patrick.net

Foreclosures increase 51 percent nationwide

Nationwide, almost 971,000 foreclosure filings were reported last year, 51 percent more than the 641,000 in 2005, according to the annual report.

Foreclosures are exploding, but according to Alexis McGee:

"Home inventories now are dropping and markets are improving," she said in a news release. "That means relief to overextended homeowners who bought homes they could not afford with the help of little money down and low teaser-rate mortgages. Until now, with mortgage payments adjusting upward, housing inventories climbing and prices stagnating, these homeowners have had few options but to lose their house to foreclosure or capture some of their equity with a fresh start with a quick, honest investor purchase."

How could foreclosures be exploding at the same time inventories dropping?

Then she goes on to saying:

The current housing market may be the best opportunity for home shoppers in the next six years, McGee said.

Now remember, when the housing market is booming, the foreclosure market is non-existent. It is a very bad time for McGees company foreclosures.com. When the market is crashing like it is and foreclosures are exploding, it still is a bad time for the foreclosure market because as long as investors believe that the market will get worse, they don't want to buy foreclosures because they really don't know what the market will be like when it comes time to resell the properties, so her company will still suffer.

It is only when the market is starting to recover (when we truely hit bottom) that the foreclosure market becomes profitable again; thus be a boom time for McGee's company. This is why McGee is acting optimistic about the market even though we are no where near the bottom.

Just like Lereah is feeding propaganda to generate transactions, so is McGee!

eburbed,

both my wife and I wouldn't have made into our college if we were not lucky enough to be born at least a decade earlier, thanks to our parents. Our SAT and GRE scores would be a disgrace to the school.

both my wife and I wouldn’t have made into our college if we were not lucky enough to be born at least a decade earlier, thanks to our parents. Our SAT and GRE scores would be a disgrace to the school.

At the end of the day, succeeding in America really means being born at the right time by the right parents.

To have been born in time to buy a house in CA before Prop 13. Now that would've been awesome.

allah,

Agreed. We're a long way from foreclosures being attractive. At best you'd be side stepping the commissions and a few other normal closing costs but over all, they're no bargain.

Owning is better than renting 80% of the times. It just so happens from 2004-2010(?), purchasing a home is a very very bad idea.

I was just reading a report on the luxury home segment in Hong Kong, which had the most spectacular comeback since the bubble popped. The first hand properties from the developers already double the per sf price compared to the top in 97. However, here is the footnote: NONE of the second-hand properties were able to make it back to their top 97 per sf price. Which means, if you were an investor (not a developer), you still have not seen your money back nominally, even though the luxury market as a whole did extremely well in the last couple of years.

Same thing happens in Tokyo's luxury market. Record-breaking recent transactions all happen in new constructions. Japanese depreciate their homes on a 40-year basis. Buy and hold doesn't help you much if you enter the market at the top.

I am all for owning one's own home, it is a decent goal everyone should strive for. Just that one should not buy at the top, buying at the top with a leverage is a serious self-destructive move in life.

EBGuy Says:

> FAB, For the curious onlooker…. Are your parents
> cashing out any of their rental homes during this
> boom cycle? Do they move into them and take the
> $500k deduction or do they just sell?

It would make sense for my parents to sell at least some of the homes they bought for $25-$55K for the $1-$1.5mm they could get today, but since they don’t need the money they just hang on to them and invest all the rents they get most months (since unless they go on a trip they spend less than they get from Social Security)…

My Dad often jokes that he likes having the rentals since it gives him something to do and when I point out the tiny return on equity he tells me that he does not care and mentions that I’ll probably get lucky and inherit all the real estate in 2010 (the year the estate tax goes away allowing an unlimited tax free transfer of wealth from parents to children).

> Also, since you are the closest thing we have to a Robert
> Kiyosaki, what do your think about the small investor
> owning a 4 unit building as part of their retirement (long
> term, not some flip-o-matic)? Of course, someone wouldn’t
> invest until GRMs and other metrics are a bit more favorable.

