From the Naples News, we have Denise Zoldan writing about Mortgage foreclosures are up, and a working class is scarce.
The once-dormant microwave oven at Cedar Bay Marina on Marco Island is now the hot spot in the employee lunch room.
Even though the marina-turned-private yacht club is surrounded by pizza joints and fast food restaurants, Cedar Bay employees are packing lunches.
"The problem is they just don't have the money," said Manager Scott Hopkins, pointing out that employees are facing higher rents, higher interest rates, increased property taxes and steeper insurance rates — all of which take a bite out of disposable income.
People like Hopkins are struggling, even though he earns more than the area median income of $66,100 a year.
The three-bedroom townhouse Hopkins bought for $367,000 in November costs $9,000 a year in taxes, insurance, and mortgage insurance. By the time Hopkins pays the principal, interest and condo fees, he's spending nearly half his annual income on housing.
"How is that affordable?" he asks, anger rising in his voice.
The time to think about that was before you bought, jackass!
This is just stage two, folks! We're past stage one which was denial.
Coming up in the batting lineup are "bargaining" soon to be followed by "depression".
Sunday, December 31, 2006
Spin, Spin, Spin
From the San Diego Union Tribune, we have Jeremy W. Peters interviewing a spinmeister: Home sales on rise as owners cut asking prices.
While recent signs have led some economists to speculate that the worst of the housing slump has passed, many are taking a wait-and-see approach, including those at the Realtors association.
“Maybe we've hit bottom,” Lereah said. “I'll need another month before I can get comfortable with that statement.”
Maybe we've hit bottom, or maybe we've not.
Maybe I'm a billionaire, or maybe I'm not.
Maybe David Lereah screwed the pooch, or maybe he did not.
Maybe David Lereah's pooch screwed him six ways from Sunday, or maybe he did not.
With a "maybe", anything is possible.
While recent signs have led some economists to speculate that the worst of the housing slump has passed, many are taking a wait-and-see approach, including those at the Realtors association.
“Maybe we've hit bottom,” Lereah said. “I'll need another month before I can get comfortable with that statement.”
Maybe we've hit bottom, or maybe we've not.
Maybe I'm a billionaire, or maybe I'm not.
Maybe David Lereah screwed the pooch, or maybe he did not.
Maybe David Lereah's pooch screwed him six ways from Sunday, or maybe he did not.
With a "maybe", anything is possible.
Friday, December 29, 2006
Losing your cool
Every once in a while, a journalist loses their cool, and says frankly what this blog has tried to imply for a long time. Journalists are nothing but shills for various industries.
From the horse's mouth herself, I present Diana Olick from CNBC: By the Numbers.
I’ve been getting a lot of feedback from users out there questioning the housing numbers we report on CNBC. Yes, we do a lot of numbers: Existing Home Sales from the National Association of Realtors, Housing Starts and New Home Sales numbers from the US Dept. of Commerce, the monthly Housing Market Index of home builder sentiment from the National Association of Home Builders, just to name a few.
One user writes: “How honest are the NAR’s numbers? Days on Market? Median Price? etc. I have yet to see a major news network investigate such goings on. The REI commissions depend on strong numbers. How accurate is this data?”
Another, Michael Crespy, writes: “Although you periodically have a "housing bear" on the program, more than not, the program is filled with the NAR or NAB's "economists" who are no more than the HEAD cheerleaders for the housing industry!!”
Mr. Crespy, you’re right, they are the cheerleaders for the housing industry, but they are also economists whose sole purpose is to organize and present data on the industry.
Still, NAR’s chief economist David Lereah gets a lot of flak. He not only gets hate mail, he’s got his own hate site: (link). Actually, there are several not-too-savory sites on David. I called him this morning and asked, “Why are people so skeptical of you?” (That wasn’t exactly how I phrased it.)
“Because I’m a shill. Look, they’re basically saying, ‘You’re the Realtors, you’re in it for the money, you have to say the market is going well.’ What are you going to do?” says Lereah.
David Lereah speaks the truth, but he’s also one of the best spinners I’ve ever met, and after 17 years in this business, I’ve met a lot. David always finds a way to turn a negative number into a positive outlook. The steep fall in sales is a “correction” to him. Falling prices are “healthy for the market.” He’s got a million of ‘em, but guess what, he’s also got real numbers.
Now before everyone starts yelling at me, YES YES YES, these guys will do their best to make the market look brighter. YES, they represent Realtors and builders and investors who want good results. Their quotes in the press releases are often nauseating, but when you look past the quotes, there are the numbers.
Here comes the coup de grâce:
I confess, I do own a house, so there’s my bias; I’d like it to continue to appreciate. If you don’t buy what I’m reporting, that’s your choice.
Looks like Diana Whore-lick finally lost her cool, and blurted the truth out in print.
From the horse's mouth herself, I present Diana Olick from CNBC: By the Numbers.
I’ve been getting a lot of feedback from users out there questioning the housing numbers we report on CNBC. Yes, we do a lot of numbers: Existing Home Sales from the National Association of Realtors, Housing Starts and New Home Sales numbers from the US Dept. of Commerce, the monthly Housing Market Index of home builder sentiment from the National Association of Home Builders, just to name a few.
One user writes: “How honest are the NAR’s numbers? Days on Market? Median Price? etc. I have yet to see a major news network investigate such goings on. The REI commissions depend on strong numbers. How accurate is this data?”
Another, Michael Crespy, writes: “Although you periodically have a "housing bear" on the program, more than not, the program is filled with the NAR or NAB's "economists" who are no more than the HEAD cheerleaders for the housing industry!!”
Mr. Crespy, you’re right, they are the cheerleaders for the housing industry, but they are also economists whose sole purpose is to organize and present data on the industry.
Still, NAR’s chief economist David Lereah gets a lot of flak. He not only gets hate mail, he’s got his own hate site: (link). Actually, there are several not-too-savory sites on David. I called him this morning and asked, “Why are people so skeptical of you?” (That wasn’t exactly how I phrased it.)
“Because I’m a shill. Look, they’re basically saying, ‘You’re the Realtors, you’re in it for the money, you have to say the market is going well.’ What are you going to do?” says Lereah.
David Lereah speaks the truth, but he’s also one of the best spinners I’ve ever met, and after 17 years in this business, I’ve met a lot. David always finds a way to turn a negative number into a positive outlook. The steep fall in sales is a “correction” to him. Falling prices are “healthy for the market.” He’s got a million of ‘em, but guess what, he’s also got real numbers.
Now before everyone starts yelling at me, YES YES YES, these guys will do their best to make the market look brighter. YES, they represent Realtors and builders and investors who want good results. Their quotes in the press releases are often nauseating, but when you look past the quotes, there are the numbers.
Here comes the coup de grâce:
I confess, I do own a house, so there’s my bias; I’d like it to continue to appreciate. If you don’t buy what I’m reporting, that’s your choice.
Looks like Diana Whore-lick finally lost her cool, and blurted the truth out in print.
Wednesday, December 27, 2006
Incentives : The Fuel of Economics
From the much esteemed New York Times, we have David Leonhardt talking about: To-Do List: Wrap Gifts. Have Baby.
For decades and decades, the busiest day of the year in the nation’s maternity wards fell sometime in mid-September. Americans evidently do a lot of baby-making during the cold, dark days of December, and once a baby has been made, the die for its birth date has largely been cast.
Or at least that’s the way it used to be. In the last 15 years, there has been a huge increase in the number of births that are induced with drugs or come by Caesarean section. In either case, parents or doctors can often schedule a baby’s arrival on a day of their choosing.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Obviously, there are reasons beside taxes that someone might prefer having a baby in late December rather than early January. Many people will be on vacation next week, with extended family in town to see a new baby and help around the house. The stress of having relatives visit may also be enough to send some expectant mothers into labor.
So to see if taxes were truly the culprit, Mr. Chandra and another economist, Stacy Dickert-Conlin of Michigan State, devised some clever tests. They found that people who stood to gain the most from the tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents — who, presumably, are more likely to be paying for tax advice — produced more December babies than other parents.
Excellent article. I suppose praise is due for the newspapers once in a while as well.
The article clearly demonstrates the role of economic incentives on such mundane matters as child birth. Of course, it's the arbitrariness of the calendar that is to blame.
The article also correctly points out the obvious solution : you should only get a tax break for the fraction of months in the year since the baby was born i.e. if the baby is born in December, you only get 1/12th the tax break.
There is a similar binary decision variable playing out in Germany.
From the BBC, we have Pregnant Germans seek cash bonus.
Many German mothers-to-be are reportedly trying to delay labour so their births coincide with a generous new government scheme.
Parents of babies born on or after 1 January will be entitled to up to 25,200 euros (£16,911, $33,300) to ease the financial burden of parenthood.
But those born even a minute earlier will not be covered by the scheme.
Doctors have been warning women not to take any medication to try to delay labour, and few, they stress, would put the life of their baby at risk for the sake of the money.
But what many mums-to-be do in order to bring on labour, pregnant Germans are now anxious to avoid.
These include drinking red wine, eating curries and taking part in physical activity.
This is just plain stupid but then the Germans have never been much on the side of economic rationality.
For decades and decades, the busiest day of the year in the nation’s maternity wards fell sometime in mid-September. Americans evidently do a lot of baby-making during the cold, dark days of December, and once a baby has been made, the die for its birth date has largely been cast.
Or at least that’s the way it used to be. In the last 15 years, there has been a huge increase in the number of births that are induced with drugs or come by Caesarean section. In either case, parents or doctors can often schedule a baby’s arrival on a day of their choosing.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Not surprisingly, they tend to avoid weekends and holidays, when doctors have other plans, hospitals are short of staff and the possibility of an unfortunate birthday — Christmas Day, anyone? — looms. During holiday weeks, births have become increasingly crowded into the weekdays surrounding the holiday.
Over this same period — since the early 1990s — the federal government has been steadily increasing the tax breaks for having a child. For parents to claim the full amount of any of these breaks in a given year, a child must simply be born by 11:59 p.m. on Dec. 31. If the baby arrives a few minutes later, the parents are often more than a thousand dollars poorer.
Obviously, there are reasons beside taxes that someone might prefer having a baby in late December rather than early January. Many people will be on vacation next week, with extended family in town to see a new baby and help around the house. The stress of having relatives visit may also be enough to send some expectant mothers into labor.
So to see if taxes were truly the culprit, Mr. Chandra and another economist, Stacy Dickert-Conlin of Michigan State, devised some clever tests. They found that people who stood to gain the most from the tax breaks were also the ones who gave birth in late December most frequently. When the gains were similar, high-income parents — who, presumably, are more likely to be paying for tax advice — produced more December babies than other parents.
Excellent article. I suppose praise is due for the newspapers once in a while as well.
The article clearly demonstrates the role of economic incentives on such mundane matters as child birth. Of course, it's the arbitrariness of the calendar that is to blame.
The article also correctly points out the obvious solution : you should only get a tax break for the fraction of months in the year since the baby was born i.e. if the baby is born in December, you only get 1/12th the tax break.
There is a similar binary decision variable playing out in Germany.
From the BBC, we have Pregnant Germans seek cash bonus.
Many German mothers-to-be are reportedly trying to delay labour so their births coincide with a generous new government scheme.
Parents of babies born on or after 1 January will be entitled to up to 25,200 euros (£16,911, $33,300) to ease the financial burden of parenthood.
But those born even a minute earlier will not be covered by the scheme.
Doctors have been warning women not to take any medication to try to delay labour, and few, they stress, would put the life of their baby at risk for the sake of the money.
But what many mums-to-be do in order to bring on labour, pregnant Germans are now anxious to avoid.
These include drinking red wine, eating curries and taking part in physical activity.
This is just plain stupid but then the Germans have never been much on the side of economic rationality.
Wolves Eat Sheep : Movie at 9
From the Denver Post, we have the triumvirate of David Olinger, Jeffrey A. Roberts and Greg Griffin writing about: Builders often key players in high-risk game.
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.
But when she came to the loan closing, a surprise awaited her. No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother's take-home pay.
Because she had already signed one contract, "I felt trapped, like I couldn't get out of it any more," Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.
64% of take-home pay? Single mother? Felt trapped, and signed a second piece of paper?
Residents who bought houses from Strodtman said they were lured by offers of low payments, then learned at loan closings that their monthly costs would be hundreds of dollars higher than they expected.
"They tell me in one year you can refinance," said Librado Herrera, who does not read English and depended on Strodtman's sales assistant to explain the contract.
When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn't worth $245,000.
Herrera is unemployed. His wife sews bags for a living. They have fallen behind on their $1,500-a-month mortgage payments and fear they must abandon their new home.
In one year, "I waste all my savings, and I have no more ways to save," he said. "I'm paying too much. I don't understand why the bank loaned the money. The value is not real."
Unemployed? Can't read English? Wife sews bags for a living? Bought a house for $245K?
On the one hand, I know that, thanks to my "liberal" sensibilities, I'm supposed to feel sorry for these people. However, I don't seem to be able to muster up any pity.
They were speculating, and they got caught with their pants down, and like any other speculative episode when the game is winding down, the truth is revealed, and much fraud is exposed because there will always be people who will take advantage of the unwashed masses who wanted to make "easy money".
After this, there will be much hand-wringing, weeping and wailing; heart-rending stories will be published to sell newspapers; politicians will pretend to tear their garments, and promise the masses that this will "never happen again"; people will be subpoenaed before Congress; there will be much finger-waving, and finger-pointing; laws will be passed that mortgage documents must be bilingual (English and Spanish); mortgage brokers will have to take "ethics" courses, etc. etc. etc.
YAWN!
None of this will ever stop the wolves from eating the sheep, of course!
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.
But when she came to the loan closing, a surprise awaited her. No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother's take-home pay.
Because she had already signed one contract, "I felt trapped, like I couldn't get out of it any more," Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.
64% of take-home pay? Single mother? Felt trapped, and signed a second piece of paper?
Residents who bought houses from Strodtman said they were lured by offers of low payments, then learned at loan closings that their monthly costs would be hundreds of dollars higher than they expected.
"They tell me in one year you can refinance," said Librado Herrera, who does not read English and depended on Strodtman's sales assistant to explain the contract.
When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn't worth $245,000.
Herrera is unemployed. His wife sews bags for a living. They have fallen behind on their $1,500-a-month mortgage payments and fear they must abandon their new home.
In one year, "I waste all my savings, and I have no more ways to save," he said. "I'm paying too much. I don't understand why the bank loaned the money. The value is not real."
Unemployed? Can't read English? Wife sews bags for a living? Bought a house for $245K?
On the one hand, I know that, thanks to my "liberal" sensibilities, I'm supposed to feel sorry for these people. However, I don't seem to be able to muster up any pity.
They were speculating, and they got caught with their pants down, and like any other speculative episode when the game is winding down, the truth is revealed, and much fraud is exposed because there will always be people who will take advantage of the unwashed masses who wanted to make "easy money".
After this, there will be much hand-wringing, weeping and wailing; heart-rending stories will be published to sell newspapers; politicians will pretend to tear their garments, and promise the masses that this will "never happen again"; people will be subpoenaed before Congress; there will be much finger-waving, and finger-pointing; laws will be passed that mortgage documents must be bilingual (English and Spanish); mortgage brokers will have to take "ethics" courses, etc. etc. etc.
YAWN!
None of this will ever stop the wolves from eating the sheep, of course!
Who thought of this one?
From the Washington Post we have Million-Dollar Condos, With a Soup Kitchen Below.
Urban hipsters have shown a knack for dropping up to $1 million for condos in the heart of the District.
But will they spend that much to live over a church that feeds the homeless?
One-bedroom apartments would sell for between $400,000 and $500,000, while two bedrooms with a den would go for about $1 million, said David DeSantis, PN Hoffman's vice president of sales and marketing.
DeSantis said the company is well aware that some home buyers may blanch at the prospect of living above a homeless service center. But he said the developer expects to attract buyers who "are fully aware of the urban lifestyle" and will "appreciate the building and the neighborhood for what it is."
"I don't think I'm going to have any problem finding 140 families who want to call this building home," DeSantis said.
Who, in their right mind, would spend a million dollars to live above a homeless shelter?
"Darling, I don't feel like cooking today. Let's just order in from the soup kitchen."
"Oh look, darling! There's a homeless wino pissing on our doorstep."
"Sweetheart, why don't we invite your boss over for hors d'oeuvres next week to watch the Homeless Bum Parade?"
Urban hipsters have shown a knack for dropping up to $1 million for condos in the heart of the District.
But will they spend that much to live over a church that feeds the homeless?
