We went to look at a foreclosure. I asked the agent who the bank was. I did some research and this what I found.
It is owned by the property management division of C-Bass which is in turn owned by MGIC. It looks like MGIC wrote mortgages through its subsidary (Litton) then packaged them for sale. MGIC probable guaranteed them. Any that foreclosed on where handled by the prop. mgt. division and sold - probably refinancing through Litton again.
Litton was sold last month to GS. So my guess is MGIC is now an insurance and prop mgt co. They will go under and then the property portfolio gets sold?
The problem is, at least for us, in the paperwork.
Where's the Table?, reading a second handle account of a data table is annoying.
Re MGIC. I can't say that MGIC hasn't ever written any mortgages, but I doubt that is how they obtained title to the property. As you are aware MGIC is a mortgage insurance company, I have seen them take title to a few properties after the Lender had foreclosed and gotten title. Under what circumstances they do that I am not sure. But the properties I have seen them take title to have all been in nice neighborhoods, and MGIC did considerable work to them prior to listing for sale.
While I disagree with the C-S methodology on several points let's use it for the purposes of this discussion. C-S describes a long term home price appreciation of 1-2% above inflation. Looking at the area under the curve at http://www.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_122622.pdf a return to that long term trend line looks to be predicting 3-4 years of double digit declines before trending towards zero appreciation after that. Whether that double digit decline is all price in a low inflation or some combination of lower prices and much higher inflation is the only question.
Whether that double digit decline is all price in a low inflation or some combination of lower prices and much higher inflation is the only question.
Robert Coté | Homepage | 12.26.07 - 10:45 am
Robert,
Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Is there a graph out there showing predicted housing price delines over the next 5 years, or longer? Anyone?
ceilingfan,
Just print out the Case-Shiller graph.. then take a pen and extend the graph in whatever direction you want (probably should go down a bit for at least another year).
I would like to hear other posters' views on buying versus renting. I just read a bunch of things on a blog called (not so great a name) millionaire mommy next door. The writer makes the case that American obsession with home-ownership is founded on dubious facts, and that lost opportunity costs are substantial when you buy instead of rent (and not just in the current crisis either). Also, many people only factor buying vs. selling prices when computing appreciation & leave out all the money spent on upkeep, insurance, taxes, etc. This issue has really been troubling me & I'd appreciate the opinions of all. TIA
both gold and oil have shot out (up) from a trading range they've held for a couple of weeks now.
It is hard to understand why after they were range bound through much worse news for the last few weeks, are both markets seeing the retail/housing news and predicting more fed cuts despite inflation risks, because the xmas cheer has turned into a hangover?
--
I believe that the case-Shiller data is for SFH.
Actually, there was lot more overbuilding of SFH during 2003-06 as people were pushed into being homeowners. The low in sales of new SFH was close to 400K in the previous cycle and the high was 1,371K during July 2005.
Finally, the supply-demand is exerting itself as the insane lending that drove the prices is over.
Just print out the Case-Shiller graph.. then take a pen and extend the graph in whatever direction you want (probably should go down a bit for at least another year).
And also, be aware that the Case-Shiller graph revolves around inflation-adjusted rent prices (at 1., so you might want to extend your drawing as close to 1.0 as possible, probably above, but most probably below.
One factor that often gets overlooked in the rent vs. buy decision is maintenance costs. We've been in our modest 3BR house in suburban ATL for 6 years now, and I've had to replace the furnace, hot water heater, buy gutter guards, and pay $1000 for a termite warranty plus $300 annual renewal fee. And that doesn't count pest control applications, routine check ups of AC system, new lawnmower, etc.
I'd conservatively estimate our maintenance costs at around 10K ... that would pretty much eat up half the appreciation we've had in those 6 years.
Err!!!!....Stretching out after this fine Christmas holiday....So....where is the suckers rally this morning....it most certainly is not in my dollar which is getting pounced on this morning...but who cares right...Kohl's and walmart are having 70%off sales...yea!haw!! more stuff.....The tidal wave is coming...so prepare yourself..08...it going to be one hell of a ride...Anyone see Oil!...yikes.
--
David Kotok, on CNBC, said that the over supply of homes, new and resale, is 2-3 million. This means that the builders have to stop building for two years, but they are building new units at 1.2-1.3M rate. No bottom in sight until 2011.
berylmarkham - it's definitly more expensive to buy than rent a declining asset, which is what most markets have to offer right now. But for people who don't move a lot (transaction costs are significant), buying is cheaper than renting when homes are priced reasonably. If you want hard numbers, set up a spreadsheet and model some scenarios based on prices/rents/costs in your area.
Sure Dallas, Atlanta, Denver, Chicago, Boston, New York, Cleveland, Minneapolis, San Francisco, Washington, Los Angeles, Phoenix, Las Vegas, San Diego, Detroit, Tampa and Miami are down.
But Charlotte, Seattle and Portland are up, which means (if I must spell it out) while some parts of the country MAY be experiencing modest price decline, the 630,478 people of Charlotte continue to enjoy the bounty of an expanding global economy.
And before you start your Seb, are you equating the 8,214,426 citizens of New York and their property with that of Charlotte whining, the answer is:
"Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Chris
Cobradriver"
You've touched on THE issue as far as I'm concerned, i.e. wages as related to home prices in any given area. I've a home in the Tampa Bay area. Prices went through the roof but wages did not, in an area where wages have historically been low. There was no way those prices could be sustained without wage increases. So I'm not surprised to see Tampa as one of the areas showing the biggest decline.
In fact, I believe that most of the problems in Florida related to housing, including property taxes and insurance, have as much to do with depressed earnings as inflated asset values.
Last time i went to Charlotte, i felt like i was in India...maybe that is why they are enjoying the fruits of our so called global economy.&..my less than desirable dollar.
I would like to hear other posters' views on buying versus renting. I just read a bunch of things on a blog called (not so great a name) millionaire mommy next door. The writer makes the case that American obsession with home-ownership is founded on dubious facts, and that lost opportunity costs are substantial when you buy instead of rent (and not just in the current crisis either). Also, many people only factor buying vs. selling prices when computing appreciation & leave out all the money spent on upkeep, insurance, taxes, etc. This issue has really been troubling me & I'd appreciate the opinions of all. TIA
Berylmarkham | 12.26.07 - 11:09 am | #
Berylmarkham. My parents were teenagers in the great depression. They pounded into my head that the people who fared best during the depression were those who owned their own homes. I'm not saying that we are headed to a depression, but while all of our friends were pumping their extra cash into dot com stocks we were pumping $$$ into the mortgage. Everyone's situation is different, but if you have kids, you have to have secure housing.
Beryl: When it comes to buy vs rent, the key factor is time in the house. That is because, while everyone focusses on appreciation, the key factor is amortization. Once you get beyond the early years, an ever-increasing proportion of your payments go into your own pocket; i.e they are principal pay-down. In earlier times, people held mortgage-burning parties, and these may make a comeback, now that appreciation is out the window.
MtHood:
I have to say at least Sebastian comes by his statements by standing by his data, not his experiences. By your screen name, it seems you are local to Portland, so you don't have his excuse.
Case-Shiller is backward looking, like almost any dataset.
If you think we're going to keep appreciating here in Portland, look what happened to every other locale.... rising inventory, declining sales, then finally prices dropping.
Take a drive around town. Near me in Lake Oswego, several 'infill,' million dollar (or near) home projects have been abandoned. Three of the lots have been cleared, and are now up for sale. Five others on Highway 43, or nearby have been sale for over a year.
Would you guess those homes would sell for more, or less... if they sell at all?
They pounded into my head that the people who fared best during the depression were those who owned their own homes.
Magnolia,
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
So.. even if one is very prudent at picking an affordable home and using a 15 year mortgage with a fixed rate.. it's still going to be part luck that you didn't hit a rough economic spot over the course of your mortgage.
