growth, immigrants, and the housing market

Brent Finnegan -- January 30th, 2008

Even though the population of the Harrisonburg-Rockingham area grew almost 9 percent between 2000 and 2006 (according to the Weldon Cooper Center), it’s not helping the high end housing market, according to today’s DNR.

But what about the less expensive houses? Scott Rogers has a post up on his blog about immigrants’ effect on the housing market. An NPR story linked there implies that at least some of the homeowners are unauthorized immigrants.

31 Responses to “growth, immigrants, and the housing market”

  1. Bubby says:

    We are weathering a financial crisis brought on by “predatory” loan practices, goofy structured investments constructed of these same loans, the qualification of homebuyers from unqualified borrowers and the related run-up in home prices…and now we witness the attempt by lenders to lend to people just as likely to be hauled off to the nearest deportation center?

    This is what happens when the Government fails to perform it’s essential regulatory function. In a just system, these lenders would be shackled in the City square, and pelted by the taxpayers, legitimate homeowners, and honest investors that rely upon honest markets to build America’s wealth.

  2. Bubby, good point. When we first heard the fact that Chase Financial sold loans to people without having any proof of income, I almost passed out. Now they want help because they have to lay off everybody and try to re-coup their losses? What about those people that were employeed by Chase, who helps them?

    Just like the airline industry, if you operate at a loss to gain customers, it is not up to the poeple to bail your stupid ass out.

    On a seperate note, keep on eye on the prices at your favorite restaurant…the cost of food is getting ready to blow up. Chicken, beef, milk, cheese, and a little less, pork are going sky high. If you have a freezer, buy now and be thankful. It is going to get much worse soon.

  3. John says:

    Huh? When did JP Morgan ask for help? Their stock price is down like 8% in the last 12 months. Certainly not about to go out of business or need subsidies. They are absolutely not operating at a loss.

    There are literally HUNDREDS of banks that STILL, this very moment, offer mortgages to people who can’t or won’t document their income. It should be noted that these loans require phenominal credit, a good asset base, a history of stable employment, and a sizeable down payment. These are not the loans that are causing the bulk of the ‘crisis’. The bozos who took 1 and 3 year ARMs when rates were 4% and didn’t care that their payment could go up hundreds of dollars down the road are the ones causing the crisis.

    And believe it or not, illegal immigrants are much more successful at paying their mortgages on time than non-illegals. They are probably the smallest part of the mortgage mess.

    I’d also add that the NPR story spoke a lot about immigrants in general — which might mean some of them are not illegal. We all seem to forget that some of the Hispanics we see are actually allowed to be here (gasp!) Heck, some of our local industries would probably cease to exist if we didn’t have the benefit of their labor.

    Markets are cyclical. Down markets have happened MANY times before, for a variety of reasons that people ‘couldn’t believe’ — and they’ll happen again.

    And I’ll tell you who helps those Chase employees who got laid off. As a business owner, I DO, and so does JP Morgan!!! They go on unemployment and collect $ (that every employer pays into the unemployment fund) while they supposedly search for a new job.

  4. There is also a very interesting and insightful discussion on WSVA (AM 550) on the housing market going on NOW !

  5. finnegan says:

    John wrote: “…believe it or not, illegal immigrants are much more successful at paying their mortgages on time than non-illegals. They are probably the smallest part of the mortgage mess.”

    That’s what I would suspect. It’s also what the second NPR story implied.

    Also: “… some of them are not illegal. We all seem to forget that some of the Hispanics we see are actually allowed to be here”

    I hope you didn’t think that’s what I was implying. I wrote that the NPR story “implies SOME of the immigrant homeowners are unauthorized.”

  6. Bubby says:

    And believe it or not, illegal immigrants are much more successful at paying their mortgages on time than non-illegals. They are probably the smallest part of the mortgage mess.

    That’s because they are CURRENTLY the smallest part of the lending market. Now that mortgage brokers have their sights on them, and need new grist, we can expect to see whole new structured investments made from immigrant mortgages.

