In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.
A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.
“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.
Personally, I would just slap the person responsible for this.
Col. Klink
It’s still safer than giving a million bucks to Goldman Sachs.
beltane
The accompanying picture of these guys was priceless, something like “Bill and Ted’s Craptacular Real Estate Adventure”. At least they may be able to stay afloat by setting up a nice hydroponic system in their massively overleveraged duplex.
SteveinSC
Going, going, gone, Geithner?
EconWatcher
Next year is going to be ugly. And although he inherited this mess, Obama will get the blame.
Unfair, but not entirely unfair, because he’s really dropped the ball so far on financial reform.
EconWatcher
By the way, John, you might want to fix the title. It looks like you were going to say either “neither bad can come of this” or “nothing bad can happen” and ended with a mixture of both that doesn’t make sense.
Wilson Heath
Stimulus to fend off the total collapse of the economy, that I get, but we can’t get off of the same artificial preferences in government outlays and subsidies. We kept the banks from a total and utter collapse, so now it’s time for the broader economy, and the broadest way is to aim stimulus at the broadest individual income levels. Payroll taxes and extending unemployment. Stimulus is about demand side. It isn’t supposed to be about reinflating bubbles or creating new ones.
flukebucket
Being from North Georgia the title reads perfectly fine to me.
John Cole
@beltane: I added that with your title.
comrade scott's agenda of rage
@Col. Klink:
And how.
I swing both ways on this. On the surface, yeah, stories like this not only drive conservatives insane but also a broad swath of the rest of the population.
OTOH, if this guy and his buddies plan on being responsible landlords and this gives them a boost to do that, well, then perhaps this is a stimulus-kinda effect that will pay off down the line.
OTOH Part 2, if all this does is result in another foreclosure in a year since one could also assume this guy will be living in the apartment and there’s nothing to indicate he has a job, well, it’ll be deja vu all over again.
sparky
@Wilson Heath: it is if the idea is to pretend that there was nothing wrong with the last one–bubble, that is. think of it as resource extraction: with each cycle, the oligarchy extracts more from the peasants until there’s nothing left to squeeze. be sure to explain that it’s the fault of the peasants for being losers while doing so.
Xenos
Between the banks sucking up half of our income in mortgages, and the insurance companies sucking up half of rest, it is no surprise the economy is not coming back. If they cut taxes to 1% the financial industry would just sweep the remaining crumbs off the table. No recovery until FIRE is brought under control.
If Obama does not change course soon, he won’t make it to another term. Next year’s re-collapse is already baked into the cake.
Stoic
How about all the car commercials now popping up offering 0 down-0 interest loans with automatic approval. I guess we didn’t learn from the last credit crisis, we got to double-down. The Washington Establishment is trying to re-inflate the last bubble.
r€nato
If we’re going to get out of this by reinflating the bubble, I’d rather that guys like these profit from it rather than Goldman Sachs.
Pigs & Spiders
Dear Government Dudez,
Please stop subsidizing the real estate market. Instead, cut me a deal on my student loans. I know you need the cash.
Thanks,
Young Guy
comrade scott's agenda of rage
@Wilson Heath:
With Secretary Timmeh at the helm, it does kinda make you wonder. It’s almost as if they don’t know how to respond any other way.
I mean look at Dubya’s recession. How’d we get out of that? Create a housing bubble. When that burst like a overgrown zit on an oily 16 year old boy thus plunging us into the backed up and overflowing septic tank that is now our economy, how else should we expect Timmeh and his ilk to react?
To quote C3PO in Empire Strikes Back “We’re doomed.”
r€nato
@Xenos:
if past history is any guide, the economy will be propped up just long enough to get us past the election. That’s always how it works.
Of course, there was nothing to prop up the economy last year, and if the Bushies could have kept the bubble on life support for just a few more weeks they certainly would have.
Just think how close we came to a McCain/Palin administration. The race was damned close until the economy early-voted in mid-September.
