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Taco John
08-29-2011, 09:00 PM
U.S. Government Struggles As The Biggest Seller of Homes

By Lorraine Woellert and Clea Benson - Aug 25, 2011 9:01 PM PT

For sale or rent by motivated owner: 248,000 foreclosed homes.

The U.S. government, which has become the nation’s biggest owner of residential properties, is looking for ways to reduce and manage its huge inventory without swamping the real estate market or exposing federal agencies to enormous losses.

Government-run Fannie Mae, Freddie Mac and the Federal Housing Administration now own about a third of the country’s nearly 800,000 foreclosed properties. With that inventory predicted to grow, they are looking for new ways to cope.

In a joint public appeal this month, the agencies invited the public to send in suggestions for managing the inventory, particularly ideas for turning foreclosed homes into rentals.

Karen Petrou, managing partner of Federal Financial Analytics Inc., said the unusual appeal is a sign the agencies recognize the backlog of distressed properties has grown so large that it can’t be sold off without inundating the market and depressing prices.

“They’re stuck,” said Petrou. “All sorts of people are demanding they do something. They don’t know what to do but they have to do something.”

The government’s housing inventory is just one challenge facing President Barack Obama as he prepares to run for re- election next year. The administration also is exploring ways to help hard-hit neighborhoods, unemployed homeowners and underwater borrowers whose houses are worth less than what they owe -- many of them concentrated in battleground states including Florida, Ohio and Nevada.
Refinancing

Current low interest rates offer an opportunity, with 30- year-fixed loans hovering just above 4 percent. The administration is weighing ways to allow distressed or underwater borrowers to refinance into a lower-rate mortgage, freeing up billions of dollars to boost consumer spending.

The complexity of mortgage finance promises to make any housing fix difficult to implement, as the administration discovered when it launched a mosaic of loan-modification programs three years ago.

Since the 2008 financial collapse, Obama and his aides have focused housing efforts on extricating borrowers from high-cost loans, aiding delinquent homeowners, and stabilizing neighborhoods. Now the most pressing problem has shifted to what to do with properties left by borrowers who couldn’t be helped.

Mark Wiseman, a lawyer and former director of Cleveland’s foreclosure-prevention program, said the new call for ideas is a sign the agencies are overwhelmed by the repossessions, commonly known as real-estate-owned properties or REO.
Looking for Ideas

“It’s almost like having the captain of the Titanic go on the public address system and say, ‘Does anybody have an idea?’” Wiseman said. “It’s not a confidence builder.”

Fannie Mae, Freddie Mac and FHA already are working to shrink the property glut by selling homes to individuals, donating vacant properties to cities for demolition and auctioning off hard-hit blocks to investors.

All the same, foreclosed properties on the agencies’ books ballooned to 295,000 in December, nearly four times the number just three years earlier. According to RealtyTrac Inc., a housing data provider, that was about 30 percent of the 980,711 foreclosed properties listed nationwide that month.

Fannie Mae, Freddie Mac and the FHA made progress selling off the backlog in the first half of 2011, dropping to about 248,000 in June, according to data from the Department of Housing and Urban Development. Still, with the pace of foreclosures slowed by flawed documentation, total inventory of repossessed properties has dropped to 817,567 in June and 798,659 in July, and the agencies’ proportion remains just about the same: about 30 percent.
Foreclosure Increase

With settlements in the works on the documentation problem, foreclosures are expected to pick up, said Thomas Lawler, founder of Lawler Economic & Housing Consulting, who tracks trends in government-owned foreclosures.

“You wouldn’t say everything’s great or wonderful,” Lawler said. “There’s still a substantial number of loans in the foreclosure process.”

Foreclosed properties made up 22 percent of the 3.65 million homes that were for sale at the end of July, according to RealtyTrac. With about 50,000 REOs sold each month, the market has a 15-month supply, the firm said.

Buffering the broader housing market from a glut of government-owned inventory by turning them into rentals might be good for homeowners and the economy. That’s not necessarily so for taxpayers, whose dollars are at risk when government- guaranteed loans go bad and who are footing the bill for maintaining the REOs.
Rental Costs

Moreover, it remains to be seen whether converting REO to rental will work. Leasing requires money to bring properties up to code, adds to liability costs and requires an infrastructure to manage the inventory. It also delays the government’s ability to recover anything from their repossessed properties, said FHA Acting Commissioner Carol Galante.

“It isn’t necessarily our preference that FHA is going to itself continue to hold these properties,” Galante said in an interview. “We want to move homes through the system so we can recover.”

At the same time, the agency can’t maximize returns if it sells too many houses at once.

“If you’re putting too much through that system you are helping to drive down prices,” Galante said. “If there’s some siphoning off of some of that stock, it can help stabilize the prices. We could be better off. The proof will be in the pudding.”
Biggest Seller

That’s especially true in parts of the country where the government is the biggest foreclosure seller. In the first seven months of this year, Fannie Mae, Freddie Mac and FHA sold 45 percent of all REO properties in Toledo, Ohio, and 53 percent in Atlanta, according to RealtyTrac.

Fannie Mae and Freddie Mac in particular are under political pressure to recover as much money as they can from repossessed properties. The mortgage companies were seized by the U.S. Treasury in September 2008 as failing subprime mortgages pushed them to insolvency. The Treasury bought nearly 80 percent of the companies and promised unlimited aid.

With more than $170 billion drawn so far, Fannie Mae and Freddie Mac are among the biggest recipients of government bailout money.

Whether turning foreclosures into rentals is a solution remains to be seen. The government wants to explore, among other things, partnerships with investors that would allow Fannie Mae, Freddie Mac and FHA to keep an ownership stake in the rental properties, giving the government potential to gain from sales should the housing market recover.
Joint Ventures

Structured properly, joint ventures could help mitigate the impact of foreclosures on struggling neighborhoods, some housing experts say.

“This proposal is encouraging because it looks like a serious attempt to address two problems that have not received enough attention, which is property maintenance and the impact on communities,” said Kevin Stein, associate director of the San Francisco-based California Reinvestment Coalition, which works on behalf of low-income areas.

In the request for information, the agencies said deals would ideally involve packages of properties ranging in value from $50 million to $1 billion. Michael Slaughter, a partner at New Providence Capital, a Dallas-based private lender, said it would be better to sell to smaller, local investors in lots of about 20 properties at a time.

Doing larger deals, “is putting the properties back in the hands of the guys who created the problem in the first place,” Slaughter said.
‘Too Far Gone’

Also, it may turn out that some neighborhoods may be too far gone for rentals, Wiseman said. In Cleveland, Detroit and elsewhere, houses in some parts of town are stripped and vandalized the minute they’re vacant.

“Some of the neighborhoods you can’t move into,” he said. “There are so many empty houses, it’s just not safe.”

It also remains to be seen if there is adequate demand from renters. Fannie Mae and Freddie Mac already have been renting foreclosed properties on a small scale, with mixed success. Freddie Mac allows occupants of foreclosed homes to remain on a month-to-month lease until the house is sold, spokesman Brad German said. Few do.

“They have the option, and people prefer to take cash for keys and move on,” German said. “Our primary goal is to sell the property.”

http://www.bloomberg.com/news/2011-08-26/u-s-government-struggles-as-the-biggest-seller-of-homes.html

Taco John
08-29-2011, 09:03 PM
TL;DR - Banks are holding a ton of forclosed homes. They are keeping them because if they released them to the market, they'd have to sell them at cut rates. This would cause the values of homes in current ownership to drop like rocks. Basically, if you own a home, or are on the hook for a mortgage, you're most likely underwater right now because the banks can't hold the homes forever.

alnorth
08-29-2011, 09:06 PM
Just dump them. All of them, on the market right away. The banks can do whatever they want, but the feds should just firesale all the homes they have.

If there aren't enough homeowners, let the rest be rentals, and to hell with the consequences. If a home cant even be rented, then raze it to the ground. If you are in an overbuilt area as a homeowner, sucks to be you. If you are in an overbuilt area as a renter, congratulations.

