford to stay in that place.”
I really think you could make it happen. Remember, their piti was 3700 which equals 44400. Income taxes would be something like 25-30k max (remember they get a deduction for mortgage interest and real estate taxes). They still had 50- 60k extra for everything else.
def. possible if they don’t have a car, although not an ideal life
“I really think you could make it happen.”
Maybe for a little while. But unless that income ratchets up, they won’t be able to do it for long. Which appears to be what happened to your friends.
“def. possible if they don’t have a car, although not an ideal life”
Exactly – but they wanted an easy way out – now they realize that a short sale/foreclosure was not the easy solution they had expected. I wonder how many other people in this situation actually go forward with a short sale (able to afford the mortgage, but psychologically wanting to get out) – I bet it is more than we all think!!!
Living below my means is the most freedom I’ve ever had. I will NEVER go back to the old ways. I’m now among the loudest critics of my former bad habits.
I disagree, Clio….the reasons you listed that they are not happy with a shortsale are exactly why many of us do not do them and why there are fewer short sales at the higher price points. Many of us at the higher price points can wiegh the options of a short sale and realize it is not beneficial, even if we have to scrimp or set aside our dreams of moving up, etc.
Thank you Perma! I’m glad to hear not everyone is living outside thier means. I’ll be happy to join you for that brat! (even though it is in the suburbs)
Living below my means makes me feel rich. I like being able to take vacations and buy electronics.
clio–your 8:15 post was an excellent summary of why many people dont want to move to the nicer suburbs, even if they could readily afford it.
This is from the Federal Reserve Board
http://www.federalreserve.gov/pubs/feds/2011/201117/201117pap.pdf
Refer to page 27: between 2007 – 2009, 43 – 48% of households carried card balances. Card balance average about 3.5% of total debt.
and yes of course lies lies and damn statistics, but if I have to choose / pick a credible source, I’m ok with the Federal Reserve Board (but not Argentina’s hahaha)
in summary:
I think this paper supports HD’s position
and I know it won’t make a darn difference to the village idiot
“now they realize that a short sale/foreclosure was not the easy solution they had expected.”
How was it not easy? Some of your reasons simply weren’t true. Don’t have to wait 7 years to buy. Also, you said their credit card rate went up. Did they actually have credit card debt? If not, that doesn’t matter either. Many of the things in your story don’t jive.
“(their PITI on their condo was 3700 for a 3/2 in LP – their rent for a smaller, yuckier place in wicker park is 2400”
So, it is costing them LESS per month now. Not a terrible thing.
“only a savings of 15k/year – a large amount, but not that much when you consider the loss they took on their condo”
What loss did they take? In a short sale, they aren’t paying the deficiency. You said they had little/no money down. They wouldn’t have built much equity in the first 4-5 years of that mortgage. They would have paid more in rent over those 4-5 years than they lost in equity.
Sounds like they should be very happy they got their short sale.
““• By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.”
This stat seems underwhelming. The average span of a football career is between 3 and 4 years. There are a lot of players who are on teams for a couple of years making the league minimum of a few hundred thousand dollars, who are then cut and have deficient skills for a regular job. This is a quite different circumstance from the business executive, consultant, doctor, attorney, etc. who can expect to make a few hundred thousand year after year. Also most of the “regular” professions who make this money will acquire some experience with finance as part of their jobs, unlike football players.
Moreover, I’m always skeptical of studies that use highly elastic terms like “financial distress” without knowing exactly what definition they applied. There was a recent study that defined the term “buying sex” as including people who regularly watch porn on the internet, which is a paradigmatic example of why one should always question the definitions of experts trying to make a particular point.
LOFL – you don’t have to leave the City to do that, mon!
I do that right in Avondale all the time, hell, I freely walk around wearing nothing but boxer shorts or a swimsuit in my yard or to take out recycling/trash to the alley.
The difference is everyone is that casual (ok, maybe not everyone), so you don’t need to worry about privacy or being judged.
“Believe me, I love sitting in my house behind my driveway gates on my little 2 acres of paradise – I can wear my wife-beaters and “holey sweat shorts” and walk around my yard with impunity.”
“Refer to page 27: between 2007 – 2009, 43 – 48% of households carried card balances.”
What you fail to understand is that even a credit card that is paid in full every month is classified as “carrying a balance”. Generally, when you receive your credit card statement, that balance is reported to the credit agencies. It appears as a “credit card balance”. Even if you pay it off in full before the due date.
So, basically anyone that uses a credit card “carries a balance”. That statistic is meaningless.
“or the cocktail party chatter that starts out with “so I just returned from my safari in kenya and wow is it beautiful there…””
my wife’s coworker returned from a safari and said almost exactly that to my wife when they were out for a work dinner. the next month we are at a party with this coworker and his wife, and my wife brings me over to her and tells her “your job is to convince [me] that we have to go on an african safari”. And when I say it sound awesome, let’s go in 15 years when we have a lot more money, my wife feels deprived.
and while we still save a decent amount each month and don’t carry cc balances or anything, our expenses have inevitably risen as quickly as our income. it is nearly to the point where making more money does not interest me. i would rather negotiate to work less than to make more, but what would my employer think of a smart, educated 26 year old who does not want to rise indefinitely through the ranks but instead wants to work less?
Here is a simple survey. How many people on this board have a credit card balance that they carry month to month that they pay interest on. Anyone?
Skeptic…not exactly sure I wanted to picture that while eating breakfast.
🙂
I do! but i’m poor because I used a FHA loan and live beyond my means
@chukdotcom
About 56 percent of consumers carried an unpaid balance in the past 12 months. (Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010)
Read more: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#ixzz1TJpmvs6D
Compare credit cards here – CreditCards.com
From another source:
56% in the last 12 months is within the range for 43 – 48% for 2007 – 2009.
I still say HD is right regarding the credit card usage / debt.
wrt/
“What you fail to understand is that even a credit card that is paid in full every month is classified as “carrying a balance”. Generally, when you receive your credit card statement, that balance is reported to the credit agencies. It appears as a “credit card balance”. Even if you pay it off in full before the due date.
So, basically anyone that uses a credit card “carries a balance”. That statistic is meaningless.”
“What you fail to understand is that even a credit card that is paid in full every month is classified as “carrying a balance”. Generally, when you receive your credit card statement, that balance is reported to the credit agencies. It appears as a “credit card balance”. Even if you pay it off in full before the due date.”
Your claim is not (supposed to be) true. These stats are based on survey responses, not credit agencies’ data. The accuracy of the responses is a potential issue.
Though I guess it’s a semantic argument, I think it’s kind of insulting to the quarter of all households in the US who are scraping through life on under $25k a year to call someone making $400k a year, regardless of his debt loads, poor. I don’t know.
“but what would my employer think of a smart, educated 26 year old who does not want to rise indefinitely through the ranks but instead wants to work less?”
WELCOME to the tail end of teh Generation X, and a good chunk of the Gen Y and Millen’s generation.
I hear there are consultants and seminars and the like to try and explain/exploit this new found ‘lost generation’ mentality to the boomers and older who can’t understand this generation isn’t interested in devoting all their hours to work and moving up the corporate ladder.
Of course this is countered with ‘these young kids nowadays want to earn all the money and more but dont want to work, they want to play all day, surf the internet and actually go home to see their families’
to which the younger generations retort: so I devote my life to company X and when then time comes that your profit line is squeezed, I can get laid off? Hahahaha. Take your gold ring and shove it old man. I’m tired of listening to your racist and mysoginesist but what would my employer think of a smart, educated 26 year old who does not want to rise indefinitely through the sexist jokes, and no, nobody wants to hear your war stories. nobody cares that you missed everyone of your children’s b-day parties for the firm..
“I think it’s kind of insulting”
The fact that people that live beyond their means are NOT considered “poor” is what is insulting. It glorifies that lifestyle, and encourages others to get into the same situation. “Hey, look at Bill. He just bought a brand new jet ski with his HELOC”.
“I think the chart is also very interesting but it doesn’t tell you whether or not you’ll get a “deal.””
Correct in principal. However, with fewer distressed properties in the higher price points there is less pressure on pricing, therefore less ability to get a deal. That’s my point.
“About 56 percent of consumers carried an unpaid balance in the past 12 months. ”
Any balance is an unpaid balance. If you’ve used your credit card since your last statement, you have an unpaid balance.
“their credit took a massive hit – with that hit, their credit card interest went up, their car insurance went up….”
Now this is only one data point but I did a short sale for one seller and her credit score went from a 720 to a 577 over night. However, 6 months later it was back up to 712. Go figure.
“Your claim is not (supposed to be) true. These stats are based on survey responses, not credit agencies’ data. The accuracy of the responses is a potential issue.”
Doesn’t matter where they get the data. The problem is in the understanding of the definition.
If someone asked me, “do I owe any money on my credit cards” right now, the answer is yes.
“Any balance is an unpaid balance. If you’ve used your credit card since your last statement, you have an unpaid balance.”
Not true (or not supposed to be true) for the data sources for the stats chichow cites.
“If someone asked me, “do I owe any money on my credit cards” right now, the answer is yes.”
What if someone asked you: “After the last payment was made, roughly what was the balance still owed on this account?” How would you answer that?