One-bedroom apartments would sell for between $400,000 and $500,000, while two bedrooms with a den would go for about $1 million, said David DeSantis, PN Hoffman's vice president of sales and marketing.
DeSantis said the company is well aware that some home buyers may blanch at the prospect of living above a homeless service center. But he said the developer expects to attract buyers who "are fully aware of the urban lifestyle" and will "appreciate the building and the neighborhood for what it is."
"I don't think I'm going to have any problem finding 140 families who want to call this building home," DeSantis said.
Who, in their right mind, would spend a million dollars to live above a homeless shelter?
"Darling, I don't feel like cooking today. Let's just order in from the soup kitchen."
"Oh look, darling! There's a homeless wino pissing on our doorstep."
"Sweetheart, why don't we invite your boss over for hors d'oeuvres next week to watch the Homeless Bum Parade?"
Tuesday, December 26, 2006
A History Lesson
A modest lesson about the Great Florida Land Boom in the early 1920's.
The arguments should sound eerily familiar!
The arguments should sound eerily familiar!
Government Subsidies of the Absurd Kind!
From the esteemed BBC, we have S Koreans offered cash for no sex.
Male workers who vow to stay away from prostitutes after year-end celebrations in South Korea are to be rewarded.
The Ministry for Gender Equality is offering cash to companies whose male employees pledge not to pay for sex after office parties.
Men are being urged to register on the ministry's website. The companies with most pledges will receive a reward.
Officials say they want to put an end to a culture in which men get drunk at parties and go on to buy sex.
But some critics have described the move as a waste of money.
Any smart person would both take the money, and then go on to behave just as they preferred before the money was given.
No disincentives to behaving badly, and an enormous incentive to lie.
What would you expect?
If you wanted to learn economics in a nutshell, this example is it!
Male workers who vow to stay away from prostitutes after year-end celebrations in South Korea are to be rewarded.
The Ministry for Gender Equality is offering cash to companies whose male employees pledge not to pay for sex after office parties.
Men are being urged to register on the ministry's website. The companies with most pledges will receive a reward.
Officials say they want to put an end to a culture in which men get drunk at parties and go on to buy sex.
But some critics have described the move as a waste of money.
Any smart person would both take the money, and then go on to behave just as they preferred before the money was given.
No disincentives to behaving badly, and an enormous incentive to lie.
What would you expect?
If you wanted to learn economics in a nutshell, this example is it!
Don't be insulted, babykins!
From the Palm Beach Post we have Home sale situation a bit less bad.
Yes, home prices are falling, but there's a not-so-thin line between making an offer that reflects this reality and insulting the seller.
"We are amazed at some of the crazy (low) offers people put through on homes that have been marketed at a reasonable price," says Realtor Randy Bianchi of Paradise Properties in West Palm Beach.
"It almost becomes insulting," he says.
Actually, Bianchi is too polite to say that some offers are insulting.
Case in point: Bianchi has a condo in West Palm Beach listed for $170,000 - a reasonable asking price, he says, for an end unit with many upgrades and a great view. The last two sales (within the past 45 days, he points out, not last year) were for that much or more.
"We got an offer of $145,000 with 95 percent LTV (loan-to-value)," he says. "Come on! If it were cash, I might understand. But financed? I think buyers are assuming that all sellers overprice homes, or they're not listening to their agents or nobody is doing their homework."
There are so many things wrong with this article, it's hard to see where to begin.
I'm also going to use standard terminology unlike the reporter who has no clue : an "offer to buy" is called a bid, and "an offer to sell" is called an ask, or an offer.
Firstly, there is no such thing as an "insulting" bid. That's why it's a bid, and that's how capitalism works. People bid what they feel something is worth, and you can either take it or leave it. To call something "insulting" demonstrates a level of foolishness that's shocking.
Secondly, there are two reasons to under-bid, one mathematical, and one pragmatic. (actually, they're the same thing.)
The mathematical reason is called the winner's curse.
Here's the cleanest way to think about it : assume you attend an auction where the true worth of the object being auctioned is unknown. Let us also assume that each bidder bids independently.
Well, obviously the highest bidder wins, but since the object should be worth roughly the same to each bidder, one could make the argument that the "average" (mean or median as is appropriate) is probably a better judge of the "true worth" of the object than any individual bid. In which case, the highest bidder overpaid, by definition.
Oooops!
This is a very nasty mathematical fact that's hard to escape.
The trick out for professionals is called "bid shading". You revise downward your ex ante estimation of the value to a level that you would be comfortable were you to actually win. (In plain English, you need to have no "regrets" that you won the auction.)
Now, the actual implementation of this is tricky (of course! otherwise everyone would get rich off trading stocks, or bonds, or currencies, or fine art.)
As someone who's worked as a professional market-maker, on a pragmatic level, professional bidders also take into account whether the market is rising or falling, and at what rate. You underbid the market to take into account this directionality. You also take into account the fundamentals of the situation given the time-frame that you propose to hold that object.
Given my reading of the Florida market, one could easily make the case that this 15% underbid is actually a huge overbid, and the sellers instead of being insulted should have rushed to pass the buck onto the greater fool.
Thirdly, on a brute-force common-sense level, if this is an "insulting bid", where are all the "non-insulting bids"? If they don't exist, then the perhaps the seller has an inflated value of the object compared to the market (which in this case is a single bid.)
So one more time : there is no such thing as an "insulting" bid or offer!
Yes, home prices are falling, but there's a not-so-thin line between making an offer that reflects this reality and insulting the seller.
"We are amazed at some of the crazy (low) offers people put through on homes that have been marketed at a reasonable price," says Realtor Randy Bianchi of Paradise Properties in West Palm Beach.
"It almost becomes insulting," he says.
Actually, Bianchi is too polite to say that some offers are insulting.
Case in point: Bianchi has a condo in West Palm Beach listed for $170,000 - a reasonable asking price, he says, for an end unit with many upgrades and a great view. The last two sales (within the past 45 days, he points out, not last year) were for that much or more.
"We got an offer of $145,000 with 95 percent LTV (loan-to-value)," he says. "Come on! If it were cash, I might understand. But financed? I think buyers are assuming that all sellers overprice homes, or they're not listening to their agents or nobody is doing their homework."
There are so many things wrong with this article, it's hard to see where to begin.
I'm also going to use standard terminology unlike the reporter who has no clue : an "offer to buy" is called a bid, and "an offer to sell" is called an ask, or an offer.
Firstly, there is no such thing as an "insulting" bid. That's why it's a bid, and that's how capitalism works. People bid what they feel something is worth, and you can either take it or leave it. To call something "insulting" demonstrates a level of foolishness that's shocking.
Secondly, there are two reasons to under-bid, one mathematical, and one pragmatic. (actually, they're the same thing.)
The mathematical reason is called the winner's curse.
Here's the cleanest way to think about it : assume you attend an auction where the true worth of the object being auctioned is unknown. Let us also assume that each bidder bids independently.
Well, obviously the highest bidder wins, but since the object should be worth roughly the same to each bidder, one could make the argument that the "average" (mean or median as is appropriate) is probably a better judge of the "true worth" of the object than any individual bid. In which case, the highest bidder overpaid, by definition.
Oooops!
This is a very nasty mathematical fact that's hard to escape.
The trick out for professionals is called "bid shading". You revise downward your ex ante estimation of the value to a level that you would be comfortable were you to actually win. (In plain English, you need to have no "regrets" that you won the auction.)
Now, the actual implementation of this is tricky (of course! otherwise everyone would get rich off trading stocks, or bonds, or currencies, or fine art.)
As someone who's worked as a professional market-maker, on a pragmatic level, professional bidders also take into account whether the market is rising or falling, and at what rate. You underbid the market to take into account this directionality. You also take into account the fundamentals of the situation given the time-frame that you propose to hold that object.
Given my reading of the Florida market, one could easily make the case that this 15% underbid is actually a huge overbid, and the sellers instead of being insulted should have rushed to pass the buck onto the greater fool.
Thirdly, on a brute-force common-sense level, if this is an "insulting bid", where are all the "non-insulting bids"? If they don't exist, then the perhaps the seller has an inflated value of the object compared to the market (which in this case is a single bid.)
So one more time : there is no such thing as an "insulting" bid or offer!
Friday, December 22, 2006
Christmas Party!
Last night, a bunch of us at work went out for a few drinks, and dinner. What started out as some minor complaining about the cluelessness of our friends and families about economics turned into a major whinefest. But, the booze and the vitriol was flowing freely, and much merriment was had by all...
Here are the top 5 complaints:
"I bought a stock at 20, and now it is 60. Should I sell it?"
What's the name of the company, dumbass?
"Should I invest in X?"
No, you shouldn't! You're a dumbass!
"I never have any luck in stocks."
That's because successful investing is a matter of "analysis" not "luck", dumbass!
"Will the market go up or down?"
If I knew with any degree of confidence, I wouldn't be talking to someone like you. I would be on my private jet flying to my own private island, and no, you would not be invited, dumbass!
And the NUMBER ONE complaint universally voiced by all:
"I bought a stock, and it went down 50% but I haven't lost any money because I haven't sold it yet."
Yes, you have! The market doesn't "remember" when anyone bought or sold; it is what it is currently, and you've lost half your money, dumbass!
Happy holidays!
Here are the top 5 complaints:
"I bought a stock at 20, and now it is 60. Should I sell it?"
What's the name of the company, dumbass?
"Should I invest in X?"
No, you shouldn't! You're a dumbass!
"I never have any luck in stocks."
That's because successful investing is a matter of "analysis" not "luck", dumbass!
"Will the market go up or down?"
If I knew with any degree of confidence, I wouldn't be talking to someone like you. I would be on my private jet flying to my own private island, and no, you would not be invited, dumbass!
And the NUMBER ONE complaint universally voiced by all:
"I bought a stock, and it went down 50% but I haven't lost any money because I haven't sold it yet."
Yes, you have! The market doesn't "remember" when anyone bought or sold; it is what it is currently, and you've lost half your money, dumbass!
Happy holidays!
How to use a calculator
From CNN Money, we have Early Retirement: The hurry-up offense.
Ten years ago, Anne and Joe Raspanti said "I do" in Hawaii. Among the things those two words changed for Joe were his plans for how, and where, he'd spend the rest of his working life.
As a deputy security director at a naval weapons station, he had assumed that until he retired at age 62, he would remain in Hawaii, where he'd lived for the past 16 years.
But after Anne's children began having kids, she wanted to return to the mainland to be closer to her family.
So in 2002, the Raspantis headed to South Carolina, taking a $25,000 pay cut to do so. Though their combined income is now down to $122,000, Joe, 50, hopes to retire at the same time as Anne, 56, a registered nurse, who plans to call it quits in just six years.
Starting at age 56, Joe is eligible for a monthly government pension of $2,000, with a $1,000 supplement until age 62. After retirement, he hopes to bring in another $15,000 a year by working part time.
Both Raspantis started saving late, but before they left Hawaii, they had begun funneling $25,000 a year into their retirement accounts. "We were doing great before the move," says Joe.
Recently their yearly retirement contributions have dropped to just $10,500. Still, Joe has $122,000 in his Thrift Savings Plan, the government's version of a 401(k), and Anne's IRA balance tops $90,000.
They each have a $5,500 Roth IRA that is entirely invested in a variable annuity, as well as a third, jointly owned, variable annuity valued at $17,500.
It isn't out of the question for Joe to retire early, say financial planners Jenny Curran and Bill Prewitt of Charleston, S.C. But in order for him to do so, the Raspantis will have to give their finances a serious overhaul.
The couple have just $5,000 to cover unexpected expenses. They need to bring that up to at least $24,000, says Prewitt, which would cover about three months of living expenses.
When the planners asked for a budget, the Raspantis found that they could not account for about $2,000 each month. "They need to write down what they are truly spending," says Curran. "Then they'll know where their cash is disappearing."
The missing money, say the planners, is the key to whether they can retire in six years. To hit that goal, they need to save an additional $1,000 a month.
Given this data, I'll give a dissenting opinion. It is utterly out of the question for them to retire in their time frame.
Here's the analysis:
If three months of living expenses are $24K, they need $8K a month. $2K seems to be "disappearing". Let's assume they scale back the $2K (a very optimistic assumption.) You're still left with $6K a month.
Now, on the assets side, assuming they save most optimistically, you're looking at: 122K + 90K + 5.5K * 2 + 17.5K + 72K (1K a month for 6 years) = 312.5K.
Before taxes, this thing is going to net something like $18K a year. Add in the $36K from his pension, and you're up to $44K. After taxes, you're at roughly $33K or so, which is $2,750 a month.
That's nowhere close to $6K a month that they "need" for living expenses, and if you pull out the difference which is roughly $40K a year, the money will last just under 8 years (and remember, you're going to get less interest each year too! Not to mention the loss of that extra $1K after he turns 62.)
I call bullshit on these "financial advisers".
Ten years ago, Anne and Joe Raspanti said "I do" in Hawaii. Among the things those two words changed for Joe were his plans for how, and where, he'd spend the rest of his working life.
As a deputy security director at a naval weapons station, he had assumed that until he retired at age 62, he would remain in Hawaii, where he'd lived for the past 16 years.
But after Anne's children began having kids, she wanted to return to the mainland to be closer to her family.
So in 2002, the Raspantis headed to South Carolina, taking a $25,000 pay cut to do so. Though their combined income is now down to $122,000, Joe, 50, hopes to retire at the same time as Anne, 56, a registered nurse, who plans to call it quits in just six years.
Starting at age 56, Joe is eligible for a monthly government pension of $2,000, with a $1,000 supplement until age 62. After retirement, he hopes to bring in another $15,000 a year by working part time.
Both Raspantis started saving late, but before they left Hawaii, they had begun funneling $25,000 a year into their retirement accounts. "We were doing great before the move," says Joe.
Recently their yearly retirement contributions have dropped to just $10,500. Still, Joe has $122,000 in his Thrift Savings Plan, the government's version of a 401(k), and Anne's IRA balance tops $90,000.
They each have a $5,500 Roth IRA that is entirely invested in a variable annuity, as well as a third, jointly owned, variable annuity valued at $17,500.
It isn't out of the question for Joe to retire early, say financial planners Jenny Curran and Bill Prewitt of Charleston, S.C. But in order for him to do so, the Raspantis will have to give their finances a serious overhaul.
The couple have just $5,000 to cover unexpected expenses. They need to bring that up to at least $24,000, says Prewitt, which would cover about three months of living expenses.
When the planners asked for a budget, the Raspantis found that they could not account for about $2,000 each month. "They need to write down what they are truly spending," says Curran. "Then they'll know where their cash is disappearing."
The missing money, say the planners, is the key to whether they can retire in six years. To hit that goal, they need to save an additional $1,000 a month.
Given this data, I'll give a dissenting opinion. It is utterly out of the question for them to retire in their time frame.
Here's the analysis:
If three months of living expenses are $24K, they need $8K a month. $2K seems to be "disappearing". Let's assume they scale back the $2K (a very optimistic assumption.) You're still left with $6K a month.
Now, on the assets side, assuming they save most optimistically, you're looking at: 122K + 90K + 5.5K * 2 + 17.5K + 72K (1K a month for 6 years) = 312.5K.
Before taxes, this thing is going to net something like $18K a year. Add in the $36K from his pension, and you're up to $44K. After taxes, you're at roughly $33K or so, which is $2,750 a month.
That's nowhere close to $6K a month that they "need" for living expenses, and if you pull out the difference which is roughly $40K a year, the money will last just under 8 years (and remember, you're going to get less interest each year too! Not to mention the loss of that extra $1K after he turns 62.)
I call bullshit on these "financial advisers".
Wednesday, December 20, 2006
The Miracle of Christmas
From the San Diego Union Tribune, we have Adviser says worst of housing slump may be over.
The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
Of the housing slump, Lazear said, “it looks like the precipitous decline that we saw earlier is not going to occur in 2007.”
He also struck a hopeful note that energy prices will be more stable next year.
There, it's been declared, it's officially over!
The fundamentals are back in line, no more exotic loans are being issued, the speculators have all exited the market in an orderly fashion, there will be no more foreclosures, all the fraudsters have been rehabilitated, and magically all the formerly stupid people have now become born-again Einsteins.
MISSION ACCOMPLISHED!
The worst of the housing slump might be over, although some pain is likely to linger, an adviser to President Bush suggested Tuesday.
Of the housing slump, Lazear said, “it looks like the precipitous decline that we saw earlier is not going to occur in 2007.”
He also struck a hopeful note that energy prices will be more stable next year.
There, it's been declared, it's officially over!
