Posted on 12/08/2008 6:26:28 AM PST by TigerLikesRooster
U.S. housing crisis also hitting the wealthy
Sun Dec 7, 2008 11:31am EST
By Nick Carey
HINSDALE, Illinois (Reuters) - Less than a year ago, few people in this affluent Chicago suburb expected the subprime U.S. housing crisis would hit close to home.
"We thought Hinsdale was virtually immune and we wouldn't see any foreclosures, but we have," said Dave Hanna, managing partner of Chicago-based Prudential Preferred CRE and president of the Chicago Association of Realtors. "Nowhere is immune."
With a pretty red-brick downtown lined with stores, good schools and a railway line to nearby Chicago, Hinsdale has been popular among wealthy doctors, lawyers and executives.
It has also seen a 37 percent jump in foreclosure filings this year, according to research firm RealtyTrac, and local data shows the average home sale price has fallen to $1.07 million from $1.15 million in September 2007.
The consequences of years of devil-may-care mortgage lending during the U.S. housing boom were first felt among America's poorer home owners. But if that is where it started, it did not stop there.
"People think this is just a lower-income problem," said Mabel Guzmann, a Century 21 realtor in Chicago. "It's not."
(Excerpt) Read more at reuters.com ...
He argues for financial literacy classes at U.S. high schools.
I think one can ace financial literacy class, and may well still end up in the same situation. It is about responsibility and discipline, which liberals discourage.
Ping!
When people buy what they cannot afford, they forfeit my “compassion”.
Of course, our media focuses on Democratic Party cheerleading, Lindsay Lohan and Lesbianism and Brittney Spears, instead of substantive news.
Plus, the talking heads like Cramer ALWAYS GET IT WRONG!
I would think the geniuses on Wall Street prove that. Although banking millions in personal wealth and passing the mess on to the taxpayers certainly can't be called stupid.
Right. He is so much sober than Lohan or Spears. At least he talks about numbers./sarc
What a zoo we have in this world.:-)
If not, then their foreclosures (while possibly related to buying a home they couldn't afford in the first place) are more related to some other, personal, financial catastrophe.
I would guess that these rich people living in the Chicago suburb may have voted for Obama. I wonder if they are expecting him to bailout the rich? Don’t they realize that they are the enemy?
“I think one can ace financial literacy class, and may well still end up in the same situation. It is about responsibility and discipline, which liberals discourage.”
Maybe, maybe not. Until someone is educated on a subject, you can’t predict what they will do with that education.
It’s long overdue that schools bring back that NOW scource home economics. But it should mostly be focused on economics. How to balance a checkbook, create a budget, save for retirement, job hunting skills. Too many people get tossed into society without a clue what to do financially.
This is especially true of poor/inner city kids. Why do you think so many of them think they’ll never get ahead? They don’t have any role models and nobody has explained to them the basics of getting ahead (or at least making a decent life for yourself) in society.
The one thing that needs to be drilled in is: your house is NOT an investment, it is where you live. Part of the reason for the housing crisis is too many people have sunk too much money into their house, treating it as an investment or savings vehicle.
That's what it suggests. I think the writer is too stupid (or lazy) to understand the difference between subprime borrowers and prime borrowers who took out home equity, thinking prices couldn't fall, to buy granite counter tops, subzero freezers, big screen TVs and a new Lexus and are now falling behind on their payments.
Why does everyone assume that the foreclosures only take place when someone buys a house he can’t afford and lives beyond his means? Quite often the subject of a foreclosure bought a house he or she could well afford, lived at a level appropriate to income, but then had a personal catastrophe.
The people I know who are facing foreclosure did not behave irresponsibly. One had her spouse commit suicide, so his insurance did not pay off. Another had cancer and could not work for a long time. Another had his business go under as a result of the recession. Two were wrecked by divorce. Another lost her job in the recession and found that, at 54, she could not find another fast enough. Another had a child who got into an automobile accident and racked up enormous legal fees. Another had a baby who became extremely sick and required constant care and attention.
These things could happen to anyone. And my circle of friends includes mostly prosperous professionals, who had savings and investments to draw on when the going got rough. But eventually even the savings and investments run dry.
So a bit of compassion is in order, please. Foreclosures and new poverty don’t just happen to illegal aliens.
“When people buy what they cannot afford, they forfeit my “compassion”.
Some of us bought what we could afford and held it long enough to grow into a large asset. Some of us were even lucky enough to sell near the top of the market. Some may call it lucky, but home ownership to my generation was a no brainer.
I think if you lose your job, you can’t pay your bills- referring that folks are ignorant b/c they bought at market value or took out equity lines doesn’t cut the mustard of understanding for a guy who spells illiterate - “illitrate”
“We thought Hinsdale was virtually immune and we wouldn’t see any foreclosures, but we have,” said Dave Hanna, managing partner of Chicago-based Prudential Preferred CRE and president of the Chicago Association of Realtors. “Nowhere is immune.”
The article is written with the usual “journalistic” cues for shock value and to ferment class warfare jealousies in the true socialist style.
One Sunday evening in October, a former Lehmanite in his mid-30s settles into a velvet banquette at the Gramercy Park Hotel’s elegant Rose Bar. At first he’s circumspect. But after a couple of Johnnie Walker Blacks on the rocks, he opens up.“Let’s take a guy who makes $5 million a year,” the banker suggests. “He’s paid two and a half million dollars of that in equity compensation”—Lehman Brothers stock. Plus he gets to buy that stock at a 30 percent discount, so he’s really getting $3.25 million in stock. “Plus appreciation? Over five years? That’s $25 to $30 million!
“Then let’s say a guy in that position borrowed $5 million against the $30 million in stock. It would seem a very conservative loan, right? Until the $30 million goes down to zero, which is what happened. So now he’s negative $5 million.”
True, that same Lehman banker got the other half of his compensation in cash. The banker nods. “For five years, he made two and a half million dollars a year in cash. So that’s twelve and a half million dollars. But of course he’s had to pay more or less 50 percent in taxes, so divide that and he’s got six and a quarter million. He’s probably spent that money over those five years—$1 million a year, it’s not so hard to do, right? So he has nothing—and he has to repay that $5 million loan.”
We also have a number of out of state investors who bought here thinking they could flip these homes at a substantial gain. Now many of those are also in foreclosure either because the investor wants to dump them or can no longer make the payments.
And, these first two cases are the majority of the homes in foreclosure. The end result....decreasing home prices, much less new construction, an all time high in active listings for sale, and a market of only 90 homes per month being sold - usually at greatly discounted prices.
The article appears to refer to those whose house value plummeted and suddenly thrown into the serious financial problem.
I don't understand why people try to extrapolate this into hit-piece about all foreclosures.
I understand the point you’re making, of course. This is the usual case. I’m only trying to point out that not everyone who has suffered a foreclosure was irresponsible.
While it’s true that catastrophic life events like cancer don’t apparently jump in numbers during a recession, other problems, like job loss or business failure, do spike. And when the economy is in a sound condition, someone who gets seriously sick, loses a job, or has some other catastrophe can sell his or her house and go live more modestly elsewhere. Now it’s not possible to sell, even at an extremely reduced level.
High income also does not mean rich. Rich should be wealth in the bank, not income that can vanish the next week.
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