Slaughter of the Housing Speculators

SafeHaven ^ | 8/19/2005 | Richard Benson

[rmlew]

It is indeed, partically unique. Demand is huge, inventory is still low, and Wall St cash and a strong Euro have kept things very spicy indeed. Some people would like to live in Reno or Austin. But many people simply MUST live in Manhattan. Hard to say that about any other American city, with the exception of Miami, which is also red hot.
Inventory is low, but there are a lot of new buildings going up. Still, zoning and historical regulations realy do create a limit.
The European investment is high in NYC, but nothing like what is going on in the Hamptons, which I do see as a bubble. I do think that appreciation in NYC will be slower over the next 5 years. Of course, if Freddy Ferrer becomes mayor, all bets are off.

[Kevin OMalley]

bflr = bump for later reading

[superiorslots]

Quote: What amazes me is it's only 4 or 5 years after the last bubble and all the same rhetoric is being rehashed.



There are at least 2 new TV shows about home speculating. One is called "Flip this house" and the other is similar but I forgot it's name.

[ladyjane]

do banks have that option without gov't approval/intervention?

Yes. Many mortgage agreements have that provision. If the value of the home goes below the amount of the mortgage they can pull the mortgage. I think all interest only agreements have that clause.

During the last bubble in Massachusetts they pulled so many mortgages that the housing market collapsed. The banks didn't want to pull them because there was such a glut of houses on the market they couldn't get their money out. The Feds came in and forced the issue because they were getting stuck with failing banks, the Bank of New England for one.

It was a GREAT time to buy. Those times are coming again. Cash will be king.

[durasell]

Thanks. Although a very worrisome piece of information.

I remember the real estate collapse in NYC in the early 1990s. Folks were mailing the keys to their condos to the banks with polite notes, basically saying, "Catch me if you can."

[Fishrrman]

reformedliberal writes:
I think as soon as gas prices retreat, the rural areas will see another huge gain in land prices. Not to mention that more of the big chains, like Walgreens, are following Walmart out to the small towns, reducing the need to drive very far to shop.

Hmmmm... what if gas prices don't "retreat"?

The same thing that Will Rogers once said about land also applies to petroleum. I can only foresee prices going _higher_, not lower. Of course, I could be wrong....

Actually, I expect the housing bubble to burst long before the petroleum bubble (if there indeed _is_ one). I expect to see gas prices at $10 per gallon before I'm gone, and I'm not that young anymore.....

- John

[ladyjane]

In the 90's you could mail your keys back. I think it is a bit more difficult to do that now. Didn't the new bankruptcy law change that?

[konaice]

I walk around quite a bit for exercise. Most of the homes I see for sale by the owner, end up getting turned over to real estate agents. They are then sold within days or a few weeks..

That's part of the problem as I see it. (That and the fact tha the agents forget who they are working for as soon as you sign the papers).

This ia another sector ripe for being totally replaced by the Internet, and you are starting to see it already.

[Arthalion]

We've been seeing some of the effects from uneducated speculators around here recently, and the effects are quite funny (probably not for the speculators, but certainly for the locals). Some bigwig investor from the bay area or LA will buy a house for $500,000 unseen and turn it over to a property management company to rent out for $2,000+ a month. Since the average wage around here is still below $40k, the house will sit empty and unoccupied for months (in one case a block from my home, more than a year because they're demanding $2,600 a month and the AVERAGE around here is $1,200). By the time they do flip their houses, they've typically lost a substantial portion of their profits to both mortgage payments and home devaluation caused by long term neglect.

For the people that actually live here, we may shake our heads and laugh at these idiots, but these homes can become problematic. They often get trashed by criminals, they become hangouts for neighborhood kids, they're occupied by the homeless and druggies, and the meth labs LOVE them. The property management firms don't usually do anything more than mow the lawn every month or so, and replace broken windows that face the street (non street facing windows get boarded over).

I've seen stunning 4000 sf suburban minimansions reduced to something out of an inner city slum because an investor putchased it without looking at the rental market and the house became derelict. I know of several other investors who've lost their homes to fire and vandalism. An empty house attracts criminals.

[ex-Texan]

Yeah, it did. People can no longer simply walk away from their debt or file a deed in lieu of foreclosure. They will pay and pay for years on the loan. Even after the home has been foreclosed. Even if they file for bankruptcy they will pay. If there are losses, even BIG losses, the purchaser is going to pay, and pay, and pay. For years and years and years.

Blame Congress. It's all their fault.

What did the banks know about The Housing Bubble? When did they know it? Did they know about it when they pushed Congress to amend the Bankruptcy Act?

