From the WSJ:
Housing Recovery Increasingly Prices Out First-Time Buyers
First-time home buyers, long a key underpinning of the housing market, are increasingly getting left behind in the real-estate recovery.
Such buyers, typically couples in their late 20s or early 30s, have accounted for about 30% of home sales over the past year. They represented 40% of sales, on average, over the past 30 years, and accounted for more than 50% in 2009, when recession-era tax credits fueled the first-time market, according to data from the National Association of Realtors.
The depressed level of first-time buyers could prove to be a drag on the housing rebound and the broader economic recovery over the longer haul. First-time home buyers are the foundation of the real-estate market and are major contributors to their local economies, often buying up older homes, revitalizing communities and spending money on furniture and renovations.
Once they have built some equity, they often move to more expensive residences.
“First-time buyers are important to get the housing market to move to a new plateau,” said Steven Ricchiuto, chief economist with Mizuho Securities USA Inc. “Without them, you just get stuck at a marginal recovery environment.”
…
In June, first-time buyers accounted for 29% of purchases of existing homes, compared with 32% in June a year ago, according to the NAR’s June existing home-sales report released Monday.
No recovery, bitchez! Just more printing of little green Bernanks.
@RBReich: Balancing act: O has to put positive spin on economy but also warn it could dip again if Rs drag out debt ceiling and continue sequester.
And this Sir has been a problem plaguing India where first time buyers make up for good 47%.
The numbers have gone down to 40% :)
hiding out. Home prices in some towns got crazy cheap. Yet buyers are not coming out. Or should I say white and black buyers. Lots of young asian and indian first time buyers out there. But they are not buying in lilly white surburbs or ghetto surburbs.
I know several lazy young people living at home who could buy or young couples who want to skip starter home. They dont want to work.
Instead after Sandy near me an old lady put up a four bed three bath 70×100 lot house walking distance to train in a fire sale. It was on market for a month. Sold for 199K. Was worth 450K all done. Who bought it. well lots of chinese contractors and stuff in my town after Sandy. One of them bought it cash, will do 80K renovation. All in with realtor the cost is maybe 300k and they will get a white couple to buy it for $450 put down 20% or 90K and then pay a 30 year mortgage with a 360K balance and oh yea higher taxes when assessor sees a 450K sale instead of a 199K.
Honestly the place needed 10K worth of work to move in. It only had water in basement, but it was all original. 25 years ago the young couple with 90K would have bough the place cash, borrowed from the parents to do it, take out a HELOC for 110K a after closing. Pay off parents, family would help them fix it up over next few years and by the time the couple was 36 the wife left the work force for good, HELOC was paid off and life was good.
Today they opt for immediate gratification. Let the chinese do the work they move into big new house and turn key and show off. So what if they just signed on for $1,700 a month loan for the next 30 years of their life. It is all about today.
Jung Lim plans to offset the cost of rising mortgage rates by using an adjustable-rate loan to buy a home for his expanding family. For the California endodontist, the money he’ll save makes up for the ARM’s risky reputation.
Lim, 38, whose wife is expecting a second child in December, is leaving a two-bedroom condo in Los Angeles’s Hancock Park to buy a four-bedroom house in the city’s Sherman Oaks neighborhood for $1.12 million. His lender offered him a rate for an adjustable mortgage that is about a percentage point cheaper than a fixed loan.
Enlarge image Americans Gambling on Rates With Most ARMs Since ’08
Potential homebuyers arrive for an open house in Arcadia, California, on July 21, 2013. Photographer: Jonathan Alcorn/Bloomberg
Sponsored Links
Open an account with TD …
Trade free for 60 days and get up to $600 cash. No pl…
tdameritrade.com
Refinance Now 3.38% FIXED
No Points & Absolutely Zero Costs. No SSN rqd. Easy P…
Mortgage.lendgo.com
Wells Fargo Advisors Est…
Get your free estate planning toolkit from Wells Farg…
Info.WellsFargoAdvisor…
Buy a link
“If I could have gotten a 30-year fixed at the interest rate I’m getting the ARM for, I would have felt a lot more comfortable,” said Lim, who’s also a professor of endodontics at the University of California, Los Angeles. “But I’m hoping to refinance in five years or less. And we’ll be in the house for about 10 years so we could also sell. Hopefully prices have bottomed so we won’t be underwater then.”
In the second year of the U.S. housing recovery, the loans that helped trigger the housing bust are making a comeback. Applications in late June rose to the highest level since 2008 after the Federal Reserve sent fixed rates surging by signaling it may curtail bond buying credited with pushing borrowing costs to the cheapest on record. The average 30-year fixed-rate mortgage jumped 1.2 percentage points in mid-July from May to the highest level in two years, adding about $200 a month to payments on a $300,000 mortgage.
Sticker Shock
“We’ve seen a shift in the way people look at adjustable-rate mortgages,” said Cameron Findlay, chief economist of Discover Financial Service’s home-loan unit. “They’re still skeptical about using ARMs, given the role they played in the financial crisis, but the sticker shock of what fixed rates have done is making them look for alternatives.”
ARMs, loans with interest rates that adjust after initial fixed periods, usually of five, seven or 10 years, helped fuel the housing bubble and contributed to soaring defaults in 2008 that sent the economy into a tailspin.
In addition to loose underwriting standards that extended mortgages to people who couldn’t pay, variations included loans that had interest-only periods or initial teaser rates that became known as exploding ARMs when the rate spiked. Lending was based on the presumption that house prices would keep rising and the debt could be refinanced before onerous terms kicked in.
Unqualified Buyers
“When you give unqualified buyers a rate they won’t be able to afford based solely on the presumption that home prices will always go up, it’s not going to end well,” said Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage website.
Home prices peaked in mid-2006 before starting a plunge that stripped a third off the value of properties in the biggest real estate bust since the Great Depression.