Taco John
08-29-2011, 09:09 PM
Just dump them. All of them, on the market right away. The banks can do whatever they want, but the feds should just firesale all the homes they have.

If there aren't enough homeowners, let the rest be rentals, and to hell with the consequences. If you are in an overbuilt area as a homeowner, sucks to be you. If you are in an overbuilt area as a renter, congratulations.


So long as they're willing to bail me out, sure, go for it. I don't deserve to lose the value of my home because the government intervened and screwed the market up so bad.

alnorth
08-29-2011, 09:15 PM
So long as they're willing to bail me out, sure, go for it. I don't deserve to lose the value of my home because the government intervened and screwed the market up so bad.

No. If your home and my home loses value, that is just too damned bad. (fortunately I recognized that renting was a great bargain and did not buy in until the feds gave me an $8,000 bribe on a home less than 100k, so I'll be fine either way) We need to get this over with and let the recovery begin rather than delay the inevitable.

There is no way to minimize the damage, just let it happen.

Taco John
08-29-2011, 09:17 PM
No. If your home and my home loses value, that is just too damned bad. (fortunately I recognized that renting was a great bargain and did not buy in until the feds gave me an $8,000 bribe on a home less than 100k, so I'll be fine either way) We need to get this over with and let the recovery begin rather than delay the inevitable.

There is no way to minimize the damage, just let it happen.

No. The government is liable for the damage it creates just like I am liable for the damage I create.

Jenson71
08-29-2011, 09:19 PM
No. The government is liable for the damage it creates just like I am liable for the damage I create.

Legally, no.

Taco John
08-29-2011, 09:20 PM
Legally, no.

Ethically, yes.

petegz28
08-29-2011, 09:20 PM
Legally, no.

That's correct. Moral Hazard at it's finest

Jenson71
08-29-2011, 09:22 PM
Ethically, yes.

Can you think of any good reasons for sovereign immunity?

Taco John
08-29-2011, 09:24 PM
We're talking about the middle class losing as much as $30k-$70k in home value virtually overnight, putting many of them well underwater. It'll be like waving a magic wand and turning the middle class into rabid tea partiers overnight.

Taco John
08-29-2011, 09:25 PM
Can you think of any good reasons for sovereign immunity?

Yes. Inciting a small government revolution.

Jenson71
08-29-2011, 09:26 PM
Yes. Inciting a revolution.

There must be a good reason, otherwise we probably wouldn't have it.

Taco John
08-29-2011, 09:28 PM
There must be a good reason, otherwise we probably wouldn't have it.

Go buy your family's land tomorrow and let's see where you stand politically in 10 years.

prhom
08-29-2011, 09:28 PM
We're talking about the middle class losing as much as $30k-$70k in home value virtually overnight, putting many of them well underwater. It'll be like waving a magic wand and turning the middle class into rabid tea partiers overnight.

Many people are there already only I don't think it's been realized. I believe there are many people who would move if they thought they could sell their home without taking a bath. The appraisals may not reflect the loss in value, but I think that's due to fewer participants in the market.

Taco John
08-29-2011, 09:30 PM
Many people are there already only I don't think it's been realized. I believe there are many people who would move if they thought they could sell their home without taking a bath. The appraisals may not reflect the loss in value, but I think that's due to fewer participants in the market.

Count me as one of them. I'm in the process of trying to talk my wife into selling our house and renting for a few years, and then buying land when the bloodbath begins.

Jenson71
08-29-2011, 09:31 PM
Go buy your family's land and let's see where you stand politically in 10 years.

Favoring government subsidies for farmland?

prhom
08-29-2011, 09:42 PM
Count me as one of them. I'm in the process of trying to talk my wife into selling our house and renting for a few years, and then buying land when the bloodbath begins.

When I bought my last house I did so with the express purpose of renting it out once I had to move. I had to move sooner than I had planned, but fortunately I can rent it for enough to cover expenses and then some. I've been deathly afraid of buying big, un-rentable houses since I got out of school (in 2003) and started looking at them. I still probably should have rented instead of buying this one, but at least I'm able to keep a positive cash flow and rents are only going up for the short term.

I rent an apartment now while I'm renting out my other house. I'm not buying anything until I either make a lot more money, sell the house, or pay off the mortgage. No way am I going to take on two mortgages in this environment.

Just a word of caution on the renting plan, be sure to look around at the rentals first. I thought the Denver market was pretty sparse when it came to reasonably-priced rentals when we moved back. I would have rather rented a house, but couldn't find one for the right price. Unless you hate your current house, it may not be worth it to sell and rent something that you won't be happy with.

BucEyedPea
08-29-2011, 09:56 PM
Favoring government subsidies for farmland?

Jim Roger's says farmland is the way to go. Hang onto it.

KC native
08-29-2011, 10:39 PM
We're talking about the middle class losing as much as $30k-$70k in home value virtually overnight, putting many of them well underwater. It'll be like waving a magic wand and turning the middle class into rabid tea partiers overnight.

Dude, where the fuck have you been for the last few years? Housing has been in the shitter since 2007.

Taco John
08-30-2011, 12:00 AM
Dude, where the **** have you been for the last few years? Housing has been in the shitter since 2007.

We've been living in a boom market compared to where this is going right now.

JohnnyV13
08-30-2011, 12:42 AM
So long as they're willing to bail me out, sure, go for it. I don't deserve to lose the value of my home because the government intervened and screwed the market up so bad.

Aren't you being hypocritical with respect to your Austrian economist/libertarian views?

You need to clear the market quickly as possible, right? That's the only way the bubble will be fixed and we get back to the "true" market. You weren't screwed, you just weren't smart and insightful enough to notice that housing was in an overpriced bubble, therefore you are being justifiably punished by the market...just like the banks you would have go under.

You need to eat your losses like a good Austrian and solve your own problems like a good libertarian.

And, in the coming deflation, you won't be worse off than any other homeowner.

Or, perhaps, there is some unknown exemption to your libertarian philosophy that makes an exception for losses by "little people". Only companies and government should fail due to their behavior during bubbles.

BucEyedPea
08-30-2011, 04:28 AM
Aren't you being hypocritical with respect to your Austrian economist/libertarian views?
I think you missed his point. He did say he consider renting to mitigate things. However, it was govt intervention that screwed him — not any free-market. He's just holding the govt liable for its harmful acts. Too bad people can't sue the criminals or jail them. Austrians do hold criminals responsible for their acts ya' know, particularly fraud.

The wonders of housing socialism—Bush's ownership society.

BucEyedPea
08-30-2011, 04:34 AM
Taco,
You could consider renting or hold on for the long term if you have a good job. I foresaw the end of a bubble before, sold and watched the property drop, once out, $150k. That property came back up in value again years later. Natch it was during another bubble. Eventually it sold for nearly a million dollars. ( I was kicking myself then.) Very inflated mind you, due to Keynesianism but if you got out of those bubbles on time you could make out like a bandit. I saw it happen again to my ex when he bought something in 2006, at 2004 rates even. I told him he was a fool as it was going to drop in value. That was from reading Lew's. He said I was wrong but he lost his shirt and had to short-sale it. He was getting into the real estate speculative boom too late in the cycle. You can't go wrong applying Austrianism but it's so easy to get caught up in the frenzy because everyone things the boom is going to last and they may have to pay more if they don't make a fast enough move.

LOCOChief
08-30-2011, 05:25 AM
Many people are there already only I don't think it's been realized. I believe there are many people who would move if they thought they could sell their home without taking a bath. The appraisals may not reflect the loss in value, but I think that's due to fewer participants in the market.

Appraisals do reflect it, through an analysis called the "market approach"

LOCOChief
08-30-2011, 05:42 AM
Why did it happen?
Underwriting standards were "relaxed", More money was loaned to more people for homes, interest rates were kept artificially low, demand swelled, prices escalated.

