Oops! Foreclosures come to McMansion country

[devilgrrl]

Just as the foreclosure crisis has hollowed out poorer neighborhoods, "for sale" signs are sprouting in upscale developments so new they don't show up on GPS navigation screens.

Poor people weren't the only ones who took out risky, high-interest loans during the housing boom. The sharp increase in housing costs -- and the desire to live in brand-new, spacious houses with modern features -- led many affluent buyers to take out loans they couldn't afford.

"People had in their head, 'I need a mud room, I need giant columns, I need a media room, and I'm going to do anything to get it,"' said Robert Lang, co-director of Virginia Tech's Metropolitan Institute, a research organization that focuses on real estate and development.

The crisis has hit especially hard here in Loudoun County, Virginia, where upscale developments have supplanted horse farms over the past fifteen years.

About an hour's drive from Washington, Loudoun is one of the nation's most affluent counties, with a median household income of $98,000, more than double the national figure.

The county has also ranked as one of the nation's fastest growing in recent years as developers built thousands of super-sized, amenity-laden houses to keep pace with the booming high-tech economy.

These houses are sometimes nicknamed "McMansions," disparaging both their extravagance and their look of mass production -- like hamburgers from a McDonald's restaurant.

Between 1990 and 2005, the county's population tripled to 272,000. Many of those moving here relied on risky, high-interest loans to buy the house of their dreams.

"People pushed the limits to be able to buy. They couldn't afford to buy there otherwise," said Virginia Tech consumer-affairs professor Irene Leach.

more: http://news.yahoo.com/s/nm/20080407/lf_nm_life/usa_housing_mcmansions_dc_2

[Selatius]

1. Greed is not a sickness that infects only bankers and industrialists.

It can infect the demand side of the equation just as much as the supply side.

[devilgrrl]

5. $80,000+ a year doesn't make you millionaire.

Too many middle-class voters think that they are.

[notesdev]

7. The problem is

that many many people tried to live like millionaires on that $80k salary.

Nothing to be ashamed about with a salary like that, but neither does it rate a mansion (even a McMansion) unless one is unusually adept with their finances.

Unfortunately, the criterion for being able to get a loan for such a McMansion was "can you fog a mirror?"

[GoesTo11]

2. Need a mudroom?

"At the end of 2007, 20 of the 25 houses for sale for more than $850,000 in Loudoun County appeared to be foreclosures, according to Tony Arko, his partner."

Dang, those are some expensive houses. I just went to a well-known mortgage rate site to see what the payment would be.

For a 5% down purchase on the cheapest of those houses ($850,000), you get a 7.25% interest rate on a 30 year mortgage, and pay $5,798 per month or $69,576/year for 30 years. Probably most of these houses were more.

[Tesha]

4. Come up here to New Hampshire.

Here in New Hampshire, at this time of the year, in
many of our houses, *EVERY ROOM* is a "mudroom". ;)

More seriously, yesterday, just as a lark, we "kicked
the tires" on an open house in our neighborhood. Not
long ago, the house across the street from us sold for
something like $625,000. Yesterday, the *ASKING* price
on this open house, for a home with at least as much
square footage and just about the same amenities (but
not as scenic a piece of property), was $429,000. Oh
how the mighty have fallen!

While I don't think it's a foreclosure, I think this is
probably some sort of a "distress" sale. The people who
owned this moved in a couple of years ago, lived large
and loud, and suddenly vanished a couple of weeks after
an awful lot of their stuff appeared out on the lawn.
The for-sale sign went up shortly afterwards.

(They did leave the pool table and the lawn-jockey,
though.)

Tesha

[Tesha]

3. The "1999" advice is correct.

"And of course, real estate is usually a sensible long-term investment."

That is absolutely true advice. On average, real-estate *IS*
a sensible long-term investment. It's especially sensible if
the real estate in question is the roof under which you live.

But far, far too many people lost sight of the "long-term"
portion of that advice. And they also lost sight of the
fact that mortgages need to be paid. So they invested far
beyond their means in attepts to grow rapidly rich. And
*THAT* is a formula that only very occasionally pays off
and far more often leaves you impoverished.

Tesha

[flvegan]

6. "People pushed the limits to be able to buy. They couldn't afford to buy there otherwise"

and there you have it.