The fundamentals are back in line, no more exotic loans are being issued, the speculators have all exited the market in an orderly fashion, there will be no more foreclosures, all the fraudsters have been rehabilitated, and magically all the formerly stupid people have now become born-again Einsteins.
MISSION ACCOMPLISHED!
Mea Culpa
In an earlier blog entry Three is the new two, I commented on the fact that two people can't live in three houses in the same county.
An astute reader has pointed out that while that is indeed true, two people can run around and pretend to live in three houses provided they are close by. In fact, why stop at three?
So why would one want to do that?
Well, it turns out that the capital gains tax laws are different for houses that are "lived in" v/s houses that are "investments". (Yes, yes, this is stupid, but that's not the point here.)
Of course, some of us (including the attorney general) would refer to it as fraud.
An astute reader has pointed out that while that is indeed true, two people can run around and pretend to live in three houses provided they are close by. In fact, why stop at three?
So why would one want to do that?
Well, it turns out that the capital gains tax laws are different for houses that are "lived in" v/s houses that are "investments". (Yes, yes, this is stupid, but that's not the point here.)
Of course, some of us (including the attorney general) would refer to it as fraud.
Tuesday, December 19, 2006
California Haze
From the North County Times, we have Survey finds alternative loans are still popular.
More than one-third of California mortgage brokers believe that interest-only loans will be the most viable loans for borrowers because of the continued high cost of housing in the state, according to a survey released Monday.
Ed Smith, director of the association and a San Diego mortgage broker, said that interest-only loans were not necessarily desirable, but were a product of the market.
"Most people can't afford a 'real' payment on their house," he said. "They're hoping for an increase in income or a windfall. A lot of people got in on the frenzy and made an emotional decision."
Holy hallucinations!
Most people can't afford a "real" payment but are hoping for a windfall. Hence, the proliferation of i/o-loans.
Well, an epic ass-pounding is not necessarily desirable either, but it's going to be a product of the market.
Here's looking at you, kid!
More than one-third of California mortgage brokers believe that interest-only loans will be the most viable loans for borrowers because of the continued high cost of housing in the state, according to a survey released Monday.
Ed Smith, director of the association and a San Diego mortgage broker, said that interest-only loans were not necessarily desirable, but were a product of the market.
"Most people can't afford a 'real' payment on their house," he said. "They're hoping for an increase in income or a windfall. A lot of people got in on the frenzy and made an emotional decision."
Holy hallucinations!
Most people can't afford a "real" payment but are hoping for a windfall. Hence, the proliferation of i/o-loans.
Well, an epic ass-pounding is not necessarily desirable either, but it's going to be a product of the market.
Here's looking at you, kid!
Three is the new two
From NBC-2.com, we have Foreclosures nearly double in Lee County.
Patricia Francioni has three homes for sale. That's not easy in a buyer's market.
They aren't investment homes, she and her son have lived in them. Now she wants to sell them all.
Two people living in three houses. Flitting around from house to house like delicate little butterflies. And, they're all in the same county too!
But, no sir! they're not speculating, nosirree bob!
Patricia Francioni has three homes for sale. That's not easy in a buyer's market.
They aren't investment homes, she and her son have lived in them. Now she wants to sell them all.
Two people living in three houses. Flitting around from house to house like delicate little butterflies. And, they're all in the same county too!
But, no sir! they're not speculating, nosirree bob!
Monday, December 18, 2006
It's a Wonderful Life
From the Tampa Tribune via TBO.com we have A Dozen Houses, A Dozen Headaches.
On their wedding day, Lee and Rebecca Womack turned off their cell phones so they wouldn't hear the creditors calling.
Months before, the Tennessee couple who had never owned a home purchased 12 dilapidated rental properties in central Tampa, sight unseen. They paid $1.5 million. With $14,600 a month in mortgage payments and only three tenants, they were running out of money.
The couple postponed their honeymoon, moved to Tampa and have spent the first five months of their marriage trying to keep from going bankrupt.
Blinded by what they saw as an opportunity to make a lot of money, the pair ignored signs of trouble and entered into one risky deal after another - with the guidance of a felon.
"We see now that we made big mistakes," Rebecca Womack, 27, said, standing in one of the vacant rental homes. It has been burglarized three times and the mortgage is two months late. "Now our financial lives are ruined."
The couple blame Lee Womack's older brother, 33-year-old Billy Womack, owner of Tampa-based Womack Property & Asset Management. He pitched the investment proposal to them in February and encouraged them to buy 12 homes in 43 days. The plan was to fix them up, rent them and sell later.
They say they didn't know that Billy Womack talked sellers into accepting a lower price and bumping up the recorded sales price by an average of $30,000. The difference went to his company, documents show. He distributed some of it to the Womacks to help with improvements and mortgage payments.
The main players in the transactions are pointing fingers at Billy Womack. He blames the couple for not understanding the deal and other professionals for not warning him.
It all started with family and the dream of making money.
The couple say they were skeptical of the brother's proposal but were encouraged by family members to help him. Billy Womack had recently served eight months in jail for operating an Ecstasy lab in his Lakeland home. He pleaded guilty to five counts of possession of Ecstasy with the intent to distribute. He had just started his real estate company and was trying to turn his life around.
The couple agreed to be his first investors.
Billy Womack has no real estate license. His company puts property transactions together and helps clients manage investment homes.
"We just want out," Rebecca Womack said. "I don't care about making money anymore. If we could get out of this, we could start over. But I don't think that's going to happen
This is such an amazing tale. Family, felony and fraud, deceipt, deception, dope and "dopes", honeymoon, hearth and happiness. All in a warm and cozy little package!
Just the right antidote to the seasonal stomach-churning, haul-me-before-the-porcelain-goddess-already It's a Wonderful Life.
On their wedding day, Lee and Rebecca Womack turned off their cell phones so they wouldn't hear the creditors calling.
Months before, the Tennessee couple who had never owned a home purchased 12 dilapidated rental properties in central Tampa, sight unseen. They paid $1.5 million. With $14,600 a month in mortgage payments and only three tenants, they were running out of money.
The couple postponed their honeymoon, moved to Tampa and have spent the first five months of their marriage trying to keep from going bankrupt.
Blinded by what they saw as an opportunity to make a lot of money, the pair ignored signs of trouble and entered into one risky deal after another - with the guidance of a felon.
"We see now that we made big mistakes," Rebecca Womack, 27, said, standing in one of the vacant rental homes. It has been burglarized three times and the mortgage is two months late. "Now our financial lives are ruined."
The couple blame Lee Womack's older brother, 33-year-old Billy Womack, owner of Tampa-based Womack Property & Asset Management. He pitched the investment proposal to them in February and encouraged them to buy 12 homes in 43 days. The plan was to fix them up, rent them and sell later.
They say they didn't know that Billy Womack talked sellers into accepting a lower price and bumping up the recorded sales price by an average of $30,000. The difference went to his company, documents show. He distributed some of it to the Womacks to help with improvements and mortgage payments.
The main players in the transactions are pointing fingers at Billy Womack. He blames the couple for not understanding the deal and other professionals for not warning him.
It all started with family and the dream of making money.
The couple say they were skeptical of the brother's proposal but were encouraged by family members to help him. Billy Womack had recently served eight months in jail for operating an Ecstasy lab in his Lakeland home. He pleaded guilty to five counts of possession of Ecstasy with the intent to distribute. He had just started his real estate company and was trying to turn his life around.
The couple agreed to be his first investors.
Billy Womack has no real estate license. His company puts property transactions together and helps clients manage investment homes.
"We just want out," Rebecca Womack said. "I don't care about making money anymore. If we could get out of this, we could start over. But I don't think that's going to happen
This is such an amazing tale. Family, felony and fraud, deceipt, deception, dope and "dopes", honeymoon, hearth and happiness. All in a warm and cozy little package!
Just the right antidote to the seasonal stomach-churning, haul-me-before-the-porcelain-goddess-already It's a Wonderful Life.
Friday, December 15, 2006
Splitting
From the Herald Tribune in Florida, we have 'Splitter' market gets sophisticated pitch.
Splitters are "individuals who own at least two homes and split their time between them for recreation, for work-life balance or to connect with family and friends," explains an innovative public-private marketing campaign that aims to target potential new part-time Floridians.
Obviously, real estate giant WCI Communities Inc. and the Florida Chamber of Commerce both think a second home in the Sunshine State is a great idea for nearly everyone. Together they have created an unusually eye-catching marketing tool to stimulate the concept.
"Splitting to Paradise -- Your Guide to Owning a Second Home In Florida," is a colorful and humorous tongue-in-cheek 35-page printed brochure, Web site and musical CD aimed at planting the splitter seed in minds everywhere.
A faux whimsical "confidential" file holds a letter from a woman who finds "love at first sight" on Florida's golf links with "Pierre Billiou, a debonair businessman from the Hamptons."
Another card in the file is from "Biff Buckstein, Extreme Athlete and Splitter," who writes about his "killer condo" and Florida's "tasty waves."
Biff, who clearly is not in Southwest Florida, also informs his pals that "I totally PARTY at night."
A "footnote" from the editors of the brochure points out that Biff's parents also live in the condo and that Biff "sleeps till noon each day."
Party on, dudes!
Splitters are "individuals who own at least two homes and split their time between them for recreation, for work-life balance or to connect with family and friends," explains an innovative public-private marketing campaign that aims to target potential new part-time Floridians.
Obviously, real estate giant WCI Communities Inc. and the Florida Chamber of Commerce both think a second home in the Sunshine State is a great idea for nearly everyone. Together they have created an unusually eye-catching marketing tool to stimulate the concept.
"Splitting to Paradise -- Your Guide to Owning a Second Home In Florida," is a colorful and humorous tongue-in-cheek 35-page printed brochure, Web site and musical CD aimed at planting the splitter seed in minds everywhere.
A faux whimsical "confidential" file holds a letter from a woman who finds "love at first sight" on Florida's golf links with "Pierre Billiou, a debonair businessman from the Hamptons."
Another card in the file is from "Biff Buckstein, Extreme Athlete and Splitter," who writes about his "killer condo" and Florida's "tasty waves."
Biff, who clearly is not in Southwest Florida, also informs his pals that "I totally PARTY at night."
A "footnote" from the editors of the brochure points out that Biff's parents also live in the condo and that Biff "sleeps till noon each day."
Party on, dudes!
Thursday, December 14, 2006
Californication
From USA Today, we have: More homes are going, going, gone.
"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."
Gee, you think?
"In California, I saw a billboard that said, 'Own the home you want, not the one you can afford,' " says Thomas DiMercurio, a Denver real estate broker who specializes in bank-held foreclosures. "That was so silly."
Gee, you think?
P2P : The New Paradigm
The title refers to "paycheck to paycheck" as evidenced by an article on CNNfn: Scraping by on $150,000 a year.
If she thought it would really fix her family's finances, Amy Schuett would make it her New Year's resolution to squeeze every bit of extra spending from the family budget.
But she's already slashed so many little luxuries - the gourmet coffee, the restaurant lunches, the weekly dates with husband Brian - that she's fresh out of ideas.
Cable TV? Unplugged. Pool membership? Down the drain.
They've even considered giving up their unlisted phone number. At a cost of $3 a month, this move wouldn't save much - even over, say, 150 years - but it shows how desperate the couple feel about easing their financial strain. "We're struggling week to week to get by," says Brian, 42. "Any money that comes in gets chewed up right away."
Digesting that fact becomes harder when you consider that the Schuetts earn a comfortable living, with Amy, 39, pulling in $150,000 a year as a hospital psychiatrist. True, their income did take a big hit last summer when Brian got laid off from his job as a sales rep for a pharmaceutical firm (he'd been making a base salary of $82,000 a year, plus commissions as high as $24,000).
And they do have four daughters to raise, ages four to nine. But still.
The Schuetts don't have any child-care bills (Brian is now a stay-at-home dad). They don't have credit-card debt. They don't splurge on fancy vacations. And they live in a nice but definitely not luxurious home on a three-acre plot in Elkhorn, Neb., just west of Omaha, where the cost of living is, well, livable.
For readers that are not familiar, $150K is a boatload of money in Nebraska. It would be one thing to argue that about a family of six in California, New York, or Illinois. It's a completely different thing in Nebraska.
(For the record, I have friends in all three places with similar family sizes that make the numbers work, and they make it work without any debt, I might add.)
You're netting a little more than $8,000 a month. If you can't make ends meet on that, you're seriously fucked up.
So what the fuck is going on?
Read below:
A closer look at the Schuetts' finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they'd generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area's softening rental market probably won't allow them to make enough to cover carrying costs.
Meanwhile, the two houses are expected to appreciate only about 3 percent a year - the couple can do better than that with Treasuries (bonds, at least, will never need expensive new wiring).
But the Schuetts haven't had a heart-to-heart about selling the properties yet because Brian has been so keen on making them work. "Our strategy has been to practice 'avoidance,'" says Amy. "But you don't have to be a psychiatrist to see that."
Two "investment" properties, no tenants, no hope for tenants, no plan. Just a "keenness to make them work".
What's the strategy? "Avoidance."
How can it not end badly?
Last year, for instance, Brian's parents gave the Schuetts a horse named Red for their kids to ride. They think it will cost a few hundred dollars a month to feed and care for the animal, and they're willing to give up ballet lessons and gymnastics classes for the girls to pay for it.
The trade-off is worth it, says Brian, because "the kids so love having a horse."
In fact, Amy has already got a name if they get a second horse: Buttercup.
Oh, good! A horse.
Note that they "think" it'll cost a few hundred. They don't actually have any solid numbers. And they're planning on a second horse while their finances are all fucked up.
Also, who cares what the kids love? If they love riding so much, you can always give them "riding lessons" just like swimming or gymnastic lessons. You don't "need" to own a horse.
Who actually believes that this will not end badly?
Broke is the new black!
If she thought it would really fix her family's finances, Amy Schuett would make it her New Year's resolution to squeeze every bit of extra spending from the family budget.
But she's already slashed so many little luxuries - the gourmet coffee, the restaurant lunches, the weekly dates with husband Brian - that she's fresh out of ideas.
Cable TV? Unplugged. Pool membership? Down the drain.
They've even considered giving up their unlisted phone number. At a cost of $3 a month, this move wouldn't save much - even over, say, 150 years - but it shows how desperate the couple feel about easing their financial strain. "We're struggling week to week to get by," says Brian, 42. "Any money that comes in gets chewed up right away."
Digesting that fact becomes harder when you consider that the Schuetts earn a comfortable living, with Amy, 39, pulling in $150,000 a year as a hospital psychiatrist. True, their income did take a big hit last summer when Brian got laid off from his job as a sales rep for a pharmaceutical firm (he'd been making a base salary of $82,000 a year, plus commissions as high as $24,000).
And they do have four daughters to raise, ages four to nine. But still.
The Schuetts don't have any child-care bills (Brian is now a stay-at-home dad). They don't have credit-card debt. They don't splurge on fancy vacations. And they live in a nice but definitely not luxurious home on a three-acre plot in Elkhorn, Neb., just west of Omaha, where the cost of living is, well, livable.
For readers that are not familiar, $150K is a boatload of money in Nebraska. It would be one thing to argue that about a family of six in California, New York, or Illinois. It's a completely different thing in Nebraska.
(For the record, I have friends in all three places with similar family sizes that make the numbers work, and they make it work without any debt, I might add.)
You're netting a little more than $8,000 a month. If you can't make ends meet on that, you're seriously fucked up.
So what the fuck is going on?
Read below:
A closer look at the Schuetts' finances reveals, for example, that a big chunk of their income is eaten up by two rental properties. Brian purchased them thinking they'd generate extra income, but he has yet to find tenants. Even when the properties are finally occupied, the area's softening rental market probably won't allow them to make enough to cover carrying costs.
Meanwhile, the two houses are expected to appreciate only about 3 percent a year - the couple can do better than that with Treasuries (bonds, at least, will never need expensive new wiring).
But the Schuetts haven't had a heart-to-heart about selling the properties yet because Brian has been so keen on making them work. "Our strategy has been to practice 'avoidance,'" says Amy. "But you don't have to be a psychiatrist to see that."
Two "investment" properties, no tenants, no hope for tenants, no plan. Just a "keenness to make them work".
What's the strategy? "Avoidance."
How can it not end badly?
Last year, for instance, Brian's parents gave the Schuetts a horse named Red for their kids to ride. They think it will cost a few hundred dollars a month to feed and care for the animal, and they're willing to give up ballet lessons and gymnastics classes for the girls to pay for it.