These stats are also heavily skewed. The percent of people carrying a credit card balance in the lower middle class and below is extremely high.
If you have 100% of one group with a balance, and 0% of another, you end up with a 50% average. That average is very misleading.
Chuk – those people are idiots, not poor.
“my wife brings me over to her and tells her “your job is to convince [me] that we have to go on an african safari”. And when I say it sound awesome, let’s go in 15 years when we have a lot more money, my wife feels deprived.”
DC, listen to your wife (though I would argue for alternatives to a safari, or at least just do a shorter safari, allocating time and funds to, say, climb Kilimanjaro, hit more than one country, etc.). You’re 26. If 15 years, you’ll either (1) be working more (and will have more money) than you do now, or, (2) if you have your way, you’ll be working less and making less. Either way, do you really think it’s going to be easier to take an expensive, adventurous trip when you’re 40? If (1) is the case, while you’ll be able to afford it, you might not be able to break away from your demanding, high paying job. If (2) is the case, while you may have some good saving habits, if you’ve opted for a lower paying career track, it’s less likely you’ll be taking very expensive adventure trips at 40. And there’s the issue of children. Oh yes, and the fact that you’re likely in better physical shape now than you will be at 40 (not a deal breaker for the typical safari, but again, if you’re spending thousands of dollars on an African trip, why not do some things that you’ll be less likley to try once you’re retired). Just my two cents (I work with lots of very smart 26 year olds, who don’t have kids and who work a lot and make a good income, and many seem to think that their adventure years are still ahead of them).
I went to one of those seminars, well webinar actually, and it was really good. DC you aren’t alone. Also the majority of boomers have little to show for their blind gung ho dedication to their careers. In corporate America only the GMs & above get a real cut of the loot. Those only earning 120k per year below them doing the grunt work are a dime a dozen. Thank you for slaving your life away here’s a gold watch & severance package.
” “After the last payment was made, roughly what was the balance still owed on this account?” How would you answer that?”
$5000. I pay my balance in full on the due date. That due date is only 3 days before my next statement date.
So if I get a statement on 7/1 for 6k, and that payment is due on 7/25, by the time I make that payment, I have incurred thousands more in additional charges and my balance is closer to 10k right before I make the 5k payment.
“Chuk – those people are idiots, not poor.”
Tell that to their creditors.
Sorry, typo on the 6k. Supposed to say 5k.
That may be the definition that you are using, but it is not the definition that the boston fed is using
http://www.bostonfed.org/economic/ppdp/2011/ppdp1101.pdf
page79: Credit card balance unpaid, previous month (dollars)
—
I’m not going to spend more time. I point out what I think is a relatively solid statistic to back HD’s point which I think passes the reasonableness test. You choose not to accept it. Ok.
“” “After the last payment was made, roughly what was the balance still owed on this account?” How would you answer that?””
I pay my credit cards in full every month, and my balance is NEVER 0. There is always one months worth of “float” on it.
It takes a lot of self confidence to not get sucked into the lifestyle games that people play. I also think it is so much easier to spend money nowadays because of the proliferation of credit cards, online purchases, etc.
Our parents had to actually think about spending money, so it was much harder to buy on impulse. You had to bring out the check book or pay cash more often than not. Now you can almost totally survive with no cash in your pockets.
Everyone has to find the right balance between consumption and saving. I know I want to enjoy my life now versus being 65 and too old and tired to really enjoy the fruits of my labor. However, I also don’t want to be old and broke either.
There are very few really “wealthy” people, but a lot of people with high incomes. Most folks with high incomes are not wealthy in the sense that if the don’t work or lose half their income, they will start having financial problems. The vast majority of people are really bad about saving for a rainy day as they assume their income trajectory will always continue and they never curtail unnecessary consumption.
It is three years before you can buy with a short sale. However, FHA will let you buy almost immediately if you do a short sale related to a relocation and there are no late mortgage payments (this is where most people screw themselves).
“I point out what I think is a relatively solid statistic to back HD’s point which I think passes the reasonableness test.”
You are misinterpreting the statistics. And even if you weren’t, that was not HD’s point. He was not referring to the “average american”. He was referring to high income earners carrying large credit card debt. That simply isn’t true for the overwhelming majority.
Show me that statistics of people making 400K+ a year that carry a balance month to month. According to HD, it is very common.
“I pay my credit cards in full every month, and my balance is NEVER 0. There is always one months worth of “float” on it.”
Would you carry a balance under this definition: “that is, you did not pay the balance in full at the end of the month”? Would you really say you did not pay your balance in full. I know you can parse it to argue that you didn’t, but do you really believe that?
I did acknowledge there can be survey issues, although I also suspect they test these surveys to assess whether people understand the questions as intended.
“These stats are also heavily skewed. The percent of people carrying a credit card balance in the lower middle class and below is extremely high.”
Take a look at the stats by income distribution. Don’t forget that card ownership is also lower among lower income groups.
“(2) if you have your way, you’ll be working less and making less”
If I have my way we will work comparable to what we do today for the next 15ish years, then we will start working less and making less but have a $2MM-ish nest egg and no mortgage. Then we have time and money. Well, in a perfect world at least.
yes chuk, but until the interest kicks in (i.e. you don’t pay the full amount for a month) its not considered “carrying a balance”, its just considered “available credit”
you really can’t admit that definition is wrong when everyone else has the other view point?
http://www.federalreserve.gov/creditcard/flash/offer.pdf
“5) How to avoid paying interest on purchases
You can avoid interest charges on purchases by paying your bill in full by the due date. About 40 percent of U.S. households pay in full each month; the remainder, about three out of five U.S. households, carry a balance and pay interest on their credit card accounts”
“Show me that statistics of people making 400K+ a year that carry a balance month to month. According to HD, it is very common.”
Depends what you mean by very common. If you mean about half of these earners carry a balance then it is probably not common. If you mean it happens a lot more than we all think and he sees someone like that 3 times per week, then some people might consider that common.
Also, maybe it’s not CC bills but it could be a huge mortgage, huge auto loans, huge student loans, then huge kid’s college costs, and other high debts/costs
“the remainder, about three out of five U.S. households, carry a balance and pay interest on their credit card accounts”
How many of them make 400K+? Because that is what is being debated.
” If you mean about half of these earners carry a balance then it is probably not common.”
But that is the statistic that chichow used to “back up” hd’s claims.
“Also, maybe it’s not CC bills”
Except that’s all we were talking about. Not overall debt. CREDIT CARD debt. Many rich people have debt. Not many rich people have credit card debt (per his definition of CC debt).
Given that I can’t even get through to you on the definition of unpaid balance in this context, I apologize but I’m just going to walk away from this one as I should have as stated before.
With regard to the younger generation not wanting to work as hard, enjoy life, etc. ….. I think that is absolutely fine – BUT then you can’t expect to live in a nice place, go out to nice dinners, travel, etc. YOU CAN’T HAVE IT ALL – as soon as you realize this, the better.
I know several people in the same generation with the same mental attitude – however, once the cut back on work and their income drops, they realize they can’t afford to do all the things they thought they could do and they end up more miserable than before.
My advice is to put your nose to the grindstone while you are young (and you can) – make and save as much money as you can. In the end, money trumps all – I didn’t make up the rules but it is the absolute truth. It gives you complete freedom and independence.
DO NOT BE FOOLED INTO “TAKING IT EASY” AT A YOUNG AGE – IT WILL NOT END WELL.
“I also think it is so much easier to spend money nowadays because of the proliferation of credit cards, online purchases, etc.”
@Russ–good point. It’s much harder to avoid temptation these days. My grandmother (age 94) told me the only debt she ever had in her life was her mortgage. She never had a credit card. Think about that-having to actually have the money in hand before you buy anything.
chuk, what % would you consider “common”?. 5% might sound small, but go drive through the north shore neighborhoods and say “CC debt” each time you pass 20 houses. do this for a few hours and you will say it A LOT of times. Might seem somewhat common then.
“Think about that-having to actually have the money in hand before you buy anything.”
Yeah – but that is not necessarily good for growth/economy.
“chuk, what % would you consider “common”?. 5% might sound small”
I would consider “common” to be 50% or more. According to chichow’s stats, more than 50% of people making 400k+ are carrying a credit card balance. Therefore hd’s point is valid.
the root of chuk’s argument returns to the word poor, and he said that only poor people don’t pay their balance in full every month. Then i said that $400k is not poor and he said that it is if they don’t have any wealth and spend all their money. pretty soon someone will bring up hitler or the nazi’s and the thread will be officially closed.
“How many of them make 400K+? Because that is what is being debated.”
I can’t tell if you’ve conceded the definitional point (really hard to debate pay in full, I think).
Prevalence of balances is very high above $100K. Dunno about $400K plus, but the raw data are available if anyone cares. I don’t really, just not sure why you are so obstinate about the definition.
i think it’s intended as what percent take on revolving credit. I would think one misleasing thing is that people in the upper percentile are probably shopping and getting much better rates?
Either way, if you can’t pay it off, not a good idea to buy it.
I’m one of those people who works less and earns less on purpose. The director of my area came over to me a few days ago and asked me to work on the weekends. I basically just told her “no.” I’m not working on the weekends. I purposely took this job because it was low stress and I didn’t want to work long hours. I’m getting my resume together because I simply will not work more than 40 hours a week.
