Archive for the 'Housing Bubble' Category
Buying a new construction can be dangerous. Generally a new condo is contracted to be purchased for a set price, which can prove dangerous if the home prices plummet before the home is even completed.
Two large condo groups are currently the target of a large class action lawsuit taking place in Florida. Within the suits, the buyers allege that they were misled regarding the outrageous monthly HOA community fees, and suffered long construction delays.
Law.com references the case as follows:
They claim Related raised the condo association’s operating budget by more than 65 percent between contract signings and completion. The monthly maintenance fee for Meyerovich’s unit jumped from the initial estimate of $748 to $1,240, according to Cooper.
Under state law, buyers are allowed to cancel condo purchase contracts if “material and adverse” changes are made to condo documents filed with the state. But state regulators and developer’s attorneys disagree about whether higher maintenance fees open the door on rescission.
Did I read that right? More than $1200 a month JUST in HOA fees? That’s ridiculous, nuts, highway robbery, insanity…I lack the adjectives to describe a home owner’s community fee that exceeds my monthly mortgage.
In a hilarious message on their website, Community Lending, a lender, has announced:
It has been proven that in today’s very disruptive market, volume is equal to risk. And that risk continues to escalate through guideline tightening, aggressive collateral review and due diligence processes that border on full QA audits. ComUnity Lending has decided to mitigate the risk of the market by reducing our volume and moving to the sidelines while we wait for sanity to return to the market. We plan on a short period of rest and re-structuring, after which we will re-enter the business aggressively. We are committed to this business and look forward to seeing our way through this turbulent time.
We will be retaining two production offices in California and a core group of dedicated staff at our Central Support office in Morgan Hill. Effective September 1, 2007, ComUnity Lending, Inc. will move all loans to these two offices and we will lock only through these two offices. We will be working with friendly competitors to find homes for our Retail offices and other production units.
That about sums it up. Market is no longer sane, and lenders have decided that in order to mitigate risks blah blah blah they need to stop loaning altogether.
Don’t Buy New
If you’re considering buying a new home, with or without an agent, I would caution against it. Besides the reasons I already listed off, new constructions generally lose value, or appreciate very little during the first few years of ownership, particularly in today’s market. Keeping all that in mind, some people just like new stuff, and hey, at least you’ve got a better chance of a new home appreciating than a new car.
If you’re trying to get the best deal possible, chances are, unless you find an extremely desperate builder, your best shot is with and older home. Always shop however. You may get lucky and find an exception to the rule. Know your market well. For example, Las Vegas is currently overflowing with new home inventory. A shrewd buyer willing to bargain hunt could potentially do quite well in such an area.
Realize Flipping is Hard
Contrary to what many reality shows will have you believe, the average person will have difficulty purchasing a home and then immediately selling it for more. The key to successful flipping, and something that most shows don’t even mention, is to buy low…very low.
Money is made at purchase, and successful flipping is a matter of finding a property that is being sold for a good deal less than what it is actually worth. Locating such a home takes hard work, buying it without wasting too much on commissions and loan fees takes genuine financial talent, and finally, fixing it up and selling it for a profit all within a short time.
Can it be done? Sure, but it with today’s real estate market, it is certainly a risky proposition for a first time flipper. Many real estate shows will merely show a home selling for more because it appreciated in value over a year’s time. This is not true flipping, it is getting lucky through speculation. Just like day trading, many people get burned looking for quick easy money flipping.
If you want to make money in real estate, buy and hold. It may take a decade, but chances are you’ll sell for a lot more than you bought for, and be able to pat yourself on the back.
It would certainly appear that doomsday is at hand for the ridiculous sub prime lending market. Today, Countrywide was mentioned as being in hot water as a result of their many holdings in the sub prime market.
I must confess that I find it hilarious that many sub-prime lenders are begging for a government bailout, like the ones quoted in the Countrywide article above. How fair would it be for the government to bail out them and not the thousands who these same banks foreclose on each month?