Who's responsible?
http://www.youtube.com/watch?v=2UZ9l_AxKjA

And now who's reform act has the current markets handstrapped and overburdened with senseless regulation and what is it doing to us?

http://repowatch.org/2011/07/24/fear-in-todays-markets-shows-failure-of-dodd-frank/

Ace Gunner
08-30-2011, 08:13 AM
the dollar has lost 41 percent value during the past 3 years. I think this correlates best with the housing market. A home should be affordable. Sure, inflated values cut off much of the market, but that is so eighties and nineties.

ROYC75
08-30-2011, 08:18 AM
My home is valued at far less than when I bought it in 1989. Crap, I still owe more than what it is worth, thanks to this. I will probably have to hang onto it for the next 20 years just to recover.

If it was money spent to remodel, upgrade, I would, but materials high.

Ace Gunner
08-30-2011, 08:22 AM
case in point

JohnnyV13
08-30-2011, 08:33 AM
I think you missed his point. He did say he consider renting to mitigate things. However, it was govt intervention that screwed him — not any free-market. He's just holding the govt liable for its harmful acts. Too bad people can't sue the criminals or jail them. Austrians do hold criminals responsible for their acts ya' know, particularly fraud.

The wonders of housing socialism—Bush's ownership society.

Nonsense. Couldn't the banks, mortgage companies and securities brokers say the same thing? The government screwed us with housing legislation that compelled us to loan to unqualified buyers, and enticed us to inflate a bubble with undervalued fiat money.

Remember, under Austrian business cycle theory, goverment is at fault for the collective mistakes of private firms. BUT, when austrians want to FIX the problem, they advocate letting these entities crash and burn to punish them for their mistakes.

Taco is no less responsible for his economic behavior than these corporations. And, the deflation that Austrians like so much has to be borne by SOMEONE, why not by the people who were foolish enough to enter into an inflated marketplace? Why should I subsidize his errors with my tax dollars?

Taco is in no way a victim. He's got a mortgage and a house. Just because the rest of the market prices have declined, hasn't made his house any smaller. He needs to suck it up and earn the money to satisfy that mortgage (no matter how much his wages go down due to deflation, which the government should not stop) or default. Wouldn't subsidizing Taco's loan in some way simply delay the market from clearing its structural problems?

JohnnyV13
08-30-2011, 08:46 AM
the dollar has lost 41 percent value during the past 3 years. I think this correlates best with the housing market. A home should be affordable. Sure, inflated values cut off much of the market, but that is so eighties and nineties.

Where are you getting this number?

Inflation is running very low. Now, your number is probably right with respect to equity losses in housing, but that just means your housing dollar buys MORE.

Now, the money supply has vastly expanded in the last 3 years, HOWEVER, due to market behavior, much of that liquidity is simply being held. Therefore, we're not seeing massive price and wage inflation because that money isn't chasing goods in tne marketplace.

Though, we have seen big increases in commodity prices. Much of that is attributable to increased demand from the 3rd world due to globalization. Some of it is due to the same forces that compel people to hold money, people run to metals in uncertain times. You austrians should see this as people trying to convert fiat money into "real" money. Consequently, metal inflation is another manifestation of the market's desire to hold money.

LOCOChief
08-30-2011, 08:54 AM
Where are you getting this number?

Inflation is running very low. Now, your number is probably right with respect to equity losses in housing, but that just means your housing dollar buys MORE.

Now, the money supply has vastly expanded in the last 3 years, HOWEVER, due to market behavior, much of that liquidity is simply being held. Therefore, we're not seeing massive price and wage inflation because that money isn't chasing goods in tne marketplace.

Though, we have seen big increases in commodity prices. Much of that is attributable to increased demand from the 3rd world due to globalization. Some of it is due to the same forces that compel people to hold money, people run to metals in uncertain times. You austrians should see this as people trying to convert fiat money into "real" money. Consequently, metal inflation is another manifestation of the market's desire to hold money.

Great post just like the one you posted before it. :thumb:

jiveturkey
08-30-2011, 09:01 AM
My home is valued at far less than when I bought it in 1989. Crap, I still owe more than what it is worth, thanks to this. I will probably have to hang onto it for the next 20 years just to recover.

If it was money spent to remodel, upgrade, I would, but materials high.That's crazy. Were prices high in the late eighties?

My house has lost about 30% of it's value since I bought it 4 years ago. It's not the worst thing ever because we plan on having it for a long time. We've also put a lot of money towards the loan so we've put a nice big dent in the mortgage.

I can't image having this house for 20+ years and owing more than it's worth. That just doesn't compute.

Ace Gunner
08-30-2011, 09:02 AM
housing & real estate is propping up the dollar in an inflated way, not the other way around. We are actually in much worse financial trouble than most realize.

I'll put it this way, when President Nixon took the US off the gold standard, he paved the road to the new real estate industry boom and the entire american bank system folly now known as the bailout era.

RINGLEADER
08-30-2011, 09:06 AM
TL;DR - Banks are holding a ton of forclosed homes. They are keeping them because if they released them to the market, they'd have to sell them at cut rates. This would cause the values of homes in current ownership to drop like rocks. Basically, if you own a home, or are on the hook for a mortgage, you're most likely underwater right now because the banks can't hold the homes forever.

Banks are dumping homes at rates that a) consumers will buy and b) return them as much of what they have in them as possible. In many ways they (rightfully) control the market -- there are many homes in my area that are half what they were a year ago -- motivated entirely by banks trying to recoup their loans.

ChiefsCountry
08-30-2011, 09:14 AM
As a realtor I don't even want to mess with the Government owned homes. They make it so diffuclt to buy a house its just falt out stupid. Banks aren't much better.

jiveturkey
08-30-2011, 09:21 AM
As a realtor I don't even want to mess with the Government owned homes. They make it so diffuclt to buy a house its just falt out stupid. Banks aren't much better.I had a friend that recently went after a foreclosure and it took just under 6 months to get the deal done.

Sounded like a total nightmare.

Jenson71
08-30-2011, 09:26 AM
Jim Roger's says farmland is the way to go. Hang onto it.

Everyone says farmland is valuable. I hope we can hang onto it.

LOCOChief
08-30-2011, 09:46 AM
Banks are dumping homes at rates that a) consumers will buy and b) return them as much of what they have in them as possible. In many ways they (rightfully) control the market -- there are many homes in my area that are half what they were a year ago -- motivated entirely by banks trying to recoup their loans.


More distressed houses on the market = less demand = declining values = less equity = less consumers with resources = lower housing starts and sales= more nonaccrual or non performing loans = more distressed houses on the market.

Nobody is in control of the housing market.
Not the banks.
Not the consumers.
Not the regulators (but they are trying to gain control through senseless regulation)

The housing market is what the housing market is. Tanked and we don't have an economy the affords the average adversely affected person to bail themselves or anyone else out.

LOCOChief
08-30-2011, 09:49 AM
As a realtor I don't even want to mess with the Government owned homes. They make it so diffuclt to buy a house its just falt out stupid. Banks aren't much better.

big banks aren't any better and most of them are TARP recipients.

Not too big to fail.

Too big to be managed properly.

DJ's left nut
08-30-2011, 09:54 AM
The only thing to do with a MTG right now is overpay on it, IMO.

We're putting an extra $1,000/mo into our mortgage just to get out from under it. It sucks donkey balls, but it's about the only choice I have.

When my house loses 1/3 of it's value in the next 5 years, I'd like to at least be able to get enough out of it to get a down payment on the land and new house I intend to build. Even if I lose that value, a 200K house drops down to 140K(ish). Sure, I took an absolute kick in the balls, but if I just pay on at minimum payments for 30 years instead of 12, the kick in the balls is multiplied by interest I'm paying on 'value' that has long since vanished.

It's time to recognize that a blood-bath is coming in the housing market and simply mitigate the damages. Honestly, I'm in favor of a wholesale sell-off of the foreclosed homes at this point. Get them out on the market and move forward with re-building private homeowner value. With any luck, it will only take about a decade to pull it off.