I would rather live on my current salary than make more and work more. I am willing to stay in the same house for many years, so after 15-30 years, I no longer have to pay a mortgage and can be more free to enjoy the money I do have.
jenny, good for you – it works for you because you are willing to make the sacrifices that come with working less. Most people, however, are not willing to do so (ie they still want exotic travel/dining experiences, etc.).
“Living below my means makes me feel rich. I like being able to take vacations and buy electronics.”
I agree with all of this.
I’m willing to bet jenny has worked 70 hours a week before
I have also done that and it blows, what is the point!
This credit card balance discussion might be the stupidest argument ever on Crib Chatter. Or at least the stupidest argument since I’ve been around here. I can’t even tell which idiot is arguing that you’re carrying a balance if you charge a lot of stuff, then pay your bill by the due date so you don’t pay interest, but I think that someone is claiming that.
jenny, you seem really young, which is fine, I was young once, too. People’s preferences and interests change and there might come a time when you want more from life than your current job and home will provide. That’s generally why people bust their asses and try to advance. For most people, it’s not because they love their jobs – it’s because they love the options and opportunities their lives provide.
jenny what is your age bracket?
I am even still able to take vacations. I just go in the off season. I have an older car and don’t care about fine dining. I buy nice clothes, but always at deeply discounted prices.
My friends are similar to me. My last boyfriend made 5x as much as me and he spent even less money than me. Like attracts like I suppose.
“I’m willing to bet jenny has worked 70 hours a week before”
I’m willing to bet she hasn’t, on any kind of remotely consistent basis, if you mean “work” and not school (and even then, I’d probably still take the bet).
Not a G-clio bet, no one has to leave CC.
‘…lost generation’ mentality to the boomers and older who can’t understand this generation isn’t interested in devoting all their hours to work and moving up the corporate ladder.’
Now imagine if the boomers thought the same way, DC probably wouldn’t *have* an education, let alone the opportunity to attend a cocktail party where guests actually leave the country, even if it’s on a credit card vacation. Want to see a boomer’s kids who didn’t have a dad/mom that worked 14 hours a day, I suggest a visit to the rural south: education = Jerry Springer via rabit ears, cocktails = keg, people who travel = went to Walmart. Maybe dad really didn’t want to miss your b-day party, but guess what, those braces didn’t pay for themselves now did they. Cable, air conditioning, eating out, Nike, and all the other middle class traps you received, just *didn’t* happen by accident. True your parents lived beyond their means and are probably broke, but you greatly *benefited* from their reckless spending and notions of a better life… for you. It’s no wonder you’re ‘lost’ and find no carott big enough to entice you into motivation, as you ate the whole bag before you were 10.
JJJ – very well said!! I totally agree – you never know how your life is going to change in 5 years. You need all the ammunition you can get. This includes money but also job security (which comes from showing dedication and commitment). JJJ is absolutely 100% right – people who bust their asses when they are young are not doing it for the love of the job, but to secure their place in the job rank and to save money for later. I cannot tell you how many people regret not working harder in their 20s and 30s – now they are in their 50s and cannot retire because of money. Oh, and all those great memories of taking it easy and “enjoying life” are just memories for them – the reality is that they will have to work until they die.
“BUT then you can’t expect to live in a nice place, go out to nice dinners, travel, etc.”
Well speaking for myself, I DON’T expect all these things. I want to make and save some money, enjoy the city for a while, then move way out of the city and enjoy a slower lifestyle and lots of free time. Then use our saved wealth for some nicer vacations a few times a year.
I’m about 30. I haven’t worked 70 hours a week before and never want to. I would be inclined to quit on the spot if I was asked to work those hours.
Since I’m not planning on having kids, a small salary gets me the things I want.
OK old man…let me guess you walked 5 miles to school barefoot, in the winter, UPHILL BOTH WAYS….
“True your parents lived beyond their means and are probably broke, but you greatly *benefited* from their reckless spending and notions of a better life… for you. It’s no wonder you’re ‘lost’ and find no carott big enough to entice you into motivation, as you ate the whole bag before you were 10.”
DC – where exactly is it that you want to move that will afford you a “slower lifestyle” and lots of free time? If you are talking about the suburbs, you are in for a rude awakening. You will have less free time because you will be doing yard work and fixing up the house. You will not have a slower lifestyle because you will be working more to be able to afford the 20k roof that needs replacing or the 5k furnace that won’t work properly. The Hollywood image of an older person rocking in his chair relaxing with a lemonade while looking at his 100acre beautifully maintained farm is just that: a Hollywood image.
” I would be inclined to quit on the spot if I was asked to work those hours”
This statement speaks volumes for the new generation…. oh boy are we in trouble
Clio, don’t worry too much. There are still hard workers among us… One of my friends is a medical researcher and she works every day of the week…. the other is a developer who works for a start up and sometimes sleeps at the office… my ex was in big law and worked so much that we never want out because he was too tired (understandable)…
I agree with Jenny. I’m not opposed to long hours but I am opposed to not getting paid for them. Did that in my early 20s at a large corporation because that’s what was expected of new hires. I city my teeth & moved on. These days I yearn for 70hr workweeks but I rarely get asked to put in more than 40ish…hmmm. what Jenny you don’t want to do volunteer work to help your boss earn more? 😉 not sure its a tax deductible charity & you can forget about being that wrinkled bpomer’s protégés
Err cut teeth
hey, i like how ‘ol man Jay said that!
btw … Go for it jenny… Real world adult work blows!
‘OK old man…let me guess you walked 5 miles to school barefoot, in the winter, UPHILL BOTH WAYS….’
Actually no, I had a nice life growing up, and I’m not a boomer… missed that one by a couple of months. But, I *earned* my wealth partly because there was a drive for a life I didn’t have when I was growing up: vacations = summers with the grandparents who lived 20 miles away, eating out = McDonalds maybe once a month with the g-parents, Nike = Sears knock-offs. I see this ALL the time in my own family and with employees: lack of drive. Me leave the business to the heirs = drive it into the ground. I agree the economy sucks, as it did in most of the 70’s and RR’s American in the early 80’s, and ask your dad what his draft number was when he was 18. Suck… you have NO idea.
I agree with Jay completely – I grew up in the 70s and things WERE very different. The entitlement attitude was not as prevalent (and i lived in a very exclusive area)! People worked hard, didn’t complain, and just lived their lives. Now, there are too many outlets for expression – which isn’t always a good thing. With the internet, you can absolutely find a site that supports anything you are thinking – even if that thought process/thought is totally wrong.
All I know is most people can’t hack working 60+ hours a week on a consistent basis. It is a grind. I also know that people who are upwardly mobile in their careers work more than 40 hours a week. 9 to 5 is for Admins and people who are just average.
yeah people think life sucks now, be glad most of you werent getting out of college or graduating high school in the late 60’s early 70’s
“All I know is most people can’t hack working 60+ hours a week on a consistent basis.”
True – but it also depends on your support system and income. If you are making a lot of money, then you can farm out a lot of personal time-consuming work (lawn care, cleaning, shopping, etc.). This makes it a lot easier.
“That is the key – and these people understand it and have the patience to ride out the storm. All key people “in the know” I have interacted with are predicting prices/market to come back slowly – with steady 1-2% appreciation for the next 3-5 years followed by larger gains thereafter (the “lag” effect is what they call it).” (from Clio)
Its not a storm to be ‘ridden out’.
In 2006, if you could borrow at 5.5% (4% after int tax deduct) to buy a home which you believed would appreciate at 5%-15% annually, indefinitely, you should buy in the most expensive price point into which you can stretch your income/assets.
Today, that assumption of 5%-15% annual appreciation has faded. Not only for the future, but the market is repricing homes to reflect that from 2000-2007 homes “really” appreciated in-line with incomes ~2.5%-3% (just like for the 100 years previous).
Once you take out the unsustainable assumption of 5%-15%, people begin thinking about what they can comfortably afford for 10 years instead of how much they can make in 10 years.
This is a complete paradigm shift. The “storm” was 2000-2007 when people had illogical assumptions about sustainable home price appreciation (relative to income growth, mortgage rates, historical home price appreciation… almost any reasonable benchmark). The storm has now passed.
Homes remain overvalued. In Chicago, for non-agency-guaranteed mortgages
Subprime: 50.5% haven’t made payment in at least 60 days
Alt-A: 37.4% haven’t made a payment in at least 60 days
Prime-Jumbo: 11.6% haven’t made a payment in at least 60 days
At the rate they’re selling REO and allowing short-sales, there’s enough distressed mortgages in Chicago to last for 56 months. The numbers are all getting worse in the large loan, prime portion of the market.
Unless you work in the institutional non-agency MBS market, there’s no way for anyone to see this shadow inventory. The magnitude is breathtaking.
clio,
you and JJJ have different priorities than me/jenny, so it’s unlikely that our opinions here will converge. but a few things….
“This statement speaks volumes for the new generation…. oh boy are we in trouble” – I assure you we are still in the minority here among our peers. Your generation had some of us too.
“The Hollywood image of an older person rocking in his chair relaxing with a lemonade while looking at his 100acre beautifully maintained farm is just that: a Hollywood image” – I admit, this is a dream and probably idealized in my head. Like I said above, “in a perfect world”. In reality I will probably end up in suburbia with an SUV and all these other things. I don’t think I’ve ever accurately planned anything about my life even 5 years out, let alone 15.
