There is finally national concern in the news today about rising foreclosures in the housing market. Unfortunately, this is last year’s news.
I wrote about the rise in residential foreclosures in December 2006 and touched upon it again in January 2007. Crain’s Chicago Business finally wrote something about it in July 2007. Most of the national business news channels hadn’t really featured this until late in 2007. Why’s this suddenly an issue? It has been an issue for more than a year for many people.
One of my former students is now in real estate. He says it’s busy even though there are so many problems in the mortgage market. He says there are several factors worth investigating:
What happens when the bank takes all the escrow money to cover the shortfall and nobody else gets paid?
Trying to get rich by buying foreclosures is nonsense. Most homes in foreclosure haven’t been maintained for years.
Plus, most are sold without inspection or a guaranty of clean title.
What happens to the tax income the government gets when property values go down? Do developers who can’t unload the condo glut get government bailouts?
He is right about buying foreclosures. Forget the midnight real estate programs on TV that hype buying foreclosures.
If you think you’re going to get a pristine house that has been in foreclosure, guess again. Sure, there might be a few exceptions, but don’t hold your breath.
What’s next? Smaller property taxes?
What about new assessments of houses? Every government agency figures it’s going to get an increase due to the larger assessment they always get from property taxes.
Newsflash to all government agencies and school districts: start looking at trimming your budgets by 10 percent to 20 percent for the next couple years. Can’t do it? I guess your degrees in administration are not as good as you profess. Just like there is profit and loss, budgets can go up and down. They don’t just go up and up.
Don’t say there’s no room for cuts. A recent article on school districts said some superintendents are making more than $300,000. Does that sound reasonable to those who have lost jobs at major corporations in the last five years? I don’t think so (especially when you see the extra car allowance for these people at $12,000 a year). What are they leasing? Maserati Quattroportes?
There’s a lot of fat in those budgets. Start cutting – and don’t start with the music courses. Start with administrative perks that have gotten bloated over the years as well as the multiple superintendent positions.
Compare yourself with executive management at a corporation to justify your perks. Many corporations have cut back. Have you? What about those that crank out mediocre products? They are either bought out by a competitor or go out of business. They don’t keep getting funded every year by a tax levy. They are out the door.
Many districts are mismanaged and administrators are going to find out the well has run dry in their districts. Properties are losing the values that overzealous tax assessors have assigned to them.
There is one house north of Racine, in a small suburb called Wind Point on Lake Michigan that was foreclosed. The bank or the real estate agent thought they could get a huge return on it. They put it on the market for $595,000 more than a year ago. Though it wasn’t worth it, they thought it would command that price because it was in an affluent neighborhood.
The taxes on the property just went up several thousand dollars. The assessor thinks it’s worth a lot. That house is now $410,000 without one serious offer on it. Looking at it more than a year ago, I said it should sell close to what the mortgage is on it. That would be somewhere in the upper $300,000s. It’s time to adjust the taxes down.
There are still a lot of houses getting into the foreclosure process. Most Chicago-area suburbs that were looked at a year ago still have many houses going into the foreclosure market.
In comparison to about a year ago when I wrote the first column about foreclosures increasing, look how things have progressed.
Junk is going to be discounted while quality items are going to remain high priced. With cars, you don’t see 0 percent financing on a Lexus, Infinity or other vehicles in demand. Maseratis that sell for $120,000 are going out the door faster than they are coming into the dealers.
Will there be a lot of new houses and condos for sale at bargain-basement prices? Don’t count on that. Builders will take less money, sure, but they won’t give houses away. As for condos, some buildings will become apartments until the market bounces back. This is happening already.
Many are hyping real estate courses to take and books to buy that discuss foreclosures.
Most foreclosure properties will be trashed before they get to the market. While you might get them inexpensively, what are the costs to fix them up? Who’s going to pay a premium once they are put back on the weak market? It sounds like the formula for success has a couple flaws.
To recap 2007, the housing market, new-car market and the general consumer economy have reflected what we have been pointing out here for several years. The economy may be a bull market for some, but for many, it has been a bear market since Sept. 11, 2001.
Carlinism: Quality is quality. There never is a fire sale on quality.
James Carlini is an adjunct professor at Northwestern University. He is also president of Carlini & Associates in Chicago. He can be reached at james.carlini@sbcglobal.net or (773) 370-1888. This column originally appeared at www.midwestbusiness.com, a media partner of Small Business Times.
