Boomer’s Blog

I was totally unprepared for the sheer hilarity of this video, which features history’s most notorious dictator caught with his metaphorical pants down. His story is not unique. It all started with a “liar’s loan.” The plot thickens with a home equity line of credit and a vintage Camaro SS …   before long, the anti-hero is slipping underwater with an adjustable rate mortgage (ARM), a property that has lost 45 percent of its value and no way to refinance his home loan. Watch as this fascist gets sucker-punched by negative equity, the credit crunch and foreclosure.

I hope you enjoy watching as the real estate bubble bursts over this unwitting real estate speculator’s head. The drama mounts with his bitter tirade against the National Association of Realtors, his mortgage broker, his diminished 401k and investments in AIG and Lehman Brothers.

Ironically,  the professionals working in the system that made it all this misery possible were: “Just following orders”!

This parody reinforces what the notorious head of state said so many years ago: “The great masses of the people will more easily fall victim to a big lie than to a small one.”

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Rehabbing your real estate investment property for a quick flip in today’s changing markets is a totally different game than it was during the housing boom. Nationwide, returns on major home-improvement projects are fetching only 70 cents on the dollar. That’s down from 80 cents in 2004, and likely to drop even lover in the next couple of years. Remodeling activity peaked in 2006 and started slowing last year. It is expected to fall 4.8% this year, according to a report by the Harvard Joint Center for Housing Studies released last month.

The Wall Street Journal reports that despite slumping home values, construction prices have soared — due in large part to rising fuel costs and the credit crunch. That means rehabbing a kitchen or bathroom will cost more, even as it contributes less to the home resale value. Minor fixes are the the most cost-effective and on-trend strategies to entice buyers without breaking the bank. In many markets, the following fast and cheap fix-ups are your best bet for cashing in on your flip:

1. Sometimes a deep cleaning packs the punch of a remodel;
2. Replacing old siding and painting trims provides a low-cost fresh look;
3. Changing out old light switch plates and electrical outlet covers can make old walls appear new again;
4. New hardware on drawers and cabinets adds a unified style element that buyers love;
5. Cleaning up the grounds and minor landscaping, including a few well-placed, drought-tolerant plants, can make a property look like it is loved with little maintenance; and
6. Installing energy-efficient windows provides great ROI in virtually every market.

An awesome, free resource to track which fix-ups will maximize your rehabbing return on investment (ROI), Remodeling magazine has a free online database that helps you do your homework before the bills start rolling in. Here, you can check out which remodeling trends pay-off most and quickly access relevant U.S. Census data at the regional, state and extended metropolitan local levels. This is a useful and easy-to-use tool for investors who are rehabbing flips in distant and home markets.

Can’t sell that flip? Consider becoming a landlord to generate cash flow while you hold on for better prices.

The Wall Street Journal reports that 2.2 million vacant homes were for sale in Q1, up from 2.1 million in Q4, and about one million more than was considered “normal” before economic crises permeated the market.

The U.S. homeowner vacancy rate, which tracks the number of vacant homes for sale, jumped to 2.9 percent in Q1, up from 2.8 percent in Q4 2007. According to recent U.S. Census Bureau housing data, the vacancy rate has risen significantly since the housing bubble morphed into the mortgage meltdown. Between 1995 and 2005, the rate sat between 1.5 percent and 2 percent.

Families today are no more likely to own their homes now than they were in 2002, despite widespread opportunities, such as subprime mortgages, that were purported to boost home ownership among borrowers with poor credit scores. Related Census data show that the seasonally adjusted share of homes occupied by owners rose to 67.9 percent Q1, up from 67.7 percent in Q4 – this level peaked at 69.3 percent in 2004. These numbers and the credit crunch fuel more speculation that home prices will continue to drop well into Q4 2008.

While the dream of home ownership has become an Ambien-fueled nightmare for many Americans, data show that droves of families who’ve managed to claw their way out of bad mortgage deals are looking for places to live.

There currently are 4.1 million vacant homes for rent, and the rental vacancy rate edged up to to 10.1 percent in Q1. The rental vacancy rate clearly is on the rise since Q4’s rate of 9.6 percent was recorded by the Census. Analysts say however, that the growing inventory of vacant rentals should keep rent prices relatively stable, and help to temper inflation.

For those looking into becoming a landlord, the Boston Globe offers six rules from the trenches that could save you from financial — and emotional ruin.

CNNMoney: Home Prices in a Downward Spiral
While existing home sales recently have seen modest market boosts, analysts say that residential real estate prices have posted record drops in the past year. The S&P Case/Shiller Home Price index of 20 key markets finds that home prices plunged 11 percent in a 12-month period that ended in January. These findings mark the lowest levels ever reported for the index, which debuted in 2000.

Marketwatch: Emerging Bargains in REO New Construction
With falling home prices and changing lending practices, a growing number of foreclosures are now available in up-scale areas at at lower price points. In one new Sacramento, Calif. suburb, changing markets mean changing demographics in once-hot sellers’ markets. The greatest deals often are found in new-construction areas that were hot in 2005-2006 when they were priced well above the median price for the greater area.

Associated Press: Fed Auctions $50 Billion in Short Term Loans
Hoping to ease the economic turmoil for credit-crunched banks, the Fed has so far offered a total of $260 billion in short-term loans via eight auctions since December. The central bank has posted results of its latest such auction where commercial banks bid for their share of $50 billion in short-term loans. Reports say this is a continuing effort to minimize the impact of the recession on the vulnerable economy.

Forbes.com: Wall Street Chaos Ups Ante on Countrywide Buy-out Rumors
Rumors about Bank of America’s latest plan to acquire Countrywide Financial hit today, indicating that Countrywide might get a better takeover deal than the $4 billion offered by the bank in January. Even then, the deal was lauded by the Fed and other regulators hoping it would stop a liquidity-constrained Countrywide from causing more trouble in markets already cramping from the credit squeeze.  Speculators today may be counting on the Fed continue bailing out financial firms who are heavily vested in subprime markets.

Forbes.com: PennyMac to Profit from Contrywide’s Blunders
As the largest mortgage lender in the United States, many believe that Countrywide Financial helped to trigger the subprime mortgage disaster with its uninhibited lending practices. Countrywide currently is under FBI scrutiny for possible securities fraud and regulatory violations. Now, a group of former Countrywide executives are looking to capitalize on their wealth of experience by purchasing distressed mortgages at low prices and re-selling them for profit. Led by former Countrywide talent, the newly formed Private National Mortgage, or PennyMac, will use private capital to invest in and service residential mortgages; it also will acquire loans from institutions seeking to reduce mortgage exposure risks. Critics claim that Countrywide executives should not be empowered to profit from the mortgage crisis they may have helped to create.

Los Angeles Times: Equity Strippers to Bear All in Court
Federal prosecutors have so far charged 19 people, mostly from Southern California, with defrauding cash-strapped homeowners using “foreclosure rescue pitches” and an equity-draining technique called “equity stripping.” Two indictments have so far been issued in relation to the $12.6 million scam. Prosecutors say that defendants could get more than 20 years in prison, if convicted.