Thursday, July 22, 2010

Do the Rich Default More on Mortgages than the Poor? Foreclosed Mansions at TigerHawk : The Problem of Homes Overpriced by the Real Estate Bubble

Are the rich defaulting more on mortgages than the poor?

See Foreclosed Mansions at TigerHawk, where Escort81 comments on a David Streitfeld article at New York Times titled Biggest Defaulters on Mortgages Are the Rich.

The housing bubble problem is epitomized at the New York Times article by a Peter DaSilva photograph of "a home in foreclosure in Los Altos, Calif., a city where the median home price is $1.5 million." [emphasis added by LawPundit]

During my sojourn at Stanford Law School we had a group of students who rent-shared a house - in Los Altos of all places - a house which according to Zillow is worth well over $1 million today.... Probably not too many students living in those Los Altos Hills these days.

The problem really seems to be that real estate housing is a market-overpriced investment object rather than just a place to live, and this investment nature of housing over the years has driven up prices to levels which are often many multiples of their real worth.

The right way to actually "price" residential homes would be to divide up the cost elements as follows:

1) to list separately the lot price of the land property at a given location (i.e. what the lot would be worth if no house stood on the land property at that location), and,

2) to list separately the price of the physical home itself at current prices - and compare that price to replacement cost, i.e. what would it cost today to rebuild the home from scratch as it is today, minus depreciation of course if it is not a new house

For many locations the underlying lot price is by far the greater percentage of the total "home price". This explains why many so-called "multi-million-dollar" homes are quite ordinary structures whose price is so high only because of their inflated location cost.

When one looks at the homes around Stanford in exclusive residential areas such as Los Altos Hills or Atherton, one quickly realizes that these home prices are greatly inflated due to their location and also because these real estate properties are used by some as investment objects. Most of the physical facilities of the homes are not worth anywhere near prices that are being asked for the property, whose "value" is determined solely by the price that someone is willing to pay for any given real estate object at a given location. If real estate agents would price properties separately according to lot value AND house value, many homes in exclusive residential areas would be viewed quite differently than they are.

Fremont Nebraska Ordinance Bars ILLEGAL Immigrants from Holding Jobs and Renting Property : Illegal Immigration as a Consequence of NAFTA is a Large Problem in the USA

NOTE! Please note that this is not a xenophobic commentary. The LawPundit was himself a legal immigrant in Nebraska 60 years ago and was always well-treated in that State. The issue here is illegal immigration.

Fremont, Nebraska (population ca. 25,000) is in the legal news - see this New York Times video, but first, a bit of local color, highlighting the special character of Fremont, which is not just your ordinary U.S. "small town".

Fremont is also home to the Fremont Lakes State Recreation Area, visited by nearly 1 million people per year (ca. 40 acres land, 300 acres water and 20 lakes). In my youth, growing up in Lincoln, Nebraska, I spent some glorious recreational weekends in Fremont, camping, boating, water-skiing, fishing, picnicking, swimming and sunbathing. Fremont was a part of a proverbial recreational paradise. No crime, no locked doors, no problems.

All that has changed in Fremont in recent years as the result of the omnipresent business greed of American and Mexican companies and the ill-advised NAFTA agreement, which devastated the indigenous agricultural industry in Mexico, putting millions out of work, leading to an outflow of more and more cheap labor to the United States, with an attendant influx of illegal immmigration.

It is very important in this context to recognize that America itself is responsible, through NAFTA, for much of its current immigration problem.

In Fremont, the influx of cheap labor has particularly marked the meatpacking industry, which is a big business in neighboring Omaha and its environs, as the "beef industry" not only generates a top-ranked $12 billion to the Nebraska economy (more revenue than "corn"), and in fact ranks tops in the nation in commercial red meat production, yes, even ahead of the Longhorn State of Texas. The Omaha Stockyards particularly have traditionally "attracted large numbers of immigrant families" to the Omaha area and to the related area industries, long before the current influx of legals and illegals from Mexico.

Fremont is in any case currently feeling the influx keenly, as its Hispanic population, e.g., has increased from 165 Hispanic inhabitants in 1990 to 2,060 last year.

