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Nathan
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Nathan answered:
Default, Then Rent?
Wall Street Journal
By MARK WHITEHOUSE
December 10, 2009
PALMDALE, Calif. — Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.
But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.
Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.
“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.
People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.
Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.
Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.
The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that "strategic defaults" by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007's level.
Stiffing the bank is bad for peoples' credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.
See data on "strategic defaults" -- homeowners who choose to default on their mortgage even though they could still afford to pay it.
Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.
The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers' pockets.
For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month -- an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package.
"It's a stealth stimulus," says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. "The quicker these people shed their debts, the faster the economy is going to heal and move forward again."
Wall Street Journal
By MARK WHITEHOUSE
December 10, 2009
PALMDALE, Calif. — Schoolteacher Shana Richey misses the playroom she decorated with Glamour Girl decals for her daughters. Fireman Jay Fernandez misses the custom putting green he installed in his backyard.
But ever since they quit paying their mortgages and walked away from their homes, they’ve discovered that giving up on the American dream has its benefits.
Both now live on the 3100 block of Club Rancho Drive in Palmdale, where a terrible housing market lets them rent luxurious homes — one with a pool for the kids, the other with a golf-course view — for a fraction of their former monthly payments.
“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth.
People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.
Thanks to a rare confluence of factors — mortgages that far exceed home values and bargain-basement rents — a growing number of families are concluding that the new American dream home is a rental.
Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That’s freeing up cash to use in other ways.
Ms. Richey’s family of five used some of the money to buy season tickets to Disneyland, and plans to take a Carnival cruise to Mexico in March. Mr. Fernandez takes his girlfriend out to dinner more frequently. “We’re saving lots of money,” Ms. Richey says.
The U.S home-ownership rate has charted its biggest decline in more than two decades, falling to 67.6% as of September from a peak of 69.2% in 2004. And more renters are on the way: Credit firm Experian and consulting firm Oliver Wyman forecast that "strategic defaults" by homeowners who can afford to pay are likely to exceed one million in 2009, more than four times 2007's level.
Stiffing the bank is bad for peoples' credit, and bad for banks. Swelling defaults could also mean more losses for taxpayers through bank bailouts.
See data on "strategic defaults" -- homeowners who choose to default on their mortgage even though they could still afford to pay it.
Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.
The flip side of those losses, though, is massive debt relief that can help offset the pain of rising unemployment and put cash in consumers' pockets.
For the 4.8 million U.S. households that data provider LPS Applied Analytics estimates haven't paid their mortgages in at least three months, the added cash flow could amount to about $5 billion a month -- an injection that in the long term could be worth more than the tax breaks in the Obama administration's economic-stimulus package.
"It's a stealth stimulus," says Christopher Thornberg of Beacon Economics, a consulting firm specializing in real estate and the California economy. "The quicker these people shed their debts, the faster the economy is going to heal and move forward again."
The folks at TransUnion noted last week that approximately 10% of California mortgage borrowers were at least 60 days late in the third quarter of 2009:
Challenges remain for California real estate
Written by Town Crier Report
Wednesday, 02 December 2009
Economists appear to agree that the United States is in a recovery, but we are crawling through it and are not out of the woods yet.
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
“We’re not building enough to sustain demand and meet the needs of a growing population,” Appleton-Young said.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
Appleton-Young reminded Silicon Valley realtors that the situation differs depending on location.
Written by Town Crier Report
Wednesday, 02 December 2009
Economists appear to agree that the United States is in a recovery, but we are crawling through it and are not out of the woods yet.
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
“We’re not building enough to sustain demand and meet the needs of a growing population,” Appleton-Young said.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
Appleton-Young reminded Silicon Valley realtors that the situation differs depending on location.
U.S. Home Prices to Fall Through 2011’s First Quarter (Update1)
By Dan Levy
July 7 (Bloomberg) — Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.
Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.
“The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” LaVaughn Henry, senior economist at PMI, the fourth- largest U.S. mortgage insurer, said in an interview.
By Dan Levy
July 7 (Bloomberg) — Home prices may fall in more than half of the largest U.S. cities through the first quarter of 2011 as unemployment and foreclosures rise, mortgage insurer PMI Group Inc. said.
Thirty of the 50 biggest metropolitan areas have at least a 75 percent chance of lower prices through March 31, 2011, Walnut Creek, California-based PMI said in a report today. The decline is likely to spread to “all regions of the nation” from California, Florida, Nevada and Arizona, the states most affected by the housing slump, PMI said.
“The housing market has been hit by a demand shock of high unemployment and a supply shock of distressed foreclosure sales,” LaVaughn Henry, senior economist at PMI, the fourth- largest U.S. mortgage insurer, said in an interview.
Nathan answered:
Challenges remain for California real estate
Written by Town Crier Report
Wednesday, 02 December 2009
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
Written by Town Crier Report
Wednesday, 02 December 2009
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
Nathan answered:
Challenges remain for California real estate
Written by Town Crier Report
Wednesday, 02 December 2009
Economists appear to agree that the United States is in a recovery, but we are crawling through it and are not out of the woods yet.
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
Written by Town Crier Report
Wednesday, 02 December 2009
Economists appear to agree that the United States is in a recovery, but we are crawling through it and are not out of the woods yet.
At a realtor tour meeting of the Silicon Valley Association of Realtors last week, California Association of Realtors Vice President and Chief Economist Leslie Appleton-Young told realtors to be aware of the following:
• The state of commercial real estate, now stressed in every category, is expected to worsen as commercial loans mature and more defaults occur in this sector.
• Consumer confidence will not see much improvement because the public will continue to be concerned about unemployment and future job prospects. The index fell from 53 in September to 47 in October.
• The unemployment rate will continue to drop. Appleton-Young said continued job losses are her biggest worry. She expects the jobs sector “will get worse before it starts to get better.” She doesn’t see that happening unless new jobs are created.
• The budget deficit will continue to be a problem. The most recent estimate is that the state will be $20 billion short next year. While the federal government continues to inject stimulus money into the economy, the state is doing the opposite by cutting services and furloughing employees.
• Industries like construction, manufacturing, retail and wholesale have been hit hard this year, with a similar trend expected next year. Construction is an issue for California.
• Expect more foreclosures and price compression affecting the high-end market, as more loans reset. The high-end market should experience double-digit declines over the next 18 months.
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