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The Seattletimes just ran a story on some expensive Tokyo rents that would make a Manhattan studio look cheap.

Now, Hotel Shinjuku 510’s capsules, no larger than 6 1/2 feet long by 5 feet wide, and not tall enough to stand up in, have become an affordable option for some people with nowhere else to go as Japan endures its worst recession since World War II.

Affordable is all relative I guess.  The story goes on to say – “The rent is surprisingly high for such a small space: 59,000 yen a month, or about $640, for an upper bunk.”

Just in time for the holiday season is a remake of the popular 12 months of Christmas, in the theme of walking away from your underwater mortgage.

Hedge fund manager John Paulson began to make enormous derivative bets in 2006 against the largest bubble in history – grossly overpriced real estate.  Certainly he was not the only one to see the disaster coming, but he profited the most from it, raking in over $15 billion for his firm, and dwarfing George Soros’s $1 billion currency trade win from 1992.  To read more about the greatest trade ever, and John Paulson’s new fortune, place your pre-order for the book below.

The Greatest Trade Ever: The Behind-the-Scenes Story of How John Paulson Defied Wall Street and Made Financial History by Gregory Zuckerman

Talk to a mortage lender or bank, or pick up the real estate section of any newspaper, and the opinions are always the same.  The best time to buy is NOW, they say.  No matter what your persoanl situation is, no matter where you live, no matter what the current interest rates or prices are, it’s always, NOW, NOW, NOW.  In reality, there are plenty of great reasons NOT to buy a home, and to continue renting.  Beth Kobliner lists several great reasons in her New York Times bestselling book Get a Financial Life – Personal Finance in your Twenties and Thirties.


Among the reasons,

1. “If you can’t envision yourself in the same place for the next several years, you should rent.” – There are thousands of dollars in closing fees for both buying and selling a home that can seriously impact your ability to make a profit or even break even.
2. “If you have an amazing deal on a rental, it might make more sense to rent and stash your savings elsewhere.”  Rental markets are softening around the country and there are numerous mainstream and local blogs raving about negotiating lower rents.  Consider MAS’s take on the Seattle market in Updating the Moving Scorecard – and his successful attempt to negotiate a rental rate increase into a rental decrease.
3. “If you don’t have steady income, keep renting.”
4. “Don’t assume you always get a tax break for buying.”  The federal government does allow homeowners to subtract their interest payments and property taxes from their taxable income, but doing so also takes away the FREE STANDARD DEDUCTION.  If your yearly interest payments are below your standard deduction, there is no tax benefit to owning a home.  Even if you have an advantage in the early years, that advantage will go away as the balance of principal vs interest payments changes over the course of the loan.

If you are going to rent, there are also tips listed in her book on what every renter needs to know:

1. “Try to negotiate the rent.”
2. “Negotiate the terms of your lease”
3. “Negotiate with the real estate broker if you’re dealing with one.”
4. “List all your roommates on the lease, and have them all sign it.”
5. “Get everything in writing.”
6. “Understand how a security deposit works.”
7. “If you plan to renew your lease, contact your landlord two months before the lease is up and try to negotiate.”
8. “Know your rights.”

Other interesting topics in the same book are:

• Dealing with debt
• 401k’s and investing
• Insurance – what you need and what you don’t
• Paying less taxes
• Military benefits

To find out more, click to buy the book below.

Get a Financial Life: Personal Finance In Your Twenties and Thirties by Beth Kobliner

Amherst Securities Group, a “leading dealer and market maker in mortgage-backed securities (MBS), agency securities and select fixed-income investments”, just published a housing report with more details on the huge overhang of shadow inventory.  The full report is not readily available on their website, unfortunately, but there is a good summary of the findings by Bloomberg in this article.  A few excerpts follow.

The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market, Amherst Securities Group LP analysts said.

