usa......housing market

Always good to get a localised account of what is happening within the US housing market woes.

Just to add to this.

I came across this US Foreclosures Website.
Will be interesting to see how widespread and increased activity over the next 6 months.

http://www.foreclosuredata.com/list.html?hop=lcrub



This was posted by Danville from SS. 16/08/07

What a wild day. I have just stood aside. Too scared to go long. Too chicken to short. Deer in the headlights to be sure, but 100% cash for many weeks now.

Thought I would pass the time by telling a few stories from my recent trip to the US. Maybe it will shed some light on just what the heck is going on over there.

I suppose I should start with the real estate market. My former business partner (a real estate broker) called it the worst real estate market in 40 years. My brother (a new home sales agent) said that “as good as it was a few years ago – it’s now that bad”

Yes, they are still building. KB is putting up 700 new homes around the corner from my Mom in Reno Nevada. Sales are harder to come by, but they are selling. My brother has sold 20 condos in his community near the Silicon Valley in recent months. Only 70 more to go, he said. Most of these are being built by Mexican labour, both legal and illegal. The illegal labour in this industry is the reason why the employment figures still look ok. Lob a couple hundred thousand illegals off the job who were never on the books anyways, and Wall Street pin heads say “Gee, employment is still strong” More about that later.

Subprime is just the scapegoat. The larger issue is really in the A paper market.

Jumbo loans (loans over $417,000) have become very hard to come by. Where I grew up near San Francisco, all the loans are jumbo. 18 months ago, “A paper” buyers were qualifying and buying properties on 1% or 2% interest only payments. Now those loans have reverted to fully amortised adjustables at 5% or higher. In many cases this is a five-fold increase in payments. And that’s just the first adjustment

To buy a property in this area now at an average of $800,000 you need to get a conforming limit first mortgage of $417,000 at the going rate, and then add a second mortgage at about 9% . And the days of zero down are over.

It’s easy to see how these changes have knocked large numbers of buyers out of the market. And homeowners already in the market are finding themselves in trouble.

Less buyers. More houses on the market as homeowners can no longer afford the payments. And the market turns upsidedown.

“A” quality investors took advantage of the rocketing real estate market, zero down, low interest rates, and “stated income” qualifying and loaded up on rental properties hoping to make a killing. “Stated income” loans means that the lender just took your word for the amount of income you put on your application. No surprise that those loans are unravelling.

Here’s an example:

Investor buys 10 rental properties with virtually zero down, qualifying on stated income and 1% interest only. His payments were approximately $50,000 per month which after tax breaks maybe gave him a negative cash flow of $5,000 per month which was more than offset by the rising real estate values. Properties were regularly refinanced to cash out newly gained equity, and this covered the negative gearing, and then some.

But now the loans have adjusted to 5%+. He can no longer refinance them back to a lower rate, and there is no equity to take out to help make the payments. His payments are now $250,000 per month. The investor is now forced to dump the properties into the market to get out from under it.

Here’s another example of my friend’s sister’s family. They had great credit and long term job stability. The husband was the controller for a large hospital and it’s easy to say he should have known better. But he didn’t.

They bought their house for about $400,000 nine years ago. Every year they would do a cash-out refi to fund their lifestyle. When he was unable to work a few months ago after a heart attack, their mortgage had grown to $800,000. They lost the house to foreclosure. If they do not find a way to purchase another house within the next two years, they will be up for capital gains tax on about $400,000

Forclosures and short sales are very common place now. My old partner from the mortgage biz now specializes in short sales. A short sale is when the mortgage on the property is higher than what the property is worth. The agent negotiates with the lender to allow the homeowner to sell the property to another party for less than the outstanding mortgage balance, and “forgives” all other amounts due.

Here’s how it works:

Property value is $700,000 Mortgage balance is $800,000

Homeowner sells the property to a new buyer for $700,000. The lender forgives the additional $100,000 owing, forgives any payments in arrears, forgives any fees, and forgives the selling agent’s commission (usually 3-5%) The homeowner then can walk away…but here’s the catch…the lender will then issue a 1099 (income statement) and all of the forgiven debt is treated as income on their next tax return. So now the homeowner has an additional $150,000 in income he must come up with the tax on. If he couldn’t make his payments, he surely doesn’t have an additional $50,000 laying around to pay the IRS (tax department)

So now, instead of being upsidedown with the mortgage holder, they are unsidedown with the IRS. I’d take the mortgage holder any day. The IRS are very nasty. After about 6 months, they will without notice drain any and all bank accounts down to zero, and attach your wages taking 60% of your net pay. Their penalties are usury, and IRS balances grow exponentially in no time.

This is when the US consumer will finally be forced to slow down. House gone, credit ruined, wages attached by the IRS. Look for this in the next 6 months.

Many homeowners are choosing foreclosure where the lender has no recourse other than what they are able to sell the property for.

And then of course the unscrupulous will always be there to take advantage of these situations.

A company near San Francisco is now offering to “take your home off your hands” for a 1% fee. The homeowner quit claims the property over to the company and pays the fee. They are told that this will preserve their credit as they will no longer be the owner of record when a default/foreclosure notice is filed, and are told they can just walk away. Who would fall for this? Plenty of people. This company has over 180 houses on their books atm.

What a scam. The quit claim deed triggers the due on sale clause in the mortgages and the lender starts foreclosure proceedings. The company short sales the property in the mean time collecting another 3-5% fee. The lender agrees to the short sale because they will probably come out even worse in a foreclosure, and issues the previous homeowner a 1099 tax statement. The previous homeowner who thought they had walked away free and clear now has a huge tax bill to deal with.

Of course the wealthy have their own scams. A chiropractor has a huge practice which of course shows a tax loss every year. His house has gone down in value $100,000 so he arranges a short sale to his fiancé. The negative gearing on his business easily absorbs the tax bill from the short sale, and once married in a few months, he will simply own the same property for $100,000 less.

And then there’s the issue of property taxes.

Property taxes in California are 1.25% of the purchase price of the home paid annually. They can go up each year as values rise. If someone bought at the peak of the market 2 years ago, their house could now be worth $100,000 less than what they paid for it. They can apply to have their property reass