[RSmithOpt]

I hear you. Just drove back off the mountain yesterday from Blowing Rock. On the way through Lenoir, Granite Falls, Hickory, Statesville, I couldn't help but notice the vacant furniture and textile mills and think about all the blue collar folks/families that actually help build those communities. Go up the mountain from there...it's like CA...the price of land is ridiculous.

Having grown up in Boone since the mid '60's, it's truly amazing. The very things that made Boone so attractive to me as a kid are gone now. We never locked our houses and cars even in downtown while shopping until the early 80's. ASU had a student population between 6,000/7,000 then and crime was practically unheard of except for drag racing and a few drunks fighting. I think there were 8 killings (all adults) in 5 years in Watauga and immediate surrounding counties 1965-170. A lot more people died from running off the mountains in fog and rain or icy roads than murder, and if someone killed someone , they knew them and most likely a score needed settling.

Kids, teenagers, college students and the poor walked everywhere until they were able to catch a ride. No one had a need to go to the gym with the walking, hiking, shoveling snow, snow skiing, trout fishing, gardening, raising livestock, splitting wood, then going to work/school. Most fat folks existed because of bad knees or ankles for the most part or past 75 years.

A kid could hitchhike anywhere without worry. We never passed up a hitchhiker when it was cold. We never new when it could be us stranded in the 'Boonies' at night or in subfreezing weather. I wished the f'n tourons hadn't decided to stay. I wish the majority of the FReepers could step back to 1965 to Boone, NC when I was only 8. They'd get fighting mad about the changes now in society. They'd simply cry.

[Arthalion]

If played right, you can use the market to your advantage even on a downturn. I personally had about $160,000 in equity in my home, all of which I cashed out in a recent refi. That money is now safely invested in bonds that won't be going anywhere for a while.

I fully expect the market to plunge around here, and it is a very real possibility that I might lose my house in the process (my mortgage has a pull clause). If that happens, however, I'll have $160,000+ to buy a new home in the now glutted (and substantially cheaper) post crash market. I'll be fine, but the hordes of people who pulled their equity and sunk it into new kitchens or credit card debt are going to be screwed.

[reformedliberal]

First of all, IMO, the higher prices for oil will stimulate alternatives and conservation and IF this is all supply and demand, prices will have to fall if there is more supply due to alternatives and, of course, less demand on oil, per se, due to alternatives and price-induced conservation.

If not, then I believe we will see more and more of the large chains locating in smaller towns, as I am already seeing in my area. This will make rural locations less dependent on driving to shop, will therefore result in less demand for fuel and make rural property more attractive.

Just looking at the oil futures,I see they have backed off a bit for the next 2 years, except for slight upticks in Jan-Mar of 06. Basically, I have faith in ingenuity both in technology and in the human response to situations.

While "they are not making any more" land, there is a lot of land in this country and much of it is very affordable. I doubt we have found all the oil or even exploited the oil we can pump, not to mention shale, tar sands, gasification, etc.

[petercooper]

If there are losses, even BIG losses, the purchaser is going to pay, and pay, and pay. For years and years and years.

And this is a problem because??? If people are stupid enough to buy houses they cannot afford, get themselves in over their heads and pile up debt, they deserve to take a beating financially.

[Liberty Valance]

I'm about to make 100,000 dollars... how about you?

Me too. And I'm in Texas. :o)

[A CA Guy]

Enjoy your 600% high property tax bill now that you bought at the top of the market.

In CA, stuff appears to be falling out of escrows and homes are sitting.

I think the bubble is starting to hiss a little.

Hope to God you didn't finance with an interest only loan.

Good luck, and don't forget the new bankruptcy laws go into effect in two months, so you can't leave your debt. :-)

[A CA Guy]

Is that old trailer without the wheels in the back of the picture the guest house?

[Final Authority]

Does anyone but me notice that the housing bubble won't burst and interest rates will be restrained until the new bankruptcy law provisions go into effect?

All hell is going to break loose when that happens and I will take some cash and buy vacation properties at 50 cents on the dollar after the banks choke on the mortgages.

[palmer]

You have the money in bonds paying X% and you are paying Y% on your mortgage, where X is about 4 and Y is at least 5. Am I off?

[headsonpikes]

Good post!

One additional point: all the talk about the Fed managing interest rates overlooks one very large fact - that the Fed has NO control over LONG-TERM interest rates - the market decides that.

And the market might decide that 8 or 10%, or 20% for that matter, is necessary to make a market. Then watch the Big Clearance Sale of mini-mansions.