Economically and politically, the bottom line in Fremont has seen profits for a handful of big companies on the one hand and crime, the need to lock doors, and many other attendant problems for its legal residents, such as unemployment, on the other hand. Once again, a self-appointed greedy few are raking in the chips and the rest are paying the tab.

As now reported in all the media, e.g.

Monica Davey, New York Times, Nebraska Town Votes to Banish Illegal Immigrants
Michael, W. Savage, Washington Post, Two federal lawsuits target Nebraska town's ordinance on illegal immigrants

Fremont residents have started to fight back by passing an ordinance in a special election last month which, effective July 29, bars illegal immigrants "from renting property or being hired legally". The American Civil Liberties Union (ACLU) as well as the Mexican American Legal Defense and Educational Fund have filed suits against Fremont, whereby the ACLU is inter alia seeking an immediate injunction to stop the ordinance on the grounds that it is unconstitutional.

As written at USA Today:
"Some Fremont residents, such as Clint Walraven, said the measure is not racist but simply intended to ensure that legal residents who are unemployed get the few available jobs in the city of 25,000.

"We all have to play by the same rules. If you want to stay here, get legal," Walraven said."
It will be interesting to see how the courts rule on this.
It would seem to us that part of the sovereign powers of the States and their municipalities and towns includes the ability to bar illegal residents from holding jobs (i.e. from taking jobs away from legal residents) or from renting property (because, logically, an illegal resident has no right to be there).
The issue of illegal residents is a burning flame in rural Nebraska especially and cost the otherwise very popular Tom Osborne the gubernatorial election in the 2006 race for Governor of Nebraska, won by Dave Heineman. As written at the Wikipedia:
"The Lincoln Journal Star analyzed the race:
While Osborne captured populous Omaha and Lincoln, Heineman sealed his victory in rural counties and key population centers in western and central Nebraska’s critical Republican battleground....

...it was the political impact of two gubernatorial vetoes that appeared to lift [Heineman ] into a late surge, especially in Osborne’s congressional district.

Heineman’s opposition to Class I rural school reorganization and the granting of resident college tuition rates to the children of illegal immigrants cut into Osborne’s support. [emphasis added by LawPundit]

Osborne declined to sign referendum petitions seeking voter repeal of the rural school legislation and said he would have signed the resident tuition bill." [1]"
This is NOT a problem that the courts can solve, by the way, regardless of how the ACLU lawsuit fares. The federal government must legislate and enforce immigration measures that protect its citizens and legal residents, otherwise you will ultimately have ethnic battle conditions on "the dark fields of the Republic". When it "no longer pays" to be an illegal immigrant in the USA, illegal immigration will stop. Similarly, NAFTA should be substantially amended to protect American industries. NAFTA was Clinton's greatest blunder and is the direct cause of much of today's illegal immigration to the United States from Mexico.

U.S. Senate Vote Ends Unpardonable Republican Filibuster of Unemployment Benefits

As reported at the Los Angeles Times by Lisa Mascaro and Michael A. Memoli, Tribune Washington Bureau, in Senate vote ends GOP filibuster of extended jobless benefits, the seating of Carte Goodwin as the new Democratic senator from West Virginia and the vote of two Republicans in Congress having a social conscience — Maine Senators Olympia Snowe and Susan Collins — resulted in a vote to extend jobless benefits to 2.5 million Americans whose unemployment benefits expired in June with no jobs in sight.

To filibuster that people with nothing should have less than nothing is unpardonable. Republicans should instead be working to get the people with money in the U.S.A. to create jobs, rather than to be filibustering against existential aid to those who have no work. Somewhere along the road, the Republican Party has gotten totally off course in following dogmatic theoretical conservative ideas that have no sensible relationship to current economic realities.

Again, we say this as political centrists who find that people should work -- but there do have to be jobs to be had. If not, the country has to support those who do not have work. People at the lower end of the scale are seldom in any position to create jobs for themselves. Denying them unemployment compensation is just morally despicable.

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