The trade-off is worth it, says Brian, because "the kids so love having a horse."
In fact, Amy has already got a name if they get a second horse: Buttercup.
Oh, good! A horse.
Note that they "think" it'll cost a few hundred. They don't actually have any solid numbers. And they're planning on a second horse while their finances are all fucked up.
Also, who cares what the kids love? If they love riding so much, you can always give them "riding lessons" just like swimming or gymnastic lessons. You don't "need" to own a horse.
Who actually believes that this will not end badly?
Broke is the new black!
Life is just like a television show!
From sunny Orange County, CA, we get some whining, whinging, and simpering from the OC Register: Falling prices trap new homebuyers.
David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.
Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.
"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."
The homeowners said that the price cuts began in November, just months after the first dozen buyers closed escrow, paying from $770,000 to $888,500 for their homes. The average price was $825,000, property records show.
Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.
Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."
Oh, no! Heaven forbid that you actually have to pay back what you borrowed.
"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."
Dude, you live in "The OC"! It's all about the "lifestyle"! Rock on!
David Dunn felt as if Christmas were stolen from him when prices for neighboring homes in his new subdivision fell by about $140,000.
Now, he says, his home is worth less than he owes, making it next to impossible to refinance before his $3,000-a-month payment doubles. Eleven neighbors who bought before the price cuts are in the same boat.
"They put us in a bad financial situation by lowering the price," said Dunn, 33. "Some of (the buyers) did 100 percent financing, so they're completely over their head right now."
The homeowners said that the price cuts began in November, just months after the first dozen buyers closed escrow, paying from $770,000 to $888,500 for their homes. The average price was $825,000, property records show.
Dunn said he's in a financial bind because he's using an exotic mortgage called an Option ARM, an adjustable-rate loan in which the homeowner can pick his monthly payment from a variety of options.
Eventually, he'll be responsible for making full payments of $6,000 a month, he said, adding, "I don't know how we'll be able to pay that."
Oh, no! Heaven forbid that you actually have to pay back what you borrowed.
"It's not just the financial aspect. It's the emotional," Dunn said. "We can't eat, can't sleep. I can't concentrate on work. This is all I think about."
Dude, you live in "The OC"! It's all about the "lifestyle"! Rock on!
Tuesday, December 12, 2006
Fools, and the charlatans who lead them to their fiery deaths...
From sunny Southwest Florida's Herald Tribune, we have Area's higher-priced rentals harder to fill.
Realtor Ronald A. "Ron" Cornette serves as rental division manager for Wagner Realty in Bradenton.
The Wisconsin native attended Northwestern University and has been a Bradenton resident since 1971. He has had his Florida real estate license since 1978.
Q: Are landlords surprised that the recent increase in prices for the purchase of real estate do not translate into higher rental incomes?
A: A skilled and sophisticated investor doesn't expect rent to cover expenses.
Weep, weep in your graves, Graham and Dodd, for these fools have defined a "skilled and sophisticated" investor as someone who loses money on a monthly basis!
What kind of "investment" does not cover carrying costs? In fact, any shrewd investor knows that what matters is the yield after expenses (on a risk-adjusted basis.)
Some days it just doesn't pay to read the newspapers!
Realtor Ronald A. "Ron" Cornette serves as rental division manager for Wagner Realty in Bradenton.
The Wisconsin native attended Northwestern University and has been a Bradenton resident since 1971. He has had his Florida real estate license since 1978.
Q: Are landlords surprised that the recent increase in prices for the purchase of real estate do not translate into higher rental incomes?
A: A skilled and sophisticated investor doesn't expect rent to cover expenses.
Weep, weep in your graves, Graham and Dodd, for these fools have defined a "skilled and sophisticated" investor as someone who loses money on a monthly basis!
What kind of "investment" does not cover carrying costs? In fact, any shrewd investor knows that what matters is the yield after expenses (on a risk-adjusted basis.)
Some days it just doesn't pay to read the newspapers!
The Economics of Careers
One of the articles I already posted, had a nefarious tidbit that I missed the first time around. Here's the article from the LA Times again: A loan that'll get ugly fast
In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to San Francisco-based data tracking company First American LoanPerformance.
Last year, 1 in 5 loan applicants got one.
In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.
First, let us examine what a "pay option" loan is. Effectively, you are allowed to pay much less than the principal+interest on the loan. What happens to the difference? It gets tacked back onto the loan increasing the loan value (and naturally, you have to pay interest on that in the future.) Also, typically the rates reset to fixed ones after 3 years.
Why would you take such a loan?
Effectively, you are betting on the fact that interest rates will be lower in the future, or that you will make a lot more income in the future.
Please note emphatically that you're not betting that inflation will be higher in the future because the market will discount that in the form of higher interest rates in the future as well, and your loan will "reset" to include that!
Firstly, rates are at generational lows. I wouldn't bet on them going much lower.
Secondly, with globalization, there is no way in hell that the incomes of all of these people will be higher. Some will succeed, no doubt, but definitely not all of them.
Now, let's examine the statistics one more time:
2003: 0.8%
2005: 20%
2006: 33%
You should be able to smell the epic disaster looming in 2007, 2008, and 2009.
There is further evidence of the pain that is going to be felt:
California taxes both individuals and businesses at a very high rate. There is considerable evidence that in spite of population growth, California is losing both people and businesses. Evidence is provided below.
What this is telling me is that more and more Californians are taking on high-risk loans, and stretching to make the payments in order to maintain a lifestyle, rather than doing the rational thing, and rapidly downgrading it in the face of diminishing opportunities, and lower wages.
Back to the evidence of out-migration:
Here's a link to the data.
According to the California Department of Finance, the state recorded a net loss of about 29,000 people in 2005.
Please note that that is a loss after population growth!
The only "high tech" state that is doing considerably worse than California is Massachusetts (same high-tax problem) which is losing young workers at some abnormal rate. Currently, 20% of Boston (and surroundings) comprises of students. Yep, 20%.
Which begs the question, as to who's going to pay the piper in the future when businesses refuse to set up shop because of the taxes, and high-income earners leave the state?
California recently passed a law preventing either budgetary caps, or raising taxes, and issued new bonds that just pass the problem on to the next generation.
Spend all you like, don't increase the incoming revenue, and pass the buck along.
What would you expect the end result to be?
Every single one of my friends, anecdotally, who has set up a high-tech startup has done so outside of California or Massachusetts. Even New York is more desirable as a possible location than either of the above two. (That's simply astounding!)
If you think it can't happen, look at Maine. They have had their industry decimated for years, and nobody in their right mind would set up shop there.
Here's a typical example of a company that is planning to leave town. From the San Diego Union Tribune: SAIC is moving some of its brass east.
For some employees at SAIC's corporate headquarters in San Diego, recent weeks have been filled with anxiety over something that begins with a seemingly innocent telephone call.
“I received a phone call that was an invitation to manage my staff from our offices in McLean,” said one mid-level employee, referring to SAIC's facilities near Tyson's Corner, Va. “After some discussion, it was clear that it was more than an invitation. It was an announcement that my position was going there – with or without me.”
SAIC was founded in San Diego in 1969 and currently employs close to 5,000 people here. But the homegrown company, which specializes in complex engineering and technology programs for U.S. military and intelligence agencies, has more than 16,000 employees at its campus in McLean.
SAIC's eastward migration is logical to Wall Street analysts such as Peter Arment of JSA Research in Newport, R.I., who began covering SAIC after the company's initial public stock offering in October.
It only makes sense for a company that derives more than 90 percent of its business from the federal government to locate most of its operations close to Washington, D.C., Arment said in November.
It should be noted that for every defense job that leaves California, one or two "vendor" jobs will also leave for the same destination. Additionally, if the number of employees falls below some critical threshold, they will just move their entire operations to the other location. (It's cheaper to fly people to CA than have them live there.)
This is a non-linearity that very few analysts account for in their models.
Here's another company, Countrywide Financial that fired its employees in CA to move to Chandler, AZ (older news): Countrywide's Arizona Gold Rush: 2,000 New Jobs Phoenix-Bound.
Fast-growing Countrywide Financial Corporation (www.countrywide.com), accelerating its own sort of rewind of the California Gold Rush, has decided to add 2,000-plus new jobs in Chandler, Ariz.
"We are particularly excited about the opportunity to expand our presence in Chandler," said Patrick Benton, the company's executive vice president of administration. "As Countrywide has searched for new office locations in business-friendly areas outside of California, we have placed a good deal of focus on Arizona.
Please note unambiguously what "business friendly" means in these cases. It means "tax friendly".
So what does this have to do with careers, you may ask?
Folks, the rules of the game have changed. You are no longer guaranteed a job for any length of time. Secondly, the job may move, and either you move with it, or you get eliminated.
Anecdotally, I've changed my career once, and my job twice in the last five years, and I'm pretty much typical.
I'll go out on a limb and say that anyone who takes a 30-year mortgage is pretty much screwed. And screwed big time!
There are no guarantees for 30 years, and to argue that you're going to be in the same geographic location for even 10 is folly, in my opinion. Flexibility and nimbleness seem to be the order of the day.
After buying a house, you might as well put a giant tattoo on your forehead that your corporation and your boss can clearly see: "I'm a giant sucker. Please abuse me, and make me your bitch!"
Not having a care in the world automatically translates to higher salaries. You can aggressively negotiate for better projects and better terms, and there's not a thing that they can do about it!
This is clearly something that people carrying a white elephant of a house simply cannot afford to do.
Obviously, for people who have long-term careers (tenured faculty, or even nurses come to mind,) the argument would not apply.
Also, great careers are made by taking great risks. You can't possibly expect to succeed working for a large company. You need to work for startups, or start your own company. If you're going to take great risks career-wise, you might as well minimize any other forms of financial risk in your life.
This should be a rather simple argument to swallow!
In 2003, only about 8 of every 1,000 people buying a home or refinancing a mortgage in California got a pay option loan, according to San Francisco-based data tracking company First American LoanPerformance.
Last year, 1 in 5 loan applicants got one.
In the first eight months of 2006, even as the real estate market began to weaken amid fears of a downturn, the appeal increased again. Nearly 1 in 3 California loan applicants are now choosing them. The state boasts about 580,000 active pay option mortgages, about half the U.S. total.
First, let us examine what a "pay option" loan is. Effectively, you are allowed to pay much less than the principal+interest on the loan. What happens to the difference? It gets tacked back onto the loan increasing the loan value (and naturally, you have to pay interest on that in the future.) Also, typically the rates reset to fixed ones after 3 years.
Why would you take such a loan?
Effectively, you are betting on the fact that interest rates will be lower in the future, or that you will make a lot more income in the future.
Please note emphatically that you're not betting that inflation will be higher in the future because the market will discount that in the form of higher interest rates in the future as well, and your loan will "reset" to include that!
Firstly, rates are at generational lows. I wouldn't bet on them going much lower.
Secondly, with globalization, there is no way in hell that the incomes of all of these people will be higher. Some will succeed, no doubt, but definitely not all of them.
Now, let's examine the statistics one more time:
2003: 0.8%
2005: 20%
2006: 33%
You should be able to smell the epic disaster looming in 2007, 2008, and 2009.
There is further evidence of the pain that is going to be felt:
California taxes both individuals and businesses at a very high rate. There is considerable evidence that in spite of population growth, California is losing both people and businesses. Evidence is provided below.
What this is telling me is that more and more Californians are taking on high-risk loans, and stretching to make the payments in order to maintain a lifestyle, rather than doing the rational thing, and rapidly downgrading it in the face of diminishing opportunities, and lower wages.
Back to the evidence of out-migration:
Here's a link to the data.
According to the California Department of Finance, the state recorded a net loss of about 29,000 people in 2005.
Please note that that is a loss after population growth!
The only "high tech" state that is doing considerably worse than California is Massachusetts (same high-tax problem) which is losing young workers at some abnormal rate. Currently, 20% of Boston (and surroundings) comprises of students. Yep, 20%.
Which begs the question, as to who's going to pay the piper in the future when businesses refuse to set up shop because of the taxes, and high-income earners leave the state?
California recently passed a law preventing either budgetary caps, or raising taxes, and issued new bonds that just pass the problem on to the next generation.
Spend all you like, don't increase the incoming revenue, and pass the buck along.
What would you expect the end result to be?
Every single one of my friends, anecdotally, who has set up a high-tech startup has done so outside of California or Massachusetts. Even New York is more desirable as a possible location than either of the above two. (That's simply astounding!)
If you think it can't happen, look at Maine. They have had their industry decimated for years, and nobody in their right mind would set up shop there.
Here's a typical example of a company that is planning to leave town. From the San Diego Union Tribune: SAIC is moving some of its brass east.
For some employees at SAIC's corporate headquarters in San Diego, recent weeks have been filled with anxiety over something that begins with a seemingly innocent telephone call.
“I received a phone call that was an invitation to manage my staff from our offices in McLean,” said one mid-level employee, referring to SAIC's facilities near Tyson's Corner, Va. “After some discussion, it was clear that it was more than an invitation. It was an announcement that my position was going there – with or without me.”
SAIC was founded in San Diego in 1969 and currently employs close to 5,000 people here. But the homegrown company, which specializes in complex engineering and technology programs for U.S. military and intelligence agencies, has more than 16,000 employees at its campus in McLean.
SAIC's eastward migration is logical to Wall Street analysts such as Peter Arment of JSA Research in Newport, R.I., who began covering SAIC after the company's initial public stock offering in October.
It only makes sense for a company that derives more than 90 percent of its business from the federal government to locate most of its operations close to Washington, D.C., Arment said in November.
It should be noted that for every defense job that leaves California, one or two "vendor" jobs will also leave for the same destination. Additionally, if the number of employees falls below some critical threshold, they will just move their entire operations to the other location. (It's cheaper to fly people to CA than have them live there.)
This is a non-linearity that very few analysts account for in their models.
Here's another company, Countrywide Financial that fired its employees in CA to move to Chandler, AZ (older news): Countrywide's Arizona Gold Rush: 2,000 New Jobs Phoenix-Bound.
Fast-growing Countrywide Financial Corporation (www.countrywide.com), accelerating its own sort of rewind of the California Gold Rush, has decided to add 2,000-plus new jobs in Chandler, Ariz.
"We are particularly excited about the opportunity to expand our presence in Chandler," said Patrick Benton, the company's executive vice president of administration. "As Countrywide has searched for new office locations in business-friendly areas outside of California, we have placed a good deal of focus on Arizona.
Please note unambiguously what "business friendly" means in these cases. It means "tax friendly".
So what does this have to do with careers, you may ask?
Folks, the rules of the game have changed. You are no longer guaranteed a job for any length of time. Secondly, the job may move, and either you move with it, or you get eliminated.
Anecdotally, I've changed my career once, and my job twice in the last five years, and I'm pretty much typical.
I'll go out on a limb and say that anyone who takes a 30-year mortgage is pretty much screwed. And screwed big time!
There are no guarantees for 30 years, and to argue that you're going to be in the same geographic location for even 10 is folly, in my opinion. Flexibility and nimbleness seem to be the order of the day.
After buying a house, you might as well put a giant tattoo on your forehead that your corporation and your boss can clearly see: "I'm a giant sucker. Please abuse me, and make me your bitch!"
Not having a care in the world automatically translates to higher salaries. You can aggressively negotiate for better projects and better terms, and there's not a thing that they can do about it!
This is clearly something that people carrying a white elephant of a house simply cannot afford to do.
Obviously, for people who have long-term careers (tenured faculty, or even nurses come to mind,) the argument would not apply.
Also, great careers are made by taking great risks. You can't possibly expect to succeed working for a large company. You need to work for startups, or start your own company. If you're going to take great risks career-wise, you might as well minimize any other forms of financial risk in your life.
This should be a rather simple argument to swallow!
Monday, December 11, 2006
Use your brains, beyatch!
From CNN Finance, we have Les Christie writing about Help! Home for sale - the Williamses.
Karen and Jerod Williams do not act rashly especially when buying houses. They tried to minimize their financial risks. And they live in one of the most affordable housing markets in the country, which, again, decreases their risk.
They bought a new home early this year, at a time when the housing market in Huntington, Indiana, their home town, was purring along, slow but steady. They then listed their old home for sale, but shortly afterward the market stalled and they haven't found a buyer. It's been nine months.
So now, the family, burdened with the work and expense of two homes, are at the limits of their budget, even though they both make good salaries. He's a machinist and she a manufacturing engineer.
"We didn't think it would ever take this long," says Karen. "If we had, we would not have bought the new house."
