The problem is that I don't know who to be angry at. All I know is that there's a lot to be angry about this Thanksgiving season.
Last night I helped a friend move out of his condo. His family purchased it while he was going to school as a way to build a little equity in hopes of using it to by a more permanent house after graduation. He bought it at a reasonable price - his mortgage costs were roughly what rent would have been (maybe a bit higher), but that's reasonable, right?
However, this was pre-boom times and as the decade progressed, those condo values ballooned, and buyers eventually were priced out of thse condos. That should have tempered the boom, right? Wrong. My friend knew something was up when renters were the only ones who could occupy these condos because investors were the only ones who could afford to buy and they were buying, inflating the boom further.
Unfortunately for him, he decided to sell too late and when he tried, there were no buyers. He kept dropping the price of his condo until the writing was on the wall and he knew he was entering negative equity.
He's now trying to short sell the condo for around $40,000. Can you imagine that? If you took out a 30 year mortgage for $40k, you're monthly payment would be $350 including taxes fees and insurance. The average rent in this area is at least double that (if not more). Is his condo really only worth $40K? Absolutely not.
Which brings me to my anger. From mostly around 2005 to 2008, things went absolutely haywire. Loan officers, landscape architects, real estate agents, anybody affiliated in any way with the real estate bubble were making a bunch of money. My friend told me that he knew a landscape architect working primarily in Anthem making $180,000/year at the peak. I knew someone who was refinancing mortgages as a side job and doubling her engineering salary while she did it.
This American Life covers all of this nonsense here.
What's sickening is that there are people still making a lot of money on short sells and foreclosures, profiting on the downside just as much as they were profiting on the upside. Its hard to begrudge anyone from making a bunch of money doing legal and basically honest work.
Its just disgusting how wasteful this all became. So many people were working really hard making a lot of money doing very little to produce stuff of value. It's true that we now have a sea of cookie-cutters sprawled across our beautiful desert. Some of these housing communities do have real value as people find a way to live and enjoy their lives in them. Some now are decaying unoccupied awaiting foreclosure.
What would Phoenix have been like if people bought homes they wanted in communities they loved. If homes were bought to live in and not to flip. If people transformed their homes into something they love instead of something they think would be the easiest to sell. If people saved and spent their savings to re-furbish older homes in core communities closer to where they work and played.
We're in the mess because so many people thought they could get rich off their homes or other people's homes. And our politicians thought that if you just deregulate everything you can prosper.
But prosperity takes work and discipline. We need professionals and craftsman building and creating art. Making things people love. Our politics should reflect that.
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4 comments:
Yes, $40,000 ($350) for a condo in AZ does sound right. If an apartment (per month)is double that it is because the apartment includes amenities -- washer/dryer, cable, pool, no insurance, no up keep, etc. Plus the market is rewarding those with good credit and cash right now due to the vacant condo surplus.
Where I'd like to direct my anger in to those who both orchestrated and then 'won' during this mess. Certain Wall St. companies have come out profiting and now have less competition to boot. This is in part why there is so much anger at Washington at the moment. If everyone suffered equally there would have been less foreclosures and home prices wouldn't have dropped so much. The fix is in. Example: The Government could have setup a hotline where people could have reported bad deeds regarding the foreclosures and actually acted on the reports. Recently we learned about robo-signers -- how was that covered up for two years when reports were coming in two years ago? If our government was really sincere about protecting the little people, this would have been attacked much sooner. As I said, the fix is in, and we need Teddy Roosevelt like leadership to break the stranglehold.
-David G.
David,
This condo in question does have a pool and a garage. Not sure about washer/dryer, but I never had that when I was apartment renting (had to pay for that privilege at the laundrymat)... And my rent was always at least somehwere around $700-800-900/month in rent (and that was several years ago now).
$40K is way undervalued.
Often a condo has maintenance fees or HOA fees are not included in the mortgage, and they can run $100+ a month, note. Anyway, a product is worth what people will pay for it. If the condo was so undervalued, it would have sold by now -- even to foreign investors. We overbuilt here in AZ. Now with illegals leaving and other people moving back to former states for jobs/support, we have a glut of homes with less people. When it comes to assessing the value, you are currently having a battle between human psychology vs. market reality. Many sellers are having the same internal conflict.
-David G.
David,
I didn't mean to get hung up on the one part of your comment where I disagree. I do agree with your second half of the e-mail.
The frustration comes from me is that my friend took out a responsible mortgage and only short sold because he had no confidence his condo would come back to what he owed (in any reasonable amount of time). In other words, he did a strategic default on his loan - he could have stuck with it, he could afford to pay the mortgage. And the condo was in an established neighborhood, so there is a market for the location its in.
The problem is that I don't believe the market makes any sense right now.
We had this massive bubble were people lost their minds. I think what we're seeing now is a massive over-correction. Much of that comes because the banks are insolvent and incompetent and have now implicit government guarantees.
But the markets are getting flooded with foreclosures and short sells writing on the walls and bailing.
I do think my friend's condo will bounce back to at least to the value he paid for it (assuming it doesn't go to slum - which is a real possibility), but it may take time since I'm not sure how much longer these foreclosures will finally flush themselves out of the system.
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