patrick.net

Rents Are Down
Forclosures Skyrocket
Casey's Life Imploding

Times are getting better.

Some weeks ago, I shared with this crowd that my L/L raised our rent a seemingly arbitrary 5%. With this news, also came their offer to extend the lease 6 months, at the end of which, they would re-evaluate the situation. Many of you offered some "spirited" advice, which I truely appreciated. However, caught unprepared to move on short notice, we opted to stay and pay. 31 Oct 07 is the end of this extension.

Update:
I just received their letter indicating that they will be placing the house on the market at the end of our lease extension. In a magnanimous tone they also gave us first opportunity to place an offer on the house. (Am I wrong for not feeling grateful?) I politely declined their offer and wish them well with the sale.

Now, while I could have predicted this letter, I did not expect them to give me this much advanced notice. If I can end this lease extension early, I’m gone. Rentals are popping up as fast as For Sale signs, and we’re looking for a rental that comes with some choice amenities, for a reasonable (much lower) price. As we peruse rental adds, we are seeing much more house offered for much less rent, everyday.

But we have found definite signs of distress. One rental listing we drove by had a For Sale sign planted in the lawn, a lock box on the door knob and packing tape over the front door windows. Rent desired is $1850, for sale asking price $510,000, (price reduced.)

I guess the new paradigm at this stage of the bubble deflation is
"Renter beware!"

Since Patrick's away today, try this story on for size:
http://biz.yahoo.com/ap/070717/housing_outlook.html?.v=2

"The National Association of Home Builders/Wells Fargo housing market index, which tracks builders' perceptions of current market conditions and expectations for home sales over the next six months, fell to 24 this month, the lowest reading since January 1991, the NAHB said.

Wall Street economists had expected a reading of 27..."

So indicators are still coming in substantially below what wallystreeters think.

Rents in Boise have actually stabilized over the past year. When I moved here in April 06, there was something like a 20% vacancy rate. It's now down to more like 8%. The high vacancy rate was due to out-of-state flippers buying up all the new homes: 1/3 of all 2005 home sales here were to out-of-state investors.

In this new world of F'd owners and cash-heavy renters, maybe it makes sense for renters to change the way they think about real estate.

I will gladly enter into a 5 year lease to rent a home (if I can find one in my area which is way below the cost of ownership) IF I can get the lender to subordinate their deed of trust to my lease. Might be worth it for a lender who is looking at a pending foreclosure...especially if I pay my rent checks directly to the lender. THe FB will continue paying the difference between the rent and the mortgage cost until they are completely tapped out. Then, wHen the FB inevitably goes into foreclosure, the bank would have a stream of income in place until the property can be sold off to another investor (at a much lower price)--with a tenant already in place.

Okay, Bears Sterns just said their two funds are basically worthless. The highly leveraged fund is worth ZERO cents on the dollar, and the less leveraged one worth 9% of its april valuation. Since the large one was valued at $920 million, it's now worth less than 90 million. At least 830 million lost there, and that's the fund Bear Sterns loaned 1.6 BILLION to less than a month ago. Link : http://tinyurl.com/2czm4x

The amount of money vaporized by these two funds has got to be several billion.

So... as a hedge fund manager, what if you're holding similar products in your portfolio? Good thing you're not required to disclose what you've bought, right?

Idea for Hollywood remake-

"It's a Wonderful Life Again!"

A company named BS is busy foreclosing on homes in Rylandville. Meanwhile, word gets out that the BS companies everyone invested in have little or no net liquidating value so they line up at the local office demanding repayment of their investment. Alas, there are no funds in the vault only promises to pay by people with no jobs or assets.

BS begins to rent out all of the properties in their portfolio at below market rates just to get some sort of income.

Meanwhile, our friend George is seen shopping these many wonderful choice properties for rent and decides on a beautiful house at a nominal rent. When George reflects on selling his house a couple of years ago and putting the proceeds into CDs of which the interest is now more than paying his rent, he exclaims "it truely is a wonderful life, again!"

Glen, I'm not sure what you concern is? If it's simple worry over being evicted by a new owner, I though that any lease must be honored by next owners? Not really sure though.

Yahoo Finance Poll:

What will deliver the greatest returns in the next 12 months?

