ARLINGTON HEIGHTS, IL

By A.B. Dada
—

Finally some news on the credit crunch in my area — Chicago. The Chicago Tribune asks “What’s in your wallet?”, the coming credit crunch. Oops.

From the article: According to First American LoanPerformance, interest-only mortgages made up nearly 20 percent of all new loans in the Chicago area in 2005 and 2006, and option mortgages accounted for another 4 to 5 percent. 20% seems small. But then we also see: There also is a significant increase in late mortgage payments among sub-prime borrowers, generally those with credit scores below 680 on a scale of 300 to 850. Nationwide, just over 10 percent of sub-prime borrowers are at least 30 days late on their mortgage payments. 10% are 30 days late (meaning they have gone over 60 days without making a payment). Double oops.

Many people I know are in trouble right now — including a good number who didn’t feel like they were in trouble 3 months ago. A congregational friend just had his wife’s car repo’d, and he’s unsure how he will make his $610 payment on his car this month. He doesn’t even answer his phone anymore because it isn’t a friend who’s calling. So unfortunate.

From Naples News we get an interesting article yesterday, Expensive times for Lee workers. The article has some interesting figures: With three children to support, for Rudy Bustillo and his wife it came down to a choice between having a home or luxuries like eating out and going to the movies.

They chose to have a home. Now they have a $2,100 mortgage to pay from their combined gross monthly income of $4,800 - about $4,200 during the slow summer months. Bustillo, who works as a cook at Skillets in Bonita Springs, leaves his home in Lehigh Acres at 5:10 a.m. and drives 50 minutes one-way and works a second job in bars or restaurants when he can. His wife works in a grocery store. “We can’t pay our bills with just one job - mortgage, car payments, insurance, utilities…,” Bustillo said. “It is hard but we wanted a chance to own our own home. We didn’t want to rent anymore.”

Why is the choice only buy or rent? Since when did society get so confused that owning a home is the best thing to do, and renting is a few steps below it?

I don’t like debt — I’ve hurt my past by taking on debts for things I didn’t really need, and now don’t even want. I’ve sold most of those things, and given away the items I couldn’t sell. I don’t want a big home either — my old 4 bedroom gigantic house was filled with junk just to keep the rooms feeling “homey” so my friends and family could gawk. What a waste.

If I was to do it again, I’d have done one of three things:

1. Buy a home that I could pay off in 10 years or less — preferably 7 years. Still debt, but much easier to swallow. On top of that, use any income above the baseline to pay down the mortgage.

2. Live with family. Why is this bad? Historically, this was how many people bought a home — getting married, living with family, helping reduce the overall costs of living, cooking, cleaning, and socking away that 33% of their gross income that normally goes to pay down today’s mostly interest payment on a 30 year mortgage. In the 5 years that you don’t pay all that interest, you’ll have more than enough for a 20-40% down payment on a small beginner home. Don’t try to eat a 96 ounce steak if you’re never had an 4 ounce one.

3. Live with friends. It sounds embarassing. One of my closest friends and pastor of a congregation I serve did that for a few years — him, his wife, and their 3 children. They lived with friends who had no kids, and they all shared in the responsibilities of maintaining the HOME (not just the house). It worked so well, but interest rates fell and they bought a house. Now more than 60% of their income to goes to keeping that house in shape. Ouch.

We’re so tied up with our jealousy — jealousy over what our friends and family seem to have (but don’t have titles to), jealousy over what we see people living like on TV and jealousy over the fact that we don’t seem to be capable of having those things. Yet I’d venture a guess that 80% of the people you know who have better things than you don’t actually own those things. Leased cars (owned entirely by a bank!), mortgaged homes (owned usually 80-95% by a bank), clothes they won’t pay off for 3-10 years, and vacations that were taken last year but might get paid off next decade: these are not things that someone can say are theirs, they’re things that someone else was kind enough to rent to them at a ridiculously high future burden.