    What bank holds a mortgage any longer? There is a direct line between the end of bank-held mortgages and the economic ruin we currently face.

  7. Bubby says:

    John: I can assure you that many of those “bozos” that took ARMs were multiply reminded that they could “roll over” those loans well before the rate adjusted upward. Either by real estate agents endlessly rosy yip-yap about the ever-upward increase in real estate valuation, or wise mortgage brokers – who by-the-way made money on every re-fi closing.

    Calling buyers “bozos” because they did not understand the vagaries of the complex mortgage / real estate market is to gloss over the Wall Street MBA’s and Investment Brokers who get paid to understand those same markets, and behave in a professional and scrupulous manner. I’d call that criminal neglect and give me a Bozo over a Criminal any day.

  8. Deb SF says:

    One of the best places to keep up on the expanding liquidity and credit crisis is the financial blog calculated risk.

    http://calculatedrisk.blogspot.com/

    For a taste of the quality of writing, aimed at smart, curious people who are not experts in the industry, go here for a year end 2007 summary of data on the housing market:

    http://calculatedrisk.blogspot.com/2007/12/housing-summary.html

    The ubernerd archives are just excellent as well.

    http://calculatedrisk.blogspot.com/2007/07/compleat-ubernerd.html

  9. finnegan says:

    Speaking of the growth of the Hispanic population, there was a report released by the Weldon Cooper Center earlier this month which shows that Harrisonburg is one of four “hot spots” (shown in red on the map) for Hispanic population growth between 1990 and 2006. According to that report, Harrisonburg is up 13 percent.

    And before any commenter starts ranting about illegals, note that the report has divided Hispanics into two groups: “Hispanic citizens” are defined as U.S. born citizens and naturalized citizens… “Hispanic immigrants” are defined as non-citizens, residing here with or without valid documentation.

    Interesting PDF. Definitely worth checking out.

  10. eso says:

    About these sub-prime loans…. I tend to think they lent to people who otherwise wouldn’t have a chance at a house. They let them take a chance at home ownership, which is a wonderful thing. And some of them didn’t make it. I don’t have any formal finiciancial training and I know that adjustable rates adjust up and to check the upper limits.

    I do have sympathy to the individual owners and think perhaps something needs to be done to protect the overall market, but I’m not sure that I subscribe to the notion that the bulk of these loans were “predatory”.

  11. eso says:

    Foreigners/ non-citizens are free to buy property in the US. But it is crazy to allow illegals without a legal source of income to obtain a mortgage. I heard on Boortz that Bank of America is marketing credit cards to them without requiring ssn#. That just seems like a recipe for disaster.

  12. How is it when I opened our business account at Wachovia, I need to provide a legit ID but BofA can give someone a credit card w/o SSN#?

    Also, to contest the things in the previous PDF…http://www.fairus.org/site/DocServer/guest_worker_amnesty.pdf?docID=841&JServSessionIdr004=dn3kddgxt1.app6a

  13. Barnabas says:

    I recently bought a house in Staunton.
    I went to Joe Slagel at Wells Fargo in Harrisonburg and he explained everything to me very clearly. He told me that the last option I should persue would be an ARM. When the lender would not approve my loan without me making certain changes to the house that I could not afford I went to a local bank and Joe sent all the info along to help speed the process. The bank approved the loan at a much higher rate that was nowhere near my Debt To Income ration. This local bank was willing to give me this loan even though i could not afford it. I finally got a laon through a third lender that I had to continue to remind of my DTI before they finally got me a fixed rate loan that I could afford.
    If I had not gone to someone I could trust in the beggining, that had explained everything, than I would have most likely been taken advantage of.

  14. Scott Rogers says:

    It seems to me that many buyers who purchased using an adjustable rate mortgage (ARM) during the past few years did so in order to be able to stretch to purchase the home of their dreams, despite the inherent risks.

    If home values had continued to increase by 10+ percent per year, the risk would have been limited — if you can’t afford an increased payment, you sell at a nice profit.

