Posted on 10/08/2007 9:59:44 AM PDT by oblomov
QUEEN CREEK, Ariz. - Out on Phoenix’s suburban fringes, where cement mixers are fast colonizing hay and cotton fields, the day is winding to a close. The home hour has arrived.
But sundown gives away a troubling secret: Behind dark windows and unanswered doors, it’s clear nobody is coming home.
The ranch home on Via del Palo where the newspaper in the driveway has been sitting unclaimed since April. The house at the corner of 223rd Court with faded fliers stuck in the door.
They’re empty, left behind by a rising tide of foreclosures.
This neighborhood has a still-unfolding story to tell. It’s not always a comfortable one to hear.
Not long ago, builders were raising home prices here thousands of dollars week after week. Families camped out for lotteries to win the right to buy. Buyers gambled with loans whose risks were obscured by euphoria.
This is the tale of how America’s real estate boom came to a seemingly ordinary subdivision called the Villages at Queen Creek, where the whipsaw of easy credit has led to some extraordinary times. They were the best of times, for a while. The empty homes, though, raise serious doubts about what comes next.
As the nation confronts skyrocketing foreclosures, what is happening here and in scores of similar neighborhoods is worth considering.
Because while the pressures at work in Queen Creek were extreme, the choices people made — and the consequences — are not so different from those faced by thousands of other homeowners and their neighbors.
“Honestly,” says Joy Kessler, standing on the doorstep of the house she and her husband are surrendering to foreclosure, “if you were in this situation, what would you do?”
(Excerpt) Read more at msnbc.msn.com ...
Don’t get me wrong- buying a house can be a very smart financial move. Although my property taxes have gone up, since we got a 20-yr fixed mortgage, our P&I is unchanged over the last five years, and since our income has grown, housining has become a smaller and smaller portion of our income over time. Because of the mortgage interest tax deduction, we are financially much better off thatn we would have been had we just rented.
And this does not even consider the intangible value of being able to modify and improve one’s dwelling.
I have no regrets about buying a house five years ago. But I try not to have any illusions about it either.
You have wisdom.
Detroit. Certains part of Philadelphia. Camden, NJ.
OK. You have a good point (I’ve been to Detroit, “that part” of Philly by Temple and Camden, NJ).
Greed is greed, period. It is not something less just because it is engaged in by a "homeowner" or a "labor union". People get caught up in their own greedy expectations and eventually the actions they take on those expectations produce situations that work against them. If you are going to be greedy, then at least be smart enough to know how soon you need to "cash in" on it.
"The lending industry encouraged that transformation, promoting not just subprime loans but mortgages requiring little or no documentation of income, no money down, and interest-only payments.
That statement is total misinformation; it conflates issues related primarily to the "sub-prime" mortgage market with all mortgages. Almost all mortgages made with "little or no documentation, no money down and interest only payments" ARE "sub-prime" loans - loans with interest rates a number of percentages higher than "prime" mortgage rates.
Next to zero mortgages can be obtained at a "prime" mortgage rate without income "documentation" and only a very small percentage can be made with "prime" mortgage rates and either no down payment or interest only payments.
"But rising interest rates and falling home prices put particular pressure on people who live in the homes they own."
No it does not "put particular pressure on people who live in the homes they own", for over 75% of American homeowners who bought their homes before the current boom (before current inflated market prices) and who are not looking to sell their home right now either. Additionally, for the vast majority of American homeowners, who bought their homes before the current "housing boom", their eventual "sale prices" will still reflect appreciation over the price they paid, 5, 10, 15 and 20 or more years ago.
"The American Dream is overdue for revision."
More alarmist media nonsense; but what can you expect from MSNBC. The majority of the "foreclosure" problem rests with "sub-prime" loans, which represent all of 20% of the entire mortgage market. The majority of "sub-prime" foreclosures are in the 80% of the "sub-prime" market made up by ARM "sub-prime" loans (adjustable rate mortgages), or 16% of the entire mortgage market. And actual foreclosure rates on those sub-prime ARMS are running between 20-30% of them - or 3.2% to 4.8% of the entire mortgage market. The American dream is far from dead and the current housing market is in a spectacular bust after a long-running and spectacular period of growth. In the end, more Americans than before the "boom" will still be homeowners after the current shakeout ends.
