Real Estate Crash thread

[Benny Profane]

WSJ

No Sale: Bank Wrecks New Houses
By MICHAEL CORKERY

A Texas bank is about done demolishing 16 new and partially built houses acquired in Southern California through foreclosure, figuring it was better to knock them down than to try selling them in the depressed housing market.

Guaranty Bank of Austin is wrecking the structures to provide a "safe environment" for neighbors of the abandoned housing tract in Victorville, a high-desert city about 85 miles northeast of Los Angeles, a bank spokesman said.

Victorville city officials said the bank told them the cost of finishing the development would exceed what they could sell the homes for.

The bank also faced escalating city fines as vandals and squatters took over the sprawling housing project, leaving behind graffiti and drug paraphernalia, city officials said.

"It's unfortunate," said George Duran, the city's code-enforcement manager. "We would have hoped for these houses to be finished. But it's up to the owner to see what is best for them."

Home prices in San Bernardino County, where Victorville is located, have fallen 60% from the housing peak in 2006, according to DataQuick, a research firm. The median new-home price in Victorville is $265,990, according to Hanley Wood Market Intelligence, a housing-research firm. Homes in the Victorville development were priced at a range of $280,00 to $350,000 in early 2008, according to Hanley Wood.

Demolishing vacant houses in economically troubled, inner-city neighborhoods is common. But the demolitions in Victorville show how the housing market is weighing on lenders even in once-booming suburbs. The houses were built by a California developer less than two years ago, according to city records.

Guaranty Bank has significant exposure to construction loans to home builders. Last month, its parent company, Guaranty Financial Group, was issued a "cease and desist" order by the federal Office of Thrift Supervision, citing the firm's "unsafe and unsound banking practices."

Many lenders, like Guaranty, have been foreclosing on home builders whose projects have gone bust. Regulators told Guaranty to come up with a plan to dispose of its foreclosed properties. But finding buyers is difficult, as home values remain under pressure.

Guaranty spokesman John Wessman said only four of the 16 structures slated for demolition were "substantially complete," while the others were less than half finished and "exposed to the elements." Guaranty obtained the property through foreclosure in December 2008. The builder, Matthews Homes, couldn't be reached.

A Guaranty official based in California told the Victorville newspaper, the Daily Press, that it would cost more than $1 million to finish developing the property so it could be occupied. Mr. Wessman said that official wasn't authorized to speak to reporters. He said he didn't know how much it would cost to finish the job.

A demolition job of this size would likely cost more than $100,000, according to a person familiar with the matter. A video of the houses being knocked down was posted on YouTube by the founder of a Web site called Vision Victory Manifesto, which has been warning of economic disaster. He declined to give his full name for this story.

Many of the appliances had been stripped out of the houses, according to the demolition company. "I was a little surprised they couldn't come up with an alternative" to demolition, said Ron Willemsen, president of Intravaia Rock & Sand Inc. of Montclair, Calif., which did the demolition.

Mr. Willemsen said he would grind up much of the wood into mulch for landscaping, while some of the lumber would be sent to Mexico for construction there.

[BeanDip4All]

Have any of you real estate mavens been reading the blog "It's lovely, I'll take it?"

Pretty funny, but depressing at times due to all the obvious foreclosures.
http://www.lovelylisting.com/

The california section is particularly poignant.
for example:
http://www.lovelylisting.com/2009/03...-paneling.html
http://www.lovelylisting.com/2009/03...f-notepad.html
and here:
http://www.lovelylisting.com/2009/04...pressions.html

edit: oh and this one was a personal fav... what the HELL were these people thinking???!?!

$$ ≠ taste
http://www.lovelylisting.com/2009/03...ntil-last.html

[powder11]

It's probably going to be ugly for a long time in housing, as people who don't have to sell eventually have enough and decide it's time to move, realize they won't be getting out from underwater, and mail in the keys. L-shaped recovery, so on and so forth.

Move on to what? Renting? Nobody who mails in their keys will be getting another mortgage for a long time so what would motivate someone to do that if they don't have to sell? People who don't have to sell will sit on their property for years before they turn in the keys.