Donger
08-30-2011, 09:56 AM
What is the percentage of home owners who are upside down? Isn't it something like 40%?

vailpass
08-30-2011, 10:22 AM
No. If your home and my home loses value, that is just too damned bad. (fortunately I recognized that renting was a great bargain and did not buy in until the feds gave me an $8,000 bribe on a home less than 100k, so I'll be fine either way) We need to get this over with and let the recovery begin rather than delay the inevitable.

There is no way to minimize the damage, just let it happen.

Sure, as long as they limit the decrease in property value to homes that were purchased for $100k or less.

BucEyedPea
08-30-2011, 10:29 AM
Where are you getting this number?

Inflation is running very low.

No it isn't. Have you seen food prices? They've been up at least 10% a year and more on some things.

Now, the money supply has vastly expanded in the last 3 years, HOWEVER, due to market behavior, much of that liquidity is simply being held. Therefore, we're not seeing massive price and wage inflation because that money isn't chasing goods in tne marketplace.
What do you mean by being held? If you mean the banks haven't circulated it yet that would account for other prices not being increased. But that's price. Austrians use the correct definition for inflation—expanded money supply. It's there already.
Price increases due to expanded money supply is the result of inflation.

There's so much indoctrination into false concepts by Keynesian aka mainstream-trained economics it's difficult to communicate because the same words don't represent the same ideas. Newspeak. I've seen incorrect definition of inflation at Investopedia too.

Though, we have seen big increases in commodity prices. Much of that is attributable to increased demand from the 3rd world due to globalization.

That was true even before the expansion of money supply. It's worse now. Don't forget food was removed from the govt mythical basket of goods years ago as was energy. So much for economics being a hard science.


Some of it is due to the same forces that compel people to hold money, people run to metals in uncertain times. You austrians should see this as people trying to convert fiat money into "real" money. Consequently, metal inflation is another manifestation of the market's desire to hold money.

No like I said, you can't use a Keynesian framework to understand Austrian School economics. Keynesians never fully understand Austrianism as a result. They think they do but they mismatch points, recategorize concepts differently. They NEVER really understand it fully at a conceptual level. What would be needed is to strip away all the false concepts and false "whys" they've been fed before you could even put on in an Austrian class to start from the beginning all over again....including better definitions for certain phenomena.

ROYC75
08-30-2011, 10:34 AM
That's crazy. Were prices high in the late eighties?

My house has lost about 30% of it's value since I bought it 4 years ago. It's not the worst thing ever because we plan on having it for a long time. We've also put a lot of money towards the loan so we've put a nice big dent in the mortgage.

I can't image having this house for 20+ years and owing more than it's worth. That just doesn't compute.

The market here is absolutely horrid. You can buy cheap here,material here is high. No industry, poor economy, no jobs. If the Peabody Clean Fuel plant goes in, we can see an increase in housing. But until then in small town America,it is what it is. My plan to keep it for 15-20 years went bust with the housing & financial crisis.

Tell ya what, you want to buy, $ 90,000.00, same price I paid when I moved in, I'll be happy to take it.

ROYC75
08-30-2011, 10:37 AM
housing & real estate is propping up the dollar in an inflated way, not the other way around. We are actually in much worse financial trouble than most realize.

I'll put it this way, when President Nixon took the US off the gold standard, he paved the road to the new real estate industry boom and the entire american bank system folly now known as the bailout era.

Just think if the dollar was still backed by gold ?:thumb:

OK, fantasy land is over.

ClevelandBronco
08-30-2011, 10:38 AM
Great. My rental real estate takes a hit on value, then these assholes are going to dump property on the rental market and depress rent. Think about me when you leftist fuckers talk about small business and risk.

I should have bought convertibles, entertainment systems, and loose women.

vailpass
08-30-2011, 10:41 AM
Great. My rental real estate takes a hit on value, then these assholes are going to dump property on the rental market and depress rent. Think about me when you leftist ****ers talk about small business and risk.

I should have bought convertibles, entertainment systems, and loose women.

It stinks when a man working to make an honest buck suffers at the hands of the irresponsible. Hang in there.

ROYC75
08-30-2011, 10:42 AM
Great. My rental real estate takes a hit on value, then these assholes are going to dump property on the rental market and depress rent. Think about me when you leftist ****ers talk about small business and risk.

I should have bought convertibles, entertainment systems, and loose women.

I was thinking of renting this house in a few years as well. But the poor economy here just doesn't warrant the risk. Better for I to stay in it and take care of it.

JohnnyV13
08-30-2011, 11:17 AM
Great. My rental real estate takes a hit on value, then these assholes are going to dump property on the rental market and depress rent. Think about me when you leftist ****ers talk about small business and risk.

I should have bought convertibles, entertainment systems, and loose women.

Wait Cleveland. According to your Austrian/Libertarian beliefs, isn't it YOUR fault for not recognizing the housing bubble?

As everything deflates and your income goes down, remember how you're helping the market to clear. Just because your earnings will decline to the point where keeping up with your loan payments might be difficult, just remember that DEFLATION IS GOOD!!!!! You can go read about it on Mises.org.

If you are unfortunate enough to go bankrupt, just remember that your behavior is getting corrected by market forces. Too bad you didn't study hard enough in your Mises Institute courses.

prhom
08-30-2011, 11:31 AM
Appraisals do reflect it, through an analysis called the "market approach"

Aren't appraisals based on comparable properties that have sold nearby? If people aren't putting houses up for sale because they don't think they can get what they want then they aren't participating in the market.

Kind of like unemployment where only those who are seeking work count towards the number. The people who just give up aren't included in the percentage.

Do they adjust appraisals downward below comps if nothing in the area has sold in the last 6 months? Honest question here, because I really don't know. My theory is based on the fact that they don't, but perhaps I'm wrong. Is anyone here an appraiser?

prhom
08-30-2011, 11:49 AM
Great. My rental real estate takes a hit on value, then these assholes are going to dump property on the rental market and depress rent. Think about me when you leftist ****ers talk about small business and risk.

I should have bought convertibles, entertainment systems, and loose women.

How would the government actually do that though? They can't really be interested in (or able to) renting and maintaining properties?

I could see some sort of program whereby qualifying (read entitlement class) families would buy the properties at book value so it doesn't wreck the market values, and have a loan that only required them to pay a certain fraction of their income in a loan payment. These could be very long-term loans at extremely low rates just to get the payments down to the right level. These loans would also result in an accumulated tax liability so that if the house was ever sold for a profit, then the owner would have to pay most or all of that profit in taxes to help repay the government for such a favorable loan.

Either that or some kind of government administered rent to own program whereby people could rent a place (and be responsible for the maintenance) with the option to eventually buy it and have some fraction of their rent go towards a down payment.

LOCOChief
08-30-2011, 11:57 AM
Aren't appraisals based on comparable properties that have sold nearby? If people aren't putting houses up for sale because they don't think they can get what they want then they aren't participating in the market.

They are participating in the sense that they are caught up in it (they won't / can't sell because " they can't get what they want" and yes the market approach uses comparables to determine what that market is

Kind of like unemployment where only those who are seeking work count towards the number. The people who just give up aren't included in the percentage.

Do they adjust appraisals downward below comps if nothing in the area has sold in the last 6 months? Honest question here, because I really don't know. My theory is based on the fact that they don't, but perhaps I'm wrong. Is anyone here an appraiser?

In areas where homes have not sold within the required 6 months and the comps used are older there is a percentage adjustment (reduction) in the appraised value. The allowed amount of percentage adjustments is capped so that oranges aren't compared to apples.

JohnnyV13
08-30-2011, 11:59 AM
How would the government actually do that though? They can't really be interested in (or able to) renting and maintaining properties?

I could see some sort of program whereby qualifying (read entitlement class) families would buy the properties at book value so it doesn't wreck the market values, and have a loan that only required them to pay a certain fraction of their income in a loan payment. These could be very long-term loans at extremely low rates just to get the payments down to the right level. These loans would also result in an accumulated tax liability so that if the house was ever sold for a profit, then the owner would have to pay most or all of that profit in taxes to help repay the government for such a favorable loan.

Either that or some kind of government administered rent to own program whereby people could rent a place (and be responsible for the maintenance) with the option to eventually buy it and have some fraction of their rent go towards a down payment.

