Housing bubble bloodbath

[masayako]

http://onlinejournal.com/artman/publish/article_1635.shtml

“Although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure homebuyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage; a lifetime spent working to pay off debt on an asset of rapidly dwindling value. Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they’d be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom . . . America holds record mortgage debt in a declining housing market. Even that might first seem okay — we can just whether the storm in our nice new houses. And in fact things will be okay for homeowners who bought long ago and have seen the price of their homes double and then double again. But for more recent homeowners, who bought at the top and now face decades of payments on houses that soon will be worth less than they paid for them, serious trouble is brewing. And they are not an insignificant bunch. The problem for recent homeowners is not just that prices are falling; it’s that prices are falling even as the buyer’s total mortgage remains the same or even increases. Eventually, the price of the house will fall below what the homeowners owe, a state that economists call negative equity. They can’t sell — the declining market price won’t cover what they owe the bank — but they still have to make those (often growing) monthly payments. Their only “choice” is to cut back spending in other areas or lose the house — and everything they paid for in it — in foreclosure. Free markets are based on choice. But more and more homeowners are discovering that what they got for their money is fewer and fewer choices. A real estate boom that began with the promise of ‘economic freedom’ will almost certainly end with a growing number of workers locked into a lifetime of debt servitude that absorbs every spare penny.”

[privatebanker]

One of the best summaries of the current situation that I’ve read in a long time. Good find!

[LostCat]

Yeah, good summary. But in all honesty, I hope it doesn’t come to that. If things really get that ugly, I think even the renters of the world will have a problem. The country’s economy as a whole will be crippled. It will be worse than the Great Depression. But then again, maybe the whole American economy needs to go through one so that our jobs can become competitive on a global scale again. Poor China. They’ll really get hit hard if America’s economy folds.

lol

FTW..

[DaisyDuke]

Perspective — This housing bubble only occurred in several “hot” markets – California/Florida/Arizona/Nevada. It did not happen nationwide. Homes in other parts of the country appreciated in value at a year over year rate in a much more normal manner — those areas should be fine.

So, while California’s economy is what, 7th largest in the World, and the housing bubble will definitely criple those “hot” cities exposed to the bubble, in my humble opinion, it won’t be devasating on a nationwide scale. That is of course unless more predatory lenders/banks go belly up and the unemployment rate increases all over the country.

This theory is given to you from my last reading on my crystal ball and it’s been cloudy these days — So it’s probably a load of junk. 🙂

[LostCat]

I think it spans over a little more space than CA/FL/AZ/NV. I heard the DC, NY, Mass, are getting hit pretty hard to. In fact, Boston has been over priced for a long time. It’s still, to day, more expensive to live in NY, SF, Boston, than it is here in San Diego.

Anyhow, It looks grim, I am just not sure how grim it can really get.. Should we watch out for traffic delays over the Coronado Bridge?

[hipmatt]

I think that summary was well written, and accurate. I home there is a big correction, as there should be, I don’t wish suffering upon anyone, but many people threw logic out the window on this one, they became emotional, and stupid. They bought with no money down, int. only loans, adj. rates, and then refied to all hell. They bought cars, trucks, toys, even more homes with their equity. They paid absolutely ridiculous prices for their mediocre tract homes. The taxes that they now pay are even more ridiculous. The home they just bought in 05 for $500K, should easily be worth $700k in a year or two, just like the last two years, right?

They did not think logically, they forgot history. They became impatient. They said to hell with saving up money, who saves, when you can take a loan out even for your 20% down? Some were duped by friends, family, even agents, and lenders. They saw at least one person make a small fortune on owning their own home, and did everything in their powers to duplicate them. Only the monthly payment mattered, not the amount owed, but still they now “owned their own home”. They felt sorry for the renters in the community, while the renters wondered, “what’s the difference, between me and them? I pay less per month than they do, and live in a nicer home. How can they own a home, when they owe all or more than what it is worth? With an interest only loan, they don’t even pay down the principle balance, but what do I know? I just rent.”

I don’t think as many of these people will spent a lifetime paying of their bad investment, instead, I believe most in that position will just eventually walk away from their homes. Call me cold, but I won’t feel too bad for them.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

Went to that Trump Real estate and wealth Seminar Last weekend in O.C. (hey they gave you a free lunch and a Trump book).