After the initial sell off from the people who have to sell, there will probably be a flat line in the market until demand kicks up volume again and then prices will follow. God only knows how long that process will take. Not too long ago most folks lived in the same house for years and some even stayed until they paid the mortgage off so we'll probably see a back to basics type of housing market in the next decade or so.

[Benny Profane]

Have any of you real estate mavens been reading the blog "It's lovely, I'll take it?"

Pretty funny, but depressing at times due to all the obvious foreclosures.
http://www.lovelylisting.com/

The california section is particularly poignant.
for example:
http://www.lovelylisting.com/2009/03...-paneling.html
http://www.lovelylisting.com/2009/03...f-notepad.html
and here:
http://www.lovelylisting.com/2009/04...pressions.html

edit: oh and this one was a personal fav... what the HELL were these people thinking???!?!

$$ ≠ taste
http://www.lovelylisting.com/2009/03...ntil-last.html

In the late 80's and early 90's there was a constant stream of real estate ads running on the local NYC channel on Sunday morning (I don't know, channel 5 or 9 or sumthin'), and it was a major look into bad taste interiors. The outside and yards looked fine, unless it was Staten Island, but the interiors were major tacky, almost every one. But there wasn't any tagging, I have to admit.

[meatdrink9]

Move on to what? Renting? Nobody who mails in their keys will be getting another mortgage for a long time so what would motivate someone to do that if they don't have to sell? People who don't have to sell will sit on their property for years before they turn in the keys.

I read somewhere about people realizing that they are several 100K upside down on their house "mailing in the keys" so to speak (even when they are still completely capable of making the payments). They walk from $250K worth of debt and start again. Traditional financing is definitely not going to be an option for them any time soon, but seller financing is one of the ways many deals are being done these days.

This clusterfuck is pretty well out of hand. Lending has seized up so tight that a lot of people that are willing and capable to jump in and start taking these homes back from the banks and make them functional again aren't able to. Fannie/Freddie drew a line in the sand at 4 mortgages per person and everybody has toed the line (they want to sell their loans). So basically anyone who is a professional and experienced at tackling these problems has just been cut off.

I know plenty of seasoned investors and Realtors who'd like to buying up a lot of these messes (and could make them cash flow well), but they can't. It doesn't matter if your credit score is through the roof. It doesn't matter if you have serious assets. It doesn't matter if you put 30% down. There's a line drawn at 4 mortgages and nothing else even gets looked at with regard to the borrower. It's nuts. The banks continue to kill themselves.

Private money and seller financing have been involved on 50% of what I've worked on this year.

[Spats]

There's a line drawn at 4 mortgages and nothing else even gets looked at with regard to the borrower. It's nuts. The banks continue to kill themselves.

Isn't it great what $5 TRILLION in bailouts will buy? Absolutely nothing that benefits anyone but the bankers that lost it in the first place.

"We have to get banks lending again..." The way you do that is by letting prices come down to where lending is profitable, not by giving money to banks and hoping they lend it on overvalued property. This is just the failed doctrine of supply side economics with a different name, and since it's now pushed by a Democrat, no one notices.

[liv2ski]

Move on to what? Renting? Nobody who mails in their keys will be getting another mortgage for a long time so what would motivate someone to do that if they don't have to sell? People who don't have to sell will sit on their property for years before they turn in the keys.

After the initial sell off from the people who have to sell, there will probably be a flat line in the market until demand kicks up volume again and then prices will follow. God only knows how long that process will take. Not too long ago most folks lived in the same house for years and some even stayed until they paid the mortgage off so we'll probably see a back to basics type of housing market in the next decade or so.

When Clinton came into office in 1992?? a very similar housing crisis hit So Cal due to Clinton putting a big halt on military spending. All the big defense contractors folded and left CA. That resulted in foreclosures locally and price depreciation on par with what is happening again on a national level. From beginning to market bottom (1995-96) to getting back to even (1998-99) it took about 6-7 years. This time I am thinking at least 10 years, maybe longer, as the driving force in appreciation from 2002-2006 was liar loans (stated income loans). I just don't know how long it will take wages to get high enough to justify the former prices, when people really have to qualify for a loan. I don't see banks ever bringing back stated income loans like we had from 2002-2006 to juice the process along again.