But wait, cleveland can't want something like that. It would, in effect, be a goverment subsidized loan to favored individuals. Such a program would be MORE GOVT INTERFERENCE IN MARKETS!!!!!

A good Austrian realizes he needs to go bankrupt for the common good.

vailpass
08-30-2011, 12:01 PM
But wait, cleveland can't want something like that. It would, in effect, be a goverment subsidized loan to favored individuals. Such a program would be MORE GOVT INTERFERENCE IN MARKETS!!!!!

A good Austrian realizes he needs to go bankrupt for the common good.

Living in Tuscum apparently makes people think funny.

LOCOChief
08-30-2011, 12:10 PM
Fannie Mae has a loan program for some of their REO's called Homepath.

does Homepath give buyers of these FNMA REO's a lower interest rate? NO the rate is significantly higher.

Why would somone take a Homepath loan?
Fannie Mae Homepath allows the buyer to purchase the property without having to have it appraised. Because 9 times out of 10 nowadays value issues resulting from distressed markets prevent real estate transaction from getting to the closing table and FNMA can't have that. With this program FNMA doesn't have to play by the same rules the require of someone else.

It also allows the buyer to purchase with no money down and no mortgage insurance.

prhom
08-30-2011, 12:15 PM
In areas where homes have not sold within the required 6 months and the comps used are older there is a percentage adjustment (reduction) in the appraised value. The allowed amount of percentage adjustments is capped so that oranges aren't compared to apples.

Thanks!

prhom
08-30-2011, 12:28 PM
But wait, cleveland can't want something like that. It would, in effect, be a goverment subsidized loan to favored individuals. Such a program would be MORE GOVT INTERFERENCE IN MARKETS!!!!!

A good Austrian realizes he needs to go bankrupt for the common good.

I wouldn't like it either if it did happen, I'm just saying something along those lines seems plausible. Since the gov is firmly entrenched in the market, I'd prefer to see some solution that is open to anyone regardless of income. A rent to own approach seems best since anyone that can make the payments would be eligible and it would encourage a little more responsibility than just being a pure renter.

Pure renting by mortgage companies seems to be a horrible idea and I don't think many people would actually WANT to rent from them. Most landlords are pretty cheap anyway, can you imagine trying to get stuff fixed if you had to submit a claim to Fannie Mae? Plus, I'll bet a lot of the vacant REO portfolio held by banks is practically uninhabitable at this point. They'd have to spend a lot just to get it up to even low standards.

prhom
08-30-2011, 12:29 PM
Fannie Mae has a loan program for some of their REO's called Homepath.

does Homepath give buyers of these FNMA REO's a lower interest rate? NO the rate is significantly higher.

Why would somone take a Homepath loan?
Fannie Mae Homepath allows the buyer to purchase the property without having to have it appraised. Because 9 times out of 10 nowadays value issues resulting from distressed markets prevent real estate transaction from getting to the closing table and FNMA can't have that. With this program FNMA doesn't have to play by the same rules the require of someone else.

It also allows the buyer to purchase with no money down and no mortgage insurance.
Interesting, I haven't read about this. I'll have to check it out.

LOCOChief
08-30-2011, 12:32 PM
Interesting, I haven't read about this. I'll have to check it out.

Go to homepath.com enter in the zip code for your search area and take a look at the properties on there.

Those are not all the Fannie Mae foreclosures, just a drop in the bucket, but the properties on that sight are the ones that qualify for the terms I described.

Cave Johnson
08-30-2011, 12:36 PM
So long as they're willing to bail me out, sure, go for it. I don't deserve to lose the value of my home because the government intervened and screwed the market up so bad.

Since Fannie and Freddie existed at the time you bought your house, it's pretty hard to play dumb about the fact they sell/dump/dispose of foreclosed houses.

No. If your home and my home loses value, that is just too damned bad. (fortunately I recognized that renting was a great bargain and did not buy in until the feds gave me an $8,000 bribe on a home less than 100k, so I'll be fine either way) We need to get this over with and let the recovery begin rather than delay the inevitable.

There is no way to minimize the damage, just let it happen.

This was me, except I went a bit over $100K. In hindsight, not a good move.

JohnnyV13
08-30-2011, 12:40 PM
Living in Tuscum apparently makes people think funny.

I'm just pointing out that Taco and Cleveland, who are strong libertarians, are acting just like the banks and securities firms did when confronted with collapse.

Taco and Cleveland insisted they should "swallow their medicine" for the common good. But, when the spoon is put to their mouth, they seem to have a different opinion.

Strange how that works.

Taco John
08-30-2011, 12:41 PM
Aren't you being hypocritical with respect to your Austrian economist/libertarian views?



Hey, I didn't coal-up the bailout train. But that train has left the station. Now you're telling me I'm not on it's route? How does that work?

Taco John
08-30-2011, 12:44 PM
I'm just pointing out that Taco and Cleveland, who are strong libertarians, are acting just like the banks and securities firms did when confronted with collapse.

Taco and Cleveland insisted they should "swallow their medicine" for the common good. But, when the spoon is put to their mouth, they seem to have a different opinion.

Strange how that works.



Bail out the big banks, but hold the spoon to the mouths of the middle class. Strange how that works.

Cave Johnson
08-30-2011, 12:45 PM
I'm guessing Taco bought at close to the height of the market....

Bail out the big banks, but hold the spoon to the mouths of the middle class. Strange how that works.

The banks, by and large, paid the TARP loans back. You offering to do the same?

Taco John
08-30-2011, 12:47 PM
I'm guessing Taco bought at close to the height of the market....

No. It could actually be a lot worse for us. We'll be fine. I'm just making a point. The middle class is getting soaked.

vailpass
08-30-2011, 12:48 PM
I'm just pointing out that Taco and Cleveland, who are strong libertarians, are acting just like the banks and securities firms did when confronted with collapse.

Taco and Cleveland insisted they should "swallow their medicine" for the common good. But, when the spoon is put to their mouth, they seem to have a different opinion.

Strange how that works.

I hear you , was just funning with you. IMHO what they are saying here isn't the same as what they were saying then but to each his own.

Taco John
08-30-2011, 12:49 PM
The banks, by and large, paid the TARP loans back. You offering to do the same?

You're missing the point - the money is coming out of the pocket of the middle class. Who is going to pay me back?

DJ's left nut
08-30-2011, 12:51 PM
No. It could actually be a lot worse for us. We'll be fine. I'm just making a point. The middle class is getting soaked.

All the rhetoric in the world won't change one fundamental tenant of government intervention:

The middle class always gets soaked.

ChiefsCountry
08-30-2011, 12:52 PM
Homepath is a pain in the ass as well. You can get a good deal, especially if you are a first time buyer but damn they suck to work with.

ChiefsCountry
08-30-2011, 12:56 PM
big banks aren't any better and most of them are TARP recipients.

Not too big to fail.

Too big to be managed properly.

Small community banks are just as big of a pain in the ass as the huge big banks.

The banking industry has fucked up many deals.

Taco John
08-30-2011, 01:00 PM
All the rhetoric in the world won't change one fundamental tenant of government intervention:

The middle class always gets soaked.

Bingo.

JohnnyV13
08-30-2011, 01:17 PM
All the rhetoric in the world won't change one fundamental tenant of government intervention:

The middle class always gets soaked.

Have we now identified the common thread between the Tea Partiers and Liberal Democrats?

The theme behind libertarianism/tea party thinking: middle class victimology. You really deserve to be more successful, but the system is cheating you.

Liberal black caucus: black victimology. You really deserve to be more successful, but the system cheats african americans.

Liberals in general: working class victimology. You really deserve to be more successful, but the system cheats the working man (or woman).

JohnnyV13
08-30-2011, 01:41 PM
Bail out the big banks, but hold the spoon to the mouths of the middle class. Strange how that works.

I can see this point from a fairness issue. But, your austrian/libertarian values should tell you that failing to allow yourself to crash and burn is damaging the economy.

vailpass
08-30-2011, 01:43 PM
At least property taxes are going down.