They have three young children Darcy, 4, Sloane, 3 and Nolan, 5 months, to support and school debt and motor vehicles to pay for. At the end of the month, there's nothing extra.
"Any emergency may lead to bankruptcy," says Karen.
The family has already suffered through one such crisis; an emergency c-section needed when Nolan was born last July. Karen had scheduled a six-week maternity leave but she needed a full eight weeks to recover.
"I hadn't planned for the extra two weeks and it really set us back," she says.
What kind of idiots are these that two extra weeks can push them into bankruptcy?
And why did they buy a new house without selling the first, or having a contingency clause on the contract?
Most importantly, if they are so hard up, why are they still breeding like rabbits?
And why is CNN wasting time on these losers?
Inquiring minds need to know!
Karen and Jerod Williams do not act rashly especially when buying houses. They tried to minimize their financial risks. And they live in one of the most affordable housing markets in the country, which, again, decreases their risk.
They bought a new home early this year, at a time when the housing market in Huntington, Indiana, their home town, was purring along, slow but steady. They then listed their old home for sale, but shortly afterward the market stalled and they haven't found a buyer. It's been nine months.
So now, the family, burdened with the work and expense of two homes, are at the limits of their budget, even though they both make good salaries. He's a machinist and she a manufacturing engineer.
"We didn't think it would ever take this long," says Karen. "If we had, we would not have bought the new house."
They have three young children Darcy, 4, Sloane, 3 and Nolan, 5 months, to support and school debt and motor vehicles to pay for. At the end of the month, there's nothing extra.
"Any emergency may lead to bankruptcy," says Karen.
The family has already suffered through one such crisis; an emergency c-section needed when Nolan was born last July. Karen had scheduled a six-week maternity leave but she needed a full eight weeks to recover.
"I hadn't planned for the extra two weeks and it really set us back," she says.
What kind of idiots are these that two extra weeks can push them into bankruptcy?
And why did they buy a new house without selling the first, or having a contingency clause on the contract?
Most importantly, if they are so hard up, why are they still breeding like rabbits?
And why is CNN wasting time on these losers?
Inquiring minds need to know!
How not to lead your life!
From the LA Times, we have David Streitfeld writing a typical melodramatic tear-jerker: A loan that'll get ugly fast.
Every day, Will Hertzberg owns a little less of his three-bedroom house in Corona.
Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.
Like many of them, he always chooses to pay as little as possible.
For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.
Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty — money he doesn't have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left.
"I made choices, and they happened to be the wrong choices," said Hertzberg, a big guy who lives alone amid the clutter of decades of memorabilia.
One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.
A second possibility is to pay $2,279, which would cover only the interest.
But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.
Hertzberg bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.) Since then, Corona and the Inland Empire have boomed.
Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.
He would see little of that, however, because he's already seen so much. Over the years he has taken out $190,000 in cash through refinancings.
Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.
"Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."
The money wasn't really free, of course. It just seemed that way, the result of a radical shift during the last decade in how people view their homes.
"Homeownership has become like auto leasing, where the price of the car doesn't matter," said Rick Soukoulis, chief executive of LoanCity, a San Jose lender that funded $7 billion in mortgages in 2005. "All that matters is the size of your monthly payment."
Lenders say these new loans are all about payment choice, but Hertzberg is far from the only borrower who invariably chooses the smallest payment option. Washington Mutual Inc., which has one of the nation's largest portfolios of pay option loans, said 47% of its borrowers in this category last December took the minimum option.
Few people intend to become deeper in debt every month. Hertzberg certainly didn't.
"I assumed my future and my retirement would be taken care of by the company I worked for," he said. "I trusted corporate America."
He used to make a six-figure income selling vacation packages to corporations that would use them as customer incentives and employee bonuses. After the 9/11 terrorist attacks, the business soured.
His current sources of income include selling comic books on EBay and freelance photos to golf and travel publications. "Once you're over 55, what employer wants to hire you?" he asked. "I'm a dinosaur."
Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.
But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Calabasas-based Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he'll run out of credit with the company.
That will happen in about two years if he continues to take the smallest payment option. Then his minimum payment will automatically go up 150%, to $2,848 a month.
"If I could afford that," he said, "I wouldn't have needed this loan in the first place."
"I am rather screwed," he said.
Yes, you are!
If Hertzberg is living on borrowed time, there's small comfort in the home finance industry's endless inventiveness. It's certainly trying to tempt him. Several times a week, he gets a refinancing offer in the mail.
The latest one suggested a certain unfamiliarity with basic English, proclaiming, "Economic forecast suggests you Interest Rate will increase 1.00% every six months." But its central message was clear: "We can solve your problem in 15 minutes over the phone."
Hertzberg always looks at these fliers, hopeful in spite of himself. "I'm waiting for a 100-year loan," he said. "My heirs can worry about paying it off."
Why would your heirs work hard to bail you out of your bad decisions?
Every day, Will Hertzberg owns a little less of his three-bedroom house in Corona.
Like hundreds of thousands of other homeowners around the state, Hertzberg has a mortgage that lets him choose how much he pays each month.
Like many of them, he always chooses to pay as little as possible.
For the moment, this allows the 56-year-old Hertzberg to continue living in his tract home despite being only marginally employed. But his debt is swelling, and his mortgage company controls his fate.
Hertzberg could sell now, but his lender would charge him an $11,034 prepayment penalty — money he doesn't have. Yet if he stays, the housing market may tank, vaporizing what little equity he has left.
"I made choices, and they happened to be the wrong choices," said Hertzberg, a big guy who lives alone amid the clutter of decades of memorabilia.
One of his options is to pay $2,513 a month. That would cover the principal and interest as if it were a traditional 30-year loan.
A second possibility is to pay $2,279, which would cover only the interest.
But each month he always takes the cheapest option: paying $1,106 and promising to make up the shortfall later.
Hertzberg bought his house 11 years ago for $129,995, immediately after his second divorce. (He has no children.) Since then, Corona and the Inland Empire have boomed.
Comparable homes in his neighborhood fetch more than $400,000. With fresh paint and a few repairs, Hertzberg could probably sell his place for $275,000 more than he paid.
He would see little of that, however, because he's already seen so much. Over the years he has taken out $190,000 in cash through refinancings.
Hertzberg's home equity paid off his credit cards, financed trips around the world that allowed him to indulge his passion for photography, bought a $32,000 Toyota Avalon and enabled some lousy investments. He bought dot-com stocks and lost money. To recoup those losses, he bought commodities — and lost money faster.
"Free money always has the unfortunate effect of making people go overboard," said Hertzberg, whose living room is strewn with financial publications including American Cash Flow Journal and Donald Trump's "How to Get Rich." "You'd be surprised how fast $190,000 can go."
The money wasn't really free, of course. It just seemed that way, the result of a radical shift during the last decade in how people view their homes.
"Homeownership has become like auto leasing, where the price of the car doesn't matter," said Rick Soukoulis, chief executive of LoanCity, a San Jose lender that funded $7 billion in mortgages in 2005. "All that matters is the size of your monthly payment."
Lenders say these new loans are all about payment choice, but Hertzberg is far from the only borrower who invariably chooses the smallest payment option. Washington Mutual Inc., which has one of the nation's largest portfolios of pay option loans, said 47% of its borrowers in this category last December took the minimum option.
Few people intend to become deeper in debt every month. Hertzberg certainly didn't.
"I assumed my future and my retirement would be taken care of by the company I worked for," he said. "I trusted corporate America."
He used to make a six-figure income selling vacation packages to corporations that would use them as customer incentives and employee bonuses. After the 9/11 terrorist attacks, the business soured.
His current sources of income include selling comic books on EBay and freelance photos to golf and travel publications. "Once you're over 55, what employer wants to hire you?" he asked. "I'm a dinosaur."
Last fall, he went to a mortgage broker and refinanced again to make his payments easier to bear. He thought he would have a five-year window before the principal started coming due.
But the day of reckoning is arriving early. By paying the minimum, Hertzberg has increased the size of his loan in a little over a year from $320,000 to $332,616. His lender, Calabasas-based Countrywide Financial Corp., recently sent him a letter warning that when his loan hits 115% of its original size he'll run out of credit with the company.
That will happen in about two years if he continues to take the smallest payment option. Then his minimum payment will automatically go up 150%, to $2,848 a month.
"If I could afford that," he said, "I wouldn't have needed this loan in the first place."
"I am rather screwed," he said.
Yes, you are!
If Hertzberg is living on borrowed time, there's small comfort in the home finance industry's endless inventiveness. It's certainly trying to tempt him. Several times a week, he gets a refinancing offer in the mail.
The latest one suggested a certain unfamiliarity with basic English, proclaiming, "Economic forecast suggests you Interest Rate will increase 1.00% every six months." But its central message was clear: "We can solve your problem in 15 minutes over the phone."
Hertzberg always looks at these fliers, hopeful in spite of himself. "I'm waiting for a 100-year loan," he said. "My heirs can worry about paying it off."
Why would your heirs work hard to bail you out of your bad decisions?
Sunday, December 10, 2006
Controversial Calculations
From the "paper of record", the New York Times, we have Christine Haughney write about Women Unafraid of Condo Commitment.
In the last five months, single women spent more than $30 million out of the $100 million or so in sales in the 299-unit condominium. In fact, single women bought 72 of the first 165 apartments sold. Spending by these women far surpassed that of single men, who accounted for $19 million. Married couples accounted for about $45 million in sales, and investors $5 million.
Brokers say that women are betting that even if they buy in a declining market, the values won’t drop as much as they would have spent on rent. They’re more comfortable buying in the same neighborhoods and buildings as their friends do. By purchasing condominiums that they could eventually rent out if they needed to move, they’re also hoping that they can hold on to these properties until the market improves.
“A woman will say, ‘I’m still saving money in the long term.’ ” said JoAnn Schwimmer, an associate real estate broker at DJK Residential. “They’re able to see the bigger picture, while a guy says, ‘I have to get the best deal.’ ” She said that her female clients who bought four years ago have male friends still waiting for prices to drop.
These women are retards!
They have never run an Excel spreadsheet about buy v/s rent, and are too busy living their "Sex and the City" dream.
They also haven't figured out that the "wasted" rent is implicitly embedded in their purchase price (in the form of interest, taxes, insurance, and maintenance.) Just because it isn't explicit doesn't mean that it has magically disappeared.
Also, the broker is implicitly rebuking them. If there is a "better deal", then there is no "bigger picture" to consider. The "better deal" is the "bigger picture".
This article is full of little gems:
Jen Lee, a 36-year-old director of sales for the Developers Group, bought a one-bedroom in Williamsburg for $440,000 the first day the building at 345 Union Avenue opened for sales in October 2005.
She raved to friends about how her apartment, built by Grand Union Private Development and marketed by her company, had nearly 10-foot-high ceilings, a private roof terrace and lots of closet space. Women have bought four of the building’s 10 units — translating into $2 million in sales, Ms. Lee said. Asked if she was buying at the wrong time, Ms. Lee said she was more excited that she had bought at all. “I wanted to invest in something, and that’s what I’ve done,” she said. “It will always be mine.”
Yep, it will "always" be yours unless you can't pay the debt in which case the big, bad bankers will take it away.
Some women said that they felt their friends were better market indicators than any statistics that point to a downturn.
Yes, why let facts get in the way of your pre-determined conclusions?
From personal anecdote, I'll go out on a limb, and say that I've never ever met a woman who was rational about finance.
NEVER! EVER!!!
I find it completely amazing that all these absurdly intelligent women I know, the ones who speak multiple languages, can argue about art, music and literature at length, and who are successful professionals in everything from engineering to medicine, have a complete meltdown when it comes to money and finance!
Color me surprised!
Here's what I've observed:
Women (at least the ones I've known) first make up their mind, and then go about finding reasons to confirm them.
This is the exact opposite of the "scientific method". Find something, and then go about finding reasons to contradict your conclusion, not the other way around! If you find these contradictions, you were wrong, and should abandon the conclusion; and if you don't find them, then you will end up finding a "deeper" reason to support your argument.
In case you think I'm being sexist, here's what the FDIC has to say on the subject: link.
Scroll down to table 1, and note the percentage of single women needing basic financial knowledge (41%) v/s single men (16%). Such a large difference can hardly be accidental.
Still not convinced?
Here's an article from Realtor Magazine.
While the number of unmarried men and women purchasing their own homes was virtually even 25 years ago, single females have pulled way ahead of their male counterparts in recent years.
In 2005, they bought 20 percent of all U.S. homes sold — about 1.5 million properties, or more than double the 9 percent purchased by single males. Changes in the mortgage lending industry have contributed largely to the shift in home buying demographics.
Once again, 20% v/s 9% at the tail end of a mania can hardly be accidental. The marketeers are very good at getting into the "settle down" part of the female brain.
And only in this country can a company run a television ad like this!
I pity the fools that marry these women.
I pity the fool, I pity the fool!
In the last five months, single women spent more than $30 million out of the $100 million or so in sales in the 299-unit condominium. In fact, single women bought 72 of the first 165 apartments sold. Spending by these women far surpassed that of single men, who accounted for $19 million. Married couples accounted for about $45 million in sales, and investors $5 million.
Brokers say that women are betting that even if they buy in a declining market, the values won’t drop as much as they would have spent on rent. They’re more comfortable buying in the same neighborhoods and buildings as their friends do. By purchasing condominiums that they could eventually rent out if they needed to move, they’re also hoping that they can hold on to these properties until the market improves.
“A woman will say, ‘I’m still saving money in the long term.’ ” said JoAnn Schwimmer, an associate real estate broker at DJK Residential. “They’re able to see the bigger picture, while a guy says, ‘I have to get the best deal.’ ” She said that her female clients who bought four years ago have male friends still waiting for prices to drop.
These women are retards!
They have never run an Excel spreadsheet about buy v/s rent, and are too busy living their "Sex and the City" dream.
They also haven't figured out that the "wasted" rent is implicitly embedded in their purchase price (in the form of interest, taxes, insurance, and maintenance.) Just because it isn't explicit doesn't mean that it has magically disappeared.
Also, the broker is implicitly rebuking them. If there is a "better deal", then there is no "bigger picture" to consider. The "better deal" is the "bigger picture".
This article is full of little gems:
Jen Lee, a 36-year-old director of sales for the Developers Group, bought a one-bedroom in Williamsburg for $440,000 the first day the building at 345 Union Avenue opened for sales in October 2005.
She raved to friends about how her apartment, built by Grand Union Private Development and marketed by her company, had nearly 10-foot-high ceilings, a private roof terrace and lots of closet space. Women have bought four of the building’s 10 units — translating into $2 million in sales, Ms. Lee said. Asked if she was buying at the wrong time, Ms. Lee said she was more excited that she had bought at all. “I wanted to invest in something, and that’s what I’ve done,” she said. “It will always be mine.”
Yep, it will "always" be yours unless you can't pay the debt in which case the big, bad bankers will take it away.
Some women said that they felt their friends were better market indicators than any statistics that point to a downturn.
Yes, why let facts get in the way of your pre-determined conclusions?
From personal anecdote, I'll go out on a limb, and say that I've never ever met a woman who was rational about finance.
NEVER! EVER!!!
I find it completely amazing that all these absurdly intelligent women I know, the ones who speak multiple languages, can argue about art, music and literature at length, and who are successful professionals in everything from engineering to medicine, have a complete meltdown when it comes to money and finance!
Color me surprised!
Here's what I've observed:
Women (at least the ones I've known) first make up their mind, and then go about finding reasons to confirm them.
This is the exact opposite of the "scientific method". Find something, and then go about finding reasons to contradict your conclusion, not the other way around! If you find these contradictions, you were wrong, and should abandon the conclusion; and if you don't find them, then you will end up finding a "deeper" reason to support your argument.
In case you think I'm being sexist, here's what the FDIC has to say on the subject: link.
Scroll down to table 1, and note the percentage of single women needing basic financial knowledge (41%) v/s single men (16%). Such a large difference can hardly be accidental.
Still not convinced?
Here's an article from Realtor Magazine.
While the number of unmarried men and women purchasing their own homes was virtually even 25 years ago, single females have pulled way ahead of their male counterparts in recent years.
In 2005, they bought 20 percent of all U.S. homes sold — about 1.5 million properties, or more than double the 9 percent purchased by single males. Changes in the mortgage lending industry have contributed largely to the shift in home buying demographics.
Once again, 20% v/s 9% at the tail end of a mania can hardly be accidental. The marketeers are very good at getting into the "settle down" part of the female brain.
And only in this country can a company run a television ad like this!
I pity the fools that marry these women.
I pity the fool, I pity the fool!
Friday, December 08, 2006
I want a house, and I want it now!
