Real Estate Crash thread

[retirwntm]

benny,

if you spent 1/100th of the time and effort employed posting financial apocalype threads in TGR forums in the real world making moves you (should) be a wealthy man and not give a damn. you are the epitome of interweb mental masturbation.

[Benny Profane]

Soon to be ex hedge fund employee?

[CUBUCK]

benny,

if you spent 1/100th of the time and effort employed posting financial apocalype threads in TGR forums in the real world making moves you (should) be a wealthy man and not give a damn. you are the epitome of interweb mental masturbation.

His bitterness stems from his inability to ever land a wall street job and the fact that he was caught with his pants down during the tech bubble. Nothing more than jealousy, its equal parts sad and pathetic.

[retirwntm]

Soon to be ex hedge fund employee?

ha ha! the pavlovian new yorker response to attack is strong in you, benny!

i never was a PEG / HF employee FWIW.

maybe you just need to disengage and get outside (or something)...mountain therapy can provide great perspective!

[Benny Profane]

His bitterness stems from his inability to ever land a wall street job and the fact that he was caught with his pants down during the tech bubble. Nothing more than jealousy, its equal parts sad and pathetic.

Never tried to work down there, and my pants were nailed to the floor during that tech bubble burst by the lying scumbags who ran my company, a la Enron.

I'll take that steak medium rare with a fine Cabernet.

[CUBUCK]

I'll take that steak medium rare with a fine Cabernet.

Whenever you want to come in let me know

[splat]

Just got this e-mail from a prominent Jackson broker...
Howdy fellow Jackson Realtors,

It should come as no surprise that the current real estate market in our region has all but dried up. In the coming months we will see real estate offices closing and agents going inactive, as they were not prepared to handle a downturn.

We at Jackson Hole ********** would like to extend a personal invitation to interview for a sales position in either our Alpine or Jackson offices. We are looking for career-minded agents and have listed just some of the many tools available when you become part of our team.

Please review and feel free to call with any questions or to set up an interview.

Sincerely,

Sounds like the housewife special.





What do you call a guy with a briefcase who's more than 25 miles from home?




An expert.

[timvwcom]

Just got this e-mail from a prominent Jackson broker...
Howdy fellow Jackson Realtors,

It should come as no surprise that the current real estate market in our region has all but dried up. In the coming months we will see real estate offices closing and agents going inactive, as they were not prepared to handle a downturn.

We at Jackson Hole ********** would like to extend a personal invitation to interview for a sales position in either our Alpine or Jackson offices. We are looking for career-minded agents and have listed just some of the many tools available when you become part of our team.

Please review and feel free to call with any questions or to set up an interview.

Sincerely,

Probably a good business move for someone with a stable firm in this market... If you can capture those agents who are able to withstand this market now, when the market turns around your company market share should vastly improve. But I've gotten phone calls, emails, letters, and lots and lots of offers of lunch just for talking for decades now (never took a free lunch) from everyone trying to boost the size of their office, so not exactly new. The difference at this time, if other offices are closing, people who want to stay in the business will actually HAVE to move somewhere else. In fact, seeing as you got this email, maybe they know something about your firm you don't? Either way, no way a simple real estate office could handle the volume of web traffic with you posting on TGR during floor time, no way!

[timvwcom]

As a real estate agent, I have paid attention to the different plans I've read over the last months to somehow "solve" our current real estate and economic melt down... But it's always been hard to see how we figure out some starting point; we need a resurgent economy to revive sagging housing prices, but as housing prices keep sagging the effects on the economy just get worse. It's like a death spiral right now... I know some say, let it all melt down! But that would lead to many million more Americans who didn't make any poor decisions getting hurt, and as I just mentioned, when and where would some downward tumbling melt down actually stop?

So it seems we should do something, the question STILL is: exactly what?