[powder11]

When Clinton came into office in 1992?? a very similar housing crisis hit So Cal due to Clinton putting a big halt on military spending. All the big defense contractors folded and left CA. That resulted in foreclosures locally and price depreciation on par with what is happening again on a national level. From beginning to market bottom (1995-96) to getting back to even (1998-99) it took about 6-7 years. This time I am thinking at least 10 years, maybe longer, as the driving force in appreciation from 2002-2006 was liar loans (stated income loans). I just don't know how long it will take wages to get high enough to justify the former prices, when people really have to qualify for a loan. I don't see banks ever bringing back stated income loans like we had from 2002-2006 to juice the process along again.

I remember that well. My dad was in commercial RE devt at the time and took a bath. He never recovered from it financially and that has been one of the key factors in my own tolerance for risk in RE. Never bite off more than you can chew and live within your means. I'm ok with the current state of the market and actually really like the bags I'm holding.

I do think lending will come back, but people looking to get stated income loans will be paying a hudge premium. All that being said, people will find a way to make it work as MD9 stated above.

[ass-to-mouth]

There is still plenty of financing available for first time buyers with shitty credit. Friend of mine who declared bankruptcy in 2004 (he had somehow managed to rack up over 60K in CC debt) just closed on a place last week. FHA loan, 2% down, no PMI. Went through Wells Fargo.

[liv2ski]

Now reduced to $98,000.

Dang, that was a 50% haircut It puzzles me that the high end neighborhood I live in has not taken a similar hit. Looks like we are 20% off the 06 top where I live at. I am sure that is because people that pay $1M+ for a house, typically have a big down payment into the deal, that they will not walk away from, unlike ever douche that bought a house for $500k or less with 100% financing. Because of the 0 equity into the deal, it starts with a few mailing the keys in for whatever reason, which exacerbates downward pricing pressure, then more mail in the keys and it just keeps the downward spiral going in a vicious circle due to no money into the deal. Areas that had a lot of 0 down lending done in them are fucked IMO. These areas have gone down the most and the quickest in So Cal. I am puzzled as to whether they will eventually drag down the move up areas too, by an equal percentage?

[liv2ski]

There is still plenty of financing available for first time buyers with shitty credit. Friend of mine who declared bankruptcy in 2004 (he had somehow managed to rack up over 60K in CC debt) just closed on a place last week. FHA loan, 2% down, no PMI. Went through Wells Fargo.

FHA loans are 3.5% down and have the most expensive upfront (financed MIP/PMI) plus a monthly expense of .55% of the loan amt divided by 12 months. Fucking expensive mortgage insurance, but they will do deals conventional lenders will not.

[comish]

I read somewhere about people realizing that they are several 100K upside down on their house "mailing in the keys" so to speak (even when they are still completely capable of making the payments). They walk from $250K worth of debt and start again. Traditional financing is definitely not going to be an option for them any time soon, but seller financing is one of the ways many deals are being done these days.

This clusterfuck is pretty well out of hand. Lending has seized up so tight that a lot of people that are willing and capable to jump in and start taking these homes back from the banks and make them functional again aren't able to. Fannie/Freddie drew a line in the sand at 4 mortgages per person and everybody has toed the line (they want to sell their loans). So basically anyone who is a professional and experienced at tackling these problems has just been cut off.

I know plenty of seasoned investors and Realtors who'd like to buying up a lot of these messes (and could make them cash flow well), but they can't. It doesn't matter if your credit score is through the roof. It doesn't matter if you have serious assets. It doesn't matter if you put 30% down. There's a line drawn at 4 mortgages and nothing else even gets looked at with regard to the borrower. It's nuts. The banks continue to kill themselves.

Private money and seller financing have been involved on 50% of what I've worked on this year.

One scenario I have heard discussed and I have tossed it out to one small bank as a what-if scenario, is if you buy say 10 homes, fix them up, rent them out, then come to the bank and show the leases, income, etc and ask for a conservative 60% LTV that it might fly? Thoughts?

Other than that, yep, the 4 loans per person thing is pretty restrictive. Pretty much everyone I know is having to do it largely on an all cash basis.