But, yes, I agree that it is best to have enough cash to own that which you wish to own rather than borrow funds to acquire those things.
They pounded into my head that the people who fared best during the depression were those who owned their own homes.
My folks were about the same age and had a similar message but not exactly the same... the trouble with owning a home back then was you weren't mobile - no one else could buy the place so while you might not lose it that didn't mean you lived well there (especially if you lost your job). It was in one sense shelter but in another sense a prison.
The things my folks emphasized was (1) have liquid savings and (2) no debt. My fathers uncle was a construction worker and didn't work from something like 1930-1939... yet he lived okay 'cause he saved up a bunch during the 1920s and had no debt going into the depression. I don't know if he owned a home or not 'cause he moved around quite a bit during that decade looking for work - makes me think he did not but I can't say for sure.
Another thing about owning without a job (or reduced income)... many folks lost land they owned outright (acquired via homestead act a half century earlier) because they couldn't pay the taxes on the land. Those folks would also have been better off holding cash instead of owning a home or farm.
Now if we had had inflation instead of deflation/depression - it would have been completely different.
berylmarkham
go to patrick.net, they have a neat rent vs buy calculator. Also, Dr Housing bubble (drhousingbubble.com) has several excellent articles on the theme.
MtHood: If you look at the monthly C-S data for Portland and Seattle, you will see what certainly looks like softening from the peak. Could be seasonality, of course, but if so it is a seasonality that was not present in 2005.
Umm, yossarian, as a man familiar with Major Major and Colonel Cathcart, I'd think you might be able to pick up on a bit of the ole "there, there" sarcasm about Charlotte's (or Portland's) prospects.
Wait until the latest bombshell hits the streets. The California Legislative Analysts Office on Monday, yes Monday released a study on the "loopholes" in state tax law. The biggest? The deductibility of home mortgage interest. Fabian Nuñez has already endorsed the closing of this "loophole." What they did was singlehandedly crush the CA housing market with a cloud of uncertainty. Links and excerpts on my post; Exurban Nation: The B@st@rds Just Couldn't Wait
My impression (no data) is that the home price appreciation is due to the influx of Nascar's peripheral industries (we call 'em Nascarpetbaggers) and the new Lowe's corporate center to the north (it is moving 10,000 jobs here).
This counterbalances the job losses at the big banks downtown. Also, WB is primarily CRE locally, not residential.
"Given the level of investor panic surrounding the subprime borrower lately, I'm feeling very greedy regarding subprime lenders these days, and am especially greedy over subprime-mortgage lenders," Brown wrote on Feb. 27. "This is one of those times in investing, I believe, when it will pay to be very, very aggressive."
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive (
Depression era homeowners had lots more than the fact of homeownership to their advantage. Don't confuse cause and effect. They also weren't being taxed out of those homes to anywhere the extent we experience today.
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
Halo ate my post...
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive (
dryfly-Yes, I keep hearing people talk about renting single-family homes. Where do they find them? Most places I have lived, the pickings are very slim.
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive
Dryfly,
I grew up in an area like that in Northeast Texas.. very low prices on homes.. but people also make very little money.
So.. things are affordable.. but buyers will still need a mortgage to become an official homeowner.
..or they just rent in some trailer court (or buy a manufactured home).
IMO mobility will be the key to survival in the next depression, so being tied down to a specific location (i.e., owned home) will be a major negative. This isn't your grandfather's economy.
They also weren't being taxed out of those homes to anywhere the extent we experience today.
In the farm states they sure were - worse than today by a lot... and considering the percentage of folks on the farm (50%?) it was a big deal. That was what drove the Okies & Arkies west.
druce,
Just another ex-analyst, now a giddy hedge fund mgr. with all those millions. There isn't one of these guys in 100 that ever worked for a manufacturing, distribution or retail business. If you don't have that practical background, you are not qualified to accurately opine on current events.
Predicting trends with that guy's background? That's just funny.
CobraDriver's approach is the correct one for judging prices. Everyone keeps wanting to factor inflation into future home prices, yet wage inflation is the only one that'll matter... and it isn't happening.
dryfly,
Come now. The farm crisis of the depression was deflation and land speculation. The victim didn't die slipping on their own blood, they died from the multiple bullet holes. Saying those farmers were taxed out isn't the real cause.
When extending that line on the graph, be sure and make it a downward curve. If prices are tanking at double-digit rates now, just wait until the recession/depression really kicks in.
I think the buying vs. renting argument could take a broader view of things. For example-employment opportunities. In my area of Metro Detroit, our housing situation is due to no or near 0-job growth for over seven years. 400,000 + jobs lost in a six-year window. Many people we know are stuck in situations where they have to move to find decent employment. For the longest time, my wife and I could not understand why so many people we knew were buying homes at inflated values during a time of huge 'Big 3' losses. Our logic for doing this was that if we sustained a job loss, we could move quickly enough out of state. Most of our friends and colleagues have now realized this and continually tell us how lucky we are (followed by a strongly emotional sales pitch . I wish I could say that I am 1/5 as brilliant as some of the commentators on this board, but the reality is that we were (mostly) driven by fear not to buy.
With renting your costs are pretty much fixed (depending on the terms of your lease). With owning - not so. Routine maintenance costs more than people think - and there are always unexpected costs (like the new A/C system we had to put in last year - cost $10k).
At least in Florida - property taxes are high for new owners (as opposed to those of us who have the benefits of the SOH amendment). And then there is insurance. Which has doubled even here in NE Florida in the last 3-4 years - and is a total killer in South Florida. Not to mention that the windstorm deductibles are either high - or very high. So you have to be prepared to self-insure a fair amount if you sustain storm damage.
Also - if you do have equity in your house - you have to include as a "cost" the loss of the money you could earn on your equity.
OTOH - in a house - you are pretty much your own boss. Don't have to worry about putting holes in the walls or painting the walls green. And if you are fussier about things than the average landlord - when things break - you fix them instead of complaining endlessly to the landlord. No one can force you to move (which happened to a lot of people during the recent condo conversion craze). On the third hand - if you do have to move cross-country - or if your job requires frequent relocations - it's much easier if you rent rather than own.
Overall - it think it is both a cost and a life-style issue where one size doesn't fit all. But there are some things I'd avoid like the plague these days in terms of buying. Like condos/neighborhoods which are in big trouble as a result of the current market (for example the Miami condos profiled in the NYT today). Or areas which still seem very overpriced (especially those newer areas where current owners are competing with builders in terms of selling).
So.. things are affordable.. but buyers will still need a mortgage to become an official homeowner.
I am familiar with the area. I live 1000 miles north... not much different. Incomes are a little higher here but housing is a little more expensive too.
The thing is more people have paid off their mortgages here than in the Twin Cities were incomes are 2-3 times as high... a couple reasons: (1) people stay put and pay them off and (2) prices to income ratios are more favorable.
It is not unusual to find folks who took out 15 year mortgages on modest homes, stayed put and then paid them off before they turned 40.
There are more folks like that than we know - point is they comprise an even smaller percentage of the real estate valuation 'cause their homes are so cheap. It takes 6-8 of those to equal one California $800K NINA liar loan.
Can't wait to compare these fasinating graphs with graphs of months-inventory for the various cities....
My thinking is it takes about 1-2 years for average people to begin to mentally recognize, face, and finally accept and conced that their house doesn't still have the windfall gains it had in recent times.
Then....it takes another year or two for the fallout from that realization to be fully realized in the market (in terms of sellers continuing to accept lower bids because they realize the trend).
So, the idea that the market could bottom in 2008 was the most extremely optimistic viewpoint, probably manufactured by the NAR.
I'd guess (and it is indeed guessing, despite reading about 800 articles), that 2010 is more likely.
The joker in the deck is politicians and whether they will re-enact the tradegy-of-the-commons again (think Japan).