-The "toxic debt" buy out/bail out didn't seem to have a real connection to what I do and any link to improving real estate was very tangential at best.
-The big bank capital infusion/warrant equity position seems to be aimed at specifically solving the interbank lending freeze. Again, I suppose you need that working to have any hope of a real estate recovery, but not a specific direct link that somehow helps the person who is now upside down on their mortgage, and then looses their job or has a health issue.
-McCains plan to buy all the bad mortgages for full price, then lower the balance owed by the homeowner and refinance thru the government is a classic corporate give away, and gives financial benefits to people who may have made poor decisions, while doing nothing for the frugal saving owners or renters.
-Obama's plan of Jobs, middle class tax cuts, mortgage term modification, a 10% mortgage interest credit, and a 3 month foreclosure moratorium seems to have some good ideas, but again gives rewards to mostly those who may have made poor decisions.

But these plans, and pretty much every other one that has been proposed, all cost the tax payers big time when the tax payer really did nothing wrong here.

I've just read about a plan that at first had me scratching my head, well... guess I am still at that stage, but thought I'd cut and paste sections of it and see if anyone else has heard of OTHER plans that seem workable, or what their thoughts are on this rather unusual one;

Millions of Homeowners Are in Desperation Mode -- Help Them, or This Crisis Gets a Lot Worse

With almost 1 in 6 homeowners dealing with a troubled mortgage, we need a rescue plan fast or else face a huge social problem.

By Joseph Nocera, The New York Times. Posted October 19, 2008.

... (trimmed lots from the beginning, find it all at the link) ...

But recently a proposal came across my desk that I believe is so smart, and so sensible, that I hope our nation's policy makers will give it a serious look. It comes from Daniel Alpert, a founding partner of Westwood Capital, a small investment bank. I have quoted Mr. Alpert frequently in recent columns, because he has been both thoughtful and prescient on the subject of the financial crisis.

Here's his idea: Pass a law that encourages homeowners with impaired mortgages to forfeit the deed to their lenders but allows them to stay in the homes for five years, paying prevailing market rent. Under the law Mr. Alpert envisions, the lender would be forced to accept the deed, and the rent. After five years, the homeowner-turned-renter would have the right to buy the home back, at fair market value, from the lender.

There are so many things I like about this idea that I hardly know where to begin. Let's start with the fact that it doesn't require a large infusion of taxpayers' money. Indeed, it doesn't require any government money at all. It also doesn't let either homeowners or lenders off the hook, as many other plans would. The homeowner loses the deed to his home, which will be painful. The lending institution, in accepting prevailing market rent, will get maybe 60 or 70 percent of what it would have gotten from a healthy mortgage-payer. (Rents are considerably lower than mortgage payments right now.) That will be painful too. Moral hazard will not be an issue.

As Mr. Alpert told me the other day, his proposal "admits the truth: the homeowner doesn't have equity, and the lender has taken a loss. They should exchange interest, but not in a way that throws the homeowner out in the street."

Which is the other key part of his plan. It has the best chance of preventing, as he puts it, "the massive disruption of the economy and the social dislocation" that will come from large numbers of foreclosures. And it is the continuing foreclosures that are likely to cause housing prices to fall so hard that they will drop below the real value of the shelter.

That, of course, is exactly what happened during the bubble, albeit in reverse -- prices wildly overshot the true value of the home -- and it has to be prevented on the way down. Otherwise we face further economic calamity.

Why did Mr. Alpert choose five years? Two reasons. First, he feels confident that housing prices will have stabilized by then. "We continue to have a growing population," he said. "And there is zero chance there will be a material increase in housing stock over the next five years that will exceed demand. Those two factors alone will cause housing to stabilize."

Second, he says five years will give the renters enough time to get their financial affairs in order -- to pay down their various debts and save enough to make the 10 percent down payment an F.H.A. loan requires. (Many of the homeowners affected by this plan would be eligible for F.H.A. loans, Mr. Alpert believes.)

If they don't have enough for a down payment, they would have to leave, of course, but it would be far less disruptive to the economy than it would be right now, in the middle of the crisis.

