Hattip John. From the Washington Post:
Thai flipped houses. He gathered investors to buy a high-end home from a builder before ground was even broken. When the house was completed, he sold it for a hefty profit.
Thai deferred the taxes on the sale of the investment property by channeling that profit into three new homes with adjustable-rate mortgages. He rented those homes to families for about $3,000 to $3,500 a month, while the interest was at 1 percent. The rent on each house was about $200 a month less than the mortgage, but at the time, Thai said, he could afford it.
After about a year, he would sell a house and repeat the process.
At the height of his investing, as home prices continued to skyrocket, Thai owned 15 homes in Northern Virginia. He later sold four, and of the remainder, nine were valued at about $1 million.
But in 2006, homes values stopped rising. The housing bubble was deflating. When interest on Thai's adjustable-rate mortgages jumped as much as 11 percent, he took the equity out of the homes to pay the deficit and keep his investments alive.
"I hang on and I say, 'Okay, bad time. When it's over I can sell it back,' " he said.
The market never improved. Builders lowered the prices on new homes, making it impossible to sell back his investments to break even. In just six months, Thai spent his entire savings. The bank barred all his short sale attempts.
As the mortgage crisis unraveled, so did his marriage. Today, Thai is homeless and nearly bankrupt. For the past three months, he's been staying with friends and applying for engineering jobs. So far, no luck.
"This time last year," Thai said, "I was happy."
An interesting quote from the same article:
Real estate agents said this was only the beginning for luxury home foreclosures.
"'We're going to be back to the prices we were at 15 years ago,' said Bill Milletary, an agent with Century 21 Redwood Realty".
28 comments:
LOL, he really screwed that 2nd lender. Think about it - he cashed out all those properties with home equity lines to pay the first mortgage. Now when the first lender forecloses, they get all the proceeds. The 2nd lender gets nothing!
Homebuilder Confidence Index in U.S. Unexpectedly Fell in May
By Courtney Schlisserman
May 15 (Bloomberg) -- Confidence unexpectedly dropped this month among U.S. homebuilders, signaling the housing slump will continue.
The National Association of Home Builders/Wells Fargo index of builder sentiment fell to 19 from 20 in April, the Washington-based group said today. The index reached a record low of 18 in December. Readings under 50 mean most respondents view conditions as poor.
All three components of the index fell, with the reading on current sales of single-family homes reaching a record low, indicating stricter lending rules are hurting the market. Builders will probably have to keep lowering prices to drum up business and prevent the glut of unsold properties from getting even worse.
http://tinyurl.com/5yovjo
Similar story:
California man losing nine homes in mortgage mess
By Dan Whitcomb
LOS ANGELES (Reuters) - A California man who has defaulted on nine homes and expects banks to foreclose on all of them, forcing him into bankruptcy, says he now considers it a mistake to have invested in the real estate market.
Shawn Forgaard, a 37-year-old software company project manager, bought one home for his family to live in and nine more as investments. He stands to lose all the investment houses in the mortgage meltdown but says he has come away wiser from the experience.
"Everyone stumbles. I'm not going to hide or run or live in denial, or with regrets," Forgaard told Reuters in an interview. "On the surface it looks like total devastation but it's just the opposite. I'm confident our lives will be much, much richer as a result."
Forgaard bought a house in Santa Cruz, about 60 miles (100 km) south of San Francisco, in 2000. Four years later, using $800,000 in stock options, he began snapping up investment properties, putting 10 percent to 40 percent down on negative amortization loans -- in which payments do not cover the interest so that a borrower's balance grows over time.
It was those "neg-am" loans, which include triggers causing payments to balloon if the debt reaches a certain percentage of the original balance, that would come back to haunt him.
http://tinyurl.com/4kydmc
Foreclosures are soaring as America's property slump deepens
More than 8,000 American households are entering the foreclosure process every day, providing new evidence that the property recession in the United States is deepening.
The daily rate is the highest on record, with the total number of homeowners falling into arrears with mortgage payments up 65 per cent, compared with the same period the year before. More than a million home foreclosures are forecast for 2008.
. . . .
According to yesterday’s real estate data from RealtyTrac, new filings for home foreclosure in April hit 243,353, up 4 per cent on March
. . . .
James Saccacio, chief executive of RealtyTrac, said: “The total number of US properties with foreclosure activity in April was the highest monthly total we’ve seen since we began issuing the report in January 2005.”
The new data adds weight to a prediction by Robert Shiller, co-founder of the S&P/Case-Shiller US house-price index and a Professor of Economics at Yale University, that house-price declines in America stand a good chance of doubling before any recovery begins.