U.S. Stocks 32%
International Stocks 50%
Cash 7%
Bonds 5%
Real estate 7%

56358 Votes to date

Please note that cash is now equivalent to real estate

"Black explained that 80 percent to 85 percent is the break-even point for apartment owners. He said owners do not start kicking off serious profits until occupancy passes 90 percent."

If people in California had the same expectation maybe the bubble wouldn't have gone quite so crazy. A few years ago I was looking at an 8 unit building which was well over a million dollars, and would have had a negative cash flow at 100% occupancy. The agent acted like I was from a different planet when I said, don't mean to question the pricing, but why would I put 200K down on something to then have a monthly loss when I can just make $20,000 per year on it in interest. I have never figured out why investors buy properties that have a loss. The value of an investment property should only be derived from the income stream.

Glen Says:
July 17th, 2007 at 2:45 pm
"I will gladly enter into a 5 year lease to rent a home (if I can find one in my area which is way below the cost of ownership) IF I can get the lender to subordinate their deed of trust to my lease. "

I like the creativity but this can't happen. You might be able to find a lender who is renting out their foreclosures, I've actually heard of that happening, though in reality your best bet would be to find an FB, and let him subsidize your monthly rent with the false hope that he can buy enough time for things to improve. Make sure the lease contains actual damages that you will be owed by the owner if the owner loses the house.

Interesting thought...I forget my old property law class here. But I'm sure that the lease should be recorded at the country office for it to survive title transfer. If the lease isn't recorded, the new purchaser may be held to be a "bone fide purchaser" who takes title not subject to the lease. Anybody practice real property law here?

FYI: Aaron Krowne (of Mortgage Lender Implode-O-Meter fame) is being sued by one of the scumbag lenders he reported on. Basically, this is a de facto "gag" attempt to silence a website that is throwing light on people who do not want their shady business practices and true financial status known publicly.

If you can afford it, please drop by and make a quick Paypal donation. Thanks!

Ha! The owner of my house just dropped my rent!

We've actually been paying very low rent already. The house is paid off so they just use it for cash flow. I guess he just wants to make sure he hangs on to good renters.

>> BS. The interest on CDs is close to 0 after “government inflation”.

I am now reading Crash Proof by Peter Schiff.

Inflation is around 8-9% he says and I believe him.
I am becoming a client of http://www.europac.net/ with initial funding of US$ 50,000.00

@ ptiemann & PermaRenter:

Why would George care about inflation and the price of the Euro when he lives in the USA and pays rent in USD?

The point is that the interest pays his rent!

I'm as bearish the USD as the next guy but geeszh!?!

June DQ stats are out for SoCal:

http://dqnews.com/RRSCA0707.shtm

It looks REALLY bad in the Inland Empire...

A slightly different perspective since I am interested in both topics from Paul and PermaRenter. Just my thoughts:

I believe that historically, and one would say logically, the 'safe rate' ( anything FDIC or government backed) will barely beat inflation since these rates are the market interpretation of what inflation is. Yes, interest rates may be market driven, but like most cost burdens, people won't save money at a rate less than inflation so it is basically a price floor.

I also like the observation of interest paying the rent and the discussion that leads to. If the interest was fixed at a certain rate, and there was no growth over time, inflation would make the rent eventually pass the break even point to where the interest didn't cover it. Whether the principal is in equity in a house, or in a bank account inflation is still chiseling away at the future value, the main difference is the leverage that owning the house has, but this is double edged as many recent buyers are finding out the hard way.

Oh my God, is CAR now being somewhat truthful?

http://www.car.org/index.php?id=Mzc1NTQ=

Why couldn't Lereah be this straightforward?

Good for you SQT, that says a lot.

Harm, I made a donation. Isn't it normally businesses who complain about frivioous lawsuits? Funny how quickly things can change. Man I'm getting tired of corporate America surpressing free speech and property rights.

frivolous

>> I’m as bearish the USD as the next guy but geeszh!?!

Betting against U.S. dollar may be good buy

We all have things we worry about in the middle of the night. Taxes. Blood pressure. The creature in the basement.
One thing that's kept economists and strategists up for years is the U.S. dollar. Chronic budget and trade deficits someday may sharply weaken the dollar — which, in turn, could bring a slew of other problems. Is the dollar something you should worry about? Possibly. Fortunately, you have several ways to help shield your portfolio from a falling dollar, depending on your degree of fear.