With renting your costs are pretty much fixed (depending on the terms of your lease). I don't know ANYONE who has a 30 year lease. Owning with a fixed rate mortgage means that your principal+interest costs are fixed in NOMINAL terms for the next thirty years and then they go to zero. In normal times, with normal prices and interest rates owning IS disadvantageous for the first few years. It's only after several years have passed and the amount of your payment spend on interest goes down and the equilavent rent goes up that homeownership becomes advantageous.
Saying those farmers were taxed out isn't the real cause.
Many were taxed out Rob't. That's where a lot of the public land came from in the Midwest - Wisconsin, Minnesota, Nebraska - etc. It was all settled once but the owners abandoned it & the state & feds took it to cover tax liens. The New Deal turned a lot of that into Nat'l Forest or BLM land.
In the West - it was different (wasn't settled yet) but in the middle & eastern part of the country that land was once settled then abandoned.
Some of it went from farmer to bank to gov't because the bank couldn't sell it and they also couldn't pay taxes on it either.
But the reason it ultimately fell into gov't hands was because it was abandoned due to tax liens that exceeded the value of the land & no one had income to support it.
Look at a map - much of the federal & state public land east of the rockies falls into this category.
Re MGIC. I can't say that MGIC hasn't ever written any mortgages, but I doubt that is how they obtained title to the property. As you are aware MGIC is a mortgage insurance company, I have seen them take title to a few properties after the Lender had foreclosed and gotten title. Under what circumstances they do that I am not sure.
Every standard mortgage insurance policy I've ever seen (not just MGIC's) allows the insurer the option, but not the obligation, to take title to the property at the FC sale in lieu of paying the claim (that is, the MI bids the make-whole amount, so the lender zeroes out). They do this if and when they believe they can market the property faster or better than the lender can. All of them have property management capabilities of some sort.
They also have the option in at least some cases of buying a delinquent loan (at par) and curing or FCing themselves. If they've got servicers who are getting backlogged, it might well be in their interest to do this if they think that they can move faster than the servicer. Every month a past-due loan sits there, it racks up more interest and therefore increases the size of the insurance claim.
Litton was designed to be a "combat servicer." It ought to have the expertise to handle default servicing in a way a fair number of regular primary servicers don't. Anyway, MGIC and the other MIs don't write mortgages (although they may buy them under contractual provisions of their policies).
It is not unusual to find folks who took out 15 year mortgages on modest homes, stayed put and then paid them off before they turned 40.
Dryfly,
That sounds believable.. though, I don't know the actual statistics for Northeast Texas.. but it is definitely true (for better or worse) that people are much less mobile, and thus more likely to stay fixed in one spot.
So.. as long as they staying frozen in place from generation to generation, one hopes many are right, proper homeowners. I just don't know how it breaks down.. Mortgagees, Homeowners, and Renters.
So.. as long as they staying frozen in place from generation to generation, one hopes many are right, proper homeowners. I just don't know how it breaks down.. Mortgagees, Homeowners, and Renters.
eli | 12.26.07 - 12:19 pm | #
Eli - I live in the Mississippi River valley. It is extraordinarily beautiful and people try to find a way to stay here - generation after generation. Even when they leave home (to go to college) many try to find a way to come back. We jokingly refer to them as 'river rats'.
Seriously - I've lived here 25 years and am still a 'newcomer'.
But staying put in their eyes isn't a punishment they endure rather its looked upon as being a privilege to be able to find a job that allows them to stay. If it means they might make less money and the home might be smaller so be it but many make that choice quite willingly.
There are still a lot of places & people like that. We could all learn something from each other (those that move about and those that stay put - more than one way to live a life).
dryfly,
Even your explanation agrees with me. Yes, much of these lands reverted due to taxes but only after being abandoned as unprofitable. The cause for their failure wasn't the taxes.
MtHood:
No, I didn't pick that up, sorry... yes, Catch-22 ..... I see the local markets controlled by Milo Minderbinder, and now... he overbought his raw cotton, and now he's trying to sell it to the cafeteria.... "It's better than cotton candy!!!! It's REAL cotton!"
Buy you a drink sometime at the Lucky Lab.
Eli - I live in the Mississippi River valley. It is extraordinarily beautiful and people try to find a way to stay here - generation after generation. Even when they leave home (to go to college) many try to find a way to come back. We jokingly refer to them as 'river rats'.
...
We could all learn something from each other (those that move about and those that stay put - more than one way to live a life).
Dryfly,
I agree.. I'm sort of biased towards (is that correct english?) the nomadic lifestyle. My forebears slowly made their way, over generations, west... bounced off the Pacific Ocean after fleeing Texas during the depression.. some hid out in the Ozark Mountains after being kicked out of Oklahoma.. they've been through Michigan (after going through California) and the good Lord knows where else. Now, here I am all the way back within spitting (figuratively speaking) distance of Ellis Island.
So.. staying put isn't our style. Well, at least, generationally speaking.. I was born in raised in the same house that my parents still live in.
With all that said, I see the value in peace, quiet and stability; I'm a big fan of solitude. But, for whatever reason.. something tells me to keep moving.
Anyhoo, Northeast Texas doesn't really have much to offer people under 50.. there aren't many good jobs and there aren't many prospective mates. Most of the people I know who ended up staying had failed out of University or had some other sort of compromise that kept them there (this compromise usually shows up weighing about 6 - 8 pounds.)
Oh.. and in the town I grew up in.. the population is steadily decreasing. It was about 7,000 in 1994 and it is now around 5,600.. so.. people really don't want to stay there.
I'll second Dryfly's comment on the upper Mississippi Valley area, most of the area from just south of the Twin Cities to Southern Iowa/Missouri is what is called the Mississippi Bluff region, old oak forests, old river towns, farms, big limestone bluffs, and small tributary rivers/creeks in hidden gorges. Mark Twain grew up just south of Dryfly. I have an ex-brother-in-law who took a serious pay cut and moved back from New York City just to live there again, his wife forgave him shortly thereafter.
One of the themes I've kept hearing from people that survived the depression (or repeated by the next generation) was that the folks that had large amounts of debt and/or no reserves had no options whatsoever and suffered a long lingering painful financial crisis. The folks that had some reserves and little or no debt did OK, particularly if they were able to trim sails and self-support (i.e., grow food, chop wood for heat, make own clothes, etc. to reduce the amount of money they needed to pay their way).
Berylmarkham. My parents were teenagers in the great depression. They pounded into my head that the people who fared best during the depression were those who owned their own homes.
People who owned houses before the depression, or people who owned houses through the depression?
Which direction was the causality? Did people do well because they had houses, or did people have houses because they were doing well?
The Waltons held on to their mountain because they were debt-free. Those who bought houses in the 20's on interest-only mortgages (sound familiar?) didn't do so well.
A look at real estate prices in Houston during the rise and fall of the '80's oil boom might make a reasonable analog for price projections now.
Oil prices peaked in 1980/81.
Home prices peaked mid-1983.
Oil price collapse early 1986.
Home prices bottomed 1989/1990
There were many abandoned homes in neighborhoods after the '86 drop. A lot of starter homes were picked up for as little as 50 cents on the dollar from 1983 prices, and made very lucrative rental properties, with significant price and rent appreciation in the years following.
Dryfly: The Hudson Valley is like that to a significant extent also. Our neighbour next door were an older couple who were getting frail. Their daughter moved in with her husband and kids. They doubled the size of the house and they all live there. Next to them is a guy who grew up in the house across the street from us. People in rapidly growing areas sometimes forget that there are still a lot of places where people don't move that much.
Ultimately, I can't see that owning a place you stay in for 20 or 30 years will not continue to make sense. OTOH, buying to sell in a year or 2 only worked for a very brief window during the boom.
Good luck selling a house in Portland! My friend had her place up for sale across the river, nice place with 5 acres and had no takers. I think you will see both Portland and Seattle change over the year, since they rely on people being able to sell their existing houses to buy in the PNW. If folks can't get loans, they can't buy. When we sold in 2005, we ran into several potential buyers that couldn't come up with financing. It has to be a lot worse now.