Professor Shiller estimates that real estate values in America have fallen by about 15 per cent already and may decline by as much as 30 per cent — losses of a size not seen since the Great Depression.
http://tinyurl.com/49t6k4
'We're going to be back to the prices we were at 15 years ago,' said Bill Milletary, an agent with Century 21 Redwood Realty".
I know prices are going down but to 1993 prices?
That would put the median price of a SFH in the DC Metro Area at 225 k . It's at 381 now.... peak was 475 k.
I don't feel sorry for the guy since the only reason he was getting his high returns is that what he was doing was high risk.
I do have to say though that he had guts ... and we should respect him for that. "Nothing ventured, nothing gained." I'll bet he "makes it" again ... and that thattime, with the lessons learned from this time, he'll manage to hold on to it. Good luck to him, and God bless.
Steve,
I'm sure he didn't mean that literally ... He was probably just trying to make a point. I mean, if he'd told you "it's so bad out there that these people are kissing their a$$es good-bye", would you have believed him?
Lance said "he didnt mean that literally"
it must be true as that is lance's interpretation. btw, does kissing their a$$es goodbye, mean, renting in lance-speak?
Lance said "it's all good it's high risk stuff, bless his lil soul"
but when renters risk on prices coming down so they can purchase something affordable, they're evil vultures preying on the downfall of those less fortunate.
I do have to say though that he had guts ... and we should respect him for that. "Nothing ventured, nothing gained."
Huh? He lied and robbed. Think about your position in a year when the banks demand a 35% down payment for a Jumbo loan. We're already there for loans over $1.2M. (Ok, people with exceptional credit and reserves can get loans at 25% down... But that's a good thing and back to normal.)
We haven't even gotten to the point where the pension funds and 401k's recorgnize their losses. My wife's job is to analyze mutual funds and a few hedge funds. This isn't over folks... its just getting scary. She normally has one to 3 accounts under review. Today its 220. Her department simply isn't staffed to make that many corrections to mutual fund performance.
but when renters risk on prices coming down so they can purchase something affordable, they're evil vultures preying on the downfall of those less fortunate.
ROTFL. Oh man, the names Lance has called us... For every person I know who could qualify to buy a nice home... I know of two to three homes investors are holding onto. The amount of 'shadow inventory' out there is amazing.
Call me what you want. I'm not going to be stupid and buy where afford ability, per the old Wells Fargo methodology, is so far out of whack with historical trends.
Americans need to get back to saving. Companies are still trying to figure out how to align in this world of $127/bbl oil. The #1 employee response from surveys is to relocate to a lower cost of living area... (Its no longer schools or transportation.)
Most areas are still building homes faster than we need them! 40% of the boom time buying was speculating. Ghad... Need we remind anyone how many condos are still going up? Rents will decline for three years!
Got Popcorn?
Neil
"but when renters risk on prices coming down so they can purchase something affordable, they're evil vultures preying on the downfall of those less fortunate."
Yep...
Why am I not surprised Lance felt compelled to defend this idiot speculator?
Could it be he feels they have some common ground?
...
As for the idea that the speculator will somehow get it "right" next time... I don't see any reason to believe that. The guy obviously had no viable investment strategy in the first place.
His entire scheme was based around little more than taking advantages of lenders' stupidity by borrowing a huge amount of money and then rolling the dice...
To quote Forest Gump: "stupid is as stupid does"
"This time last year," Thai said, "I was happy."
Yeah, well this time THIS year I'm happy that this little bastard got what he so richly deserved.
A-holes like him are what got us in to this mess. I hope he ends up in a homeless shelter.
GT said...
"Lance said "it's all good it's high risk stuff, bless his lil soul"
but when renters risk on prices coming down so they can purchase something affordable, they're evil vultures preying on the downfall of those less fortunate."
Now, now ... don't try to make things what they are not ...
You have these high flying entrepreneurs to thank for the bargains you're able to find out there now. Without their being out there playing musical chairs with the other speculators, only of fraction of what was built over the last 10 years would have been built. Without all that was built, prices would have escalated far more than they did. And without these guys taking the fall as they are, there would be no bargains out there now for those people like yourself who couldn't afford to buy at the prices things were going for.
Like I said, I don't feel sorry for him. He knew the chances he was taking. Some of his kind won ... and they won big, and some lost ... like him ... coming out of it only with good "lessons learned" and experience to take elsewhere. However, there is no denying he and his kind served a very good purpose in the bigger picture. He and his kind were those willing to take the risk to get all this housing built which you will now benefit from. My wishing him well is really on your behalf. My house would be worth even more if via the substitution effect you didn't have all those other new houses way out yonder to chose from ... Houses that were built thanks to the speculators willing to risk their money and credit.
