There were people attempting flips in 2007. There were looking for their own Sugar Shack to sweeten their lives. Prices in our area were still at or near the peak, but all the signs were pointing to a downturn which was already underway in many markets. Residential real estate markets are dominated by amateurs because professionals do not bother with the headaches of what is generally a poor investment. Non-professionals by and large have no idea what they are doing, and they only make money when they get lucky because the emotions of speculators always lead them astray (remember Speculation or Investment?) Today's featured property was purchased after the collapse of subprime was front page news in March of 2007. Our would-be Donald Trump either wasn't watching the news, or he truly believed the subprime containment BS put out by the media. This guy actually put some of his own money into the deal, so it wasn't just gambling with the lenders money. You would think if someone was going to put their own money in the deal they might have a clue about what he was doing: apparently not.
HELOC abuse is just as prevalent among women as it is among men. With all the free money floating around, it is to be expected that a woman who wanted to have the finer things in life would become accustomed to a lifestyle well beyond her means. Today's featured property is owned by a woman (as the decor makes obvious,) and she managed to borrow and spend herself out of her home. There is a certain Shakespearian Tragedy element to stories like these. Today's seller made a series of bad decisions which lead to her downfall. How are we supposed to feel when we see these situations? Part of me is sad that this woman is losing her home, and part of me is not sad because she brought this fate onto herself (and I suppose a little schadenfreude is mixed in as well.) The emotions we all feel when confronted with these stories serve to teach us all not to do what she did.
The distress at the low end of the market doesn't bode well for the high end. In a normal, healthy real estate market, small condos generally sell for the highest prices on a per-square-foot basis. When single-family detached homes where going for upwards of $400/SF, small condos were selling for $450/SF and up. Small properties cost more on a per-square-foot basis because the inexpensive square footage in bedrooms and living areas are much smaller, but the expensive square footage in kitchens and bathrooms are still present. Right now, in our market, the smaller condos are selling for much less on a per-square-foot basis than the larger, single-family detached homes. This situation will not persist. Either small condo prices will increase, or larger home prices will fall. I think it will be the latter.
Today we continue with our daily grind of speculators giving up. The featured property was purchased in 2005, then as much money as possible was taken out of the property, and the lender is left holding the bag.
This crash is going to take a long time. Even with the record number of foreclosures and speculators giving up en masse, there are still more speculators giving up every day. It seems there is a never-ending supply of 100% financing deals gone bad. This isn't that surprising when you think about it. Every speculator has a unique financial situation and a unique stubbornness when it comes to admitting a mistake. The combination of these factors means that some will hold on longer than others, so we will continue to see these people give up one-by-one for some time to come. They will all give up, and when they do, they add more fuel to the fire burning down our housing market. Even if some of them manage to avoid foreclosure, they will sell when they get back to breakeven to get out of the bad investment. There is no way prices will consistently rise again until all these people have been flushed out of the market. With each passing month, we get new foreclosure records, so the process is in full swing.
so worry not, all things are well, we’ll be alright, we have our looks and perfume...
