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monsoon

Another Case against Starter Home Development in Charlotte

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There is an interesting article in today's paper that indicates the home foreclosure rate in Mecklenburg is the highest in NC. In 2005 there were 2805 foreclosures and the vast majority of those (81%) were of homes costing less than $150K. It would appear the vast majority of those are located in starter home neighborhoods, the kind with vinyl cookie cutter housing built my national companies with little interest local community building, where the owners were put into marginal loans. These homes strip the land, contribute to all the problems that come with sprawl, and end up being places were crime is born. Everytime one of these developements is created, it is a lost opportunity to build something more sustainable in Charlotte and a lost opportunity to build a place where a real community will be formed. The only winners are the developers and their real estate pimps that walk away from these things with money in their pockets leaving the homeowners and the community at large holding the empty bag.

Mecklenburg compares to the rest of urban NC as follows:

Foreclosure Filings,, Rate

  • Mecklenburg - 6,584 - 8.6%!

  • Wake - 3,350 - 4.6%

  • Guiford - 2,557 - 5.9%

  • Durham - 1,434 - 6.0%

  • Forsyth - 1,609 - 5.0%

So what can the city do to stop this type of development in Charlotte? Is is really as big a problem as it sounds?

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I've seen a number of folks who probably aren't financially ready to buy a house yet take the plunge and get a starter home they can just barely afford with a 30 (or 40!) year mortgage, figuring "Interest rates are low, so we might as well build equity!" The message that we get, by and large, from the media, is to build equity, even if we have to take out a loan we can hardly afford in order to do it.

I almost hate to think about it, but could this be what's fueling the growth of vast swaths of starter homes popping up everywhere?

What if something unexpected happens? For example - you get laid off, have a kid, get in a car wreck and have to take a month or two off from work. Your equity doesn't do you a fat lot of good then.

Call me un-American, but I think it's best to wait on buying a home until you're certain you can afford it, rather than buying one when you think you deserve it.

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Is it possible that now that we are coming on 3-5 years since rates really got low, that the high foreclosures were from people who bought outside of their means with an ARM mortgage? Now their mortgage payment would have increased quite a bit, and it is suddenly outside of their means. That might be especially true of starter homes, because the people may not be educated enough on the risks, but I think that could also happen with any size mortgage.

My own home was a bit of a stretch buy when we got it, and it was our first home. Luckily, though, our careers and incomes have improved since we bought it, so it ended up being fine. Maybe some people took that gamble, also, and their careers didn't go the way they had planned, especially with the Charlotte banks well along in outsourcing local jobs.

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The default rate on no-money-down low income qualifying mortgage programs, often runs 5 to 10%. (While with conforming "A paper" mortgages it's around 1%) So, there are diminishing returns, trying to make everyone eligible to buy housing.

I'm sure reposession rates on automobiles are pretty high as well, with people on marginal credit.

Who's greed is really at fault, though? The lending industry that's trying to get everyone possible on the treadmill? Or the consumer's willingness, to take the bait?

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What I found interesting in one of the related articles were comments from some of the buyers of these homes. They were "surprised" to find out they had such things like HOA dues ($70 a year) and thought that property taxes and insurance were covered by their mortgage payment (!). They also didn't know that a variable rate could go up or that what they were signing up for also included a second mortgage payment. Needless to say, there is often a scary lack of buyer education around the home buying process and the economics of home ownership. Combine that with over-eager lenders, a persuasive pitch from the builder's agent, the lack of a buyer's agent to educate and represent the buyer's interests and the temptation of spending beyond your means and its not surprising there's such a high foreclosure rate.

True predatory lending or pump-n-dump development is abhorrent, but buyers have to be accountable at some level for their own decisions. It may sound trite to say 'caveat emptor' when its this kind of money or potential credit damage on the line, but absent outright fraud, its the same principle whether you're bidding on ebay or buying a house.

Maybe these kinds of figures will start to make it more difficult to be able to build these types of developments?

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So what can the city do to stop this type of development in Charlotte? Is is really as big a problem as it sounds?

It IS a big problem and will only continue to get worse, especially in this ridiculous environment of "free" money where lending standards are practically nonexistent. However, this problem is of NATIONAL scope and no-money-down buyers of cheap housing stock will get burned across the entire U.S. Especially if interest rates continue to creep up and - God forbid - the job market slumps.

Who's to blame? A lot of people along the money chain, but I pinpoint the subprime mortgage lenders and brokers with their predatory tactics, actually making people believe owning a home with no equity down and taking out a negative amortization or interest only loan is a good thing!!! Always preying on the uneducated and downtrodden.

However, one must not stop there. I also blame the INVESTORS of subprime loans. These are the same investors who beat their collective chests because they engage in "proper social investing" by refuting tobacco and alcohol related companies. Well, how about not investing in subprime mortgages? That's one way to help end the practice.

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That particular development cited in the article is near a lot of rental property and low income housing, next to the noisy 77 freeway to boot. Yes, the homes were new, but it's just not an area most people would be interested in.

I suspect the homes had sloppy or artificially high appraisals when sold... And I would assert that entry level buyers are more desperate to "just get in" and are more willing to pay full asking price. Repeat buyers are more astute about property values, and more willing to haggle and get the right price to begin with.

Strange how buying a new car or house, some of the most expensive financial decisions people make (aside from deciding whether to complete college) are clouded with emotion. It should be the opposite. These decisions are too important to do excitedly.

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Repeat buyers are more astute about property values, and more willing to haggle and get the right price to begin with.

Can prices of new construction be haggled over?

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New construction is usually more flexible in terms of "free upgrades" than price.

But you can still haggle on price, if you're not set on a particular development. The builder can always change his mind. I've heard that sometimes the last few sales of SFH's go below the priors... the developer is getting bored with the subdivision, wants to focus attention elsewhere.

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That sounds kinda like Huntersville. Building codes are very strict and require things, that make entry level housing nearly impossible.

The odd thing, is how Huntersville borders on NW Charlotte and unincorporated Meck county.... the very area where cheap entry level housing is being built.

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