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Foreclosures up 90% over the year

Discussion in 'Fred's House of Pancakes' started by burritos, Jun 13, 2007.

  1. chogan

    chogan New Member

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    <div class='quotetop'>QUOTE(Proco @ Jun 14 2007, 12:49 PM) [snapback]461655[/snapback]</div>
    This is deja vu all over again for me. I looked up the detail on bankruptcy and summarized as post #33 in this thread:

    http://priuschat.com/index.php?showtopic=2...uptcy&st=20

    If you look at the DOJ report cited there, the typical bankrupt is fairly pitiful case. By their numbers, 28% literally say medical bills was the reason for bankruptcy, another 25% or so list nontrivial medical expenses among their debts. About 15 percent cite death or birth as the reason, and so on. Median annual income of bankrupt persons was $24,000. I'm sure there are people who abuse it but the the DOJ phrase was "overwhelmingly on the lower rungs of the nation's income ladder." And that largely explains why bankruptcy rates were higher in the upper midwest than in the wealthier New England/Mid Atlantic area. Highest rate in the nation was Utah. Illlness, divorce, death, birth, and job loss explained most bankruptcies.

    I think the new bankruptcy law was intended to curb abuse without putting those low-income persons into debt bondage for the rest of their lives. As I understand it, under the new law, if your income is above the median in your state, you have a much harder time getting Chapter 7 (debts wiped out) and you (in theory) must take Chapter 13 and (in theory) pay of (all or some of) your debts. I believe, but am not sure, that debtors with income below the median in their state were essentially unaffected by the law. So I think the law was not as harsh as it has been made out to be.
     
  2. chogan

    chogan New Member

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    <div class='quotetop'>QUOTE(SomervillePrius @ Jun 14 2007, 10:21 AM) [snapback]461501[/snapback]</div>
    Yeah, that's the question: why hasn't it gone bust yet? I mean, ten years ago, if someone had said "cash-back, no-money-down mortgage" to me, I'd have laughed. Or figured it was time to sell my house. By historical standards that's ridiculously risky. But the impact of unwinding some of that had been pretty modest so far. So, to borrow a phrase, looks like real estate in particular (and maybe asset prices in general?) have reached a permanently higher plateau. A given level of national income now appears to support permanently higher asset prices -- that's the wealth-to-income graph in the article I referenced in my prior post. On the other hand, maybe it's just taking longer to happen.
     
  3. Sufferin' Prius Envy

    Sufferin' Prius Envy Platinum Member

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    <div class='quotetop'>QUOTE(jhinton @ Jun 14 2007, 12:02 PM) [snapback]461779[/snapback]</div>
    So go ahead and nominate me King of Dumb Investors. :rolleyes:

    $105,000 debt to purchase a $120,000 rental property.
    Total out of pocket costs over ten years - about $30,000.
    Value of house today? $360,000.
    $255,000 gain on an investment of $30,000. :eek:
    That is an 850 percent gain on my investment. I would have needed a 21% interest rate on a savings account to match that kind of gain on my original $30,000 - and that doesn't take into account a smallish positive cash flow which now totally pays for all expenses AND the mortgage is paying itself off.

    King of Dumb Investors?
    Yes, I'll agree!
    I should have bought more houses! ;)

    No good debt? Hardly!

    Of course, if none of us had any debt . . . and a million dollars in the bank . . . and free heath care, and the government paid for everyones housing, education and food . . . then nobody would need to work for a living. :rolleyes:
     
  4. burritos

    burritos Senior Member

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    <div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 14 2007, 05:32 PM) [snapback]461910[/snapback]</div>
    You've sold that property already right?
     
  5. Sufferin' Prius Envy

    Sufferin' Prius Envy Platinum Member

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    <div class='quotetop'>QUOTE(burritos @ Jun 14 2007, 04:46 PM) [snapback]461973[/snapback]</div>
    Sell? You got to be joking.

    I may consider doing a 1031 Tax Deferred Exchange . . . but then I would have higher property taxes on the replacement property.

    I may consider taking out a a loan as a down payment on another property. I could easily up the rent to current market rates to help with, but not cover, the extra expense.

