From Reuters:
Wealthy may be next in line in U.S. home crisis
A house in this wealthy Chicago suburb is far beyond the reach of most Americans.
Unfortunately, Hinsdale may also now be too expensive for some of the people who already live here.
“There is a section of the population here that over-extended themselves to buy here and then keep up the facade of wealth,” said Sharon Sodikoff, a broker associate at local real estate agency Prudential Homelife Realty. “In the next year or so they’ll be forced out in dribs and drabs.”
…
“The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it,” said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A “prime” borrower is one with good credit.Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans.
“For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost,” said Chicago-based real estate agent Marki Lemons.
…
“The concern is people who have borrowed a large percentage of the equity (in their homes),” Kelly said. “Now the value of their homes is falling and they can’t refinance.”“Some just stop paying and walk away,” he added.
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“I’ve seen people who bought less than a year ago and have no equity in their homes simply walking away with no regard for the consequences,” said Genie Birch, a real estate agent at Chicago-based Koenig & Strey GMAC who covers the city’s wealthier districts.Real estate agents say speculative investors who bought to make a profit are also walking away as the rents they charge fall behind the mortgage payments as their adjustable-rate mortgages readjust.
The home owners who find it harder to walk away are those who took out large home equity loans before prices started falling and now owe far more than their home is worth.
“It’s difficult for home owners in that situation to sell as they’ll still be left owing money,” said Dave Hanna, managing partner of Prudential Preferred CRE, which owns Prudential Homelife Realty in Hindsale.
From Bloomberg:
S&P Will Review Bond Insurers With New Assumptions
Standard & Poor’s will start a new examination of bond insurers, one month after affirming the companies’ AAA ratings, because losses on subprime mortgages will worse than the firm anticipated.
The ratings company will examine whether insurers including MBIA Inc. and Ambac Financial Group Inc. have enough capital to withstand reductions in the ratings of the mortgage-backed securities they guarantee. The credit test will be completed within a week, said Mimi Barker, a spokeswoman in New York.
S&P is now assuming losses on 2006 subprime mortgages will reach 19 percent, up from 14 percent, as housing prices decline further than previously thought. That may make S&P more likely to downgrade the companies along with the mortgage-backed securities they guarantee, threatening the viability of the bond insurance business itself. Issuers buy insurance for the sole reason of attaching the AAA rating to their debt.
“The rating agencies have lost as much credibility as the bond insurers,” said Richard Larkin, a municipal bond analyst with JB Hanauer & Co. in Parsippany, New Jersey. “Every time you turn around they’re changing their minds about what’s going to happen in the subprime mortgage market.”
“The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it,”
IMO, as big/bigger problem than subprime.
From Reuters:
S&P cuts Hovnanian preferred stock to default
Standard & Poor’s on Wednesday cut Hovnanian Enterprises Inc’s preferred stock to default after the home builder failed to pay a scheduled quarterly dividend.
The rating agency also placed Hovnanian’s debt ratings on review for downgrade, pending the result of negotiations between the builder and its bank to amend its credit facility.
Foreclosure crisis hits home…
A neighbor has a Sheriff Sale notice on his front door, will post more tomorrow.
I visited a friend in Hindsdale in the late ’90’s and that place was the tear down capitol. Perfectly nice homes were being bulldozed by homeowners to make way for McMansions.
Teardowns are alive and well at the Jersey Shore. I can count 6 homes that have recently been leveled within a three miles radius of me and the same amount of homes that have been stripped down to their studs.
#5 njcoasr Those so called developers are going to get hose, amazing this teardown nonsense is still going on.
Grim please decide on gtg location date and time.
Morristown – 2/9
We’ll be doing a gtg on the Gold Coast to kick off the spring season. March/April
#4 I watch foreclosures, too. No matter what anybody thinks or says, it’s frightening to recognize somebody’s name on the list.
It changes the way you wave to their kids every morning in front of school, and suddenly you’re not so silently judgmental when they don’t put an envelope in the basket on Sunday.
Grim
Are you sending out an email with specifics-time, place? I’ll take the hike to Morristown.
#6 3b- They’re not developers they are the homeowners and to top it off they are second homes. Believe me I’m just scratching my head wandering where all the money comes from.
Pat 9 Alot of that going around in my neck of the woods.People I see every day,kids go to school with mine.It sure hits home when its not a stat on the board.
By the way people down the block did the jingle mail & booked to FL.Maxxed out on the refi before it hit the fan,took the money & run.Smarter than some.
I notice a listed bank approval short sale in my neighborhood now.
