It is my understanding that many western states have antideficiency statues. well explained oldtrader
In 1989 William Lyon was the richest man in California based on his real estate holdings and ownership in William Lyon Development. By 1994 William Lyon Development was bankrupt and he had lost everything. A couple of years later the board of Presley Homes Development offered him their CEO position sweetened with an offer to change the name of their company to William Lyon Homes. It's lucky William Lyon owns less than 1% of the new firm bearing his name - he might be killing off still another home builder. William Lyon Homes says Q4 new orders down 35 pct Mon Jan 3, 2005 - http://yahoo.reuters.com/financeQuo...tml?duid=mtfh28484_2005-01-04_01-48-45_wen... NEW YORK, Jan 3 (Reuters) - William Lyon Homes (NYSE:WLS), a builder of single-family homes in California, Arizona and Nevada, on Monday said new home orders fell 35 percent for the fourth quarter, hurt by a lack of available product and fewer sales locations. The Newport Beach, California-based company said net new home orders for the three months ended Dec. 31 fell to 493 from 761 a year earlier. For the year, net new home orders fell 2 percent to 3,371 from 3,443, it said. William Lyon said the number of homes closed was 3,471 in the year ended Dec. 31, up 24 percent from a year earlier. The backlog of homes sold but not closed was 1,166 at year end, down 8 percent.
So you're saying tha the Housing Bears who are fantasizing fantastic profits from shorting the homebuilders are holding a pipe dream
Out of curiousity,say one owes $500k in principal and gets foreclosed on and the lender sells it for $400k because the market went down.What happens with the $100k that is still owed to them?Are they stuck with the loss or is the home owner who lost his home required to pay them $100k?
I can't speak universally because there are always exceptions but normally (with the traditional mortgages I am familiar with) the homeowner owes the $100k. However if someone is foreclosed on its usually because they have no money and thus the $100k is written off - but the bank will go after the homeowner for the money if they can get it from them.
Assuming you're referring to me, I appreciate it's quite possible I might have to pay more in a few years. However, I'm pretty confident I can make a decent return in 2-4 years on that money, so I'll have more purchasing power. I think the chances of making 100% on my money in 3-4 years, after tax, are much higher than the chances of my home investment enjoying similar appreciation or anywhere near it, and given that I think a 15-20% price fall or multi-year stagnation is very likely, then it's an even clearer decision for me. If I'm wrong then I'll end up losing out on the appreciation, but I'll hardly be scratching around for rent in a crusty old bedsit. It's an odds bet and nothing more.
As with stocks you also have to consider transaction costs. Its very expensive (at least where I live) to buy and sell real estate. RE agent commisisons, taxes, title insurance, etc... really takes a big bite.
I appreciate what you're saying about the lifestyle thing. Personally I am fairly neutral between owning and renting as a lifestyle choice, so it's mostly driven by financial considerations - and as I mentioned, for a cost of 4% annually, I can rent an almost identical property, and I don't have to pay for upkeep. The choices are pay 3.5-4% per year to rent, or pay 5-6% mortgage per year, plus the 2% in typical ownership costs (maintenance, insurance etc), and take a significant risk of a 10%+ capital loss over the next couple of years, all for the privilege of ownership. So I'd save about 3% a year by renting, and totally eliminate risk of capital loss. And mortgages aren't deductible here. Even if they were, the benefit over the next year or two would be outweighed by the potential price falls. Incidentally I have a much cheaper rental house in a different region of the country, which I'm keeping because it is still cashflow positive from rent, and is not selling for a big multiple of average earnings in the area. It's still affordable an in a good location, and I'm confident it will be worth more in 3-4 years. If all else fails I can move there lol.
The correct answer here is that it depends on where you live. In my post earlier in this thread I mentioned the "one-action rule" that is the law in California. Under this law the lender may foreclose under the deed of trust (the security instrument that ssecures the note to the property) by using an expedited method (expedited in terms of time, money and process), and take the house back. BUT if the lender takes the house back they cannot then sue for a deficiency. In other words, they eat the loss. In practice alot depends though on the type of loan. For instance, most loans over 80% Loan to Value are insured over 80% by private mortgage insurance, so that the lenders potential loss is the deficiency under the loan balance provided that the loan balance is 80% or less. The insurance company eats any loss above 80%. In other states the lender can sue for the deficiency. But understand this: the borrower that defaults typically is in dire straights....and it is not unusual to see a foreclosure followed by a bankruptcy. Bankruptcy under the current law wipes out a judgement. So in reality the lender does not have much security beyond the property itself in any state, regardless of what the law may read in that particular state. The answer to your question depends on what state you are in. Every state has their own laws. Keep this in mind, real estate is not uniform...it a state by state situation. Laws and practices vary. OldTrader
Nope, not making that point at all. Stocks fluctuate, and I suspect that at some point the homebuilders will have their difficulties. At the same time though I'm not sure what that has to do with what the average homeowners house. And I think that's a point that tends to be missed by stock market people in general. People don't unload their houses like they buy and sell stocks. They live in their house....and by the way, it's been a good investment up to now. That said, anyone shorting the housing stocks up to now has lost their a*s. Toll Brothers (TOL), for instance hit a new all time high just a couple of days ago. OldTrader