Yes, my parents did a lot for me to help me get where I am today (as I plan on doing for my kids). But they did not give me a lot of financial support and did not buy me a lot of “stuff” or take me on fancy vacations. Any ambitions I have for The Good Life did not come from my parents.
Also, saying you wish you worked more when you were younger just makes no sense. The lung cancer patient wishes he quit smoking when he was younger, the heart disease patient wishes he ate fewer hamburgers and exercised more when he was younger, the broke 70 year old wishes he worked/saved more when he was younger, and the rich 70 year old who worked 70 hours/week will find himself on the deathbed wishing he had relaxed and spent more time with his family when he was younger. It’s easy to wish upon your past self things that would benefit you today.
“Here is a simple survey. How many people on this board have a credit card balance that they carry month to month that they pay interest on. Anyone?”
Household income betweeen 500-600 so I fit that person you’ve been debating. I never pay interest on credit card debt b/c I pay it off each month. I also pay cash for my cars and drive them for atleast 8 years. I also stupidly put in way too much equity on the place we purchased in 2007…I have 40% equity. If I sold, I would only recoup about 10% of the equity at best. At some point I would like to move to a single family but am trapped b/c if I sold I would loose a lot of cash, probably wouldn’t have the downpayment for a SFH, so we can’t move up. We are staying, but its terribly frustrating as I watch my neighbors who are in the same income range do short sales with little consqeunce because they don’t have savings and little equity in their unit which is simliar to mine. They take fancy trips, etc… I wish the banks would garnish their wages…because I, as tax payer, are footing the bill for their irresponsible spending habits and, in turn, I do the right thing and can’t have the escape of a short sale, etc… My neighbors are the smart ones b/c those us who live within our means (whatever that is 100K – 1 mill) are footing the bill for their lifestyle.
‘yeah people think life sucks now, be glad most of you werent getting out of college or graduating high school in the late 60’s early 70’s’
I was just a child then, but we had a neighbor who was *drafted* in the early 70’s and returned home in a body bag… 19 years old. Draft means the government FORCES you to fight whether you want to or not kids… kinda a lot worse than having to workout at say Ballys, or the bride ‘bootcamp’ I see in OZ park. Yeahhhhhh.
We still have credit card balances but we realise we were stupid and we’re trying to fix that.
There is a lot of pressure though, people don’t understand how we can earn ‘so much’ yet only live in the house we do, only drive the car we do, only eat out when and where we do. You get chastised for living within your means and for living outside of them. You can’t win!
“My neighbors are the smart ones b/c those us who live within our means (whatever that is 100K – 1 mill) are footing the bill for their lifestyle.”
Uhh – not really. They are not off the hook for paying for housing – remember, even after they short sell, they have to rent somewhere – and that somewhere is likely going to be a much worse place than you (or they lived in). Also, with their credit score down in the dumps, their insurance and rates will go up (and I am sure THEY carry credit card debt). Finally, they are unlikely to have learned their lesson and will likely continue to drown in debt moving down the ladder with each hit. You, on the other hand, will continue to build wealth (however slowly) over the next several years – you WILL come out ahead and you WILL be the winner of this “game”,
LMAO jay! thank you for the laugh today, I needed that
Why is everyone talking about credit cards?
Has nothing to do with the GZ housing market.
“I do that right in Avondale all the time, hell, I freely walk around wearing nothing but boxer shorts or a swimsuit in my yard or to take out recycling/trash to the alley.
The difference is everyone is that casual (ok, maybe not everyone), so you don’t need to worry about privacy or being judged.”
That post was an excellent summary of why many people DO want to move to the nicer suburbs, even if they can’t readily afford it. They are sick of the degradation, obesity, sloppiness, and all around lack of class in most of the city. People get sick of seeing people wearing lounge-wear pants to the grocery store, with big fat guts, tattoos, etc. It sets a bad example for children.
“But its terribly frustrating as I watch my neighbors who are in the same income range do short sales with little consqeunce because they don’t have savings and little equity in their unit which is simliar to mine.”
So you don’t think they would want to trade places with you? You can have your short sale, just let your net worth drop to zero and rack up some bills you can’t afford. Sounds awesome. I am sure you still have substantial net worth, and if you make $500K you can save for your SFH down payment in a few years. Plus at that point you will have the benefit of getting more SFH for your money.
“People get sick of seeing people wearing lounge-wear pants to the grocery store, with big fat guts, tattoos, etc.”
What grocery stores do you shop visit? Not familiar with this.
p.s. local, don’t get me wrong. I feel bad for you that you work very hard (I will give you the benefit of the doubt) to make a good income, put down a huge DP when most people just signed on the line and put down nothing, and then you got hosed. But my point is you are still much better off than them and I wouldn’t exactly classify them as smart or lucky.
I will not frequent any grocery store that does not require a jacket for men, and evening wear for women. I am so fucking classy.
I resent the type of people Local describes. They are off the hook basically, while people who saved diligently are stuck. I’m sure going through a short sale stinks, but it’s better than losing a huge chunk of money you worked hard to save. Banks should go after people for their deficiencies, especially considering many of these people could afford to pay.
“They are sick of the degradation, obesity, sloppiness, and all around lack of class in most of the city. People get sick of seeing people wearing lounge-wear pants to the grocery store, with big fat guts, tattoos, etc. It sets a bad example for children.”
Do you do your grocery shopping at Wal Mart? Or Moo & Oink?
“People get sick of seeing people wearing lounge-wear pants to the grocery store, with big fat guts, tattoos, etc.”
What grocery stores do you shop visit? Not familiar with this.”
Me too!
“I will not frequent any grocery store that does not require a jacket for men, and evening wear for women. I am so fucking classy.”
quote of the week!
“I’m sure going through a short sale stinks, but it’s better than losing a huge chunk of money you worked hard to save. ”
uhhh – no, it’s not… first of all, most homeowners have not lost any money at all. It is all on paper at this point. All they have to do is hold on for another 5 years and they will be fine. I don’t understand everyone’s paranoia with the housing market. When people’s 401k plans tanked- they also went into a panic. Don’t worry so much about this – especially if you are young and have time to recover.
Here is an exercise you can do at home:
You paid X amount for your house. It is now worth 9/10 of X amount. OK – now imagine it is worth 2X. How does that change your life?!!! It doesn’t – unless you are moving (which is only a small percentage of people – and, if you are moving to another place, THAT place is also going to cost you twice as much). The bottom line is that this fear and panic is absolutely irrational and idiotic for 95% of the homeowners out there. For the 5% it also is a bit irrational because even if their house is worth 4 x what they paid, the likelihood is that the new place that they are buying is also 4x the price.
The house I just bought was a foreclosure that the previous owners are getting a pass on, even though they apparently had enough money to buy a much larger, nicer place in Lake Forest when they decided to stop paying the mortgage and HOA on this one. A year or two ago, it was the done thing – underwater on your mortgage? You’re a fool to keep paying it.
Do you guys know any business or profession that is recession-proof (and not just recession-resistent)? My son’s friends asked me that last weekend and I could only think of a couple of examples.
“What grocery stores do you shop visit? Not familiar with this.”
Go visit the Target on Elston & Logan that GZ’ers frequent, and look around.
Undertaker’s. In fact the two I know are both workaholics & work every day.
“The house I just bought was a foreclosure that the previous owners are getting a pass on, even though they apparently had enough money to buy a much larger, nicer place in Lake Forest when they decided to stop paying the mortgage and HOA on this one. A year or two ago, it was the done thing – underwater on your mortgage? You’re a fool to keep paying it.”
They either had cash to pay for the new place (but foreclosing bank didn’t/coulnd’t try to collect) or were able to get a mortgage despite the foreclosure? That’s possible? Am I missing an alternative?
CLIO–“My neighbors are the smart ones b/c those us who live within our means (whatever that is 100K – 1 mill) are footing the bill for their lifestyle.”Uhh – not really. They are not off the hook for paying for housing – remember, even after they short sell, they have to rent somewhere – and that somewhere is likely going to be a much worse place than you (or they lived in). Also, with their credit score down in the dumps, their insurance and rates will go up (and I am sure THEY carry credit card debt). Finally, they are unlikely to have learned their lesson and will likely continue to drown in debt moving down the ladder with each hit. You, on the other hand, will continue to build wealth (however slowly) over the next several years – you WILL come out ahead and you WILL be the winner of this “game”,
Actually, they moved their kids to the burbs and are renting a 2 year old nice SFH…the kind I want to buy. I will also have to pay private school tuition b/c the local school stinks and I had planned to move before next year…So, my neighbors are better off..and yes they probably do have credit card debt…but they have dinners and trips to show for it. I have lost equity and a declining in value condo..not dinners and trips. I do have some savings b/c I think its irresponsible to buy at my price point without a safety net…I also paid off all of my student loans (all 200K of them….undergrad and grad). So, again, I think they have a better deal. They will have to wait 4 years to buy a SFH but so will I (until I save more for a downpayment) and I have to pay private school tuition (unless my offspring score 99% on the magnent/gifted tests..no pressure there). Also, my neighbors have a fairly high income 300K…but the bank didn’t go after it. The banks should, b/c it would stop many short sale/walk aways.