    Having started making small monthly principal payments early on in the loan cycle, the current interest costs for me are small enough to make it foolish to get rid of that loan. In less than 13 years it will be paid off.

    I may consider someday moving into the property for two years and then I could sell it tax free.

    But, I don't think I will be doing anything with it for the foreseeable future.
     
  6. JSH

    JSH Senior Member

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    <div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 14 2007, 05:32 PM) [snapback]461910[/snapback]</div>
    Your rental house is worth nothing today. It isn't worth anything until you have cash in hand, right now you have a mortgage, a revenue stream, and someone's guess as to what someone might give you for it. Lets hope you keep renters in it.

    Believe it or not houses can go down in value. It may not even be a area wide thing. Maybe, like a guy at my work, the city decides to put the new sewage discharge right next to your lake-front home. He didn't sell last year because he was holding out, waiting for the market to peak. Suddenly no one is interested in buying his house anymore, I wonder why?
     
  7. burritos

    burritos Senior Member

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    <div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 14 2007, 09:07 PM) [snapback]462045[/snapback]</div>
    I hope this property of yours isn't in sacramento, is it?
     
  8. hill

    hill High Fiber Member

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    <div class='quotetop'>QUOTE(burritos @ Jun 13 2007, 05:16 PM) [snapback]461125[/snapback]</div>
    Short sighted, one can look at realty as a bubble bursting ponzi scheme. True economists, though, will point out that realty is NOT a bursting commodity. Track realty out for 90 - 100 years, and you find (nation wide) realty closely follows right along w/ inflation. Sure, if you want to look at realty as a day - trading commodity, it'll look like a burst situation, short term. Hold on long term, and it becomes a different story, just like gold. One decade you can pay $300/oz and another you pay $700/oz. When a $20 walking eagle was minted, you could buy a real nice men's suit with it. Now days? Now that the average walking eagle is worth maybe $850 ? It'll buy a nice men's suit.

    <div class='quotetop'>QUOTE(jhinton @ Jun 14 2007, 11:41 PM) [snapback]462101[/snapback]</div>
    That's dependent on where your rental is. We have a home in MT that's in a historical area, and land use is heavily controlled. Similarly, our hoytie toytie So. Cal home is all surrounded by planned communities. Newport Beach tried to convert the local abandoned Marine Air station into a commercial airport (mearly so they could shut down John Wayne Airport, whose jets take off right over their homes). The surrounding communities funneled millions into fighting them off ... beating their arses in court, an thus keeping our communities pristine. It only takes big $$ B)
     
  9. MarkMN

    MarkMN New Member

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    The last ten years have been exceptional in terms of rising property values, don't expect that to continue at anywhere near the same rate, to do so would be foolish. It is like saying how great stock investments are when all you use for your time frame is 1992-2000. Then the stocks crashed and most stocks are barely back to where they were 7 years ago. Also, how many upgrades and repairs have you made on the property; when was the last time you replaced the roof, the appliances, the carpet, etc. It is possible to own a house for 10 years without having to do any of the above, but they will need to be done. Also, have you gone any length of time without having renters yet? And, have you considered the time you have spent on the property in your out of pocket costs (time is money, correct?). Property values are most likely going to remain flat for quite a while as housing cycles are usually long term cycles. Let me know in another 10 or 20 years how your rental property investment averaged - my bets is that it will average out to about a 5-8% a year investment, in line with a mediocre mutual fund. The argument I intend to make here is that owning real estate can be beneficial as an investment, but in the long term it is extremely doubftul that your gains during the next 10 years will be anything like the next 10 years. I would advise you to sell your real estate and realize the gains, then invest it in other investments.
     
  10. Darwood

    Darwood Senior Member

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    I disagree.
    Returns on real estate vs. stocks are not that different over the longterm. Population continues to increase and inflation is going to ramp up, which means real estate values are unlikely to go down significantly (unless you are in an area dependant on a particular industry that collapses.