[comish]

Dang, that was a 50% haircut It puzzles me that the high end neighborhood I live in has not taken a similar hit. Looks like we are 20% off the 06 top where I live at. I am sure that is because people that pay $1M+ for a house, typically have a big down payment into the deal, that they will not walk away from, unlike ever douche that bought a house for $500k or less with 100% financing. Because of the 0 equity into the deal, it starts with a few mailing the keys in for whatever reason, which exacerbates downward pricing pressure, then more mail in the keys and it just keeps the downward spiral going in a vicious circle due to no money into the deal. Areas that had a lot of 0 down lending done in them are fucked IMO. These areas have gone down the most and the quickest in So Cal. I am puzzled as to whether they will eventually drag down the move up areas too, by an equal percentage?

In some areas of So Cal prices are down 75% - 80% . I don't think the higher priced areas are going to fall that far, but they have only just started to fall in the last 6 months. They have a lot further to fall than the 20% they may have fallen to date. There are a lot of alt-A mortgages resetting in the near future and defaults on super jumbo's have risen pretty dramatically. I'm underwater and figure that unfortunately I will be for a while...

[ass-to-mouth]

FHA loans are 3.5% down and have the most expensive upfront (financed MIP/PMI) plus a monthly expense of .55% of the loan amt divided by 12 months. Fucking expensive mortgage insurance, but they will do deals conventional lenders will not.

Yeah, I don't know what to tell you dood. I didn't believe him either until he showed me the loan docs. 2% down & no PMI. I don't know how he pulled it off, but he did. After all the shit that's gone down the past couple years, deadbeats with crappy credit are still getting loans. Nothing has changed at all.

[khakis]

Seems like that could happen if it was a pretty expensive house and he got the seller to contribute 6% (of which 1.5% was left over after closing/prepaids), and the appraiser came up with 20% instant equity (not that that's likely right now)
I'm pretty disgusted that could happen as well

[Benny Profane]

Yeah, I don't know what to tell you dood. I didn't believe him either until he showed me the loan docs. 2% down & no PMI. I don't know how he pulled it off, but he did. After all the shit that's gone down the past couple years, deadbeats with crappy credit are still getting loans. Nothing has changed at all.

How old is this buyer? Approx. income (ballpark). Good job? Where? Nice house? How much was the house? (approx.)

[Benny Profane]

I just don't know how long it will take wages to get high enough to justify the former prices

That's a thought, and the crux. If you do the math, and really think about it, well, I say, never in our lifetimes, yours and mine. Much less mine. By that, I mean, go back to, oh, 2000, to be conservative, although I think the housing bubble started accelerating around '98. Now graft a chart of home prices since then, which is, like, 60 degrees up, on a chart of wages and income during that period that stay flat to a little down. Duh. So, somehow, wages and income have to shoot to the moon to justify even present pricing. That ain't happening with almost 10% unemployment for a year or two, at least. Now, looking at numbers since Raygun got inaugurated, and using the same income to home pricing ratio, well, it seems to be all smoke and mirrors since even then. So, here we are with our auto industry collapsing and our banking industry scrambling around like rats for the last bonus, and we expect things to go back to, ahem, normal by the, ahem, fourth quarter. I don't get it.

[liv2ski]

Yeah, I don't know what to tell you dood. I didn't believe him either until he showed me the loan docs. 2% down & no PMI. I don't know how he pulled it off, but he did. After all the shit that's gone down the past couple years, deadbeats with crappy credit are still getting loans. Nothing has changed at all.

It doesn't matter what he told you or what you thought you saw, FHA requires 3.5% down on a purchase in 2009, period. I have been doing those loans since 1984, so ya, I am the fucking expert on this.
It looks like he put 2% down because he did put 3.5% down, but 1.5% for MIP was added back on to his base loan amt, resulting in a 98% amount financed.
What you called PMI, FHA calls MIP and what was 1.5%, is now 1.75% of the loan amt added to the loan upfront with .55% paid on the loan balance monthly.
Sorry dood, you talking bullshit and those that speculated that he got out of that because the property appraised with 20% equity is crap, as FHA charges MIP regardless of LTV on a purchase.

In CA he could have done a Calpers or Calsters loan with 3% down and no mortgage insurance, as the loans are split into an 80% 1st and 17% 2nd. Because this is a conventional loan with a 80% ltv 1st TD, there is no PMI required. I am sure other states have similar products, but FHA is the same nationally.

