See?

And everyone thought the steroid hearings were showboating by congress.

Given enough time, they would have gotten to the bottom of things.

Steroids cause housing crises.

I'm guessing this has more to do with Canseco's poor personal finances than the housing collapse. He must have refinanced to get himself underwater. $2.5 million sounds about right for that much square footage in Encino, maybe even on the low end, nothing else considered.

I think financial jealousy at least partially explains his resentment of A-Rod.

The walk-away trend is becoming all too common.

Can we bring back debtor's prison just for Jose Canseco?

Pat Jordan wrote a helluva piece on Canseco, including his finances:

Admittedly, Jose's philosophy of life has brought him some success with girls and fancy cars, but it has not, of late, brought him much success with money. Rob [his lawyer] said, "Right now, Jose has zero money." In fact, Rob has a lien on one of Jose's two houses, and "Whenever Jose pisses me off, I threaten to foreclose."

Rob has yet to foreclose because he has the stoic patience of his ancestors who made that terrible trek from North Carolina to Oklahoma, which was called "The Trail of Tears." But that doesn't mean that Jose hasn't "pissed off" Rob a lot over the last four years that he has been Jose's lawyer. When Rob was defending Jose and his twin brother Ozzie a few years ago in a civil suit brought against the two brothers by a man they had beat up in a Miami bar, he told Jose to keep a low profile and not buy anything because Rob planned on pointing out to the court that Jose was broke. A week before the trail began, Jose leased a $300,000 Rolls Royce and bought a $2.6 million house, in addition to the $1.7 million house he already owned in Encino. "I had to admit in court that all those things Jose owned," said Rob. The jury returned a verdict that required Jose to pay the man he and Ozzie beat up 90 percent of $1.5 million. Ozzie, who is also broke, had to pay the other ten percent. "Jose still hasn't paid a cent," said Rob.

After the trial, Jose put his $2.6 million house in South Florida up for sale. He had several offers on it, but decided to take the offer of over $2 million in Mexican telephone stock, which he was prohibited from selling for two years, at which time, the buyer guaranteed him, the stock would be worth $5 million. Two years later, Jose sold the stock for $15,000.

This really makes the mortgage crisis hit home.

"Mexican telephone stock", that you can't sell for two years? holy ############# Christ, did he buy the ####### house on the internet??

Hey, Jose Canseco was on to something. Possibly the richest man on earth got that way by owning Mexican telephone stock.

If only Canseco didn't have so much faith in his own ability to take advantage of others. Classic con victim.

I know a guy who got rich buying Mexican telephone stock. Unfortunately, he bought it in 1979 or something.

The walk-away trend is becoming all too common.

I'm sure Canseco's situation is quite different from the typical one, where a lot of the time I think it's the right thing to do.

if it's the right thing to do, but Canseco did it, is there some special logical term for that sort of paradox?

that takin care of the whole family thing i get, hell gotta a bro-in-law costs me a cool 2-3 mil just to keep in beer money..what people don't understand is that it all adds up

It wasn’t that Canseco COULDN’T pay, he didn’t WANT TO, you see?

And good for him.

When the "option" is in favor of not paying, don't pay. When the option is in favor of refinancing, refinance. Besides, in lots of states, it can take them a year or more to actually evict you -- free rent.

Obviously it varies based on a lot of factors, but generally if you owe more on your mortgage than you can sell the house for, it's in your best financial interest to walk away. (It won't do much good for your credit rating and therefore your ability to get loans in the future ...)

You think the bank is gonna come along and encourage you to refi when it's in your best interest? OK, they probably will as the bank doesn't own your mortgage anymore, what do they care as long as they're getting the servicing fee.

Anyway, all this wonderful stuff is controlled for in mortgage pricing and mortgage security pricing models so your friendly neighborhood bank and mortgage securities investor is fine ... unless the market collapses.

It's humorous (and a bit disturbing) but in housing finance literature, people who don't refinance as quickly or as often as they should are referred to as "woodheads" while borrowers who default as soon as the option is in that direction are referred to as "ruthless." Yes, the poor mortgage industry threatened by those ruthless defaulters.

The findings in the literature are that default rates are much lower than one would expect based on options models. Doesn't keep economists from thinking that options models are correct of course -- when have they ever let empirical reality interfere with their theories?

walt, do you live in CA? do you think real estate prices have bottomed out? i'm genuinely curious. i'm going to have to make a decision about housing soon. my gf and i can't rent forever.

It wasn’t that Canseco COULDN’T pay, he didn’t WANT TO, you see?

>>> And good for him.

Given that it's Canseco, and given the reports of his finances, I'm not sure he had the ability to make the payments even if he wanted to - despite how he wants to spin it.

I understand that walking away, while making short-term financial sense, will basically ruin credit the way a bankruptcy would.

walt, do you live in CA?

No, but Walt stayed at Holiday Inn last night.

I understand that walking away, while making short-term financial sense, will basically ruin credit the way a bankruptcy would.

Yes, but credit can be rebuilt (it will take a while). But it's clearly not the situation you want to be in. Generally speaking, if you can make the payments, make the payments ... housing will eventually rebound and you'll be OK. But if you're choosing between house payments and, ohh, food or, sometimes even, house payments or falling further behind on a maxed out credit card ... well, you're kinda screwed no matter what.

I was mainly jumping on the idea that Canseco is necessarily some sort of deadbeat. People make rational financial decisions that take advantage of "regular people" every day and nobody sees anything wrong with that. But someone recognize that they're in the position to financially benefit from defaulting on a loan from a multi-billion dollar corporation -- shame on them!

But best advice -- if you're having trouble making house payments, talk to the bank and/or the servicer. Especially right now, they don't want you defaulting anymore than you want to default. Don't default unless (a) you're a financial whiz who can figure out all the costs/benefits or (b) you really have no choice.

