Market Conditions: Tribune: Belmont Cragin Hard Hit By Foreclosures as Distress Spreads
According to the Chicago Tribune, the Belmont Cragin neighborhood, and others on the North and Northwest Sides, have been cut off from federal funding to help stop the spread of foreclosures because they were not hit as hard at the beginning of the crisis by subprime defaults, as other city neighborhoods were.
The West and South Side neighborhoods of Austin, West Englewood and West Pullman — each of which receives assistance from the stabilization program — were the first and hardest hit by the foreclosure boom in 2006 and 2007. Those three neighborhoods alone combined for more than 3,700 foreclosure filings during those two years.
Much has changed, though, since 2007, when nearly 13,900 foreclosure filings were recorded in the city. For one thing, filings leaped 65 percent in the next two years, and the crisis began to envelop higher-income individuals and neighborhoods.
Condominium foreclosures took root, hitting Rogers Park and West Ridge. The two neighborhoods had reported a combined 180 foreclosures in 2006. Last year, the number skyrocketed to 1,200. The effects of condominium foreclosures are obscured because, unlike a boarded-up single-family home, a condo that is largely empty shows few outward signs of distress.
Reboyras said he keeps three weed whackers in his neighborhood office to tend to lawns of abandoned homes. David Potete, a pastor in Belmont Cragin, said he mowed a lawn on the street where he lives for more than a year.
“I’ve never seen anything like this. Every block seems to have seven or eight (foreclosed) houses on it,” Potete said.
The accumulation of foreclosed houses is by no means unique to Belmont Cragin or the city of Chicago, where nearly 23,000 foreclosure filings were made last year, according to the Woodstock Institute, which tracks housing developments in the region. In the first half of this year, foreclosure filings in the six-county region topped 39,200, a 37 percent increase over the first half of 2009, according to the institute.
According to the Tribune, 78,000 people live in the Belmont Cragin neighborhood. Home prices skyrocketed, as they did elsewhere in the city, in the mid-2000s.
Rising unemployment, combined with falling housing prices, has put even more homeowners in the neighborhood at risk.
“We have not hit bottom,” said Art Neville, vice president and senior loan officer at Community Savings Bank, a local lender. “A 40 to 50 percent drop in housing values is not unusual in Belmont Cragin. It’s one of the more harder-hit neighborhoods.”
Felix Ayala lost his $352,000 home earlier this year after living in it for seven years. The economic slump of late 2008 led to a dramatic cut in his work hours as a restaurant waiter. Ayala sought a modification in his loan agreement in early 2009, but the bank foreclosed on him. “It just depresses you,” said Ayala, whose work schedule is diminished and sporadic.
Chicago neighborhoods foundering in a wave of foreclosures [Chicago Tribune, Tim Jones, July 22, 2010]
a bit off-topic but just more evidence the market never learns.
the following video was being cited by the CEO of Diamond Offshore as a reason why we need to resume drilling in the GOM http://www.youtube.com/watch?v=icIWgVgo1Pg
I on the other hand took away the following (in order of importance):
1) Don’t give mortgages to people who were foreclosed on 2 years ago.
2) Don’t let people strip their 401Ks to make down payments on houses.
3) Don’t have 6 children if you don’t want to live hand to mouth.
4) The drilling moratorium has negative economic impacts in the Gulf
region.
Belmonst craigin is pretty typical of what I’ve been talking about for years. These houses cost in the 100’s during thr 1990’s and due to the boom and *rampant* helocs, homes became worth in the 300’s or more. That’s a 2000 or more a month mortgage for a household that probably made 50k or 60k a year. The article says a drop of 50% is common, which in reality, just brings houses back to where they were pre-boom. This is good news for future homebuyers looking for affordable homes.
I read the article yesterday. What’s unsaid here in this article is as relevant as its expressed content.
Fed dollars were used to prop-up defaulting mortgages in already unstable neighborhoods that contain significant blight, abandonment, and desrepair. Blue-collar neighborhoods like Belmont-Craigin are essentially “intact” – single-family homes in reasonably good condition located on reasonably well-maintained residential blocks with walking distance neighborhood retail, etc. This type of neighborhood is a far better candidate for revival and preservation via intensive public investment than the already marginal south-side and west-side neighborhoods with long histories of disrepair and social welfare problems. Pandering politics played a significant role in selecting these somewhat poorer (look at income stats) predominantly black neighborhoods.
Belmont-Craigin has a high percentage of non-citizen Mexican and Polish homeowner populations, a constituency that is not well-represented by citizen groups or vocal street reverends who advocate for public investment and neighborhood-based supplemental welfare programs (which the mortgage program is by definition, being an unearned supplemental subsidy “income” program). Belmont-Craigin has a high foreclosure rate, but property abandonment is also occurring as some “underwater” in debt property owners are returning to their native countries. The “no tell” mortgages allowed illegal immigrants to purchase homes, just as the “no SS” bank accounts allowed them to open savings accounts. But the fear of deportation remains even as home ownership occurred.