Morbo
@Col. Klink: At the risk of being overly judgmental, I don’t think that’s true based on the photograph of the three of them attached to the article.
CR (via Dr. Black) posted about foreclosures not peaking until 2011 yesterday. Pain.
dr. bloor
The story and photo certainly lend themselves to a Freecreditreport.com-type of ditty, don’t they?
Xenos
@r€nato: But can they possible profit? It is possible the rent for the two units would pencil out to a profit, once you calculate taxes, interest, maintenance, insurance, and the opportunity cost for their measly down payment? And their time managing all of that?
And the best part– wait until one of the guys gets married. I can’t imagine any conflict coming from that…
beltane
@John Cole: Thank you, sir. The picture is worth a thousand words, which is more than can be said for the property in question.
comrade scott's agenda of rage
Having watched many friends over the years get into the slum lord bidness, the idea with a two-unit place like this is to live in one unit and rent out the other. You’re onsite so that somewhat eases maintenance issues plus you can scrutinize and monitor renters better.
That scenario assume the Three Buds are gonna be roomies and somewhere in all of this one assumes they have jobs because as Xenos points out in #18, they ain’t gonna make a living just sitting in their rental unit playing on the xbox all day while gobs of rent flow in from next door.
Another thing struck me: conservatives probably won’t mind this specific instance at all since dem be white boys who we all *know* wouldn’t be confused by lending fine print or default on their mortgage or do any of the other bad things “those people” did to bring down our wonderful economy. I wonder how this story would play out if it were three brown-skinned fellas in their 20s trying to do the same thing.
cmorenc
Let’s see…I’m paying substantial quarterly Federal income taxes in order to subsidize three Gen-X (or is it Y?) types in the near-million dollar category of real estate speculation, when they only had to put in $11 thousand apiece ($33 thou total) of their own capital to obtain the apartment building?
Crap, I feel like an enormously fleeced pigeon upon learning of this. Our economy is being supposedly propped up by subsidizing real estate speculators at taxpayer expense, instead of bona fide long-term family homebuyers.
beltane
@Xenos: A commentator at Calculated Risk says the neighborhood where the property is located is in decline right now. They probably won’t have a hard time finding tenants; they will likely have a hard time finding tenants who will pay the rent required to make the mortgage payments.
Wilson Heath
@Pigs & Spiders:
Amen. If my student loans went away tomorrow, I’d be a hell of a lot more of a good citizen-consumer.
As for “Timmeh” (and lemme tell you, I love that), I don’t think it’s an intentional enabling of looting. He is too cozy, but we’ve had decades of economic babble saying that these Galtian robber barons will be our salvation, and most “serious people” drank that Kool Aid routinely. I think it’s more an issue of that they don’t realize that there are other tricks or that they don’t think other moves are politically feasible. The “free market” orthodoxies are worse than they were under Hoover. And by the time FDR came in and had to fight tooth and nail to get reforms through, there had been years of failed economy. State action or participation in the economy is begging for a s***storm, so the only way forward for broad stimulus is broad demand-side injections while hoping that Efficient Market Hypothesis will spring back to life with those injections of money. Crap.
Suzan
I agree with Econowatcher, Sparky and Xenos on this thread.
Too bad the guys look like slackers and not just down-on-their-luck people out of work due to no fault of their own who need a hand-up as what the country really needs is some stimulus for the people at the bottom to be able to take advantage of the down market just as those in the upper echelons can.
That and real job creation a la the WPA of the prior Great Depression will be the engines that might save us (if we can find leaders with the backbone not to just continue greasing the wealthy thugs).
I don’t have a lot of hope for this though. It would take getting rid of Tim and Larry (and the other stooges).
S
Next year is going to be ugly. And although he inherited this mess, Obama will get the blame.
Unfair, but not entirely unfair, because he’s really dropped the ball so far on financial reform.
-EconoWatcher
ksmiami
Personally, I’m kind of glad that the money is starting to funnel beyond the walls of blackrock and goldman… Order out of chaos and the property looks pretty decent and in an area of population density. It is the investments in “where the hell are we?” suburbs and farmlands that don’t make any sense.