Real Estate has always been a great way to get rich slowly and hedge against inflation. Unlike a lot of seniors my Dad does not have to worry about “running out of money” since the cash flow from over 100 debt free rental units that provides plenty of cash flow today will almost certainly be enough to live on even if my Dad lives for 25 more years and dies at 100.

A small 4 plex is usually only a good investment if you live near the property and have the time and skill to manage and maintain it yourself. When you pay a management company to manage a little property they will take a big percentage of the income and the vacancy will be higher since they have no incentive to go out and knock on doors in the neighborhood to try and get people to move when there is a vacant unit (like my Mom did when I was a kid and we needed someone to move in so we could pay the mortgage).

Most of the housing stock in the Bay Area is old, so unless you are handy (or are willing to buy the Time Life Home Improvement series and invest a lot of time and money in tools) expenses will be out of control. Most of the contractors I know that live around here (really) make more than the doctors I know (who will start to turn blue when anyone even says “HMO”). If you need to hire a licensed professional every time a tenant has a problem or moves out it will really cut in to the cash flow.

Last week I saw an interesting statistic in Harper's- the number of security clearances that the US government has had to rescind from military/defence personnel has increased 900% the past five years due to indebtedness (when my father was a defense contractor they used to always make sure people knew financial help was available if anything (college/gambling debt/drunkards/whatever) came up because people were espionage targets if they were in debt).

Today I heard an elaboration on this on NPR. Currently the military families are so stretched financially that many survive paycheck to paycheck using paycheck cashing services, which can charge interest rates as high as 400% a year. (Yes, 400 percent). Apparently a large percentage of the military families are broke and are indebted to these paycheck cashing services.

I was quite surprised. Have things changed this drastically in the military? Has the pay been eroded by inflation and lack of increases? Do people waste money now buying consumer goods that were previously not bought? Why should a large population of the military be impoverished? The NPR piece didn't go into the 'how' behind the people getting into debt, it was more about the check cashing business. I'm assuming some are probably national guard who are no longer getting their regular pay.

OO,

It's NOT a wrong idea to buy at the top - if the top is of a 'normal' cycle. People who bought at the top of previous cycle have done well at today's price or even at 2003 or 2001 price. If you are buying to live there, and unless something tragic happens, the original price wouldn't matter in the long run. Market timing is very hard and shouldn't matter.

But this is not a normal cycle top. Prices have not gone up 10-15-20-25% from the bottom. They have doubled. tripled depending on the area. A correction of 10-15-25% nominally is very very likely. Given how out of whack they have been with income, even a 10% drop (which is close to 100K for BA) is a HUGE amount for these incomes.

Hence it is not prudent to buy at THIS top.

"knock on doors in the neighborhood to try and get people to move when there is a vacant unit (like my Mom did when I was a kid and we needed someone to move in so we could pay the mortgage)."

Former......I've never met your Mom but I LIKE HER! The "old school" way of doing things.

NOBODY today wants to do what's necessary to be successful...I guess they feel like it's beneath them.

Most of the housing stock in the Bay Area is old

That's something I don't get - I saw a house built in 1960 the other day, and it was just absolutely in horrible shape. The owners did -some- maintenance, but it's clear that the way it was built originally didn't help.

On the other hand, the house I lived in in NY was built in 1942 - during frickin' WW2 and it's in great shape.

What happened in 1960 here? Sheesh.

. Currently the military families are so stretched financially that many survive paycheck to paycheck using paycheck cashing services, which can charge interest rates as high as 400% a year. (Yes, 400 percent). Apparently a large percentage of the military families are broke and are indebted to these paycheck cashing services.

I was quite surprised. Have things changed this drastically in the military?

I'm not surprised at all. I remember seeing a Dateline on this back during the Clinton years.

Being a soldier doesn't pay well. Period.

And then the soldiers, who are trained to fight, not calculate APRs, get taken advantage of by the 129480 check-cashing/used car/liquor stores right outside the base entrances.