Does the plan have stumbling blocks? Sure it does. One obvious one is that ideologues will view its being mandatory as an improper "taking" of homeowners' property rights and a violation of the mortgage contract. But, as Mr. Alpert puts it, "the homes involved are economically without value to the existing homeowners." He adds, "What the plan buys is time to heal for both sides in a fairly equitable and controlled manner."

Mr. Alpert calls his plan "The Freedom Recovery Plan."...

The full plan in an 8 page pdf format is here; http://www.westwoodcapital.com/opini...overy_plan.pdf


A reply by the plans author to some feedback from this blogs readers is here; http://executivesuite.blogs.nytimes....pert-responds/ Edit: This part really worth a read too!!!

[Benny Profane]

But that would lead to many million more Americans who didn't make any poor decisions getting hurt, and as I just mentioned, when and where would some downward tumbling melt down actually stop?

Why would it hurt those who didn't make poor decisions?

And it will stop "melting down" when prices come down to the historical mean, or, in other words, there is a sane relationship of house prices to income. Any attempt to elevate them above that line will be futile, and downright wrong, if taxpayer money is involved.

[khakis]

(never took a free lunch)

wait...what? Have you never accepted an offer to meet over lunch or have you just insisted on paying? Do realtors not get to expense schmoozing? Or maybe you're not broke...even though you ski? (scratch that last one--unpossible)

[khakis]

Why would it hurt those who didn't make poor decisions?

I'm also curious how a total meltdown would hurt those who assumed mortgages they could handle and can keep their jobs...or maybe that's the issue; more job losses?

[comish]

Just read what you posted, not the full transcript of his ideas.

Major problem is Banks have zero interest or motivation in becoming apartment owners/operators/managers which is what he would essentially be doing. If the deed goes back to the bank, they will then in turn sell it on to someone who wants to perform that function in the market. Banks capital and operational structures are not set up to hold large pools of physical properties. It would a non-performing loan, which Banks typically want to get rid of because they have to hold significant amounts of capital against as opposed to a performing loan which they only need to hold a sliver of capital against.

[meatdrink9]

Since this has been coined the "slumlord appreciation thread" I thought I'd go ahead and post a few pics of the place we completed renovating today. Especially whereas I've weighed in so heavily with first person accounts all along the way.

I haven't tried to go get a new loan in the last 4 weeks or so, but previous to that lending has still been working for me. I do always bring 20% down, but I'm an investor (not occupying, see: red flag).

Last month I bought 3 houses. The climate has still been perfection for what I do (although we'll see next time I need a loan). This house was purchased in a two home deal. I paid 118K for both properties (this is the smaller of the two). I got 3K back as my commission. So by the time you deduct the commission and split the cost between the two homes I paid a total of 57,500 for this house. It cost less than 5K to remodel (including appliances). But I did have to put 3 weeks of full-time work into the property (I have two guys working for me now so we move quickly, I also sub out certain projects). So the price tag for this 3 bed 1 bath home came to less than 63K:


Slum photo 1:


2:


3:


4:


5:



I figure I'll rent the place for $775 a month. I feel really good about working on houses like this. We take properties that have been vacant for years and bring them back to life. We provide very nice housing at affordable prices. We get these properties off the bank's/investment group's books and we do alright for ourselves at the same time.

I'm hoping to wrap up the next property in roughly 3-4 weeks. The third home is having the exterior work done right now (paint, new roof) and then we'll work on it a few hours here and there through the winter after skiing.

[kokomas]

looking great man. i really like how the inlaid floor turned out.

[meatdrink9]

looking great man. i really like how the inlaid floor turned out.

Thanks. Yeah, we lucked out on this one. I can't believe how easy the wood was to restore since it hadn't been painted. The floors were just sanded and then urethaned. No stain at all.

I got outbid on a mansion a year ago that I'd like to call my own home at some point. It had this same type of wood work but 5,000 square feet of it. It was bought by investors who completely stalled out. They haven't done shit in over a year. After seeing how this renovation went I'm even hungrier to try and get the big place again. I recently put in a call to the owner's. If I can sell my Denver place I'll definitely make a push for the mansion.