The Grand Panjandrum
Dude, while I agree that, in time, this band will be most triumphant. The truth is, Wyld Stallyns will never be a super band until they have Eddie Van Halen on guitar.
FormerSwingVoter
Hooray! Anecdotal evidence is here – and without context, too!
This is clearly a disaster in the making, because without this terrible legislation they wouldn’t have been able to make this purchase until 2010!!!! After all, they have no money whatsoever, because one of them had to dip into his retirement savings! People never, ever do that, particularly young people. Especially when making a major purchase in the midst of a recession!
Clearly, this is good news for John McCain.
FormerSwingVoter
While I’m at it:
It’s terrific that the conversation in this country has gone so far to the right that the very concept that government assistance could help anyone without gray in their hair is met with this kind of horror. It’s clearly ridiculous that any of these three technology professionals could scrounge up less money in a month than it would take to rent a studio in the same area. Clearly they must be bums because they had the fucking gall to wear blue jeans in front of their own home!
On behalf of young professionals everywhere: fuck you.
Stefan
I’m paying substantial quarterly Federal income taxes in order to subsidize three Gen-X (or is it Y?)
It’s Y. Gen X is now firmly into middle age (I say as a prime Gen Xer myself).
My youth! My youth! My lost youth! Where did it all go!?!? If only I’d know it wasn’t going to last forever I would have made better use of it!!!
Bitter dregs…bitter dregs……
leo
Woher kommt das Deutsch her?
ChrisS
I have nothing wrong with government programs to assist home buyers. The credit crisis fiasco was/is not driven by bad loans. It was driven by banks and investors leveraging themselves up to 30 times on murky mortgage-backed securities and tripping over themselves to hand out loans with shady terms.
In other words, these guys get a million dollar apartment building that will more than likely generate revenue – not a problem. Their mortgage being sold and bet on by guys borrowing the money to bet with – problem.
Additionally, if real estate keeps increasing in price, which it does because they’re not making more of it and the population is increasing, and property taxes keep going up because we need to pay for shit like schools, roads, and government, plus wages keep flatlining, like they’ve been doing since the 70’s, there *has* to be government assistance because otherwise no one will be able to afford to buy a home.
jerkie
Oh yah, it’s a great idea. It’s genius. None of them will lose their jobs as unemployment nears 20%, they’ll all stay friends, and they’ll all want to live there 10 years until the home prices recover enough to make a profit. What? One of them might not want to have 2 roommates as they near 40? Might want to get married or live with someone else? But can’t afford this mortgage and rent somewhere else?
If I see them on the street, I’ll be forced to punch them in the nuts.
Steeplejack
@Stefan:
I think better drugs would have been more useful. The dregs, not so much.
Sanka
Funny how selective memory plays a part when Democrats are to blame in the blogosphere. Want somebody to slap? How about Barney Frank? Chris Dodd? Just to name two. I wouldn’t expect you to single them out though. They dont have an “R” next to their name.
You want a fun chart to look at? Look up Fannie Mae delinquent loans (loans 90 days past due) as of September 2009. They’ve had a steep increase in the year over year period, and almost tripled since January. Sorry, Cole. Can’t blame that on Bush.
Not only have the Obama Democrats done nothing to help curb the insanity in the mortgage market, whatever he has done has only exacerbated the problem.
The Fannie Mae loans are brought to you by the Democrats mentioned above, the same “everyone deserves to own real estate” crowd. Those who believe that government, more specifically, GSEs can and should do anything.
And guess what? When THAT bubble bursts? Guess who’s left holding the bag? AGAIN. But this time, there won’t be a general election in six weeks for McCain to make himself look like an arse again. I’m sure the president will find someone to blame though.
The CRE market is in the early stages of a disastrous collapse, soon to be followed by ARM resets on residential mortgages, which are coming due at the end of this quarter.
Happy Holidays…
Will
@beltane:
The picture might as well be of those assholes from “Free Credit Report.com”.