3B-
Some of the building at the shore needs to be done. A lot on our street that is big enough for 10 condos was flipped twice. Last sale was in Feb. 2005 for 900k. The bank that wrote the mortgage also lent the construction company money for the build. They can only hope the market rebounds when construction is completed. They are building at a very, very slow pace.
Volcker chides Fed for “bubbles”
WASHINGTON (Reuters) – Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.
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“I think Bernanke is in a very difficult situation,” Volcker told the New York Times.
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“Too many bubbles have been going on for too long … The Fed is not really in control of the situation,” the Times quoted Volcker as saying, in clear criticism of both Bernanke and his predecessor Alan Greenspan.
A slumping U.S. housing market following years of rampant price rises has sparked a global credit crunch and could tip the economy into a recession.
Critics blame the ultra-low interest rate policies of the final Greenspan years — when the U.S. central bank steered overnight federal funds rates to 1 percent and held them there for a prolonged period of time — for fueling the housing bubble.
…
Greenspan has long been criticized for being very aggressive in cutting interest rates when growth was threatened, but slower to raise them when it picked up and the risks flipped toward higher inflation.
..
Volcker, a towering man known widely as ‘Tall Paul’, is credited with breaking the back of rampant 1970s inflation by aggressively tightening monetary policy, for which he was greatly criticized in some quarters at the time.
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“It’s no fun raising interest rates,” Volcker said.
Will be there in M’town!
Clot:
thanks clot! (repost from earlier thread)
I’m no stock advisor – but I see folks in my field eyeing some scary investments – I guess I’m too contrarian.
Thanks again though- I will relay the message and step back.
sl
just an aside.
I had to look up “fiat money” and got a lesson about currency and value of the paper bills we call cash.
It reminded me of when I was 10 or 11 yrs old and asked my dad how we know the true value of a dollar —
He went on and on about Ft Knox and gold bullion stores and stuff about the economy- then launched into inflation etc.
I was glassy eyed just past the gold bullion speech and stuff; still not too sure of what he meant.
Boy do I understand it now though.
sl
Hello,
My wife and I have decided to look at buying a home in northern New Jersey after renting for the past several years. I really just stumbled upon this site and have a few questions… perhaps someone would be kind enough to answer?
Is this site primarily offered as a public service for buyers and sellers? Or is this directed more towards real estate professionals?
I browsed around for a bit this evening… from what I gather, home prices in NJ have not come down quite as much as they have in other parts of the country, but may be starting to move lower as sellers become more realistic. Is this the general consensus… and would you expect a bottom in 2008?
I see that qualifying for jumbo loans is becoming an issue. Are there any special things I’d need to be concerned with as a first time home buyers? We have no debt, excellent credit, a combined annual income of about $250,000, and would be looking to put 20% down on say a $1,000,000 home. That would put us at a monthly payment of about $5500 according to my estimates.
This is literally my first day of learning about how to buy a house… so please forgive the questions if they are a bit naive.
-=Jake=-
Jake,
It appears that you are buying well within your means. Unfortunately, some of us here think that homes might drop upwards of 20%. Twenty percent of $1,000,000 is $200,000 and you could lose that in under two years if you purchased today. If you are willing to take that risk and have plenty of savings, then you can afford to be upside down on your mortgage if unforeseen circumstances force you to sell soon after you purchase.
A big problem with what you are seeing today is that the reason houses aren’t selling is because people don’t have the savings to write a check to the bank (for their upside down loan) in order to sell their home. This may be contributing to the lack of drop in prices.
Anyhow, you seem pretty financially secure. If I were you, I would rent a large home for the next year or two to see how the RE market plays out.
As for your jumbo loan difficulties, you’ll pay a higher interest rate, but your good credit will allow it to go through. If possible, I would actually try to put enough money down to stay in a conforming loan since interest rates are significantly lower there. I don’t know your finances, but perhaps $400,000 down and a $400,000 mortgage could get you a pretty nice crib.
Good luck and keep your research going. Be advised, this blog is quite bearish. Unfortunately, most of the doom and gloom reported here has come true so far ;)
Thank you for taking the time to reply Stu.
As I mentioned, we’re just starting out in this endeavor and really aren’t in a rush to buy. It will take us some time to look around to get a feel for what’s out there – and also to become educated on all the things we need to know about buying a new home.
I’ll certainly consider your idea to rent for while longer to see how things shake out with the economy in general and the NJ RE market in particular. This might also allow us to save a bit more which could get us into a conforming loan as you suggest.
Thanks again,
Jake
still_looking 17,
Your dad is Ron Paul?
The Gold Coast has lost its glitter.
SAS
Will it be renamed the rust coast?
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