Felix Salmon, blogger of the New York Times has done a good job of following what strategic, or otherwise, defaulters have been doing for some time. I would say that not only is the trend going to continue, it will likely be the death of the housing market. Because, if you think about it, why would someone continue to pay if they know that they can live rent or payment free for more than 2 years.
People normally only lived in their homes for 5 years, and according to FHA standards, you can buy 3 years after a foreclosure. With the money saved from payments, you could live for nearly half of the cost of renting, only suffering occasional negative credit events. Throw in a good age discrimination lawsuit, or some other such rubbish, and I suppose someone who is 60+ could live quite a long time in a home without paying.
I often relate back to a friend of mine who TRIED to give back their mansion in Laguna Niguel for 26 months. The banks FINALLY took it back only after a short sale. If someone wanted to, they could drag out the foreclosure process with regular short sale offers and requests for 3 or more years, I believe. In Southern California, where rents on SFH’s can be 3K+ per month, that means that a person could amass over 100K in that time, sufficient enough to live off of for some time afterwards. One could be debt free otherwise, have lavish vacations, buy luxury cars, or simply save by stopping payments on their home.
And, so long as the banking system is in a state of quasi-nationalization, there is no reason for the banking system to foreclose. In the present state where all foreclosures are seen as BAD in the mainstream media, banks would rather suckle off of Uncle Sam’s teat than try to force deadbeats to pay up; it’s a politically stable decision. Indeed, it seems we are approaching the day when the US Government is paying everyone’s mortgage, at least indirectly in the name of maintaining our financial system. Ironically, many of us laughed inside when we saw the clip of the girl screaming “Obama gonna pay mah mortgage!”. The laugh, it seems, is on us. He is “gonna pay (our) mortgage!” Well, actually not mine, I rent. Only in today’s America, can we see that renters are treated with such disdain that they get neither tax breaks, legal protection equal to homedebtors, nor could we have our payments stealth-subsidized like deadbeats do. If there is no god, there must at least be a karma out there ready to bitch-slap our country something fierce. There will be consequences to the federal government paying everyone’s mortgage, and I only hope that if that means a total collapse of our country’s fiscal state that many of us who were conservative will be able to escape with a portion of our hard work’s output intact.
I have been saying for the last couple of years that, the positive economic numbers we see is from ths spending that these none rent paying people are doing with their extra income.
They don’t pay rent, but instead buy clothes and toys and eat out… At some point this house of cards will collapse.
After the 60 minutes segment on walking away, I don’t think many people get it. It’s not walking away – it’s squatting.
Can someone please explain to me how/why housing prices are still rising?
They’re rising? where?
California. Aren’t the prices up 9-10% or so over the last year for CA?
Per DataQuick
http://www.dqnews.com/Charts/M.....IPOCR.aspx
http://www.dqnews.com/Charts/M.....IPCAR.aspx
What blows my mind is that CA unemployment is nearing 13% and the rebound is happening (but wont last IMO).
Not sure exactly where you are looking, but they are not skyrocketing where I am.
But are they going up at all?
It’s a change in mix, mostly. In some deep inland areas, prices are slightly up, but volume is so low, it’s hard to draw much conclusions. We haven’t reached a stable bottom for sure. Case-schiller bears that out more plainly.
Besides, California is a big place. I’d be buying deep inland in some areas like Antelope valley or Victorville if you’re willing to stay put for 10+ years.
Inland Empire is getting closer, but there’s a lot of variability and we’re running 20%+ default rates still (that’s for sure signaling a bottom is still out)
Coastal is locked up tighter than a gnat stretched across a hudsucker hoop.
Chuck, what do you make of the huge inventory recently released in Van Nuys, Sherman Oaks, Valley Village, Studio City, etc?
In my part of Van Nuys…a pretty small area, I’d say 1 in 15 houses is currently for sale or in a various state of being repaired for eventual sale. Chances of renting most of these is zero(most stuff south of Sherman Way is 2500 sq ft plus, more often 4000 sq ft plus and no one is paying $4-5K/mo to rent in this area). Yet most of these properties are super over priced. Its the first area I’ve noticed where a ton of properties hit MLS all at once, and a whole lot of other properties that are being worked on and are not on MLS yet.
I’d say that people are mistaking this structural change as a cyclical change.
Interest rates will likely stay low for a long time, and this is not a bullish signal. Low rates mean very little economic growth. Little economic growth means few jobs. Few jobs and high taxes mean California flight. You can guess the next steps. Until we are at a reasonable equilibrium in more expensive locale’s, we’ll stay at depressed volume sales levels since we have pulled demand forward with first a bubble and then tax incentives.
Chuck
United States pending house sales went up in April 2010 beyond expectations as buyers signed contracts to collect a government tax credit. The National Association of Realtors’ index for pending sales of used homeselevated by 6.0% to 110.9 in April, the industry group said Wednesday. The gain was the third consecutive one. Economists surveyed by Dow Jones Newswires had expected pending home sales would climb in April by 5.0%. First-time home-buyers rushed to beat the April 30 deadline for the tax credit. Lawrence Yun, NAR’s chief economist, said sales this spring seem as strong as those last fall, before the original expiration date.
Just look at the inventory in OC. It’s pathetically low compared to the bubble years 2004-2007. I think that explains the rise in SFH home prices in some parts of the state.
As for when it will change, no one knows. Right now banks face zero ramifications for being proverbial warehouses of foreclosed/foreclosing homes instead of sticking with their core competence of making loans and collecting interest proceeds. They don’t want to do anything, they don’t have to do anything. And big daddy government doesn’t want them doing anything either.
I agree whole heartedly with the statement about “disdain” for renters above.
This is not getting enough discussion in my view. I’m sort of hoping the question pops up during town hall meetings when elections come up again.
“Dear Mr. President, Senator, Rep, why do you hate renters so damn much?
Have we done something to piss you off? Do you think our votes don’t matter?”
Renters are a minority in this country, and renters dont vote as often as homeowners.
“…I only hope that if that means a total collapse of our country’s fiscal state that many of us who were conservative will be able to escape with a portion of our hard work’s output intact.”
You should maybe focus on how to do that, and then share what you find. This is the topic on everyone’s mind, and no one is covering it. Other than gold and silver bullion, owning Chinese yuan, and having land set aside for growing food — what else can a person do to preserve wealth over the next 10 years?
Even with mortgage rates hitting an all time low last week (July 22), people are still not buying homes. A lot of pundits are blaming the slowdown on the expiration of the homebuyer tax credits program.