Graeme
What’s wrong with adding another deck to the house of cards? With a few decks, you can build pretty high using Jokers alone!
Ed Drone
@Stefan:
Somehow, I’m reminded of lyrics from two songs I happen to know:
Where has the weekend gone?
Where is the wine and beer I tasted?
Gone the same way as the pay I wasted.
On a Monday Morning.
(from “Monday Morning” by Cyril Tawney)
and
I don’t know how I could have been so dumb.
I wasted my youth on being young.
As if that were quite enough to be —
They say wisdom comes with age and is not free.
Cho:
All the things that I would do,
If I had time to be with you.
To make up for the hours and the days
I let a world of time slip away.
(from “World of Time” by Bob Clayton)
But then, for me and my friends, nearly everything is a song cue of some sort.
Ed
New Yorker
Hey, I’m in my late 20s, have only a part-time job, and have been raiding my investment account (haven’t touched the retirement account yet). I’m a better risk than these guys. Uncle Sam, will you subsidize my mortgage on a Park Slope brownstone? Thanks!
Ed Drone
@Sanka:
Yes, Sanka, some poor people are going to lose their homes. But the problem isn’t that there are shaky loans out there (and quite a few of them are high-end rather than low-end, by the way).
The problem is that these loans, the good, the bad, and the ugly, were collected by banks into “things” that were sold to investors. These “things” had names which I can’t recall at the moment, but all of them depended on the housing bubble, on ever higher and higher house prices, and even the shakiest of loans within these collateralized debt “things” wouldn’t have been a big problem if the bubble hadn’t burst.
But it did. Blame the poor, the brown, the darkies, whatever you want to do (or call them), but the bankers are the ones that added the multiplier to the equation, the real reason we’re fucked. And the bankers are the ones on whose shoulders the whole house of cards was erected.
So don’t start that “it’s all Barnie Frank’s fault” shit here. It won’t wash, and only exposes your intellectual deficit.
Ed
Xenos
@FormerSwingVoter: I am not horrified that three young guys went out and bought some property together. I am horrified that they did so with effectively no down payment.
I bought my first house when I was 27 too. It was six blocks from work, I put down 20%, and the mortgage, insurance, and taxes came out to 35% of my income – the house price was 2.5 times more than my gross income. I was not rich, but I could afford the crappy little house I bought. Prices were low because interest rates were high, over 10%.
If some bank had offered me a 4.5% option ARM on a house that cost ten times what I earned, I would not have bought it. I think. I like to think so, at least. Although 27 was just 15 years ago I really did not know anything about buying real estate and how to make a smart decision.
So I have to say Sanka is largely right. This sort of crazy financing should have been stopped long ago. That we allow it so Timmeh can prop up banks that are too big to fail is just appalling. While Dodd and Frank helped create this mess, you have to hold the regulators responsible. In this case, that is Timmeh and Obama,
Fern
I don`t see why this is such a reckless loan. Three people, three incomes, plus revenue from the other unit. As for the monthly mortgage payments, I pay almost that much for an 800 square foot apartment in a much less expensive market.
Sanka
Right. Because it’s obviously Sarah Palin’s fault…
Do yourself a favor and check out the Fannie Mae delinquency chart. I just hope you don’t suffer from vertigo. Then tell me who
isare the biggest champions of funneling mortgages throught the GSEs. Coupled with a disastrous monetary policy from the Fed, it’s repeating the same mistakes of the previous five years.And I never said the crisis is only on the middle class. Of course it reaches across all class sections. Your “you must be a racist” card doesn’t work with me my dear DFH. Try again.
Arnon O'Miss but not really
@leo:
it could be me. i live in germany and teach an american newspapers class here and gave this link as one of the places to get news and see how it filters through. It could be that at least one or more of the students are following it and commented or something.
Sanka
This exemplifies the situation perfectly…
Comrade Dread
We’ve learned nothing.
I’m getting more demoralized by the day at how obtuse we’re being as a nation.