#13 -- no, I live in New Zealand!! Watching the US market crash from a distance -- waiting for ours to crash (I just bought, so it should be any day now!) But did housing policy research in the States up until a couple years back. The subprime mess was very predictable (not as to when but as to its inevitability) ... what nobody recognized was how badly it was going to affect other credit markets. No idea what the CA market is gonna do ... and the idea of A housing market is misleading anyway, it's all really very local (neighborhood level really). But interest rates are still pretty low in the states and as long as you qualify for a 30-year fixed mortgage that you can afford to make the payments on now ... chances are pretty good you'll be able to afford those payments for the rest of your life. The vast majority of the folks in trouble now aren't the ones who got 30-year loans at a fixed 5.5% ... they might be stuck in a house that's worth a lot less than they paid for it, but they can still afford the payment (with the traditional issues around folks who've lost work or been divorced, etc.). If anybody's still offering ARMs with teasers, interest-only, etc. I'd recommend avoiding those like the plague (but then I've been saying that for a while).

Find a house you like, in a neighborhood you like (and do pay attention to things like schools ... may not matter to you but probably will matter to who you want to sell it to later), where there aren't a lot of foreclosures, that you can afford and that is being sold at a price similar to others in the neighborhood ... and hope for the best. The market will eventually pick up and in the long-run you'll be all right. What you might want to consider now that you didn't necessarily have to consider as much before is how long you want to stay in this house. Find one that you think you can live in for 10 years or so (so more room than you need right now). If the market picks up soon and you decide you can move up, then great. But if the market stagnates/drops for the next year or two, you may have to be there for a while. Anyway, basically, are you buying an investment or a home. If the former, probably lots of things better than housing. But sounds like the latter so ... just don't do anything stupid and you'll probably come out OK.

(Depending on income level, there may also still be some first-time homebuyer programs out there. I hope still lots of free/cheap homeownership education courses too. Use them.)

And obviously I recommend a nice, standard, 30-year, Fannie/Freddie, fixed-rate mortgage. Oh yeah, make sure you have plenty of savings -- the down payment, the closing costs and, trust me, you are going to spend a lot of money for stuff for the house in those first few months.

Anyway, there are probably folks here who know a hell of a lot more than I do about it. I was the stats jock on the research team, other folks were the housing policy experts.

And Levski, no I did not stay
here last night.

It isn't clear from his walking away whether the Bank, after foreclosure, will sue on the note he signed, if they do not get enough from the sale of the house to satisfy their debt. I cannot tell from his comments whether he is judgment proof or not at this point at this point (no moola left), but this notion of turning over the keys and walking away without liability just may not be correct. Am from my perspective, I hope the bank gets every penny that they are owed from him (remember he borrowed this money, and he should pay it back).

Am from my perspective, I hope the bank gets every penny that they are owed from him (remember he borrowed this money, and he should pay it back).

But here's the thing... the article isn't clear, but it's quite likely that the "bank that lent him the money" no longer even holds the note. Mortgages simply aren't handled the way they once were. It's not It's a Wonderful Life anymore where the friendly neighborhood banker assures everyone that 'your money' is invested in Fred's house and Bill's house, etc.

The chances are excellent the note is held by an entity 2 or 3 times removed from the original lender.

The lending industry years ago decided to play a high risk game of hot potato - plenty of very smart people knew perfectly well what was coming, but figured their problem was just making sure that they didn't personally get stuck holding the bag. The viability of the offered loan was immaterial - it was the viability of packaging it with other mortgages and selling it to another lender... a hedge fund.. whatever.

I have a real hard time faulting ordinary consumers - yes, even someone like Jose Canseco - for simply playing the same game, by the same rules - that the industry lending them the money is playing.

It's unfortunate that ethical and responsible institutions are being hurt by the mess... but it's also unfortunate that some ethical borrowers and even responsible borrowers are being affected, too.

Even if the original bank doesn't hold the note, someone who paid value for the note does hold that note, and they will have the right to sue on the note. Even if it is packaged in a pool, there is a loss and someone has a duty to protect the group of investors who own that pool.

I am not sure what game you are talking about. If the bank made a bad underwriting decision and loaned money to someone without the net worth or income to service the debt, then yes, they deserve to lose money, if the house at foreclosure doesn't bring enough to satisfy the debt; the bank made a bad business decision. But the "game" Conseco played is that he signed a document and got the money and lived in the house that cost that much money. And if he has the money (i.e. the bank did not make a bad underwriting decision), but has just decided that he doesn't want to sell the house and perhaps take a loss, but rather walk away, then i hope the current holder of the debt exercises its remedies and sues him for their loss.

i'm going to have to make a decision about housing soon. my gf and i can't rent forever.

Is it cheaper to rent or to buy an equivalent house? From what I can tell it's cheaper to rent. My advice is to wait until it's cheaper to buy (it has been at times in the past, and will be again in the future). Meanwhile, take the difference between what your mortgage would be and the rent you pay, and save every month. When rent/buy reaches an equilibrium, you'll have a nice downpayment saved up, and most likely you'll need it.

Even if the original bank doesn't hold the note, someone who paid value for the note does hold that note, and they will have the right to sue on the note.

Not sure on this, but from what I've read it depends on whether the note was with recourse or not. If it's non-recourse, then the bank gets the house but can't come after any of his other assets. If it's recourse, they can.

I have a real hard time faulting ordinary consumers - yes, even someone like Jose Canseco - for simply playing the same game, by the same rules - that the industry lending them the money is playing.

Yes. When people like Angelo Mozillo repay their 120 million dollar fortunes for helping create this mess, then we can start scolding individuals for not paying on the agreements they signed.

Even if it is packaged in a pool, there is a loss and someone has a duty to protect the group of investors who own that pool.

You're right... the purchaser of the pool has that duty. The duty isn't strictly an after-the-fact duty.

I am not sure what game you are talking about. If the bank made a bad underwriting decision and loaned money to someone without the net worth or income to service the debt, then yes, they deserve to lose money, if the house at foreclosure doesn't bring enough to satisfy the debt; the bank made a bad business decision. But the "game" Conseco played is that he signed a document and got the money and lived in the house that cost that much money. And if he has the money (i.e. the bank did not make a bad underwriting decision), but has just decided that he doesn't want to sell the house and perhaps take a loss, but rather walk away, then i hope the current holder of the debt exercises its remedies and sues him for their loss.

I'm not disagreeing with the pursuit of legal remedies - but my point here is that the lender has the responsibility beyond the credit worthiness of the borrower. Lenders don't just check your credit and hand you a check sight of unseen of what you're going to buy with it -- the lender also has a responsibility in regards to what the borrower is purchasing because in the event that the borrower defaults, that is what their legal remedies are likely to return to them.