Mortgage qualification standards have since become the tightest in at least two decades, with lenders often requiring 20 percent down payments. The average FICO score of an ARM borrower is about 771 on a measure that ranges from 300 to 850, said Guy Cecala, publisher of Inside Mortgage Finance. That’s better than the 755 average FICO score for fixed-rate borrowers, he said.
The biggest ARM lenders are Wells Fargo & Co. (WFC), based in San Francisco, JPMorgan Chase & Co. (JPM) in New York, PHH Corp. (PHH) in Mount Laurel, New Jersey, and Bank of America Corp. (BAC) based in Charlotte, North Carolina, according to Cecala.
Prices Rising
Home prices also are rising at the fastest pace since the boom, with values up 2.4 percent in the second quarter from the previous three months, according to Zillow Inc., the biggest second-quarter gain since 2004.
New lending regulations stemming from 2010’s Dodd-Frank Act effective in January include an “ability to repay” measure that requires lender to make sure fixed-rate and ARM borrowers have the ability to make good on their payments.
Since the rules for ARMs usually allow borrowers to qualify on the loan’s initial rate, some may not be able to afford their mortgages after the fixed period ends.
For now, ARMs are helping borrowers lower interest payments and reach for more expensive homes after financing costs rose.
In the last week of June, the dollar value represented by ARM applications accounted for 16 percent of mortgage requests, the highest share since July 2008, two months before Lehman Brothers Holdings Inc. collapsed, according to Mortgage Bankers Association in Washington.
‘Go Nutty’
Mark Baudler, a San Francisco attorney, last month traded a 30-year mortgage with a 4.5 percent fixed rate for an adjustable loan at 2.5 percent, cutting his $5,500 monthly mortgage bill almost in half.
“I’m going to take the money I save and plow it right back into the mortgage,” said the partner at Wilson Sonsini Goodrich & Rosati, a law firm that specializes in securities and intellectual property law. “If the rates go nutty when the loan adjusts, I’ll be able to handle it.”
Others, like Los Angeles buyer Lim, are basing their decision to get an ARM on their plans to move from a property in a set number of years. Vivian Cohn in Hollister, California, lowered her monthly mortgage payments to about $940 from $1,400 in May when she took out a 5-1 ARM, meaning the rate is fixed for the first five years. After that, her 2.2 percent initial rate could adjust as much as 5 percentage points higher.
Confident Borrowers
Cohn doesn’t see the threat of a rate change as a problem. When she retires in two years, she and her husband are moving to Panama, Cohn said. If they can’t sell the house at that point, they’ll rent it for the following three years and sell then, before the loan adjusts, said the 60-year-old human resources manager at a Silicon Valley company.
“A fixed rate isn’t for everybody,” Cohn said. “We know we’re moving so there’s no point in paying for a guaranteed rate if we won’t use it.”
Regardless of how confident borrowers are of their plans to stay in a home for a limited time, there are no guarantees home prices will provide them the opportunity to refinance or sell, said Erin Lantz, director of Zillow’s Mortgage Marketplace, an aggregator of loan rates.
“On a national basis, home prices probably will continue to rise, but it’s more difficult to predict by region,” Lantz said. “If you go underwater, you’re going to have to bring money to the table to get out of that mortgage.”
Another assumption of ARM applicants is that their income will be higher by the end of the loan’s fixed period so they can handle higher payments if they can’t sell, said Henry Savage, president of PMC Mortgage Corp.
“When you start making those calculations, you’re playing golf in the dark,” said Savage.
Weathering Increase
Borrowers like Baudler say they don’t have to worry where home prices will be when their loans adjust. He has the assets to weather rate changes at the end of his seven-year fixed period and plans to use his mortgage savings to pay off the loan in nine years. It was a cheaper alternative to using a 15-year fixed mortgage, he said.
“I’d rather put that money into paying off my house, and have the safety of that, rather than put it into the stock market and risk what happened in 2008,” he said.
With fixed rates projected to gain through the next two years, ARMs will underpin about one-tenth of the market, according to Freddie Mac. That will enable some people to buy a bigger home with an ARM they couldn’t have gotten with a fixed, said Savage.
“Sometimes it’s a tough choice to go for the fixed rate when you know you could buy a bigger and better house with an ARM,” Savage said. “It’s the same dilemma we saw before the housing crash.”
Financially Sound?
A 1 percent change in fixed rates means home shoppers who last month qualified for a $400,000 house may now have to look at properties priced around $350,000.
While moving to an ARM helps them purchase the more expensive property, when the loan adjusts the interest rate on a typical ARM could go as high as 8.5 percent.
“When people want a bigger house for their families and they’re sitting across from loan officers in suits assuring them an adjustable is a financially sound choice, it’s not surprising a lot of people believe it,” said Jay Westbrook, a law professor at the University of Texas.
No one can predict the future rate environment with assurance, including homebuyers, he said.
‘Can’t Predict’
“Jamie Dimon can’t predict what will happen in five years,” said Westbrook, referring to the chief executive officer of JPMorgan, the biggest U.S. bank. “Neither can homebuyers who are thinking about getting an adjustable.”
Quicken Loans Inc. last week offered a 3.3 percent rate for an ARM with an initial fixed period of 7 years, after which it could adjust as much as 5 percentage points higher. Their rate for a fixed loan was 4.5 percent. JPMorgan offered a 3.3 percent rate for a five-year ARM and 4.4 percent for a fixed-rate loan.
In Los Angeles, Lim is happy to be locked at a 4.6 percent rate for an adjustable mortgage that is fixed for 10 years, about a percentage point cheaper than a loan fixed for 30 years, he said. Leah Guerra, the agent with Rodeo Realty who is helping Lim with the purchase, said using an ARM is a calculated risk that pays off when it’s right.
