Las Vegas & Parts of California and Florida - 90% of mortgages may end up underwater

Discussion in 'Economics' started by ByLoSellHi, Aug 23, 2009.

  1. Their Dream, Your Nightmare
    For One Sovereign Individual,
    Economic Crisis Hits Home This Week

    Dear A-letter Reader,

    Damn it feels good to be a renter.

    It’s been a pretty good investment decision the past few years – sure, there’s a monthly cash outlay, but there are no property taxes, homeowners’ fees, repair bills, readjusting mortgages or declining home values to worry about.

    The Deutsche Bank statement that nearly half (48%) of all U.S. mortgages will be underwater – wherein more is owed on the house than it’s worth – by 2011 probably didn’t come as a surprise to A-letter readers.

    If anything, those estimates might even seem a little conservative – but the report goes on to state that in Las Vegas and parts of California and Florida, up to 90% of mortgages may end up underwater.

    What makes this statistic especially poignant is that homeownership was literally sold to people as the American dream – a piece of property of one’s own – and, in many cases, sold on the notion that it would always go up in value... the true asset for the middle class to build and store wealth…

    …but that dream’s become a nightmare.

    And when one out of two homeowners is going to be underwater, odds are you’ll know some of the people involved.

    After all, for all the statistics, graphs, and data points being thrown out continually, the economy just doesn’t seem that bad until you know people who have been burned—badly.

    This week, a couple I know joined my renter’s lifestyle. They sold their home for the exact value of their mortgage—the first time they didn’t enjoy a gain in equity, but they were lucky enough to sidestep a loss.

    As of the end of July, 9.2% of all mortgages are delinquent. Theirs wasn’t one of them.

    The previous time this couple sold a home, in 2006, they downsized in value and took money off the table. It was a smart move, but renting would have been better still.

    The couple is my parents, two members of the 74-million strong Baby Boomer generation. You know, the generation that’s starting to hit retirement age. The generation that, despite an embrace of counter-culture, got suckered by lenders and the government into the notion that a home was a good investment—and a dream come true.

    To be sure, there’s already been some bottom-fishing in the real estate markets by solvent and shrewd investors looking for the deal of a lifetime.

    Buying at or below replacement value with strict cash-flow and occupancy requirements may not sound like fun, but it’s real, honest money for real estate investors. And they’re also doing us all a favor by wiping out bad loans in the process.

    Imagine that. The market’s got a better solution than any program or policy yet decreed by government.

    And as painful as it looks in the housing market, there is a silver lining. If you need a place to live, buying a house on the cheap now – think foreclosures and short sales – might still seem like a risky investment… but look at it in terms of cash flows…

    Future inflation is inevitable, and will be large. And as the value of the dollar is decimated further, acquiring now and paying off in penny-dollars later (via a fixed-rate mortgage) seems like a winning proposition.

    Just don’t get high expectations about rising equity—and don’t let bankers and politicians define your dreams. In many cases, renting may still be the way to go. And there’s a lot less stigma attached to it these days.
    Speaking of Shattered Dreams

    A lot of other grim realities faced investors this week:

    On Tuesday, A-letter editor Matt Collins exposed the simple math behind the insolvency of the FDIC. If you have a dime in a savings account in any FDIC-insured bank, this affects you. It’s your must-read for the week.

    Thursday offered a double whammy as Investment Director Eric Roseman looked under the lid on why the correction in Chinese equity markets is just the tip of the iceberg, and Currency Director Ashish Advani exposed how the Middle East is subsidizing America’s War on Terror (amongst other things).

    The dream of privacy in Europe faced some setbacks this week as well. On Monday, Bob Bauman weighed in on UBS and the weakening of Swiss banking laws. And on Friday, Bob offered the final word on UBS’s resolution with the IRS.

    On Wednesday, Mark Nestmann talked about encryption—and how trying to protect a sliver of electronic privacy can land blokes in the U.K. in jail.

    I hear Matt always reminds you to relax on the weekend, so I’ll do the same. May I suggest a drive around the neighborhood…maybe looking for foreclosures and short sales?