Capitalism is no longer about improving the living standards of the country, it’s simply about creating more money without questioning if it’s making our lives better or providing a higher living standard.
And there is no understanding in government about the need to support and educate a vibrant middle class or promote the old values of hard work and fiscal responsibility.
The rich just want more money any way they can it (via government fiat or through shady unethical deals), and what’s left of the middle class is willing to tolerate the lack of government oversight and regulation for a chance to roll the dice on credit and see if they can score big and become rich. And like all problem gamblers, no one (rich or poor) never knows when to walk away, and why should they? The government will be there to sign massive checks to the rich and throw bread crumbs to the middle class.
Bill H
@Fern:
Essentially no down payment!!!
The government is doing everything it can to reinflate the housing bubble, lobbying itself to extend the $8000 home buyer’s tax credit, extending FHA loans with as little as 3.5% down payment and allowing the tax credit to be used as down payment, and keeping the bank lending rate at zero which keeps mortgage rates at historic low levels.
Congress is also considering extending the tax credit to buyers who are not first-time buyers, and it has recently created a $6500 tax credit for people who already own a home and are buying a different one.
The tax credit for first-time buyers can be defended, albeit questionably, as “encouraging home ownership,” but extending it to prior owners and creating a tax break for present owners to buy different homes is pure pork; tax incentives which do nothing but “churn” the housing market and stimulate sales for the purpose of creating artificial economic growth.
Xenos
@Fern: Fern – You are from Canada, right? Canadian banks would never lend to these guys. Which is why Toronto Dominion is taking over here.
This is an incredibly risky loan… The total rents from that building are what… 6,000 per month? That is about what the mortgage interest alone is likely to cost. What are the taxes on a million dollar property in SF? It has got to be at least 1500 per month. Plus utilities, plus insurance (care to estimate the cost of fire insurance on a timber structure in San Francisco??) These guys are underwater on this property, on a cash flow basis, from day one. And the trend lines are all pointing down: the state is bankrupt, the school systems are collapsing, rents are decreasing nationwide, taxes are going up, interest rates are going up, which will further depress prices and make refinancing impossible… and since none of these guys can carry the property by himself, and none has any skin in the game, they are all going to be incentivised to be the first to say ‘screw this money pit I’m going back East!”
In any case, within five years at least one of these these guys will be getting married and will want to cash out. No way that will work. Some lawyers are going to make a lot of money disentangling these guys from each other and this purchase. One of those three guys declares bankruptcy in it would cost at least $10,000 for the bank to go to court and get cleared to foreclose. People like this are great for funneling money out of banks and into lawyers’ offices, god bless ’em.
cyntax
Exactly that.
The fact is that the government is propping up real estate prices to help keep the banks balance sheets from looking like an outtake from The Shining. If the object were to help the homeowners, then they’d have put cram-down back in effect and we’d reach price disclosure for the real estate market. As it is we’ve got pretend and extend; all in the name of preserving the faux-wealth of the housing bubble.
liberal
@Sanka:
Hey, man, don’t look at me. I don’t think the guvmint should be shoveling money into the bottomless GSE pit, and I’m an extremely liberal democrat.
OTOH, most of the efforts of people like Barney Frank aren’t really for the poor, poor homeowners. Rather, they’re for the people who hold the loans.
(IMHO the government should get out of the business of “encouraging” home ownership.)
liberal
I remember reading about this FHA horseshit when the action was moving there in the midst of the bubble burst. I was pretty pissed at the time because it was obvious where it was going to lead.
liberal
@Ed Drone:
Well, the bubble itself isn’t really Frank’s fault, but if you look closely at all his crap about helping homeowners, it’s actually about helping the banks that hold the homeowners’ loans.
liberal
@ChrisS:
That’s not really coherent.
While improvements like structures take real labor and capital to create, land doesn’t. It’s true that land rent goes up with increasing population, but if wages go down, so will rent.