Teri Pittman,
Tell your friend I can be up there tomorrow morning with a cashiers draft for $100,000 sight unseen. Oh? What's that? $100,000 isn't enough? Well then it isn't a case of no buyers but a case of her being horribly wrong on the price and until she learns the difference there's nothing that can be done for her but in the mean time she has to stop lying about her problem being one of no buyers.
For us it is cheaper to own than rent because we can comfortably afford our mortgage + HOA fees (and in a planned community, our HOA fees buy us a lot) and they cost us a lot less than a comparable rental. The secret? We bought in 1999 when prices hadn't started to climb (in fact, our house sold in 1989 for pretty much the same price we bought it for in 1999). We didn't count on appreciation either, just a place to live. Prices in our neighborhood nearly tripled before coming down a bit recently--some of that was probably stored value waiting to happen, before things got really bubbly.
But maintenance is a higher cost than we thought it would be. We are looking at replacing our heat pump for 7-8K in the next year or so. We also had to replace all the other appliances in our house since we bought it. We added a deck and a fence also. Replaced rotting siding and dormers. Had the exterior painted. These are costs that the landlord is supposed to take care of when you rent--but the landlord down the street doesn't...
dryfly,
Even your explanation agrees with me. Yes, much of these lands reverted due to taxes but only after being abandoned as unprofitable. The cause for their failure wasn't the taxes.
Robert Coté | Homepage | 12.26.07 - 12:34 pm | #
Not really Rob't.
Prior to the 1900s there were no appreciable taxes on that land as there was little gov't that needed support... even at the county level. So in a depression where cash incomes collapsed (and there were a number of such 'panics' and 'collapses' in the mid to late 1800s) they just temporarily quit the cash economy and went 'subsistence'. And they hung on.
Few abandoned land - it might change hands but there was little or no cost to carry other than what you paid for it, party to party transaction cost at acquisition.
But once towns and counties started leveeing property taxes to support the growing infrastructure rural people could no longer 'go native' in a crunch... even if they didn't have a mortgage (say prior generations homesteaded the property and they were debt free) they still had to have some cash income to pay their property taxes.
That was a big difference between 1930 farm economy and say 1880 farm economy. The need for at least some cash all the time.
And the same applied to the banks and railroad trusts with large holdings. Prior to 1900 the carry cost for land was so low they could hang on forever - once that land was taxed they too needed regular cash income to pay the taxes. When the depression came the income wasn't there and banks, railroads, lumber companies all abandoned land because cashflows no longer could cover the tax bill.
Had it been like prior crashes in the 1800s - the banks might still have failed - but the new owners from the BK would have held the land because there was such a small cost to carry... but not so in the 30s.
So when you look at why people abandoned the dust bowl and north woods in the depression (and didn't in earlier panics & collapses) the biggest difference between those periods was the added burden of land taxes added throughout the early 1900s.
Having said that - much of the dust bowl & north woods should probably NEVER have been settled as heavily as they were initially. But that's another story.
"Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Early last year I did a crude comparison of gold prices back to 1930 to the median price of a home. Well, needless to say the ratio was about the highest in history, I forget the number off hand but it wasn't hard to find the data online.
2 conclusions you could draw were either gold was about to rally, or RE was about to fall in a big way if the #'s were to revert to the mean.
I live in Charlotte and have for many years. My impression, antedotal for sure:
BofA and WB drive the Charlotte economy, not NASCAR. Even if all 43 teams were located here (and they aren't), and all employed 200 people (and they don't) your looking at 8600 jobs. BofA employs more than that, at far higher wage structures. WB is the top employer in CLT. On top of that, they drive tens of thousands of sales, contractor and other vendor related positions.
Those high wage positions drive thousands of more service jobs.
That either of these companies are shedding jobs is a myth. They are net up FTE positions in the area. The downtown, or as the Fancytown crowd refers to it, the Uptown, is at record occupancy levels. BofA is promoting an aggressive alternative worklace program, which means WB will follow within 12 months.
Both companies have also gotten aggressive in placing new jobs and divisions outside of CLT. They both realize the risk in CLT, and the FED continues to remind them.
I point this out, because when the shoe drops, it will hit this region swift and hard. Both institutions will wait out the markets and deal with the financial realities as they hit. Both realize there will be significant fallout, and both intend to survive.
Christmas Eve I was driving through one of the higher end, faster growing areas of the North. I was looking for an obscure shop in the seemingly endless multitude of newly constructed strip malls, village shops etc.. I could not help but notice the For Sale, For Lease CRE signs all over. Every center had vacancies. Lots of failed mortgage companies and brokers, plenty of vacant retail space, virtually any type of space available.
Also noticed all of the huge Residential Real Estate brokerages and wondered how long they'll survive when sales stop.
When the banks are forced to really cut back, look out.
Come now. The farm crisis of the depression was deflation and land speculation. The victim didn't die slipping on their own blood, they died from the multiple bullet holes. Saying those farmers were taxed out isn't the real cause.
Robert Coté | Homepage | 12.26.07 - 12:02 pm
Dryfly hints at the root cause of the farm problems of the 30s when he uses the word "dustbowl". A combination of too much land under the plow and too much dry wind turned a lot of farms into wasteland. No income = no way to pay taxes or any other expenses.
My grandparents lived in Michigan and missed the dustbowl but still lost the farm. They blamed Roosevelt for reasons I still don't understand.
By the way, property prices in north-west Utah are still going up. Grouse Creek even has a mall! (It's a shelf of drygoods in the post office/gas station buidling.)
"There isn't one of these guys in 100 that ever worked for a manufacturing, distribution or retail business. If you don't have that practical background, you are not qualified to accurately opine on current events."
Much as farmers who went from 50% of the American population to less than 10% in fifty years, good people of today who work with sweat and determination today will shortly give way to better educated, air conditioned computer operators.
Gardening sounds fun, not two in ten Americans will be planting carrots this decade, depression or none.
We went to look at a foreclosure. I asked the agent who the bank was. I did some research and this what I found.
It is owned by the property management division of C-Bass which is in turn owned by MGIC. It looks like MGIC wrote mortgages through its subsidary (Litton) then packaged them for sale. MGIC probable guaranteed them. Any that foreclosed on where handled by the prop. mgt. division and sold - probably refinancing through Litton again.
Litton was sold last month to GS. So my guess is MGIC is now an insurance and prop mgt co. They will go under and then the property portfolio gets sold?
The problem is, at least for us, in the paperwork.
Where's the Table?, reading a second handle account of a data table is annoying.
Re MGIC. I can't say that MGIC hasn't ever written any mortgages, but I doubt that is how they obtained title to the property. As you are aware MGIC is a mortgage insurance company, I have seen them take title to a few properties after the Lender had foreclosed and gotten title. Under what circumstances they do that I am not sure. But the properties I have seen them take title to have all been in nice neighborhoods, and MGIC did considerable work to them prior to listing for sale.
jd,
Overall:
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_History_122622.xls
Tiered Index:
http://www2.standardandpoors.com/spf/pdf/index/cs_tieredprices_122622.xls
S&P Press Release:
http://www2.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_122622.pdf
JD, data at:
http://www.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_122622.pdf
Even at 12%+ decline per year, Miami has 4-5 years to go before prices get back near where they should be.
Housing Bubble Graph: Miami, Florida inflation-adjusted housing prices
While I disagree with the C-S methodology on several points let's use it for the purposes of this discussion. C-S describes a long term home price appreciation of 1-2% above inflation. Looking at the area under the curve at http://www.standardandpoors.com/spf/pdf/index/CSHomePrice_Release_122622.pdf a return to that long term trend line looks to be predicting 3-4 years of double digit declines before trending towards zero appreciation after that. Whether that double digit decline is all price in a low inflation or some combination of lower prices and much higher inflation is the only question.
