Someone asked me why rental home REITs (an investment trust) have soared 14% over the past few months (investors pumped $22 billion into them this year already). It's simple: they're betting on Obama's housing white paper to deter home ownership.
Here's the logic: $269,900 (average U.S. home price) x .20 (required 20% down payment under Obama's new FHA guidelines for "Qualified Residential Mortgages") = $53,980 + $7,500 (average closing cost) = $61,480 (required cash-on-hand to buy a home unless you take private money (which come with astronomical interest rates; you'll pay an additional $200,000 in interest over the life of the loan))... so if you don't already have a home, you'll likely be renting for the next 15 years (time it takes to save $61,480 on average household income)... if you do own a home (it's unlikely to sale for a return on investment, you'll lose your equity with shortage of buyers in a "buyers market," and likely turn upside-down on the mortgage resulting in a REO/Foreclosure and opportunity for the REIT to purchase the property for 30% of its true value and put it on the rental market as well). I hope that makes sense.
Monday, June 20, 2011
Friday, June 17, 2011
Thursday, June 9, 2011
Don't Blame Homeowners for Today's Housing Crisis
The first thing I read this morning was a featured ActiveRain.com blog post titled “The McMansion Extra Value Package: Is it REALLY the Bank's Fault You Can't Afford Your Home Now?”
Well, I disagree with the premise that all home buyers who took advantage of low-down and no-down loans to buy a home in the early 2000's were greedy. There were a lot of responsible people who purchased homes well within their means that have been hurt in today's real estate market. I don't believe it's entirely their own fault if they and others are in a financial crisis now.
Sure, there were some naysayers predicting a housing collapse, but plenty of experts shunned that idea. To be fair, I think we have to go back to those so-called “bubble years” and remember what the housing market was 5 or 6 years ago: (1) home buyers qualified for loan programs that were widely available, (2) most people felt secure in their jobs, and (3) there was no reason to expect anything other than continued growth in property values. Level off, maybe... but, home prices never went down before. We all knew that declining home values might be possible in theory, but it seemed unlikely based on decades of real estate history in this country – certainly in the D.C.-Baltimore-Annapolis triangle.
It's easy to sit in an ivory tower now, point fingers and, in hindsight, sweep all those home buyers with a broad brush labeled “greedy,” but it’s just not fair or accurate. Responsible people used low-down and no-down loans to purchase an average home - a 2 or 3-bedroom townhouse with an hour-long commute to work or a modest 40-year old split foyer in the D.C. suburbs that needed updating - NOT a McMansion. People felt they had to buy “now” - before home prices went any higher and completely out of reach in their lifetime. They anticipated re-financing in a couple of years, as home prices continued to escalate and their equity grew.
Are you really going to blame them for accepting near-uniform professional advice?!?
(Full credit to M.Woda & ActiveRain for this blog post; edited by ML)
Well, I disagree with the premise that all home buyers who took advantage of low-down and no-down loans to buy a home in the early 2000's were greedy. There were a lot of responsible people who purchased homes well within their means that have been hurt in today's real estate market. I don't believe it's entirely their own fault if they and others are in a financial crisis now.
Sure, there were some naysayers predicting a housing collapse, but plenty of experts shunned that idea. To be fair, I think we have to go back to those so-called “bubble years” and remember what the housing market was 5 or 6 years ago: (1) home buyers qualified for loan programs that were widely available, (2) most people felt secure in their jobs, and (3) there was no reason to expect anything other than continued growth in property values. Level off, maybe... but, home prices never went down before. We all knew that declining home values might be possible in theory, but it seemed unlikely based on decades of real estate history in this country – certainly in the D.C.-Baltimore-Annapolis triangle.
It's easy to sit in an ivory tower now, point fingers and, in hindsight, sweep all those home buyers with a broad brush labeled “greedy,” but it’s just not fair or accurate. Responsible people used low-down and no-down loans to purchase an average home - a 2 or 3-bedroom townhouse with an hour-long commute to work or a modest 40-year old split foyer in the D.C. suburbs that needed updating - NOT a McMansion. People felt they had to buy “now” - before home prices went any higher and completely out of reach in their lifetime. They anticipated re-financing in a couple of years, as home prices continued to escalate and their equity grew.
Are you really going to blame them for accepting near-uniform professional advice?!?
(Full credit to M.Woda & ActiveRain for this blog post; edited by ML)
Wednesday, June 8, 2011
Editorial: Wind vs Water - Round Two
Which came first, the wind or the water? Six years later, we still don’t know. I guess it’s just a trick question, some sort of mystery, or just a sickening legal loophole.
Who remembers this? This was the multibillion dollar dilemma after Hurricane Katrina. USAA didn’t pay because according to them, “your home policy doesn’t cover damage caused by flooding.” Meanwhile, State Farm denied your claim because according to them, “your flood policy doesn’t cover damage caused by wind, which technically came before Katrina’s water.” In the aftermath of this hellish tug-o-war, there was no shortage of politicians promising insurance reforms. Dozens of wide-eyed ‘06 midterm election candidates pimped Katrina’s pain with promises of change for votes. Well, lucky for them, 2006 was a great red herring (H1N1 spreads across the globe, North Korea got nukes, Italy stole the World Cup, and Saddam was hung)… we forgot to hold them accountable.
Six years, and more than 46.7 million dollars in political contributions from insurance companies later, Congress still hasn’t fixed anything. No legislation, no amendments, not even a simple floor speech. In fact, Congress just reauthorized the federal flood insurance program with no mention of wind damage. I wonder if they know the Mississippi river is currently flooding and Hurricane season just started…
Who remembers this? This was the multibillion dollar dilemma after Hurricane Katrina. USAA didn’t pay because according to them, “your home policy doesn’t cover damage caused by flooding.” Meanwhile, State Farm denied your claim because according to them, “your flood policy doesn’t cover damage caused by wind, which technically came before Katrina’s water.” In the aftermath of this hellish tug-o-war, there was no shortage of politicians promising insurance reforms. Dozens of wide-eyed ‘06 midterm election candidates pimped Katrina’s pain with promises of change for votes. Well, lucky for them, 2006 was a great red herring (H1N1 spreads across the globe, North Korea got nukes, Italy stole the World Cup, and Saddam was hung)… we forgot to hold them accountable.
Six years, and more than 46.7 million dollars in political contributions from insurance companies later, Congress still hasn’t fixed anything. No legislation, no amendments, not even a simple floor speech. In fact, Congress just reauthorized the federal flood insurance program with no mention of wind damage. I wonder if they know the Mississippi river is currently flooding and Hurricane season just started…
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