Since starting this site, I have received a few angry emails from homeowners and real-estate-industry workers who think that we take pleasure in the misfortune of others. Specifically, they point to the daily F@cked Buyer posts that seemingly mock those who are facing hardship. However, as I have pointed out in the past, these posts are not intended to deride trouble homeowners.
Instead, I make these daily posts to counter the popular perception that the housing market is only facing a minor correction. Our local newspapers often regurgitate the propaganda by the Florida Association of Realtors® (FAR) -- propaganda designed to make us believe that the “correction” has been minor. These posts show that the market is declining rapidly regardless of FAR’s reports of stagnant Median Sales Price statistics. I also make these daily posts to counter the repetitive and constant drumbeat of Realtors® reminding us that “Now is the time to buy.” These F@cked Buyer posts remind us that there are significant risks involved with buying real estate and people are losing significant amounts on their real estate investments. Ultimately, these posts reflect the reality of the market.
Still, I have to admit there have been times where I have enjoyed watching the housing market slump. In early 2005, when I started to really pay attention to the housing bubble, the real estate cheerleaders were seemingly everywhere trying to convince anyone who would listen that housing market would continue with 20% annual increases into the foreseeable future. The deflated bubble has vindicated all of us who endlessly debated the cheerleaders in those days. More importantly, I am thankful for the housing slump because real estate had simply become unaffordable for most hardworking folks. I look forward to the day when two teachers working in South Florida can once again afford a modest, single-family home or townhouse.
Most of all, I have enjoyed watching the sleazy part of the real estate industry wither away. Watching those who were primarily responsible for the bubble go broke has been my favorite pastime since 2005. I have enjoyed watching flippers and speculator lose their shirts. The demise of subprime lenders, irresponsible mortgage brokers, and highly-levered CDO hedge funds is especially entertaining to watch. Hopefully, we will never see anyone ever lend a 100% financing, teaser-rate, ARM mortgage to someone without verifiable income ever again.
With that being said, let us not forget that many hardworking, honest, responsible people have been severely hurt by the housing slump. To illustrate, I think of some my close friends, a husband and wife, who are now F@cked Buyers.
Both in this couple are well-educated professionals, have good jobs, and make good money. By any measure, they are responsible and live well within their means.
In 2005, these friends decided to sell their small townhouse and buy a nice, single-family home (SFH). After watching the value of SFHs in South Florida nearly triple in just four years, they felt that they had to make this move or "risk being priced out of the market forever" (a common Realtor® mantra at the time).
So, they sold the townhouse and invested the profit into a $500,000 home -- a home that they could easily afford with their salaries. They did not take out a silly teaser-rate ARMs -- they simply took out a conventional 30-year fixed mortgage with a payment that was well within their means.
Unfortunately, now their home is worth about $400,000. They still owe $430,000 on the home. So, if they wanted to move, they would have to come to the closing table with about $54,000 after paying Realtor® commissions (that's after losing the $70,000 they put down). Since they don’t have the much money saved up, they are stuck in their home.
Just recently, they found out that they're having a baby. She wants to quit here job and stay at home to raise her kid rather than putting it in a daycare. But, she cannot quit because they need her salary to service their mortgage. To make matters worse, I fully suspect the home they once purchased for $500,000 will be worth about $250,000 (2001 prices) when we finally hit bottom. Unless something changes, they will be slaves to their mortgage for the next 10 years or more.
I have little doubt that we could find thousands of people across South Florida who are in similar positions. They did not buy beyond their means. They did not fall for subprime teaser-rate loans. They were not flipping or speculating. They simply made the wrong decision to buy a home in South Florida between 2004 and now.
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11 comments:
Here's another one
Friend sold her townhouse for 300k which netted her a very nice profit (200k) but turned around and dumped all that profit into a 3/2/1 SFH in Lauderhill for 300k.
She lost her job & has been struggling with her bills the entire time since she moved in.
Kicker? She lost her job in the MORTGAGE industry. Her mortgage? It was a 5 year interest only option ARM.
When I told her what similar homes are "listed" for (lord knows what their selling for) - she about fainted. ($224k is the listing price)
So in just 2 years her house has lost almost 100k in value. There goes all that money she made on her other home.
The worst part of it is that she SOLD at the PEAK of the market....and bought at the peak.
If she had just sat on that 200k profit...man oh man would she have been happy.
Now mind you this is a personal friend who I would NEVER wish ill on - but she made a BAD decision because of a BAD realtor & from working in the mortgage industry!
My FI & I bother warned her DO NOT BUY. She bought & now she's stuck. I wish her the best, but her problem is that she honestly believed the home she purchased was worth what she paid for it.
I do feel bad for folks who made bad decisions, but the data was out there for anyone who cared to look. I have a friend whose moved 7 times in the last 25 years, and he lost $ on every house except 1. Lots of people have lost money in real estate.
As for the realtors who write you nasty letters. These folks just want a free hand to lie to would be purchasers. I still hear the occasional realtor tell me that 1000 people per day are moving to Florida. I only wish we had a local gov't with the brass b&lls to criminally prosecute these fraudsters.
The data was out there. I certainly saw it and bought into the fact that the bubble would deflate.
However, there was plenty of conflicting data from reputable, non-Realtor sources that conflicted with the data.