This is better than a sale at Macy's. I plan to pick up some bargains just as soon as the egg nog wears off.
Perhaps it's time to begin plotting the valuation declines against Japan's.
Whether that double digit decline is all price in a low inflation or some combination of lower prices and much higher inflation is the only question.
Robert Coté | Homepage | 12.26.07 - 10:45 am
Robert,
Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Chris
Is there a graph out there showing predicted housing price delines over the next 5 years, or longer? Anyone?
Is there a graph out there showing predicted housing price delines over the next 5 years, or longer? Anyone?
ceilingfan,
Just print out the Case-Shiller graph.. then take a pen and extend the graph in whatever direction you want (probably should go down a bit for at least another year).
There's a prediction...
I would like to hear other posters' views on buying versus renting. I just read a bunch of things on a blog called (not so great a name) millionaire mommy next door. The writer makes the case that American obsession with home-ownership is founded on dubious facts, and that lost opportunity costs are substantial when you buy instead of rent (and not just in the current crisis either). Also, many people only factor buying vs. selling prices when computing appreciation & leave out all the money spent on upkeep, insurance, taxes, etc. This issue has really been troubling me & I'd appreciate the opinions of all. TIA
Atlanta now joins the growing ranks of large MSA's down YoY. So much for "it's different here."
Is the C-S data nominal or real? If real, what is the inflation index?
both gold and oil have shot out (up) from a trading range they've held for a couple of weeks now.
It is hard to understand why after they were range bound through much worse news for the last few weeks, are both markets seeing the retail/housing news and predicting more fed cuts despite inflation risks, because the xmas cheer has turned into a hangover?
--
I believe that the case-Shiller data is for SFH.
Actually, there was lot more overbuilding of SFH during 2003-06 as people were pushed into being homeowners. The low in sales of new SFH was close to 400K in the previous cycle and the high was 1,371K during July 2005.
Finally, the supply-demand is exerting itself as the insane lending that drove the prices is over.
Jas
Just print out the Case-Shiller graph.. then take a pen and extend the graph in whatever direction you want (probably should go down a bit for at least another year).
And also, be aware that the Case-Shiller graph revolves around inflation-adjusted rent prices (at 1.
, so you might want to extend your drawing as close to 1.0 as possible, probably above, but most probably below.
Beryl,
One factor that often gets overlooked in the rent vs. buy decision is maintenance costs. We've been in our modest 3BR house in suburban ATL for 6 years now, and I've had to replace the furnace, hot water heater, buy gutter guards, and pay $1000 for a termite warranty plus $300 annual renewal fee. And that doesn't count pest control applications, routine check ups of AC system, new lawnmower, etc.
I'd conservatively estimate our maintenance costs at around 10K ... that would pretty much eat up half the appreciation we've had in those 6 years.
JD,
Thank you for your reply. I really know very little except what I have learned here, other sites, and books.
Nova
Err!!!!....Stretching out after this fine Christmas holiday....So....where is the suckers rally this morning....it most certainly is not in my dollar which is getting pounced on this morning...but who cares right...Kohl's and walmart are having 70%off sales...yea!haw!! more stuff.....The tidal wave is coming...so prepare yourself..08...it going to be one hell of a ride...Anyone see Oil!...yikes.
--
David Kotok, on CNBC, said that the over supply of homes, new and resale, is 2-3 million. This means that the builders have to stop building for two years, but they are building new units at 1.2-1.3M rate. No bottom in sight until 2011.
Jas
berylmarkham - it's definitly more expensive to buy than rent a declining asset, which is what most markets have to offer right now. But for people who don't move a lot (transaction costs are significant), buying is cheaper than renting when homes are priced reasonably. If you want hard numbers, set up a spreadsheet and model some scenarios based on prices/rents/costs in your area.
Channeling Seb:
You people are reading he raw data all wrong.
Sure Dallas, Atlanta, Denver, Chicago, Boston, New York, Cleveland, Minneapolis, San Francisco, Washington, Los Angeles, Phoenix, Las Vegas, San Diego, Detroit, Tampa and Miami are down.
But Charlotte, Seattle and Portland are up, which means (if I must spell it out) while some parts of the country MAY be experiencing modest price decline, the 630,478 people of Charlotte continue to enjoy the bounty of an expanding global economy.
And before you start your Seb, are you equating the 8,214,426 citizens of New York and their property with that of Charlotte whining, the answer is:
Yes I AM.
Were people too. Were in the data.
Chris wrote:
"Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Chris
Cobradriver"
You've touched on THE issue as far as I'm concerned, i.e. wages as related to home prices in any given area. I've a home in the Tampa Bay area. Prices went through the roof but wages did not, in an area where wages have historically been low. There was no way those prices could be sustained without wage increases. So I'm not surprised to see Tampa as one of the areas showing the biggest decline.
In fact, I believe that most of the problems in Florida related to housing, including property taxes and insurance, have as much to do with depressed earnings as inflated asset values.
BTW - I'm Chris too!
Last time i went to Charlotte, i felt like i was in India...maybe that is why they are enjoying the fruits of our so called global economy.&..my less than desirable dollar.
I would like to hear other posters' views on buying versus renting. I just read a bunch of things on a blog called (not so great a name) millionaire mommy next door. The writer makes the case that American obsession with home-ownership is founded on dubious facts, and that lost opportunity costs are substantial when you buy instead of rent (and not just in the current crisis either). Also, many people only factor buying vs. selling prices when computing appreciation & leave out all the money spent on upkeep, insurance, taxes, etc. This issue has really been troubling me & I'd appreciate the opinions of all. TIA
Berylmarkham | 12.26.07 - 11:09 am | #
Berylmarkham. My parents were teenagers in the great depression. They pounded into my head that the people who fared best during the depression were those who owned their own homes. I'm not saying that we are headed to a depression, but while all of our friends were pumping their extra cash into dot com stocks we were pumping $$$ into the mortgage. Everyone's situation is different, but if you have kids, you have to have secure housing.
Beryl: When it comes to buy vs rent, the key factor is time in the house. That is because, while everyone focusses on appreciation, the key factor is amortization. Once you get beyond the early years, an ever-increasing proportion of your payments go into your own pocket; i.e they are principal pay-down. In earlier times, people held mortgage-burning parties, and these may make a comeback, now that appreciation is out the window.
BTW - I'm Chris too!
pugg squaar,
We are all Chris now!
MtHood:
I have to say at least Sebastian comes by his statements by standing by his data, not his experiences. By your screen name, it seems you are local to Portland, so you don't have his excuse.
Case-Shiller is backward looking, like almost any dataset.
If you think we're going to keep appreciating here in Portland, look what happened to every other locale.... rising inventory, declining sales, then finally prices dropping.
Take a drive around town. Near me in Lake Oswego, several 'infill,' million dollar (or near) home projects have been abandoned. Three of the lots have been cleared, and are now up for sale. Five others on Highway 43, or nearby have been sale for over a year.
Would you guess those homes would sell for more, or less... if they sell at all?
Some observations looking at the comp 20 data -
Prices are back to June/July 2005
The pace of decline is accelerating (obvious); last is 1.42% M/M
M/M change peaked in June '04 at nearly 2%
Based on behavior in other markets, it seems reasonable that we'll blow through the 2004 prices quickly.
They pounded into my head that the people who fared best during the depression were those who owned their own homes.
Magnolia,
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
So.. even if one is very prudent at picking an affordable home and using a 15 year mortgage with a fixed rate.. it's still going to be part luck that you didn't hit a rough economic spot over the course of your mortgage.
But, yes, I agree that it is best to have enough cash to own that which you wish to own rather than borrow funds to acquire those things.
They pounded into my head that the people who fared best during the depression were those who owned their own homes.
My folks were about the same age and had a similar message but not exactly the same... the trouble with owning a home back then was you weren't mobile - no one else could buy the place so while you might not lose it that didn't mean you lived well there (especially if you lost your job). It was in one sense shelter but in another sense a prison.