“It’s a bet that prices will appreciate, that your income will stay the same or increase and that rates will stay stable,” Guerra said. “It’s a bet that confident people make.”
Asians and Indians tend to be savers. Indians tend to live minimally as well. Whites, well they like to drive fancy cars, take vacations in the Caribbean and eat out.
When civilization collapses, no one will be spared.
Savings will be worthless, unless held in physical PMs.
Crack-up boom, dead ahead.
I sat next to an Indian girl for six years. And I swear they dont tell you nothing, but from dribs and drabs and pictures she shared though out years it shows how much they save.
Second generation, nearly all have college degrees, most have less kids, the two who worked for me had at most 2 kids. They rarely do expensive things, no season tickets, beach houses, Peter Lugars, for some reason most Indians never have pets, no dogs, cats etc. They often live multi generation or in town homes. They spend very little supermarket shopping. Girl near me shared she buys 50 pound bags of rice, and large bags of frozen veggies. She told me her and her husband spend five minutes a night on dinner, included cooking and clean up. I was like what? she said they do a whole week worth of rice cooking on Sunday. They scoop rice into two bowls, throw some veggies on top and microwave it, eat it and put two bowls in dishwasher.
They also have rental properties. For instance the girl lived in a cheap townhouse even though she could afford a bigger place. Instead of bigger place she bought and investment property to rent out. They also tend to drive more modest cars. japanese low cost leases.
Now the women up block from me her husband has a body shop. Has four kids, stay at home wife. At least three 60K cars in driveway at all time, always on vacation, jet skis, always doing something to house, siding, rocks, pool, fencing. None adds value. He just spends away. Dinners, parties etc.
Only part the Hindu girl once told me she finds funny. Is Hindus and Indians spend their whole life working like a dog, no steaks, no partying, getting married young and they have huge sets of rules to follow. Meanwhile no heaven, so when you are dead you are dead. Sure they get reincarnated. But in next life it is a new person. So if they are a bug or a president no difference to them. I laughed with her and said no American would sign on for that deal!!!! Heck if was not for thought of burning in Hell I can only imagine what I would be up to
Libtard in Union says:
July 24, 2013 at 9:02 am
Asians and Indians tend to be savers. Indians tend to live minimally as well. Whites, well they like to drive fancy cars, take vacations in the Caribbean and eat out.
It is called an ARM cause it could end up costing you and ARM and a LEG.
Funny the time to do three ARMs was 1999-2002 and 2005 to 2009 in 2013 it is late to party. Right now odds are much higher rates will be higher in three years instead of lower.
Arms are alright. Trouble is folks lock them in like in 2003/2005 when rates are very low already. If you locked in an ARM in March 2000 or March 2008 when rates are high odds are you are safe no matter what.
Heck someone who did a three year ARM March 2000 or March 2007 that flips every year has saved so much money that rates rising dont matter much and not much flips left. August 2013, do you really think rates are lower August 2016 or August 2019. That baby can flip 9 times in 30 years and each flip can be 2%
Does anyone know if phone numbers are portable between optimum and FIOS?
The FIOS deal they are running through tomorrow looks pretty damn good. Mos. 1-12/$79 Mos. 13-24/$89 + $300 prepaid visa gift card for new customers.
All phone numbers are portable. You’ve been paying a tax for that service for years. That’s a pretty good FIOS deal, but make sure they include the free DVR service for life if you plan on staying where you are for a long time (or at least at a FIOS equipped address going forward). Make sure you get everything straightened out when you order the service as their customer service is simply a mess. You can spend hours just getting to a person, let alone the correct person. Good luck.
Folks who think the economy is that bad are nuts. I have folks calling me at least once a day to rent my place. Most are not particular on price. I could rent it out every day this summer if I want.
Unfortunately, I turned down 95% of them. Folks with high maint I get a lot of and folks who want short term rentals. But neverthe less I got a lot of folks. In 2009 I would have got nobody.
#12 Would you bother haggling down optimum to the same deal(they’re running a similar deal now suddenly for new customers) or just send them the FU? Switching is still a PIA.
13
I guess the people in every (soon to be former) major city not named New York, well just manhattan really, are all nuts.
Yep. Folks who work in Real Estate, Accounting, Construction and Financial Services in New York are spending like mad men.
Real Estate agents were living in poverty in 2008-2012, home improvement was dead till double whammy of Sandy and new homes sales and Accounting with new tax rates, Sandy casualty losses and first time home buyers who usually hire first accountant are making money and Wall Street and Banking, well since last hicup in Fall of 2011 the market is straight up and everyone as of 2q is beating numbers which means a solid bonus season. Plus all unvested stock is going to vest big.
Detroit Civil service workers are gettting squeezed but Big Four Accounting Partners in New York are now turning away work. I heard they are the most profitable every.
After SOX ramp up they really cleaned house of deadbeat directors, Managers and even Seniors. Also they pushed out underperforming partners and actually fired partners which is rate. In Spring 2009 till Spring 2013 they were able to lock and load new hires dirt cheap who will be their new managers and Directors at lower pay for at least the next seven years till they start pounding their little fists looking for partnerships. A 45 year old Partner is set for life. Next crash they are done.
Good Times as JJ used to say
joyce says:
July 24, 2013 at 11:06 am
13
I guess the people in every (soon to be former) major city not named New York, well just manhattan really, are all nuts.
I would haggle them down but would only sign a monthly contract. This FIOS deal is mediocre. They offer much better ones, but you have to wait around for them. The offer with the free HD DVR for life offers the best savings as FIOS charges $17 per month or the service. At 24 months that’s $408, which is already more than the free activation and $300 gift card they are throwing in. Essentially, it’s $200 per year savings for life. So yes, haggle down Optimum until FIOS does the free DVR deal. I’m grandfathered in on the 25/25 internet. It’s pretty sweet. I think I am now paying $184 monthly all in for the triple play plus my wireless (non data) cell phone. Have 2 HD STBs one with the DVR, Showtime/Skinimax bundle with the Extreme (max # of HD channels offered) . I could get it cheaper through DirectTV, but there is no comparing the quality of the STB nor the signal, nor the internet. Good luck.