I’ve always felt that Boston would be the first to dissolve in terms of property value, followed by Vegas. Both of these towns aren’t just oversupplied, they’re overtaxed. Buying a $500,000 house with 33% of your future gross income for 30 years might be acceptable to a bank, but have you seen what they’re hitting you for property and income taxes? That’s a huge consideration to make. The Boston Globe has an article titled The homeowner’s day of reckoning which covers more sob stories about people who “didn’t know” even though they did. Excitement breeds desire — excitement not just that you’ll have something “bigger and better,” but excitement that you’ll be a step ahead of all those people around you who don’t have it as good as you do. Excitement that they’ll be the jealous party, that you’ll come out so far ahead because in recent years you’ve heard how much money your friends and family made on their overinvestment.

Discuss this article at the housing bubble forum.

PORTLAND, OR

by Mike Bryson
—
Ring around the crisis. That’s paraphrasing an article at Inman Real Estate News about the national foreclosure hotline, similiar to the local hotlines that are currently popping up all over the U.S. The phones are ringing off the hook.¹ The foreclosure prevention hotline is being advertised on 90 TV and 141 radio stations around the nation, with Ohio residents making up a third of the calls. Ohio is experiencing the worst foreclosure run in decades and they’re only ranked 6th out of the top 10 worst foreclosure states. According to the Homeownership Preservation Foundation, foreclosures can cost a bank up to US$50,000.

A small Buffalo-region town is pushing towards almost 500 homes in foreclosure.² One reason for foreclosures is vacant homes, and the town has no idea why they’re going empty. While you can blame a few on owners dying without leaving a set plan to sell assets, it is most likely that residents are just leaving rather than fighting a bill they can’t pay. In a mobile home park about 5 miles from my home, owners have left US$40,000 homes because the US$800 per month bill is too much. We see the same thing in cars being repossessed: once a US$400 monthly loan is combined with insurance, gas and maintenance, the cost of owning the car exceeds the value received. With rental apartments being readily available (due to renters over the past half decade turning into home owners based on easy credit), homeowners who can’t pay the bill would rather cut their losses and run before the bank comes knocking. As more homes hit the market at liquidation prices, homeowners who extracted too much equity at the peak will find themselves upside down by significant percentages which could push foreclosures even higher when they can’t refinance again to bail our their high monthly payment.

Poor tiny neighborhoods such as this Buffalo town aren’t the only ones with foreclosures to fear. Massachussetts are up 66% in one year and 114% in two years, according to ForeclosuresMass.com.³ Since 2003, well over 34,000 Massachusetts foreclosed properties have been posted on the company’s website.

Home borowers aren’t just facing problems in the States as Australia sees a surge in home loan defaulters.⁴ TheAge says that home loan defaults for Victorians is up 50% in a year, a growing concern as the ECB is likely to raise rates again today putting higher pressure on those with variable rate mortgages. A quarter point interest rate hike could put an added $400 per year hike on already burdened borrowers.

Along with the US and the Aussies we see that the UK is facing a housing loan dilemma. Even with the added pressure of growing bad debts (19% higher internationally according to HSBC), the largest banks are seeing record profits.⁵ This is part of the concern of the regulated Central Bank market, which offers reduced liability for those who have the fastest access to newly printed money (the regulated monopoly of banks). Growing debt defaults comes with all inflationary markets, and most inflationary central banks are aligned with one another to prevent one currency from falling against another. The licensed banks have a monopoly on easy access to inflationary money, but the debtors are the ones who end up paying the most in the long run in order to keep their homes and cars.

Across the channel from the UK we’re seeing huge increases in home repossessions in Northern Ireland, with an increase of over 60% over five years.⁶ Ursula Toner from the Housing Rights Service said much of it is due to people borrowing against their homes to pay off other debts. Northern Ireland’s smaller economy may not be able to handle an outflux of cash that goes to pay off loans if their existing hard assets such as homes end up being fully owned by foreign investors. One of the silent demons of inflationary money creation and easy credit is how quickly assets can go from being locally owned to internationally owned (and then rented to the local residents). We may see such a change in many First World countries that borrowed heavily from Third World laboring countries such as China and India.

Discuss this report at the housing bubble forum.
—
Mike Bryson is the news editor of the Global Unanimocracy Network. He lives in the Portland, OR region where he works as an IT business developer and point of sale consultant. E-mail Mike with news links or comments on this report.