From the Modesto Bee, we have Ben van der Meer writing about Couple sue over real estate nightmare.
Salida couple is suing a group that offers real estate deals at a Ceres flea market, claiming that the company didn't deliver on promises to sell their home and get them a better one.
Instead, say Manuel and Marbella Salas, they have a new house with construction defects, haven't sold their old home and have learned that the man who arranged the deals doesn't have a real estate license.
I always buy houses at a flea market. Where do you buy?
Marbella Salas said she's afraid that others are getting questionable real estate deals with Singh and the company, adding that he still was set up at the flea market as recently as a few weeks ago.
"He didn't care about us," she said. "He only cared about his commission."
No shit!
Salida couple is suing a group that offers real estate deals at a Ceres flea market, claiming that the company didn't deliver on promises to sell their home and get them a better one.
Instead, say Manuel and Marbella Salas, they have a new house with construction defects, haven't sold their old home and have learned that the man who arranged the deals doesn't have a real estate license.
I always buy houses at a flea market. Where do you buy?
Marbella Salas said she's afraid that others are getting questionable real estate deals with Singh and the company, adding that he still was set up at the flea market as recently as a few weeks ago.
"He didn't care about us," she said. "He only cared about his commission."
No shit!
Bartender, buy these men some clues!
From the Las Vegas Review Journal, we have Tempers flare at USA Capital session.
Investors who bought short-term mortgage loans brokered by USA Capital are shouting mad and divided over the best strategy for recovering some of their assets.
USA Capital controlled $962 million in investor assets in April when it became insolvent and filed for Chapter 11 bankruptcy protection, which would allow it to reorganize. The company solicited money from investors to make short-term loans to developers in return for double-digit interest rates. About 6,000 investors around the country entrusted money to USA Capital.
Since the bankruptcy filing, "we have been brown mushrooms, kept in the dark and fed nothing," said investor Howard Connell, referring to the secrecy that has surrounded negotiations by investor committees. "We are having stuff shoved down our throats at the 11th hour. We should have the right to say something."
Connell said he would be "destitute within the next six months" because of losses at USA Capital.
What kind of retard puts all his money in one venture which may result in him being "destitute in the next six months"?
But, it gets better!
Doris Stevenson said she invested both in USA Capital loans and loans brokered by another failed private lender, Global Express Capital.
Stevenson suggested USA Capital investors may do relatively well compared to those who bought loans through Global Express. Stevenson said she had $170,000 invested with Global Express, has recovered $20,000 and is awaiting one last small payment three years after a federal judge put Global Express into receivership.
This is un-fucking-believable!
Read carefully, and you'll see that she "invested" $170K in a company that failed three years ago, and instead of learning from her mistake, went on to lose money in another company that failed in the same sector.
As I said, un-fucking-believable!
But, it's not over yet...
Bill Bullard, Direct Lender Committee chairman and investment chief for the private investment company of Fertitta Enterprises, recommended investors vote for the reorganization plan. But Morris Mansell, an investor with the Lender Protection Group, opposed the plan for several reasons.
Mansell said investors whose money was stolen should be repaid before lawyers get paid.
Umm, yes, those lawyers are going to work for free (and for a bankrupt company at that!)
Yessir, that's definitely going to fly!
Investors who bought short-term mortgage loans brokered by USA Capital are shouting mad and divided over the best strategy for recovering some of their assets.
USA Capital controlled $962 million in investor assets in April when it became insolvent and filed for Chapter 11 bankruptcy protection, which would allow it to reorganize. The company solicited money from investors to make short-term loans to developers in return for double-digit interest rates. About 6,000 investors around the country entrusted money to USA Capital.
Since the bankruptcy filing, "we have been brown mushrooms, kept in the dark and fed nothing," said investor Howard Connell, referring to the secrecy that has surrounded negotiations by investor committees. "We are having stuff shoved down our throats at the 11th hour. We should have the right to say something."
Connell said he would be "destitute within the next six months" because of losses at USA Capital.
What kind of retard puts all his money in one venture which may result in him being "destitute in the next six months"?
But, it gets better!
Doris Stevenson said she invested both in USA Capital loans and loans brokered by another failed private lender, Global Express Capital.
Stevenson suggested USA Capital investors may do relatively well compared to those who bought loans through Global Express. Stevenson said she had $170,000 invested with Global Express, has recovered $20,000 and is awaiting one last small payment three years after a federal judge put Global Express into receivership.
This is un-fucking-believable!
Read carefully, and you'll see that she "invested" $170K in a company that failed three years ago, and instead of learning from her mistake, went on to lose money in another company that failed in the same sector.
As I said, un-fucking-believable!
But, it's not over yet...
Bill Bullard, Direct Lender Committee chairman and investment chief for the private investment company of Fertitta Enterprises, recommended investors vote for the reorganization plan. But Morris Mansell, an investor with the Lender Protection Group, opposed the plan for several reasons.
Mansell said investors whose money was stolen should be repaid before lawyers get paid.
Umm, yes, those lawyers are going to work for free (and for a bankrupt company at that!)
Yessir, that's definitely going to fly!
Thursday, December 07, 2006
Holy smokes, Batman!
From the Arkansas Times, we have Warwick Sabin writing about Suddenly, the NW Ark. real estate market isn't so hot.
Northwest Arkansas has grown faster than anyone could have anticipated. Sleepy pastureland overnight became subdivisions, office parks and strip malls. Traffic backs up amid road construction and snarls at rush hour on a freeway not yet 10 years old. Internet map sites like Mapquest can’t update Benton County quick enough to keep up with all of the new local streets.
The lure of easy money proved irresistible to would-be developers.
The dizzying pace of expansion was as evident in the pages of new society magazines as in the economic statistics. Ambitious developers joined with start-up bank executives to unveil high-profile projects at glitzy functions.
Now, the hangover from the big party has set in. Despite a steady population increase of about 1,100 people a month, there’s a serious oversupply of residential and commercial property. One economist estimates 112.9 months of housing inventory — more than nine years’ worth — at the current rates of absorption.
Nine years of inventory?!? In Benton County, home of Walmart?!?
Sweet suffering surfeit!
Northwest Arkansas has grown faster than anyone could have anticipated. Sleepy pastureland overnight became subdivisions, office parks and strip malls. Traffic backs up amid road construction and snarls at rush hour on a freeway not yet 10 years old. Internet map sites like Mapquest can’t update Benton County quick enough to keep up with all of the new local streets.
The lure of easy money proved irresistible to would-be developers.
The dizzying pace of expansion was as evident in the pages of new society magazines as in the economic statistics. Ambitious developers joined with start-up bank executives to unveil high-profile projects at glitzy functions.
Now, the hangover from the big party has set in. Despite a steady population increase of about 1,100 people a month, there’s a serious oversupply of residential and commercial property. One economist estimates 112.9 months of housing inventory — more than nine years’ worth — at the current rates of absorption.
Nine years of inventory?!? In Benton County, home of Walmart?!?
Sweet suffering surfeit!
Wednesday, December 06, 2006
Editors of the World, Unite!
From the Star Bulletin in sunny Hawaii, we have Allison Schaefers writing about: Home price climb finally over.
Scott Higashi, vice president of sales for Prudential Locations LLC on Oahu, agreed: "We're still nowhere near a monumental fall in value. During this cycle, we don't expect to see any double-digit rises or falls."
Further on, in the same article:
The median price paid for a single-family home on Kauai fell 14.43 percent to $590,000, a decline of $99,500 from November 2005.
It's one thing to do no research; it's a completely different thing to have an article that contradicts itself!
This is just fucking embarassing!
Scott Higashi, vice president of sales for Prudential Locations LLC on Oahu, agreed: "We're still nowhere near a monumental fall in value. During this cycle, we don't expect to see any double-digit rises or falls."
Further on, in the same article:
The median price paid for a single-family home on Kauai fell 14.43 percent to $590,000, a decline of $99,500 from November 2005.
It's one thing to do no research; it's a completely different thing to have an article that contradicts itself!
This is just fucking embarassing!
Sunday, December 03, 2006
One of those Homer Simpson Moments
From the self-congratulatory New York Times, we have Andrew Ross Serkin talking about: Beat the Clock (and Get a Double Bonus).
EVER wonder why there is a torrent of multibillion takeovers and mergers at the end of every year?
Nah. Here’s a dirty little secret: The urge to merge may be influenced by bonuses for all involved in the deal, especially the bankers. Corporate America’s biggest cheerleaders and boosters need to get paid.
Well, duh!
In case you didn't get it, I'll say it again: DUH!!!
DUHHHHHHHHHHHHH!
Honeypie, we live in a capitalist society, so it's every person for themselves.
The bankers only care about their bonus because that's the way things are set up. If you want them to actually care about the companies involved, there should be some incentive involved. No incentive, no reason to play nice.
In a bad merger, everyone makes out like bandits. The CEO, the board, the bankers. Naturally, someone must get screwed. Typically, it's the shareholders (although on occasion, it can be the bondholders too.)
Actually, the beauty of modern finance is that you can decide what percentage you want to screw the shareholders vis a vis the bondholders.
Ain't that just peachy?!?
Wow! these journalists are both naive and clueless!
EVER wonder why there is a torrent of multibillion takeovers and mergers at the end of every year?
Nah. Here’s a dirty little secret: The urge to merge may be influenced by bonuses for all involved in the deal, especially the bankers. Corporate America’s biggest cheerleaders and boosters need to get paid.
Well, duh!
In case you didn't get it, I'll say it again: DUH!!!
DUHHHHHHHHHHHHH!
Honeypie, we live in a capitalist society, so it's every person for themselves.
The bankers only care about their bonus because that's the way things are set up. If you want them to actually care about the companies involved, there should be some incentive involved. No incentive, no reason to play nice.
In a bad merger, everyone makes out like bandits. The CEO, the board, the bankers. Naturally, someone must get screwed. Typically, it's the shareholders (although on occasion, it can be the bondholders too.)
Actually, the beauty of modern finance is that you can decide what percentage you want to screw the shareholders vis a vis the bondholders.
Ain't that just peachy?!?
Wow! these journalists are both naive and clueless!
Friday, December 01, 2006
$hitloads of trouble
From Floriday Today, we have Scott Blake writing about Sluggish housing market showing mixed results.
On the Space Coast, reduced prices since last year have enabled some buyers to enter the market -- people such as Kanishka Perera, who was renting in Palm Bay before he bought a two-bedroom townhouse in Melbourne last month for about $176,000. Perera said the builder -- Mercedes Homes -- gave him incentives to buy, requiring only a 5 percent down payment and paying $5,000 of the closing costs.
"I always wanted to own a home. I just couldn't afford it earlier," Perera said.
Hint, babe: You still can't afford it; you've just lost your 5%; you still don't know it, and won't for a few more years.
To stimulate the local housing market, builders and others are hoping to persuade county commissioners to delay a scheduled increase in a county transportation impact fee on each new single-family home. The fee -- which applies to unincorporated areas of Brevard and most local municipalities -- is to increase from $1,414 to $4,353 on Dec. 31.
The delay could help the market, which already is burdened by higher property taxes and insurance rates, said Dave Armstrong, treasurer of the Florida Homebuilders Association and a local home builder.
"Right now, the animal is wounded and we don't want to kill it," Armstrong said about the housing market.
The animal is not only wounded but also dead with its guts spilling out, and the diseased carcass has started to rot in the rain. The smell is giving you the clue that anyone with half a brain would've figured out a long time ago.
I really doubt that $3000 is going to change anything in an area which has seen inventory that accounts for population growth for 10+ years.
However, we all need to be periodically reminded about the wisdom of Motoko Rich of the New York Times about all of this: "South Florida is working off of a totally new economic model than any of us have ever experienced in the past.".
On the Space Coast, reduced prices since last year have enabled some buyers to enter the market -- people such as Kanishka Perera, who was renting in Palm Bay before he bought a two-bedroom townhouse in Melbourne last month for about $176,000. Perera said the builder -- Mercedes Homes -- gave him incentives to buy, requiring only a 5 percent down payment and paying $5,000 of the closing costs.
"I always wanted to own a home. I just couldn't afford it earlier," Perera said.
Hint, babe: You still can't afford it; you've just lost your 5%; you still don't know it, and won't for a few more years.
To stimulate the local housing market, builders and others are hoping to persuade county commissioners to delay a scheduled increase in a county transportation impact fee on each new single-family home. The fee -- which applies to unincorporated areas of Brevard and most local municipalities -- is to increase from $1,414 to $4,353 on Dec. 31.
The delay could help the market, which already is burdened by higher property taxes and insurance rates, said Dave Armstrong, treasurer of the Florida Homebuilders Association and a local home builder.
"Right now, the animal is wounded and we don't want to kill it," Armstrong said about the housing market.
The animal is not only wounded but also dead with its guts spilling out, and the diseased carcass has started to rot in the rain. The smell is giving you the clue that anyone with half a brain would've figured out a long time ago.
I really doubt that $3000 is going to change anything in an area which has seen inventory that accounts for population growth for 10+ years.
However, we all need to be periodically reminded about the wisdom of Motoko Rich of the New York Times about all of this: "South Florida is working off of a totally new economic model than any of us have ever experienced in the past.".
Thursday, November 30, 2006
Pimp my life!
From CNN Finance, we have an unusual kind of article: College kid tries to sell his future on eBay.
In August, Steen put himself on eBay (Charts) to pay for his college education, offering 2 percent of all future earnings to the highest bidder, with a minimum $100,000 bid.
"I am the real deal" and "a very intelligent guy," he wrote on eBay.
He says that he expects to earn "way more" than $125,000 a year until he turns 65, at which point his investor would break even on a $100,000 investment. (Steen would have to average more than $1.5 million a year to match an investment that yielded a 6 percent return, compounded annually over the same period.)
Here's a link to the PDF of the actual auction. (EBay cancelled the auction, and he got no bids.)
Firstly, I should say flat out that this is, in principle, an excellent idea. After all, exchanging future income for a lump-sum up front is precisely what a bond really is.
Secondly, if enough people did this, you could statistically estimate their future earnings, and price them competitively. (Think of it as an insurance policy on education. The future "investment bankers" are subsidizing the future "secretaries", etc.)
So why is it really stupid?
Several reasons.
Firstly, let's examine the reasons as to what can go wrong. Perhaps, he will renege on the contract, die or get dismembered before 40 years, or simply not make as much money as he thinks he's going to make.
Now let's work through these assumptions. We'll do all the calculations in "future dollars" so we have to include the effects of inflation. If he's really good at what he does, his wages will be above inflation each year by let's say 1-2%. Let's also assume he makes $100K (highly unlikely, but still.) Let's assume inflation runs at a fixed 3%.
You'd get paid between $190K (4% assumption) to $240K (6%).
Take the same $100K and buy 30 year US treasuries, and you'll get roughly $138K of coupons at current yields, plus your original $100K back, plus any interest that you pick up by reinvesting these coupons! Add in interest for an extra 10 years (at the same rate) you get an extra $46K. (That's $284K.)
So this kid is shit out of luck even under the most optimistic assumptions. You don't have to be a genius to figure out if you assume more realistic assumptions, you'd be really stupid to invest in this kid.
I mean, if the kid can't even do these calculations, there's no chance of him making "way more" than $125K.
So what did he really do wrong, theoretically speaking? Obviously, 2% of your income is too little. Up it to 10%, and the numbers would change.
The other alternative would've been not to demand a minimum of $100K, but let the market determine what they're willing to risk on you.
(Incidentally, Robert Shiller has written extensively about this in his book: The New Financial Order.)
In August, Steen put himself on eBay (Charts) to pay for his college education, offering 2 percent of all future earnings to the highest bidder, with a minimum $100,000 bid.
"I am the real deal" and "a very intelligent guy," he wrote on eBay.
He says that he expects to earn "way more" than $125,000 a year until he turns 65, at which point his investor would break even on a $100,000 investment. (Steen would have to average more than $1.5 million a year to match an investment that yielded a 6 percent return, compounded annually over the same period.)
Here's a link to the PDF of the actual auction. (EBay cancelled the auction, and he got no bids.)
Firstly, I should say flat out that this is, in principle, an excellent idea. After all, exchanging future income for a lump-sum up front is precisely what a bond really is.
Secondly, if enough people did this, you could statistically estimate their future earnings, and price them competitively. (Think of it as an insurance policy on education. The future "investment bankers" are subsidizing the future "secretaries", etc.)
So why is it really stupid?
Several reasons.
Firstly, let's examine the reasons as to what can go wrong. Perhaps, he will renege on the contract, die or get dismembered before 40 years, or simply not make as much money as he thinks he's going to make.