Many sections of Belmont-Craigin contain decent middle-class housing stock once attractive to tradesman and white-collar workers. Definition of “high-income” by federal standards is approximately $90,000 household (couple with kids) income, which places that household in the “upper middle class but non “Green Zone” category of neighborhood choice. If Chicago continues to lose its middle-class (non “Green Zone”) neighborhoods, then Chicago’s economic fortune will also suffer because a viable city is not 10% high-income “haves” and 90% “have-nots”. Young professionals seek out “Green Zone”, but it’s increasingly difficult for a couple with two kids to maintain income to maintain lifestyle expectations within “Green Zone” housing price (and school cost) realities – because not everyone is a lawyer, trader, broker, doctor earning a $150,000+ income.
.
I was out on the west side last week around 5400 W Division. Not sure exactly what hood this is considered. Perhaps Austin? Anyhow I drove by my grandparents old home on Crystal and was really suprised at how great the house and whole block looked. This was once a great area of hard working middle class folks that took a sharp decline for years and appeared that it had suffered greatly. Not sure what sociology-economic status it would be granted today. The good news is that it mirrored any working class well kept area of the city. The foreclosures may have happened here as well but I was pleased to see that the neighbors are taking great pride in their block!
See: “Gran Torino”
I read somewhere recently Belmont-cragin is number 2 just below Austin in foreclosures.
“Belmont-Craigin has a high percentage of non-citizen Mexican and Polish homeowner populations”
My in-laws had a few friends that were non-citizens owners that once it got rough and the cars got repo’d they skipped on back to the home country. one family was in portage the other in belmont. the family in belmont actually didnt go “back home” but to Australia to find work.
BTW, would anybody want to take a guess what community(hood) my house is located?
I feel for the man the article speaks of, but only because his hopes were artificially elevated and there was never a prayer he could afford his house, even had his hours and income not been cut. A waiter’s income doesn’t buy a $352K house. He was nothing but a life-long renter no matter what, and was destined to lose the house at the first reset of the loan.
Government meddling in the housing and credit markets over the past 15 years gave us not only the toxic lending that drove prices to such unsustainable levels, but two toxic ideas that most people in our population have unfortunately internalized and will have to get over if we’re ever going to have an honest economy again: 1) that home ownership is an entitlement that the taxpayers should support to the detriment of everything else, and 2)yearly appreciation in house values of 20% a year is also an entitlement and you should be able to make the equivalent of your yearly earned income in appreciation.
I was wondering about this guys income and how he swung a $350k house. Waiters at top restaurants do make some nice money but I doubt enough to easily support a $350k house, particularly with the inconsistency of that income. I would bet a steak dinner he went stated income.
I’d bet a steak dinner that he had a Pick-a-pay ARM mortgage with no money down and a 1% “teaser” interest rate for the first stage of the loan. Those loans were used to finance houses up to $2.5M or more in value, and those are the loans that made lending with DTI rations of 6, 7, or 8 possible. They of course were time-bombs, rigged to blow up in your face because at they created negative amortization. You were deferring not only all your principal but most of your interest, and it came due at the reset. These and other exotics like Interest Only and the 80/20 piggyback, created the bubble.
DTI ratios of 6 or more were very common during the rampage. In fact, some type of ARM was almost the rule. I had two mortgage broker friends, one of whom cleaned up writing HELOCS and cash-out refi loans for 3-flats and houses in West Ridge and Rogers Park.
Felix bought his 2-flat in 2003 for $329,000. WaMu was kind enough to lend him $319,000, or in other words, he had a 3.0% down payment.
He refinanced his two flat for $352,000 in 2005, effectively borrowing his down payment and taking an additional $23,000 out of the property.
A foreclosure was filed in 2009.
Felix sold his home in early 2010 in what was presumably a ‘short sale’ for:
$144,000.
In 1991, this home sold for: $157,000 with a mortgage of $141,300.
Felix bought his 2-flat in 2003 for $329,000. WaMu was kind enough to lend him $319,000, or in other words, he had a 3.0% down payment.
He refinanced his two flat for $352,000 in 2005, effectively borrowing his down payment and taking an additional $23,000 out of the property.
A foreclosure was filed in 2009.
Felix sold his home in early 2010 in what was presumably a ‘short sale’ for:
$144,000.
The foreclosure was dismissed shortly thereafter.
In 1991, this home sold for: $157,000 with a mortgage of $141,300.
So Felix was probably able to live beyond his means at someone else’s expense for a period of time. Aside from the stress he endured it sounds like a pretty good deal. The problem that people have in these situations is that their expectations reset and then they can’t go backwards.
Yeah we should all feel sorry for the morons who way over paid for a house in a marginal neighborhood because they just HAD to buy
Seriously, a 350k house on a waiters salary? I wonder how much money he had saved in the bank… probably none as he likely spent it all on designer sunglasses, hair gel and other now worthless crap
What we’re all dancing around here is the problem of deregulation.
Oh, and that Alan Greenspan will go down in history as the lamest Fed chief ever – he either knew what was happening and kept his mouth shut to save his job, or was truly the most ignorant economist to walk the earth.
