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Subprime loans and McMansions

 
 
JPB
 
Reply Thu 25 Sep, 2008 10:12 am
There's been plenty of discussion about the effects of subprime loans and those who were signing on both sides of the paper but I'm curious how much of this bad paper is due to the proliferation of McMansion building/buying by those who couldn't afford the million dollar pricetags any more than those being told they could become first time home owners.

I'm surrounded by empty million-dollar-plus houses that are sitting in foreclosure that were built in a neighborhood that until five years ago consisted of simple folks living in the woods. Entire neighborhoods of upscale properties were built on what was once empty land or land sold off for development. An area near me that was once a naval air station was developed into a planned community of million dollar homes that now sits in 41% (last I heard) foreclosure.

I imagine the breakout of the dollars exists somewhere but I wouldn't be a bit surprised to discover that the fingers being pointed at lower-middle class folks being overextended shouldn't be more appropriately pointed elsewhere.
 
cicerone imposter
 
  2  
Reply Thu 25 Sep, 2008 10:21 am
@JPB,
JBP, Are those the same neighborhoods you drove through for our tour?
Cliff Hanger
 
  2  
Reply Thu 25 Sep, 2008 12:15 pm
@JPB,
When the mortgage crisis began I remember hearing a report on the radio where the broadcaster accused lower income people for being greedy and buying homes they couldn't afford.

I thought, wha? Most of the lower income people who got roped into buying houses were given the most convoluted information. Little did they know their rates would jump, etc.

One more thing about McMansions-- they are ghastly enterprises. The province of the truly tasteless and aesthetically deprived.
cicerone imposter
 
  1  
Reply Thu 25 Sep, 2008 01:38 pm
@Cliff Hanger,
But the conservatives were bragging how more Americans own their homes to give Bush credit for our grand economy.
0 Replies
 
FreeDuck
 
  3  
Reply Thu 25 Sep, 2008 01:45 pm
@JPB,
Another point: in some markets the high prices and subprime loans fed each other. In areas like Washington D.C. the demand for housing was way higher than the supply. They built everywhere they could, but they rarely built anything smaller than 2500 square feet for less than half a mil. They were maximizing their profit (and soothing local governments who didn't want high density). The prices couldn't have been sustained if buyers couldn't get loans, so the mortgage industry got creative. With unrealistic ceilings on purchase power, the prices kept going up, which required more creativity, etc...

I really don't think the majority of these loans were given to lower/lower-middle class homeowners. I think they were given to speculators, people with black market incomes, investors, and middle class families trying to purchase a home in a good school district.
JPB
 
  2  
Reply Thu 25 Sep, 2008 02:09 pm
@cicerone imposter,
No, ci, those were old established homes/communities along the lakeshore. I'm talking about new construction either through teardowns or new development in previously undeveloped areas. I just checked the area around the old naval air station in Glenview and found 155 listings currently available through foreclosure. More than half of them have price tags above $500,000 and list as high as $2.3 million. This is just in one such community that I know of near me. It takes an awful lot of entry-level foreclosures to equal what this one neighborhood has added to the bad paper value.
sozobe
 
  2  
Reply Thu 25 Sep, 2008 02:13 pm
@JPB,
Wow.

We've talked about this before, how I saw this happening in Naperville before I left. Pissed me off on about 25 different levels.

I think you make a really good point about who the culprits are (and aren't).
cicerone imposter
 
  1  
Reply Thu 25 Sep, 2008 02:25 pm
@sozobe,
soz, In Naperville? We built a home there, and that was back in the late sixties. We "loved" it there! My wife worked at the local hospital, and the schools were all "above average."
0 Replies
 
JPB
 
  2  
Reply Thu 25 Sep, 2008 02:33 pm
@FreeDuck,
I agree, FreeDuck. My neighborhood has about 250 properties, many of which were converted to McMansions by developers -- mostly on spec. Build it and they will come... It worked for awhile but when the market dried up the developers were left with empty spec houses and many of the ones who did buy have left. There is currently only one new construction project going on and it is Humongous! Why do they all have to have turrets????