Check out this site for the full explanations of the current FIOS deals:
http://www.defefx.com/fios-deals/
17
Another useless rambling; that’s exactly what I said… nyc may be doing great, but last I checked there are a few hundred million other people.
#18
Thanks for the info. Does the DVR for life have commercials like the home DVR?
JJ,
I have supported Accounting system change for 10 years at several IBs. These jobs are disappearimg rapidly. They are not hiring full time and bonuses are non-existant.Perhaps a sliver of the population is doing great like 2005 but majority are not. If people were doing great they would be buying vacation condos not renting them. People and businesses are still non-committal because economy still stinks on whole regardless of what the already wealthy are doing
NM, looks like I answered my own question. I assumed DVR for life meant the recordings were delivere over fiber but I guess it’s still at home.
It’s your standard HD DVR. It works well enough.
Person I just booked today has a two million dollar upper west side coop. Keeps a car in the city and belongs to a 12k a summer private beach club. She just wanted a few nights during week this year. I also already booked to a lady who has a 6,000 square foot house in London and a home in Miami.
I dont think it is money that prevents them from buying a beach house. My place is 11 BFE four houses from bay and eleven houses from Water. Several folks after Sandy who stopped by loved it but all did a double take on the sidewalk when they saw the beach to the left and bay to the right. And all know a seven foot wave rolled right down that block a few months earlier. I think Sandy for now has scared some folks. My nieghbor stopped by whose house was ICC, almost completely destroyed in Sandy and he said sleeping here would make him nervous. But you know what 20 minutes later he said you know what I love it, just would be scared to own it or have it be a primary residence.
Bystander says:
July 24, 2013 at 11:52 am
JJ,
I have supported Accounting system change for 10 years at several IBs. These jobs are disappearimg rapidly. They are not hiring full time and bonuses are non-existant.Perhaps a sliver of the population is doing great like 2005 but majority are not. If people were doing great they would be buying vacation condos not renting them. People and businesses are still non-committal because economy still stinks on whole regardless of what the already wealthy are doing
Carlos Danger Name Generator. Enjoy, folks.
http://mobile.slate.com/articles/news_and_politics/low_concept/2013/07/carlos_danger_name_generator_use_our_widget_to_get_a_name_like_anthony_weiner.html
Italian Culinary Delights – clot style……
Italian police are investigating a man who they believe killed his mother, chopped up her body and then prepared to eat her after they found pieces of her body grilling in the oven and boiling in a pot.
Lino Renzi, 45, lived with his 70-year-old mother, Maria Pia Guariglia, in Salerno, in Southern Italy, when police and firefighters were called to their apartment because a neighbor smelled gas, according to Gazzetta del Sud.
Upon entering the apartment, the authorities found most of Guariglia’s mutilated body in the bathroom but her foot was in the freezer, various pieces of her body were cooking on the stove and some of her entrails were found on a plate in the kitchen.
Renzi, meanwhile, was discovered laying naked on his bed and he didn’t say a word as they took him into custody, according to Corriere del Mezzogiorno.
Although an autopsy has not been performed, investigators on the scene determined that Guariglia had been dead two to three days when they found her body wedged between the toilet and a cabinet in the bathroom.
They also found evidence that Guariglia had been hit in the head and temple while they found various wounds over the rest of her body.
The suspected cannibal had been experiencing mental health problems and was undergoing treatment when he was released into his mother’s custody earlier this year. Police found bottles of prescription drugs scattered throughout the apartment.
I didn’t know free DVR for life was possible. My bill has risen, now $17 a mo for DVR. What is the best negotiating tactic, do I have to threaten switch to Time Warner first?
I offered back in the 1970s free Betamax and 8track rentals for life.
Richard. It’s probably too late. Once you sign on a promo, they don’t let you change it. Of course you could cancel, and wait three months or so and sign back up under a new promotion, but you would have to go without the Big L or Entourage for that time period.
The free DVR for life promotion last came out in April 2011 (right about the time I moved into the new place).
It’s all about timing and patience. I’m guessing a new deal will be out in August or September as this one ends tomorrow I think. Roll the dice, pay the price!
Speaking of deals. I need to get wifi in my summer place. I dont need cable or a phone.
Is there anyway to just get wifi? I only need it for one month. I found a way to get cable at a cheap rate in my summer place. Interesting, if you have the cable wire you can just take a cable box from home, with the card connect it up and your box will work in the new place. Great deal lets say you have cablevision in your house in Joisey and you have a shore house, just take box with you. Honestly, only fair as you can only use it in one place at a time. But wifi is another issue.
Lots of companies sell hotspots that give you 4G speeds (smart phone speeds). I use FreedomPop for my mobile access. Coverage is spotty though. I paid $90 for the hotspot and I get 1 gig free per month. If I need more, I’d have to pay for it. Outside of streaming video or downloading apps, I will never come close to that 1 gb limit. Of course, I don’t look at any internet ads either.
Here’s a better idea. Open up a Starbucks next door and then you’ll get free WiFi!!!
Captain Cheapo has been known to draft buses on the highway to update his email and check some market quotes from time to time.
And the royal baby now has a name….Carlos Danger.
Question for JJ regarding this snippet from Wall Street Daily:
The first officially recorded municipal bond was issued by the City of New York for a canal in 1812. It was a general obligation bond, meaning the city pledged every available resource – most notably, tax revenue – to repay the debt. So, in theory, unless the city lost its legal ability to levy taxes, which it never would, investors would be repaid.
