Housing Market

An interesting take on another reason why foreclosures are going up -- people who bought in water-and-grow subdivisions literally dumping the house because the builder won't fix problems it caused:

http://www.businessweek.com/bwdaily/dnflash/content/aug2007/db20070820_165681.htm?chan=top+news_top+news+index_businessweek+exclusives

 

This is how koyonnasaquatsi the housing market is... and how absolutely brain-dead builders, lenders and city planners are.

Where I live, in the northern reaches of LA County, the foreclosure rate is among the highest in California. We bought our house 7 months ago (and were lucky to not only sell our house, but qualify for a 6.5% 30-year fixed mortgage) to get into this house.

Granted, we put 37% down, but had to sell House 1 (which we owned for 14 years) to buy House 2, where we're going to live for the foreseeable future. We got out just in time on three fronts: selling our house, having our buyer qualify for a loan and buying our house with the loan we got (from Countrywide, nonetheless).

Anyway, right behind us, K-B (formerly Kaufman & Broad) is throwing up about 70 of their half-ass homes in its usual, cram-as-many-as-we-can-in-as-small-a-space fashion. After all, heaven forbid there be any empty space.

KB is throwing these homes up despite an utter cratering of the local real estate market, where you can't go down any street without seeing at least one for-sale sign. And seeing only one is a rare sight.

What's making matters worse is they're selling these homes for much less than the homes in the area (for example, homes in our neighborhood went for between 480 and 520k).

So not only are they throwing up half-ass homes (KB Homes aren't that well-built) into a glutted market that can't handle the homes on it already, but they're dragging down the values of all the homes in the area. Not to mention the fact that some of those homes will be bought by investors who will rent them out to folks who -- judging by the jump in crime in our area -- aren't as savory as your typical SportsJournalists.com poster.

If I sound like a cranky suburbanite, well, yes. My wife and I don't work a combined four jobs to deal with what I'm afraid we're going to deal with.

 

I didn't do anything to my house in Idaho except live in it.
My house in Texas we did some painting and some landscaping, but not much else. It was more a factor of the oil boom combined with no new housing being built.

 

The problem was not that the rates were so low. The problem was that even with fixed rates at historic lows, some people were so greedy and self-indulgent they opted for still-lower adjustable rates with little money down -- or interest-only loans that did not create equity -- and bought houses that were beyond their means. The banks were selling the mortgages to investors, anyway, so they didn't care whether the buyers could afford these homes or not. And the credit rating agencies didn't help.
A few years ago, if you really cared about your future and already owned or were purchasing a home, you could lock into a fixed rate between 4.5 and 6.5 percent. It was a dream come true for a home buyer.
It wasn't good enough for some people. Hard to feel too bad for them. I feel worse for those who are seeing their home values damaged and their 401(k) accounts drop because of the foolishness and selfishess on both sides of these loans.

 

Twoback, I agree with all of that. I will just point out that it might not have been so much greed as uneducation about what they were getting into. A lot of people didn't fully understand what they were signing onto and real estate agents took advantage of it. They laid out the payment options and then pushed the bigger (more expensive) house.

 

The mortgage people in my organization (full-service financial institution) work exclusively on commission, 1 percent of every loan they make. One guy in my region did $100 million last year. Yeah, he got paid $1 million for making mortgage loans. Luckily, our concentration of the kind of exotic loans that fueled this problem is much smaller than those of other companies, and within that segment, even fewer are actually subprime borrowers.

 

$1 million for a successful mortgage broker is not uncommon. A lot of these foreclosures are investment deals that were 100% financing on option ARM products. The sub-prime banks that are going down deserve the fate. If you lay down with dogs, you get fleas. Sub-prime lenders scoured the scrap heap of credit, gambled and lost. Tough shit. The scary aspect is when a lender like Thornburg who has a miniscule default rate is having liquidity problems because borrowing power has diminished.

Whoever wanted Countryide to go under is an ignorant fool. The trickle down effect of this mortgage mess will affect painters, landscapers, tile workers as well as the sandwich truck that services the construction sites.

This will affect our economy in the next 18-24 months more than $3.50 gas.

 

Absolutely.

Even before the nearly $12 billion line of credit came in, there's no way Countrywide was going down. Simply put, they're too big to fail and the havoc that would ensue when the originator of 1 out of every 6 loans in this country failed would wreck the economy.

That said, as I posted earlier, someone needs to tell the builders to Stop. Fucking. Building. and the city planners to Stop Fucking Giving Building Permits to Anyone With a Pulse until the market can stabilize.

 

Absolutely, but in making the biggest financial purchase of your life, "not knowing what I was signing" is inexcusable.

I'm the kind of person who would slit my wrists before I would ever buy an ARM, but if I did, I would demand to know what my worst-case scenario was with regard to possible future rate hikes and base my decision on that worst-case scenario.

Just because "the bank said I could afford the house" doesn't mean you can afford the house, idiot.

 

I never understood the appeal of the interest-only loans. If you're making a payment that low, and not building equity, why not just rent?

 

Because people today only care about "monthly payments" and they like to say they "own" a house.

And those two things fuck it up for a guy like me who wants to own, build equity and pay something off.

 

All these prices makes my head hurt.

I can sell you my 1,200 sq. ft. 3/2 on 3 acres for about 95,000 right now. And it would be at the appraised value.