JohnnyV13
08-30-2011, 01:48 PM
It seems we have identified another problem with Austrian/libertarian views.

In order to get to an anarcho-capitalist paradise, we somehow have to get around the prisoner's dilemma of economic downturns: when you have a strong central goverment, every sector will appeal to the state for help, when confronted with economic collapse. Even if the entire society accepts austrian economic theory, and believes that taking a bailout just makes the economy worse, you will still have a difficult time getting each party to swallow its medicine in turn.

When there is a short term out, most self-interested individuals (or conglomerate entities like corporations) will seize it, damn the common good.

Where a strong central government doesn't exist, the society is likely to CREATE ONE (see the progression btw Cooledge and FDR).

Taco John
08-30-2011, 01:49 PM
Have we now identified the common thread between the Tea Partiers and Liberal Democrats?

The theme behind libertarianism/tea party thinking: middle class victimology. You really deserve to be more successful, but the system is cheating you.

Liberal black caucus: black victimology. You really deserve to be more successful, but the system cheats african americans.

Liberals in general: working class victimology. You really deserve to be more successful, but the system cheats the working man (or woman).


The whole point of having a government is to protect citizens. It should be no great wonder that the tea party's goals are to protect the individuals that make up the middle class from having their wealth robbed through "democratic" redistribution.

prhom
08-30-2011, 01:55 PM
At least property taxes are going down.

Except cities and counties raise the mil rate to compensate.

vailpass
08-30-2011, 01:56 PM
Except cities and counties raise the mil rate to compensate.

They did that here but taxes are still down some this year.

ClevelandBronco
08-30-2011, 02:13 PM
Wait Cleveland. According to your Austrian/Libertarian beliefs, isn't it YOUR fault for not recognizing the housing bubble?

As everything deflates and your income goes down, remember how you're helping the market to clear. Just because your earnings will decline to the point where keeping up with your loan payments might be difficult, just remember that DEFLATION IS GOOD!!!!! You can go read about it on Mises.org.

If you are unfortunate enough to go bankrupt, just remember that your behavior is getting corrected by market forces. Too bad you didn't study hard enough in your Mises Institute courses.

Of course it's my 'fault'.

Bankruptcy won't be an issue.

KC native
08-30-2011, 02:14 PM
The whole point of having a government is to protect citizens. It should be no great wonder that the tea party's goals are to protect the individuals that make up the middle class from having their wealth robbed through "democratic" redistribution.

ROFL

JohnnyV13
08-30-2011, 02:19 PM
Of course it's my 'fault'.

Bankruptcy won't be an issue.

I'm happy to hear that. Sincerely.

I don't want to see you, or anyone, fail.

jiveturkey
08-30-2011, 02:20 PM
It was a good thing that the government had the foresight to change the bankruptcy laws shortly before poo started hitting fans. :D

http://www.nolo.com/legal-encyclopedia/new-bankruptcy-law-chapter-7-13-30040.html

Stewie
08-30-2011, 02:23 PM
I wonder if this falls under the 80/20 rule. 80% of the problem is confined to 20% of the US. Housing prices haven't changed much where I live. Of course, I didn't see the huge bubble like the coasts and other hot spots.

As for capital gains on investments, it's a 15% tax on gains. If you lose money it's a maximum $3000 loss per year. You clear $50K in a year you pay $7500 in tax, you lose $50K you can only claim $3000 in losses. It's an uneven field. The tax is actually higher when you consider the limit on the down side.

BWillie
08-30-2011, 02:25 PM
I don't think it's fair that me as a homeowner gets punished because people don't pay their bills. All these foreclosed houses are going to severely lower the price of my home. It's bullshit. Bulldoze the sons of bitches.

LOCOChief
08-30-2011, 02:39 PM
Small community banks are just as big of a pain in the ass as the huge big banks.

The banking industry has ****ed up many deals.

I hear what you're saying but we'll have to agree to disagree on this one. I'm partial to community banking and have never seen anything as dysfunctional as Bank of America or Chase.

I lend money out of our portfolio all day long on stuff agency won't touch and salvage many of the kinds of deals you say your losing..

If I was a realtor I'd get my ass hooked up with a portfolio lender ASAP and you'll only find it at a community bank.

2bikemike
08-30-2011, 03:35 PM
Its kinda crazy reading all this. I am not too concerned about the falling values of real estate. I look at it as opprortunity. I have purchased several properties since the bubble burst. I personally base my purchases on a predetermined rate of return. As long as rents don't fall off the cliff I will do ok. Which if the Freddie's and Fannies flood the market they just might. However I will still not lose my shirt. I just might have to keep working longer than I hoped.

IMHO it is also crazy to double up or poor extra money into your mortgage. Mortgage money is super cheap. I would rather have that money in cash that I can reinvest. To me equity in your home is just trapped cash you could be reinvesting.

I used to heavily desire to pay off my mortgage. I was working toward that goal when someone I admire and respect questioned my motives and showed me how I could take that locked up equity and put it to work. He explained to me that the value of my home was more than likely inflated and I could capture that imagineary value and put it to work.

Taco John
08-30-2011, 03:54 PM
I used to heavily desire to pay off my mortgage. I was working toward that goal when someone I admire and respect questioned my motives and showed me how I could take that locked up equity and put it to work. He explained to me that the value of my home was more than likely inflated and I could capture that imagineary value and put it to work.


So what's the key? I'm at a loss, because my investment goal has been my home, and now I see that goal is ****ed, and the best thing I can figure to do with the money is to sink it into hard commodities.

Stewie
08-30-2011, 03:56 PM
To me equity in your home is just trapped cash you could be reinvesting.


This statement is what buried homeowners. It's fake money (equity) based on someone's ability to pay... or since 2007-08, not able to pay.

BucEyedPea
08-30-2011, 04:06 PM
It seems we have identified another problem with Austrian/libertarian views.
Uh mmm—no. Not all libertarians are Austrians. There's different kinds.

In order to get to an anarcho-capitalist paradise,...

Uh mmm—no. Not anarcho-capitalist,* but mini-anarchists. And uhm—no. They don't promise paradise. They promise freedom but the kind where you have to take more responsibility for yourself. That doesn't gaurantee any paradise like the left-utopia where no one has to be responsible for themselves, or exert themselves and are taken care of by the state from cradle to grave with the govt stimulating economies endlessly so to avoid the pain of correction. They do not promise that life will always be fair either—that's the attempt of the left's paradise.

There's no such thing as a perfect system. There are systems that are better than others and that's all a limited govt free-market is advocating.

No, no, no. You are, AGAIN, mischaracterizing these stands. You never field the ball but keep rejecting on premises poorly understood or intentionally to mock with satire.


* there are exceptions for the tiny few to this

BucEyedPea
08-30-2011, 04:08 PM
I'm just pointing out that Taco and Cleveland, who are strong libertarians, are acting just like the banks and securities firms did when confronted with collapse.

Taco and Cleveland insisted they should "swallow their medicine" for the common good. But, when the spoon is put to their mouth, they seem to have a different opinion.

Strange how that works.

Cleveland may be pro free-market but he is NOT a libertarian. He does not eschew the non-aggression doctrine in FP and dissed Paul on his libertarian FP.

You don't seem to understand libertarianism.

2bikemike
08-30-2011, 04:20 PM
So what's the key? I'm at a loss, because my investment goal has been my home, and now I see that goal is ****ed, and the best thing I can figure to do with the money is to sink it into hard commodities.

Personally I think Real Estate is still a good investment if you want to make money. I think one of the keys to investing is to buy when everyone else is selling. Just like stocks you gotta try and buy low and sell high. I don't plan on selling for a long long time. But I am still earning a return on my investment and someone else is paying all the bills. So if the value never raises a nickel I still win through the return and having someone else pay the mortgage and upkeep. I like multiple dwellings like 4 plexes and duplexes. If you lose one tenant the others more than likely cover all the costs.