This stuff happens to any poor community. Just look at the success of RAC (Rent-A-Centers) and where they tend to be.

OO, dryfly, et al,

Many thanks for your explanations about the Aussie/Canadian fiscal policies. The possibility of dual citizenship would be a great option. I like Australia and Canada mainly for their universal healthcare and comparatively superior education system (in case that biological clock boogieman seizes unsuspecting me) - so money management is not the major concern.

Palo Alto Renter,

I agree with the experience thing but I'd like to add an additional wrinkle. Most boomers don't know economics or history - even (maybe especially) otherwise intelligent seeming boomer.

It's impossible to cram basic economic concepts like time value of money or economic bubble or dangers of leveraged buying into boomer parents. At least with my parents, they sort understand what I'm talking about while I'm explaining stuff to them (even though they'll repeat the same old tripe 7 days later, rinse and repeat). Whenever my boyfriend or I try to explain money management issues to his parents, we get deer in the headlights looks all around.

This really sucks since my boyfriend's remaining grandmother (the comparatively well off grandparent) is likely to not be long for this world, and I fear his parents are going to go on a spending spree with the "free" money when they have very little saved for retirement and are pretty clueless about how to live cheaply.

eburbed,

My mother had a house from the late 18th C. in Oxfordshire- it was in great shape. It had been constructed of good materials and the people who had owned it before her had all lived in it for very, very long periods of time.

The stuff built in the Bay Area in the 1960s and 1970s was a lot of cheap, slapdash speculative construction. Some of it was built specifically to get it up before certain regulations took place (the housing that is on the part of Market Street going up the hill away from the Castro going toward the zoo). These were never built as true places to live in long term, they were built as a quick way for the builder to make money.

SFWoman Says:

> Today I heard an elaboration on this on NPR.
> Currently the military families are so stretched
> financially that many survive paycheck to paycheck
> using paycheck cashing services, which can
> charge interest rates as high as 400% a year.
> (Yes, 400 percent).

I’m not a fan of check cashing services, but a $20 flat fee to cash a $1,000 check and hold it for two days until payday is equal to 365% (Yes 365 Percent) interest per year…

> Apparently a large percentage of the military families are
> broke and are indebted to these paycheck cashing
> services. I was quite surprised. Have things changed
> this drastically in the military? Has the pay been eroded by
> inflation and lack of increases?

The US military has never paid very well. Back in the mid 1960s (1960’s not 1860’s) the base pay for E1 enlisted men in the US Navy was $18 per week (under $0.50/hr). In the mid 1980’s there werer a bunch of news stories in the press that the lower paid enlisted men (working full time risking their lives defending the country) all made so little that they qualified for both welfare and food stamps…

http://www.goarmy.com/benefits/money_basic_pay.jsp

Private (E1) $15,282**
** Pay for Private (E1) will be slightly lower for the first four months of service.

How does the Census Bureau handle cancelled sales contracts in the published estimates of New Home Sales

http://www.census.gov/const/www/salescancellations.html

$15K for a year ?? Does this increase if you are actually sent on a duty ? If not, then as a tax payer, I am ashamed how cheap we are. We ask people to risk their lives so that we can worry about things like which 401K/IRA is better but not pay them anything ?

More surprising is why hasn't some politician figured out a way to get mileage out of this ? Shouldn't "Support the troops" slogan be easy to merge with increase pay for servicemen ?

eburbed Says:

> Private (E1) $15,282**
> ** Pay for Private (E1) will be slightly lower
> for the first four months of service.

I can’t figure how they get anyone to sign up for $15K a year when you can make almost $20K a year working at In ‘n Out Burger…

http://www.npr.org/templates/story/story.php?storyId=6288944

Shouldn’t “Support the troops” slogan be easy to merge with increase pay for servicemen ?