I'm just saying it's a two way street.

The remedy has already been applied - the lender, or the purchaser of the note - is going to receive what the note was for.. the house.

What's the problem?

I'm not arguing that Canseco should get to keep the house -- I'm just saying that I have zero sympathy for the holder of the note.

Both parties signed the contract - and with it, all the risks, obligations, and remedies. The borrower didn't meet the obligation, the lender crapped out on the risk -- and they've received the remedy.

My issue is that we seem to be arbitrarily applying applying the ethical standards solely to the borrower. If the lender wasn't prepared to accept the remedy - the return of the property on which the loan was made - then I would suggest the lender find another line of business.

Nowhere in the doctrine of free market economics are profits guaranteed.

Jose Canseco certainly isn't the type of borrower I'm going to have a lot of sympathy for, but neither are many borrowers.

I have no idea if Canseco's loan was a fixed loan or an ARM -- but the fact of the matter is that ARMs were always a rather suspect loan mechanism, designed largely for speculators expecting to flip a property in short order, and pay off the note before the rate resets. The mortgage industry shot itself in the foot when it decided that this high risk mechanism which was once confined solely to a thin sector of the real estate market should be available to anyone. That's the industry's fault -- as the folks that came up with the mechanism, they knew full well what the risks behind it and reasons for it were. It doesn't help when you've got the supposed national financial guru, Alan Greenspan, making ridiculous statements about how wonderful ARMs are for the common home buyer.

When the industry and the forces regulating and governing it completely disregard such risky mechanisms -- and even go further by pushing such mechanisms... well... you'll have to excuse me if I expect a bit more intelligence and restraint from folks "in the business" than I do from the common home buyer.

First of all, you are correct; if the loan was non-recourse, then all the note holder has is the house. Non-recourse debt is very unusual in the residential markets. Also, even in commercial markets, it would only be available where there was substantial equity put into the asset by the borrower. If that is the case here (again, I doubt it, because of the rarity of non-recourse residential debt), then Jose is also walking away from lots of equity, and the likelihood is that the foreclosure sale will satisfy the debt, so everyone goes home happy (pun intended).

The fact that this is recourse debt (again, I am assuming it is, because if it is not, there is no discussion here), then what the lender bargained for was collateral (the house) and the assets of the borrower. The law may provide that the collateral must be realized upon first, but if the debt is not satisfied by the collateral, then the assets of the borrower were proferred as a part of the loan, to support payment of the remainder. That is why the debt was structured as recourse; those are the terms under which he borrowed the money and got the house. No, the bank is not guaranteed a profit, but yes, the bank does get to exercise all of its remedies to get their money back.

and yes, the lender should have checked credit reports and made good underwriting decisions (and we have no basis for knowing that they didn't). I have a sense that the bank/lender did, here. Jose Canseco, independant of his baseball salary savings, is still writing books and appearing on talk shows; there is still money coming in. He signed a contract to repay the money, and future income can be used by him (and sought by the lender) to repay the debt. So can the sale of the nice automobiles he has (assuming they are not leased or heavily borrowed against). Jose can file bankruptcy if he wants to, and try and protect some of the future income. But I say "go bank-get the money you bargained for".

Can I go in and save his player piano?

First of all, you are correct; if the loan was non-recourse, then all the note holder has is the house. Non-recourse debt is very unusual in the residential markets.

All purchase money mortgages on primary residences are non-recourse in California, as far as I know.

This is a perfect time for Roger Clemens to swoop in and save Jose!

Not when you include the equity you acquire by buying. th3e sooner you get into your own house ans start building equity, the better

All else being equal, that's true, though often one buys a house and ends up throwing so much money into repairs and upkeep that the built-up equity isn't much of a compensation. Depends a lot on the condition of the house you buy.

I think that Philadelphia radio money adviser Harry Gross had the best philosophy: when you buy a house, don't think of it as an investment; buy it because you like living in that house (location, garden, interior spaces, renovation potential, and the like). A lot of the grief in the current housing market comes from seeing homes as investments first.

Not when you include the equity you acquire by buying.

You don't acquire equity by buying. Only by paying down the debt or getting appreciation, which is not guaranteed. People who bought last year have negative equity right now. We're still in the early innings of this thing. Might be quite a few years before anyone can buy and expect appreciation.

Stock in a Mexican phone company...this is a cautionary tale for the newly rich: Get a reputable financial advisor.

I'm assuming Canseco's loan is non-recourse since it doesn't make sense for him to walk away unless it's non-recourse or he has no other assets (which in Canseco's case is, sadly, possible).

This is a perfectly rational thing for a person in Canseco's position to do when they have negative equity in the property.

I'll leave the moral judgements to others, but profit-maximizing businesses act the same way when they are in this position. If the expected value of violating a contract is greater than the expected value of obeying a contract, you break the contract.

No, but you can't acquire equity by renting. You can only acquiring it by buying, making improvements, paying down the principle and benefitting from appreciation.

No, you can't acquire "equity" by renting, but you can invest the capital that you would've used as a down payment and accumulate capital gains in other assets.

In most markets, the carrying costs of an house with an 80 LTV mortgage are significantly higher than renting a similar space (even after accounting for tax breaks), so that's additional capital that can be invested every month if you choose to rent.

Also, in many cases, improvements to a residential house cost more than the value they add to the home.

There are many benefits to investing in real estate: the tax deductibility of real estate taxes and mortgage interest, the favorable capital gains treatment on the sale of primary residences, and the leveraged nature of the returns on appreciation. But that all goes out the window when it may take years for home prices to reach mid-2007 levels.

I would guess in nearly every case, home improvements cost more than they add in value, once you properly account for all costs (yes, if you do the work yourself, include the implied wage you pay yourself to do it in place of someone else). If i'm shopping for a home, I can either buy a house with granite countertops included or pay less money for a different home and install my own granite countertops. I read a study somewhere once that measured the value to your home resale price by adding a kitchen, installing a deck, etc - in all cases, the projects added less in resale price than they cost.

Kyle S, as always, first, it's location, location, location. Second, it's quality, quality, quality. Cheap, poor home improvements usually result in cheap, poor homes.