There are a lot of ways to invest in Real Estate in an IRA for example. If you have enough in a ROTH you can do so tax free. I wish like hell I would have gotten a ROTH. You can also find first trust deeds to invest in. They will typically pay a very decent return. I think the last one that I was privy to was 10.5% annual return for 3 years.

Stewie
08-30-2011, 04:25 PM
Personally I think Real Estate is still a good investment if you want to make money. I think one of the keys to investing is to buy when everyone else is selling. Just like stocks you gotta try and buy low and sell high. I don't plan on selling for a long long time. But I am still earning a return on my investment and someone else is paying all the bills. So if the value never raises a nickel I still win through the return and having someone else pay the mortgage and upkeep. I like multiple dwellings like 4 plexes and duplexes. If you lose one tenant the others more than likely cover all the costs.

There are a lot of ways to invest in Real Estate in an IRA for example. If you have enough in a ROTH you can do so tax free. I wish like hell I would have gotten a ROTH. You can also find first trust deeds to invest in. They will typically pay a very decent return. I think the last one that I was privy to was 10.5% annual return for 3 years.

The paradigm has changed completely. You're living in the "Real Estate Never Falls" mentality. Millions of families can't afford homes, nor can pay $1500/month rent.

2bikemike
08-30-2011, 04:28 PM
This statement is what buried homeowners. It's fake money (equity) based on someone's ability to pay... or since 2007-08, not able to pay.

I agree. However for me I never went upside down and I did not over extend myself. I also invested in something that would give me a return instead of buying a new car, boat or motorcycle. IMHO looking at this mess and studying it somewhat there were several things that happened to facilitate the crisis.

Primarily it was the way lax lending standards. If you could fog a mirror you could get a monster loan. People cashed out and bought toys and crap. Pissed away the money. Tons of people who could afford to keep paying their notes walked away because the value of their homes put them upside down even though they had the ability to continue paying.

I know of people who bought second homes and walked away from the first because they could move into a better neighborhood at a bargain.

BucEyedPea
08-30-2011, 04:29 PM
The paradigm has changed completely. You're living in the "Real Estate Never Falls" mentality. Millions of families can't afford homes, nor can pay $1500/month rent.

Austrian, Peter Schiff rents believe it or not. Since many Austrians in his camp have said housing is not an investment—but a place to live. Too many Americans have bought into this when it's been Keynesian inflation that drives the price up. So there is nothing wrong with renting.

Calcountry
08-30-2011, 04:32 PM
So long as they're willing to bail me out, sure, go for it. I don't deserve to lose the value of my home because the government intervened and screwed the market up so bad.Wow, that is very fuggin libertarian of you there Taco Rand.

Calcountry
08-30-2011, 04:34 PM
We're talking about the middle class losing as much as $30k-$70k in home value virtually overnight, putting many of them well underwater. It'll be like waving a magic wand and turning the middle class into rabid tea partiers overnight.No, I think shadow markets will step in and buy land when they think they can't do better with their money elsewhere. Then they will move their people into the homes and tenants, get citizenship, and vote in the government they deserve.

Calcountry
08-30-2011, 04:37 PM
I agree. However for me I never went upside down and I did not over extend myself. I also invested in something that would give me a return instead of buying a new car, boat or motorcycle. IMHO looking at this mess and studying it somewhat there were several things that happened to facilitate the crisis.

Primarily it was the way lax lending standards. If you could fog a mirror you could get a monster loan. People cashed out and bought toys and crap. Pissed away the money. Tons of people who could afford to keep paying their notes walked away because the value of their homes put them upside down even though they had the ability to continue paying.

I know of people who bought second homes and walked away from the first because they could move into a better neighborhood at a bargain.Now I understand what they meant years ago when they said, "You can't lose in real estate."

Stewie
08-30-2011, 04:38 PM
Austrian, Peter Schiff rents believe it or not. Since many Austrians in his camp have said housing is not an investment—but a place to live. Too many Americans have bought into this when it's been Keynesian inflation that drives the price up. So there is nothing wrong with renting.

I guess it depends. I could easily rent my home for $1400 and that renter would say, "Glad I don't own!" And I'd say, "I'm glad you don't!"

2bikemike
08-30-2011, 04:42 PM
The paradigm has changed completely. You're living in the "Real Estate Never Falls" mentality. Millions of families can't afford homes, nor can pay $1500/month rent.

I don't live in a "Real Estate never falls" mentatlity. I have adapted a strategy out of the crisis that is working for me. I am full aware that values can and will fall. I am just as certain that they can and will rise. When I made my investments I was looking for a cash on cash return. Home values weren't a part of the equation. If for some reason I had to sell at a loss I only have a minimal amount invested. As long as I keep tenants over time I will recoup my investment. Every month my principal gets paid down a little bit more by someone else. To me any increase in value is just gravy.

As for the millions who can't afford homes or rent there are better days ahead for them and I might be the guy they come to for their next roof.

Taco John
08-30-2011, 04:47 PM
Personally I think Real Estate is still a good investment if you want to make money. I think one of the keys to investing is to buy when everyone else is selling. Just like stocks you gotta try and buy low and sell high. I don't plan on selling for a long long time. But I am still earning a return on my investment and someone else is paying all the bills. So if the value never raises a nickel I still win through the return and having someone else pay the mortgage and upkeep. I like multiple dwellings like 4 plexes and duplexes. If you lose one tenant the others more than likely cover all the costs.

There are a lot of ways to invest in Real Estate in an IRA for example. If you have enough in a ROTH you can do so tax free. I wish like hell I would have gotten a ROTH. You can also find first trust deeds to invest in. They will typically pay a very decent return. I think the last one that I was privy to was 10.5% annual return for 3 years.

Sounds dangerous to me. I could be interpreting all of this wrong, sure... But the way I see it, you're already underwater, the tsunami just hasn't reached you yet. These banks are going to have to release a BUNCH of houses at extremely undervalued rates. When that happens, it's going to make much more sense for renters to buy at the cut rates driving rents downward. Guys like you will be exposed for the difference.

Pretty soon, there's going to be massive political pressure on Washington to force these banks to start flooding the market with these homes. Great for the poor, terrible for the middle class. The politically right time to do it will be sometime between now and next fall where the poor will be able to feel the benefit, but the middle class won't quite feel the impact until after the election.

2bikemike
08-30-2011, 04:48 PM
Stewie one other thing I would add. I am full aware that my whole investment strategy could blow up. However I was sick of getting killed in the market. At least here I feel like I have much more control over my investments than what I did playing in the stock market.

Calcountry
08-30-2011, 04:48 PM
I guess it depends. I could easily rent my home for $1400 and that renter would say, "Glad I don't own!" And I'd say, "I'm glad you don't!"Oh, btw, you fix your own damn toilette.

Stewie
08-30-2011, 04:49 PM
I don't live in a "Real Estate never falls" mentatlity. I have adapted a strategy out of the crisis that is working for me. I am full aware that values can and will fall. I am just as certain that they can and will rise. When I made my investments I was looking for a cash on cash return. Home values weren't a part of the equation. If for some reason I had to sell at a loss I only have a minimal amount invested. As long as I keep tenants over time I will recoup my investment. Every month my principal gets paid down a little bit more by someone else. To me any increase in value is just gravy.

As for the millions who can't afford homes or rent there are better days ahead for them and I might be the guy they come to for their next roof.

I know you've learned from someone, but owning a bunch of real estate now is nonsense. How can real estate rise in the next 10 years? The easy money is gone and real unemployment is about 18%. I'm not busting your balls but that doesn't add up.

Stewie
08-30-2011, 04:50 PM
Oh, btw, you fix your own damn toilette.

$100 on Craigslist for two new toilet installs just last year. I could do it, but there are people groveling for a few bucks.

Calcountry
08-30-2011, 04:52 PM
$100 on Craigslist for two new toilet installs just last year. I could do it, but there are people groveling for a few bucks.Just keep them away from the red paint and your remote control.

