Here’s Your Housing Crisis

The Times today has an article about speculators picking up foreclosed property for cheap. Nothing wrong with that, right?

“The market’s really low right now, so you can get a good price,” said Lori Crook, a food server at Keys Cafe who said she was looking for a place she could fix up and sell. “Even if you can’t sell it right away, if you just sit on it and sit on it, it will go up.”

You have to wonder how much spare captial a food server has. You got to think this is a pretty huge gamble for Lori. Lori believes that the market will go up. End of story, no qualifiers, this is money in the bank. Now where have I heard that attitude before… oh yes, from every bubble ever.

Representatives from two big lenders that have been hit hard by the collapse of the subprime mortgage market, Countrywide Financial and Bear Stearns, were on hand to provide mortgages — fixed, adjustable, jumbo or interest-only. Both have been criticized for giving loans too freely, leading to a wave of delinquencies and a rush to sell debt securities backed by those loans.

Hmm… easy access to seemingly cheap money… now where have I heard that before… oh yes, now I remember, that’s what started the housing bubble! These two particular companies even! What a coincidence.

Some, including Bryan Kihle and Jim Casha, who bought a four-bedroom house for $145,000, bid without seeing the properties. “I just looked at the picture and thought if we got it cheap enough, we could rent it for a year, then sell it when the market goes back up,” said Mr. Kihle, a building contractor.

Again, no qualifiers, no risk assessment. They didn’t even look in the house! By the way, real estate is going for $7/month in Detroit. By their logic, you should be buying up whole blocks there.

I’m sure there are plenty of savvy investors out there. This guy seems reasonable:

Nathan Harris, 23, bought lot 8A, a four-bedroom house near the University of Minnesota, for $80,000. He had been willing to bid as high as $150,000… Mr. Harris chose an interest-only mortgage…But he said he was not worried: in five years, when his mortgage adjusts, it will still be on a principal of only $80,000.

But there are clearly a large proportion of gamblers who just think they are getting in on this wave of a sure thing. “The reality is, half the reason 300 homes are being auctioned off is that speculators tried to make a killing and failed to do so.”

Falling a couple percentage points of record highs does not mean buying low.