All economic intervention has unintended consequences. Greenspan was trying to stabilize the economy after 9-11 and the tech boom. As a result he created the housing boom with low interest rates.
All of the intervention that we are doing now (fin reg, bailouts, TARP) will also have unintended consequences. We just don’t know what those will be.
It always seems like a good idea at the time.
Just wait until we see what regulation buys us.
“What we’re all dancing around here is the problem of deregulation.”
A house is for the long term…if you dont have a stable job, feel free to rent something more than you can afford, but please dont buy a 350k house and expect us to feel sorry that you lost it!
This guy didnt loose anything, he probably made $10k off this. Makes me mad.
How exactly did deregulation cause this problem? Did deregulation force people who had no business buying expensive homes to sign the mortgage documents? Caveat emptor.
I’ll admit that I am someone who overpaid for my home in 2004; however, I didn’t overspend. My home might be worth less than it was then but I can still afford the monthly payment and I’ve got money in the bank in case of an emergency.
The problem is that instead of letting market forces take care of the problem the government is trying to funnel obscene amounts to stop the bleeding. All that will happen is that the problem will extend over a longer period of time and ending up costing ALL of us more money. Government intervention and regulation rarely solves economic problems.
Ah, proofreading.
That should read “obscene amounts of money”.
@HD,
I wonder if Felix has a new iPhone and $80/month cell phone bill as well.
We live in a time where you ‘have to’ get a new iPhone every 18 months. Its going to be a radicle shift in mentality for people to start living in the same house for 10+ years.
I can only think of a few of my friends who have been in the same spot for more than 3+ years. All of them would move if they could sell. Shame.
HomeDelete, how did you find out which property was Felix? I didn’t see it mentioned in the article although I might have missed it.
On Felix and the 352K home, it’s a sad situation, but I also have some questions.
His first mistake was buying the house at 329K and then rolling an extra 23K into the mortgage. I will be generous enough to allow that perhaps he was fast-talked into it by the loan officer and didn’t grasp what he was getting into? Obviously he is not educated and probably does not question authority or have the greatest reading comprehension skills. Let’s just say he’s not the most sophisticated fellow.
However, how much could his monthly payments have been with the mortgage and property taxes? 2500K at the very, very most?
I want to know, does he have a wife? Does he have other adult relatives living with him? How many children does he have? What other liabilities does he have?
If I was in that position, I would put my wife and relatives to work ASAP if they weren’t already working, stop having kids and then rent out rooms to fellow waiters. I would pick up whatever work I could on the side. I would work 20 hours a day. I would collect cans. I would eat rice and beans 3 times a day. I would do whatever it took to make the payments and keep the house and I would also apply for a loan modification. I don’t know. I’d like a little more detail on what poor Felix did when he ran into trouble. I think he had options. I don’t think he had to lose the house. It’s not a one bedroom condo. It’s a house with multiple bedrooms and a basement. I would have rented out rooms.
I’m not going to feel too sorry for him because he didn’t make a significant down-payment, so it wasn’t as if he was losing his life savings. Then he was allowed the easy option of a short sale and to walk away with a clean slate, so he’s not really out anything, is he?
@LG,
-made $10K.
Are you basing this on the ‘saved rent’ he would have paid while he stayed in the property without paying. You could also factor in any income tax deductions, any rent-vs-buy savings over the years, and lets not forget the $23K over he took on the refi.
You could saw he netted closer to $40-50K over the 6 years.
@Milkster,
its through that you could, but in the end its easier and cheeper for someone not to. And thats why you wouldn’t. The only reason to is the ‘moral obligation’ to pay your debts. A mortgage is a legal obligation and not a moral obligation. This has become the thinking of the day.
I wont argue right or wrong. Its the way a responcible business would operate.
Somewhat OT, but in the spirit of cutting back on impulse spending and a rejecting a consumerist-culture, here is an article from the NY Times Style Section on an experiment in getting by with only 6 articles of clothing. I thought it was inspiring and made me question my own habits:
http://www.nytimes.com/2010/07/22/fashion/22SIXERS.html?ref=todayspaper
@ Tom,
Yes, you are right. The Tribune article paints Felix as a hapless rube. But I am wondering if he was more calculating than it seems on the surface.
“Felix Ayala lost his $352,000 home earlier this year after living in it for seven years. The economic slump of late 2008 led to a dramatic cut in his work hours as a restaurant waiter. Ayala sought a modification in his loan agreement in early 2009, but the bank foreclosed on him. “It just depresses you,” said Ayala, whose work schedule is diminished and sporadic.”
Be very careful in your speculation over the reasons Felix (or any other owner for that matter) lost his home…after all he did live in the place for 7 years with no problems until his houre were cut. Had he not made enough $$ to afford this place, how did he obtain the mortgage in the first place and how did he survive for 7 years?
I am rather close to several servers/maitre d’s here in NYC and I met a number of them while in Chicago. Do not underestimate their income as many are very, VERY well compensated for their work. The industry requires servers to report only a minimum of 8% of their total sales. Professional career servers usually earn between 20-25% of their sales, so while their income might not seem that much on paper, the unreported amount puts them in a very comfortable salary range.