People who renovate make one of two mistakes: a) they get really cheap during the renovation because they want to save as much money before flipping the house--and end up with a crappy looking kitchen or bathroom that actually makes the place more difficult to sell; or b) they go way overboard and spend way too much money for bells and whistles on a house/apartment that doesn't have the more important details needed to sell it--location, lot size, house size, etc. If I'm buying a car, I'm definitely not impressed by $1,000 stereo system in an $1,500 Ford Pinto.

No, but you can't acquire equity by renting. You can only acquiring it by buying, making improvements, paying down the principle and benefitting from appreciation.

You also benefit from being able to use the interest on your mortgage as a tax deduction.

Because of the mortgage tax deduction, it is slightly preferable to buy. If your mortgage costs are 1800 and rental is 1500, then the tax situation could push you into buying. Maybe, though by owning you now have to pay property taxes and insurance costs. I've found that those costs roughly offset the tax savings in most cases.

But in recent years, the situation is nowhere that close. More like a 3500 mortgage payment on something you could rent for 1500.

In most markets, the carrying costs of an house with an 80 LTV mortgage are significantly higher than renting a similar space (even after accounting for tax breaks), so that's additional capital that can be invested every month if you choose to rent.

Even if they were equal, renting would make more sense. On a 500K home that means you've got to put 100K down. If I had 100K, and the after-transaction prices were equal, I'd like to earn some interest off that 100K, and over just about any extended period the stock market has out-performed houses prices. For buying to make sense, you should be getting a sizeable discount under rental costs if you are putting down 100K, and the renter only has to come up with a $500 security deposit.

But there is a strong emotional appeal for owning a house (though if you really think about it, you never own, you pay rent to the government in form of property taxes and they can evict you anytime they feel like it). Not everyone will approach it logically, just as some teams will pay 12 million for Shea Hillenbrand and Garret Anderson when Frank Thomas and Jack Cust are available, relatively for free.

I've owned 6 homes and I have never found that to be the case. Of course, I do most of the improvements myself so..

That's the way, and the only way, you're supposed to be able to make money off improvements, assuming a normal market. The 2002-2006 period was a perversion, and the cable TV shows that sprung up convinced the sheeple that they can pay contractors to do all the fancy work, never lift a finger themselves, and still make large easy profits.

i'm going to have to make a decision about housing soon. my gf and i can't rent forever.

Before you make a decision on housing, have you considered simply renting a girlfriend when you need one? That usually works out to make the most financial sense.

28 is correct. Refis have some recourse but the process is so difficult that it is almost never exercised by lenders in CA.

This is a good time to buy a house in 99% of the US. As long as you are getting a fixed rate mortgage of a 30 year term or less, and intend to live there for 2 or 3 years. Just make sure that you can afford to make the payments. Don't just look at your debt (all loans) to income (self explanitory). Look it how much your heating and cooling will be (either gas or electric). If its an older home, then its going to cost a lot more to heat, and electric and gas prices vary wildly from one utility to the next. Make sure your figuring in gas costs for commuting and the like, as well as the cost of living in the area. If you can afford all those things with the house payment, with some left over for both entertainment and things that will pop up, its a good decision. Otherwise, don't do it.

AROM, I like you, but your generalizations on the housing market are flat wrong. I purchased last year, and my home has appreciated (Full disclosure: we're in a fast growing community). California, Florida, and a few other places have been adversely effected in ways most of the rest of the country is not. Though credit is now harder to come by, homes continue to appreciate in value in the vast majority of the country. Not everything revolves around the coast. In Fredbirds case, it depends on how long he plans to stay. If you think that any house you buy will be your home for the next, say, five years, go for it (a house isn't an "investment", its your home, and you will spend significant time there,and if you can't find exactly what you want, do not settle for less!), wait until you can find what you want. Interests rates will eventually go up, and I think its going to happen in the next year. The housing market probably hasn't bottomed out, as foreclosures continue, but it likely will in the next year. Predicting the exact trough is impossible.

Oddly enough, the Treasury's current fiscal policy and the "bail-out" bills going through congress will likely have the effect of continuing the credit crunch, making house buying much harder. If no recourse is available for financial institutions to seek restitution on borrowers, then it will cause a chill on credit granting. The credit union for which I work was considering lowering its credit requirements (we have almost no foreclosures, and felt that an expansion to B (690s), possibly C+ (670s) paper might have been worth the risk), but that's already stopped, even for those with sufficient income and no history of defaulting on secured debts (many people will gladly default on a credit card, but will make every payment on loans attached to real property). It's highly likely that if we decide to explore that option in the future, anyone below 700 is going to have to settle for a double digit interest rate (or going somewhere else, because they don't like being told no). Banks and credit unions will not take on high risk people if there's no financial incentive to do so.

If someone defaults on a poorly disclosed ARM, they have my sympathy. If they knew full well what they were getting into, no. If someone goes into default on a standard fixed rate mortgage, I sure as heck hope they face the consequences. Personal accountability still exists, and if you were told your payment was going to be $1,100 a month, and you knew you're lifestyle couldn't support the payment, you get no sympathy from me. All business in US relys on the validity of a contract.

Read the contract, know what you're getting, and go to a credit union or bank with a good underwriting program. Shop around for a mortgage! If you can afford the payment on a 15, 20, or 25 year loan, I urge you to consider that, but never let a lender talk you into more than 30. A fifteen year loan general costs about 25% in more in a monthly payment than a thriry, not twice as much, a 25 year can some times cost less than 5% more, but both can save you thous. But remember, if their underwriter rejects you at prime, don't accept their sub-prime offering. In fact, never accept a sub-prime offering. There are a few subsets of the population for whom subprime makes sense, but I would argue that its less than 1% of the population, not the typical home buyer.

If you're rejected by underwriting, find out why. If its your credit history, you can fix it, but it takes time. If its your debt to income, pay off some loans. If its because you lack sufficent funds to pay closing costs or make a down payment, save for it. Don't go down to your local, everyone gets a mortgage broker, and jump at what they offer. Underwriting failure is why we are where we are, and just becuase you don't like being told that you've got inadequate resources to purchase doesn't make it untrue. A move away from automated underwriting would be best for everyone, but seems unlikely.

All in all, if your financial situation supports it, this is a great time to buy a house. Its NEVER a good time to buy when you can't really afford it.

this is a great time to buy a house

The realtor's mantra.