The things my folks emphasized was (1) have liquid savings and (2) no debt. My fathers uncle was a construction worker and didn't work from something like 1930-1939... yet he lived okay 'cause he saved up a bunch during the 1920s and had no debt going into the depression. I don't know if he owned a home or not 'cause he moved around quite a bit during that decade looking for work - makes me think he did not but I can't say for sure.
Another thing about owning without a job (or reduced income)... many folks lost land they owned outright (acquired via homestead act a half century earlier) because they couldn't pay the taxes on the land. Those folks would also have been better off holding cash instead of owning a home or farm.
Now if we had had inflation instead of deflation/depression - it would have been completely different.
berylmarkham
go to patrick.net, they have a neat rent vs buy calculator. Also, Dr Housing bubble (drhousingbubble.com) has several excellent articles on the theme.
MtHood: If you look at the monthly C-S data for Portland and Seattle, you will see what certainly looks like softening from the peak. Could be seasonality, of course, but if so it is a seasonality that was not present in 2005.
Umm, yossarian, as a man familiar with Major Major and Colonel Cathcart, I'd think you might be able to pick up on a bit of the ole "there, there" sarcasm about Charlotte's (or Portland's) prospects.
Wait until the latest bombshell hits the streets. The California Legislative Analysts Office on Monday, yes Monday released a study on the "loopholes" in state tax law. The biggest? The deductibility of home mortgage interest. Fabian Nuñez has already endorsed the closing of this "loophole." What they did was singlehandedly crush the CA housing market with a cloud of uncertainty. Links and excerpts on my post; Exurban Nation: The B@st@rds Just Couldn't Wait
I live in that Charlotte MSA.
My impression (no data) is that the home price appreciation is due to the influx of Nascar's peripheral industries (we call 'em Nascarpetbaggers) and the new Lowe's corporate center to the north (it is moving 10,000 jobs here).
This counterbalances the job losses at the big banks downtown. Also, WB is primarily CRE locally, not residential.
About a month old, but I just noticed this one.
"Given the level of investor panic surrounding the subprime borrower lately, I'm feeling very greedy regarding subprime lenders these days, and am especially greedy over subprime-mortgage lenders," Brown wrote on Feb. 27. "This is one of those times in investing, I believe, when it will pay to be very, very aggressive."
Down about 50% at last report.
Brown's Second Curve hedge fund stumbles early in 2007 - MarketWatch
"But Charlotte, Seattle and Portland are up"
Based on the established trend in other markets, these areas likely peaked in June/July.
if people during the depression fared better if they owned homes...
well, what was the down payment back then? 50%? and what % of people owned homes? 30%?
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive (
Depression era homeowners had lots more than the fact of homeownership to their advantage. Don't confuse cause and effect. They also weren't being taxed out of those homes to anywhere the extent we experience today.
That's all well and good.. but just about every single human in this country cannot afford to buy a home outright.
Halo ate my post...
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive (
Is it just me, or is Halo being a squirrely today?
dryfly-Yes, I keep hearing people talk about renting single-family homes. Where do they find them? Most places I have lived, the pickings are very slim.
Depends on where you live and what you buy/rent. I live in a Midwestern town where reasonable rentals are more scarce than homes to buy - and prices for homes are very inexpensive
Dryfly,
I grew up in an area like that in Northeast Texas.. very low prices on homes.. but people also make very little money.
So.. things are affordable.. but buyers will still need a mortgage to become an official homeowner.
..or they just rent in some trailer court (or buy a manufactured home).
Kohl's and walmart are having 70%off
Borkafatty - perhaps Kohl's is new to your area, but trust me on this one - when they advertise "70 pct. off", that usually just means it's Tuesday.
IMO mobility will be the key to survival in the next depression, so being tied down to a specific location (i.e., owned home) will be a major negative. This isn't your grandfather's economy.
They also weren't being taxed out of those homes to anywhere the extent we experience today.
In the farm states they sure were - worse than today by a lot... and considering the percentage of folks on the farm (50%?) it was a big deal. That was what drove the Okies & Arkies west.
druce,
Just another ex-analyst, now a giddy hedge fund mgr. with all those millions. There isn't one of these guys in 100 that ever worked for a manufacturing, distribution or retail business. If you don't have that practical background, you are not qualified to accurately opine on current events.
Predicting trends with that guy's background? That's just funny.
Borkafatty - perhaps Kohl's is new to your area, but trust me on this one - when they advertise "70 pct. off", that usually just means it's Tuesday.
LOL! Exactly.
CobraDriver's approach is the correct one for judging prices. Everyone keeps wanting to factor inflation into future home prices, yet wage inflation is the only one that'll matter... and it isn't happening.
dryfly,
Come now. The farm crisis of the depression was deflation and land speculation. The victim didn't die slipping on their own blood, they died from the multiple bullet holes. Saying those farmers were taxed out isn't the real cause.
ceilingfan,
When extending that line on the graph, be sure and make it a downward curve. If prices are tanking at double-digit rates now, just wait until the recession/depression really kicks in.
I think the buying vs. renting argument could take a broader view of things. For example-employment opportunities. In my area of Metro Detroit, our housing situation is due to no or near 0-job growth for over seven years. 400,000 + jobs lost in a six-year window. Many people we know are stuck in situations where they have to move to find decent employment. For the longest time, my wife and I could not understand why so many people we knew were buying homes at inflated values during a time of huge 'Big 3' losses. Our logic for doing this was that if we sustained a job loss, we could move quickly enough out of state. Most of our friends and colleagues have now realized this and continually tell us how lucky we are (followed by a strongly emotional sales pitch
. I wish I could say that I am 1/5 as brilliant as some of the commentators on this board, but the reality is that we were (mostly) driven by fear not to buy.
OT, a nice cartoon of the econimic forecast by the FED:
http://www.irvinehousingblog.com/wp-content/uploads/2007/12/irrational_exuberance.jpg
Quick thoughts on owning versus renting:
With renting your costs are pretty much fixed (depending on the terms of your lease). With owning - not so. Routine maintenance costs more than people think - and there are always unexpected costs (like the new A/C system we had to put in last year - cost $10k).
At least in Florida - property taxes are high for new owners (as opposed to those of us who have the benefits of the SOH amendment). And then there is insurance. Which has doubled even here in NE Florida in the last 3-4 years - and is a total killer in South Florida. Not to mention that the windstorm deductibles are either high - or very high. So you have to be prepared to self-insure a fair amount if you sustain storm damage.
Also - if you do have equity in your house - you have to include as a "cost" the loss of the money you could earn on your equity.
OTOH - in a house - you are pretty much your own boss. Don't have to worry about putting holes in the walls or painting the walls green. And if you are fussier about things than the average landlord - when things break - you fix them instead of complaining endlessly to the landlord. No one can force you to move (which happened to a lot of people during the recent condo conversion craze). On the third hand - if you do have to move cross-country - or if your job requires frequent relocations - it's much easier if you rent rather than own.
Overall - it think it is both a cost and a life-style issue where one size doesn't fit all. But there are some things I'd avoid like the plague these days in terms of buying. Like condos/neighborhoods which are in big trouble as a result of the current market (for example the Miami condos profiled in the NYT today). Or areas which still seem very overpriced (especially those newer areas where current owners are competing with builders in terms of selling).
So.. things are affordable.. but buyers will still need a mortgage to become an official homeowner.
I am familiar with the area. I live 1000 miles north... not much different. Incomes are a little higher here but housing is a little more expensive too.
The thing is more people have paid off their mortgages here than in the Twin Cities were incomes are 2-3 times as high... a couple reasons: (1) people stay put and pay them off and (2) prices to income ratios are more favorable.
It is not unusual to find folks who took out 15 year mortgages on modest homes, stayed put and then paid them off before they turned 40.
There are more folks like that than we know - point is they comprise an even smaller percentage of the real estate valuation 'cause their homes are so cheap. It takes 6-8 of those to equal one California $800K NINA liar loan.