YOU wishing bad on those those families who could afford and did buy homes to live in prior to you is nothing less than mean-spirited envy. And that is unexcusable ... Also, it is vulture-like if the motivation of your wishing bad on them is so that you can get their houses from them for cheap.
Enough said.
"You have these high flying entrepreneurs to thank for the bargains you're able to find out there now. Without their being out there playing musical chairs with the other speculators, only of fraction of what was built over the last 10 years would have been built. Without all that was built, prices would have escalated far more than they did. And without these guys taking the fall as they are, there would be no bargains out there now for those people like yourself who couldn't afford to buy at the prices things were going for."
Lance, for all of our sakes, please seek out education on economics.
There are so many things wrong with this post I don't even know where to start.
I think that if I just understood Lance's previous post, he essentialy said that we have the speculators to thank for over-building and therefore causing prices to plunge?
I guess even Lance is now acknowledging that we are in an unsustainable bubble.
"I think that if I just understood Lance's previous post, he essentialy said that we have the speculators to thank for over-building and therefore causing prices to plunge?"
Ah, but not only that... but that if there WEREN'T speculators... prices would have gone even higher...
Again his logic is so screwed up the only thing you can say is: "Lance will be Lance..."
Lance: Without all that was built, prices would have escalated far more than they did. And without these guys taking the fall as they are, there would be no bargains out there now for those people like yourself who couldn't afford to buy at the prices things were going for.
This is a tough one to understand.
You're saying that the risk takers add to the dynamic market.
Their capital builds the supply and provides the goods that we benefit from, over the long term.
I'm not certain that I'd look at it that way.
Take risks, sometimes win big but mostly lose?
"Their capital builds the supply and provides the goods that we benefit from, over the long term."
Except for the most part they brought no capital... they just look advantage of lenders.
We aren't dealing with the captains of industry here people.
All they did was borrow huge amounts of money to make a speculative bet. It would be no different from taking out a huge loan and then buying gold, or rice, or whatever and then hoping the price goes up.
Obviously there are real professionals that do this and make money, but most of the housing speculators were just idiots looking for a get rich quick scheme.
Generally nobody will loan you that kind of money to speculate with unless they have a very good reason to believe you will actually pay it back. The availability of huge amounts of credit to any idiot on the street is of course a symptom of the loose lending we observed during the bubble.
In a normal market banks won't loan you MILLIONS of dollars to buy 15 mansions with unless you are a very rare individual.(with a plan) Generally... banks don't like dealing with people that will keep the profits if they win their bet and stick the bank with millions in unrecoverable losses if they lose.
How did you finance your housing "investments" KH? Did you pay for them with actual cash or did you take out loans to buy?
Leroy asked:
"How did you finance your housing "investments" KH? Did you pay for them with actual cash or did you take out loans to buy?"
Leroy ... come on now .... don't tell me you don't know that smart investors buy with OPM. ... 'Other People's Money'.
Sounds like lance is saying that if not for all of the artificial demand from speculators, artificially inflated prices would have been even higher!
lower demand would have meant higher prices? huh?
If you make one change to Lance's comment, there is a serious grain of truth to it:
"You have these high flying entrepreneurs to thank for the bargains you're able to find out there now. Without their being out there playing musical chairs with the other speculators, only of fraction of what was built over the last 10 years would have been built. Without all that was built, prices would NOT HAVE FALLEN AS FAR AS THEY DID/WILL. And without these guys taking the fall as they are, there would be no bargains out there now for those people like yourself who couldn't afford to buy at the prices things were going for."
I used to go open houses with a friend out in the sticks. 1/2 the people would be couples who truly wanted to buy. The other 1/2 single men with clipboards and possibly calculators - many of which seemed to know one another - it truly was amateur hour.
The developers picked up on this and started building like there was no tomorrow. Our firm picked up an attorney who used to work for one of the big developers out there. Even they thought they were meeting a demand. He said you should have seen the look of horror on their faces when the money train stopped and suddenly they realize up to 3/4 of the "demand" they thought they were meeting was fake. The whole damn thing was a ponzi scheme of infinite proportions.
Combine the lack of true demand with all that supply, spiking fuel cost, and little to no investment to improve roads to meet the true demand (i.e. absurd traffic), I could see some of those god awful mcmansions going for pennies on the dollar.
John F.,
Think long term (like the anon who posted after you did) and you will understand why I am correct in saying these guys were very helpful in getting enough built (long term) to keep the supply up ... and with it, prices down.
Now do I think this means there was a bubble? As defined in these blogs, a bubble has meant unsubstantiated value everywhere do to easy money which would result in prices deflating everywhere in the long term.