[timvwcom]

Why would it hurt those who didn't make poor decisions?

And it will stop "melting down" when prices come down to the historical mean, or, in other words, there is a sane relationship of house prices to income. Any attempt to elevate them above that line will be futile, and downright wrong, if taxpayer money is involved.

Lets say someone decided back in 2005 they'd like to buy a home as they have their first kid on the way. They've put their finances in order, payed off the credit cards, saved up some money, then looked long and hard and found a nice home on a nice block in a nice community. Lets say they had a decent 15% down payment, steady employment, and buy well within their means. They can even save some each month for a rainy day.

They've been good homeowners and keep the place painted, clean and the grass cut. Always pay the mortgage on time, still doing well keeping other debt down... until someone gets let go/laid off/plant closes (and looses their health care too), or works commission in a business that is hammered by the down economy, or has a medical issue (like cancer or ???) that costs them money and means they can't work. Now what?

Sure, they go look for a new job if they were out of work... maybe the economy is shit here, after several months they look farther afield and finally find a decent job in a different state. Problem is, home has depreciated 20% since they bought it, meaning they are 5% upside down, plus it's tough to sell in a market like this without paying a real estate commission of say 6% more for 11% total. What do they do? They've spent thru most of their smallish savings making do during the job hunt, they don't have the cash to "pay" to get rid of the home, but can stay living here as there is no job.

They did everything right, and still could loose the home... right? And there are millions of these type of people right now. Now imagine that same homeowner, but without the hope of a new job to start rebuilding their life. They've lost the home, the health care, the savings, and have no see no improvement coming anytime soon. Millions and millions are closer to this than you imagine. In many states the percent of late/delinquent mortgage payments is in the 5% to 10% range right now. It will probably get worse before it gets better.

On the market equilibrium... look at the stock market, do you see any equilibrium there? Markets run on confidence, remove the confidence and you will see free fall. Sure, eventually the economy picks back up and new jobs and income raises on the plus side, and prices low enough to temp people back to buying again and values will rise once again... but without the jobs part, there just aren't enough "investors" to "catch" something as heavy as a free falling real estate market. It's very common for markets to swing back and forth in over corrections. Letting the housing market swing too far down starts to put tens and tens of millions more people in the same scenario our young family above just went thru, especially as the housing market tends to feed the economy. Starve the housing market and the economy sheds jobs, which starves the housing market more, which causes more jobs loses, etc.

[timvwcom]

wait...what? Have you never accepted an offer to meet over lunch or have you just insisted on paying? Do realtors not get to expense schmoozing? Or maybe you're not broke...even though you ski? (scratch that last one--unpossible)

No... never accepted a free lunch offer for a recruiting call. Keep in mind that in real estate we agents are really interviewing the companies we'd work for. Companies are whores, they'll accept pretty much anyone they think might be able to make a living. There are a few exceptions, the 100% companies (RE/MAX and Realty Executives) are usually not looking to hire agents without a number of years of experience. The agents there pay monthly and/or per transaction, instead of doing the typical commission split.

I have certainly purchased a great many lunches over the years for customers (or clients), and they will often return the favor... same with friends of course. But I really don't hang out with any other real estate agents, we are all a bunch of losers. Besides, they'd probably never want to buy or sell a house with me anyway.

(on your last question; most years I am unpoor. I had $45K in my checking account this time last year to get me thru the slow winter months, I'm down to squat in my checking and going to have to start hitting my longer term assets = don't want to do it! If my phone doesn't start ringing soon, I'm thinking of starting another business to do in the meantime or get a part time job, it doesn't make sense to burn thru assets just sitting on my ass.)

I'm also curious how a total meltdown would hurt those who assumed mortgages they could handle and can keep their jobs...or maybe that's the issue; more job losses?

See above... job loses are exactly the issue.

[timvwcom]

Just read what you posted, not the full transcript of his ideas.