I understand that the banks got their bailout, but that doesn’t entitle people to walk away from their mortgage when they can truly afford it. Neither the banks or individuals should get a bail out in my mind…no one paid my way through school, house etc…when my single mom qualified for welfare (but but instead took a second, night job).
DZ – maybe they bought the new house with cash or a contract sale? I can’t imagine any bank lending money to someone who just underwent a foreclosure.
Clio I agree with your idea of hanging onto a property. I am annoyed at the people who go through with short sales when they could afford to hang onto their places…. the people like local mentioned who just walk away because they don’t like that their property values have fallen.
DZ, bought the second then defaulted on the first. Qualified for both. Not uncommon earlier in the correction.
‘For the 5% it also is a bit irrational because even if their house is worth 4 x what they paid, the likelihood is that the new place that they are buying is also 4x the price’
Hey clio, that’s some crazy ‘old man’ math you got going on there! One would think you’d have see this before…. oh wait, you did: all of the 70’s, early 80’s, the first half of the 90’s.
So glad there wasn’t CC back yander in the late 80’s when I overpaid for prime LP, then took at 20%+ hit for most of the early 90’s, only to see it *slowly* rise in price 3.5x from what I paid for it; I may have actually sold in a panic and ran to my parent’s basement. Try buying the same place now even at these low interest rates??? braaahahahahaha….
“bought the second then defaulted on the first. Qualified for both. Not uncommon earlier in the correction.”
Makes sense.
Local – it sounds like you could do exactly what your friends are doing (sell your place, rent a home in the burbs), you just choose not to.
“Makes sense.”
A rare sight, indeed.
local – the grass is always greener on the other side!!! People underestimate the negative psychological impact a short sale/foreclosure has on someone. Most people aren’t sociopaths and DO have some moral/societal values. There might be more hidden “damage” than you think. It is like the pretty girl/guy that gets laid every night – people may think they are lucky – but, with each meaningless one night stand, their soul slowly starts eroding…..
Here’s one way to solve the “shadow inventory” problem:
http://finance.yahoo.com/news/BofA-Donates-Then-Demolishes-bloomberg-946456059.html
The liability of a foreclosed/abandoned home is ENORMOUS for many banks – they are just now realizing that.
“Do you guys know any business or profession that is recession-proof (and not just recession-resistent)”
Government.
Jenny: for your next job, look for a position at the City of Chicago, or Cook County, or the State of Illinois. Good pay, low-cost health benefits, platinum-plated pension benefits, excellent job stability (certainly relative to the private sector), limited stress work environment (your employer will never go out of business)… and you only need to work 35/hrs a week! Only downside is that you might need to pay union dues.
Local – it sounds like you could do exactly what your friends are doing (sell your place, rent a home in the burbs), you just choose not to.
I could rent cover my mortgage, and rent elsewhere…but then how do I buy a SFH in 4 years? Banks won’t lend until you sell your first place…so I’m forever a renter and the short sale neighbor’s credit improves in 4 years and he gets a loan. If, and that’s a big IF, the market recovers in 4 years, which I doubt it will much then I could sell..again at a loss. The other problem with renting is that I own a very built out high end unit (3500 sq foot, marble,custom finishes) and I don’t think renters will care for it well, so it would take thousands to repair it to the point of being able to sell it. And there is always the issue of the condo limiting rentals. What if I rent it out for year, significant damage occurs to the unit, and then I’m told that the condo is limiting rentals…happens a lot. Renting out a unit is not a perfect solution as Clio makes it out to be.
local – Sorry, what I was getting at, is why can’t you sell your place? Just a refusal to realize a 30% loss? I guess that I am not sure what you are planning on buying, but tou clear 500-600k a year, how long would it take to save up a downpayment?
“1. Group of 9 goes out to dinner every week – tab: 1000. This becomes common after awhile
2. Neighbors/friends have parties and invite you to their beautiful house – the wife then feels pressured to return the favor and encourages you to buy an equally beautiful house (not to out do them, but to fit in).
3. Neighbors/friends go to Europe for vacation and invite you to join them (there goes another 10k)
4. Neighbors/friends have a 50k car – it is embarrassing to drive your minivan, so you trade it in for a lexus or bmw suv
5. kids – oh god, don’t get me started on kids’ stuff (schooling, clothes, extra-curricular activities, camps, tutoring, lessons, sports) –
6. clothes/attire – you have to look good so there goes several more thousand dollars”
It pains me to read that. I’m not sure if it’s the neighborhood or just the people I hang around with, or maybe I’m oblivious, but I feel NONE of those pressures. I have no idea WTF my neighbors’ or friends’ incomes are. I wear whatever I want to and have never noticed anyone looking at me askance. Some people live in mansions, others in small condos, and no one judges. We go to Europe once in a while but don’t turn up our noses at Wisconsin Dells, either. Having fun together as a family is the important factor for a vacation. I have no idea what kind of car many friends/neighbors drive since much of our interaction is in places that don’t require driving to. Some of our offspring attend public schools, some are in private, it’s all good. I’ve heard of “keeping up with the Jones’s” mentalities like you describe and can’t imagine doing it.
you live in a 3500 sqft condo and want to move to the burbs? wtf is wrong with you!
“Banks won’t lend until you sell your first place”
Of course they will, they’ll just look at your total DTI taking your existing obligations into account. My approach for the past dozen or so years has been to buy a place, live in it for a while, get it to where my ongoing costs (including reasonable principal payments) are less than the income from it, then rent it out and buy another place. They’ll just look at the total DTI – they don’t really care what the source of the debt payments or the income is.*
* Most lenders do prevent you from considering all of your assumed future income from rental of an existing property as part of your income for DTI calculations, but this is usually only forward looking (many will let you consider 75% of this or something like that). I think that there’s only one time where I’ve had a lender question the income coming from an existing property, and then they didn’t care once they could validate it through my tax filings.
“Banks won’t lend until you sell your first place Of course they will, they’ll just look at your total DTI taking your existing obligations into account. My approach for the past dozen or so years has been to buy a place, live in it for a while, get it to where my ongoing costs (including reasonable principal payments) are less than the income from it, then rent it out and buy another place. They’ll just look at the total DTI – they don’t really care what the source of the debt payments or the income is.”
Let me clarify…“Banks won’t lend until you sell your first place” they won’t at the price points relevant to my sell and purchases. My current unit is too expensive and the banks don’t consider those good long-term rentals b/c historically (though not true now) SFH and large expensive condos don’t make good rentals…banks know this and won’t lend b/c they fear I’d walk on the current unit after I’m in my new home…they’ve been burnt in recent years. And, as you’ve said, you had to verify rental income through tax filings which means there is a year or so lag…
“Sonies on July 27th, 2011 at 12:52 pm
you live in a 3500 sqft condo and want to move to the burbs? wtf is wrong with you!”
Not necessarily the burbs, just a SFH in a good school district. Current unit is zoned in a terrible district. The unit is great, but the building (like most buildings today) has problems…foreclosures/short sales/special assessment/increasing rental percentage. I would rather not have my investment tied with others…as their short sales/foreclosures effect my value more than if I lived in a SFH.
what school district are you in?
“Let me clarify…“Banks won’t lend until you sell your first place” they won’t at the price points relevant to my sell and purchases. My current unit is too expensive and the banks don’t consider those good long-term rentals b/c historically (though not true now) SFH and large expensive condos don’t make good rentals…banks know this and won’t lend b/c they fear I’d walk on the current unit after I’m in my new home…they’ve been burnt in recent years. And, as you’ve said, you had to verify rental income through tax filings which means there is a year or so lag…”
Uh, no offense, but if you can’t afford to qualify for the new place without relying on possible rental income from your current home, you can’t really afford it. Lenders used to let you count 75% or so of that income, but I doubt that’s true anymore with the current lending requirements. I was talking about a situation where a lender was asking about properties I hadn’t lived in for several years and was asking, “hey, what’s with the several thousand in debt payments every month for those properties – got anything to substantiate the income those properties are producing?” And so I showed them my filings showing that I was getting even more income from them every month than I was paying. I didn’t have to wait for a “year or so lag” because they weren’t a current home.
Yes the owners bought the new place and then defaulted on the old one, because yes they qualified for both at the time. Interestingly it’s me that the neighbors are blaming for setting the comp at half of what they all paid, rather than Lord and Lady Spendalot living down the road.
“Yes the owners bought the new place and then defaulted on the old one, because yes they qualified for both at the time.”
I know that Illinois is a recourse state in theory, but in practice kinda not really on first mortgages, or so people have said here. But as I’ve asked before, is the caselaw really so clear cut and not distinguishable on this? A bank wouldn’t be able to have a reasonable chance of recovery from selected defaulters with obvious assets/income?
“A bank wouldn’t be able to have a reasonable chance of recovery from selected defaulters with obvious assets/income?”
Litigation costs are a big deterrent. But, if one lender had sufficient strategic defaults AND sufficient potential future defaulters with assets, then it might make sense to pursue one.
But then they have to prove the reasonableness of their marketing efforts on the REO sale, that they got the best possible price for the property, etc., etc., and have the damn slow bleed of $$ going for the course of the litigation. Prolly best if they could tie it into obvious (loan application or other) fraud on the borrower’s part.