The “huge shadow inventory,” reflecting mortgages already being foreclosed upon or now delinquent and likely to be, compares with 1.27 million in 2005, the analysts led by Laurie Goodman wrote today in a report. Assuming no other homes are on the market, it would take 1.35 years to sell the properties based on the current pace of existing-home sales, they said.

“The favorable seasonals will disappear over the coming months, and the reality of a 7 million-unit housing overhang is likely to set in,” they said.

Also see:

• Mark To Model Reason For Not Foreclosing
• Seattle Housing – Microsoft Layoffs And Mortgage Walk Aways
• Time Magazine On Las Vegas – Then And Now

The Housingstorm blog had an interesting take on why the banks are reluctant to foreclose on delinquent borrowers.  But before going into housingstorm’s take, consider the case of Mr Microsoft, whose own foreclosure case (or lack thereof) was depicted in this article.  The value of Mr. Microsoft’s condo, according to recent listing and sales data, has declined by over 40 percent.  Mr Microsoft has not made a mortgage payment for almost a year, and although the bank initiates contact with him regularly, they have yet to foreclose on his severely underwater mortgage.  Why are banks not foreclosing?

According to the housingstorm article,

Banks don’t care about home prices. They care about not losing money. Because the government changed mark-to-market accounting rules, the link between low prices and losing money is broken.

Banks make more money by NOT foreclosing on homes. Banks are dragging out the foreclosure process for their own selfish reasons. Until the day they foreclose, the amount of money owed to them is an asset…sure, it’s an asset that isn’t paying interest payments…but it is still an asset. The day they foreclose, a $400,000 asset could become a $150,000 asset and a $250,000 loss.

Multiply that loss by 10, 20, or even 30 times leverage and there are several million dollars worth of new loans that the bank can’t make.

Faulty government programs and doctored accounting rules have produced the fiasco before us: There are roughly 4 million homes that should be foreclosed on but they won’t be any time soon. This enormous can is continuing to get kicked down the road.

Economists are predicting a recovery. They say that our various programs are making an impact. In reality, all they’ve done is kick our can of reckoning a little further down the road.

With so much shadow inventory being held back from the market, can any sane person possibly think this is a good time to buy a home?

The Brix condos in Seattle’s Capital Hill were completed sometime in 2008, but with very dismal sales.  Despite the low sales they were content on keeping the prices abnormally high (even for a strong market, which this is not).  Earlier this summer, they sent out an e-mail blast announcing price cuts of as much as 20% below original prices.  It was a good start, but still not enough to spur sales, and now it looks like they have had enough.  This morning’s e-mail blast announced the new auction style pricing, with the auction set for September 27th at 1pm.  Here is a sample of their price sheet.

For a comparison of another recent Seattle condo auction, check out these results of the Queen Anne high school condo auction.

Just about 5 years ago, Time Magazine did a cover story on the booming town of Las Vegas, which was in the midst of non stoppable economic growth.  Here is an excerpt from that article:

The city’s casinos, hotels, restaurants, shops and clubs took in a record $32.8 billion in 2003. Vegas is the fastest-growing major U.S. city; 7,000 people move to Clark County each month, bulging the population to 1.6 million and overstretching the police, fire fighters, hospitals and schools. The unemployment rate is more than a third below the national average, and there’s more construction than in any other city in the U.S. It’s the country’s top tourist and convention spot, with Vegas taking in more money from conventions ($6.5 billion) than gambling ($6.1 billion).

Fast forward to 2009, and times have changed quite dramatically to the city.  Time Magazine just did another cover story on Las Vegas, with some very notable differences.

This has been the first major recession Vegas has experienced since it became a real city. After two decades as one of the fastest-growing metropolises in the U.S., Las Vegas has seen its population growth flatten. It’s got the highest foreclosure rate of any major metro area, and the unemployment rate jumped from 3.8% to 12.3% in just three years. Even if you have a job, it’s not a good time to have your wage be dependent on lavish tips. The No. 1 convention city has also had a wave of cancellations from the AIG effect — companies don’t want the bad publicity of being seen in Sin City. Just as Las Vegas was the epicenter of the extravagant consumption of the past 20 years, now it’s the deepest crater of the recession over the last year.