    With current appreciation rates significantly slower than in past years, many of these ARM buyers aren’t able to make the payments (they went up), aren’t able to refinance (they don’t qualify for a fixed rate mortgage), and aren’t able to sell (without losing money).

  15. Barnabas says:

    When we first entered the market we signed up with lending tree dot com. Shortly after we had many lending agents contacting us trying give us, just what Scott said, the house of our dreams using an ARM. All the lenders said that with the market trending the way it was we could refinance and get a much lower fixed rate later on. At one point a lender even told my wife that she could secure a loan in my name online and he wouldn’t have to confirm that I was even involved.

  16. Bubby says:

    Barnabas: Your experience with the Wells Fargo broker used to be the rule, not the exception. You would go to your banker, or Savings and Loan officer who knew your financial profile, s/he would coach you, and own your loan. It was very difficult to walk into a mortgage loan disaster. But, if you wanted to spend half of your take home income on housing, they would show you the numbers up front (just to sober you up).

    Then, about 6 years ago some very ambitious people decided to make real estate an investment scheme for everyone. Ridiculous “common wisdom” was repeated endlessly – real estate always increases in value. Then loan vehicles were created that allowed a purchaser to gamble on this “wisdom” and get a seat at the roulette wheel with an introductory rate – the A.R.M. Often without due diligence, sometimes with outright fraud, always with the certainty that some investor would buy the mortgage. They were gambling with our economy, using some else’s money.

    Politicians started crowing about the “record rate of home ownership” in solemn tones, like ownership was some sort of divine right. People that couldn’t afford a home were moving in with cash out of the loan, and a new car in the garage. Everyone was high on Real Estate Crack.

    But unlike the Houston RE meltdown of the 1980’s that simply ruined the local fools, this financial risk has been pumped into national and international investment markets in the form of real-estate bonds, and equities where it shakes the very foundation of our economy, damages pension funds, mutuals, and lowers home values for everyone.

    A lot of very greedy people made a lot of money, and now we all pay. Some more than others. It WAS predation, but the victims were hardly the people that now find themselves out on the street. We will all pay for this, and for a long time.

    We allowed the Free Market to provide it’s own Oversight and Accountability, the traditional job of Government, and the results are in. They failed.

  17. Scott Rogers says:

    Bubby: You have identified “real estate always increases in value” as “ridiculous common wisdom” — I disagree.

    As a whole, in many markets (such as Virginia), real estate *does* (almost) always increase in value.

    However — not all properties always increase in value.

    Read more analysis of this on my blog if you’d like . . .
    http://tinyurl.com/2brq72

  18. Bubby says:

    Scott: I enjoy reading your blog, and find it very informative. I have been investing in real estate for 20 years, and have done very well. It was not at all easy.

    My comment that ‘all real estate increases in value’ being ‘ridiculous’ relates to the recent notion, largely promoted by the real estate industry, that buying a home is a sound investment strategy. Your graph further illustrates my point. It only tells a small, and statistically blurred part of the story.

    As you wisely note, all real estate is local. If no one wants to buy your investment (house) and you need to sell, your choices are generally all ugly, and possibly disastrous. Which is the current scenario for +$350,000 homes in the area, and in other areas across the state. You may get near your price, but can you wait 60 months to get it? Most can not, and never in their darkest nightmare expected to. A graph of STATEWIDE home sale price stability is cold comfort. In fact, as you note, it does not matter.

    My memory extends to the early ’90’s in in niche markets like NOVA when a similar situation had people unable to sell their homes and were forced to, cut prices, rent or declare bankruptcy. Or the 1980’s when interest rates forced home owners to owner finance if they wanted any chance of a sale. That is high-risk investment – not for Joe Paycheck.

    The bottom line is that home buyers should be counseled that their home is shelter, not an investment. Buy what you can afford, and understand that you will have to sell it to another wage earner – who will more likely have diminished purchasing power due to the rising cost of money (interest rates). Instead we have seen cheap money leveraged into high-dollar, over-sized, over-styled, energy-hog McMansions that represent anything but a good short term investment. And as you know, most people move every two years, which makes their home a short-term investment.