[cynical] Assuming the budget is fixed, increases in pay means less money for weapons/contracts. If you were a politician - which has a better political pay off? Soldiers or corporations? [/cynical]

More details about pay:

http://answers.yahoo.com/question/index?qid=20060720180203AA8hKkp

I can’t figure how they get anyone to sign up for $15K a year when you can make almost $20K a year working at In ‘n Out Burger…

You do get free Room and Board at the $15k pay level...

There are two types of house buyers:

The type that will pay ridiculously high prices.
The type that won't.

Type #1 already bought.
Only type #2 is left.

So if foreclosures are exploding mostly because of these toxic loans and lending standards are tightening up, who is left to buy all of these houses? ...and at what price?

More surprising is why hasn’t some politician figured out a way to get mileage out of this ? Shouldn’t “Support the troops” slogan be easy to merge with increase pay for servicemen ?

For some reason this type of "troop support" doesn't play well in the Washington Beltway --nor does providing them with adequate armor, medical care, etc. I suppose it might be because rank-and-file troops cannot afford lobbyists or big campaign contributions...?

Oops - eburbed beat me to it.

The type that will pay ridiculously high prices.

I'm not so sure about that. I just saw a house in San Jose sell slightly above asking. And let's just say the asking price wasn't exactly a steal. A pretty big rip off if you ask me.

There's still a lot of GFs left. I'm really perplexed.

I have seen the quality of free room and board at the Presidio facility. The location is excellent, but the living condition is equivalent to those apartments renting for $500 a month in South Bay. Privates had to share space with each other even if they are married with wives, imagine 4 persons splitting a dorm room with a leaking kitchen.

The military has traditionally provided a lot of opportunities for kids who would otherwise have no chance. Every single ex-military person I know is grateful for the fact.

However, they got before Dubya's army.

Incidentally, higher wages and better armor protection has been a huge progressive issue since 9/11. But why have that when Cheney and Rumsfeld can give another $20 billion to useless contractors (my father is an IT administrator in DC and DoD's useless wastes of money even manages to almost appalls him).

My understanding is that the housing conditions really vary from site to site. Some sites are really bad - mold blah blah blah.

[OT OT] While doing a search for "Uncle Sam Slumlord" (which I seem to recall as being a phrase from the show), I found this gem:

http://www.lp.org/yourturn/archives/000143.shtml

The Federal government owns huge tracts of land throughout the US, especially in the West. Uncle Sam owns nearly half of all acreage in California. If the government opened up even 1% of those holdings for private purchase in California the effect on the superhot speculator's market there would be profound. Perhaps the long-inflating California real-estate/housing bubble might finally burst. This wouldn't "cost" anything to the taxpayers, and would potentially attract billions of voluntarily offered dollars to the government coffers.

Why is nobody talking about the "asset liquidation" option? That would seem to be something that every libertarian -- and millions of ordinary citizens looking for affordable housing -- could support.
Posted by: James Anderson Merritt at November 18, 2005 01:41 PM

Oh of course! Why didn't anyone think of that! That'd make housing affordable instantly! Duh!

Just like relaxing pollution laws would allow companies to build more refineries and lower gas prices. (Hint: The ROIC on refineries is less than that of a T-bill.)

Oh brother.

I've come in late... just some random tail-end thoughts...

In the Australian Defence Force (ADF), you are exempt from income tax for the duration of any active service, which would normally be about 30% of your earnings. You also get some sort of significant combat pay. Do they do that in US armed forces? The ADF is a small 'professional' army which is however finding it hard to recruit at present, presumably because unemployment is low and people don't want to get posted somewhere unpleasant. However, the salaries I've seen in Defence seem reasonably high, and they get generous accommodation subsidies. They often spend the money on high end V8 supercars...

Moving to Oz or Canada is not a bad idea. Oz has strict gun controls, and a reasonable welfare state. Climate and drought is a problem at present. I would recommend Melbourne for affordable quality of life, but equally well most other capital cities would do, depending on climate preference. I don't like hot and humid, personally... then there's also the question of culture, intellectualism and so forth... and transferability of skills and relative reward...