That’s key because every single general obligation muni bond issued since that time has carried the same level of implied safety. Apparently, though, Detroit’s emergency manager, Kevyn D. Orr, wants to do away with 201 years’ worth of trust established with investors.
His restructuring proposal calls for bondholders to be repaid as little as $0.10 on the dollar.
Do you think Detroit can get away with debt repudiation, and will this crash the muni market?
Bozo,
I ask this question cause I honestly don’t know (I have an idea but what to throw it out there anyway:
Even if Detroit gives $0.00 to other unsecured creditors, there will still be a pittance left over for the GO bondholders? If they don’t go through banktrupcty, that will not stop them from defaulting. They already have defaulted, and they will continue to do so.
What options are left but to stick everyone, including GO bondholders, with something between $0 and pennies on the dollar? Raise taxes? Who will pay them?
(that first sentence should not have a ? at the end)
re #33 – Go bonds likely to be affected in Michigan only.
http://cdn.ameriprisecontent.com/cds/alwp/advisor/christopher.l.balcerowiak/cuserscbalcedesktopfixed-income-detroit-municipals635079350910278322.pdf
“Raise taxes? Who will pay them?”
Can’t wait for 2019 when the same questions will be asked not just of a city, but of an entire state. Ours.
What options are left but to stick everyone, including GO bondholders, with something between $0 and pennies on the dollar? Raise taxes? Who will pay them?
Slash payroll and bennies and slash pensions aka tear up civil service union contracts. That’s what a muni bankruptcy is usually used for. Detroit’s city manager appears to want to use it to stiff bondholders (a la the GM and Chrysler bankruptcies). A city is different from a for-profit corporation in the sense that cities always have tax receipts coming in, whereas corporate revenues can literally go to zero.
Yes – Because only State GO bonds are backed by Uncle Sam not City GO bonds. Cities can declare bankruptcy. States Cant.This is why folks think MI State GO bonds are a screaming buy right now but Detroit bonds are toxic. Just cause they never have been BK does not mean they cant go BK.
Look at NY for instance. At the state level there are relatively few GO bonds. Interest rates are very low. At lower levels, some NY muni bonds such as Bronx Parking Garage bonds or poorly run hospitals are broke or near broke.
Funding is done in the waterfall approach. Even though NY State has not much GO bonds the fed pays NYS first and NYS then pays Cities, which in turn pay smaller villages which in turn pay even smaller munis. Such as Yaphank Firetruck Bonds. If NY GO is in trouble they just keep more money. Also NYS has right to raise tax rates on everyone. They need money they just take it. ADP changes your NYS tax rate table and boom every two weeks money flows in. Much harder at lower levels to get money.
Interesting, one of the first muni bond issues was for Jerome Park in the Bronx.
Issued 1868 with various maturities, the longest dated one matures 2147.
It has NEVER missed a payment in 145 years.
http://www.nytimes.com/2009/02/13/nyregion/13jerome.html?pagewanted=all&_r=0
ozo The Clown says:
July 24, 2013 at 1:55 pm
Question for JJ regarding this snippet from Wall Street Daily:
The first officially recorded municipal bond was issued by the City of New York for a canal in 1812. It was a general obligation bond, meaning the city pledged every available resource – most notably, tax revenue – to repay the debt. So, in theory, unless the city lost its legal ability to levy taxes, which it never would, investors would be repaid.
That’s key because every single general obligation muni bond issued since that time has carried the same level of implied safety. Apparently, though, Detroit’s emergency manager, Kevyn D. Orr, wants to do away with 201 years’ worth of trust established with investors.
His restructuring proposal calls for bondholders to be repaid as little as $0.10 on the dollar.
Do you think Detroit can get away with debt repudiation, and will this crash the muni market?
Detroit has abandoned buildings. Many with no owners. Look at the gigantic Packard Automotive Plant sitting empty and an eyesore for decades since Packard went bankrupt. This aint NY where you can go, pay your taxes or I take your Billion Dollar building.
Bozo The Clown says:
July 24, 2013 at 2:39 pm
What options are left but to stick everyone, including GO bondholders, with something between $0 and pennies on the dollar? Raise taxes? Who will pay them?
Slash payroll and bennies and slash pensions aka tear up civil service union contracts. That’s what a muni bankruptcy is usually used for. Detroit’s city manager appears to want to use it to stiff bondholders (a la the GM and Chrysler bankruptcies). A city is different from a for-profit corporation in the sense that cities always have tax receipts coming in, whereas corporate revenues can literally go to zero.
Also Detroit unlike Jersey was not super genrous with benefits in first place. Retired cops and firemen get around 30K pensions. No SS. If you cut too much they end up on welfare. NJ where a retired cop is married to a retired school teacher and pull in 200K pension you can easily cut that 50%. In Detroit, too big a cut and they all end up on food stamps and medicare as you cant live on 15k.
Yes – Because only State GO bonds are backed by Uncle Sam not City GO bonds. Cities can declare bankruptcy. States Cant.This is why folks think MI State GO bonds are a screaming buy right now but Detroit bonds are toxic. Just cause they never have been BK does not mean they cant go BK.
So GO muni bonds not issued by the state are basically toilet paper, if the municipality decides to repudiate the debt?
Also Detroit unlike Jersey was not super genrous with benefits in first place. Retired cops and firemen get around 30K pensions. No SS.
My impression is that Detroit’s budget problem came from over-staffing, not excessive pay.
re: # 42 – Detroit’s Bonds are insured for the most part, they are trying to stick it to the man GET WHITEY!
Read the report I posted.
And the 20 years of work before retirement thing really doesn’t work without a really affluent tax base funding it.
Orange County baby. Jefferson County etc.
