Ultimate confidence killer
The first wave of foreclosures came after the implosion of the wild-and-crazy subprime mortgage industry.
Now, with layoffs mounting, we may soon start seeing the second wave as the burgeoning ranks of the unemployed, from factory workers to executives, struggle to make their mortgage payments.
Financial services firms, the economic engine of the Hub, are now slashing their payrolls, as the Globe reported yesterday. And the national recession, which just a few months ago had been felt more lightly locally, is now hitting home here.
Get ready for more foreclosures in the suburbs, including in some of the tonier towns. But the impact goes much deeper than that.
The layoffs are the ultimate confidence killer. And the timing couldn't be worse. The Fed just launched an ambitious drive to spend hundreds of billions to lower interest rates.
Some of the cuts are coming from the very same companies that were given billions of dollars in infusions of government capital.
The prospect of rates dipping below 5 percent is clearly exciting. But it's also hard for a lot of people, especially would-be home buyers sitting on the sidelines, to forget about all those pink slips.
One comment on my post yesterday about falling mortgage rates says it all.
"Citigroup cuts 52,000 jobs. Fidelity cuts 1,300 (so far). State Street announces cuts of 1,800. AT&T announces 12,000 job cuts. And those are just the larger employers that make the news. Lower rates don't do a whole lot for those out of work, or those worried about joining them. The correction will continue."
SCOTT VAN VOORHIS
The copresident of the Wall Street powerhouse put his Nantucket waterfront estate on the market last month for a whopping $55 million. That's real money even on Nantucket, where the current record for a property sale is an eye-popping $26.5 million.
But Winkelried's chances of notching a real estate record are now looking slimmer by the day, with the nation's hard times taking a toll on previously immune mansion sales.
Barron's, in a recent cover story on the fading market for mega homes, notes that mansion prices have already tumbled 20 percent since their peak last year. And the real estate execs who show these palaces predict another 10 percent to 15 percent drop before this very high-end of the market hits bottom.
The story includes all sorts of tales of woe that will certainly bring a tear to the eye of your average homeowner muddling through the worst real estate market since the Great Depression.
There's oh-so-sad story of the late Brooke Astor's 14-room duplex on Park Avenue in New York. It's been marked down to an unsightly $34 million. I guess the original price, $46 million, didn't find any takers.
Hedge fund manager John Paulson has also been forced to face real estate reality as well, knocking down the price of his seven-bedroom Southampton getaway from nearly $20 million to $13.9 million.
Something is telling me that our friend at Goldman Sachs may soon follow suit when it comes to the $55 million price-tag on his own little Nantucket escape.
SCOTT VAN VOORHIS
Even if you have a large down payment (and don't need private mortgage insurance), you should think about owner occupancy of the condo association you are thinking of buying in. The actuaries that work for the PMI companies spend all day trying to identify a bad risk. Maybe they know something.
Generally, lenders like to see a high percentage of owner occupancy in a condo association. Fifty percent has been the norm. They also want to see that the other 50 percent is not owned by one entity, like the developer.
Why does this matter?
First, life in the building. No disrespect intended to renters or landlords; PMI companies believe that buildings with more renters can get run down more easily. I've seen it. It can be as simple as having no one keeping up with the names on the mailboxes; little stickers can look shabby; junk mail fliers sit on the floor in the lobby. The bigger problem is a combination of renters caring less and their landlords wanting to keep the condo fees down. Low fees can lead to less maintenance, less heat in the common areas, no rush-orders to repair the elevator, and such. It gets worse if the landlords stop paying their condo fees. That's why you don't want one person or entity to own a huge chunk of the association; if they get in trouble, you are sinking with them.
Second, resale. High owner-occupancy does not automatically mean the association is well run, but it is a measurable sign. A well-run association can help the value; poorly run ones can hurt it. Sellers in an association with a big work project coming up must disclose it. So, deferred maintenance hurts resale. Condo associations are supposed to have reserves for expected periodic maintenance (like a roof every 30 years.) Many do not.
In addition, remember those PMI companies? They are not going to insure a borrower in a condo complex that seems risky to them. So, upon resale, your pool of borrowers is reduced if you are selling in a complex that has too many renters.
If you live in a condo, tell us if you think the PMI companies are right about owner occupancy. If you are a buyer, have you been shut out of buildings because they don't meet PMI guidelines?
Thank you to my sources at Asset Mortgage Group, Mortgage Master and Monument Mortgage.
RONA FISCHMAN 