@allah,

Your classification is too simplistic. People are impatient. And not everyone believes what we here believe. I don't believe everyone who is buying a GF. Many are actually getting price lower than what would have fetched 12 months ago. This is called catching the proverbial falling knife.

With economy not in any obvious current trouble, stock market doing well, job situation in BA still strong - and mortgage interest still low, people will buy. The bidding wars haven't exactly gone away, although there EXTREMELY RARE.

The difference is the change in psychology. More people are getting aware of what might be lurking beneath this apparently endless prosperity. There is nothing more to add to this fire. Every fuel has been used. The bubble is simply getting exhausted. The slow crash has begun. Any change - bad stock market, increase in rates - anything can accelerate the downturn.

Person and eburbed,

I know 2 cases in close acquaintance who are move-up buyers in this market. They are buying (one has already bought) house double what their current house is worth. No matter how much gains they have, it's highly likely that their monthly payment is actually increasing. From all I know, they have taken more debt than their current house's worth.

I am not sure I understand this. I would have grabbed this once in a millennium opportunity to use the appreciation to increase my equity in the home. Not to go deeper in the red. Such people who were lucky to have bought 10 years ago, may not feel that lucky 10 years from now.

alien,

I wonder if your Brighton bricks had the same problem that a lot of masonary in SF has, that they used beach sand in the bricks and mortar? I know that a lot of the mortar in older SF housing (older by California standards, late 19th early 20th C) has basically turned to sand because of either the salt content or something in the sand used in the mortar here.

My mom's Cotswold place was very well built. It was probably 100 years older than your Brighton place. It was massive Cotswold stone, really nice looking. Was your place an early Victorian spec construction? It was an extremely popular resort at that time.

The stuff built in the Bay Area in the 1960s and 1970s was a lot of cheap, slapdash speculative construction...These were never built as true places to live in long term, they were built as a quick way for the builder to make money.

SFWoman and eburbed,

Sound familiar? Replace "1960s and 1970s" with this current housing cycle, and you see why I would never by a home built today by the big HBs, only to have some new version of eburbed complain about its crappy construction 30 years later.

Ben's current California thread (#2143) mentions Sonoma County, and about halfway down Athena has really wound up and let fly.

Gotta be a candidate for rant-of-the-day. :D

astrid,

If you are considering coming to Australia, and cashing out your US Pension funds to put them into the system here, there are a couple of things you should consider. Our Treasurer announced some pretty significant proposed changes to the local rules last May, and these will almost certainly come into being because the major Opposition party has said they will support them.

Firstly, there are a whole heap of tax concessions in the Superannuation (our term) area, but these would NOT apply to any money you would bring in with you. Your money would be classified as 'undeducted contributions', which basically means after-tax funds.

Now, there is an overall limit on the amount of undeducted contributions that you can pay into your Superannuation each year. I know this sounds weird, but there are reasons. Hopefully these will become clear further on in this post.

Currently the limit is $A150K per tax year (July-June), but there are both permanent and temporary loopholes. The permanent loophole is that you can pre-pay up to 2 years (and stay pre-paid until you start taking money out instead of paying in). The temporary loophole is that you can pay in up to $A1M for this financial year as a transition concession. Combining the 2 means that the absolute maximum you could pay in this year would be $A1.3M, which is about $US1M.

Until May 2006 you could pay in any amount of undeducted contributions, but there were tax implications which have now been reversed.

So anyone thinking of coming to Oz with more than $A450K of funds that they intended to put into Superannuation should do so before 30th June 2007. Otherwise they will have to feed the funds in over time.

OK, now the reason why there are these restrictions on people putting their own money into the Superannuation environment is the tax treatment of the money once it's in there.

In short;
While in accumulation mode, Superannuation fund income is taxed at 15%. This compares to companies at 30% and the top personal rate of 47%.
Once a Superannuation fund is in pension mode it doesn't pay income tax.
If a fully funded Superannuation fund is paying a pension to a recipient over 60, the recipient doesn't pay income tax on the pension.

