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    • Fri Apr 25th 07:50 AM | Rating: 0 0
      Commented on:
      The Impending Mortgage Crisis
      CuriousCat. . . good points and I agree with them all having reloed from Chicago to SC and now back to Chicago. My wife and I are committed to going back to the south permanently. Unfortunately, with 4 daughters and my wife at home, I'm putting the kids' college savings first for now. . .

      Don't tell too many people about how great the south is...I want it to be the same when I return.
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    • Fri Apr 25th 07:46 AM | Rating: 0 0
      Commented on:
      The Impending Mortgage Crisis
      Freedomrenter- Nice work. . . I'm absolutely on board. Values have to come down. Today's bargain is tomorrow's upside down investor. My guess is the whole thing shakes out by 2012 after the option ARM resets. I'm renting until then.

      Michael- You make a great point about fundamentals and how they are essential to locally driven markets. The reason this is national is due to the supply of money being the driver rather than the need for shelter. . . this thing is national, albeit more severe in cities that participated heavily in the run up, which VP of CommonSense astutely noted in his reply above. Well qualified VP.

      However, as long as there were mortgage brokers selling Option ARMs in the quad cities and Peoria, there's going to be trouble.

      People say we've never seen anything like this- well we did in Commercial Real Estate with the '86 Tax Act which destroyed the passive loss deduction- effectively eliminating the fundamental for Commercial investment in the '80s that led to the overbuilt market. However, this time we're dealing with empty homes instead of empty investment high rises.

      My guess is that regulation of the mortgage brokerage and Appraisal industries will be the equivalent of the Tax Act. Remains to be seen whether a "Resolution Trust" will be created. . . but the Fed has already started on its own with Bear Stearns.
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    • Thu Apr 24th 06:58 AM | Rating: 0 0
      Commented on:
      The Impending Mortgage Crisis
      In response to VP of Common Sense: FYI- I'm a corporate real estate consultant and former licensed commercial real estate pro.

      While I agree that not all markets will be hammered like CA, FL, AZ, etc. I can tell you that even in midwest markets, rents are significantly lower than mortgage payments for equivalant houses.

      I'm in Chicago- an area that has stayed relatively quiet (until this week- see patrick.net) and I recently moved from SC, where, like Memphis, there was steady growth and then a slight decline. I lived on an acre in a golf course community and after 8 years sold my house in Feb (short due to corp relo) for a modest 20% gain over the ENTIRE PERIOD. However, in the desirable Chicago suburb I've moved to, I chose to rent due to the ridiculous asking price for homes. I basically bailed out a guy who just leveled and built a 2800 SF home on a .15 acre lot by covering (in rent) approximately 60% of his carrying cost for two years (locked).

      In rough terms, I think that I can safely assume that his CARRYING COST which is about $300K less than what his sales asking price, still exceeds real value by 30 to 40%. Think about that. . . He's a realtor, and got caught with his pants down redeveloping at the end of the bubble. His home is worth likely half of what he was asking. If topped out "mcmansions" like this are going to plummet, imagine the impact to the mean home value. . . although it will not be as steep of a drop, it will decline. Think about the impact to the local tax base?

      NOW LOOK AT THE MAP OF MISERY from the article above. Chicago is sitting pretty, right? This whole thing is a major financial catastrophe, that is national, and is only just beginning.

      Here's the upshot of what I'm saying. . .

      Until investors / owners can PROFITABLY rent space (be it a single family home, or a two flat, etc.) you're in a bubble. One need only play with a mortgage payment calculator to figure out how screwed up rents vs. asking prices are: Find a single family home for rent. Enter the market rent as the payment, use a market 30 yr fixed interest rate, and solve for present value. THAT is the breakeven point for the owner and the actual value of the home (don't forget to allow some room for taxes and insurance etc.) See the following article and website for a solid argument or two- patrick.net is how I've started my day for months since I started my research:

      www.oftwominds.com/blo...

      patrick.net

      View article »
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