A few friends here in NYC employed by the upper echelon restaurants REPORTED $100k, so based on the above info, you know there is a good amount of tax free income behind that $100k.
I find this statement rather obnoxious and insulting:
“Seriously, a 350k house on a waiters salary? I wonder how much money he had saved in the bank… probably none as he likely spent it all on designer sunglasses, hair gel and other now worthless crap”
The professional career servers I know are far from morons and actually are rather frugal as they know the hard work they do to earn those tips. I could comfortably say most Wall Street types are more irresponsible with their cash as most of it just fell in their laps in the form of bonuses. While they may be highly educated, a good number of them do not possess the financial common sense that most servers do.
Ouch Milkster…as many off color things I have said here in the past, I have never been as judgmental you are in your analysis of Felix, a man you do not know at all. Your racist mindset is revealed by taking an ethnic derived name and piling a bunch of unsubstantiated accusations on him because of it. Ridiculous assumptions…come on..eat rice and beans…put all occupants of his home to work…sell cans??
Ridiculous!!
Do you have the same thoughts and opinions about a property owner named William Smith? I doubt it.
Icarus: I looked up felix in the cook county recorder of deeds and looked up the property address. He lived just south of belmont and just east of cicero – which they call belmont-craigin; i know this was the property because the most recent mortgage was for the amount quoted in the article.
FElix short sold the property because it was worth $144k even though he owed $352k (plus all the accrued interest and missed payments). It’s a losing proposition.
He fell behind not because his hours were cut but because he was living on the edge, paycheck to paycheck. when your mortgage is $2,500 a month it leave little room for error.
@ Westloopelo,
I hate people who don’t report income, pay taxes and contribute to our greater societal good. It’s the reason why I have to work so hard to pay for their welfare, handouts and multiple illegitimate children and now their stupid mortgages, and the reason why our schools in NYC and Chicago are overcrowded and our hospitals are closing.
Btw, do you take taxes out of your employees’ pay? Or do you just pay them in cash? And do you report your full income?
I doubt it.
@ Westloopelo again,
You stupid, overblown, rambling gasbag. (Yawn.) I said I would eat rice and beans 3 times a day if it came down to it. And I have. I did it to pay to mortgage on the very first place I owned, while I was working a legitimate job which didn’t pay very much, but I still paid my taxes and my mortgage. But then again I have some pride and morals.
There you go again throwing around baseless accusations in response to my revealing your racist remarks…actually anyone reading your ridiculous comments could see the white hooded mindset behind them!
I do tax all of my employees and every contractor who we outsource work to. I am also adamant that all of my crew follow income laws as well. How else could all of them have obtained the jumbo mortgages they obtained for their homes?
I have never, NEVER done anything illegal in my business. And while it is none of your business, yes, I report every cent of my full income.
Sorry take your racist barking to another tree
Milky,
you really hate people who dont report all of the income?
and on your return you reeeealy dont try and squeeze every bit out of it? you are 100% honest?
@ milkster:
nothing moralistic or prideful about making baseless racist accusations against people you know nothing about.
Try again….
wtf did he say that was racist? collecting cans? Now that’s a stretch the NAACP wouldn’t even make
JP3: “Anyhow I drove by my grandparents old home on Crystal and was really suprised at how great the house and whole block looked.”
There was a show on NPR a few years back were the radio producer went back to her family’s old house in South Shore (probably Jackson Highlands). She described how at some point in the 60’s, all of the white families left in the span of a year. The neighborhood completely turned over from white to black. She internally associated all of the images of Chicago urban decay and projected them on her old house and block.
When she returned, she was surprised to see how great the block looked. All of the trees were bigger, but the houses looked pretty much the same. Even as a liberal reporter, she had automatically assumed that the racial turnover on her block had made things worse. But a nice block will remain a nice block. The wealthy population of any racial group will seek out the best (and keep out the rest).
“wtf did he say that was racist? collecting cans? Now that’s a stretch the NAACP wouldn’t even make”
IDK jesse jackson might if it is a slow week.
Yes Groovy,
You’ll be happy to know because I am single and responsible and didn’t have kids out of wedlock and have virtually no deductions and because on top of that I work for a corporation, my taxes are automatically taken out of my paycheck every week and I totally get hosed.
Seems like westloopelo is the one making racial assumptions because I am not white, LOLOLOL!
Westloopelo, are you saying that only white people can be white collar working green zone residents?
“wtf did he say that was racist? collecting cans? Now that’s a stretch the NAACP wouldn’t even make”
The tone of his comments, last one included, when read together, reveals a racist mindset…sorry, but I have to call ’em as I see ’em. And I see nothing but a racist jack ass.
“Westloopelo, are you saying that only white people can be white collar working green zone residents?”
Where did you get that?
And regardless of your own racial background, your comments indicate a racist mindset, which is even more hypocritical and full of self hatred if you are a person of color.
The “Just because you are a black person does not give you permission to call a fellow black person the n word.” comes to mind when you revealed you are a non-white person.
