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Foreclosures and Financing


TheAnk

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I do not think the posted sales numbers show an accurate picture.. I think they are "sticky", meaning they don't show the true current state.. I also put some weight into current listings and track sales on my own.. I guess my point being.. The sales figures say -5%, but if you tried to sell a home, you can bank on more like ~20% of 2006 "peak values", give or take.. I should have probably explained where I was coming from better.. The latest numbers on PVD multis say -16.15% YTD.

I think inflation is enough alone to "stabilize".. Which is hilarious enough that I just said INFLATION will stabilize ANYTHING... Lending and appreciation were not normal.. But then again neither is a 20% drop.. Banks will settle in to some risk adverse lending that will and already has had an effect.. If inflation is compounding continuously @ 3-5%, how long does it take to erase a 20% decline? 3-4 years?

Contrary to the liberal mantra, not everyone should own a home.. I find it DECIDEDLY convenient that democrats pushed for banks to loosen lending criteria to broaden home ownership, then RAILED against banks for unscrupulous practices for loosening the credit purse strings.. Funny how that works..

Also, supply for sale in RI and Providence (multi family housing) seems to be on the decline from highs this summer/fall:

Date PVD Multi RI Multi 3Fam PVD 3Fam State

09/21/2007 774 1928 349 711

10/04/2007 768 1884 351 702

10/15/2007 768 1881 347 696

10/22/2007 785 1901 355 698

10/29/2007 792 1892 366 700

11/02/2007 791 1874 365 686

11/26/2007 768 1841 362 696

12/07/2007 740 1791 354 688

12/17/2007 748 1807 356 692

12/27/2007 717 1738 340 662

This is just MLS, and doesnt take into consideration FSBOs.. I don't care about single family housing and condos, as I feel those are not investments..

I think we'll have reached a turning point not when people are no longer bullish on housing, but rather when the general consensus is that housing will never again be a good investment.

The only reason I don't agree with the above quote is... People need a place to live.. People don't need mutual funds.. And with constant inflation, housing regardless of sentiment, will go up because it has to.. Housing has to inflate, there has never been deflation in fiat money times on a year to year basis... Ever..

For sake of conversation we need to separate homes vs investment property... A condo is not an investment property to me.. It is a home.. Unless a single fam or condo was bought long long ago and subject to the powers of inflation, there is little reason to buy one and and rent it.. As there shouldn't be, it is a primary residence..

Multifamily housing is an investment OR a home.. Meaning its a true avenue to home ownership for low income people; the other apartments help pay the mortgage... Along with an FHA loan, these properties can reduce barriers to entry.. In time, people can then "trade up" to a single family home.. So the old rules will return; less "creative financing", more people resorting to multifamily homes for firs time purchase as rents help them qualify...

So I think over time, some people will think it is better to rent rather than buy.. Those people will rent... So I feel rental property stays relatively steady where rents determine price, and single fams and condos still fall.... Because if a condo can rent for $800.. Thats the value.. If a 3 decker has 3 apts @ $800 (2400), thats the value.. I could be wrong, who knows.. But with my twisted gorrilla math it makes sense to me..

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Good post, Ank, and I think pretty well considered.

But just for clarification, the below quote strikes me as pretty ridiculous - the right has embraced to an INSANE extent the idea of the "american dream" of homeownership, to the point of all current federal housing programs geared to that (even freakin' section 8 with the Section 8 to Homeownership Program) at the expense of rental production. I agree that not EVERYONE can or should be homeowners, but that, my friend, has been a mistake from all over the political spectrum...

Contrary to the liberal mantra, not everyone should own a home.. I find it DECIDEDLY convenient that democrats pushed for banks to loosen lending criteria to broaden home ownership, then RAILED against banks for unscrupulous practices for loosening the credit purse strings.. Funny how that works..
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  • 2 weeks later...

City Takes Steps to Protect Providence Neighborhoods From National Foreclosure Crisis

Action steps include proposed ordinance creating penalty for abandoned property and possible litigation against mortgage holders

Standing in front of a boarded up tenement house in Olneyville section of Providence, Mayor David N. Cicilline today announced plans to combat what he called a major threat to the stability and prosperity of Providence neighborhoods: the national foreclosure crisis. According to a recent report by the United States Conference of Mayors, foreclosures are expected to increase by 1.4 million nationwide in 2008 leaving a trail of blighted, abandoned property in its path.

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  • 3 weeks later...