Soz, yeah I know it was happening everywhere. I wonder if there's a way to find a breakout of foreclosures vs age of house over the past couple years?
CalamityJane
 
  2  
Reply Mon 29 Sep, 2008 01:58 pm
@JPB,
JPB,
we have an area here in SoCal that's called Carmel Valley. Lot's of McMansions there and the homes are mostly above $ 1 mill. There are some foreclosures, yes, but compared to poorer neighborhoods, the foreclosures
are few. In fact, resale value has been higher than in most other areas.

Another area is closer to the Mexican border, new housing developments for
the lower income brackets. There you can see rows and rows of foreclosed
houses. These are mostly first-time buyers who - with the help of greedy banks - were led to believe that they can make it. The first couple of years they got a low rate and paid interest only, and then when the balloon payments
were to occur, the banks coerced them into believing that they easily could refinance and lower their mortgage payments. Unfortunately, that did not happen, people couldn't pay their mortgage and the rest is sad history.

So, from what I have seen out here, the McMansions are still holding strong,
it's the lower income neighborhoods that suffer tremendously.
ossobuco
 
  1  
Reply Mon 29 Sep, 2008 02:08 pm
@JPB,
quoting jpb
I imagine the breakout of the dollars exists somewhere but I wouldn't be a bit surprised to discover that the fingers being pointed at lower-middle class folks being overextended shouldn't be more appropriately pointed elsewhere.

Your wondering on that makes sense to me. It may not be uppermost re houses constructed and sold, but it might re the amount of the loans.
0 Replies
 
cicerone imposter
 
  1  
Reply Mon 29 Sep, 2008 02:09 pm
@CalamityJane,
CJ, The same thing is happening in our ZIP code where prices remains pretty stable. For year over year comparisons, our prices increase 0-20%, but sales dropped over 30%.
0 Replies
 
JPB
 
  2  
Reply Mon 29 Sep, 2008 02:22 pm
Interesting, CJane and CI -- both of you are in California. I wish I had the time to look at the geographical distribution and foreclosures against age of home. I'm not even sure those numbers exist but I know in this area we aren't talking about entry level homes as the main problem area. Thanks for you input.
CalamityJane
 
  1  
Reply Mon 29 Sep, 2008 03:15 pm
@JPB,
JPB,
I think what you have in cicerone's vicinity is Silicon Valley where high salaried
people live. Same down here, except it's predominately bio tech and engineering which means also high salaried people and their jobs seem steady and financially
rewarding. It's really the lower income population who suffers the most from
this mortgage shake-up and I feel for them. The now defunct $700 billion bailout would not have made a dent to those poor people.
0 Replies
 
patiodog
 
  1  
Reply Mon 29 Sep, 2008 06:40 pm
My sister and her husband bought one fo these on former farmland south of Sacramento about 7 years ago for $250K. Turned around and sold it 3 years ago for $350K. Instead of counting themselves lucky, investing whatever they actually made off of the maneuver ($60K? $80K? I really don't know) and moving into my sisters little house in downtown Sacramento (which really is quite nice, and in a fun neighborhood with a lot of bars and a lot to do) they turned around and bought a $500K behemoth in the newer development next door. Bro-in-law makes his money selling paint to contractors -- business is terrible right now. Oh, and they bought a boat.

They'll make their mortgage, but I can't imagine they can sell and not lose a ton. Stupid stupid stupid stupid stupid.....



Course, we just bought a house a few months ago. Hoping that the historical value in our neighborhood holds. It should -- central location, good schools, old trees, etc. Still don't plan to re-sell any time soon...
0 Replies
 
nimh
 
  1  
Reply Mon 29 Sep, 2008 10:18 pm
Interesting thread, good points.

Nothing to add, just a thanks to JPB.
0 Replies
 
 

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