    The advantage with real estate investment is that it is INSURED. You cannot insure stocks. A stock crash could happen at any time, caused by any number of events, and you portfolio would crash in value. This will never happen in real estate, assuming you care for the property. Worse case is a fire ruins the house, at which point your mandatory homeowners insurance rebuild it for you. Unless you live in New Orleans! Just look at what people pay for housing in major European cities, or Tokyo, or any city that has been around for longer than the US has. It costs an obscene amount of money to buy a house in London. I just don't see a housing crash happening. Builders got too exuberant and over built as they went farther and farther out from the main cities. All of sudden, people starting realizing it was a liitle too far out given high gas prices. This left a glut of big new homes no one wanted and the effect rippled throught the real estate market. It will pass, as those builders wise up, and switch over to home flipping or to a new style of affordable housing instead of mcmansions. Keep in mind the shrinking middle class and growing immigrant and lower class populations and you can better understand the housing problem. No one was building to suit their needs, since mcmansion had always been profitable.
     
  11. boulder_bum

    boulder_bum Senior Member

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    <div class='quotetop'>QUOTE(Darwood @ Jun 15 2007, 11:20 AM) [snapback]462397[/snapback]</div>
    If I remember correctly, real estate investments average a 5% annual return while stocks average 10%. The real estate market is probably a little less volatile, but historically real estate hasn't been as good of an investment as betting on stocks.

    That said, there are certainly some markets (like Las Vegas), where you could have made a killing if you invested at the right time. I think they saw something like a 45% in one 7 month period?

    My wife and I are actually waiting to buy a house until some of the pricing pressures we're seeing with rising mortgage rates and foreclosures have more time to set in.
     
  12. Darwood

    Darwood Senior Member

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    I guess it comes down to the type of real estate investment. As pointed out, if you live in a home 2 years, you can sell without a huge tax bill. You can't do that with stocks.

    I also don't believe stock returns are going to continue the token 10% returns everyone likes to point to. Those returns have always been due to a continually growing economy. I believe "sustained growth" is a complete misnomer in a world of finite resources. This attempt to have sustained growth has killed every empire that has ever pursued it, and that was before the world was really finite, as it is now.
     
  13. Stev0

    Stev0 Honorary Hong Kong Cavalier

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    I still own my house in the Bay Area, and during the bubble several folks (who get all their financial news from Time Magazine) said I was nuts not to sell it. The house is all paid off, and I get a nice rental check every month; I said I'd be nuts to sell it. When the bubble burst, I heard a couple of I-told-you-sos. I told them I STILL have no intention of selling it (yet), and pointed out that the Bay Area is one of the few places in the country that's STILL going up in housing prices (although, admittedly, not nearly as much as it was 10 years ago).

    Moral: That house was the best damn investment I ever made.
     
  14. Darwood

    Darwood Senior Member

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    Yup. As long as you care for a piece of property and it's not located in a flood plain, you really can't go wrong. If you're handy, you're certain to do well on the property, and wen you sell is pretty much irrelevant, if you buying another property with the money (that property would be lower or higher too).

    I bought my first house right out of college for 109K, and sold it over a year ago for 250K 9 years later. Of course I put a crapload of my time and quite a bit of money in materials into it, but this is stuff I like to do.
    Now I'm in a house I bought for 316K, and after 1 year, I could probably get 400K already, but I have a lot more work to do on it, and I may stay here for many years, I don't know and don't need to.
     
  15. Pinto Girl

    Pinto Girl New Member

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    <div class='quotetop'>QUOTE(Sufferin' Prius Envy @ Jun 13 2007, 11:41 PM) [snapback]461383[/snapback]</div>
    It's not a liberal problem. Loaning someone money against an asset which is "presumed" ---words from your quote-- to be appreciating is just a bad idea for everyone involved.

    This is not good debt and represents a *significantly* larger percentage of a family's total income than in decades past.

    The reality of it is that folks are buying bigger houses than they can afford. And assuming that it'll rise in value --and that one's income will increase--- is what got us into this mess in the first place.

    Another case of "I want it now, even if I can't afford it."

    Stop blaming it on liberals or conservatives.

    ------

    P.S. your article is from October last year...before ARM's and such began to haunt borrowers. Wonder what the authors would say about today's circumstances?
     