I am sure if you peeled away Milk’s computer screen there would sit a blonde haired, blue eyed person.
One more thing…I am not white either.
Milky,
i can say i have never seen, a return ever be 100% true. I can say working as a waiter seen a person claim 100% of the tips. this is just what i have seen and if every april 15th you dont “stretch” the numbers a bit. you are a commendable person or a CPA.
“One more thing…I am not white either.”
good because like i say too many white people in one place scares me
What I’ve learned on CC today:
Milky is not white, is single and ate rice and beans to pay for his first home.
Westloopelo is not white and taxes his employees and subcontractors.
Groove77 gets scared of too many white people in one place.
These kinds of anti-white racist comments just backfire and help white people become more conscious as a group, which is a good thing for them. Thanks westlooplo. btw, the “KKK” is a fake org that exists so the FBI can have a place to put some agents out to pasture. Get real.
“There you go again throwing around baseless accusations in response to my revealing your racist remarks…actually anyone reading your ridiculous comments could see the white hooded mindset behind them!”
So, that explains your hostility…at least you’ve “outed” yourself and your bigotry.
“One more thing…I am not white either.”
The critical flaw in HD’s assertions, and many others on these threads, is that wage level growth will not exceed growth in real estate prices over the next 5 to 10 years.
Few people appreciate that we’re likely tp inflate our way out of the housing issue, and it will happen faster than people realize.
Fewer skilled employees to replace retirees and increasing productivity mean wage growth (both nominal and real) is on the horizon.
Even HD will make $150k in 10 years! That’s a pretty penny to explain to clueless homebuyers the mechanics of a HUD statement.
“Felix” is a piker beside the homedebtors who are “strategically” defaulting, AND often squatting for 18 months or more in houses with mortgages of $800K or more.
Don’t get me wrong- all the morons who bought far over their heads by means of exotic loans that gave them cheap entry payments, have helped collapse us, and I really resent paying taxes to help clean up the mess these people and their lender-enablers created. First, I saw prices ratchet up to the point where I was hopelessly priced out of the housing market, and now I’m paying in the form of taxes and financial instability due to the recession caused by their malfeasance and self-indulgence.
But my real ire is reserved for wealthy buyers who also bought far over their heads, and now can’t or won’t pay their mortgages when they have high incomes. These jumbo loan losses are dwarfing the subprime and we will be decade or more working through all of them.
These people are mostly white and mostly higher income. They are people who are able to pay their mortgages but are defaulting as part of a larger financial plan. Since the banks don’t want to write down the losses on these really huge mortgages, they are letting these people squat for long periods.
What I want to know is how they can do this and not have their lenders go after them, since they have the income to pay, and oftentimes took HELOCS of $200k or more out of their houses. I know that in many states, though not Illinois, your first mortgage is often non-recourse, even if you have the means to pay. But 2nds and HELOCS are recourse, and so is a MODIFIED mortgage.
I am post-racial, so there.
You believe this propaganda?!!! LOL!! There is no way that story on “NPR” would have turned out differently, or they wouldn’t have even aired it. Some us with instinct/reflex just laugh at this kind of “reporting”.
“Even as a liberal reporter, she had automatically assumed that the racial turnover on her block had made things worse. But a nice block will remain a nice block.”
You are 100% wrong about this. 100% wrong.
People keep saying “inflation this, inflation that.”
guess what, we’ve had inflation over last 10 years and everything went up in price – EXCEPT for wages of the bottom 90%.
They made up the difference in credit.
Which is how this bozo borrowed $352,000 for a house in 2003.
As credit contracts, deflation will continue. Prices will get cheaper and wages will necessarily follow. And have been too.
“Few people appreciate that we’re likely tp inflate our way out of the housing issue, and it will happen faster than people realize. “
If you think wage inflation will happen go ask your boss for a raise.
Somebody tried that in my office the other day after a round of layoffs. The staff member’s logic was well if everybody is gone I’ll be doing all their work so I should be paid more.
The partner responded “I barely have enough work to keep you busy, you don’t need to worry about having more work. get the Hell out of my office.”
YMMV with your employer.
Illinois is a recourse state but as HD has said, courts typically side with the debtor on the first because of the equity argument. Last time I checked, means to pay was not a reason not to issue an judgment in any event.
I think standard practice is for lenders to sue on the HELOC note nowadays.
all signs point to deflation. don’t know where people get/believe this inflation talk besides being marks for glen beck’s gold selling partnerships.
“Government meddling in the housing and credit markets over the past 15 years gave us not only the toxic lending that drove prices to such unsustainable levels”
what BS. ‘government meddling’ was a secondary at best cause of the housing bubble. fannie mae wasn’t forcing NINJA loans and neg am ARMs upon banks. lack of government meddling lead to the mortgage securities and CDSs.
“If you think wage inflation will happen go ask your boss for a raise.”