Now let's work through these assumptions. We'll do all the calculations in "future dollars" so we have to include the effects of inflation. If he's really good at what he does, his wages will be above inflation each year by let's say 1-2%. Let's also assume he makes $100K (highly unlikely, but still.) Let's assume inflation runs at a fixed 3%.
You'd get paid between $190K (4% assumption) to $240K (6%).
Take the same $100K and buy 30 year US treasuries, and you'll get roughly $138K of coupons at current yields, plus your original $100K back, plus any interest that you pick up by reinvesting these coupons! Add in interest for an extra 10 years (at the same rate) you get an extra $46K. (That's $284K.)
So this kid is shit out of luck even under the most optimistic assumptions. You don't have to be a genius to figure out if you assume more realistic assumptions, you'd be really stupid to invest in this kid.
I mean, if the kid can't even do these calculations, there's no chance of him making "way more" than $125K.
So what did he really do wrong, theoretically speaking? Obviously, 2% of your income is too little. Up it to 10%, and the numbers would change.
The other alternative would've been not to demand a minimum of $100K, but let the market determine what they're willing to risk on you.
(Incidentally, Robert Shiller has written extensively about this in his book: The New Financial Order.)
Tuesday, November 28, 2006
Sucka-paloozah
From the San Diego Union Tribune, we have Plan for second tower irks El Cortez owners.
El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there's no doorman to welcome them at the end of the day.
The fact that developer Peter Janopaul – who along with business partner Anthony Block renovated the 1927 hotel – is now planning to build a new condominium tower where their pool and parking is, well, that's just one more slap in the face.
Janopaul declined to be interviewed for this article, but Michael Zucchet, the vice president of Janopaul's development company, said a handful of homeowners at the El Cortez are making Janopaul a scapegoat for problems he had nothing to do with.
“Didn't read your disclosure documents? Blame the developer,” Zucchet said. “Developer's right to build getting vindicated at every turn? . . . Argue that the developer is actually a mean guy. Condo market heading south two years after you bought your unit? Sue the developer.
Residents concede they signed documents acknowledging that another building could be constructed just 40 feet away, but many say they were told it wouldn't happen for a long time. They say construction could damage their home values, their building's foundation and the historic character of the El Cortez.
Janopaul's company also is suing contractors for plumbing defects that include leaking pipes and backups, and lawsuits have been combined. But residents should not be surprised, said Janopaul attorney Tomas Morales. He noted that buyers signed detailed disclosures.
“Before they gave their money to the developer, they had to sign some very direct documents that said a building is coming (next door) and they were buying a unit built in 1927 and it would be unreasonable to expect it would operate like a building built in 2004,” Morales said.
Oooh, this is like front-row tickets to the "shear the sheep" finals!
Developers are smart cookies, particularly the crooked ones. If you signed a contract, there's absolutely nothing you can do about it!
So long, suckahs!
El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there's no doorman to welcome them at the end of the day.
The fact that developer Peter Janopaul – who along with business partner Anthony Block renovated the 1927 hotel – is now planning to build a new condominium tower where their pool and parking is, well, that's just one more slap in the face.
Janopaul declined to be interviewed for this article, but Michael Zucchet, the vice president of Janopaul's development company, said a handful of homeowners at the El Cortez are making Janopaul a scapegoat for problems he had nothing to do with.
“Didn't read your disclosure documents? Blame the developer,” Zucchet said. “Developer's right to build getting vindicated at every turn? . . . Argue that the developer is actually a mean guy. Condo market heading south two years after you bought your unit? Sue the developer.
Residents concede they signed documents acknowledging that another building could be constructed just 40 feet away, but many say they were told it wouldn't happen for a long time. They say construction could damage their home values, their building's foundation and the historic character of the El Cortez.
Janopaul's company also is suing contractors for plumbing defects that include leaking pipes and backups, and lawsuits have been combined. But residents should not be surprised, said Janopaul attorney Tomas Morales. He noted that buyers signed detailed disclosures.
“Before they gave their money to the developer, they had to sign some very direct documents that said a building is coming (next door) and they were buying a unit built in 1927 and it would be unreasonable to expect it would operate like a building built in 2004,” Morales said.
Oooh, this is like front-row tickets to the "shear the sheep" finals!
Developers are smart cookies, particularly the crooked ones. If you signed a contract, there's absolutely nothing you can do about it!
So long, suckahs!
Monday, November 27, 2006
Economics, Ethics and Morality
To give a break from the stunningly single-minded (according to some of you) economic stupidity in the housing market, we'll get back to the Editorial from the New York Times: When Don’t Smoke Means Do.
Philip Morris has adopted the role of good citizen these days. Its Web site brims with information on the dangers of smoking, and it has mounted a campaign of television spots that urge parents, oh so earnestly, to warn their children against smoking. That follows an earlier $100 million campaign warning young people to “Think. Don’t Smoke,” analogous to the “just say no” admonitions against drugs.
Just why the costly advertising campaigns produce no health benefits is a rich subject for exploration. The ads are fuzzy-warm, which could actually generate favorable feelings for the tobacco industry and, by extension, its products. And their theme — that adults should tell young people not to smoke mostly because they are young people — is exactly the sort of message that would make many teenagers feel like lighting up.
Philip Morris says it has spent more than $1 billion on its youth smoking prevention programs since 1998 and that it devised its current advertising campaign on the advice of experts who deem parental influence extremely important. But the company has done only the skimpiest research on how the campaign is working. It cites June 2006 data indicating that 37 percent of parents with children age 10 to 17 were both aware of its ads and spoke to their children about not smoking. How the children reacted has not been explored. And somehow the company forgot to tell the parents, as role models, to stop smoking themselves.
Philip Morris, the industry’s biggest and most influential company, is renowned for its marketing savvy. If it really wanted to prevent youth smoking — and cut off new recruits to its death-dealing products — it could surely mount a more effective campaign to do so.
Let me bluntly say that I abhor smoking. I'm terribly allergic to it, and have hated it since I was a child. My parents can tell you that I have, flat out, at age 7 told my grandfather that I'm going to leave the room while he was smoking, and will come back when he was finished (and followed up on that for the next 8+ years or so.)
I have also worked in the theater for 15+ years through graduate school, and those of you have some experience in the theater will know what I mean when I say "everyone" in the theater smokes, and I have put up with it, and pretty damned patiently at that.
However, all of these are personal opinions not "economic" or "rational" ones.
Let's go to the economic stupidity which is, after all, the point of this blog.
Firstly, there is quite literally, no incentive for a company to do something against its own interests.
The real question is not "would you?" but if you were the steward of a company with a given mandate, "would you?"
Please note that we're talking about the subtle distinction between ethics and morals here!
Secondly, the blunt economic truth is that governments can never ban anything that people genuinely want to do. At best, they can act as traffic policemen.
Ask yourself, how well has the "war on drugs" really performed? Which major American city can you not buy marijuana at any hour of the day or night? Hell! There's home delivery for the product!
Please note the argument for precisely what it is. I neither care for drugs nor cigarettes. Nor do I care for a nanny state. But then, nor do I care for free healthcare (if "you" can't pay, and the state is paying for "your" healthcare, then the state can and should ban cigarettes for "you", not for the people willing to pay.)
And, negative incentives do actually work. The trifecta of higher taxes, banning cigarettes in bars and restaurants, and free nicotine patches in New York has transformed the "Paris of the US" into a non-smoking paradise.
So if you want to disincentivize something, ask the Federal Government to behave like New York City, not the company to act against in its own self-interest.
Which brings us to the stupidity part, which is what the Editorial is being accused of!
Fair Disclosure: I used to own stock in Altria, and was forced to dispose it for professional reasons. (If not, I would've hung on to it!)
Philip Morris has adopted the role of good citizen these days. Its Web site brims with information on the dangers of smoking, and it has mounted a campaign of television spots that urge parents, oh so earnestly, to warn their children against smoking. That follows an earlier $100 million campaign warning young people to “Think. Don’t Smoke,” analogous to the “just say no” admonitions against drugs.
Just why the costly advertising campaigns produce no health benefits is a rich subject for exploration. The ads are fuzzy-warm, which could actually generate favorable feelings for the tobacco industry and, by extension, its products. And their theme — that adults should tell young people not to smoke mostly because they are young people — is exactly the sort of message that would make many teenagers feel like lighting up.
Philip Morris says it has spent more than $1 billion on its youth smoking prevention programs since 1998 and that it devised its current advertising campaign on the advice of experts who deem parental influence extremely important. But the company has done only the skimpiest research on how the campaign is working. It cites June 2006 data indicating that 37 percent of parents with children age 10 to 17 were both aware of its ads and spoke to their children about not smoking. How the children reacted has not been explored. And somehow the company forgot to tell the parents, as role models, to stop smoking themselves.
Philip Morris, the industry’s biggest and most influential company, is renowned for its marketing savvy. If it really wanted to prevent youth smoking — and cut off new recruits to its death-dealing products — it could surely mount a more effective campaign to do so.
Let me bluntly say that I abhor smoking. I'm terribly allergic to it, and have hated it since I was a child. My parents can tell you that I have, flat out, at age 7 told my grandfather that I'm going to leave the room while he was smoking, and will come back when he was finished (and followed up on that for the next 8+ years or so.)
I have also worked in the theater for 15+ years through graduate school, and those of you have some experience in the theater will know what I mean when I say "everyone" in the theater smokes, and I have put up with it, and pretty damned patiently at that.
However, all of these are personal opinions not "economic" or "rational" ones.
Let's go to the economic stupidity which is, after all, the point of this blog.
Firstly, there is quite literally, no incentive for a company to do something against its own interests.
The real question is not "would you?" but if you were the steward of a company with a given mandate, "would you?"
Please note that we're talking about the subtle distinction between ethics and morals here!
Secondly, the blunt economic truth is that governments can never ban anything that people genuinely want to do. At best, they can act as traffic policemen.
Ask yourself, how well has the "war on drugs" really performed? Which major American city can you not buy marijuana at any hour of the day or night? Hell! There's home delivery for the product!
Please note the argument for precisely what it is. I neither care for drugs nor cigarettes. Nor do I care for a nanny state. But then, nor do I care for free healthcare (if "you" can't pay, and the state is paying for "your" healthcare, then the state can and should ban cigarettes for "you", not for the people willing to pay.)
And, negative incentives do actually work. The trifecta of higher taxes, banning cigarettes in bars and restaurants, and free nicotine patches in New York has transformed the "Paris of the US" into a non-smoking paradise.
So if you want to disincentivize something, ask the Federal Government to behave like New York City, not the company to act against in its own self-interest.
Which brings us to the stupidity part, which is what the Editorial is being accused of!
Fair Disclosure: I used to own stock in Altria, and was forced to dispose it for professional reasons. (If not, I would've hung on to it!)
Sunday, November 26, 2006
Eyes Wide Shut
Just to make sure that stupidity is a trait shared by all humans, we have Tony Levene writing for the UK Guardian: Landbanking flop ends field of dreams.
One of Britain's biggest landbankers has gone bust, leaving investors who paid a total of £7m for tiny slices of farmland, wondering where their money went. Land Heritage (UK) Ltd told 700 land purchasers this week it was going into liquidation on the "advice" of accountants PricewaterhouseCoopers (PWC).
It told them to direct future correspondence towards PWC. But when Guardian Money contacted the accountancy firm, it said it had never heard of Land Heritage (UK) Ltd.
"Whatever LHUK says, we have not been instructed by this company and will not be. We have not provided any formal advice and we have not billed the company for anything. We shall not be handling any liquidation - we have no relationship whatsoever with it," PWC says.
Whoever acts as liquidator, the end of LHUK destroys what slim hopes investors had of the firm turning their minuscule plots into potentially valuable housebuilding sites - or of getting any refund.
"I fully expected 20% annual returns over the next decade - multiplying my money up to eight times. I know that's a lot but I did not go into this investment with my eyes closed," says one Kent investor who asked for anonymity.
Now all he has is title to a plot of land in the middle of a field which is unlikely ever to gain planning permission.
Wow, this is stunning in its sheer panoramic scope.
A worthless piece of land in the middle of nowhere, no planning permission ergo no way to access your own piece of land. The land is literally worthless! You could probably plant vegetables on it, if you got air-dropped or something.
A company that PWC has never even heard of, and an investor who was multiplying his "mental money" by "up to eight times".
Stupendous, just absolutely stupendous!
One of Britain's biggest landbankers has gone bust, leaving investors who paid a total of £7m for tiny slices of farmland, wondering where their money went. Land Heritage (UK) Ltd told 700 land purchasers this week it was going into liquidation on the "advice" of accountants PricewaterhouseCoopers (PWC).
It told them to direct future correspondence towards PWC. But when Guardian Money contacted the accountancy firm, it said it had never heard of Land Heritage (UK) Ltd.
"Whatever LHUK says, we have not been instructed by this company and will not be. We have not provided any formal advice and we have not billed the company for anything. We shall not be handling any liquidation - we have no relationship whatsoever with it," PWC says.
Whoever acts as liquidator, the end of LHUK destroys what slim hopes investors had of the firm turning their minuscule plots into potentially valuable housebuilding sites - or of getting any refund.
"I fully expected 20% annual returns over the next decade - multiplying my money up to eight times. I know that's a lot but I did not go into this investment with my eyes closed," says one Kent investor who asked for anonymity.
Now all he has is title to a plot of land in the middle of a field which is unlikely ever to gain planning permission.
Wow, this is stunning in its sheer panoramic scope.
A worthless piece of land in the middle of nowhere, no planning permission ergo no way to access your own piece of land. The land is literally worthless! You could probably plant vegetables on it, if you got air-dropped or something.
A company that PWC has never even heard of, and an investor who was multiplying his "mental money" by "up to eight times".
Stupendous, just absolutely stupendous!
Tuesday, November 21, 2006
Starlight, starbright...
From the Detroit Free Press, we have a "Free Press Staff" write about Detroit-area home prices plunge 10.5% compared with year ago.
"And for sellers, it's almost a nightmare," he says. "A property can be marketed with every kind of tool you can think of, and unless there are really, really great incentives that make the property 20% below what the market price should be, they're just sitting there."
I have news for you, sunshine!
There is no "should be" in the market. What the market says is precisely what the market is.
If a piece of property sells for 20% less than what you think it "should be" then that's what the market thinks the property is worth. Everything else is what we call "wishing prices".
In the words of Yoda, "Is or is not. There is no should."
"And for sellers, it's almost a nightmare," he says. "A property can be marketed with every kind of tool you can think of, and unless there are really, really great incentives that make the property 20% below what the market price should be, they're just sitting there."
I have news for you, sunshine!
There is no "should be" in the market. What the market says is precisely what the market is.
If a piece of property sells for 20% less than what you think it "should be" then that's what the market thinks the property is worth. Everything else is what we call "wishing prices".
In the words of Yoda, "Is or is not. There is no should."
Monday, November 20, 2006
That sickening feeling...
From the St. Petersburg Times in sunny Tampa Bay, FL, we have the holy trinity of James Thorner, Scott Barancik, and Matthew Waite writing about Bay's home boom suddenly belly-up.
The fun time has ended for Leonard and Joyce Sondheimer. In October 2005, the Bradenton couple bought a $338,900 MiraBay townhome on Aberdeen Pond Drive. The bayside investment home with stone counters, hardwood floors and stainless steel appliances was sure to appreciate to half a million dollars. Or so the Sondheimers thought.
After a year on the market, no one has nibbled. Their Realtor chopped the price to break even. The tax bill alone on that single investment -— $8,900 a year — is draining the Sondheimer’s nest egg.
“I was retired and now I’ve had to go back to work. I’ve got to pay all these bills,” Leonard Sondheimer, 68, said of his new job as a mattress salesman. “It’s getting sickening.”
It was sure to appreciate to half a million, eh?
Well, it didn't, so I guess you're working off a different meaning of "sure" than the rest of the world.
You've made your mattress, now I suppose you're going to have to lie in it!
The fun time has ended for Leonard and Joyce Sondheimer. In October 2005, the Bradenton couple bought a $338,900 MiraBay townhome on Aberdeen Pond Drive. The bayside investment home with stone counters, hardwood floors and stainless steel appliances was sure to appreciate to half a million dollars. Or so the Sondheimers thought.
After a year on the market, no one has nibbled. Their Realtor chopped the price to break even. The tax bill alone on that single investment -— $8,900 a year — is draining the Sondheimer’s nest egg.