Local/JJJ: It used to be that if you needed to buy a new place and were renting your old place, as long as you could produce a lease showing the old place was rented, you could count 75% of the rental income. However, when the market crashed, fraudsters were doing “buy & bail” with fraudulent leases. Produce a lease to qualify for the new place and then after you close, just mail back the keys on the old place.
Now you must qualify with BOTH mortgages and the lease won’t count unless you can demonstrate at least 30% equity on the old place through a bank ordered appraisal and are putting at least 20% down on the new place.
In all other cases, rental income only counts when reported on the tax returns. We add back depreciation and the net income/loss is used on the property.
As per the leveraged-lifestyles of the rich:
“According to data from Moody’s Analytics, the top earning 5% of Americans … (with an average income of $342,000 in 2008) have the lowest savings rate in the country: 1.4% compared with more than 8% for the rest of the population.”
http://blogs.wsj.com/wealth/2011/06/21/the-leveraged-lifestyles-of-the-rich/
“Litigation costs are a big deterrent. But, if one lender had sufficient strategic defaults AND sufficient potential future defaulters with assets, then it might make sense to pursue one.”
Or maybe a law firm can to specialize in being the a**hole firm that will go after every penny possible? I hear you on litigation costs but the defaulters would have costs as well.
“Prolly best if they could tie it into obvious (loan application or other) fraud on the borrower’s part.”
Maybe, or go after people who clearly have the assets to cover (and go hire jenny ames or someone indisputably reputable) and establish the reputation that you will absolutely go after strategic defaulters who can pay.
Purely idle curiosity on my part but I’d think there would be something that made sense unless the caselaw were really inhospitable.
Banks aren’t skilled at going after deadbeats. I’m surprised in this mess a new kind of debt collector hasn’t emerged: one specializing in secured firsts. I’d buy it from the bank at 20¢ on the $ and garnish them forever offering to settle for 40¢ + legal costs.
bob, banks are skilled at going after deadbeats. however it’s just too expensive to maintain inhouse legal departments to chase down the deadbeators, and the upfront costs are substantial ($300 per lawsuit). you can’t squeeze blood from a stone and debts that cannot be repaid will not be repaid. i just told someone to stop paying their second mortgage today. $66,000. on a house in an collar suburb worth sub-$100,000 that sold for well more than $200,000 in 2005. Imagine that 2nd mortgage company when they have to write off that debt with literally ZERO chance for recourse.
no bank is going to sell you a secured first for 20 cents on the dollar, the value of the collateral is worth far more than that, in all but the worst hit of areas. And assuming you can settle for 40c plus legal costs on a $100,000 is a joke. You can settle a $10,000 or $20,000 CC debt, if you press hard, for 4 or 8 thousand, but no debtor has access to $40,000 or $80,000 to settle.
i saw a 2nd mortgage execute a garnishment the other day against a debtor (2nds are recourse loans even though first in cook county generally are not – theuy don’t allow deficiencies on first generally)…
the original 2nd mortgage payment (on a house this guy no longer has BTW) was $250.00 a month for 30 years; the garnishment is 15% of his take home for $800.00 a month! that’s rare I see those.
“with an average income of $342,000 in 2008) have the lowest savings rate in the country: 1.4% compared with more than 8% for the rest of the population.”
Please. I don’t believe that for a minute. Either they aren’t including many other things in “savings” (real estate holdings, investments, etc), or that number is completely made up.
HD seconds ARE almost worthless as no recourse. But the right to garnish a deadbeats wages due to a defaulted first if they are ever gainfully employed again has to be worth something.
“HD seconds ARE almost worthless as no recourse”
I’m trying to buy a short sale now. 100k selling price. 1st is for around 200k, 2nd for another 30k. The 2nd has been offered 2k cash, and they are balking at it. Apparently they’d rather get 0 than 2k.
“however it’s just too expensive to maintain inhouse legal departments to chase down the deadbeators, and the upfront costs are substantial ($300 per lawsuit).”
Can’t you hire outside firm (perhaps on contingency)? Can’t you with a few minutes effort figure out which ones are worth it to go after? You don’t have to go after everyone, just the ones that make sense.
it’s worth about 1 or 2 or 3 cents on the dollar. that’s about all.
“#Bob on July 27th, 2011 at 2:30 pm
HD seconds ARE almost worthless as no recourse. But the right to garnish a deadbeats wages due to a defaulted first if they are ever gainfully employed again has to be worth something.”
“You don’t have to go after everyone, just the ones that make sense.”
You would open yourself up for a discrimination lawsuit.
I’m just telling you, we sometimes file breach of contract actions for 2nd mortgages on debtors, and the debtor rarely pays. we file for nonsecuritized 2nds for a handful of mid sized regional banks (not many of them left after all the mergers). the bank files them primarily as an F U to the debtor, and because they can’t hold onto an asset and not try to collect, rather than expecting to actually recover anything substantial. we file them pretty much for free just so that we can get the other stuff we really want, which is the foreclosures on the 1st mortgages they hold.
“#DZ on July 27th, 2011 at 2:44 pm
“however it’s just too expensive to maintain inhouse legal departments to chase down the deadbeators, and the upfront costs are substantial ($300 per lawsuit).”
Can’t you hire outside firm (perhaps on contingency)? Can’t you with a few minutes effort figure out which ones are worth it to go after? You don’t have to go after everyone, just the ones that make sense.”
No you wouldn’t Clio. Owning the debt is like an option: you have the right not the obligation to take legal action.
Look at debt collection firms: they are usually fairly small, only a handful of attorneys making $50,000 a year, partners making MAYBE triple that, and a staff of zombie debt collectors on the phone making $9.00 an hour plus a small percentage of whatever they can recover. the work itself is geared towards smaller firms, high volume, and little actual practice of law. how much money do you really think you can make squeezing blood from stones? The bottom market, and now even the middle market has far less purchasing power, they don’t have the money anymore. the high end has all the money and you should spend your time basically being the ‘fixer’ for HNW individuals and decision makers in order get business. Banks write off this debt, let the smaller street lawyers and debt collection firms chase the deadbeats for $25.00 a month. that’s the payment plans they make with defendatns in court. $25,00 a month.
once in a while they get lucky like taht i guy I talked about at $800.00 a month on a $20,000 defaulted 2nd mortgage, but that’s rare. the guy should have begged, borrowed or stole $10,000 from his grandmother’s purse to avoid the garnishment, which is what most people end up doing.
Even divorce lawyers are hurting, bad. My buddy hired an experience divorce lawyer, practing law for 30 years to do his uncontested divorce. $2,000 including filing fees and court reporter. it got a little contested but he didn’t even bill for that. usually a lawyer of this caliber wouldn’t have taken the case because it was so small, but scraps are what they fight over nowadays. throw into the mix 70,000 lawyers in teh Chicago area, and the new grads willing to undercut EVERYBODY else to get work, any kind of work, and it’s a dog eat dog environment. it’s tough, I’m fortunate to be where I am but as I said yesterday, lucky strikes will someday fire the partner to whom I answer, and when that day comes, I better have a contingency plan, and I do, but it’s not nearly as good as working on the lucky strikes account, if you know what I mean.
We’re fortunate enough to have a handful of lucky strikes, and I have a diversified client base (remember I said that i ‘chase ambulances’ on the side for suburban car accidents with $100k+ policies) and that will help, but if we lose one lucky strike, especially the lucky strike to whom I answer, i’ll be a solo lawyer in the time it takes me to hit submit.
the good times will end at some point, even if temporarily, but they will end.
clio on July 27th, 2011 at 2:46 pm
“You don’t have to go after everyone, just the ones that make sense.” You would open yourself up for a discrimination lawsuit.
Clio, As a civil rights attorney, I can say this is not correct. As long as the bank sets a cut off based on income and/or assets and applies it across the board, there is no basis to say the bank is discriminating based on a protected category (race, national origin, sex, disability, sex, etc…). It only makes sense to go after folks with sufficient assets and income, but we all know if situations where the banks do not. For example, the buy and bails…many actually bought up and then bailed on their lower priced properties. They obviously still have income since they just bought a new home and possible assets…garnish their wages. Also, could you get a lien on the new house? Obviously, it wouldn’t take priority over the new mortgage but eventually you might see some cash years later…could this be done? Not sure, as I don’t specialize in debt collections.
You don’t even need clear cut criteria the onus is on them: they breached the terms thats all you need.
Bob on July 27th, 2011 at 3:34 pm
You don’t even need clear cut criteria the onus is on them: they breached the terms thats all you need.
True, but if you have a nondiscriminatory policy that is consistently applied, you avoid expensive litigation over selective enforcement claims by advocacy groups….yes, the onus is always on them but a good policy makes it easier to defend your actions.
“Even divorce lawyers are hurting, bad.”
For good reason. Divorces are at their lowest level since the late 1960s. At the same time, law schools have been overcrowded for far too long. America is getting less litigious, not more. So it is easy — supply outstrips demand. I oversee a 7 figure legal budget and have routinely eliminated or severely curtailed certain areas of legal spend. We negotiate fixed bid or retainer style agreements — none of this $600 per hr bs. And firms are accepting it, because that is a competitive market for you.