Similarly with property taxes—at least the fraction falling on land. If land taxes go up (which IMHO would be a very very good thing), then the present value of annualized land rent minus taxes goes down, so the land price has to go down.
In fact, the real horror is that by cutting property taxes, homeowners are making interest payments to banks, which doesn’t do anyone any good, instead of property tax payments to local governments, which actually build things and educate children. To do those latter things, local govs now have to raise sales and income taxes, which are both less fair and efficient than land taxes. I’d much rather live in a community with high property taxes and low prices than vice versa.
cyntax
That seems a fair assessment. And an interesting exercise is to compare what Frank is proposing with what Dorgan recommends; you know the guy who back in 1999 (or so) said we’d be sorry in ten years that we repealed Glass-Steagal.
Xenos
@liberal:
I used to be one of Barney’s constituents. The average homeowner in Barney’s district would be hundreds of thousands of $ underwater if proper underwriting procedures (20% down, proven income) were required and appropriate interest rates (sufficient to attract investors without a government guarantee) were in force.
Colette
@beltane:
No, neither of these statements is true. I instantly recognized the street and the building in the photo – it really is an “up and coming” neighborhood (better than that, actually), swarming with hipster/young professional types. It’s near public transit and commercial areas. The rental market in SF is strong and there’s still a lot of demand for and high prices for units like the one pictured.
I can’t say anything about the loan structure or long-term economic impacts of what they did that hasn’t already been said, but as for the three guys themselves – they look like perfectly normal techie types I see on BART every day. They’re all employed (read the damned article, dammit). I don’t really understand why they’re getting slammed here as “freecreditreport” creeps. Yeah, I know we’re a bit provincial out here in the wilds of the Left Coast, but methinks we’re not the only ones.
LD50
I wonder how Sanka fought the urge to call Barney Frank ‘Barney Fag’. I assume he lets his hair down more at rightwing blogs.
LD50
@Colette:
What neighborhood is it?
Colette
@LD50: Hayes Valley.
Comrade Darkness
@cyntax:
The difference in the rate of NODs issued to foreclosures is pretty telling on this point (regarding markdown of the banks’ holdings). It DOES have the market effect of propping up foreclosure prices when in a “normal” market prisoners’ dilemma would rein.
If you read bubbleinfo.com at all… I know it’s just one aggressive agent, but his observation is that there is a lot of all-cash investment fighting over the trickle of foreclosures in California. My paranoid gut tells me these buyers fear hyperinflation and are willing to get in big even before the bottom, just to get out of cash.
Colette
@Colette: And, not incidentally, I’d be hard-pressed to name a single neighborhood in SF that is “in decline.” Some are stagnant, many are improving slowly. Housing prices here have started to go up again (too soon, in my opinion, and they never did drop enough to approach some objective approximation of real value). I certainly don’t want to lionize either these purchasers or the system that allowed them to buy this building – but it’s important to deal in facts and not just in projection, envy, or speculation.
Comrade Darkness
@Sanka: The current foreclosure charts are dominated by Prime mortgages, not Subprime. The system was fraudulent at every level, vulnerable households were simply the first to show it.
Fanny was LATE to the game of underwriting crap. The real lesson with them was they never should have been privatized in the first place, not the least of which because they never lost their veneer of government entity/backing. As a private entity, they were losing ground on underwriting because the market was covering their intended market just fine. (In reality the system had gone fraudulent and was simply loaning to anyone to get paper to resell to wall street, but I digress.) As a government entity, Fanny would not have had to compete and could have said: the market is covering our stated mission just fine and backed off. No, instead the professional bankers in charge, with a banker mentality, rather than a noncompetitive government institution mentality, went in whole hog to stay in the market and made things worse. But they were late to the game. They were not leading this crap.
All you have to do is look at the other countries that also had housing bubbles (with no Fanny, no CRA, no Barney Franks…yeah, a housing bubble, imagine that.) Ireland, UK, and Spain. What did they all have in common? Low interest rates (free money for banks, basically) and collateralization that created a secondary market for liar loans. That’s all it takes. The rest is details that made it worse, but they were not the cause.