Also notable are the incredible vacation deals available in Vegas today:

The hotels, led by Wynn Resorts boss Steve Wynn, slashed room prices to increase occupancy rates to 82% from a low of 72%. On the right day in July, you could book the type of 750-sq.-ft. room that was $500 a year ago at the Wynn for $109 and get a $50 gift certificate.

As for real estate in Las Vegas, the spiraling down of property values continues, and its making room for a new breed of real estate agents.  Brooke Boemio is showcased in the article, and she specializes in helping home “owners” abandon their overvalued homes and swapping it with a new purchase of a distressed or foreclosed home.

Boemio specializes in short selling, in a particularly Vegas way. Basically, she finds clients who owe more on their house than the house is worth (and that’s about 60% of homeowners in Las Vegas) and sells them a new house similar to the one they’ve been living in at half the price they paid for their old house. Then she tells them to stop paying the mortgage on their old place until the bank becomes so fed up that it’s willing to let the owner sell the house at a huge loss rather than dragging everyone through foreclosure. Since that takes about nine months, many of the owners even rent out their old house in the interim, pocketing a profit.

My how times have changed for Vegas.  The old adage rings true in Vegas – what goes up must come down!

According to this Marketwatch article, the price to rent an apartment is under downward pressure, and consumers may be able to get their rent prices reduced just by asking.  Mike Haskins, a Raleigh area renter, was profiled in the story.  He took advantage of his local market circumstances – new rental units which had just been built in combination with a low capacity in his own building – to negotiate a rent decrease.

It took some pushing — and a threat to take his business elsewhere — but before long, Haskins made a deal. When he renewed his lease, his rent was $100 lower…

In response to vacancies, 68% of landlords said they were lowering rents and 68% also said they were giving one or more months of rent free; 38% said they were reducing deposits; and 18% were offering upgrades or allowing more leniency for breaking leases or changing status, according to the Rent.com survey. Fifteen percent are offering storage or parking at reduced rates, and 8% are relaxing pet policies.

The Seattle rental market is also facing downward pressure on rents, according to this Seattle area blogger, who recently negotiated an offer from his landlord from an increase of 3.5% into a decrease of 5%.

Do you have any rental reduction stories to share?  Post them here in the comments.

It’s been in the news for qute some time now.   Underwater homeowners with no skin in the game (no down payment) are “walking away” from their homes and intentionally going into foreclosure.   Here are a few story links describing the situation, which shows no sign of slowing down:

• Underwater homeowners deliberately walking away
• More in foreclosure choose to walk away
• Facing the Mortgage Crisis – Deciding to Walk Away
• What happens when Banks Walk Away

There is quite a bit of debate on both the law and the ethics of walking away.  Many think that signing a legal contract with a bank for a loan comes with an ethical obligation to adhere to the terms.  But others cite the clear distinction between ethics and the law.

Here is one of my favorite comments on the subject from a reader on Mish.

Mortgages are not ethical documents, they are legal contracts. The typical residential mortgage for an owner-occupied home gives the borrower two options: pay on time and in full, and keep paper title to the house, and full entitlements to any appreciation upon its later sale after the mortgage is satisfied; or, stop making payments, and hand the keys back to the lender.

Morality and ethics don’t even enter the equation. Either option is perfectly legal for the borrower, and the only criteria should be business-based. All the ethics you need are contained within the four corners of the pages of the mortgage contract.

There is no doubt that consumers do have a legal right to walk away from any contractual obligation, as long as they are willing to accept the legal penalties of that obligation, as stipulated in the contract.

As for ethics, you decide.

Also check out:

• Choose Foreclosure – The Case To Walk Away
• Seattle Housing – Microsoft Layoffs And Mortgage Walk Aways
• Total Bailout Cost Now $12.8 Trillion
• Yearly Budget Deficit Tops $2 Trillion