That is why Nassau County NY GO bonds pay 100bps more than the same maturity NYS GO bonds
Bozo The Clown says:
July 24, 2013 at 2:53 pm
It means unless entire city goes BK you are good. So they are the last bonds to go kaput.
Yes – Because only State GO bonds are backed by Uncle Sam not City GO bonds. Cities can declare bankruptcy. States Cant.This is why folks think MI State GO bonds are a screaming buy right now but Detroit bonds are toxic. Just cause they never have been BK does not mean they cant go BK.
So GO muni bonds not issued by the state are basically toilet paper, if the municipality decides to repudiate the debt?
I believe Detroit is the first among many others who are testing out your theory right now.
38.Bozo The Clown says:
July 24, 2013 at 2:39 pm
cities always have tax receipts coming in
re: # 42 – Detroit’s Bonds are insured for the most part, they are trying to stick it to the man GET WHITEY!
Read the report I posted.
Thanks. I wonder if this means some muni bond insurers are gonna go bust. Which means muni bond holders might end up with less than the principal invested. Just a whiff of danger here could really jack up muni rates, never mind what Fed does to Treasury rates. This is news to me – I never figured on debt repudiation being an option.
“My impression is that Detroit’s budget problem came from over-staffing, not excessive pay.”
With the collapse of the auto manufacturing business in Detroit, the population dropped by 30%. Though the city tried to make cuts that would equal the loss in tax revenue, it was too little too late.
In NJ, we are hiring those that were laid off from 2009 to 2011 as quickly as possible.
48
Zero default risk? come on. Any govt at any level can raise tax/fee rates to 100%… doesn’t mean they will collect anything.
Zero default risk?
Default simply means interest payments can’t be made on time. Repudiation (i.e. 10 cents on the dollar) is a horse of a different color. I don’t think a city has ever repudiated GO debt. In the past, debt has merely been restructured, meaning that payments occur on a different schedule, but both principal and interest are covered in full.
JJ [4];
Instead after Sandy near me an old lady put up a four bed three bath 70×100 lot house walking distance to train in a fire sale. It was on market for a month. Sold for 199K. Was worth 450K all done. Who bought it. well lots of chinese contractors and stuff in my town after Sandy. One of them bought it cash, will do 80K renovation. All in with realtor the cost is maybe 300k and they will get a white couple to buy it for $450 put down 20% or 90K and then pay a 30 year mortgage with a 360K balance and oh yea higher taxes when assessor sees a 450K sale instead of a 199K.
Well, if you’re in this country on a freeroll in the first place, you’re planning to use unlicensed, non-english speaking labor to do the renos, then yeah — maybe you can gut the place for $80k and make it look like something that might sell for $450k.
The real problem is that native-born kids are indoctrinated in the school system to obey authority; they actually believe all those laws mean something.
chi (25)-
Cooks from Salerno are noted for their excellent butchery skills and ability to do magic with lesser cuts of meat.
29
I use bluetooth to connect my ipad to my iphone internet service
99% of unlicensed people near me are licensed. They just charge more if they use their license.
For example I got two quotes on plumbing to put in a new sewerpipe. One rotor rooter 4k and a licensed plumber working off the books on the weekend 2k.
Rooter Rooter was not going to send a plumber over, just some kids. The plumber was to sigh off on the permit and with sign off insurance would reimburse me. Rooter Rooter explained they got benefits, advertising, insurance trucks, secretaries, taxes etc.
Guy who installed my plumber from Oil company was not a licensed plumber, but I was given a piece of paper pre-signed by a licensed plumber who never came to my house.
Flips as in the case of this house which is already a four bedroom three bath house with a two car garage are all “in-kind” repairs meaning new owner cares less about permits, bank counts bedrooms, baths, kitchens etc. No point using licenses.
When I had my electrical done, before we closed up walls I asked guy to have a licensed electrician inspect the whole thing. He came by looked it over, weird did it in the dark with a tiny flashlight and some tool to check for power and traced everything back. Took one hour. So my guy comes upstairs everything is good. Guy owes me a favor so he told me a verbal sign-off is free. A written signoff for insurance or CO purposes will be $3,000.
Honestly one year from now if I sell the sign-off and permits would be extremely useful. Ten years from now it would greatly hurt resale. Why would I want to document in files forever house took on five feet of water. By then since I plan on finishing the upstairs damage next spring and spring after I want to get to upstairs bathroom it will all blend in. Permits sometimes backfire.
Near me the middle age white guys want to sign off for a few grand and leave the actual work to the mexicans and chinese.
Anon E. Moose says:
July 24, 2013 at 3:20 pm
JJ [4];
Instead after Sandy near me an old lady put up a four bed three bath 70×100 lot house walking distance to train in a fire sale. It was on market for a month. Sold for 199K. Was worth 450K all done. Who bought it. well lots of chinese contractors and stuff in my town after Sandy. One of them bought it cash, will do 80K renovation. All in with realtor the cost is maybe 300k and they will get a white couple to buy it for $450 put down 20% or 90K and then pay a 30 year mortgage with a 360K balance and oh yea higher taxes when assessor sees a 450K sale instead of a 199K.
Well, if you’re in this country on a freeroll in the first place, you’re planning to use unlicensed, non-english speaking labor to do the renos, then yeah — maybe you can gut the place for $80k and make it look like something that might sell for $450k.
The real problem is that native-born kids are indoctrinated in the school system to obey authority; they actually believe all those laws mean something.
JJ [29];
If the cable service is there, you can buy a modem with integrated WiFi.
http://compare.ebay.com/like/321133731102?var=lv<yp=AllFixedPriceItemTypes&var=sbar
I need a secure internet connection. Husband is on a few boards so he is getting board material. He cant jump no a starbucks or cheap wifi connection.
re: # 50 – Joyce – even so I don’t believe a bankruptcy judge can order a city council to raise taxes. The city council won’t raise taxes they are trying to stick it to man by including the bond holders. Debt service is around 100% of tax receipts these days in Detroit. Somebody will be getting a haircut here.