    As you diplomatically note, it’s bad, and getting worse. We are already seeing home prices fall, and as the pressure builds on anxious sellers they will have few choices – in their ALWAYS local market.

  19. Scott Rogers says:

    Bubby: Agreed — at the end of the day, all real estate is local, and that doesn’t mean Harrisonburg — it means what part of Harrisonburg, what property type, what price range, what age, etc., etc. As a whole, values tend to go up, but that is not very helpful to the homeowner who needs to sell, and can’t because of current market conditions.

    The key, perhaps, is being in tune with the particular segment of the local market where a home or townhome falls.

    Interesting (to me, at least), is that more sellers haven’t accomodated on price in order to make the sale. (Admittedly, not all can — as it might mean they would have to take money to closing to payoff the excess mortgage.) Looking at single family homes sold in the past six months in Harrisonburg and Rockingham County, the average list/sell ratio is 95% — sellers still aren’t coming off their price as much as I might have expected. I’ll probably take a closer look at that soon to see if there is any better data to show whether Sellers are accomodating in price more now than they were a year or so ago.

  20. eso says:

    Frank Witt: There is a Wall Street Journal article about it at http://online.wsj.com/article/SB117133501870406767.html?mod=home_whats_news_us
    ( only part of the article is viewable )

    The answer, I think, is BoA, is allowing the use of Consular Id. An id created by the consulate office of Mexico ( or whatever country ).

  21. Adam Sharp says:

    I want to echo what “Barnabas” said (hey man, I still have your book, want it back?) about being offered risky loans. When my wife and I bought our house in Strasburg in ’06, we were offered many ARMs by lendingtree dot com and other “reputable” sources. Even our mortgage broker kept coming up with “zero down” mortgages that all depended on adjustable rates.

    I had to dig down into my stubborn and thrifty German heritage and keep insisting that we would only accept a fixed rate loan. Finally after 2-3 months of headaches we got a great (historically low) fixed rate mortgage in conjunction with the Virginia Housing Development Authority. There are restrictions (no flipping!), but we moved here to live, not speculate.

    I don’t think anyone was “forced” into an ARM, but if my experience is typical I think a lot of poor souls weren’t given a full range of options and may not have had the luxury of time that we took to get what we wanted. I’m also going to make an (unwise?) assumption that I read a little more widely than some people and had been following the shell game of cutting up ARMs and selling them as investments (“distributed risk”) for over a year. Having friends on Wall Street and in real estate explaining things also helped.

    Tuesday night I overheard a woman pointedly state that she didn’t want to be forced to bail out other peoples’ bad loans after working so hard to keep herself out of trouble. I completely understand that, and sorting out the innocents from the speculators may be impossible.

    But there are a lot of babies in that bath water, and many hard-working folks who don’t deserve to lose their homes. I hope we can find a way to save the “good” homeowners and soak the “bad” lenders, but I’m not holding my breath.

  22. Annelise says:

    So back to the housing market in Hburg: If there are so many high-end homes sitting on the market, why are developers and investors continuing to bulldoze woods and pastures to build more? Scott?

  23. Barnabas says:

    No, give it to somebody else. I already bought another copy.

  24. When I asked Wachovia about the need of ID, I was told it was to make “following the flow of money” easier. They mentioned something about terrorism, but if they were concerned about the flow, they already know where the majority of money transfers occur…right?

  25. Bubby says:

    Scott: I have been following the same pricing resistance. I believe it is because these sellers have to get their price to keep alive their faith that “all real estate increases in value”. Many have also larded-up their mortgage with equity loans, based on this notion of %15 value appreciation.

    We’ll see what happens in the coming 2 quarters as personal financial reserves are strained. Many people simply paid far too much for their home, but can’t afford to wait out the bad market. Soon, their choices will be between bad, and worse. It is going to get very ugly.

    Have you seen the S&P report giving a negative rating to something like $500billion in credit-based investment vehicles. This tells me that Standard & Poors can’t see the bottom, but suspect that it is way deep. There is about to be a increase in credit defaults.