Can't wait to compare these fasinating graphs with graphs of months-inventory for the various cities....
My thinking is it takes about 1-2 years for average people to begin to mentally recognize, face, and finally accept and conced that their house doesn't still have the windfall gains it had in recent times.
Then....it takes another year or two for the fallout from that realization to be fully realized in the market (in terms of sellers continuing to accept lower bids because they realize the trend).
So, the idea that the market could bottom in 2008 was the most extremely optimistic viewpoint, probably manufactured by the NAR.
I'd guess (and it is indeed guessing, despite reading about 800 articles), that 2010 is more likely.
The joker in the deck is politicians and whether they will re-enact the tradegy-of-the-commons again (think Japan).
With renting your costs are pretty much fixed (depending on the terms of your lease). I don't know ANYONE who has a 30 year lease. Owning with a fixed rate mortgage means that your principal+interest costs are fixed in NOMINAL terms for the next thirty years and then they go to zero. In normal times, with normal prices and interest rates owning IS disadvantageous for the first few years. It's only after several years have passed and the amount of your payment spend on interest goes down and the equilavent rent goes up that homeownership becomes advantageous.
Saying those farmers were taxed out isn't the real cause.
Many were taxed out Rob't. That's where a lot of the public land came from in the Midwest - Wisconsin, Minnesota, Nebraska - etc. It was all settled once but the owners abandoned it & the state & feds took it to cover tax liens. The New Deal turned a lot of that into Nat'l Forest or BLM land.
In the West - it was different (wasn't settled yet) but in the middle & eastern part of the country that land was once settled then abandoned.
Some of it went from farmer to bank to gov't because the bank couldn't sell it and they also couldn't pay taxes on it either.
But the reason it ultimately fell into gov't hands was because it was abandoned due to tax liens that exceeded the value of the land & no one had income to support it.
Look at a map - much of the federal & state public land east of the rockies falls into this category.
Re MGIC. I can't say that MGIC hasn't ever written any mortgages, but I doubt that is how they obtained title to the property. As you are aware MGIC is a mortgage insurance company, I have seen them take title to a few properties after the Lender had foreclosed and gotten title. Under what circumstances they do that I am not sure.
Every standard mortgage insurance policy I've ever seen (not just MGIC's) allows the insurer the option, but not the obligation, to take title to the property at the FC sale in lieu of paying the claim (that is, the MI bids the make-whole amount, so the lender zeroes out). They do this if and when they believe they can market the property faster or better than the lender can. All of them have property management capabilities of some sort.
They also have the option in at least some cases of buying a delinquent loan (at par) and curing or FCing themselves. If they've got servicers who are getting backlogged, it might well be in their interest to do this if they think that they can move faster than the servicer. Every month a past-due loan sits there, it racks up more interest and therefore increases the size of the insurance claim.
Litton was designed to be a "combat servicer." It ought to have the expertise to handle default servicing in a way a fair number of regular primary servicers don't. Anyway, MGIC and the other MIs don't write mortgages (although they may buy them under contractual provisions of their policies).
It is not unusual to find folks who took out 15 year mortgages on modest homes, stayed put and then paid them off before they turned 40.
Dryfly,
That sounds believable.. though, I don't know the actual statistics for Northeast Texas.. but it is definitely true (for better or worse) that people are much less mobile, and thus more likely to stay fixed in one spot.
So.. as long as they staying frozen in place from generation to generation, one hopes many are right, proper homeowners. I just don't know how it breaks down.. Mortgagees, Homeowners, and Renters.
So.. as long as they staying frozen in place from generation to generation, one hopes many are right, proper homeowners. I just don't know how it breaks down.. Mortgagees, Homeowners, and Renters.
eli | 12.26.07 - 12:19 pm | #
Eli - I live in the Mississippi River valley. It is extraordinarily beautiful and people try to find a way to stay here - generation after generation. Even when they leave home (to go to college) many try to find a way to come back. We jokingly refer to them as 'river rats'.
Seriously - I've lived here 25 years and am still a 'newcomer'.
But staying put in their eyes isn't a punishment they endure rather its looked upon as being a privilege to be able to find a job that allows them to stay. If it means they might make less money and the home might be smaller so be it but many make that choice quite willingly.
There are still a lot of places & people like that. We could all learn something from each other (those that move about and those that stay put - more than one way to live a life).
dryfly,
Even your explanation agrees with me. Yes, much of these lands reverted due to taxes but only after being abandoned as unprofitable. The cause for their failure wasn't the taxes.
In Italy they call it campanilismo.
MtHood:
No, I didn't pick that up, sorry... yes, Catch-22 ..... I see the local markets controlled by Milo Minderbinder, and now... he overbought his raw cotton, and now he's trying to sell it to the cafeteria.... "It's better than cotton candy!!!! It's REAL cotton!"
Buy you a drink sometime at the Lucky Lab.
Eli - I live in the Mississippi River valley. It is extraordinarily beautiful and people try to find a way to stay here - generation after generation. Even when they leave home (to go to college) many try to find a way to come back. We jokingly refer to them as 'river rats'.
...
We could all learn something from each other (those that move about and those that stay put - more than one way to live a life).
Dryfly,
I agree.. I'm sort of biased towards (is that correct english?) the nomadic lifestyle. My forebears slowly made their way, over generations, west... bounced off the Pacific Ocean after fleeing Texas during the depression.. some hid out in the Ozark Mountains after being kicked out of Oklahoma.. they've been through Michigan (after going through California) and the good Lord knows where else. Now, here I am all the way back within spitting (figuratively speaking) distance of Ellis Island.
So.. staying put isn't our style. Well, at least, generationally speaking.. I was born in raised in the same house that my parents still live in.
With all that said, I see the value in peace, quiet and stability; I'm a big fan of solitude. But, for whatever reason.. something tells me to keep moving.
Anyhoo, Northeast Texas doesn't really have much to offer people under 50.. there aren't many good jobs and there aren't many prospective mates. Most of the people I know who ended up staying had failed out of University or had some other sort of compromise that kept them there (this compromise usually shows up weighing about 6 - 8 pounds.)
Oh.. and in the town I grew up in.. the population is steadily decreasing. It was about 7,000 in 1994 and it is now around 5,600.. so.. people really don't want to stay there.
yossarian,
We're good.
My occasional posts assume every reader has been here for 2 years and knows the locals like at the corner pub.
We're on the same page. Portland and Charlotte are looking great, just like Snowden.
I'll second Dryfly's comment on the upper Mississippi Valley area, most of the area from just south of the Twin Cities to Southern Iowa/Missouri is what is called the Mississippi Bluff region, old oak forests, old river towns, farms, big limestone bluffs, and small tributary rivers/creeks in hidden gorges. Mark Twain grew up just south of Dryfly. I have an ex-brother-in-law who took a serious pay cut and moved back from New York City just to live there again, his wife forgave him shortly thereafter.
One of the themes I've kept hearing from people that survived the depression (or repeated by the next generation) was that the folks that had large amounts of debt and/or no reserves had no options whatsoever and suffered a long lingering painful financial crisis. The folks that had some reserves and little or no debt did OK, particularly if they were able to trim sails and self-support (i.e., grow food, chop wood for heat, make own clothes, etc. to reduce the amount of money they needed to pay their way).
Berylmarkham. My parents were teenagers in the great depression. They pounded into my head that the people who fared best during the depression were those who owned their own homes.
People who owned houses before the depression, or people who owned houses through the depression?
Which direction was the causality? Did people do well because they had houses, or did people have houses because they were doing well?
The Waltons held on to their mountain because they were debt-free. Those who bought houses in the 20's on interest-only mortgages (sound familiar?) didn't do so well.
Two different groups entirely.
A look at real estate prices in Houston during the rise and fall of the '80's oil boom might make a reasonable analog for price projections now.