I don't believe that long term prices will deflate everywhere ... just in the places where the boom stopped short in its tracks. As the speculators (like our friend Thai) knew --- or maybe didn't --- the growth of real demand could not go on forever, and the risk of it stopping increased with every year it went on ... The higher the risk, the higher the possible returns ... and the harder it was for speculators such as Thai to stop risking what they had already gained.
Now longterm, did he (and his like) help raise the value (or alternatively create a bubble) for those already long established and valued places that were in no danger of being "stopped short in their tracks" before they fully developed? No, not a bit. On the contrary, through the substitution effect he helped to lower demand on these places and effectively lowered the price of what otherwise would have gone for. The new construction he helped sparked served as a safety valve to allow some of the pressure off of the prices for these "already there" places. Hence why we are today seeing 2 markets. These 2 markets have always emerged in the past ... they maybe just weren't as visible since in the past the booms were as pronounced as this time. But there's nothing new going on here ...
Another week, another lance theory of economics.
The speculators certainly generated a significant portion of the demand on the way up, but the idea that they were somehow an "out there" phenomena is just more of lance's usual wishful thinking. There was plenty of speculation throughout the region.
New condos in close... rowhouses in "transitional" neighborhoods in DC... teardowns replaced by McMansions...
Second, it is of course nuts to assert that the speculators were somehow of benefit to buyers today. Buyers today would be better off if the bubble had never formed in the first place. The prices we are seeing today are not "bargains," they are just better than the lunacy that was seen during the bubble. We are still a long way from the bottom.
"Second, it is of course nuts to assert that the speculators were somehow of benefit to buyers today. Buyers today would be better off if the bubble had never formed in the first place."
I disagree. The builders mistook the speculators as true demand when in fact it was not real. To meet this demand, they increased supply to accomodate it. When the unreal demand was exposed as being unreal, the supply remained meaning there will be a new lower reset, until a true demand (via population increase) comes around.
Think of it this way... Before the bubble say you had 20,000 homes for 40,000 people. Builders see increased demand and say, hey 10,000 more people are comin in, we need to build another 5,000 homes to accomodate them.
After the bubble was exposed, turns out it wasnt 10,000 people coming in but only 2,500, the rest of it was just flipper activity. The problem is now you have 25,000 homes for only 42,500 people!
In other industries, (particularly diamonds), the maker responds by buying off the excess supply keeping prices where they "should be". In this case, unless the builders buy back the houses, or bulldoze them, you are looking at a new lower "reset" until the demand (increased population) catches up, or people who would other wise might remain perma-renters fill the void.
That may be the case in the long run, but it isn't the case today.
(I may not have been clear enough about exactly what I was trying to say.)
My point was that although prices have fallen from their peaks they are not yet back to a level supported by fundamentals, let alone depressed below the prior fundamental level.
The speculators increased the volatility of the market, but even a volatile housing market moves very very slowly.
"That may be the case in the long run, but it isn't the case today."
Agreed - we're not there yet not by a mile. Its scary when you think about it given the way gas prices are going and a potential reset at a lower price.
Remember that piece in The Atlantic about the exurbs becoming the new "slums"? I think his argument was way overblown - however, as soon as some exruban county decides to buy up houses to turn them into affordable tenements or when you see long haul bus lines heading out to exurbia - time to get the heck out of dodge!
the anonymous said:
"Remember that piece in The Atlantic about the exurbs becoming the new "slums"? I think his argument was way overblown - however, as soon as some exruban county decides to buy up houses to turn them into affordable tenements or when you see long haul bus lines heading out to exurbia - time to get the heck out of dodge!"
It would be surprising if that did not occur. This is a pattern which has repeated itself over and over again. For example, when the trolleys first made suburban Maryland accessible to middle-class bureaucrats in DC, cheaply constructed and oversized houses were built just over the line in places such as Forest Glen (today a part of Silver Spring) and Kensington. At the time, this was a long ways off from where most people lived. To attract people so far away from where all the amenities were the builders had to give the people something to brag about. Land was relatively cheap, and using cheap building materials and cheap labor, these builders gave these middle-class bureaucrats what they wanted. ... 'cept that it was only a matter of years before the "boom" stopped and these homes either were torn down or became group homes / tenements. It took many decades for 'some' of these homes to come back to their former use ... and in the meantime many smaller more practical homes were built around them. Other areas experienced the similar happenings over the years including Dupont Circle which had its previous heyday at the turn of the 20th century with the ... and by 1930 had become an area filled with tenements, group homes, and alley dwellings. It wasn't till the 1980s that the situation began to turn around to where the houses were again being used as single family homes. It's all part of the natural growth process of a city.
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