The distress that used to be concentrated at the low end of the market is starting to show in more expensive properties. On Friday, we profiled Heroes of the Potomac a property that went for almost $1,000,000 at the peak. Today's featured property is a large, five-bedroom home in Northwood. It is REO, and it is sold at auction for almost 20% less than its 2004 purchase price.
By now most of you have seen the revised Option ARM reset schedule.
There is one more variable that this schedule does not capture, and neither does the ARM reset schedule: people who give up early. Being trapped in a property you cannot sell is torture. You just want to be released from your obligations and go about your life. Begging for mercy probably doesn't help much, but it might make some of these sellers feel better.
Today's featured property is an Option ARM holder who gave up early.
I enjoy looking back on some of the nonsense and denial among the bulls. I came across this one recently: Was there a Housing Bubble?
If you can't see a housing bubble in February of 2008, you are truly blind. Here is my favorite piece of analysis, "Prices will probably drop some more but personally I don't expect to
ever again see index values around 110 (referring to Case-Shiller). Do you? If we don't see the
massive drop back to "normal" levels then the run up in prices should
be described as a shift to a new equilibrium - much as happened during
World War II - see the chart. (It's an important question to ask what
changed and why?). In the shift to the new equilibrium there was some
mild overshooting, especially due to the subprime over expansion, but
fundamentally there was no housing bubble."
His argument or observation shows the wanton ignorance of real estate economics displayed by most purchasers during the bubble. He examines a chart showing a stable, 50-year trend in house prices, and makes the assumption that this is not based on fundamentals, and there is some new fundamental out there that is going to establish an equilibrium at some higher price level. He asks and fails to answer the key question "What changed?" The answer is a wild expansion of credit and a total abandonment of lending standards while simultaneously embracing unstable loan programs. In short, a bubble. His failure to recognize what happened is why he cannot fathom a price drop back to the fundamental price levels stable for the previous 50 years.
It reminds me of a bullish post I saw over at the OC Register Blog some time ago. One of the posters was chiding Peter Schiff by saying that anyone who predicts a 50% decline in home prices has lost all credibility because such a price decline was simply not possible. Oh really? I remember the indignation of the poster -- or was it ignorance -- I guess it is all the same for bubble bulls.
Let's take a trip down memory lane. Tell us about the most ridiculous bullish comments you heard during the bubble, or post links to bullish articles and prognostications that have proven to be totally wrong.
I might be wrong I might be wrong I could've sworn I saw a light coming on
I used to think I used to think There was no future left at all I used to think
Open up, begin again Let's go down the waterfall Think about the good times and never the bad Never the bad
What would I do? What would I do? If I did not have you
Open up and let me in Let's go down the waterfall Have ourselves a good time, it's nothing at all It's nothing at all Nothing at all
I hope you are enjoying your 4th of July holiday. Like many others, I am not traveling this year, and instead I am staying near home and spending the day with my family.
When George Washington lead the Continental Army across the Potomac River on Christmas Eve to surprise the Hessian mercenaries camped on the other side, he took an enormous risk to secure the future of our country. He and the soldiers he commanded are heroes to all Americans. Today's featured property is on Potomac in Irvine. It is a sad story of how corrupted our great country's financial system has become. The people involved with this property are not heroes.
Are the high-end homes in Irvine plated with marble? The asking prices would make you think so. Today's featured property was purchased by a knife catcher at auction. No improvements have been done to the property -- no marble -- and now they want $260,000 for their efforts. Oh wait, they made no effort. They just want $260,000 just because. This is the kind of behavior that makes house prices unaffordable, and it is exactly the kind of behavior this market is going to crush out of existence.