“I was retired and now I’ve had to go back to work. I’ve got to pay all these bills,” Leonard Sondheimer, 68, said of his new job as a mattress salesman. “It’s getting sickening.”
It was sure to appreciate to half a million, eh?
Well, it didn't, so I guess you're working off a different meaning of "sure" than the rest of the world.
You've made your mattress, now I suppose you're going to have to lie in it!
Sunday, November 19, 2006
"Daddy, buy me a condo!"
From the Minneapolis Star Tribune, we have Jackie Crosby writing about Option ARMS right for you?
In April, Marie Senn found the home of her dreams, a condo that hadn't even gone on the market yet. Then she fell into a nightmare of a mortgage -- a type of adjustable-rate mortgage known as an option ARM.
"I was a young buyer," said Senn, 24, who said she wasn't told that she could qualify for low-interest loans targeted at first-time homeowners.
"I'd never heard of this loan," she said. "There are so many things that I wish I knew then."
That's where Senn was headed. Her payments eventually would have tripled from a low payment that came with her option ARM if she hadn't just refinanced into a fixed-rate mortgage, which still leaves her strapped with higher monthly payments than she had planned.
"I want to put this behind me," she said.
It is behind you, honey, it is totally behind you.
Open up wide, baby, daddy's coming home!
In April, Marie Senn found the home of her dreams, a condo that hadn't even gone on the market yet. Then she fell into a nightmare of a mortgage -- a type of adjustable-rate mortgage known as an option ARM.
"I was a young buyer," said Senn, 24, who said she wasn't told that she could qualify for low-interest loans targeted at first-time homeowners.
"I'd never heard of this loan," she said. "There are so many things that I wish I knew then."
That's where Senn was headed. Her payments eventually would have tripled from a low payment that came with her option ARM if she hadn't just refinanced into a fixed-rate mortgage, which still leaves her strapped with higher monthly payments than she had planned.
"I want to put this behind me," she said.
It is behind you, honey, it is totally behind you.
Open up wide, baby, daddy's coming home!
Tuesday, November 14, 2006
Orwell Lives!
From CBS Marketwatch, we have John Spence reporting on D.R. Horton's quarterly net slips 51%.
"This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year," said Chief Financial Officer Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.
Say what?
Let's work through the gobbledy-gook:
"core margin deterioration" = "our sales margin is shrinking"
"lack of pricing power" = "no buyers are showing up"
"increased use of sales incentive" = "we're cutting prices"
"scaling back inventory" = "having trouble selling, cutting prices to sell stuff"
I think he means, "Our ass is toast!"
"This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year," said Chief Financial Officer Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.
Say what?
Let's work through the gobbledy-gook:
"core margin deterioration" = "our sales margin is shrinking"
"lack of pricing power" = "no buyers are showing up"
"increased use of sales incentive" = "we're cutting prices"
"scaling back inventory" = "having trouble selling, cutting prices to sell stuff"
I think he means, "Our ass is toast!"
Monday, November 13, 2006
Living the American Dream
From the New Jersey Herald News we have A bitter ending.
The Maldonados, like many other homeowners, faced financial difficulties and refinanced with a nontraditional mortgage -- the kind of adjustable-rate loan that has inundated the market over the past few years, promising quick cash or low interest rates.
Now, mortgage payments eat up Maldonado's entire monthly income.
Oooh, good, a payment more than your entire monthly income. This is definitely going to end well.
But the same year Maldonado bought his home, his wife had started racking up thousands of dollars in credit card debt while out of work.
In May 2005, creditors placed a $15,000 lien against the house on $80,000 of unpaid debt. The Maldonados panicked. But the house had grown in value, so they refinanced, using the equity to pay the debt. Their monthly mortgage payments grew by $800 -- tight but manageable for the family.
Then earlier this year, they discovered additional credit card bills.
His wife racked up $80K in debt while out of work. $80K?!?
The sum total of all the money I have spent in the last 10 years barely adds up to $80K. (and yes! I actually pulled out the spreadsheet.)
What the fuck?!?
And they, "discovered" additional bills. Please note that this is the same usage as in Lavoisier discovered oxygen, Newton discovered gravity, and Columbus discovered America.
It was totally unexpected, of course. The bills were just "discovered".
While Maldonado toyed with selling the house, daughter Wanda Perez began looking for alternatives.
She found Equity Source Home Loans, a Morganville-based company catering to those with damaged credit. Equity Source said the value of the Maldonado's home had grown to $345,000. They offered the family a $230,000 adjustable rate mortgage, with monthly payments of $2,330 -- more than Maldonado's take-home pay.
More than the pay. Yippee-skippee!
But Equity Source verbally promised them that they could refinance again in six months, when their bills were paid off, the Maldonados said. With better credit, they'd get a lower interest rate and smaller monthly payments, Equity Source told them.
If it ain't in a written contract, it ain't worth shit!
The Maldonados devote more than 53 percent of their gross income to the Equity Source mortgage, according to the loan documents. There are no legal limits to debt-to-income ratios.
But the mortgage documents don't list the Maldonados' actual income. According to documentation the Maldonados provided, the family pays 63 percent of its income to its monthly mortgage.
Ooh, the documents say that they only pay 63% but, in reality, they have to pay more than their income.
Can you say "fraud"? I knew you could!
Hurrah for the American consumer!
Hurrah for the American dream!
The Maldonados, like many other homeowners, faced financial difficulties and refinanced with a nontraditional mortgage -- the kind of adjustable-rate loan that has inundated the market over the past few years, promising quick cash or low interest rates.
Now, mortgage payments eat up Maldonado's entire monthly income.
Oooh, good, a payment more than your entire monthly income. This is definitely going to end well.
But the same year Maldonado bought his home, his wife had started racking up thousands of dollars in credit card debt while out of work.
In May 2005, creditors placed a $15,000 lien against the house on $80,000 of unpaid debt. The Maldonados panicked. But the house had grown in value, so they refinanced, using the equity to pay the debt. Their monthly mortgage payments grew by $800 -- tight but manageable for the family.
Then earlier this year, they discovered additional credit card bills.
His wife racked up $80K in debt while out of work. $80K?!?
The sum total of all the money I have spent in the last 10 years barely adds up to $80K. (and yes! I actually pulled out the spreadsheet.)
What the fuck?!?
And they, "discovered" additional bills. Please note that this is the same usage as in Lavoisier discovered oxygen, Newton discovered gravity, and Columbus discovered America.
It was totally unexpected, of course. The bills were just "discovered".
While Maldonado toyed with selling the house, daughter Wanda Perez began looking for alternatives.
She found Equity Source Home Loans, a Morganville-based company catering to those with damaged credit. Equity Source said the value of the Maldonado's home had grown to $345,000. They offered the family a $230,000 adjustable rate mortgage, with monthly payments of $2,330 -- more than Maldonado's take-home pay.
More than the pay. Yippee-skippee!
But Equity Source verbally promised them that they could refinance again in six months, when their bills were paid off, the Maldonados said. With better credit, they'd get a lower interest rate and smaller monthly payments, Equity Source told them.
If it ain't in a written contract, it ain't worth shit!
The Maldonados devote more than 53 percent of their gross income to the Equity Source mortgage, according to the loan documents. There are no legal limits to debt-to-income ratios.
But the mortgage documents don't list the Maldonados' actual income. According to documentation the Maldonados provided, the family pays 63 percent of its income to its monthly mortgage.
Ooh, the documents say that they only pay 63% but, in reality, they have to pay more than their income.
Can you say "fraud"? I knew you could!
Hurrah for the American consumer!
Hurrah for the American dream!
Melodrama
From the Press Democrat, we have a lovely little Spanish soap-opera The Pachecos.
Neil Pacheco just about gave up hope after five months of shopping for a home.
The monthly payments seemed prohibitive on the $484,000 house he was eyeing on a cul-de-sac in Windsor.
But then the slowing housing market turned in his favor. The seller, who had lowered the price by almost $6,000, knocked another $8,500 off the price tag - and then agreed to pay $10,000 toward closing costs.
Add in some creative lending help, and Pacheco, 26, and his wife, Graciela, 27, got the house off Los Amigos Road in the Lakewood Glen subdivision.
Ooh, "creative" lending. Sounds a bit ominous.
Pacheco works as a food server at River Rock Casino and runs his own landscaping business. Graciela works full time as a cook.
Slightly more than half of their combined income will go toward their $3,100-per-month house payment. And that doesn't cover insurance or property taxes.
A "food server" and a "cook" bought a $460K piece of property. More than half their combined income will go towards the mortgage, and that doesn't include insurance, property taxes, or maintenance.
How can this not end badly?
It gets better:
Their monthly payment is more than three times the $1,000 rent they were paying for a two-bedroom apartment.
Three times the rent must mean that they are three times richer, right? Right? RIGHT?
And then comes the grand finale:
"We know that we can do it," said Pacheco of the relatively steep house payments. "We want to work hard for this. We were working hard before."
Wish in one hand, and shit in the other. See which one fills up first, Pacheco!
Neil Pacheco just about gave up hope after five months of shopping for a home.
The monthly payments seemed prohibitive on the $484,000 house he was eyeing on a cul-de-sac in Windsor.
But then the slowing housing market turned in his favor. The seller, who had lowered the price by almost $6,000, knocked another $8,500 off the price tag - and then agreed to pay $10,000 toward closing costs.
Add in some creative lending help, and Pacheco, 26, and his wife, Graciela, 27, got the house off Los Amigos Road in the Lakewood Glen subdivision.
Ooh, "creative" lending. Sounds a bit ominous.
Pacheco works as a food server at River Rock Casino and runs his own landscaping business. Graciela works full time as a cook.
Slightly more than half of their combined income will go toward their $3,100-per-month house payment. And that doesn't cover insurance or property taxes.
A "food server" and a "cook" bought a $460K piece of property. More than half their combined income will go towards the mortgage, and that doesn't include insurance, property taxes, or maintenance.
How can this not end badly?
It gets better:
Their monthly payment is more than three times the $1,000 rent they were paying for a two-bedroom apartment.
Three times the rent must mean that they are three times richer, right? Right? RIGHT?
And then comes the grand finale:
"We know that we can do it," said Pacheco of the relatively steep house payments. "We want to work hard for this. We were working hard before."
Wish in one hand, and shit in the other. See which one fills up first, Pacheco!
Tuesday, November 07, 2006
Popeye, the Sailor Man
From the Orlando Sentinel, we have Jack Snyder (what a name!) writing about Savings of 100 at risk in investment flap.
Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000 -- but make no mortgage payments for two years. Main Street USA, in addition to paying the loan for 24 months, promised to use some of his unit's rental income to renovate the property inside and out. And some of his cash was to be placed in a real-estate-investment trust paying double-digit returns.
Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then stopped.
The couple has been making the payments since then, but they say it isn't easy coming up with $1,128 each month in the hope of keeping their investment alive.
"It's tough," said Cortes, an aircraft technician. "I'm working a lot of overtime trying to make ends meet."
Aah, good ol' fashioned counterparty risk.
It comes back to bite with a vengeance. And in this case, it's indistinguishable from fraud, and the FBI is involved.
What's with the subject line, eh?
Remember Wimpy?
"I will gladly pay you Tuesday for a hamburger today."
Caveat emptor!
Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000 -- but make no mortgage payments for two years. Main Street USA, in addition to paying the loan for 24 months, promised to use some of his unit's rental income to renovate the property inside and out. And some of his cash was to be placed in a real-estate-investment trust paying double-digit returns.
Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then stopped.
The couple has been making the payments since then, but they say it isn't easy coming up with $1,128 each month in the hope of keeping their investment alive.
"It's tough," said Cortes, an aircraft technician. "I'm working a lot of overtime trying to make ends meet."
Aah, good ol' fashioned counterparty risk.
It comes back to bite with a vengeance. And in this case, it's indistinguishable from fraud, and the FBI is involved.
What's with the subject line, eh?
Remember Wimpy?
"I will gladly pay you Tuesday for a hamburger today."
Caveat emptor!
New York, New York
From New York Magazine, we have S. Jhoanna Robledo writing about This Isn't Their Moment.
Few jobs are as irregular as acting. Which may be why Jeremy Kushnier waited until last year to buy his one-bedroom in Morningside Heights. “I just got tired of paying rent,” says Kushnier, who coincidentally had been playing Roger in the Broadway musical Rent. “I was lucky enough to get great jobs in the past few years, and I wanted to build some equity.” So much for that: Sixteen months later, Kushnier’s selling his place and moving to Los Angeles to join his actress girlfriend. If he gets his price—$509,000—he’ll do slightly better than break even. But a little negotiation could wipe out his profit altogether.
Let's see what's wrong with this picture. He's an actor - the ultimate temp job, if ever there was one. Most actors wait tables in New York, and even those working on Broadway don't actually make that much money.
He bought a one-bedroom for half a million dollars. An actor buying a half a million dollar condo!
And in Morningside Heights!!!
For those not familiar with Manhattan, this is technically on the island but so far away from any amenities that it might as well not be.
Also, anyone who makes the kind of dough to cover that mortgage will not live in Morningside Heights, flat out! (This "actor" probably has an interest-only or neg-am loan.)
But the best is yet to come:
Kushnier’s co-op doesn’t allow sublets so soon after an owner moves in—ruling out that option—and the expenses are piling up. “It’s a financial burden,” he says.
Can't rent it out. Can't pay for it either. Trying to move to LA to get a job.
I bet he's shitting ice-cold bricks right now!
Few jobs are as irregular as acting. Which may be why Jeremy Kushnier waited until last year to buy his one-bedroom in Morningside Heights. “I just got tired of paying rent,” says Kushnier, who coincidentally had been playing Roger in the Broadway musical Rent. “I was lucky enough to get great jobs in the past few years, and I wanted to build some equity.” So much for that: Sixteen months later, Kushnier’s selling his place and moving to Los Angeles to join his actress girlfriend. If he gets his price—$509,000—he’ll do slightly better than break even. But a little negotiation could wipe out his profit altogether.
Let's see what's wrong with this picture. He's an actor - the ultimate temp job, if ever there was one. Most actors wait tables in New York, and even those working on Broadway don't actually make that much money.
He bought a one-bedroom for half a million dollars. An actor buying a half a million dollar condo!
And in Morningside Heights!!!
For those not familiar with Manhattan, this is technically on the island but so far away from any amenities that it might as well not be.
Also, anyone who makes the kind of dough to cover that mortgage will not live in Morningside Heights, flat out! (This "actor" probably has an interest-only or neg-am loan.)
But the best is yet to come:
Kushnier’s co-op doesn’t allow sublets so soon after an owner moves in—ruling out that option—and the expenses are piling up. “It’s a financial burden,” he says.
Can't rent it out. Can't pay for it either. Trying to move to LA to get a job.
I bet he's shitting ice-cold bricks right now!
The "Experts" Weigh In
From AZCentral, we have Catherine Reagor writing about Experts weigh in on market in Phoenix.
The number of local and national real estate gurus tracking the Valley's housing market has grown with the amount of money made and lost in the industry recently.
Demand for unreasonably priced homes or homes far from jobs is "abysmal" now. That's what national real estate analyst John Burns writes in his recent newsletter.
As opposed to what, Einstein?
Demand for unreasonably priced homes should soar? Have a meteoric rise?
You should ask for a refund on your college tuition!
The number of local and national real estate gurus tracking the Valley's housing market has grown with the amount of money made and lost in the industry recently.
Demand for unreasonably priced homes or homes far from jobs is "abysmal" now. That's what national real estate analyst John Burns writes in his recent newsletter.
As opposed to what, Einstein?
Demand for unreasonably priced homes should soar? Have a meteoric rise?
You should ask for a refund on your college tuition!
Ghost Towns
Perhaps more appropriate for Halloween, but here's a report from In Business, Las Vegas: Las Vegas growth and location will lure plants.
Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar.
Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.
Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there's nothing wrong with having so many homes vacant.
Yep, what's wrong with having so many homes vacant?
While we're at it, why don't we build some factories. We'll leave those vacant too. After that we'll build vacant ports, vacant parking lots. In fact, we'll build an entire city which we will leave vacant too, and there's really no problem with all of that. Just build, build, build, and we'll leave it all vacant.
The really vacant part is the space inside your cranium!
Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar.
Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.
Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there's nothing wrong with having so many homes vacant.
Yep, what's wrong with having so many homes vacant?
While we're at it, why don't we build some factories. We'll leave those vacant too. After that we'll build vacant ports, vacant parking lots. In fact, we'll build an entire city which we will leave vacant too, and there's really no problem with all of that. Just build, build, build, and we'll leave it all vacant.
The really vacant part is the space inside your cranium!
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