For instance, I am a huge fan of the following extremely popular personal finance books:
David Bach’s “Automatic Millionaire”
Thomas Stanley’s “The Millionaire Next Door”
Robert Kiyosaki’s “Rich Dad, Poor Dad”
All three generally give sound financial advice. However, all three also profess that owning real estate, especially one’s personal residence, is one of the principle ways of achieving long-term wealth. None of them discuss the fact that real estate investments can and do lose significant amount value.
I think it’s easy for those of us who are amateur macro-economists to criticize those who bought in 2005. However, keep in mind that most folks do not closely follow markets.
Instead, they get their financial advice from the mainstream media or from authors like Bach, Stanley, or Kiyosaki, who, at the time, were telling the populous that buying a home was always better than renting. On top of that, everywhere you went people were discussing how much money they were “making” off of their homes.
I really don’t blame those who bought home that they could afford with conventional mortgages in 2005. Yet, they all will turn out to be “F@cked Buyers.”
Kiyosaki is a fraud. Please take a look at this site if you are a fan of Kiyosaki:
Kiyosaki Analysis
Any idiot could write a real estate investment book with some good advice in it. However, Kiyosaki's book contain a lot of BAD advice, as well. Not to mention that the guy is a fraud. Seriously--there is some good interesting stuff on that site.
SFHB:
I think the flak you are getting from people regarding the "F@cked Buyer" posts would be greatly reduced if you renamed it "Buyer in Trouble" or something to that effect.
Just using the word "f@cked" implies more of an apathy towards their situation.
I'm not one of the people who cares either way. I just think that there are many people who are turned off by that and may dismiss this blog for that reason.
If your main purpose is to counter the local real estate cheerleaders, you'll probably be more effective using a less offensive (to some people) phrase for the distressed property posts.
Sometimes it's easier to get your point across if you deliver it in a way that offends as few people as possible.
Changing the "f@cked" to something else would not decrease the impact of the post. The numbers speak for themselves. The losses incurred by some of these investors are dramatic enough to drive the point home.
Again--I don't personally care either way. I think you're doing a great job with this site. I'm just trying to offer some constructive advice.
Thanks for the link.
I agree about Kiyosaki that he's turned out to be a fraud. Bach has also turned out be a fraud.
Both became involved with those ridiculous Donald Trump $99 wealth seminars, which are basically MLM and other scam recruitment drives.
That being said, I still like Kiyosaki's and Bach's original books. However, like any other personal finance advice, they must be taken along with some common sense. When local PITI+HOA were running at 300% of comparable rents, common sense should have told all of us that homeownership was NOT a good wealth-building strategy.
As for the "F@cked Buyer" term, I agree that the term will be offensive to some. I also agree that it may get my point across better with a less offensive term. However, I think the mainstream media often downplays the financial severity that some of these buyers are facing. Regular folks facing $100K losses or more in real estate are not simply, “Buyers in Trouble,” they are buyers who are truly f@cked.
One of the reasons I started to use the term is because it has been used on many other housing-bubble related blogs (including one my favorite blogs, Another F@cked Borrower).
However, a much bigger driver for me was my own experience with the Dot.com bubble. I personally got caught up in the irrational exuberance of the Dot.coms in the late 90s. Not only was I employed by several venture-backed Dot.coms, but I put nearly my entire investment portfolio in the technology-related stocks. At that time, there was one site Fuckedcompany.com that gave me a dose of reality. That site highlighted losses, job cuts, and cash flow problems many Dot.coms were facing as the crash approached. That site saved me from getting completely wiped out by that bubble.
At the time, when I was caught up with the irrational exuberance of the Dot.coms, I doubt the site would have impacted me as greatly had it been called Troubledcompany.com rather than Fuckedcompany.com.
Hopefully, the emphasis on being "F@cked" rather than troubled will have a similar impact on someone who thinks this current bubble is not significant.
SFHB,
I am a regular reader of your site and was pleased to see your intelligent/realistic response to the angry letters you receive.
I am wondering just how popular your site is? Can you tell how many people visit it with IP addresses in SF? Is it a significant amount?
I would like to think people in SF who type in "miami housing bubble" or something similar on Google or Yahoo will see your site in the first few links displayed.
Keep up the important work.
Thanks.
As usual I agree with you 100%.
Keep up the good work!
Yeah - I agree with your point about F@ckedcompany.com and the effectiveness of the word f@ck. It really is a great word.
Probably few people would have heard about that site if it was named differently.
Too bad that site went down the tubes. I used to enjoy reading it back when the dot-com companies were imploding.
Seems like that site would become relevant again with all these lenders going out of business. I know there's a "Mortgage Implode-O-Meter", but it was the posts from employees of the failed company that made reading F@ckedcompany interesting.
I too was offended by the F@OCKED BUYER image, even though I have been a staunch "bear" in this market since I first started looking at in in 2005.
I share the concern that it might alienate potential readers of the blog, and as you may know, I am one of your biggest fans.
I do get a fair amount of flak on the Sun forums, but cannot begin to assess the actual effect on whether or not readers shun this blog because of it.
Being an analytical, I could analyze it all day long with no answer, so I say F@ck it! LOL
Do a search for 3/2/2 homes
Many many more under $300k are popping up
Just 3 months ago, they were ALL OVER $300k
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