Major problem is Banks have zero interest or motivation in becoming apartment owners/operators/managers which is what he would essentially be doing. If the deed goes back to the bank, they will then in turn sell it on to someone who wants to perform that function in the market. Banks capital and operational structures are not set up to hold large pools of physical properties. It would a non-performing loan, which Banks typically want to get rid of because they have to hold significant amounts of capital against as opposed to a performing loan which they only need to hold a sliver of capital against.

Obviously not my plan, but I'll argue that side just cuz I like arguing. If this real estate/financial/economic crash gets much worse, and banks have to start marking their loan assets down or off because of foreclosures they will be in deep shit. All these Banks are highly leveraged (ask Spats ) and there is a point at which they are upside down and the Feds step in and close them down. So if it really becomes a Hobson' choice, and is not between a) doing business as they use to and b) becoming landlords -BUT- was between 1) becoming insolvent and being closed/sold/out of a job and 2) participating in a Federal program that allowed them to transfer that loan asset to a rental asset with tax breaks and other methods of keeping them in business... they might have a different take on it?

[timvwcom]

Thanks. Yeah, we lucked out on this one. I can't believe how easy the wood was to restore since it hadn't been painted. The floors were just sanded and then urethaned. No stain at all.

I got outbid on a mansion a year ago that I'd like to call my own home at some point. It had this same type of wood work but 5,000 square feet of it. It was bought by investors who completely stalled out. They haven't done shit in over a year. After seeing how this renovation went I'm even hungrier to try and get the big place again. I recently put in a call to the owner's. If I can sell my Denver place I'll definitely make a push for the mansion.

Love the photos of all your places BTW. Keep them coming!

A couple quick questions, for the $5,500 my math sez you have spent on the rehab... can I ask about what part you spend where??? I see;

----see----

1) updated kitchen: cabinets and 24" CT counter tops, hardware, sink faucet, refrig, stove?, dw?, (maybe some electrical?), new floor.

2) LR/DR: new fireplace/AFP surround and hearth, (existing FP door thingy?), sanded/poly floors, curtains/hardware, painting job, (maybe poly on wood baseboards/trim?).

----can't see----

3) Bath(s): ?

4) Bedrooms: ?

5) Mechanicals: ?

6) Exterior (roof/paint/trim/storms/walks/drive/garage): ?

7) Other: ?

As specific/general as you'd like. If too many questions, I'd appreciate at least a quick snippet of how/what you are doing where. As I've mentioned above I'm looking at getting off my ass and getting info on what my choices are. You can go PM if you don't to put out too much here for any reason.

Thanks.

[grapedrink]

hey md9, place looks great, care to post some before pictures?

[Benny Profane]

They did everything right

No they didn't. They overpaid way too much for the house.

What are you saying? The government has an obligation to control the housing market with price controls? So ...... where has the government been for the past decade when prices went through the roof in most markets? Shouldn't they have been controlling that absurd inflation? Nope, didn't hear a peep on that one. How about all the people who sat on the sidelines and said "no fucking way I'm paying 600000 for a shit shack that sold for 200000 just 4 years ago. I'm waiting for the market to come back to reality." And where does your line of thinking take you? Oh, boo hoo, poor little family can't sell their used piggish SUV for a "fair" price, let's help them out by propping up the price of that item because, hey, life ain't fair? Please.

[khakis]

Tim you left out the ARM issue, which seems, to me, to be a pretty important component. This is the component that drives me crazy because even people who kept their jobs and made their payments and didn't have extenuating circumstances that they couldn't cover are falling short when their ARM adjusts, and unable to refi due to lack of equity in the home.

MD that place looks so kickass, nice job. Speaking of your Denver house, a place about a block from both our places sold for cash recently after 1 day on the market and the buyer started tearing right into it for a high-end remodel. The neighborhood's starting to get hot! No doubt yours will sell soon.

[timvwcom]

No they didn't. They overpaid way too much for the house.