What about 5 to 10 years did you not understand? The oldest boomers are just now retiring and many of the skills and trades that are needed are not being backfilled by Gen Ys. As I am sure you know, we used to depend heavily on foreign labor which has become much harder and expensive to source due to political changes. Finally, last time I checked we were adding signicantly to our national debt load. It isn’t a certainty because there are other ways out of it (cutting spending) but it definitely sets the stage for inflation generally.
You of all people should know you cannot generalize based on your own business. First of all, the legal profession is on its ass generally speaking (for good reason, lawyers are overpaid and America is finally seeing the errors of its litigious ways). Second of all, you are a chancery lawyer. Talk about a bad niche within a tough industry.
It is virtually a certainty there will not be any meaningful deflation. One thing a government can ALWAYS do without limitation is inflate its money supply. Therefore, there is always a way out of deflation and it can be done with the flick of a switch.
Inflation, not so much, and subject to factors well beyond the control of the government (barring 20% federal funds rates).
People also seem to forget that this real estate bubble wasn’t localized to the United States. It has been and continues to be worldwide.
Spain and Ireland’s real estate markets have been decimated. Dubai had an enormous bubble they’re still in the beginning phases of working through. Canada, Australia and China have bubble which only recently have begun to pop – like in the last few weeks – as sales volume has dropped off a cliff but inventory is quickly rising. China and Australia and Canada have bigger bubbles than the United States had in 2005! Check out mansion or crackhouse in Vancouver to get an idea of how housing prices are still at completely ridiculous levels.
“Even as a liberal reporter, she had automatically assumed that the racial turnover on her block had made things worse. But a nice block will remain a nice block.”
I did not assume that the changes had made things worse I actually saw it with my own two eyes. Over the years whenever I have been in that area I’d take a quick drive by the house. My grandma’s home always looked ok but the surrounding homes had really fallen into disrepair. The streets were filled with garbage Lawns were just overcome with weeds, dirt, or broken glass and things were bleak!
Last week the homes on that stretch had been painted and repaired. The streets were clean and the lawns looked as good as any suburb. The last few years has had a positive effect on that neighborhood or at least that block!
Someday we will all come to realize is that there was some good that came out of the boom era of Chicago housing. Some crazy things happened during this time but parks were opened, infrastructure was improved, and some excellent renovations and new developments were added to the housing stock.
There was also shows like “Flip that House” and that odd guy Jeff Lewis on “Flipping Out” Perhaps he should be the poster boy of excess in the housing market bubble. All his training was having the good taste to mix colors and pick out high end finishes. Apparently he was rewarded with a few million dollars during that boom. I wonder if his show is coming back for another season or has it been foreclosed as well!
JMM, I am not a chancery lawyer. You keep saying that but it does not make it true. i work for a mid-size firm and I have my hands in a lot of different things. A lot of different things. I’m in CH court maybe twice a month and only half the time for foreclosures. CH is a court of equity handling all types of cases, not just foreclosures.
Secondly, there were layoffs due to forces which are very very deflationary. Just like shoppers will go to Wal-Mart rather than Jewel to save 50 cents on Velvetta cheese, large corporations will go to a different law firm to save $20 an hour.
The whole baby boomers’ skills not being backfilled is more conjecture and speculation than reality. If anything those some of those positions will shipped overseas anyways. A good friend of mine works for a very very large insurance brokerage. this person got the job because the insurance brokerage laid off an entire building full of people on the east coast – yes and entire building – and shipped the 98% of the jobs overseas to India. They hired a handful of people from the existing Chicago market to oversee the Indians. This friend of mine makes good money and she knows that she’s training her Indian counterpart to do her job so that they can eventually get rid of her too. These were good jobs, jobs that paid $40,000 to $100,000 a year and they’re all in India now. Each and everyone of us can give stories like this. These jobs aren’t coming back. Unless we develop some new technolgy that’s a game changer, it’s going to be a tough decade ahead of us.
“Second of all, you are a chancery lawyer. Talk about a bad niche within a tough industry.”
OK helicopter JMM.
1) inflate money supply: check
2) ‘flick switch’: stimulus, TARP, gov borrowing – check
Yet we still have deflation.
Unfortunately there’s no political will to fly black helicopters over various city centers and drop crates of money into population centers. That’s the last item on Ben’s deflation prevention list, you know. Read his infamous helicopter paper – he outlines everything he can do to prevent deflation. He’s done nearly everyone of them and it’s failed.
Again japan, japan japan.
“#JMM on July 23rd, 2010 at 12:20 pm
It is virtually a certainty there will not be any meaningful deflation. One thing a government can ALWAYS do without limitation is inflate its money supply. Therefore, there is always a way out of deflation and it can be done with the flick of a switch.
Inflation, not so much, and subject to factors well beyond the control of the government (barring 20% federal funds rates).”
I’m coming late to this party… everyone seems a little heated.
That being said, I dont think we should shed a tear for any homeowner who ended up taking money out of their home in excess of their downpayment and ended up getting foreclosed on… I dont care if the homeowner did or didn’t claim all of their income, couldn’t really “afford” the home, or had poor spending habits that got them into a bad situation… bottom line is they walked away with more cash than they brought to the table (and damaged credit).