Yet a guy like HD is scratching his head as to why he cannot afford a the same house the K&E partner has. Three reasons: i) area of legal practice, ii) a top 10 law school degree iii) luck. Even if his area of law didn’t center around chancery crap he’d still be on here posting because he got caught holding the bag — the law school bag.
Referring to the question about knowing anyone who has done a short sale:
I’ve known 3 people who have done a short sale in Illinois. All 3 were because of job transfers. All 3 had a second mortgage, which the government considered “income.”
In one case, since the owner had other assets, the bank on the second mortgage agreed to a payment of $19,000 in lieu of the $60,000 second. The first bank lost $100,000 when the house sold. His credit was hit initially (down into the low 700s) but has rebounded back to 780. He is renting a house in his new city and will buy again in just a few years when his credit is restored. So- combined the 2 banks ate about $140k in losses, he ate $19,000 plus the damaged credit.
In another case, they were completely broke and told the bank on the second mortgage they would declare bankruptcy. They didn’t- but the second bank had no choice under the law but to issue a 1099 for $10,000 for five years ($50,000 second.) The bank on the first mortgage let them walk away. So they will pay income taxes on $10,000 a year for 5 years. They are renting now.
In the third case, they stopped paying the mortgage. The bank tried to short sell it to no avail. It will shortly go into foreclosure.
I thought due to HAMP or some other law for a time period those gains from short sales weren’t treated as ordinary income?
I think it’s still in effect through the end of 2012?
That’s another reason I’m holding off on housing: there is a bunch of legislation and bailout programs that expire at the end of 2012 (HAMP, govt backed bank debt). They can’t keep extending these forever. I can wait.
Sure the backstopped bank debt doesn’t directly relate to housing, but once the guarantee is gone rates may rise or we may have another financial crisis.
Sabrina:
No tax liability on short sale debt forgiveness for calendar years 2007-2012:
http://www.irs.gov/individuals/article/0,,id=179414,00.html
“All 3 had a second mortgage, which the government considered “income.””
You sure about that?
“His credit was hit initially (down into the low 700s) but has rebounded back to 780. He is renting a house in his new city and will buy again in just a few years when his credit is restored.”
Sounds to me like it is already restored. And low 700’s after a short sale? That sounds WAY too high to me.
In the business environment they call it regulatory uncertainty: it’s basically the awareness that Washington has enacted a bunch of short-term policies and is set to do more more landscape altering legislation in the near term. It makes it hard to plan ahead.
Similarly on the consumer side why should I be in a hurry to buy if all of these short-term stimulative things were done for the housing market that all expire at the end of 2012? The money tree can’t last forever and it seems the tea party is taking whacks at it with an axe these days!
My patience will pay off: the gimmicks are set to end and housing will enter another downward spiral. Maybe not as steep as the first one but once the bailouts are over and people default on those (re-default rates are quite high for HAMP’d homes), they’ll be added to the foreclosure pipeline. I don’t think HD need worry about his gravy train running out any time soon.
“No tax liability on short sale debt forgiveness for calendar years 2007-2012:”
Bob, I believe it depends on the reason for the 2nd. Has to have been used to improve the house I think in order to qualify.
Everything points to more headwinds for housing:
1) Expiration of HAMP: check.
2) Headwinds for employment: check.
3) Rates have only to go up: check.
4) Delinquency rates aren’t coming down: check.
5) Cook county taxes are rising: check.
6) Mortgage interest deduction likely to be curtailed: check (mostly applicable to higher price brackets but a lot of second/vacation homes could be hit too).
I’m still eating popcorn.
Marcus, if I drive 100 snobby weenies to the burbs I will die a happy man. Ask my neighbors whether they prefer me or the bozos honking their horns to carpool at early hours, or people who don’t shovel, or you know, shoot folks out of stupidity or greed or boredom or some combo thereof.
Chuk: We had a good laugh about his credit rating when it hardly went down at all. He’s only 2 years away from buying again after getting the banks to eat $140k. Oh- and the people who bought his house in short sale were in way over their heads and he’s convinced they will be in foreclosure in a year or two as well.
Good times – let me tell you (and the American tax payers who are eating most of this through Fannie/Freddie/FHA.)
“No tax liability on short sale debt forgiveness for calendar years 2007-2012:”
Bob- you almost never get this on a HELOC. Maybe if you had the receipts that every single dime of it went towards a new kitchen or something. But if you simply did an 80% and 20% loan- the second loan is considered income still.
By the way- now that you linked to it- I wonder how likely they’ll be to extend this forgiveness past 2012? Is this the same provision that expires in December? If so- lots of people are going to be filing for short sales now rather than waiting.
“We had a good laugh about his credit rating when it hardly went down at all.”
Oh yeah, that’s really funny to the rest of us. It is truly amazing that you can’t be arrested for this type of behavior (after all, you can be arrested for just about every other idiotic type of behavior).
He was moving for job reasons Clio. The job relocation team at his new employer was like, “we see this every day of the year. You are not alone.”
Hardly anyone can sell and move for job reasons right now. Most are underwater.
But he couldn’t believe how easy it was to do the short sale and walk away. The banks ate it all. He DID have to pay the $19k but that was peanuts compared to what the banks had to pay.
“I’m still eating popcorn.”
So am I – but I’m doing it from the theater room on my estate!!! – and I can assure you that my popcorn tastes better!!!
“Oh- and the people who bought his house in short sale were in way over their heads and he’s convinced they will be in foreclosure in a year or two as well.”
Maybe he can buy it back from them in a short sale…
“He was moving for job reasons Clio.”
The reason doesn’t matter – seriously, if his job was that insecure then he should have rented. If his company made him relocate, then they should be held liable. Good God – you talk to any criminal and they, too can give you a million excuses of why they behaved badly. They should publish the names of everyone who shortsaled or went through foreclosure. Humiliation may teach them a thing or two,
“seriously, if his job was that insecure then he should have rented.”
Wait. What?
“If his company made him relocate, then they should be held liable.”
Very few companies are paying relocation anymore. There’s no reason for them to- with so many people out of work.
All 3 of the short sales I know of were for job reasons, as I said. In one case, my friend got married and got a new job down south. Had to sell the condo in Chicago- and renting it out would have meant a loss of about $500 a month- couldn’t sell it and it’s now headed towards foreclosure.
In the other case- it was a matter of there being NO jobs in Chicago in my friends profession so his family moved to Texas where there are jobs. They are the ones who have to pay the taxes on $10,000 a year for the next 5 years.
“They should publish the names of everyone who shortsaled or went through foreclosure. Humiliation may teach them a thing or two.”
Clio- when millions of people are going through the same thing- there is very little shame in it anymore. My friend freely talks about it to anyone who asks.
“All 3 of the short sales I know of were for job reasons, as I said. In one case, my friend got married and got a new job down south. Had to sell the condo in Chicago- and renting it out would have meant a loss of about $500 a mont”
Oh, well why didn’t you say so in the first place?…. Seriously, re-read what you wrote – unfuckingbelievable. It is like saying a murderer murdered someone because he was unhappy with the person’s behavior – as if that makes it OK. You are completely morally bankrupt.
“there is very little shame in it anymore. My friend freely talks about it to anyone who asks.”
Yeah, and prostitutes on the corner often speak freely about their tricks – doesn’t make it morally acceptable……
“In the other case- it was a matter of there being NO jobs in Chicago…”
oh yeah, I forgot – Chicago is such a small city with such specific job markets… Give me a fucking break…. these are all excuses – and very lame ones at that. Sabrina, are you part of the younger generation (you know, the ones that think that they have it so bad – because you certainly show absolutely no characteristics of someone from the “greatest generation” of which you speak so proudly of). honestly, do you think your 91 year old friend would ever do something like this?
JMM – I’ve never scratched my head why I cannot afford a house in your neighborhood next to your K&E partner neighbor. You totally made that up as a petty insult and slander directed towards me.
But in all seriousness, you’re quite pathetic if insulting anonymous internet posters on their perceived lack of income makes you feel better about yourself. You’re quite the sad individual, and I pity you and your 100 year old home in Kenilworth.
If you were a well rounded individual cognizant of your (alleged internet) position in life, you’d realize that even the ancient Greeks recognized Plutus, the god of wealth, who was blinded by Zeus, and he would distribute wealth indiscriminately and without favor towards the good or the virtuous.
And from your moronic comments directed towards me over the years, the concept behind the greek god plutus is just as applicable then as it is today.
“honestly, do you think your 91 year old friend would ever do something like this?”
She has never worked a day in her life (her husband did that for her.) So I don’t think she understands all that goes into having a career and having to provide for your family through any means necessary (including moving to another state.) Her husband was a school teacher who never saw a layoff and retired with a great pension at age 55 (this was back in the 1970s.)
But I do know- that they had to put down about 20% when they bought their house in 1951. They never had home equity loans and were never underwater on any of their homes. So she is not faced with that.
Also- she never had to buy property in a time where the prices were 5 to 7 times average income. When she bought (both times) prices were pretty much in line with incomes.
“Chicago is such a small city with such specific job markets… ”
Yes- if you are in the construction trades (pipe fitter, tiler, etc.) – the job market has been completely destroyed in Chicago. Construction firms used to employ 50 tilers and are down to 5. The others have been out of work for 3 years now. Some are retraining in other professions because the work probably won’t ever come back.