LD50
Frankly, a million seems like a steal for a building like that in SF. Granted, those guys will be paying the mortgage until they’re in Depends, but I guess that’s what they wanted.
I live in the East Bay, and I agree: MOST white 20-something males in the Oakland and SF look just like that.
Comrade Darkness
@Colette: So what are we talking about for rent then? $3000/month?
At a 15x multiplier, which is the absolutely outer limit of wise investment in rental properties. That puts them at $2777 per apartment to break even. Usual rule for the paranoid is 75% occupancy. That puts monthly rent per apartment at $4166 to break even.
With no cash cushion they better cross their fingers they don’t need to pour more capital into the place.
So, not an insane investment, but not an significant income property, unless they time the market on selling during the next bubble and can hang on until then, or unless rents are way higher than I’m imagining.
cyntax
That’s an interesting tip about bubbleinfo.com; I’ll have to check it out. I’ve mostly been following calculatedriskblog.com which has been pretty worthwhile. But what you’re saying about the trickle of foreclosures rings true with what I’m seeing in the Bay Area. There are very few foreclosures on the market and they go to people who can pay cash and cash sales often go for under asking even though people with loans are bidding over asking.
The whole hyper-inflation scenario is a scary one but there are people saying that gold will go $4000 an ounce so who knows (I’m sceptical but it’s not like I can claim any special insight).
cyntax
I’m seeing price reductions across a lot of neighborhoods in SF: Hayes Valley, NOPA, Lower Pac Heights, Bernal Heights, and Noe Valley. Stuff that used to be priced above $800K is dropping in to the $700K range and the $700K is dropping into the $600K and I’m seeing things go for under asking. The market is shaky and there’s another correction coming sometime near spring as the $30billion worth of ARMs in the Bay Area start hitting their reset stride.
Colette
@cyntax: You’re absolutely right about all this; I just took “in decline” to mean “going downhill” in the sense of physical deterioration, higher crime, lower incomes, etc., and that’s not happening – yet.
@Comrade Darkness: A 20-23x multiplier is considered reasonable, for lack of a better word, in the Bay Area market. 90% occupancy is actually a fairly safe assumption, even in this market, and rent on a 3br, 2ba apartment in Hayes Valley could run $3,000 to $4,000. Still, you’re right – they may be gambling on a bubble that I just don’t see coming.
leo
@Arnon O’Miss but not really:
Nice to see people are learning foreign languages.
Xenos
@Comrade Darkness: I would defend Sanka’s analysis a bit here. Fannie and Freddie laid the groundwork for collateralizing mortgages. This arguably created the original real estate bubble that ran from 1950 to about 1985. The exotic financing of the late 80s and the 2000s was like gasoline on a fire.
Since we should have been aware that we had incentivized the American Dream of Home Ownership to such a degree, there should have been a regulatory pullback. Democrats like Frank, and Dodd know the republicans are irresponsible and favor asset bubbles as a way to boost the economy. Frank and Dodd, I would argue, should have known enough to get out and try to stop this. They would have caught hell for it, but it would have been the right thing to do, and they were the dissidents who were in positions to get the dissent heard.
And now that we approach the end of Obama’s first year, I can understand how he is trying to get some economic stability so he can work out the structural economic and political problems that challenge the ability of this country to survive. But Frank and Dodd ought to still be dissenting, making the point that we have to face up to the problems we have created for ourselves.
HyperIon
@Colette: but it’s important to deal in facts and not just in projection, envy, or speculation
party pooper
HyperIon
@Comrade Darkness: All you have to do is look at the other countries that also had housing bubbles (with no Fanny, no CRA, no Barney Franks…yeah, a housing bubble, imagine that.) Ireland, UK, and Spain. What did they all have in common? Low interest rates (free money for banks, basically) and collateralization that created a secondary market for liar loans. That’s all it takes. The rest is details that made it worse, but they were not the cause.
Excellent point that needs to be made over and over!