God HD could you possibly spout a few more blogger buzzwords in one post? give me a break, if you think that the only way to increase the money supply is to print more currency you clearly have no idea what you are talking about and have no clue how the real money supply (read: the 90% of stuff that isn’t in paper/coin form) works so just stop
Enlighten us Sonies with your infinite knowledge.
“#Sonies on July 23rd, 2010 at 1:01 pm
God HD could you possibly spout a few more blogger buzzwords in one post? give me a break, if you think that the only way to increase the money supply is to print more currency you clearly have no idea what you are talking about and have no clue how the real money supply (read: the 90% of stuff that isn’t in paper/coin form) works so just stop”
What do you want to know? 🙂
You are the teacher sonies, I am the student, and I am ready to learn, Sensei.
“The staff member’s logic was well if everybody is gone I’ll be doing all their work so I should be paid more”
that took some balls, I dont have them. before the scary world happened i loved my 7% raise each year and my bonuses each year. well the past two years i have gotten 0% and no bonuses plus they cut the 401k match.
it sucks but i dont say shyt (no ballz) even if extra work is thrown our way. i do the financials each month so i understand why.
my simple minded self sees that going forward inflation and wage inflation wont be following the same line. its a long road ahead of us kids its best to hoard your candy and take a nap for most of the trip.
“Do you have the same thoughts and opinions about a property owner named William Smith?”
No way, because he’s the fresh prince of bel-air!
Westloop- thanks for educating some of the less informed about the service industry. Not sure why people want to look done on service industry employees, plenty of real estate, mortgage and other professionals far outspent their means and were victims of the economic downturn. Your exactly right that professional and skilled waiters can be well compensated ( In chicago 60-120K). However, we are not necessarily skipping on our taxes many of the servers at the higher end of the market work in pooled houses and all their income is documented and taxed.
Jeff Lewis’ show returned again this summer. I find it completely unwatchable.
Two, I do have a number of good friends who are in the Restaurant Industry and am well aware of how the system works. I too do not understand why most people tend to look down at them as though they were second class citizens.
What pisses me off even more is when comments like those on this thread are made public because the person’s name just happens to be Felix.
It seems anomosity towards him and others in his industry is far harsher than the disdain held for upper income professional types who are now bailing on their jumbo mortgages.
Sad class system we have here!
HD, the legal market is on its ass not because of some sort of similar Wal-Mart effect, it is because law schools produced too many lawyers in the 1990s (you among them) and corporations are increasingly managing risk a priori rather than paying firms by the hour ex post facto. And when they do need legal counsel, they want fixed bid, not to exceed, etc. just like the rest of the business world is used to. The banalities of law used to insulate lawyers from price competition, however, that is no longer the case. Talk about something you can ship overseas — Singapore anyone?
Regarding inflation, the U.S. is a flight to quality play. So once the global uncertainty sorts itself out, our currency will depreciate and inflation will begin. Our monetary policy has set the stage. Funding entitlements will only increase the sitaution. Just like everyone knows oil is going back to $150 barrel, we also know USDEUR is going back into the 1.50s — LONG TERM.
If you really believe there won’t be inflation you should put every cent you have in bond index futures because 90%+ of the investment world knows fixed is a bubble right now. Even liability driven investors are on the short end of the curve because its just a ticking time bomb. Hell, even PIMCO is getting into equities and if that doesn’t tell you something, I don’t know what does.
“it is because law schools produced too many lawyers in the 1990s (you among them) and corporations are increasingly managing risk a priori rather than paying firms by the hour ex post facto.”
I disagree. The number of lawyers has been fairly constant (especially at the upper echelon schools.) Those that graduated in the 1990s would be partners or in-house counsel right now. Those aren’t the ones having trouble getting and/or keeping jobs. It is the newbie lawyers.
“Those that graduated in the 1990s would be partners or in-house counsel right now. Those aren’t the ones having trouble getting and/or keeping jobs.”
HAHAHAHAHAHA. Ha. Selection bias Sabrina. And you’ll rarely meet a lawyer–who wants to continue working as a lawyer–who admits to washing out, *especially* if it was at p-ship decision time, so unless you’re v. close you wouldn’t know that it was a forced transition rather than voluntary.
“Talk about something you can ship overseas — Singapore anyone? ”
Yeah, b/c lawyers in Singapore are cheap.
My lawyer friends who all graduated in the mid to late 1990s are either:
1. Special counsels/partners at small firms
2. In-house
3. Government lawyers
A few of my women friends have quit to stay home with the kids. Otherwise, they’re all still working. Not a single one of them laid off during this downturn (all are federal government lawyers- those who work in the government.) Conversely, other friends who know people who have graduated in the last 3 years- it has been brutal.
My friends tell me the outsourcing has been going on for at least 5 years. It’s not Singapore. It’s India. They can do the document reviews the same as first year associates in the U.S. for a fraction of the cost. But other things can never be outsourced- like your divorce or your bankruptcy.
You no longer practice law, right anon(tfo)?
“#anon (tfo) on July 26th, 2010 at 7:36 am
“Those that graduated in the 1990s would be partners or in-house counsel right now. Those aren’t the ones having trouble getting and/or keeping jobs.”
