Posts Tagged ‘foreclosure’
Thursday, October 6th, 2011
Posted by Leonard Steinberg on October 6, 2011
With Steve Job’s passing, certainly one of the greatest losses of 2011, it may be a good time to look at his company as a case study for the future of other companies in the USA. I write this on a MAC, own an I-pad, I-pod and love them all. These inventions have revolutionized our lives and have especially made life as a real estate broker better. Does the answer to the USA’s horrible unemployment rate lie in the name Steve Jobs?
Lets be blunt about Apple’s success, a huge success, and one of America’s greatest: Genius product is designed in the United States….The company employs about 35,000 people in the USA. Most of its products are manufactured (cheaply) in China. About 300,000 jobs are in China. Yes, 35,000 in the USA, 300,000 in China. The super-low cost of production translates to a super-profitable company. Apple sits on $ 76 billion in cash reserves. The questions we should be asking now are:
1) If Apple manufactured its products in the USA, would it be the success it is to-day?
2) If Apple had half its cash reserves because it sacrificed some of its profits to produce some of its goods domestically would these employed Americans have the capacity to consume more (thereby creating more consumers for Apple products….and real estate!) and maybe lifting Apple’s sales (and profits) pretty close to where they are to-day?
3)Would Apple be the success it is to-day if its profits were lower? Would Wall Street have abandoned the company?
4) Why does Apple not pay a dividend to its shareholders?
5) $ 76 billion would pay for over 300,000 US jobs paying $ 50,000/year for five years. Those 300,000 jobs in China do not result in many Apple product consumers as they are mostly low paying jobs. Which jobs would serve Apple AND the USA best?
My big picture question about Apple is the same question I ask about many other highly successful US companies that manufacture most of their goods in China: Had we kept most of these jobs in the USA, would the additional manufacturing costs with reduced profits have produced less of a return than a much lower unemployment rate with a much healthier and stronger (consuming) middle class that may indeed have compensated for the loss in profits by being in a position to spend more?
The lesson from Apple is that it, like many other companies, have indeed been creating hundreds of thousands of jobs, but not in the USA. These jobs were shipped off to China to boost profits. It has worked. The only problem is it has left some companies super-profitable, and their owners super-rich, but it has left the US economy in deep trouble. What has happened is the same as what happened to the small retailer: Large retailers with huge buying power buying directly from manufactures, could cut pricing dramatically while retaining profitability…..thereby driving small retailers out of business. Think of the middle class as a small retailer. The sooner we resolve the unemployment crisis, the sooner foreclosure sales will slow and Americans will be in a better position to own a home…..and start consuming without government assistance. The more people are earning, the more taxes are collected…..is it time for some trickle up economics?
There has to be a happy compromise somewhere. But it will require some honesty.
Wednesday, June 29th, 2011
Posted by Leonard Steinberg on June 29th, 2011
Some banks are being like governments right now: stupid. When banks do not want to lend to highly qualified, super-reliable, well educated, credit worthy clients, we should conclude that we have a MAJOR problem. When these same banks make everything in the application process so difficult, cumbersome, illogical and painful, they cease being real banks in my opinion.
When banks willfully hire inept appraisors that appraise property stupidly (without a detailed understanding of the market, often citing comparable sales that have little or no bearing on the property at hand) we all lose. The economy loses. The taxpayer loses. Governments lose. Job growth stalls. The process grinds. Transfer tax revenue slows. Income tax revenue slows. Home improvement and renovation stalls. The list goes on.
Another bank stupidity: Why would banks wait endlessly (in the hopes of a default that would lead to foreclosure?)and not renegotiate the rate of a loan to make the monthly payment manageable for a property owner experiencing difficulty?
When you hear about some banks reliance on excessive punitive fees to create the bulk of their profits, one cannot be surprised at their inability to create smart profits through real banking practices.
Obviously this stupidity does not apply to all banks: there are exceptions. One has to hope that banks that are acting prudently now destroy those banks that are not and rid our society of this dirty, stupid element of society.
Sunday, October 24th, 2010
NOT SEEN ON YOUR STREET, BUT COMING TO YOUR WALLET SOON.
The foreclosure mess could hurt homeowners in Manhattan in an indirect way: The costs of buying an apartment and paying off the mortgage are likely to go up, say housing experts.
The rising costs will come both during the closing and throughout the life of the loan.
At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say.
“At a closing last week I witnessed an ‘additional title insurance fee’ to cover additional insurance.,” says Leonard Steinberg, managing director of Prudential Douglas Elliman and publisher of LUXURYLETTER.
The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation’s largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.
Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.
The turmoil will likely lead to pricey premiums for new homeowners, says McLean, Va.-based housing economist Tom Lawler. Adds Cameron Finlay, chief economist at mortgage lender Lending-Tree.com: “Any time there is uncertainty in the market or risk implied, it follows that costs go up.”
Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.
Both of these higher costs also would hit homeowners who refinance their loans.
How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. So if you thought anyone was immune to the foreclosure mess, think again.
And no, Manhattan is not immune even though foreclosures are still extremely rare here. The only good news: all these rising costs equal INFLATION, not the worse option, deflation. Owning real estate during inflationary times is a good thing.
Saturday, August 28th, 2010
The economy is experiencing a unique problem: unemployed people who are able to find good jobs in alternative cities are unable to take the jobs as they cannot sell their homes as many mortgages are worth more than the homes in this current market.