It must be a good time to buy, because it sure as hell isn't a good time to sell (in MA).

In most markets, the carrying costs of an house with an 80 LTV mortgage are significantly higher than renting a similar space (even after accounting for tax breaks), so that's additional capital that can be invested every month if you choose to rent.

Well, there are other advantages to owning. For instance, assuming that you don't have an ARM, your mortgage is fixed over the life of your residency; rent can keep going up. Assuming you don't live in a Communist state like New Jersey, you can be evicted from a rental for any reason at the end of your lease, but your home is yours as long as you keep paying the mortgage. You can make whatever improvements you want to your own home. And if you have equity, you can borrow against it in an emergency; that may or may not be the case if you rent and put the savings into some other investment vehicle.

It must be a good time to buy, because it sure as hell isn't a good time to sell (in MA).

Right now, it's not a good time to buy, nor is it a good time to sell.

Inventories are up, but prices haven't yet really come down as much as they will. IMHO, of course.

Another thing most people don't know (or pay attention to): if you own your primary residence for at least 2 years, and you make a profit when you sell, you don't have to pay tax on the profit (on the first $250,000 at least--but very few places in the US, unless you're talking about Manhattan, will result in profit move than $250,000 in just 2 years). That's huge.

But in recent years, the situation is nowhere that close. More like a 3500 mortgage payment on something you could rent for 1500.

First, you probably get this scenario in places that have experienced a lot of construction recently--FLA, ARI, NEV. Across most regions of the country though, the rental market right now is actually quite tight. We paid a lot of money for our house, and still can actually rent it out for the amount we pay monthly in mortgage, taxes, and insurance.

Inventories are up, but prices haven't yet really come down as much as they will.

Thus speaketh a buyer :)

AROM, I like you, but your generalizations on the housing market are flat wrong. I purchased last year, and my home has appreciated (Full disclosure: we're in a fast growing community). California, Florida, and a few other places have been adversely effected in ways most of the rest of the country is not.

What generalization have I made that is flat out wrong?

You must live in Charlotte, NC, because according to the Case-Shiller index, that is the only part of the country that is not declining. That is, assuming your house is really appreciating and you aren't just looking at Zillow.

I'm not a realtor or lender, AROM. In Lexington, KY, my home town, the housing market has been unaffected by the so-called housing crisis. The 900 sq ft house I was renting was costing me $800 a month. My 1300 sq ft house mortgage payment is $950 a month. My electrical costs have fallen by about 15%, and it even got me closer to work. I now fill up with gas every three weeks rather than every two. My experience is ordinary in 90% of the country. Home prices are not depreciating across the country. It is certain specific areas that are going through a major corrections, due to unethical mortgage practices and unlawful appraisal practices.

Also, Zillow in Lexington, KY? We're not even on Google Street view. All I've got to do is look at whether or not my neighbors are selling for more than they paid, and they are.

Across most regions of the country though, the rental market right now is actually quite tight.

Yes, because a lot of former owners are renting now.

Here in the SF Bay Area, the short-term effect of the current housing crunch is a lot of empty houses with "For Sale" signs, and a spike in rents. Our apartment is rent-controlled, so we're renting for at least $700-$800 less than what our landlord could get for the place on the market.

Inventories are up, but prices haven't yet really come down as much as they will.

Don't know if future price declines will be in real (inflation adjusted) or nominal dollars. Prices will decline relative to rents, and to incomes, that much I know.

You must live in Charlotte, NC, because according to the Case-Shiller index, that is the only part of the country that is not declining.

http://www.prudentialelliman.com/MainSite/MarketReports/ReportsMenu.aspx

For instance, assuming that you don't have an ARM, your mortgage is fixed over the life of your residency; rent can keep going up.

This isn't exactly true. (1) Taxes and insurance can go up ... these are typically paid to the lender along with the true mortgage ... but that usually means the value of your house went up, and that's a bigger deal (also capital gains on the house are tax-free up to some amount that my place is nowhere near). (2) The mortgage is fixed only in the sense that it won't go up. It can go down, if the economic climate is favorable to you ... I just refinanced in February (bought last year) and I'll make back the transaction costs of the new loan in less than a year.

Housing prices are local. To overgeneralize from the DC area ... if you live in a desirable neighborhood -- the closer in and "hipper" the better -- your home value won't go down. It may stop exploding for a while, and it may sit on the market a while longer, but it's not going down in any meaningful way. But if you bought in a new development in an outer suburb, you might as well stop paying and walk away now. Those have lost up to 50% of their value and I don't see them going back up anytime soon.

Well, Andere, I think it's probably both. Canseco bit off more than he could chew, then the housing crisis made it impossible for him to move the house. Nobody wants to invest in a commodity that is shrinking in value.

I don't know where the $2.5 million number came from, but my impression is that that is actually a reasonable sale price for a home of that size in Encino. Now, it could be that there is something wrong with the home or something, but my guess is that through refinancing he owes a lot more than it's worth.

Sure, people should pay back what they borrow, but you know what? So should the banks. And guess who's bailing them out? #### 'em. People who default on mortgages (i.e., walk away) pay a huge price for it, far more than the bank executives do. They can recover financially and creditwise, but it takes many years.

My experience is ordinary in 90% of the country. Home prices are not depreciating across the country.

OK, Kentucky shouldn't be bad. I used to live in Louisville, median prices there are about 135 I think, not much different than what they were when I left 8 years ago (120-125?).

What goes up must come down, so the places that did not go up should be OK. But the original question came from someone in California - not such a good place to buy yet. You overestimate with your 90% figure how many areas are not affected. Florida and California have near 20% of the population. Then add in Phoenix, Las Vegas, Northern Virginia, Chicago, Denver, Boston...People who bought only what they could afford will be fine. People who bought more than they could afford through teaser loans, who good hooked on refis - there's a lot more of them out there.

My experience is ordinary in 90% of the country.

Your experience is much the same as mine, but I think you drastically exaggerate this. The bubble is affecting most urban/suburban areas, and many rural and semi-rural areas. Those of us living in inexpensive college towns are particularly immune to it.