Providence Metro is the 14th riskiest market in a new report from the PMI Group (mortgage risk assessment). Their numbers show a 46% chance that prices will be lower two years from now. Interestingly, we're the only area in the top 2 risk categories that isn't in the major bubble states of CA, AZ, NV and FL. I'm not sure why this is.

PDF Report

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  • 2 weeks later...

So I'm on the bike this morning thinking about these stats, and I'm thinking it may be just as influenced by what DIDN'T sell as by what did.

Given the current climate, the only people who are going to sell are the people who HAVE to sell. Either banks selling foreclosed properties or other 'distressed' properties, be it tax debt, inherited properties, relocation, whatever. And those transactions are going to be at the lowest possible price, not the highest, because these sellers have to take what they can get and buyers know it.

If a seller didn't HAVE to sell, they'd never take the low-ball offers that are flying around these days. They'd just hold until conditions improve.

Obviously, this is speculation on my part. But plausible.

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Fry, your post is spot on; there are two markets right now; foreclosures and the other peeps.. No one is going to sell a multi cuz rents are rising.. You have these idiots dropping 50% discount offers on places.. I call around, the agents are frustrated.. Why would anyone sell? This isnt a condo, its bringing dollars in rent, kid!! There's no urgency for most..

So there is a distinct break in the mkt; LL's not needing to sell are just collecting rents and looking for a steal on another ppty.. And you have the banks forec & short sales that have their set timetables for price reduction, 30 days, set % drop.. So the only sales happening are foreclosures and shorts.. End of story.. Maybe you have a bank fraud sale mixed in over 300k still.. But thats it..

By the way, I heard FINALLY the FBI and State Police are looking into the real estate scams I posed last year.. The topic is "Possible Real Estate Scam needs legislation" if interested.. No thanks to our "Elected Official" David Segal however.. He could have been a star, the posterboy for killing bank fraud in RI.. I gave him the info to run with 11 months ago, too bad..

Oh well, one day people will listen to TheAnk.. bubblegum pixie dust-free TheAnk, that is..

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Also I must report an interesting rental market development.. Real Estate agents acting as extremely gracious rental ppty managers.. This is a sea change the depths of which I cannot adequetely desribe in text... Agents now call asking unabately if they can list your apartment on their site.. Most of these folks now are willing to accept 1/2 month rent and this is key, "no exclusivity".. I can't even begin to tell you how much of a sea change this is..

Also, many many prospective tenants are saying they have been evicted by banks on forec pptys.. Its the only time in the history of rentals that any one has willingly brought up an eviction!!! Fascinating times..

In short, the implosion of the rental real estate market, as frymasterspeck once noted, is the greatest example of "lies, damned lies, and statistics" I have ever seen... As noted above, there are two markets, the rampant foreclosure market, and the regular market.. One has literally stopped flowing.. The other is peaking now..

Bank fraud, unscrupulous buyers, etc are foreclosing.. That is, unless the bank sees value in the property, then they offer these great buffers called short sales.. Which, in laymans terms, means you get to skate for say six months while the bank trys to sell the house FOR YOU.. what a good deal!!! The distinction, I assume, is the banks perception of value.. If the bank thinks it can cut off nose to spite their face with a short sale, you get a break.. If not, Foreclosure City..

So what we will see is a slight incline in rents as these people are evicted from foreclosed houses.. This will be followed by flat prices (foreclosure adjusted prices that is) for a couple years.. We will see a increased move from foreclosures to the use of the short sale process, directly leading to less foreclosures, more sales.. The distinction being, a foreclosed ppty is cash sale or renovation loan ONLY whereas a short sale is conventional loan eligible, anyone can buy.. Big up for the marketability of the house..

Slowly as supply comes online, rents will dip.. Prices, as rents dip will slowly rise.. The news articles we read about will change from "Death in Housing!" "Credit Crunch" and "Why buy, RENT!" to "affordibility model coming back to housing" and "Buying Make Sense Again?"

Its inevitable.. The process is the same, the only variable is time...

Admit you people missed me.. This is good stuff..

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http://cnnmoneytalkback.blogs.cnnmoney.cnn...k-to-walk-away/

I don't want to throw gas on any foreclosure fire cuz it sure doesn't need any fuel.. But I do put stock in peoples' opinions, mostly because the masses are generally wrong.. Its hard to quantify for sure, but you can feel public opinion shifts..