So, if you set up a private fund, once you reach 60 neither you or the fund pay any income tax at all. The only limitation is that you have to take out at least a certain percentage of the fund's value each year as a pension. Hence the need to have annual limits, as otherwise rich old people would be instantly putting all their wealth into Superannuation to avoid tax. As it is I consider the rules to be too generous to self-funded retirees.

Needless to say, the financial planners have gone berserk over their prospects from selling this proposition to clients, so I would expect further legislation over the next few years to rein in the "creativity".

Eburb says,

Private (E1) $15,282**
** Pay for Private (E1) will be slightly lower for the first four months of service.

That $15,282 is just base pay. Tax free allowances are added to that. For example, in the Langley AFB area (Virginia), an E-1 gets $1,000 month Quarters Allowance if he/she is married and lives off base. For $1,000/mo in this area, you can rent (but not buy) a newer 3 bed - 2.5 bath 2 car. The Quarters Allowance is higher at bases in higher living cost areas. Now add free family medical to that, and 30 days paid vacation per year.

When comparing military pay, you need to compare apples to apples. An E-1 is an 18 year old fresh out of high school with no job skills. To be congruent when talking about E-1 pay, compare the military pay, allowances, benefits, and training with those of a high school graduate level McJob.

SFWoman,

"My mom’s Cotswold place was very well built. It was probably 100 years older than your Brighton place. It was massive Cotswold stone, really nice looking. Was your place an early Victorian spec construction? It was an extremely popular resort at that time. "

It's a pity that your mom was unable to keep that house. I just saw an ad in Architectural Digest asking almost $20 million for a largish (looks to be a total of 1,000 sq meter at the most) Cotswold cottage.

ajh,

Much thanks for the information.

I was originally warming towards seeking a Canadian passport, but based on the great posts here, Australia sounds like a much better deal. Plus, my boyfriend is not a fan of cold weather and has a first cousin married to what his family describes as an "Australian Donald Trump." Maybe it's time to investigate the local (poisonous, biblical, or toupee wearing) wildlife.

Now I just need to talk him into cashing his frequent flier miles for a nice long vacation long under...

"Now I just need to talk him into cashing his frequent flier miles for a nice long vacation long under… "

-long
+down

Apologies to all. Good grief! My grammar is almost as bad as Casey Serin's grammar.

The regular military is not a terribly bad deal except for more senior level officers (if only because the military/civil service hasn't suffered corporate level executive wage inflation). If you're careful with money, you can retire by your forties or start a lucrative second career outside(especially beneficial in these times - when defense contractors are desperately looking for people with ready made security clearances).

In post WWII peacetime, the military has been a good deal and the route to upper mobility for a lot of poor kids. But Dubya's war isn't worth getting killed or maimed over - I'd go so far to say that this strategy is not even worth the death of the Bush twins over - nevermind the 3,000+ troops killed and God knows how many horrifyingly injured.

astrid,

My mom bought the place in 1984 or so, when the pound was about a dollar, it is too bad she didn't keep it, I'm sure it would be worth a fortune now.

Have you seen this today?

http://www.marketwatch.com/news/story/home-builders-say-orders-hurt/story.aspx?guid=%7B531BB129-92AB-4A1C-A04F-292D93CD276F%7D

Cancellations hit home-builder orders
D.R. Horton, Meritage sales hurt by nervous buyers backing out of contracts

By John Spence, MarketWatch
Last Update: 10:19 AM ET Jan 9, 2007

BOSTON (MarketWatch) -- A pair of residential builders Tuesday said they're still seeing home orders decline as buyers anxious about falling home prices cancel their house purchases.
D.R. Horton Inc.'s sales orders for new homes fell 23% during the first quarter from a year earlier, the company said.
The drop comes as home builders facing higher buyer cancellations in midst of a U.S. housing slowdown offer more inducements to sell houses...."

These 'anxious buyers' are a little late to the housing bear party, aren't they?