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GI
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Cash Points ££ 15.00
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 Posted: Thu Apr 20, 2006 12:20 pm Post subject: Echoes of 1990? |
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The one thing I'm always amazed to find out is how many borrowers think that when their home goes back to the bank, that's the end of their problems. What they don't realize is that if the lender writes off or forgives any debt to them (i.e., short sale, etc.) the former borrower will get a 1099 for the amount of that forgiven debt as though they had received it as income. If they sold their home through a short sale at the begining of the year and they got a 1099 by January 30th of the following year, they not only have to pay taxes on that forgiven debt, but now penalties and interest too, because it was due (unless you pay estimated quarterly taxes) at the time the debt was forgiven. I personally knew a borrower who had 11 rental properties and after he lost the first one to foreclosure, he got hit with a huge IRS penalty. He started selling off the others, but had huge tax hits because of depreciation recapture, and because the market was getting worse, he could not sell some for what he owed. I was an underwriter at the time and on paper, just prior to losing his first property he had equity of over $1,000,000; but in the end he lost it all because he couldn't sell in a market where bank REO dominated, and when he tried, the tax hit from depreciation recapture buried him further.
The same sheeple psychology that drove everyone to ignore cash flow fundamentals by flipping condos and homes based on the greater fool theory, will invert like it did in 1990, and for the next few years you'll hear nothing about real estate except how terrible of an investment it is, and it will be true for those who either bought with high leverage or refinanced with max cash out based on the value of their homes in the last 2 years.
And anyone who says rents will catch up to all the adjusting I.O. and ARM loans is in fantasy land.
Between 1990 & 1994, I had my landlord reduce my rent three times by simply giving notice that I could rent a better condo at the beach for less. And you know why that's possible? Because of all the bank REO that was (and will be again) unloaded on the market. Owners who buy REO can easily compete on price alone. Market rent is meaningless to them. I rent a $750K place now and have been renting since we sold our residence in 2002 and our rent is under $2,000 and in the 5 years we'll have been here, the rent will have only increased by 3% from 2002 through 2007.
To those who ask how long to wait and how low will it get, here's my answer. Even though the Internet will compact the time it takes to crash, I still say don't even think about buying for at least another 18 months. Don't be fooled by ocassional news or market conditions that lead you to think things have turned better because that always happens on the way down, just as it does with stocks on companies you know are "Dead Man Walking".
As far as the percentage, don't think in terms of what percentage it will go down relative to the overall market, but what discount you can get on hardship situations, like bank REO. I think you will be able to get property for 20-30% of what it appraised for in 2005. Trust me. Even if you don't for whatever reason, others who are diligent will.
In 1995, my wife and I bought a La Jolla 1-BR condo one block to WindanSea beach with a peek ocean view off the balcony. It was in default and we bought it for a total price of $104,000 AND got the broker to kick in half his commission. That's how bad it was last time : ) |
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cougar
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Cash Points ££ 15.00
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| Posted: Fri Apr 21, 2006 5:00 am Post subject: |
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| I can vouch for what you are saying I was with the FDIC from '87 to '94 at the Houston Consolidated Office (Bank Liquidation) there is no doubt that this period is worse than then. This company, if I read the earnings report correctly, had a 40% drop in net profit yet it keeps hanging. The crooked deals that I saw were not to be believed and yes we sent out 1099's like snow flakes with debtors calling us in a rage. These hb stocks should be at half the current value and be under investigation for all the crooked deals in which they are involved but that won't happen. Once Clinton got in and Bill Siedman out huge pools of assets were bulk sold with the debtors buying back their own notes at .10 on the dollar with the tax payer picking up the tab. Gold is up $10.00 today and HB stocks are being supported by means that are more foul than fair IMHO. |
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Quinn
Saving Enthusiast
Joined: 06 Feb 2005
Posts: 181
Cash Points ££ 2817.02
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| Posted: Fri May 12, 2006 8:13 pm Post subject: |
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Gold is up over $650 !
Definetly something is wrong in the US economy which is feeding this surge in gold and other precious metals ! |
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Toolose
Stranger
Joined: 28 Feb 2005
Posts: 7
Cash Points ££ 157.78
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| Posted: Sat May 20, 2006 8:33 pm Post subject: |
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| The world is still growing, at worst people are talking about a slowdown, not a recession, everyones panicking over nothign ! |
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Sarah
Money Manager
Joined: 16 Jul 2004
Posts: 831
Cash Points ££ 12024.38
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| Posted: Sun Aug 06, 2006 2:13 pm Post subject: |
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After 17 straight interest-rate hikes by the Federal Reserve, many borrowers are feeling the pinch. Some economists worry the Fed may precipitate a recession if it keeps raising rates--the next meeting is Tuesday--and rate-related concerns share the blame for stomach-churning volatility in the stock market since May.
Now for the happier side of the story:
"Everybody talks about the downside of higher interest rates, but they are good news for savers and cash investors," said Peter Crane, publisher of the Crane Data's Money Fund Intelligence newsletter.
"Rates are now at a decent level that you can be conservative" and earn a competitive return, Crane said. "From a philosophical point of view, it is nice to see the right people rewarded," such as conservative savers who've worked hard for their money.
Savers weren't rewarded in 2002 and particularly in 2003, a year when even the highest-yielding money market mutual funds returned less than 1 percent. But the yields of the top-ranked retail money funds tracked by Crane's newsletter are now reaching or at least approaching 5 percent.
I view 5 percent, a yield last available from money funds in 2001, as a magic number for an investment totally liquid and with arguably negligible risk to principal. It seems all the more attractive considering U.S. stocks have returned an average of less than 4 percent a year for the past five years.
Money market funds, which invest primarily in short-term, high-quality money market securities such as certificates of deposit and commercial paper, are managed to maintain a price of $1 a share.
With rates increasing, money market funds have become an "offensive" asset class for investors seeking attractive returns, rather than merely a "defensive" one for those seeking safety of principal, said John Sweeney, a senior vice president at Fidelity Investments. Fidelity Cash Reserves has become the firm's biggest retail mutual fund at $80.3 billion in assets, ahead of the old flagship Fidelity Magellan and the recently closed Fidelity Contrafund stock funds.
Meanwhile, savers are already earning 5 percent and more on some online bank savings accounts with Federal Deposit Insurance Corp. protection, which money market mutual funds don't have.
"Today's investors are bullish about cash," said Martin Glynn, chief executive of HSBC Bank USA, which is paying 5.05 percent on its "HSBCdirect" online savings account with no minimum balance. A survey by HSBC found 80 percent of affluent investors consider cash--the generic term for savings accounts, money funds and other liquid or very short-term conservative fixed-income investments-- an important part of their portfolios.
They also would allocate twice as much new money to cash as financial advisers would. "A lot of advisers tend to have a blind spot for cash because they don't get paid to recommend it," or at least not paid as much, Crane said.
Many short-term bank certificates of deposit also are paying 5 percent or higher. But despite lower advertised yields compared to some bank accounts, the top money market mutual funds may be the best deal now.
Money funds, under Securities and Exchange Commission regulations, report a simple seven-day annualized yield--in essence projecting the yield over the past seven days over a full year, but without any compounding. Banks, on the other hand, follow Federal Reserve rules mandating the use of the annual percentage yield, or APY, a figure that both projects and compounds over a year the interest earned each day.
With the Federal Reserve raising its target for the federal funds rate for overnight loans to 5.25 percent from 5 percent on June 29, money market funds will be earning higher yields on new securities in their portfolio as current ones paying lower rates mature. By contrast, banks have historically been slower to adjust savings rates in response to Fed action and don't always follow in lockstep. |
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