Archive for June, 2006

Date: June 27th, 2006, Filed under Housing Bubble News

If you’re in trouble with your 30-year mortgage, why not take out a 40-year or 50-year mortgage or an interest only loan? That’s what a Newsday editorial is suggesting.¹ Ugh! If you want to avoid having financial trouble, don’t buy a home bigger than you need. Note that I didn’t say “bigger than you want.” For most families, 3 bedrooms is fine — looking at the new 6 bedroom developments just miles from my home continues to shock me as my local banks report higher foreclosure listings than I’ve ever seen. Good job, Newsday.

MaineToday talks about a figure that shows that 21% of subprime mortgages issued in 1999 are in foreclosure or were foreclosed.² Instead of going after the Federal Reserve for creating this market ripe for bubbling and crashing, they’re going after those who are loaning up the Federal Reserve’s cheap and easy credit. Why? If a bank loans you money, and you don’t pay, the bank is stuck with a home. Isn’t that punishment enough? Why do we need MORE local and national laws restricting the credit market — kids will learn when they’re parents lose their homes, and banks will learn when they go bankrupt from owning too many assets without mortgage payments.

eMediaNewswire says that 300,000 homeowners are facing foreclosure, and the end isn’t in sight.³ That’s a 72% increase from the year before! And some of us continue to believe the real estate industry when they say there is no bubble and no trouble ahead. Can anyone falling out of a 10 story window believe that they’ll witness a “soft landing?” I think not. If you’re one of those homeowners facing foreclosure, get out now. Move in with your parents or your siblings, get a second and third job, work your body to the bone for a few years and never/do/it/again.

I’ve always looked at Boston as the first city to collapse from the housing bubble, and it looks like it is heading that way. The Boston Globe says that houses in Massachusetts have fallen 4% as sales have fallen from lack of demand.⁴ The report also shows that condo prices and numbers have fallen as well in the same time frame. Even more interesting is that foreclosures in the region doubled since the last month, to over 1600 homes facing repossession by the banks.

Georgia ranks in second in terms of foreclosures in the nation, says RealtyTrac in a report covered by the Atlanta Business Chronicle.⁵ They’re showing one new foreclosure for every 537 households. I grew up in a town of 8000 houses, and to think of 15 families in my community losing their home at one time is just amazing. This number in the region has climbed 28% from one year ago, another shocker figure stated in the report.

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Date: June 26th, 2006, Filed under Housing Bubble News

With so many realtors, housing agents and investment developers repeatedly saying that there is no housing bubble, I’m really starting to wonder who is listening to these folks. A recent trip through Zion, Illinois, a town close to my home, shows some short village blocks with more than 30% of the homes for sale. Not just one or two blocks, either, but a repeated bunching of housing for sale. When I return from Vegas next week I’ll take some video while driving through nice neighborhoods. One of our favorite night time activities lately has been “Who’s getting repo’d?” where we drive to the repo lot and follow the truck to their next destination. Most of the time these repos are happening to high end cars — we saw a new $70,000 Lexus get repossessed last week. Maybe we’re just seeing a car bubble?

In Brevard County, Florida, housing permits have fallen to the lowest level in more than 3 years.¹ The numbers are even worse when you see that most of these permits were in unincorporated areas — the growth and expense of village government is likely too much for new developers. The news also shows that the value of houses being developed fell nearly US$14 million in that one month period.

Danielle DiMartino at the ProJo believes that “We’re still in denial on housing.”² DiMartino offers some good advice into what seems to be a bigger problem that the pundits (her word) are letting on. When those in power in a market give double talk and possibly fraudulent lies, it distorts the market enough that the common consumer takes bigger risks that they would had they know the truth. Of course we should be aware of these distortions in the market, but it is worse when the distortions come from government agencies or government-sanctioned agencies. Only the government can lie legally, I guess.

I’ve been talking more and more about moving into an exurban area (not urban, not suburban, and not really rural) and starting an online network of businesses (I take the financial risk but let others with more time reap part of the financial reward). Now it seems that my idea isn’t so new (I’ve been talking about it for about 5 years). We’re starting to see huge businesses opening up in podunk tiny towns, such as Sheri’s Book Treasures in Soldier, IA, population 207.³ What does this have to do with housing? For generations, housing close to a metropolis area was always more expensive due to density and supply of work. Now we’re seeing businesses opening up in towns that never had a wide range of options to work in, so we may actually find better living in these towns with a mega-online-retail existing. This could have huge effects on the price of housing in urban and suburban neighborhoods as the intellectual entrepreneurs find new businesses in new areas — something I’ve contemplated more and more as the cost of buying your own airplane falls and the cost of living in a tyrannical village rises.

The housing bubble is now creeping into secondary housing markets, too, as we see in Whatcom County, WA. Housing prices have grown from a US$146K median in 2000 to a US$265K median in 2005.⁴ When housing prices rise 80% in 5 years and income levels rise only 9% in that same time, there is a problem. I point the finger at a lying Federal Reserve, a lying banking cartel industry, a lying group of housing sale agents and a lying media — all who should know better. Housing prices go up for two reasons: a real decrease in supply and an increase in demand (where are the new people coming from?) or an increase in the printing of new money which makes everyone’s money worth less and less. Whatcom County is likely affected by the second problem more than the first. Even worse, new Federal Reserve printing activity pushes beyond just home owners buying too much — it creates home speculators who want to make money on the rising prices of houses due to the falling value of the dollar.

Speaking of housing sale agents, why haven’t commission levels dropped in this competitive and growing bubble? In most industries, a huge gain in available laborers usually means a drop in wages, but the standard commission on housing sales hasn’t fallen. Is it because the bank and the agent hide the real cost of the commission in the small increment in the mortgage over 30 or 40 years? Car dealers do this all the time when they offer you leather seats for only “$23 a month.” You don’t realize that over 5 years that is costing you nearly $1400 more for seat covers. Don’t let the agent commission be worth more than what you get out of them — if you’re paying the full percentage, demand full service. Also don’t forget that many housing developers don’t pay commissions at all to housing sellers.⁵

With so many houses popping up on the market and so many housing sales agents not working as hard as they did 10 years ago in what they considered an easy market, will we see more houses sold the new way, via eBay and other auction houses? The News-Press thinks so.⁶ I do believe that the auction is one of the best ways to sell a product and help realize its true market value. We all know that when we sell our own goods at the auction we open up the product to a larger group of buyers — this could mean a better sale price. Yet we also can see how quickly a price can halt if the interest is low — this can occur if other homes in the area are listed at the same time for auction. I do think we’ll see more and more eBay activity in the housing market, and I even believe we’ll see eBay move into the housing sales agent market quickly — something that Realtors should be fearing as their market is eroded by what seems to be an oversupply of non-Realtor housing sale agents willing to work for less commission. Only the State can keep that cartelized industry afloat with licensing requirements, and I do believe we’ll see more lobbying pressure locally and nationally in upholding one of the strongest license monopolies that has existed in the U.S. for generations.

The Daily Times in Maryland shows some startling figures: nationally, housing prices rose 12.7% last year with prices in Salisbury, Md going up 17%.⁷ The average length of time a property is listed is up to 118 days in Worcester county, and they’re seeing a 30% increase in inventory over last year. No bubble, right?

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G.U.N. Summer Vacation Update

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