    Stay Sovereign,

    Andrew T. Packer
    Managing Editor, TSI
  2. He mentioned what I think is the key to the inevitable depression equation, the baby-boomers. I know a couple that's got $225K in a second home and has it listed now at $139K. Their health has taken a turn for the worse, and they can no longer use the home. C21 says they think they can get the current asking price, an $85K loss, but so far no takers. They overpaid for lakefront property at the top of the bubble and are now dealing with the consequences.
    The "boomers" were the ones who got hurt the most by the mkt crash. They will need the most health care in the coming years. SO, their income went down, and their expenses are going up, a great combination. So they are depending on Generation X,Y,Z or whatever they call it, to pay into the system enough money to pay for the new retirees. Good luck with that, as the younger folk have never had to struggle, and will be all too willing to sit back and live off the govt without making a real contribution. I see it every day, perfectly able-bodied folks in their 20's and 30's trying like hell to get disability checks. This pisses me the f**k off as many of these guys are much younger than I am, and yet I do more in a day than they do in a month. We got a doctor in the next county who is referred to as the "Disability Doctor". He'll hook you right up. I never knew "post traumatic disorder" affected so many people. It's amazing how many young females around here have that. Hard to believe that a person would sacrifice their future, to get a $500 check every month.....they oughta be rounded up and put in a labor camp, every damn one of them.
  3. pitz


    spades, the young people want to work -- but they insist on working for a wage that will actually pay the bills. Why should they work for some greedy old boomer who will only pay them a mere pittance, when they can just do what the boomers themselves have been doing for years -- and that is, living off of the government?

    Boomers need to grow up, and start offering their kids a future, make some sacrifices, etc., because successful integration of the under-40 generation into the workforce is the *only* way there is ever going to be prosperity in the USA ever again.

    Kids need real jobs, not just relegation to working in ice cream parlours and places adorned by golden arches.
  4. S2007S


    Many have pushed this news aside, seems to me about 90% of people in the u.s think the recession has ended and that talk of more housing problems have completely diminished.
  5. They don't have to worry. Obama is coming out with a health care plan that calls for MANDATORY private insurance and ....... drum roll ........ 35% deductible

    The republicans pulled another fast one on the voters. They managed to sneak in a black republican man into the democratic party who ended up winning and carrying on the agendas of the Corporacy

    Heck, his point man on health care is Tom Daschle. The main DC lobbyist for health insurers. Change we can. lol

    Oh yeah. I call the younger generation the USELESS generation. We're fucked. Get out while you still can.
  6. Kubinec


    LOL seems like BuyLo has a few too many put positions judging by the last month of his posts :D

    Look man, you've posted more negative news pieces than I can count, and the market is still going up.

    We all know how bad the economic situation is in spite of all the flowery mainstream media coverage. Do you actually day trade? Judging by your threads, how are your shorts performin'? :D
  7. Ok, so the young people want to work where you are. How do you go about determining a wage that will "actually" pay the bills? My first job was at the golden arches, 3.35/hr min wage. And I woulda worked for less than that just to get a decent meal. I was 18, graduated, and sleeping in my car. I saved enough to rent a place with a roommate after about 6 weeks. I had a 13" black and white tv, a wind-up alarm clock, and enough clothes for about 3 or 4 days. I washed my uniforms in the washing machine at MCD. It wasn't easy, but looking back on it from 24 years, it wasn't so bad. How many young people do you know that would do what I did???.....none. They've all been potty trained and hand fed by the their parent's, the boomers, to the point where just taking out the trash requires some type of compensation. I'm not a boomer, so I can't speak for them as a whole. But from what I've seen, THEY were the ones who have been working the last 40 years or so, paying into what is now a broke system. I feel sorry for them. Getting old, and getting screwed at the worst time. Yea, the younger generation is getting a good f**king too, and its gonna get worse.
    I remember the story about a farmer during the depression, going to bed sick from eating too much rice pudding, while folks were dying of starvation in the cities. If there is anyone who puts their ultimate existence in the hands of govt, they have no one to blame but themselves for the end result. Be a man, or woman, and go find a way to provide for yourself. Right now, that may be at $8/hr, but it's a start.
  8. MattF


    Look at core expenses.

    -Food (got to eat)

    -Clothing (got to wear something)

    -Shelter (have a roof, or live out of a car)

    -Transportation (public or car)

    Then decide what is "actual" based upon what you would spend.

    For many, working $8/hour barely meets that, if at all. I will agree on the last bit...find a way.

    Unfortunately, too many think that "applying" for "jobs" IS the way. It's not. Got to be creative.