Steady income from overseas
Top-performing international income funds the past five years:
Total return*
Fund, ticker 2006 5 years
Oppenheimer Int'l Bond A, OIBAX 2.8% 86%
Amer Cent Int'l Bond, BEGBX 0.9% 52%
Federated Intl' Bond A, FTIIX 0.9% 45%
Franklin/Temp Hard Currency A, ICPHX 2.7% 44%
T Rowe Price Int'l Bond, RPIBX 1.3% 44%
Average international income fund 0.9% 42%
* — Dividends, gains reinvested through Wednesday Source: Lipper

In a way, it seems odd to worry about the dollar, which reigns as the world's preferred currency. The oil market, for example, is run largely in dollars. And in countries such as Ecuador, the greenback has replaced the national currency.

But economists worry that there are too many dollars in foreign hands, thanks to our enormous budget deficit. The United States must borrow to finance its debt. To do so, it issues Treasury securities, which are interest-bearing IOUs backed by the government.

There's not enough demand for Treasuries in the USA. So we rely on foreign buyers to take up the slack — which they've been doing enthusiastically.

Japan owned $683 billion of Treasury securities as of November, according to the latest information from the U.S. Treasury. China is the second-largest foreign holder of Treasuries. It also holds a lot of other government-backed securities.

If foreigners became less inclined to buy our debt, the Treasury would have to raise interest rates to entice more buyers. Rates on commercial loans and mortgages would rise, too. Those higher rates, in turn, could slow the U.S. economy.

Powerful forces are at work to try to prevent a dollar meltdown. Foreigners know that if the U.S. economy were to grind to a halt, so would U.S. purchases of foreign goods.

Additionally, Treasury rates are already higher than most major world interest rates, which keeps buyers coming. The 10-year T-note, for example, yields 4.56%. That compares with 3.5% for Germany's 10-year government note and 1.6% for Japan's.

John Lonski, chief economist for Moody's Investors Service, puts the likelihood of a spike in U.S. interest rates driven by a dollar sell-off at about 15%. Those are long odds. But they're not negligible ones, either.

"There is a risk," Lonski says, "and it's perhaps foolish to be complacent about it."

David Wyss, economist at rival Standard & Poor's, agrees that the dollar is worth worrying about. The U.S. trade deficit — the gap between imports and exports — was about $817 billion last year, up from $668 in 2004.

"No country has ever been able to run a trade deficit which is that big a percentage of gross domestic product and not have a currency collapse," Wyss says.

And James Grant, editor of Grant's Interest Rate Observer, notes that currency problems don't have to end suddenly: The British pound, for example, swooned for decades after World War I.

What's an investor to do? Actually, you have many choices, depending on how worried you are. Grant recommends gold, which gains in value when paper currencies fall in value. An easy way to invest in gold is through the iShares Comex Gold Trust (ticker: IAU). It's an exchange-traded fund that invests in the yellow metal. You can buy or sell shares through your broker.

If you're really bearish on the buck, there's the Rydex Weakening Dollar fund (ticker: RYWBX). It uses futures and other investments in its effort to rise 2% for every 1% fall in a dollar index. If you're less bearish, the Falling Dollar ProFunds (FDPIX) is designed to rise 1% for every 1% fall in a dollar index.

If you're down on the dollar but eager for euros, you could invest in the Euro Currency Trust (FXE), an exchange-traded fund that invests in euros. It rises when the dollar falls against the euro, and vice versa.

Another avenue is bank CDs denominated in foreign currencies. EverBank, in Jacksonville, offers CDs and other accounts denominated in a variety of currencies, as well as some linked to currency indexes. You'll gain if the dollar falls.

It's no sure thing, though. Even though the CDs are insured by the federal government against the bank's collapse, you could still lose money if the dollar rises. EverBank's Internet address is www.everbank.com.

Probably the most sensible way to hedge against a dollar decline is an international stock or bond fund. Still, both would run into problems if worldwide interest rates rose. International bond funds are probably the better currency play. Some international stock funds use futures to hedge against currency risk.

The USA has run big deficits for a long time, and economists have been predicting a weakening dollar for a long time. They could be wrong much longer. But if a small position in foreign currencies helps you sleep, then it might be a good investment.