What are you saying? The government has an obligation to control the housing market with price controls? So ...... where has the government been for the past decade when prices went through the roof in most markets? Shouldn't they have been controlling that absurd inflation? Nope, didn't hear a peep on that one. How about all the people who sat on the sidelines and said "no fucking way I'm paying 600000 for a shit shack that sold for 200000 just 4 years ago. I'm waiting for the market to come back to reality." And where does your line of thinking take you? Oh, boo hoo, poor little family can't sell their used piggish SUV for a "fair" price, let's help them out by propping up the price of that item because, hey, life ain't fair? Please.

Benny, first... my attempt here is NOT to change your opinion on this market crash/correction, but I do think "wisdom" settles on the side of doing something to try and moderate the worst effects which result from it.

Your comments of "paying 600000 for a shit shack that sold for 200000 just 4 years ago" is clearly based on your experiences "embedded" in the East Coast market. Some other markets thruout the country (esp. California) have also experienced either the wild double digit appreciation and/or huge initial entry price you have out there. BUT, most of the country had neither... Many places that had steady 4, 5, 6 percent appreciation per year have fallen 20 to 30 percent to levels from the early part of the 2000's. At the time that individual couple in my example purchased their house, they paid the "market" rate. I don't think it is realistic to think that a simple consumer in a middle America market SHOULD have seen something like this coming, in a "big picture" sense, that even Alan fucking Greenspan didn't see.

In fact, even if many people were prescient and saw this coming 2 or 4 or 6 years ago, housing is like musical chairs... people need places to live. There just aren't enough apartments for EVERYONE. After several percent tried to shift out of their houses, the apartments would all be full, the real estate market would be saturated with too many properties and values would have fallen from oversupply/lack of demand and we'd be in a similar situation as now. Perhaps with less fallback, but all that is just supposition.

On your comment about the Government's lack of earlier action to avert this crisis in the first place... Sure, I'd bet just about everyone NOW feels like that would have been a great idea. But we are experiencing what may be the end of the last generation's attempt to adopt the Reaganomics trickle down deregulation meme. Certainly the point some make about the interest rate being jiggered as an artificial means to pump up the housing market/economy has merit, I think Alan Greenspan and maybe even the Fox Business News crew would give you that now.

But the problem is HERE AND NOW, not 5 years ago or 20 years ago. All the wishing in the world won't stop this run away freight train. Hopefully we'll relearn the regulation lessons of the Great Depression in a way that holds for more than 75 years this time... But I am certain we also have an obligation to fight our way out of it like the 1930's. We have the luxury now to observe the similarities between the causes of these two problems, and by studying what they did right/wrong to avoid the shoals they foundered on for the Hoover years. No matter what we do, it will cost big bucks at this point.

You had the good fortune, looking back, of a kick in the ass regards home ownership. I'd bet some not small portion of your spot on early vision of this problem was focused by that experience. But we all couldn't have followed the path you did, it just wouldn't have worked out. Hey, are you still getting satisfaction of knowing the ex has the house, or has she already sold it and moved on?

[timvwcom]

Tim you left out the ARM issue, which seems, to me, to be a pretty important component. This is the component that drives me crazy because even people who kept their jobs and made their payments and didn't have extenuating circumstances that they couldn't cover are falling short when their ARM adjusts, and unable to refi due to lack of equity in the home.

MD that place looks so kickass, nice job. Speaking of your Denver house, a place about a block from both our places sold for cash recently after 1 day on the market and the buyer started tearing right into it for a high-end remodel. The neighborhood's starting to get hot! No doubt yours will sell soon.

The ARM issue is somewhat more complicated IMHO. I'd say you could simplify it into two major groups, with some stuff muddled in between. You had the traditional 1 or 3 year ARMs, with rates only modestly below the 30 year rate and with pretty responsible qualifying to account for future upward adjusting rates. THEN you had the "predator" type ARM loans, low teaser interest rates that were bound to make moderate to large jumps, that used little or no part of those impending interest rate increases in the process of qualifying for the loan. I think the first type, though riskier, were and are a reasonable way for lenders to share the risks and rewards of rising and falling interest rates. But obviously the second "sub prime" version of the ARM was fucked up from the get go. Of course, there are some people stuck in that gray area in between...