Why not introduce a NATIONAL HOUSE-TRADE BANK/DATA BASE, whereby someone could trade their home and mortgage for someone else’s similar home/mortgage value in the City they need to move to? Whereas both properties would still retain an inflated value in to-day’s market, over time this will correct itself, but more importantly, it will minimize the significant expense of foreclosure to the economy and speed up hiring.
“This could boost the economy by helping those un-employed to take a job, thus reducing stress on the government funding, and also reduce the number of foreclosures and sales happening below market values,” says Leonard Steinberg, managing director of Prudential Douglas Elliman and leader of the LUXURYLOFT team. “An employed person spends more, thereby boosting the economy a third way. It’s time for politicians and banks to get creative and practical!”
Tuesday, August 24th, 2010
Something very newsworthy is happening in the luxury Manhattan real estate market…….for the first time in many years we have experienced (while renting out an apartment in Tribeca) prospective, qualified renters withdrawing their applications after realizing that buying would cost almost the same as renting, and opting to buy. We have not heard this in YEARS.
“To-day, figures will be released for housing sales in July, and they won’t be great. New York is a different market though, so what is happening in the US is not necessarily what is happening in our area”, says Leonard Steinberg, managing director of Prudential Douglas Elliman. “Our recent rental experience leads us to believe we really have bottomed, and from here the market stabilizes and improves.” Recently released rental activity reports indicate a rise in rental property inventory: but these reports are not very specific. Some areas and property classifications are actually experiencing shortages which will boost the cost of renting. The days of cheaper rentals in prime Manhattan areas are fading fast, epecially for larger units. Combine this with the MTA’s quest for sharply raised fares and one has to wonder where deflation exists in New York. If anything, this is inflation.
In FORBES, columnist John Tamny says don’t fear the housing market……There’s a growing consensus that another economic contraction is likely if home prices in the U.S. dip. The thinking here seems to be that if prices decline, the resulting increase in foreclosures would weaken already shaky banks that would either fall into insolvency, tighten lending standards or both. With bank lending already down, renewed weakness would supposedly strangle a nascent economic recovery.
Scary stuff for sure, but also arguably overdone. Most would agree that heavy investment in the housing sector helped get us into the mess we’re in, so for housing worriers to suggest that an artificially enhanced property market is our cure is to get things backward.
More realistically, the mortgage defaults and resulting housing weakness a few years back signaled an economy on the mend thanks to markets correcting overinvestment in that space. If economic growth is the goal, the best thing we could do would be to let houses and mortgage securities find their natural, market clearing level.
To do otherwise, as in if Washington continues to use limited capital to prop up housing, would be for our federal minders to elongate what remains a painful economic downturn. A housing correction, far from limiting growth, would actually constitute economic revival for underutilized capital migrating toward more productive pursuits.
When an individual buys a home, there’s merely a transfer of wealth from one person to another. This is quite unlike the purchase of shares in a public company, or the deposit of funds in a bank where an individual is transferring capital to existing and future businesses eager to expand. To invest in housing is to essentially transfer capital into the ground, whereas when we save and invest we provide entrepreneurs with the means to expand.
This is important in light of the housing boom of not long ago. It’s once again assumed that a decline in prices from what remain high levels would be economically harmful, but it could more credibly be stated that the not-so-long-ago rally in home prices was the recession for limited capital flowing into unproductive assets of the earth over productive assets of the mind.
To make what transpired not long ago clearer, tomorrow’s Googles, Microsofts and Intels suffered a capital deficit amid the rush to housing, and builders gorged on the capital that passed them by. This was no accident; rather it was the predictable result of policy from the U.S. Treasury in favor of a weaker dollar.
History shows that during periods of currency weakness, available capital flows into tangible assets least vulnerable to the aforementioned debasement. Ludwig von Mises referred to this phenomenon as a “flight to the real,” and it’s what has always occurred when monetary authorities seek a decline the value of the unit of account.
Looking at the decade just passed, the dollar’s impressive weakness drove up the nominal value of all commodity-like assets, with housing a natural beneficiary. Not only did this “money illusion” distort home purchases, but it ultimately created a housing glut as faulty price signals tricked developers and lenders into believing that home prices could only rise. Evidence of the overbuilding that resulted from monetary mischief is everywhere at present, with unsold and uninhabited homes dotting suburban landscapes across the country.
For the federal government to then use capital borrowed or taxed from the private sector to put a floor under home pricesnow would be for it to continue to distort real market signals on the way to more investment in housing. We’d be doubling down on an economic bet that previously helped put our financial system on its back.
The logical response is that intervention in the property space is necessary to maintain the fragile health of a banking systemthat would suffer mightily from another round of mortgage defaults. Fair enough, but this thinking ignores what little good the savior of Japan’s zombie banks did for its economy during its two lost decades, plus it grossly overstates the importance of traditional banks when it comes to the accession of credit.
Friday, July 9th, 2010
More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic. In an article in this morning’s TIMES, the point is made that the housing bust we are witnessing right now is not only affecting the poor or bad-credit borrowers….it is also hitting the rich. This is especially evident in markets such as California, Nevada and Florida. Even one of those super-rich-glam REAL housewive’s of New Jersey is in trouble (imagine!). Is this problem an issue in Manhattan? I doubt it. Of course some high end property owners are indistress, but the vast majority are not. We need to remind ourselves how large a percentage of homes in New York are either rental properties or co-ops where requirements to purchase prevented risky purchasers from buying. Deflation would be the number one cause for the rich to walk away from a property, so while inflation is a fear, deflation is the bigger fear.