You, sir, are an optimist of the highest order.
Good post.
In 1981 I bought a home in a very young subdivision in a close-to-Houston suburb. The seller was in the midst of a divorce and due to its terms was not looking to make a profit; plus he had a low-interest assumable VA loan. So, the seller was able to offer a deal for his three-year old house that was better than the builders offered on brand-new homes.
That was only half the reason for our “deal”, the other half was that Houston was in the midst (little did we know it was near the end) of a huge boom at the time. When you got the local Sunday papers they each had a real estate section with a center fold-out in the middle. That foldout was a map of the Houston metropolitan area. It provided a number for each new housing subdivision under construction and a legend that supplied the name and location for each of those subdivisions. In the fall of 1981 there were over 300 #’d locations on that foldout. So, our seller also had plenty of “competition” that could delay his house being sold, and then settlement of his divorce.
It was not a bargain for long. Within a year the long boom in Houston was over and I had returned to New York, for work. We rented the house there at first, but within 18 months 1/3 of our neighborhood there was boarded up. We spent another eighteen months trying to rent it or sell it, with no success. We finally wrote the mortgage company and told them they needed to sell it themselves. They did. They got the principal on the balance of our mortgage. Being the people we were, we knew it was not the governments fault and certainly not the taxpayers. We bought a great house at 100% the wrong time for that location, period.
Too bad all these credit-risky sub-prime borrowers cannot just admit the same thing, and get on with their lives. At worst, they will go back to renting and trying to save more than they did last time.
a friend of mine has a villa in Spain, near Malaga, that’s worth about seven million Euros. his annual taxes are $300.
The house is consumable. You disagree ? Try living in it without maintenance and see how long it lasts. Same as a car - it’s just one crash away from being junk. They are only “assets” on the day they are sold.
The land is the only real asset.
Yeh... I was being generous. I have seen houses built just 20 years ago that look ready for the bulldozer. And it seems that in many subdivisions, materials and standards for new construction have declined since then.
“Did these people believe that prices would go up forever?”
A lot of them did. I live in one of the formerly hot housing markets in Florida. Neighbors of ours are trying to sell after buying at the height of the market a few years ago. The wife actually told me that they thought house prices would keep going up forever.
I didn’t say what I was thinking, which was that they were complete idiots. Nothing goes up in price on a straight line trajectory forever, nothing. Yet enough fools apparently believe that the laws of supply and demand are suspended just for them to make trouble for the rest of us.
ARM’s are only good if you plan to “flip” a house and think you can get it done before the market “adjusts”. And balloon mortgages are just plain stupid, IMHO.
Rich Dad, Poor Dad:
What the Rich Teach Their Kids About Money-
-That the Poor and Middle Class Do Not!This book will tell you some things that you don't want to hear like a house is not an asset. That financial literacy is different from educational literacy. That your income is not your wealth. Investors are different from savers and so on.
A home is in an asset. The mortgage on the house is a liability. I can’t believe that the Rich Dad/Poor Dad guy has actually made money peddling his nonsense when he apparently doesn’t understand very basic accounting.
Yes, a home is an asset from an accounting standpoint. But it’s a depreciating asset that comes with an enormous negative cash flow over time — and that doesn’t just include the mortgage, either.
Yep. And I don’t feel I’m responsible as a tax payer to bail those that made these bad decisions out.
The risks weren't obscured by "euphoria".
They were obscured by criminals.
Actually, over time houses appreciate, not depreciate. If you bought at the top of the market you are likely looking at depreciation in the short-term, but over the course of a 30 year mortgage you are almost certainly looking at substantial appreciation.
Also, if you don’t own a home, you are still paying to live somewhere. Assuming that mortgage payments and rent payments are similar, you are much better off in the long run owning your home. At the end of 30 years you have a substantial asset which can be readily converted to cash and no liability. What do you have after 30 years of rent payments?
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