Friday, July 18, 2008
Why Engineers And Real Estate Don't Mix
Engineers, who naturally crunch numbers, and realtors, who naturally make numbers up, just don't mix well.
Makes me want to post a bunch of engineer jokes. CAR's probably cruising Craigslist right now to see if they can take a contract out on you.
If you really wanted to be engineer-ish about it, you could compare that with average wages by occupation and area.
I look at the prime loans that were made in the last 5 years and most of them leaving me scratching my head as to their viability if appreciation is out of the picture. My 'hood peaked out $1.5m and that's $1100 per month in property taxes. That IMO is trust fund and fancy doctor territory rarefied. Anyway these 800 FICO loans are just as exposed to a downturn just taking longer for the borrowers to do the math.
What they forgot was that prime borrowers have financial reverses at a similar rate to near prime, but they almost always can sell out ahead of time.
In general, one would expect these prime loans to now go to foreclosure at roughly twice the expected rate, and that doesn't count walkaways. I think there will be a lot of walkaways in the doc/trust fund/MBA territory.
We had a situation in Florida at the beginning of the bust in which the new condos would often go to contract 3 or 4 times before a sale was actually closed. I wonder if some houses are going to go REO 2 or 3 times?
The boom in several CA areas was so huge that people often did make as much as their salaries in "appreciation". Unfortunately a lot of them tapped it the form of cash-out refis. And then there were those who took HELOCs out and used the proceeds to buy other homes, figuring that if you could make 60K on one annually, you could make 120K on two, and 180K on three. Some of those were older people thinking to build a big nest egg for retirement, or to cover their kid's college education.
Now, when it is swinging the other way, many of these same persons are looking at being middle-aged, having a negative net worth, and substantially higher debt obligations than they did a few years ago.
I don't feel any compassion for the lenders. You are looking at some 52 year old with two houses wanting to buy another, and you don't know what's going on? Cut me a break.
That takes some chutzpah. Let's all give a cheer for "trained journalists"!
The "Jews did it" crowd showed up on Calculated Risk months ago.
Next thing I know I'll end up losing all my independent property, the vote, and finding myself veiled. Burkas and summer heat just don't mix.
Sometimes the newfangled stuff works out just fine!
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