Andere, why do you assume that no one at a bank pays the price for increased defaults. Or do I, and the people here at the credit union deserve to lose their jobs because people won't pay there loans(a very small portion of this credit union are involved in lending, and even less in mortgages) so long as those mortgages weren't depective. Because thats what happens. Its notm, banks are evil screw'em. It's "screw banks and the people who work there, they deserve to lose thier livelihood even on mrtgages made in good faith, #### 'em".

It's not just college towns. KY's foreclosure rate is acutally down since last year. All of it. And its just number forty five on the list. It's most of America.

My experience is ordinary in 90% of the country. Home prices are not depreciating across the country.

Northern Indiana is struggling with foreclosures, and prices in my neighborhood have dropped 10-15% since last year. I think it's far more likely to be a majority of areas affected by this than a minority.

My experience is ordinary in 90% of the country. Home prices are not depreciating across the country.

I'd guess that closer to 10% of the country is not currently experiencing home price depriciation or likely to experience declines in the near future.

It's not hard to figure out if your area is safe.

As AROM pointed out, if home prices in your area did not increase substantially (> 20%) from 2002 to 2007, then home prices in your area may be insulated from drastic declines.

Another rule-of-thumb: if the value of your home is more than 15 times the annual rent (180 times the monthly rent) you could receive on the property, then it is probably overvalued by historical standards.

Andere, why do you assume that no one at a bank pays the price for increased defaults. Or do I, and the people here at the credit union deserve to lose their jobs because people won't pay there loans(a very small portion of this credit union are involved in lending, and even less in mortgages) so long as those mortgages weren't depective. Because thats what happens. Its notm, banks are evil screw'em. It's "screw banks and the people who work there, they deserve to lose thier livelihood even on mrtgages made in good faith, #### 'em".

I don't assume they pay no price. It's not the same price as someone whose credit is completely ruined though.

The effect on bank employees is unfortunate, but that's the way the cookie crumbles. Banks were ridiculously greedy and irresponsible in the bubble, and the so-called buyers met them half way. Banks do what they have to do to survive, and so do the homeowners, and you know as well as I do that the banks aren't driven by what is "right", but rather by what is legal at best and what they might get away with at worst.

It's not just college towns. KY's foreclosure rate is acutally down since last year. All of it. And its just number forty five on the list. It's most of America.

I didn't say it was just college towns, I said small college towns are particularly immune. And I don't know what your point is otherwise -- mine is that while there might not be a bursting bubble everywhere, it affects far more than 10% of the country -- home prices ARE on average going down (depreciation is not the right word). Year over year prices ARE down nationally and in most regions of the country.

"Banks were ridiculously greedy and irresponsible in the bubble"

And home buyers weren't? I understand the want to blame banks, most particularly Countrywide, but its far from all there fault. How many banks do you suppose truly made loans specifically to forclose Andere? All of them? Its not about right, but it is about forclosure, and foreclosure profits NO ONE. It sure as hell doesn't profit the banks. BTW, national foreclosure rate is .99% according to WSJ. KY is an exceptional state, but so is Indiana. Ky's 5th from the bottom, Indiana's 7th from the top (2.75% foreclosure rate).

And you're right, losing your job isn't the same price as having your creidt ruined, its a hell of a lot worse. Do we simply say that people aren't responsible for the loans they choose to sign onto? I'm against the bank bailouts just as much as I'm against the home owner bailouts. i'm also at no risk of losing my current job because of this. But to simply say, those poor people, they have no responsibility for this, its all the greedy banks fault, that's just as much BS. I was raise that if you agreed to take on a debt, you pay it back. I'm not sure why that's considered to be a bad thing now.

Another rule-of-thumb: if the value of your home is more than 15 times the annual rent (180 times the monthly rent) you could receive on the property, then it is probably overvalued by historical standards.

By that standard I'm half-a-mill upside down, so therefore I declare it rubbish.

I'm not sure which statement I read that is more messed up:

A: It is okay to walk away from a contract because it is no longer financially advantageous to you.

Or

B: The implication that 17 or 18 million isn't enough to take care of your family.

I'll be truthful, I'm pretty sure this is an unbridgeable gap. I think that brokers (who orginated most of the mortgages) are 70% at fault, banks (especially Countrywide, who did most of its business with brokers and orignates something like 75% of all mortages) are about 15% at fault, and consumers are about 15% at fault (some were decieved, some didn't understand, but many new full well what they were getting into. And even with foreclosures at an all time high, its really really low). I object to the idea that banks are somehow just greedy ####### out to steal homes, and that consumers were the innocent victim. And I doubt I'm going to convince anyone here of my perspective. I still think its a good time to but a house if you're a normal homebuyer, but its really never a particularly bad time for that group. Not surprisingly, it turns out its never a good time to buy a house if you can't afford to pay for it, and its bad for everyone, banks, consumers, and innocent bystanders who'll have to pay for that folly with their taxes and their jobs.

And home buyers weren't?

Did you read what I wrote?

Banks were ridiculously greedy and irresponsible in the bubble, and the so-called buyers met them half way.

And you're right, losing your job isn't the same price as having your creidt ruined, its a hell of a lot worse.

The loss of a job for a bank executive is not the same as it is for your average Joe. For others, it can be very unfortunate, but I don't see why the individual homeowner should let his or her own financial survival rest on that concern. When you work for a business that makes stupid decisions and throws itself into ruin, you lose your job. I don't see how anyone can expect the underwater home "owner" to say, "Gee, I'll continue paying my $3500/mo mortgage payment out of my $5000/mo takehome pay, even though the house can be sold for 80% of my mortgage balance, because Joe Bankteller might lose his job if too many people do this."

Yeah, the buyer is probably just as culpable in the vast majority of cases, but both entered into the agreement promising only to do what the agreement and the law dictate. Walking away is generally a legal option for the owner.

Priske: Who said B? The people who lose their jobs at banks aren't the excutives, its the people who are taking up the portion of the profit that need to go to that salary. Firing rarely starts at the top. And executives who do get fired always seem to pop back up, much like bad GMs. The executives who ran Countrywide into the ground should be tarred and feathered.

By that standard I'm half-a-mill upside down, so therefore I declare it rubbish.

I think it's going to vary regionally, and I think the inherent value (which is in the eye of the beholder) of homeownership has increased greatly in the last couple of decades. People WANT to own their house. That means ownership is worth more.

