25% of home sales result in loss: "It's stunning what's happening out there,"

[Liberal_in_LA]

http://money.cnn.com/2008/08/13/real_estate/sellers_suffering_huge_losses/index.htm

25% of home sales result in loss
Values have fallen so far in many cities that sale prices don't cover what sellers originally paid. That means more hard times before markets recover.

By Les Christie, CNNMoney.com staff writer
Last Updated: August 14, 2008: 3:22 PM EDT

NEW YORK (CNNMoney.com) -- More homeowners than ever are selling at a loss, propelling the real estate market deeper into crisis.

*** snip ***

The experience of one would-be seller in Cape Coral, Fla., illustrates the kinds of losses sellers are suffering. The homeowner, who asked not to be named, paid $147,000 in 2003 for a three-bed, two-bath ranch. Prices have dropped there more than 22% in the past 12 months.

He said he made a 10% downpayment and spent big on upgrades, including two renovated baths. The house was appraised at $279,000 two years ago. Two months ago: $140,000. He has been trying to sell it for more than a year and has dropped the price to $129,900.

"It's terrible," he said. "I'm taking a major loss. I'll probably have to bring a check to the closing."

[Sanity Claws]

1. Wow -- and those are sales!

The foreclosed houses also most likely had no equity in them either. Put the two together and you see some big problems.

[Ex Lurker]

8. foreclosed houses usually don't get any

preventive maintenance and go downhill in short order. If they sit vacant for any length of time they need major rehabbing to get them fit to live in. With so many sitting out there, I foresee most of them eventually just being demolished.

[Tangerine LaBamba]

2. Prices were so grossly inflated,

the drop is going to be long and steep.

And I maintain that we haven't seen anything yet. It's going to get worse and worse, and I don't know that it will ever recover in any kind of meaningful way.

[pipoman]

15. Used houses have always

and will this time stabilize marginally below the cost of new construction. The bubble drove prices above the cost of building because the supply of new homes couldn't meet the demand, therefore new home prices inflated to a point well above a reasonable profit for the developers. It perpetuated itself to the point of bursting as always happens whether it is internet stocks, energy, or real estate. It will stabilize assuming the bottom doesn't drop out of the economy as a whole.

[Tangerine LaBamba]

20. People were seduced

into buying beyond their means. Of course, the balloon mortgages they got themselves into were guaranteed to ruin them; but, they didn't think of that, because they made the cardinal mistake of home-buying: they regarded their homes as investments instead of just homes. Big mistake.

New or used, home sales are going to dive for a long time, prices will continue to drop, and, as I said, we haven't seen the worst yet.

[pipoman]

23. It will be interesting to see

I have thought that the one thing which may keep prices higher when they do stabilize may be the higher cost of building materials which I don't see receding at anywhere near the same rate as housing in general.

[Beregond2]

3. Anyone stupid enough to have bought a house at the prices

we've seen the past few years is hard to feel sorry for. I am delighted we are finally seeing some correction, though not nearly enough. When a 100K house is actually selling for 100K insead of 500K, I might consider buying.

[alcibiades_mystery]

5. Yup

I knew implicitly that not that many people could be making that much money. People of normal incomes spending $500,000 for a fucking house? It's totally ridiculous. And if the market punishes them, well, they learned a valuable lesson about affordability. I will do what I can to lowball any offer we make over the next two or three years to ensure that. They can take it or leave it.

[Liberal_in_LA]

6. In LA - people with 'normal incomes' buying 700K homes and 2 SUVs in driveway

I used to wonder how they could afford it. Didn't learn about 'liars loans' and interest only mortgages and zero down payments until 2007.

[pipoman]

17. Yep, me too

I learned about the interest only, 100% loans last year watching HGTV. I couldn't believe the stories. The host of the shows would act so 'matter of fact' about it. Anyone with any knowledge of real estate could/should have seen this coming. Shame on HG for acting as if this is the normal and right way to buy a home.

[Liberal_in_LA]

29. Saw a couple sign a 100% mortgage on a HGTV show just a few weeks ago. They use any

cash they have to renovate.. .You know... Everybody's got to have the marble countertops and stainless steel appliances immediately. No postponing gratification. :eyes:

[Greyhound]

30. That is exactly why these mortgage companies must be allowed to fail.

If we prop them up, we also prop up the artificially inflated "values" of these houses that was created to provide a refuge for the .com money to go. $7.5 trillion didn't just disappear with the bubble, it begat the housing boom which begat the hedge-fund debacle (you know, that little known disaster in our near future that has Buffet freaked out).

If you just follow the money it always leads back to the perpetrators and they always turn out to be the usual suspects.

[Changenow]

4. link please nt

[Liberal_in_LA]

7. oops. ok.

[L. Coyote]

9. I'm sitting in an ocean-front that has been on the market a long time

and even with a price reduction, no buyer yet.
A few years ago cliff-hugging Pacific Ocean homes were a hot item and sold very fast.

[symbolman]

14. Think about a "Wrap Around" mortgage for your buyer..

basically you hold the note, they get the deed and pay into an Escrow, which you then use to make the payments.. No forclosure, your credit doesn't take the hit and if you get a healthy down payment you can move, rent, or buy cheaper property, and ride out the economy..