But in this case, the sheep mentality is dangerous.. The one scenario that we ALL don't need is the "walk away" scenario.. The end game could range from isolated pockets of despair to systematic market failure..

And reading the opinions of people on that blog, its a little disconcerting.. Far more people seem to be in deep trouble than I thought would have been.. Also far more people seem open to the idea of dropping off keys than I would think..

Granted this is just a CNN.money blog, but generally people who read Money are at the very least active in their finances.. That doesn't mean they make the right decisions, it just means they pay attention..

So my fear is and has been that the negative stigma from foreclosure is being lifted.. And it becomes ok to walk away.. Bad news..

And this guy certainly doesn't seem to be helping:

http://money.cnn.com/2008/03/04/news/econo...nanke/index.htm

His job, in case he wasn't aware, is simple. There's only two parts:

1. to assist in stable markets

and

2. fight inflation..

Since inflation is rampant, and the Fed has openly stated its NOT their concern.. They have one job.. Market stability.. How is making it easier for mortgagees to walk away promoting market stability??

This article seems to show that people are counting secured mortgage debt behind unsecured debt.. That may not seem like a big deal, but it kind of is.. It represents a possible sea change in the structure of debt service.. It basically means that people are more apt to pay a credit card than their house payment.. Thats bizzaro world stuff..

The general order for debt service based on desired payment preference is: house, car (secured debt), student loans (knowledge asset debt), then major credit cards (unsecured) and finally dept store cards (Shylock inspired rates)..

If the #1 (roof over head) falls below in public perception as far pecking order.. Public perception has shifted.. Not good..

http://money.cnn.com/2008/02/06/real_estat..._away/index.htm

"Beyond anecdotes, some statistics indicate that hard-pressed owners are deliberately courting foreclosure. An analysis by the consumer credit rating agency Experian last spring found that many borrowers were choosing to pay off credit card and other consumer debt before making mortgage payments. They were electing to put their mortgage at risk rather than their credit cards or auto loans.

Similarly, Richard DeKaser, chief economist for National City Corp., (NCC, Fortune 500) notes that while all credit metrics are deteriorating, mortgage delinquencies are rising disproportionately. "That makes sense if people are choosing to walk away," he said."

This would be interesting stuff if it didn't effect us all..

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"Beyond anecdotes, some statistics indicate that hard-pressed owners are deliberately courting foreclosure. An analysis by the consumer credit rating agency Experian last spring found that many borrowers were choosing to pay off credit card and other consumer debt before making mortgage payments. They were electing to put their mortgage at risk rather than their credit cards or auto loans.

Similarly, Richard DeKaser, chief economist for National City Corp., (NCC, Fortune 500) notes that while all credit metrics are deteriorating, mortgage delinquencies are rising disproportionately. "That makes sense if people are choosing to walk away," he said."

This would be interesting stuff if it didn't effect us all..

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This is, of course, rational behavior. Low risk (no down payments), high potential reward (house values continue to go up at double digit rates). Everyone was playing with house money. If it doesn't work out, walk away from the table. You have to admit, economically speaking, you'd have to be a sucker to keep paying a $500,000 mortgage on a $400,000 house.
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http://money.cnn.com/2008/03/13/news/econo...sion=2008031308

Money Magazine is basically a worthless rag like a Star Magazine.. This is not breaking news; good credit buyers have been facing increased "scrutiny" for over a year and a half... Not difficulty, just well needed scrutiny..

I guess I just wonder what the qualifications are to write for Money... Is it the ability to stoke flames? Because they rarely offer fact or news, they generally offer false or dated opinion.. Kiplingers is far superior in my opinion..

The Fed just stepped in to back AAA debt as if is were government backed securities.. That was a great move by them, better than rate cuts..

Basically, these fears are unfounded.. I will say that a person with multiple mortgages will feel the tightening (risk factor of total debt); so in theory the only people that will be significantly affected by conventional tighening will be lumpy dufflebag slumlords.. A general buyer does not own multiple properties; they own a primary residence.. These buyers can still get sweet financing..

So if by fewer buyers they mean people that did not have the means anyway to buy a house then yes, that part is correct.. This is not "the next shoe to drop", its old hat.. But qualified buyers, for the most part will be unaffected.. Actually, a well qualified buyer still has banks falling over to lend dough to them..

The justified fear is public perception; people just don't want to buy a house they perceive as a downturn risk.. Not availabilty of financing; all one needs to do is call around to mortgage companies to see this is untrue

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