Andere, we really are arguing past each other. That mortgage you're talking about would be a deceptive mortgage allowed by poor underwriting. The bank really did get what it deserved by not getting the money back. Also, I'll reiterate. I'm not an executive, and its not executives who lose their jobs. Its tellers, customer service reps and the like who pay that price, and then maybe, MAYBE, the executive.

I'm talking about the foreclosures on people who a got $109,000 loan, who pay about $850 a month who get foreclosed on. I've got no sympathy from that person. Once again, its all about automated underwriting, its bad for everyone.

Also sorry, I missed the so-called buyers part. You have my apolgy for that. Dander up moment.

Arva -

I'd agree with you, but only for home loans that should have been granted. If a lender issued a loan for which the mortgage is > 1/3 income, especially if that applies to the teaser rate, then it absolutely is the lender's fault. That's a loan that shouldn't have been offered. If the borrower wants to default on loan that shouldn't have been given in the first place, I say go ahead. The destruction of credit and loss of what's been invested in the home is appropriate penalty for the borrower, the rest is IMO on the lender for enabling it to happen.

If the lender is not willing to take possession of the property if the borrower defaults, and call it "even," then the lender shouldn't give the loan. Period.

Well, there are other advantages to owning. For instance, assuming that you don't have an ARM, your mortgage is fixed over the life of your residency; rent can keep going up.

Rents can go down, too.

Assuming you don't live in a Communist state like New Jersey, you can be evicted from a rental for any reason at the end of your lease, but your home is yours as long as you keep paying the mortgage.

As a renter, I look at the short-term commitment nature of leases as a huge positive. It's simple to relocate to a safer or cheaper or quieter or nicer or better-located rental or a different area of the country.

You can make whatever improvements you want to your own home.

True, rentals can't compete here. The downside to this is that a homeowner is responsible for all maintainence costs, not to mention the headache of solving maintainence problems. If my toilet breaks, I put in a call to the landlord and it's fixed while I'm at work.

And if you have equity, you can borrow against it in an emergency; that may or may not be the case if you rent and put the savings into some other investment vehicle.

It's pretty unlikely that whatever asset you choose to invest in will be less liquid than a house.

If I invest that money in stocks or bonds, I can simply sell the stocks or bonds, and I won't have to pay a bank for the privelege of renting my own capital.

I really don't know how someone could say that losing one's job is "a hell of a lot worse" than having one's credit ruined. Maybe fifty years ago that was the case. Now, you know, once you get your credit ruined, you know, you're more likely to lose your job. And if you do, you find it to be much, much harder to get another job than would someone who merely got fired because of the bad decisions of others. And find that your interest rates and insurance rates for everything have gone up, for decades to come. And you can't get a security clearance, if that matters to you.

As for being "greedy" when trying to buy the most valuable available house, it's my opinion that a lot of people were doing so not because they wanted a big house, but because they wanted to be in the best possible school district. I hear people talk about which school districts their proposed house will be in a whole lot more than I hear them talk about how many rooms they want the house to have, or how good of an investment the house will be. And if they discuss the house as an investment, it's usually "It's in a good school district, so there will always be a buyer." or "It's in a bad school district, so it will be tough to sell in the future. Only buy that house if you plan to die in it."

And therefore the houses in good school districts get bid up and up.

Crispix, you don't think an inability to pay your bills from losing your job just might lead to a poor credit rating?

School districts get redistricted as well.

School districts get redistricted as well.

yeah, that happens all the time.

once you get your credit ruined, you know, you're more likely to lose your job

Really? How so?

I'd agree with you, but only for home loans that should have been granted. If a lender issued a loan for which the mortgage is > 1/3 income, especially if that applies to the teaser rate, then it absolutely is the lender's fault. That's a loan that shouldn't have been offered. If the borrower wants to default on loan that shouldn't have been given in the first place, I say go ahead. The destruction of credit and loss of what's been invested in the home is appropriate penalty for the borrower, the rest is IMO on the lender for enabling it to happen.

If the lender is not willing to take possession of the property if the borrower defaults, and call it "even," then the lender shouldn't give the loan. Period.

Well said, adding zero-down as a factor. And I think that situations like these (of course, along with flipper purchases) represent the lion's share of defaults.

interesting discussion, and thanks to all who answered my questions. i've been in a weird situation. i moved to L.A. from new orleans a year ago (via a short job in northern cal.), and so have been looking at the housing situation from a unique perspective. i sold my home in new orleans recently, and was surprised to get my price. real estate prices are soft and the market there is very jittery. what saved me was the old mantra: location. my home was in one of the best neighborhoods in town, and it was small, so buyers didn't have to pay a lot to be in a desirable area, which is very important in n.o., and not just because of who your neighbors are, but also cuz the best areas are less flood prone. katrina has really messed up the market. the influx of people after the storm, which drove up the market, is over, and now that the population has stabilized at a much lower figure than before the storm, selling can be a problem. BUT. all the money i made on the appreciation of my house in Louisiana is almost a joke in the other L.A. ... so i'm left with having to weigh my options with the chunk of cash i'm sitting on. if my gf and i pool our money, we can come up with a decent down payment, but we can't afford some of the neighborhoods we like. so we're actually hoping for the market to decline some more. not a nice thing to wish on the place you live in.

As for being "greedy" when trying to buy the most valuable available house, it's my opinion that a lot of people were doing so not because they wanted a big house, but because they wanted to be in the best possible school district. I hear people talk about which school districts their proposed house will be in a whole lot more than I hear them talk about how many rooms they want the house to have. And therefore the houses in good school districts get bid up and up.

There's a skew at work, though. Everyone wants bigger and knows what it is, so there's little to talk about; plus which it's kind of gauche to say, "Gee, I'm having trouble finding a 3000 sq. ft. house that also has a stable and an in-ground pool," or it's embarassing to say, "All I can afford is a two-bedroom one-bath fixer-upper unless I want go out way the hell out to Alfalfa County." School district quality is subjective and not generally known (you don't care until you want a house), so there's a lot to talk about, and what's in your budget isn't necessarily implied.

Got no sympathy for flippers either. I agree with this "If the lender is not willing to take possession of the property if the borrower defaults, and call it "even," then the lender shouldn't give the loan. Period." completely.

