"I was cheated"
Since it appears they are currently experiening a housing bust, let's look at some of the signals that are now so "obvious" to them, and see if there are any similarities to the United States "frothy" regions.
Let's start here with these 3 points: "Shanghai's housing bust comes after a doubling of prices in the previous three years, a run-up fueled by massive speculation. With China's economy booming and Shanghai at the center of worldwide attention, investors from Hong Kong, Taiwan and elsewhere were buying as fast as buildings were going up. At least 30% to 40% of homes sold were bought by speculators, says Zhang Zhijie, a real estate analyst at Soufun.com Academy, a research group in Shanghai."
So, they had a doubling of prices in 3 years. Know or heard of anybody who has had a property double in 3 years?? Anybody heard/know of a condo complex or housing development that was sold out?? Anybody seen the numbers that have the number of people buying for investment and second home in the 30-40% range in many "frothy" areas??
If you answer NO to all three questions, then stop reading now, go to Ebay, and buy all of the Beenie Babies you can...they will be worth a fortune someday!
Does this sound familiar?? "Ordinary people had no option but to follow the trend," Zhang said. "Worrying that prices would be even more unaffordable tomorrow, many of them borrowed from relatives and banks to buy as soon as possible."
Ah yes, the "if I don't buy now, I'll be priced out forever" argument that many of us have heard, but have a hard time believing. Priced out for a several years, maybe...priced out forever, doubtful. It is hard to be priced out "forever" when 82% of the purchases in the last year in California were done with Interest Only and Neg-Am mortgages. Those precious loans will have to adjust sometime, and I'm betting that most of those people aren't the "sophisticated" types that those loans were designed for. Wait a second, I guess watching a Robert Allen or Carlton Sheets infomercial does make one "sophisticated"...after all "no money down" is the way to go!!
I really like this part: "And for a short period, Wang believed she was raking in hundreds of dollars a day for doing nothing, as property prices in the city kept soaring."
Ha ha....that was ALL I heard for quite a while. It was "THE" talk in Southern California...as I'm sure it was in many places (Vegas, Arizona, Florida, etc). Everybody liked waking up in the morning with another 500-1000 bucks of equity in their property. But let's see what happened...
But today, prices at the complex have fallen by a third, and the lines of frenzied buyers are gone. Wang is among dozens who are fighting the developer to take the apartments back.
If you look at the ads for new construction, or have seen any open houses lately, you will know that the long lines of frenzied buyers are gone. I don't think we have seen prices come down a third in very many areas, but there are a lot of concessions being thrown in now days...especially from developers. It isn't uncommon to see free upgrades, free HOA's, free mortgage payments, free cars, free plasma TV's, etc. thrown in by developers to more their inventory. Look at the inventory numbers on the bubbletracking blog, those alone will illustrate that the "frenzy" is over.
There is a main point that I want to get to, but not until I say that the Chinese government did take some steps that caused this. They raised the minimum rate from 5% to 5.5%. They added some tax hits for "flipping" properties, and what I think is the biggest thing, they made downpayments go from 20% to 30% for investors. Can you belive that!?!?!? They actually had to put 20% down and they had a bubble. Can you imagine how bad things would be over there if they were making 100% loans? I/O loans? Neg-am loans? It appears they don't have the amount of "exotic" financing that we have here in the States.
But when it was all said and done, here was the final comment, which is the point I want to emphasize:
Huang regrets that she got caught up in the frenzied market, and says that even if she wins the lawsuit, she'll suffer a hard financial loss.
"I was cheated," she said.
This is the part that I have 100% no-doubt-in-my-mind will happen in this country. People will take zero responsibility for their actions, and look to grab a lawyer to "save" them from the "investment" they were "cheated" on.
I want you to check out this link: Upside down in Tuscon from the San Diego Real Estate Investment Club. Here is the "problem", a guy is negative on pre-construction property in Tuscon, AZ:
Now my situation is this-- If I hold it, I am looking at a negative cash flow of $600-700/month (after taxes, insurance, management fees, PMI, etc). If I sell, it would be at a loss with commission to the agent, about $10K. Do you think I should hold and wait or sell and cut my losses? Anybody in a similar situation?
That isn't what I have a problem with. Bwr made an investment, and is going to lose money. Has happened millions of times before, and will happen millions of times again. What bothers me is another guy in a similar situation, and their reply:
I have contract on a home in Tucson that should be done in January and may find myself in a similar situation. The price increase from my builder has only been $10k. I'm defintately getting the jitters about the whole deal and wondering if a good real estate attorney could get me out of the contract and get my earnest $ back prior to having to close.
If anyone has ideas about how to get out of a pre-con contract I would love to know about that or if you know a great RE attorney I may need help. Could that be a less expensive way to go? I don't believe I am the only investor in this unfortunate situation.
So let me get this straight, I want to sign a contract for a home...actually, not a home, a house. Then I want to "flip" that house and make my "easy money" without doing any work. When it appears I'm not going to make the money I'm looking for, I will just call on an attorney to "get me out of it". I know I'm not surprised by this, but this is small scale, and only the tip of the iceberg in my opinion. Just wait until 1.5 trillion dollars of ARM's adjust in the next 24 months, and see how many people will want to sue then. Especially the ones that don't have the "guaranteed" appreciation that "goes along" with all real estate investments.
Do you think that every borrower with an "option-ARM" knows how the loan really works? I can tell you from the amount of people trying to refinance OUT of an option-arm, they they had no clue what kind of loan they were in. The number ONE thing borrowers care about is the payment, and the number one thing I hear from brokers when I ask "what kind of loan are they looking for?" they say "lowest payment possible". Well, the option-arm will get you the lowest payment possible...but there is a "price" for doing that. You can read my option-ARM post for the details.
So yes, China had some other factors we don't have here in the United States, but many of the underpinnings were the same. Yes, there were many more good pieces of info in that article, so you should read the whole thing. The sad thing is that no matter what happens anymore, the solution is to get a lawyer and sue somebody. Make an investment that doesn't make you six-figures, get a lawyer. Our culture sucks at math and reasoning, but they get an A+ for "bling" and playing the victim. It's OK though, everything will be fine, after all..."it's different this time".
I look forward to the comments...