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Many people who purchased during the housing boom have found that their house is now underwater.  In other words the loan amount is more than what the house is now worth.  Many are sitting tight hoping that prices will eventually come up again.  However it turns out that purchasing during the housing boom may have had an even steeper price, one that could threaten their health.

During the housing boom, there was a shortage of building materials.  US made drywall was in short supply, and to keep up with demand, Chinese made drywall was imported.

The first signs of trouble came when homeowners had to replace their air conditioning coils many more times than seemed normal for a new house.  Then some started noticing their silver turning black.  Wiring and appliance problems were common.  Then finally, some started getting sick with headaches, rashes, sinus problems.

The culprit was the Chinese made drywall, specifically from Knauf Plasterboard Tianjin.  The theory is that fly ash from steel mills was mixed in the plasterboard so that there are higher concentrates of sulfides in the gypsum than normal.  Moisture activates these toxic compounds, releasing hydrogen sulfide, among other fumes.   The gas, which smells like rotten eggs, corrodes metal and can make people sick.

There is a a lot on the net about this problem.   If you think you are a victim, the Chinese Drywall Complaint Center is one resource that could help.

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Aren’t you glad 2009 is over?  So many foreclosures, 10% unemployment, so many houses underwater.   2010 has to be better right?    Some realtors and economists are predicting better times for real estate in 2010.  I really want to believe them.  I really do.  But what about the coming mortgage loan resets that will start about mid 2010?

As many know we just went through a period of massive defaults on subprime loans. When housing prices stopped going up and people starting losing jobs, many of those loans became worthless.  However we are still facing another period of possibly the same thing.  Many ARM (adjustable rate mortgages) are due to reset in 2010 with the peak in 2011.

Here’s a picture from a report from the imf (international monetary fund).

Mortgage ARM Loan Resets

Mortgage Rate Resets

So far the banks have not been very accommodating to borrowers.   Troubled borrowers have reported it is difficult to convert the temporary modifications from the government’s Housing programs to permanent programs.  Only 9% of mortgages have been modified. And adjusting the principal value … which is what is really needed here .. forget it, they would rather foreclose.

So unless the banks take proactive action with the this coming wave of Option ARM and Alt-A mortgage resets, housing isn’t out of the words yet.

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Pink Flower in the Rainforest

I’ve now been back from a 2 week trip from Costa Rica for a week. It was a bit harsh, re-integrating myself back into my life. The bills (especially all my mortgages). The cold (yes this is San Francisco, we don’t get summers). The sheer pile of things to do. I missed having wonderful breakfasts cooked for me.

Being invested in real estate, I always look for clues on the local market. I didn’t have to look very hard, the real estate boom is alive and well in Costa Rica .. particularly on the pacific coast where I spent most of my time. My first week I stayed in Jaco. Jaco is a beach town 2 hours due west of San Jose, the major city in Costa Rica. It was dark when I journeyed from the airport, but even then I was struck with the differences of this country compared to others I have been to. The lack of trash, the landscaped strip malls (!!), and the massive proliferation of billboards advertising real estate projects … that were all in English!

Jaco Towers sign

I saw signs advertising lots and condos. One sign must have been 25 feet high and it had spotlights so that it was quite visible at night. The properties offered were not very cheap, $200K seemed to be a popular starting price, the cheapest I saw was some lots starting at $59K that were some distance from the ocean (although the scenary was nice).

Real Estate project near Jaco Beach

According to the local residents, the boom started about 5 years ago. That was when they started noticing the projects sprouting up around them. But the activity certainly intensified in the last two years. I could see that for myself. There were at least two cranes on the horizon looking towards the beach. I could hear work start in the early morning on the towers you see half completed here. As I lazed away the days in a hammock, I watched trucks chug back and forth carrying dirt away from a construction site (with no structures yet) to the north. No one was quite sure about the intent of the site, some thought it would be a private villa.

It is said that the housing crisis is most impactful on the entry level market. That the pricier properties are still selling. Well I hope that the affluent buyers are the target market for the Costa Rican boom, otherwise the real estate bust will surely spread there as well.

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