Schools DO get redistricted all the time. Like once of three or four years for fast growing communities. Especially if a wealthy area is within the line of division. Not only that, but the quality of schools within a district changes all the time. For the city of Lexington, as little as ten years ago, Brian Station was the standard bearer, now its considered the worst in the city. As it begins to pick up its fast growing wealthy areas nearby, it's very likely to get better. One of the premier schools, Paul Dunbar, is likely to see it s standing fall as its forced to take on one of the fast growing poor areas (largely due to Fayette County Public Schools sending money to the places that have "money", and ignoring poorer areas). This is not the least bit unusual.

I just wanted to post in here to share the fact that some years ago my college roommate's uncle bought a house from Jose Canseco with stock. All these years I figured the stock was in the uncle's idiotic ipo anything peak of the bubble dot com, but a Mexican telephone company seems just as good. Of course there's a chance Jose sold two houses for worthless stock, one a stupid internet one, the other Madre Bell, but you'd think he'd have learned his lesson after the first time. Oh wait.

Wow, so much here...

The chances are excellent the note is held by an entity 2 or 3 times removed from the original lender.

There are cases where the "owners" are walking away from their obligations because the tangle of loan tranches is simply too deep to tell who really "owns" a particular note. There was a WSJ article about this a couple of months ago that I tried to look up unsuccessfully.

Re who is responsible: yes, both parties are responsible, on the "homebuyer" end for failing to understand what was going on (gee, we never knew what it was we were signing but we signed up for it anyway) and/or for engaging in out-and-out mortgage fraud, and on the originator end (note I did not say, "bank") for doing the same thing. There are two kinds of mortgage fraud, overstatement of income (i.e., can I/we afford the payment?) and overstatement of property value (leaving the bank with a bag full of nothing should they try to collect on a loan in arrears). Neither should be bailed out. This is called "moral hazard" for those of you scoring at home.

Some here have suggested that the banks, and only the banks, should be hung out to dry. That is ridiculous; the "homeowners" are no more entitled to an asset they couldn't afford than I am to own a major league baseball team. Similarly, the banks should fail because they acted stupidly, but sadly, that bridge appears to have already been crossed, and with Bear Stearns, the precedent has been set.

(Update: The Orange County Register had an interesting series on a case where the "buyers" might have had a case about being naive, it being virtually all of the people on West Camille St. in Santa Ana, CA were Spanish-speaking, and many of them ended up in foreclosure because of it; but ignorance of the law is no excuse.)

phredbird -- cheer up. We bought our place (just over the LA county line in OC) late last year at a 25% discount to ask; new construction, too. The secret? We were able to offer a 15-day escrow, and the house had been on the market for 400+ days. Greed catches up with everybody eventually. Good luck.

no offence, but i wouldn't live in OC if you put a gun to my head. i'm sure lots of nice people live there, but i moved to L.A. to be in the middle of one of the world's great cities. defeats the purpose to be in a suburb with a great honking commute. i rent a nice place in the wilshire corridor and walk to work, LACMA, farmer's market, etc., drive out on weekends to do other stuff. takes me less than an hour to get to dodger stadium; on good days its about a half hour. i'm convinced from our house shopping that we'll find something, maybe silver lake, maybe los feliz, maybe mar vista, carthay, crestview, i dunno. there's no hurry.

by the way, this is in response to 68. canseco said in the article that the 17 or 18 million that he was down to a while back wasn't really enough to take care of his family ... then he lost another 7 or 8 million, so he was down to his last $10 mil.

The 900 sq ft house I was renting was costing me $800 a month. My 1300 sq ft house mortgage payment is $950 a month.

Plus taxes. Plus maintenance costs. There is great intangible benefits to owning a home, but don't be quick to assume your home is cheaper than your rental was unless you know how to do the math properly, which by this statement it appears you don't.

This is a good time to buy a house in 99% of the US...
...
Though credit is now harder to come by, homes continue to appreciate in value in the vast majority of the country. Not everything revolves around the coast. ..

Interests rates will eventually go up, and I think its going to happen in the next year. The housing market probably hasn't bottomed out, as foreclosures continue, but it likely will in the next year.

Is everything you post wrong? Case-Schiller is looking at the entire country, not just the "coasts". And if you believe housing prices will continue to appreciate while interest rates go up, you simply don't understand the inverse relationship between interest rates and real estate values.

You sir should not give real estate advise as you don't really understand it.

Add to the likelihood of higher interest rates, the reduction in liquidity, that jumbos are now as much as 1% a year more than conforming loans, and that loans require significantly large downpayments/equity. The securitization market is close to shut down, reducing capacity dramatically. Lastly, it's impossible for houses to appreciate more than incomes (4-5%) over long periods, or few would be able to buy homes. Looking at the last 20 years, you can see that we have not yet begun to get back to the long term trendline. It's highly unlikely that home prices in general will show significant appreciation for at least another 5 years or so, unless we have significant depreciation in the next few years.

Even with dramatic reductions in the production of new homes, we still have not seen inventory reductions. There are far too many home for sale.

Yes. When people like Angelo Mozillo repay their 120 million dollar fortunes for helping create this mess, then we can start scolding individuals for not paying on the agreements they signed.

Yes, because Countrywide was already ripped off by a corrupt CEO, we should give carte blanche to others to rip off the poor suckers Countrywide sold their loans to.

Hey, Jose Canseco was on to something. Possibly the richest man on earth got that way by owning Mexican telephone stock.

Er, actually he got that way by owning the mexican legislature, which allowed him to gain control of a legal monopoly very cheaply.

I moved to L.A. to be in the middle of one of the world's great cities

That's like moving to North Korea to be in the middle of one of the world's great democracies.

Yes, because Countrywide was already ripped off by a corrupt CEO, we should give carte blanche to others to rip off the poor suckers Countrywide sold their loans to.

Just so. What kills me about the various bailout plans is not that people are debating whether those involved at both ends should be punished for their ignorance and stupidity (they should), but which half should be bailed out (or both).

Er, actually he got that way by owning the mexican legislature, which allowed him to gain control of a legal monopoly very cheaply.

Carlos Slim hasn't been successful at anything he hasn't had a gar-on-teed monopoly on, viz CompUSA.

That's like moving to North Korea to be in the middle of one of the world's great democracies.

Written from someone who's never lived anywhere near here, no doubt.