HAHAHAHAHAHA. Ha. Selection bias Sabrina. And you’ll rarely meet a lawyer–who wants to continue working as a lawyer–who admits to washing out, *especially* if it was at p-ship decision time, so unless you’re v. close you wouldn’t know that it was a forced transition rather than voluntary.”
“
Sabrina,
It really is scary up and out. I think the lifespan of a lawyer at BigLaw is about the same as an NFL player. 4+ years.
And even if you make partner, you might not want to stay for the lifestyle.
FWIW, I knew women at the big firms (Baker, Sidley, Kirkland, et. al) that made partner and walked away because they actually wanted to have a marriage with kids.
Quel horreur
http://www.abanet.org/legaled/statistics/charts/stats%20-%201.pdf
The numbers speak for themselves. New lawyers (which is what HD was referencing) seem to outpace most measures of growth we look at today (population, GDP, etc.).
Since a large portion of the profitability of law firms is derived not by partner billing but by associate profit (it is a pyramid), and because junior attornerys are a fixed cost (not on significant bonus incentive plans like sales professionals, investment bankers, etc), more lawyers and flat revenues = industry on its ass. Ok so you lay people off, but then your shrinking your revenue generating capacity which has problems too. None of this addresses billing rates which are out of control and the big law model is broken. Large consumers of these services, including myself, are trading to mid-sized firms, fixed projects, annual retainers, etc.
All this goes to say, one cannot generalize from the legal market the labor shortages there are in other industries. It is obvious. People know and believe what is closest to them, but that doesn’t make it universally true.
ANYWAY — shortages in skilled labor will end up driving wage inflation. Some modest inflation might actually end up being a good thing. I worry that HD will miss the greatest inflation hedge in the world by RENTING and not buying because prices aren’t “low enough” yet. Not saying that is a reason to buy, but its a consideration especially with a 10 year or more view.
No need to worry about me JMM, I’ll be just fine.
If I took your advice I’d have even more problems than I do already 😉
“ANYWAY — shortages in skilled labor will end up driving wage inflation. Some modest inflation might actually end up being a good thing. I worry that HD will miss the greatest inflation hedge in the world by RENTING and not buying because prices aren’t “low enough” yet. Not saying that is a reason to buy, but its a consideration especially with a 10 year or more view.”
“FWIW, I knew women at the big firms (Baker, Sidley, Kirkland, et. al) that made partner and walked away because they actually wanted to have a marriage with kids.”
This is true in all time consuming services professions. That is why they are so well compensated at a young point in their career. Did anyone actually think a 26 yo who never had a job in the world was actually WORTH a 160k starting salary? Of course not. It was a prepay on the expected value their career at the firm (which is likely to end in them asked to leave — or as Sabrina puts it — the trade down to spend more time with family excuse) and/or just compensation for the personal toll their occupation extracted.
Corporate careers are back end loaded, but I would submit the expected value is similar because the lifestyle is more sustainable and the career path has more options.
“My lawyer friends who all graduated in the mid to late 1990s are either:
1. Special counsels/partners at small firms
2. In-house
3. Government lawyers
A few of my women friends have quit to stay home with the kids. Otherwise, they’re all still working. Not a single one of them laid off during this downturn (all are federal government lawyers- those who work in the government.) Conversely, other friends who know people who have graduated in the last 3 years- it has been brutal.”
As I said, selection bias. You don’t know any of the thousands of 90s (hell 80s, 70s)-vintage law school grads who are–non-voluntarily–temping or solo-ing or not working as lawyers or no longer lawyers.
Actually, to my 2d point, you probably do, you just don’t know the actual reason they moved on from the law. Hundreds (nationally) of big firm *partners* have been kicked to the curb in the last 24 months. It’s tough all over.
But, I’d bet that not more than 2 or 3 dozen US-qualified lawyers lost their jobs b/c of anything to do with Singapore.
“Large consumers of these services, including myself”
You control a $1mm+ annual legal budget?
“I hate people who don’t report income, pay taxes and contribute to our greater societal good”
What, like the wealthy?
“Government meddling in the housing and credit markets over the past 15 years gave us not only the toxic lending that drove prices to such unsustainable levels, but two toxic ideas that most people in our population have unfortunately internalized and will have to get over if we’re ever going to have an honest economy again: 1) that home ownership is an entitlement that the taxpayers should support to the detriment of everything else, and 2)yearly appreciation in house values of 20% a year is also an entitlement and you should be able to make the equivalent of your yearly earned income in appreciation.”
Right, like this was all the fault of the government. Not a steady diet of HGTV, ridicule from everyone in the entire country that renting was “throwing your money away”, ridiculous MBSes that basically gave marching orders to lenders to loan to anyone with a pulse, etc. I’m not a government apologist, but to pretend that it’s somehow all their fault is ridiculous.
Agree with Barry. The home buying culture starts with the government and flowed right through to the experts who told people real estate never goes down, etc.
A $1M legal budget is peanuts, unfortunately.