  16. MarkMN

    MarkMN New Member

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    <div class='quotetop'>QUOTE(Darwood @ Jun 15 2007, 12:51 PM) [snapback]462419[/snapback]</div>
    It is nearly impossible to compare taxes with stocks vs. real estate. In a retirement account, you can sell stock after 2 years and invest in any other stock,bond,fund,ETF, without any tax bills involved (within limits). And, you also don't have to pay property taxes for two years, as you would in a house, and the costs of the transaction for a stock/fund/ETF/bond is usually much, much less than a house transaction. Really, it is nearly impossible to compare the taxes/fees of houses vs stocks because there are so many variables involved.

    Stock returns can continue to return an average of 8-10% a year in a world of finite resources. There are two types of gains on stock - capital gains (increase in stock value) and dividend gains. I would agree slightly that in the world of finite limits capital gains might reach a point where they are going to be impeded, but the vast majority of the world is far behind on economic development. There is so much growth potential, even in the face of global warming and dwindling dinocarbon, that an impedence on growth is no where to be seen. But even with capital gains not growing, stocks can indefinately pay out dividends to shareholders as long as the sun shines and money trades hands.
     
  17. MarkMN

    MarkMN New Member

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    <div class='quotetop'>QUOTE(Darwood @ Jun 15 2007, 12:20 PM) [snapback]462397[/snapback]</div>

    With real estate, you PAY for the insurance, it doesn't come from the sky. Having insurance is a great benefit of real estate, but I would not compare it to stocks. When a house burns down to the grown, you would have almost a total lost (everything but the land and maybe the foundation), but when a stock market 'crashes', there isn't a total lost, you still own as much stock as you had before the crash, and if you wait a few years, the stock is usually back up to value (on average). When a house burns down, you can't just wait for a few years for the house to grow up from the ground - the lost is irreversible, which is why there is insurance. The house with insurance is a less risky investment than stocks, but there is not a comparison to be had concerning the returns.

    Concerning the housing crash - it is not a crash in the sense that houses are loosing their prices (though they are in some markets), but it is a crash in the sense that inflation is now outpacing housing appreciation - and it will likely continue for several years. Your assessment with the housing glut is partially correct. There is a glut of new homes, but it has nothing to do with energy costs - if it did, then condos in cities wouldn't get affected as much as they are. Condos and city homes are affected just as much as McMansions in the suburbs are, and sometimes more so. The biggest cause of the housing 'crash' was that the prices of housing became overly inflated due to bandwagen investers and therefore housing prices became unreachable to more and more people (and prices became higher than the value of the housing), and so homeowners, investers, and builders had no way of increasing house prices (fewer people were there with the money and idiocity to buy them). So, most investers started dumping some of their assets to cash out, which caused a glut of homes for sale. All crashes are due to investers outpricing the values of their assets.
     
  18. burritos

    burritos Senior Member

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    <div class='quotetop'>QUOTE(Pinto Girl @ Jun 15 2007, 02:04 PM) [snapback]462485[/snapback]</div>
    You mean these ARMs?

    Tick Tock.

    [attachmentid=8906]
     

    Attached Files:

  19. burritos

    burritos Senior Member

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    <div class='quotetop'>QUOTE(Stev0 @ Jun 15 2007, 01:46 PM) [snapback]462467[/snapback]</div>
    StevO,

    If you sell your Bay Area property and stuck the proceed in 5% savings account would that monthly cashflow be more or less tha your monthly rental check?
     
  20. JSH

    JSH Senior Member

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    <div class='quotetop'>QUOTE(hill @ Jun 15 2007, 11:38 AM) [snapback]462365[/snapback]</div>
    My friend's community was planning as well. Their planning commission determined they needed a new sewage treatment plant. They looked at different sights and selected next to my friend's house. It was all planned. It just so happens that the plan to the serve the great good by expanding water and sewer services happens to hurt the property values of a few that live along that particular site. The county says that the water is treated and safe so should have no effect on property values. Buyers think otherwise and look at other lake-front homes. I don't have much sympathy for him because he was gambling by trying to hit the very top of the market and lost.