Sunday, May 11, 2008

Santa Cruz Man Loses Shirt (and Everything Else) in Realty Bust

Drunk on the real estate mania, splurging on negative amortization loans, and staying invested in denial, has finally left a Santa Cruz (Calif., US) man naked and playing in the sand.

Steven Forgaard, 37, [not the person in the picture] has defaulted on nine homes and expects the banks to close all of them. He now says he considers it a mistake to have invested in the real estate market.

Forgaard – a software project manager – has become an insignia for all Bangalore software professionals who have done exactly the same, and stand to face a similar future in 6-8 months.

"I knew I was sitting on time bombs," Forgaard said. “I knew the market was going to go soft and I knew that property values would decline. But I figured that I had enough equity to survive the storm and sell or take the loss and refinance. I didn't anticipate a downturn of epic proportions such that home values are 40 percent less than they were,” he said.

Forgaard bought his first investment home in the booming housing market of North Las Vegas in 2004, followed in the next two years by eight others in such hot markets as Phoenix and Palm Springs, California, before he realized in 2006 that the situation was worse than he had feared. “I knew that the market was soft but at that point I'm realizing that this could really get ugly,” he said. “At that point I had a bad feeling in my stomach.” Forgaard thought he still had enough equity in the homes to “take a huge hit,” possibly losing most of his investment, but thought for a while that he could still ride out the storm. He is slated to lose his car and primary (home) and will have to exit Santa Cruz, where he was born and raised, and live by the beach.

Experts say speculators like Forgaard, who count on real estate values to keep rising to pay off their debt, play a risky game and doubly so when they use neg-am loans. The Forgaards likely will sell their Santa Cruz home and declare bankruptcy before banks start foreclosing on his properties. With a newborn son, they intend to start over in his wife's Northern California hometown. “Where I went wrong is I invested heavily in an area that wasn't my passion and I had a really demanding full-time job so I couldn't pay attention to nuances, the little indicators telling you the housing market was going soft," he said. "I was in over my head."

Read the Reuters story here

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Consider how the crisis has unfolded over the past eighteen months. The proximate cause is to be found in the housing bubble or more exactly in the excesses of the subprime mortgage market. The longer a double-digit rise in house prices lasted, the more lax the lending practices became. In the end, people could borrow 100 percent of inflated house prices with no money down. Insiders referred to subprime loans as ninja loans—no income, no job, no questions asked. - George Soros in latest book

everything’s going up, there’s a feelgood factor and people tell each other how much their houses are going up at dinner parties,” says Professor Mark Stephens of York University’s Centre for Housing Policy. “Then the music stops, as it always does.”

year, Japan was a more attractive market to put money in. If you look at the US, we can now get an internal rate of return of 25% there, so why would anyone want to come to India?” - a senior executive at an international financial services group, who did not wish to be named.

people told us house prices never go down on a national level, and that there had never been a default of an investment-grade-rated mortgage bond, "Mortgage experts were too caught up." - John Paulson, trader, who bet against subprime market and made $15 billion.

most puzzling are the real-estate projects of Parsvnath. Just have a look at the Pride Asia project near Chandigarh. They are asking almost US $300K-$350 K dollars for 2 bed room apartments. They have Villas in this project that costs more than US $1.5 million dollars. It is true that some people in India have that kind of money in India. However most of their wealth is black money and that can not be used to buy these properties. Obviously, these projects have been launched keeping NRIs in mind. - Sanjeev, comment from another site

Desai, aka Bani, the star of Balalji Telefilms's soap, Kasam Se, has been house hunting for over a year. She had almost closed a 2-BHK deal last year for Rs 1.5 crore in a Oberoi Constructions' building located at Andheri, Mumbai, but when she went back to confirm it, she was asked to cough up Rs 2.61 crore. Since then, she is still house hunting. - Mumbai Mirror


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