JJ – MIFI
Verizon Plan $60 – 30 days (3GB)
Hardware Jetpack 4G LTE MiFi 4510L ($130)
JJ —> http://www.verizonwireless.com/b2c/prepay/processPrePayRequest.do?type=ppjetpack
I like it but I dont want to pay for equipment and I dont want a data cutoff. I cant control their data usage and dont want it cutting out.
Juice Box says:
July 24, 2013 at 3:44 pm
JJ – MIFI
Verizon Plan $60 – 30 days (3GB)
Hardware Jetpack 4G LTE MiFi 4510L ($130)
How does that work with Cablevison. Can I get wifi for free if I have this?
Anon E. Moose says:
July 24, 2013 at 3:40 pm
JJ [29];
If the cable service is there, you can buy a modem with integrated WiFi.
http://compare.ebay.com/like/321133731102?var=lv<yp=AllFixedPriceItemTypes&var=sbar
Virgin mifi is $35 for a month if you can get LTE. Device is hundred bucks though.
I never argue in favor of various govt services … but being realistic right now, if you want the city govt to have one staff member, fire everyone else, still collect taxes yet provide no services just so 100% of receipts go to debt service… you’re dreaming. I know I’m painting an extreme picture, but that’s what Detroit is. They’ve been bankrupt for years. Any one dumb enough to lend them money (buy their bonds) the last several years deserves to lose their investment.
51.Bozo The Clown says:
July 24, 2013 at 3:17 pm
Zero default risk?
Default simply means interest payments can’t be made on time. Repudiation (i.e. 10 cents on the dollar) is a horse of a different color. I don’t think a city has ever repudiated GO debt. In the past, debt has merely been restructured, meaning that payments occur on a different schedule, but both principal and interest are covered in full.
Juice Box,
Maybe they are trying to stick it to the man, I don’t know. But if you’re correct in your 100% figure… even if they cut pensions to Zero, bondholders will still get a haircut.
58.Juice Box says:
July 24, 2013 at 3:41 pm
re: # 50 – Joyce – even so I don’t believe a bankruptcy judge can order a city council to raise taxes. The city council won’t raise taxes they are trying to stick it to man by including the bond holders. Debt service is around 100% of tax receipts these days in Detroit. Somebody will be getting a haircut here.
And one more thing Bozo (I’m not trying to argue just pointing out that Detroit is toast). How can Detroit restructure it’s debt to avoid writing some of it off? Extend the maturities at 1% over the next 100 years… can they even afford that and still keep the lights on? A large portion of the population is still leaving Detroit every year. Their tax receipts are not going to improve any time soon.
51.Bozo The Clown says:
July 24, 2013 at 3:17 pm
Zero default risk?
Default simply means interest payments can’t be made on time. Repudiation (i.e. 10 cents on the dollar) is a horse of a different color. I don’t think a city has ever repudiated GO debt. In the past, debt has merely been restructured, meaning that payments occur on a different schedule, but both principal and interest are covered in full.
They could do a “light-default” I recall when Orange County defaulted they tired to satisfy bondholders by making them 100% “whole”. What they did was they suspended all coupon payments to maturity. Technically they claimed you got paid. So lets say you have 5% 100K bond maturing in ten years. Instead of 5k a year interest and 100K in ten years they paid you no interest each year and at maturity paid you 150K. All the coupon payments at once. It is an interesting concept, gives huge immediate benefits to city and bond holders are only out use of funds on the interest payments.
joyce says:
July 24, 2013 at 4:31 pm
And one more thing Bozo (I’m not trying to argue just pointing out that Detroit is toast). How can Detroit restructure it’s debt to avoid writing some of it off? Extend the maturities at 1% over the next 100 years… can they even afford that and still keep the lights on? A large portion of the population is still leaving Detroit every year. Their tax receipts are not going to improve any time soon.
maybe they could ram down bondholders throats no coupons next five years. People with maturities under 5 years oh well at least you get principal back and folks with 30 year bond at least you get 25 years worth of coupon payments.
No matter how you define default as only a timing issue (ignoring TMV) or getting paid any amount less than the contract says … it’s still a form of restructuring the debt which is what bankruptcy does. Just let Detroit get it over with already.
FYI, the Orange County colution wouldn’t work for Detroit. They will have less money in ten years then they have now… if they don’t write-off some debt now.
Most national Muni bond funds buy high yield stuff to juice returns that widows and orphans look for. Most Detroit bond holders dont know they own it.
I buy bonds direct and I buy stuff like MTA, Port Authority, NYU, NYS GO, NYS Sewer bonds, School Bonds from rich school districts etc. And I spread them out.
If one is buying a national muni bond fund and lots just look at yield they get a lot of junk loaded in. I buy junky muni bonds but usually Suffolk or Nassau County etc. As I doubt the Northshore and Hamptons would let them go BK, they can raise property taxes and Steven Spielberg is not walking away from him 20 million mortgage free house causes taxes go up 5k.
joyce says:
July 24, 2013 at 4:27 pm
I never argue in favor of various govt services … but being realistic right now, if you want the city govt to have one staff member, fire everyone else, still collect taxes yet provide no services just so 100% of receipts go to debt service… you’re dreaming. I know I’m painting an extreme picture, but that’s what Detroit is. They’ve been bankrupt for years. Any one dumb enough to lend them money (buy their bonds) the last several years deserves to lose their investment.
How does that relate to my comment? Please take all your millions and buy reading glasses… and a brain.
that just looks great……
joyce says:
July 24, 2013 at 4:31 pm
And one more thing Bozo
Didn’t I see somewhere that close to 70% of Detroit’s ratables aren’t making property tax payments?