We've got a home in Hawaii if you want to see some seriously scary numbers and devaluation outside of California :)

We get out of this place I'm going total green and off the grid...geo-dome, solar panels, grow/raise food and can it...

The supermarkets, loan sharks, and electric companies can go fuck themselves from here on out..

[pipoman]

21. It has been so long since I have had a mortgage

but when I did every mortgage specified that the property HAD to be owner occupied or they would foreclose, unless the mortgage was a higher interest, shorter term, investment real estate mortgage.

Better check the terms of your mortgage before you enter this type of agreement.

[L. Coyote]

25. Never had a mortgage. Never will.

[symbolman]

27. Good point, we raised that as well..

the genaral concensus is that lenders are so swamped with foreclosures that they're not gonna bother someone who's actually Paying... :)

If done with a trust, the stewardship of the Trust is changed, and a whole lot of the deal goes unreported, no one's credit I'd adversly impacted either..

At least that's what we've been looking at..

[pipoman]

28. Probably true that they will not bother with a mortgage which is current

The trouble could arise down the road if they decided to foreclose and the buyer claimed not to have known there was a problem, then attempt to sue for lost equity. This may be avoidable if it is in the contract that if the mortgage company calls the loan due that the buyer agrees to obtain their own financing/pay off the loan. I would involve a lawyer in the contract for sure. Good luck.

[L. Coyote]

24. It is a clear title property, so no big hurry or all that.

It would have sold for a lot more 3 years ago, plus there is the monthly cost of maintaining it to factor.

There is a lot of wisdom in minimalism, alternative energy solutions, self-reliance .... and all the moreso in the future, I suspect. As energy prices soar, huge homes become a burden.

[Dr.Phool]

10. Another hidden gotcha in the short sale.

If the bank Ok's the short sale, and forgives the remaining debt, expect a letter from the IRS.

The forgiven debt is considered taxable income. No shit-really.

[BlooInBloo]

11. (shrug) If people didn't have the idiotic idea that Gawd decreed that housing prices always go up...

This wouldn't be such a big deal.

Also: if borrowers were responsible, and thought of a house as a place to live, rather than a capital-generation tool.


EDIT: Clarified subject.

[Ex Lurker]

12. But the rub is those decisions also have

big implications for the rest of us, whether we got suckered into the housing bubble or not.

[BlooInBloo]

13. Yes, that is a downside of all of us being citizens of a *country*.

[The2ndWheel]

16. More like living inside the same economic system

Countries are too 20th century, at best.

The downside of more and more people brought into the same way of life is that when it can't expand anymore, all those people are impacted. The only way we've fixed that is to bring more and more people into the same way of life, so that the economic system can continue to expand. If our population doesn't continue to grow, at some point we'll run out of people to bring into the system so that it can sustain itself. Of course the more people we bring in, the larger our collective impact on the planet. The more people we bring into a single way of life, the less adaptability we have, since we have fewer ways of dealing with problems. As we make the entire planet the same wherever you go, to maximize productivity, the less diversity we have, and so we just keep bringing more and more people into the same economic system, because efficiency trumps all. That efficiency increases our impact on the planet...and it just keeps going on and on like that. We don't really have a choice though, since we have to keep this system going, because if we don't, a lot of people are going to be screwed. Except that as we perpetuate the system that is screwing us, we're already screwed. So...

[edhopper]

18. I've said this for the last few years

Anyone who bought at the height of the bubble (say 04-06) will not see their home at that price in their lifetime.
Okay that's hyperbole, but give it at least 25 years.

[pipoman]

19. When I was involved in real estate in the 1980's

Rules on mortgages were very strict. 80% mortgages were the norm, 90% mortgages were reserved for only the most stellar purchasers. 100% mortgages were not even a possibility. Debt to income could not exceed 35% including PITI (principle, interest, taxes, and insurance), vehicle loans, and any other debt scheduled for over 12 months. The down payment could not be borrowed, it had to be in your bank account for over 12 months if you could not demonstrate how you accumulated the money based on income.

When I saw on HGTV last year every home buyer they covered getting an 80% first mortgage, 20% second mortgage, both interest only loans and buying homes equal to 10 times their annual income, the train wreck was completely predictable.

I feel sorry for the ignorant who were sold this bill of goods bound for failure by greedy bankers and Realtors. The National Association of Realtors should shoulder some responsibility, they knew better. I don't feel sorry at all for the mortgage companies and lenders who also knew better. They deserve to go bankrupt and there should be no bail out for those greedy bastards. I don't feel sorry for speculators who also knew better, gambled and lost.

edit: Oh, and HGTV should be ashamed for perpetuating the belief that these terms were normal and right.

[bemildred]

22. You can lose money in real estate? Who knew? nt

[L. Coyote]

26. I blame the Bush tax cuts to some extent. A lot of speculation

drove the real estate bubble, and a lot of that money was investors who got tax breaks for being rich. That excess capital moved to commodities when the real estate bubble peaked, then oil ...