2bikemike
08-30-2011, 04:57 PM
Sounds dangerous to me. I could be interpreting all of this wrong, sure... But the way I see it, you're already underwater, the tsunami just hasn't reached you yet. These banks are going to have to release a BUNCH of houses at extremely undervalued rates. When that happens, it's going to make much more sense for renters to buy at the cut rates driving rents downward. Guys like you will be exposed for the difference.

Pretty soon, there's going to be massive political pressure on Washington to force these banks to start flooding the market with these homes. Great for the poor, terrible for the middle class. The politically right time to do it will be sometime between now and next fall where the poor will be able to feel the benefit, but the middle class won't quite feel the impact until after the election.

I only have one property (my former home) that a small decrease in rent would end up costing me. The others would have to fall a huge amount before they start costing me. I am not too worried about it but I do think about it some.

2bikemike
08-30-2011, 05:09 PM
I know you've learned from someone, but owning a bunch of real estate now is nonsense. How can real estate rise in the next 10 years? The easy money is gone and real unemployment is about 18%. I'm not busting your balls but that doesn't add up.

I don't know maybe I got in at the right time maybe I bought the right places all I can say is its working. I have not had a problem renting out anything. My last vacancy lasted 1 month. I may not make a dime off of selling the properties but I am making some income from it now. The PITI and other costs are paid in full by the tenants. And I hope to own all of the properties for at least the next 10 years and hopefully beyond.

I don't want to come off like a know it all or some wanna be guru. I am just an average guy who was fortunate to meet some very smart people along the way. I may or may not retire well off but like I said I was sick of getting killed in the market. I feel like I at least understand what it takes to be successful.

NaptownChief
08-30-2011, 05:36 PM
I don't know maybe I got in at the right time maybe I bought the right places all I can say is its working. I have not had a problem renting out anything. My last vacancy lasted 1 month. I may not make a dime off of selling the properties but I am making some income from it now. The PITI and other costs are paid in full by the tenants. And I hope to own all of the properties for at least the next 10 years and hopefully beyond.

I don't want to come off like a know it all or some wanna be guru. I am just an average guy who was fortunate to meet some very smart people along the way. I may or may not retire well off but like I said I was sick of getting killed in the market. I feel like I at least understand what it takes to be successful.

Hopefully it keeps going well for you. I'm looking forward to the day you become 4bikemike.

2bikemike
08-30-2011, 05:40 PM
Hopefully it keeps going well for you. I'm looking forward to the day you become 4bikemike.

My wife isn't! She thinks I have too many hobbies and too many toys. If she had her way we would be filling the house with foo foo crap.

Cave Johnson
08-31-2011, 10:16 AM
I wonder if this falls under the 80/20 rule. 80% of the problem is confined to 20% of the US. Housing prices haven't changed much where I live. Of course, I didn't see the huge bubble like the coasts and other hot spots.

As for capital gains on investments, it's a 15% tax on gains. If you lose money it's a maximum $3000 loss per year. You clear $50K in a year you pay $7500 in tax, you lose $50K you can only claim $3000 in losses. It's an uneven field. The tax is actually higher when you consider the limit on the down side.

Pssst, losses carry forward.

BucEyedPea
08-31-2011, 10:23 AM
My wife isn't! She thinks I have too many hobbies and too many toys. If she had her way we would be filling the house with foo foo crap.

What's foo foo crap?

prhom
08-31-2011, 10:39 AM
Its kinda crazy reading all this. I am not too concerned about the falling values of real estate. I look at it as opprortunity. I have purchased several properties since the bubble burst. I personally base my purchases on a predetermined rate of return. As long as rents don't fall off the cliff I will do ok. Which if the Freddie's and Fannies flood the market they just might. However I will still not lose my shirt. I just might have to keep working longer than I hoped.

IMHO it is also crazy to double up or poor extra money into your mortgage. Mortgage money is super cheap. I would rather have that money in cash that I can reinvest. To me equity in your home is just trapped cash you could be reinvesting.

I used to heavily desire to pay off my mortgage. I was working toward that goal when someone I admire and respect questioned my motives and showed me how I could take that locked up equity and put it to work. He explained to me that the value of my home was more than likely inflated and I could capture that imagineary value and put it to work.

You've just given a working definition of being leveraged. Turning equity into debt CAN be a great way to make money so long as the investment you make has a higher rate of return than the cost of repaying the debt. Being highly leveraged in business is generally frowned upon because you're trying to grow faster than your cash-flow would otherwise allow. It's risky because avoiding default on your loans (I'm assuming you did some sort of HELOC?) and losing everything depends on cash flow from the other investments or from you working.

At least you didn't spend the equity from your inflated home value on cruises and cars. I'll applaud you for that! I also hope it works out for you. I'm renting my old house out to someone and plan to continue that, but I'm also renting myself. That way if the rental market tanks and I can't turn a profit I can always move back and it only costs me what I have to pay to break my lease.

Amnorix
08-31-2011, 10:43 AM
Pssst, losses carry forward.

and can be used to offset gains (in future years also).

prhom
08-31-2011, 10:50 AM
Pssst, losses carry forward.

You can't claim losses on real estate to offset income.

Cave Johnson
08-31-2011, 11:06 AM
You can't claim losses on real estate to offset income.

He said investments, not which type of investments.

prhom
08-31-2011, 11:13 AM
He said investments, not which type of investments.

You're right he didn't specify, just figured that since it's a thread about real estate losses I'd throw in that distinction.

2bikemike
08-31-2011, 12:23 PM
You've just given a working definition of being leveraged. Turning equity into debt CAN be a great way to make money so long as the investment you make has a higher rate of return than the cost of repaying the debt. Being highly leveraged in business is generally frowned upon because you're trying to grow faster than your cash-flow would otherwise allow. It's risky because avoiding default on your loans (I'm assuming you did some sort of HELOC?) and losing everything depends on cash flow from the other investments or from you working.

At least you didn't spend the equity from your inflated home value on cruises and cars. I'll applaud you for that! I also hope it works out for you. I'm renting my old house out to someone and plan to continue that, but I'm also renting myself. That way if the rental market tanks and I can't turn a profit I can always move back and it only costs me what I have to pay to break my lease.

Actually I just refinanced the 1st and captured the equity. Interest rates were considerably lower. I refinanced again when intrest rates dropped to 4.5%,

DJ's left nut
08-31-2011, 02:42 PM
Have we now identified the common thread between the Tea Partiers and Liberal Democrats?

The theme behind libertarianism/tea party thinking: middle class victimology. You really deserve to be more successful, but the system is cheating you.

Liberal black caucus: black victimology. You really deserve to be more successful, but the system cheats african americans.

Liberals in general: working class victimology. You really deserve to be more successful, but the system cheats the working man (or woman).

What does 'success' have to do with anything?

Success relates to performance and little else. I believe that, for the most part, people are as successful as they're willing to work.

However, it simply cannot be argued that those tax increases on the wealthy are going to be passed down the chain. The wealthy are, by and large, business owners are people that otherwise control distribution chains, etc... The wealthy are the guys that control the prices you pay.

If the wealthy are giving another 10% to uncle Sam, they're not just going to grin and take it. Nope, they're going to send that down the line.

The poor don't pay taxes to speak of. And while the costs of consumer goods increases, so will the amount given out in entitlement payments when the CPI goes up. The rich won't feel the sting and if they do, like I said, they're often capable of passing that sting down the line.

The middle class carries these burdens. When the law of unintended consequences invariably rears its head, it's generally the middle class that takes it in the shorts.

It has nothing to do with 'success' and everything to do with the bottom line. Ultimately it's the 75% of this nation that's trapped in the middle that ends up hurt when Government intervention backfires. And it always backfires.

cookster50
09-01-2011, 07:04 AM
What's foo foo crap?

foo foo is the name of their dog

2bikemike
09-01-2011, 11:35 AM
foo foo is the name of their dog

No pets. Personally my wife and I would love to have a good dog. However its not conducive to our lifestyle. Not owning pets may play into my thinking but right now I would have a hard time justifying vet bills. I work with people that have spent over a thousand bucks on their pet. I always tell them a 9mm bullet is way cheaper.