That’s why my friend moved to Texas. There’s still some construction jobs down there. He got a job in a matter of a few days (actually federal government work!) but he has a skill as a plumber.
God Sabrina, more excuses for your morally corrupt friends – seriously – there are thousands of people in the same situation – but those people make sacrifices and make things work. Again, it is the same thing as a woman who keeps on getting abortions because she can’t afford the baby, because she wasn’t ready, because she was psychologically scarred, etc. – unbelievable – simply unbelievable. Life is hard – you can’t always take the easy way out. The only good thing is that these losers haven’t learned their lesson and will continue to make these bad decisions – Remember, bad behavior tends to get repeated when it is not properly dealt with. Hopefully when (and not if) this happens again, they will fuck up and do it on a bigger scale and get severely punished. I wish them a speedy failure.
“You are completely morally bankrupt.”
Bankers are morally bankrupt. And although two wrongs don’t make a right, if it helps put more former bankers in the unemployment line I do see a positive externality from the situation.
I wouldn’t feel bad going through the same situation, but I wouldn’t brag about it either and probably wouldn’t freely talk about it.
“even the ancient Greeks recognized Plutus, the god of wealth, who was blinded by Zeus, and he would distribute wealth indiscriminately and without favor towards the good or the virtuous.
And from your moronic comments directed towards me over the years, the concept behind the greek god plutus is just as applicable then as it is today.”
Now that I know HD is not only a housing bull but also a pagan I will reserve a spot on the medieval wheel for him WTSHTF.
Ahh moral equivalency with serial abortionists–more original than Hitler/Nazis! Okay this thread is now closed.
Clio- get out of your mansion. You can’t make money appear from nothing to pay the mortgage. You have to go where the jobs are and they aren’t in Illinois. Actually- I’m kind of surprised my friend didn’t end up in North Dakota. They’re hiring a lot of people out there – especially in construction due to the boom in drilling. But Texas seems pretty stable right now as well.
I’m glad for all of my friends who got out and found new jobs. No use sitting in Chicago bleeding money for no reason. That’s what the foreclosure/short sale process is for (as millions are finding out.)
OK Sabrina, then to make things fair, the govt should make the banks give a mortgage credit equal to the amount they spent on these losers to everyone who owns a house or rents. It is the only fair thing to do…..(in a non-socialist country, that is).
clio the problem you have is the rich don’t have as many votes as the poor. If you really want to fuck poor people over get the rich to become 51%+ of the society then the govt can really screw those poor fuckers over.
This is why the housing market is in ruins Clio. 25% or more of homeowners are underwater and they’re not going to wait it out for a decade (or longer.) Many will have to move for various reasons (or lost their jobs and can no longer afford the payment).
This the the price we all pay for easy credit – with no money down. There’s an easy solution. Make everyone put 20% down and you have far fewer people having to short sale when they need to move to another state for a new job.
True – actually the slow down in the housing sales has been GREAT news for landlords. With the rental pool becoming INCREDIBLY crowded and ownership becoming increasingly impossible, rents are going to skyrocket.
Anybody who feels and succumbs to perceived peer pressure to spend more than they can afford is bringing it on themselves and deserves financial disaster. I’m Gen X (I think). Born ’77 and I feel absolutely no pressure to spend money. I don’t think other people in my age group do either. Our attitude is everyone’s spending is their own prerogative. The feeling is that anyone can go from rags to riches (a la groupon) or riches to rags (a la buying real estate). So if you don’t want to associate with people solely because they appear to be financially lesser at the given moment then you are the ultimate douche.
I’m frugal and most of my friends are also. Fortunately my business has been going remarkably well and I’ve been thinking of throwing down on a fancy car, like a BMW M6, cash. But one thing that’s holding me back is not the $, but the idea of being subtlely ostracized for looking like a douche who’s either showing off, compensating, or bad with money and probably making car payments. Most people in my circle drive nissans and hondas, acuras at the very best. So I guess it’s kind of a reverse peer pressure to spend.
Brad, please grow a pair and buy what you want to buy, you frickin’ follower!!! Seriously, you are more of DB for caring so much about what your colleagues and world think about you. Actually, don’t buy the car- buy some therapy!!!
then brad, just buy an audi
damn, my comment calling JMM a giant douchebag never made it through…
Clio… Banks wrote shit paper. Problems not the people that stopped making payments, this is a common issue in the daily course of business. The problem is the writers of this crap weren’t sent to the graveyard. Oh i wish you were here 2 yrs ago. I bet you were TARPs biggest shillin fan.
Remember, need it to protect real estate!!!
And why is it the two guys who seem to always be going on about money, and what constitutes class, proved without a doubt that they lack any. My half-hearted apologies if i’m incorrect but no one will answer if JMM ever apologized to G, so i assume he has not.
“then brad, just buy an audi”
exactly
and brad.. Unless you have 2 commas on your net, you shouldn’t be playin with that car. Otherwise, if alls good, i’m a big fan of the idea of rewarding yourself with presents. What’s the point otherwise.
“Unless you have 2 commas on your net, you shouldn’t be playin with that car”
Enh, just buy a used one. There are a ton for sale around Chicago.
I had to sell my house for less than my mortgage because of a job relocation, but short sale wasn’t an option for us. Sure it sucks that we have to pay that extra cash back (and we’re still paying 4 years in), but I feel better knowing I didn’t just walk away from my obligations. I guess it depends on what kind of person you are.
Me too. I brought money to the table and sold at a loss.
@Jennifer if you don’t mind sharing, how did you handle the extra money? Small bank loan, credit card?
Icarus:
Most of the lenders will set up a payment plan. My understanding is the typical term is 5 years.
“And why is it the two guys who seem to always be going on about money, and what constitutes class, proved without a doubt that they lack any.”
They sure did, ze. Easy marks, really.
oh lord, a new, new car, never. Used or really really used for me. I think you, groove, and I all have a thing for late 50’s early 60’s design…. Curves like a brasilian girl!! And vroom vroom to match.
G…true..true… But yet they still belittle as though it didn’t happen, and no one saw it . JMM actually took on a new level of douchebaggery it seems… Remember the old SNL with Bill Murray.. Now entering.. Sir Lord and Lady Doucha-bag!
on second thought, well if its got cool new features you really want, well then you can get new…
“Jennifer I had to sell my house for less than my mortgage because of a job relocation, but short sale wasn’t an option for us. Sure it sucks that we have to pay that extra cash back (and we’re still paying 4 years in), but I feel better knowing I didn’t just walk away from my obligations. I guess it depends on what kind of person you are.”
Good for you Jennifer…glad some people take responsibility and manage their affairs like an adult.
I here ya, ze, but I knew their level all along.
“oh lord, a new, new car, never. ”
Can find an M6 under $50k. Don’t need two commas to spend $50 on a car, esp if you’re young, single and renting.
Back to the topic:
The correction isn’t over in the GZ. LP and LV sfh/condo/th foreclosure filings jumped in 4Q 2009 and have increased since (even with robo-slowdowns.) For 2010, LP had 257 new foreclosure filings and 82 completed, and LV had 335 new foreclosure filings and 125 completed. For comparison, LP had 757 sales in past year (7/1/10-6/30/11) with 98 (13%) distressed, and LV had 1,092 sales with 175 (16%) distressed. The distressed sales were roughly evenly split between short sales and REO. Distressed sales will have an increasing impact on these markets throughout 2012, at a minimum (since new filings may not have peaked yet.) We’ll see what that does to the numerous accidental landlords, especially after they experience some tenant turnover.
“Don’t need two commas to spend $50 on a car, esp if you’re young, single and renting.”
Yea, but you’ll never get to two commas if you piss it all away on cars.
What Bob said. Or look at this way, if you’re looking for a home, see what you qualify at with and without a $250 – $400 monthly nut for that car.
Extra bedroom or (brief) new car smell, hmm…
“Yea, but you’ll never get to two commas if you piss it all away on cars.”
“a $250 – $400 monthly nut for that car.”
That’s a loooooong term for a used car at $50k.
i’m on a 3 in screen so not going to search edmunds, but i gotta figure that car has to take a long time to go from 50 to 30k. And once at 30 just kinda stop. I can’t speak for the 6, but the 5 was about as fine a day car as one can build.
I think he’s stating the difference in cost between a new and used car is an extra 250-400 a month, which is fairly accurate
“Can find an M6 under $50k. Don’t need two commas to spend $50 on a car, esp if you’re young, single and renting.”
Yep, you can get a descent M6 a few years old for under $50k. They’ve depreciated relatively fast because the fools who paid $100k new where the same fools drinking the RE kool-aid. It’s not the sort of car that would turn heads everywhere. It’s for people who like cars for their own sake. If on the other hand you’re the sort of person who screams for attention and needs that external validation then a Lambo is perfect for you. If one’s has lost a lot of money in RE then such a person could pickup an ’05 Lambo Gallardo for under $100k. Then every tourist downtown will stop and point at you.
And I agree with a prior post that nobody with less than two commas should be thinking of a $50-100k car. I’d also say that you better have 8-digits if your talking exotics (Ferrarris and Lambos).