[DougW]

One real estate company that I follow that i listened in on the quarterly call just bought 1800 lots in CA , riverside area? for less than $10,000 each. So if have cash can get some good deals that will eventually pay off.

Now this company is losing money but its mostly from righting off options and some value in land.

[powder11]

It doesn't matter what he told you or what you thought you saw, FHA requires 3.5% down on a purchase in 2009, period. I have been doing those loans since 1984, so ya, I am the fucking expert on this.
It looks like he put 2% down because he did put 3.5% down, but 1.5% for MIP was added back on to his base loan amt, resulting in a 98% amount financed.
What you called PMI, FHA calls MIP and what was 1.5%, is now 1.75% of the loan amt added to the loan upfront with .55% paid on the loan balance monthly.
Sorry dood, you talking bullshit and those that speculated that he got out of that because the property appraised with 20% equity is crap, as FHA charges MIP regardless of LTV on a purchase.

In CA he could have done a Calpers or Calsters loan with 3% down and no mortgage insurance, as the loans are split into an 80% 1st and 17% 2nd. Because this is a conventional loan with a 80% ltv 1st TD, there is no PMI required. I am sure other states have similar products, but FHA is the same nationally.

sweet ram-jam smackdown!

[cramer]

as FHA charges MIP regardless of LTV on a purchase.

ya but if he got the house at 20% below what its worth, he can call them the next day and get it dropped couldnt he? 20% below, i find hard to believe either way thats what he got the house for.

And yes, FHA requires 3.5% now and it was 3% last year. Id know, i just bought a house in december (3% down) and and my brother in law finally closed on his today. (3.5% down) Both on fha loans.

2% isnt FHA. And most lenders require you to pay pmi on anything under 20% down dont they? Regardless of if its fha or not.

[cramer]

So how would one know at an auction if these liabilities existed without a title search and such?

Because when you make your offer, they show you the title from the title company. They are required to disclose any back taxes, etc. You sign paperwork saying you made sure that there isnt any leins, etc. Thats what your real estate agent is for as well. She checks all that out when you go to make an offer. Even if you win the auction, im assuming its got contingencies like any other purchase. if it doesnt inspect, you cant get a loan, etc, you can walk.

[comish]

^^^ Wrong:

At a trustee auction on the steps of the courthouse, its called buy as is. They tell you the house, you bid, if you win, you hand over cashiers check and congrats, you own the house and anything lovely that comes with it.

The auctions held by auction companies as I believe Lee said somewhere in this monster thread, vary. Some may let you make the offer contingent on title, etc., others not so much.

[cramer]

^^^ Wrong:

At a trustee auction on the steps of the courthouse, its called buy as is. They tell you the house, you bid, if you win, you hand over cashiers check and congrats, you own the house and anything lovely that comes with it.

The auctions held by auction companies as I believe Lee said somewhere in this monster thread, vary. Some may let you make the offer contingent on title, etc., others not so much.

Interesting. I thought "as is" was more structural, etc. A quick google finds you are correct. it also pretty much says unless you are a real estate pro, dont do it.

Financing auctioned properties is prohibited so you must pay cash, and to make matters worse, you're not permitted to get title insurance. Remember that the home's previous owner was unable to cover their mortgage, so there is a chance that they may also have a defaulted on their property taxes. If the property carries a tax lien, the new owner will have to pay it off. There are usually pros at these auctions, and they're best left to the pros: With all the potential pitfalls of an auction, exercise extreme caution unless you're a real estate mogul who can afford a mistake or two.

[Hutch]

So where did your prior post come from, Cramer? A dream? I figured there was some statute in California requiring trustees to bring title reports to trustee's sales.

As someone who conducts trustee's sales in Utah on an increasingly frequent basis, usually if the property has not been sold by the debtor prior to the sale, it is worth less than the bank is owed, and the bank is going to bid the lesser of FMV (as established by a conservative appraisal) or what it is owed. Also, there will usually be property tax liens, and if it is new construction, mechanics' liens. Fortunately, in Summit County, it is free and easy to search the title on real property so you can figure out what the tax liens are.