Whoops…just 50% don’t pay.
http://www.detroitnews.com/article/20130221/METRO01/302210375
Oh MY God!
A new member of the Montclair Watercooler just introduced herself and listed placenta encapsulator as her profession. I was curious what this is so I googled it. For those as ignorant as I, I plead to you. Do not make the same mistake I just did.
You’ve been warned!!!
Report from Pennsyltucky (not really, it’s horse country here but if that’s how you identify it, well . . .):
It seems that after a minor spring frenzy, the bottom has dropped out of this market, or at a minimum, price rationality has taken over. Buyers who overreach when they list are still out there and I am seeing price reductions all over the place. Virtually every house that I have looked at that is still on the market has reduced price save but one. Most of the productions are still not in the range of rationality yet though.
The test will be whether one house in particular that I am familiar with will sell quickly. It was just listed with a no showings flag, meaning that they haven’t prepared yet or is already went under contract. Even though I am under contract, I plan to see this and a couple of other houses. If our sellers don’t agree to a significant concession on price after the inspections, then we are seriously considering walking over to one of these other houses and saving some significant coin. Paradoxically, while our sellers seem to have done a good job taking care of the house, the repairs they made, the upgrades they made, and the way they addressed certain problems actually cause the house to be more expensive to run. So I will approach inspection, not as a defect issue, but as a discovery issue in which we find out that this house will be more expensive to maintain and operate, and had we known, we would have offered less. Coupled with the way in which they updated their disclosure at the very last minute, taking advantage of a loophole in act 114, this info gives me plenty of justification to demand a price concession.
The wife has already signaled her willingness to walk so we expect that we will have a very shocked seller on our hands when, after they reject our demand for a credit, we invoke the termination clause and demand return of our deposit.
Argh. Distracted. S/b “sellers who overreach”
Lib thanks like a big kid who can’t help themselves WTF. Really what is wrong with people in that town.
Pain 78 – it’s only a matter of time before they’re selling Placenta Smoothies on Bloomfield Avenue.
You’ve been warned!!!
Whats in the box? Noo Nooooo.. WHATS IN THE BOX … WHATS IN THE BOOOOOOOOX.
Is it really cannibalism if you are eating yourself? Or is the placenta considered the baby? How is cannibalism even legal in this county? So wrong.
Hmm, I just had to look it up, the placenta carries the genome of the fetus, so technically, this is cannibalism. What the f*ck don’t these people have anything else to do?
anyone have a recommendation for a homeowners policy?
Special Services Offered
Placenta encapsulation
Cloth diapering education
Babywearing education
Baby-led weaning
Most national Muni bond funds buy high yield stuff to juice returns that widows and orphans look for. Most Detroit bond holders dont know they own it.
I buy bonds direct and I buy stuff like MTA, Port Authority, NYU, NYS GO, NYS Sewer bonds, School Bonds from rich school districts etc. And I spread them out.
If one is buying a national muni bond fund and lots just look at yield they get a lot of junk loaded in. I buy junky muni bonds but usually Suffolk or Nassau County etc. As I doubt the Northshore and Hamptons would let them go BK, they can raise property taxes and Steven Spielberg is not walking away from him 20 million mortgage free house causes taxes go up 5k.
Illuminating. What brokers have you dealt with to get munis? Do you buy them at the time of issuance or do you get them on the secondary market? I suspect that for me, the secondary market would cost too much because of bid-ask spreads, which is why I’ve tended to buy ETF’s.
I think we’ve unmasked anon (the left one):
http://www.huffingtonpost.com/rj-eskow/a-federal-bailout-for-det_b_3637170.html
This is so delusional, it’s sick. But the final line is priceless:
“It wouldn’t be a bailout. It would be an investment.”
“Prior to her ruling on Friday, the judge criticized the Snyder administration and Schuette’s office over their hasty move.
“It’s cheating, sir, and it’s cheating good people who work,” the judge told assistant state Attorney General Brian Devlin. “It’s also not honoring the (United States) president, who took (Detroit’s auto companies) out of bankruptcy.”
http://www.detroitnews.com/article/20130719/METRO01/307190099
To reiterate, the judge actually criticized the bankruptcy filing because it did not honor the President.
You can’t make this stuff up.
Comrade,
I’ve been trying to post a link the last day or so that I think you’d get a kick out of (as well as others)… but it won’t get past the filter.
Just google ’75 ways soci_lism has improved america’
My caption was going to be, “The author of this article certainly rivals the guy Scrapple posted whom emptied out all his savings to ‘help the economy’. “
http://www.dailykos.com/story/2012/03/29/1078852/-75-Ways-Soci.lism-Has-Improved-America
Wow, finally got it past the filter. If you take the link I posted, and spell the world social… ism correctly, it will work.
Grim,
I guess that word is the reason it kept being swept to the trash?
[88] joyce
I read a lot of left wing crap and it’s scary just how deluded many of these pundits on the left are. And I also noticed that nearly all of them post anonymously.
At some point they have to surface. The violence will start in rural areas first.
The worst part of the article was not necessarily left-wing crap but the fact that the author’s choices were just hilarious. Why did they decide on 75 items? They go with City zoos, the court system, government officials (legislaters, etc… not random employees), the IRS!!!,
“The IRS is the reason that we have anything.”
Medicare, and Medicaid as two different items, the White House, and (I guess my favorite) Government.
Yes, ‘Government’ was on the list of 75 items.
Wow, my head hurts thinking about this.
No need to wonder who gets shot first when the ultra-violence gets started.
651145 316062As I internet site owner I believe the articles here is genuinely amazing , thankyou for your efforts. 362593
The word soc-ial-ism contains within it the brand name of a popular erectile dysfunction drug, so it gets swept up by the spam filters.
Well you can’t have soc1alism without c1alis.