Oil prices peaked in 1980/81.
Home prices peaked mid-1983.
Oil price collapse early 1986.
Home prices bottomed 1989/1990
There were many abandoned homes in neighborhoods after the '86 drop. A lot of starter homes were picked up for as little as 50 cents on the dollar from 1983 prices, and made very lucrative rental properties, with significant price and rent appreciation in the years following.
Dryfly: The Hudson Valley is like that to a significant extent also. Our neighbour next door were an older couple who were getting frail. Their daughter moved in with her husband and kids. They doubled the size of the house and they all live there. Next to them is a guy who grew up in the house across the street from us. People in rapidly growing areas sometimes forget that there are still a lot of places where people don't move that much.
Ultimately, I can't see that owning a place you stay in for 20 or 30 years will not continue to make sense. OTOH, buying to sell in a year or 2 only worked for a very brief window during the boom.
Good luck selling a house in Portland! My friend had her place up for sale across the river, nice place with 5 acres and had no takers. I think you will see both Portland and Seattle change over the year, since they rely on people being able to sell their existing houses to buy in the PNW. If folks can't get loans, they can't buy. When we sold in 2005, we ran into several potential buyers that couldn't come up with financing. It has to be a lot worse now.
Teri Pittman,
Tell your friend I can be up there tomorrow morning with a cashiers draft for $100,000 sight unseen. Oh? What's that? $100,000 isn't enough? Well then it isn't a case of no buyers but a case of her being horribly wrong on the price and until she learns the difference there's nothing that can be done for her but in the mean time she has to stop lying about her problem being one of no buyers.
For us it is cheaper to own than rent because we can comfortably afford our mortgage + HOA fees (and in a planned community, our HOA fees buy us a lot) and they cost us a lot less than a comparable rental. The secret? We bought in 1999 when prices hadn't started to climb (in fact, our house sold in 1989 for pretty much the same price we bought it for in 1999). We didn't count on appreciation either, just a place to live. Prices in our neighborhood nearly tripled before coming down a bit recently--some of that was probably stored value waiting to happen, before things got really bubbly.
But maintenance is a higher cost than we thought it would be. We are looking at replacing our heat pump for 7-8K in the next year or so. We also had to replace all the other appliances in our house since we bought it. We added a deck and a fence also. Replaced rotting siding and dormers. Had the exterior painted. These are costs that the landlord is supposed to take care of when you rent--but the landlord down the street doesn't...
dryfly,
Even your explanation agrees with me. Yes, much of these lands reverted due to taxes but only after being abandoned as unprofitable. The cause for their failure wasn't the taxes.
Robert Coté | Homepage | 12.26.07 - 12:34 pm | #
Not really Rob't.
Prior to the 1900s there were no appreciable taxes on that land as there was little gov't that needed support... even at the county level. So in a depression where cash incomes collapsed (and there were a number of such 'panics' and 'collapses' in the mid to late 1800s) they just temporarily quit the cash economy and went 'subsistence'. And they hung on.
Few abandoned land - it might change hands but there was little or no cost to carry other than what you paid for it, party to party transaction cost at acquisition.
But once towns and counties started leveeing property taxes to support the growing infrastructure rural people could no longer 'go native' in a crunch... even if they didn't have a mortgage (say prior generations homesteaded the property and they were debt free) they still had to have some cash income to pay their property taxes.
That was a big difference between 1930 farm economy and say 1880 farm economy. The need for at least some cash all the time.
And the same applied to the banks and railroad trusts with large holdings. Prior to 1900 the carry cost for land was so low they could hang on forever - once that land was taxed they too needed regular cash income to pay the taxes. When the depression came the income wasn't there and banks, railroads, lumber companies all abandoned land because cashflows no longer could cover the tax bill.
Had it been like prior crashes in the 1800s - the banks might still have failed - but the new owners from the BK would have held the land because there was such a small cost to carry... but not so in the 30s.
So when you look at why people abandoned the dust bowl and north woods in the depression (and didn't in earlier panics & collapses) the biggest difference between those periods was the added burden of land taxes added throughout the early 1900s.
Having said that - much of the dust bowl & north woods should probably NEVER have been settled as heavily as they were initially. But that's another story.
"Thats why i am looking at what land costs vs my current pay. The area I would like to live in here in SW Florida was priced at half my annual pay back in 1999/2000. Now its 6 times my current pay. When the price reverts close to 50% of annual earnings I will jump in. Until then I am a happy renter...
Early last year I did a crude comparison of gold prices back to 1930 to the median price of a home. Well, needless to say the ratio was about the highest in history, I forget the number off hand but it wasn't hard to find the data online.
2 conclusions you could draw were either gold was about to rally, or RE was about to fall in a big way if the #'s were to revert to the mean.
I live in Charlotte and have for many years. My impression, antedotal for sure:
BofA and WB drive the Charlotte economy, not NASCAR. Even if all 43 teams were located here (and they aren't), and all employed 200 people (and they don't) your looking at 8600 jobs. BofA employs more than that, at far higher wage structures. WB is the top employer in CLT. On top of that, they drive tens of thousands of sales, contractor and other vendor related positions.
Those high wage positions drive thousands of more service jobs.
That either of these companies are shedding jobs is a myth. They are net up FTE positions in the area. The downtown, or as the Fancytown crowd refers to it, the Uptown, is at record occupancy levels. BofA is promoting an aggressive alternative worklace program, which means WB will follow within 12 months.
Both companies have also gotten aggressive in placing new jobs and divisions outside of CLT. They both realize the risk in CLT, and the FED continues to remind them.
I point this out, because when the shoe drops, it will hit this region swift and hard. Both institutions will wait out the markets and deal with the financial realities as they hit. Both realize there will be significant fallout, and both intend to survive.
Christmas Eve I was driving through one of the higher end, faster growing areas of the North. I was looking for an obscure shop in the seemingly endless multitude of newly constructed strip malls, village shops etc.. I could not help but notice the For Sale, For Lease CRE signs all over. Every center had vacancies. Lots of failed mortgage companies and brokers, plenty of vacant retail space, virtually any type of space available.
Also noticed all of the huge Residential Real Estate brokerages and wondered how long they'll survive when sales stop.
When the banks are forced to really cut back, look out.
MtHood-
Don't know about Charlotte and Portland, but the Seattle median has been moving down month-on-month for the past 3 or 4 months.
So it shouldn't be too long now before we see all of last years appreciation wiped out and get the first year -on- year declines.
Anecdotally, a couple friends sold homes last fall and actually took a 20% hit from what they would have gotten a year ago.
Don't shoot me, I'm the satirist.
I was doing a mock Sebastian post.
I'm with y'all -- 20 of 20 Case-Shiller cities will be negative before you can sing:
Hey Hey
My My
Research Triangle
Will Never Die
Come now. The farm crisis of the depression was deflation and land speculation. The victim didn't die slipping on their own blood, they died from the multiple bullet holes. Saying those farmers were taxed out isn't the real cause.
Robert Coté | Homepage | 12.26.07 - 12:02 pm
Dryfly hints at the root cause of the farm problems of the 30s when he uses the word "dustbowl". A combination of too much land under the plow and too much dry wind turned a lot of farms into wasteland. No income = no way to pay taxes or any other expenses.
My grandparents lived in Michigan and missed the dustbowl but still lost the farm. They blamed Roosevelt for reasons I still don't understand.
By the way, property prices in north-west Utah are still going up. Grouse Creek even has a mall! (It's a shelf of drygoods in the post office/gas station buidling.)
"There isn't one of these guys in 100 that ever worked for a manufacturing, distribution or retail business. If you don't have that practical background, you are not qualified to accurately opine on current events."
Much as farmers who went from 50% of the American population to less than 10% in fifty years, good people of today who work with sweat and determination today will shortly give way to better educated, air conditioned computer operators.
Gardening sounds fun, not two in ten Americans will be planting carrots this decade, depression or none.