Anyway when the guy who was doing the latest real estate get rich scam was done and now was taking questions up front. He was surrounded by people who all seem to be saying the same thing, ie…

I got one of those interest only mortgages and now I can’t make the payments anymore !!! — What Do I do !!!!

Anyway I thought it was interesting

[PerryChase]

Thanks for posting that interesting article mayasako.

I agree with hipmatt. Americans will just walk away from their homes and keep on consuming… That will save the economy but kill housing. Consumers will cut back but not enough to kill consumer spending.

I’ve seen enough broke people spend like crazy to know that Americans view certain things as basic necessities of life — cable TV, Tivo, movies on weekends, a newer car, new clothes, beer, soda, and of course everything that their kids clamour for. They’ll move down housing wise rather than go without.

One example that I could point to is that people would rather go without teeth (dental care) than beer or cigarettes. I’m not too worried about the consumer economy.

[LostCat]

What was his response to them not being able to pay for thier loan? That’s what I want to know. Trump is smart. He moved his investment to our front living rooms where he can make money until we get sick of him. By that time, he will have bought a ton of property at rock bottom prices, ready for the next up swing..

My advice would be, walk and take the 7 year hit. In 7 years, it will be time to get back in the market. Just make sure you work on your credit score between now and then.

[PerryChase]

Trump recently started his mortgage company. I wonder how that’s going. His CEO lied big time on his resume but Trump kept him.

[smfj]

It’s still, to day, more expensive to live in NY, SF, Boston, than it is here in San Diego.

Of course it is. Salaries are significantly higher as well (SF and NY, at least; I’d imagine Boston as well), so I don’t see that changing any time soon.

Not to say they’re not inflated markets, but comparing major cities to San Diego isn’t exactly comparing apples to apples.

[Anonymous]

Not all of Trump’s properties are doing well. Specifically his development in Palos Verdes, CA is bombing:
http://la.curbed.com/archives/2006/12/trump_homes_not.php
…..as is his television show The Apprentice. No amount of fueding with Rosie O’Donnell can save that show – or sell his houses.

Pete

[no_such_reality]

Salary in San Diego CA: $50,000
Comparable salary in New York (Queens) NY: $49,118.63

If you move from San Diego CA to New York (Queens) NY…

Groceries will cost: 8.992% more
Housing will cost: 17.505% less
Utilities will cost: 48.43% more
Transportation will cost: 5.509% less
Healthcare will cost: 0.349% less

Maybe you mean Nassau county (Long Island)…
Salary in San Diego CA: $50,000
Comparable salary in Nassau County NY: $51,360.52

If you move from San Diego CA to Nassau County NY…

Groceries will cost: 10.192% more
Housing will cost: 6.91% less
Utilities will cost: 48.303% more
Transportation will cost: 0.187% less
Healthcare will cost: 0.732% less

Nope that’s not it,

What about suburban New York? White Plains, Bronxville, Middlesex Jersey?
Salary in San Diego CA: $50,000
Comparable salary in Middlesex – Monmouth NJ: $44,855.2

If you move from San Diego CA to Middlesex – Monmouth NJ…

Groceries will cost: 2.282% less
Housing will cost: 24.278% less
Utilities will cost: 25.103% more
Transportation will cost: 12.336% less
Healthcare will cost: 9.898% less

Nope.

Only looks like downtown Manhatten is more.
Salary in San Diego CA: $50,000
Comparable salary in New York (Manhattan) NY: $73,359.68

If you move from San Diego CA to New York (Manhattan) NY…

Groceries will cost: 14.952% more
Housing will cost: 79.763% more
Utilities will cost: 55.652% more
Transportation will cost: 1.904% less
Healthcare will cost: 13.225% more

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

It was not Trump doing the presentation, Trump just gives his name to these scam-athons where there will be several scam artist pitching different scam ie.. EBay, Tax liens ETC…

The only Trump that was there was his son doing a motovational speaking part (not scaming anyone but the scam artists).

I will not say what he said, Just would not try it myself.

That being said The Ebay, and Tax liens presentations actually sounded plausible.

[sdrealtor]

NSR,
I think you are misinterpreting that data as it is likely data for jobs located in those areas not people living in those areas. People on the Northeast corridor regularly commute to NYC from 2 hours away and the incomes tend to be very high for jobs in the City and millions of people comute there to work!

SDR

[Author]

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