  26. finnegan says:

    Today, UVA’s Weldon-Cooper Center sent out a press release about a report that looks and sounds identical to the one they released January 4 (which I referenced in my comment above — January 30, 2008, 11:23 am). It says Harrisonburg’s Hispanic population has reached 13 percent.

    But that didn’t stop newspapers from writing stories about it:

    Three small cities not in Northern Virginia also have large Hispanic populations: Galax (14 percent), Harrisonburg (13 percent) and Winchester (11 percent).

  27. Murphy says:

    How can anyone argue that Hispanic immigrants are not partly responsible for the subprime mess, when 40% of first time buyers over the past five years were immigrants, and 40% of subprime borrowers were Hispanic? The subprime mess was caused by a combination of rapidly inflated housing prices and the creation of a new set of mortgage products designed specifically for those with poor credit. Inflated housing prices were caused by a massive increase in demand, which conicided with a massive increase in immigration. The new mortgage products were tailor made for the financially irresponsible poor.

    Instead of seeing these people as victims, they should be vilified as the cause of a worldwide recession and the destruction of the retirement plans for millions of honest investors. Of course, most of our political leaders are in denial because of their support for open borders, prefering instead to blame investors and lenders for the mess. As a result, the problem will never get resolved.

  28. finnegan says:

    they should be vilified as the cause of a worldwide recession and the destruction of the retirement plans for millions of honest investors.

    Yes, I’m sure that’s why they paid a coyote $4000 and wandered through the desert — to ruin your dad’s retirement plan. I’m sure it had nothing to do with the corporate CEOs and lawyers that drafted NAFTA, or the fact that there are no good jobs to be had where they live.

    Are you a lender, Murphy? An economist? Well, Deb is an economist, and John is a lender, so you’re out of your element here. Look back through the above comments and see what John and Deb have written. John wrote, “And believe it or not, illegal immigrants are much more successful at paying their mortgages on time than non-illegals. They are probably the smallest part of the mortgage mess.”

    I’m a filmmaker who spent a year studying illegal immigration.

    With what authority do you speak, Murphy? Where’s your ethos?

    Of course, most of our political leaders are in denial because of their support for open borders

    Name some political leaders who are actually in support of open borders.

  29. John says:

    Man, I missed some good banter here. I posted way back and must not have looked at the site for a while.

    I would only add this: Making excuses for problems largely created by ones self is crazy. People love to talk about predatory lending and such. That brokers or lenders CONVINCED them to do this or that… What ever happened to grown ups taking responsibility for their own actions? If anyone ever took the time to actually READ the documents put in front of them for a mortgage, all of this would not be an issue. You’d be amazed at the things those papers disclose — all sorts of stuff about how you interest rate can change greatly in ARMs, and how past performance of real estate markets is no guarantee of future performance. Gee — almost all of the things people complain no one told them! The State of VA actually audits lenders on closed loan files to make sure they DID actually disclose this stuff. Hmmmmmm….

    And Murphy’s numbers are laughable. Where on earth did you get your 40% data? That is sooooo far off. If you used this to quote your data http://www.responsiblelending.org/pdfs/snapshot-of-the-subprime-market.pdf
    you aren’t reading it right. It says 40% of all loans made to Hispanics were subprime in nature — not that 40% of all subprime loans were TO Hispanics. Big Difference.

    And how did Lending Tree become so high class? Does anyone even understand what Lending Tree is? It is a lead seller — that’s all. They run the website and sell contact info for people who want mortgages to lender or broker with enough money to buy those leads – since when is that the definition of reputable? Lending Tree couldn’t care LESS who they sell them to, as long as you can pay them for the info.

    Lots of people want to play the victim when they make bad decisions. Seems to me these are the same types that sue McDonalds because they weigh 400 pounds, and sue RJ Reynolds when they get some lung disorder. Not to sound like John Stossel, but give me a break.

  30. Lowell Fulk says:

    You mean you’re not John Stossel?
    Man!

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