The Housing Bubble

Realtors & “Drama Pricing”

http://www.boston.com/business/articles/2006/07/17/to_fight_the_glut_home_sellers_push_their_prices_down/

I don’t get the giveaways like a “$3000 gas card”. Why not just lower the price 3k? Or pay 3k towards closing. Who wants to pay for a gas card for 30 years?

Horigan, a free lance public relations consultant, again lowered her price, by $400, and threw in a $3,000 gasoline gift card as a buyer incentive.

Is this a misprint? A $400 price reduction?

Look at the real news: This is how it begins.

Til now, deniers have relied on the image of the stubborn individual seller as a bulwark against popping prices, a homeowner who doesn’t really need to move and won’t “give the house away.”

The truth is, it isn’t HOs who will deflate the bubble. It’s businesses–from brokerages CBRB to builders to mortgage banks. All of these institutions are looking at the situation without emotion. Like sharks that must keep moving, their business models demand continued transactions at any price, and they are willing to mow down any reluctant seller who stands in their way.

Here’s a new twist. Offering a car to the realtor who sells this crackerbox rather than the buyer:

http://www.imrmls.com:8080/servlet/lFullDetail?proptype=RESIDENTIAL&ml=T609116&off=TARB06

Is There a Realtor Bubble? http://tinyurl.com/gw5e2

A graph showing the number of Realtors (membership in the NAR)

David
Bubble Meter Blog

Could the conflict of interest with the car giveaway be any more obvious? The mind, it boggles.

Instant equity, just add water (or, a boat):
http://washingtondc.craigslist.org/mld/rfs/182273266.html

The Five Stages of omeowner Denial according to Rusputin on the Bear Chat Boards:
http://www.prudentbear.com/bearschat/bbs_read.asp?mid=421350&tid=421350&fid=1&start=1&sr=1&sb=1&snsa=A#M421350
1. As listings pile up, denial.

2. As their neighbors actually start to drop prices to move their albatross, more denial.

3. As interest rates reset ever higher on the suicide loans known as ARMs, even more denial.

4. As prices REALLY start to fall down around the suckers, evern GREATER denial.

5. Foreclosure.

Simmssays…Just Go Look
http://www.americaninventorspot.com

One more, he’ll ‘through’ in his Escalade or his Infiniti, your choice! (Can you say HELOC? I bet the neighbors love him and those speakers!). Purchased for 639k in March 2005 from someone else who purchased in December 2004 for 547k.
719,000 for a townhouse in that area is insane…
http://washingtondc.craigslist.org/nva/rfs/181570757.html

Off-topic, sort of, but if whoever was listing the safe, high-return (ish) places to put your money could send that info to me, I’d really appreciate it. We’re about to come into an inheritance and would like to stash it in a good place while we wait for the market to turn. It will be our eventual house money. You can email it to lesliebd at gmail.com rather than take up any more of Ben’s space/time.

Oh, and Ben will be getting a donation from us…definitely!

The Pittsburgh market is boring.

http://www.pittsburghlive.com/x/pittsburghtrib/business/realestate/s_461648.html

“The average sales price increased slightly to $148,569 during the three-month quarter compared to $148,361 a year ago.

For the first six months of 2006, the average sales price was $148,642 compared to $145,868 last year.

Sales prices, however, declined during the January, February and March quarter, averaging $138,934, compared to $141,000 a year ago, before recovering in the second quarter.”

Washington Times says “right time to sell”

http://www.washingtontimes.com/fhg/20060713-082624-7294r.htm

This one is pretty damn funny. If someone wanted this place, you’d do better to let the clown be foreclosed and offer the bank 50K less or something.

http://sandiego.craigslist.org/rfs/182742479.html

Sweet land deal in BFE Florida:

http://fortlauderdale.craigslist.org/rfs/182872858.html

Damn! I was under the impression that there was a diminishing supply of land in Florida…

Barron’s sez to sell puts on the homebuilders. In retrospect, I wish I had done that.

Speaking of stomach-turning declines, the homebuilders got a moderately bullish endorsement in this weekend’s Barron’s option column as a Citigroup strategists recommend selling puts. They say the high premiums allow one to establish an effective purchase price that is essentially on par with book value. They also think that Wall Street has overestimated the inventory overhang. Citigroup analysts peg tangible book value per share around $43.74 for MDC Holding (MDC - commentary - Cramer’s Take), $24.48 for Hovnanian (HOV - commentary - Cramer’s Take), $39.25 for Centex (CTX - commentary - Cramer’s Take), $21.49 for Pulte Homes (PHM - commentary - Cramer’s Take) and $33.17 for Beazer Homes (BZH - commentary - Cramer’s Take).

Big LA Times article on “the coming hangover” in San Diego:

http://www.latimes.com/classified/realestate/la-fi-sandiego17jul17,0,4636180.story?coll=la-home-headlines

“For San Diego Real Estate, the Skies Are Not So Sunny”

Suicide loans on cars + high gas prices = mucho repos!

http://www.nypost.com/business/repo_madness_business_paul_tharp.htm

Good news, everybody! You, too, can pay $468.00 per square foot for an 805 square foot one bedroom condo in NOVA. http://washingtondc.craigslist.org/nva/rfs/182902809.html ($376,900.00 asking price).

Another FB here? http://washingtondc.craigslist.org/nva/rfs/182614653.html Text says “Foreclosure Pending! Desperate Seller! Need quick sale! 3 Bed / 1.5 bath. Worth 420000, will consider any offer over $369000 if you can close fast.”

KIA-I’ve seen a ton of ads for places at the Prime. I think they are just finishing the units. There is sooo much condo inventory in the Courthouse-Ballston stretch, its really unbelievable. Who is going to buy all those condos?

Got curious and drove past this one on the way to work (I live nearby):
http://sandiego.craigslist.org/rfs/182089865.html
“It was appriased several years ago at over 1.1 million”, so naturally he’s listing it at 1.5 million now, huh? Two shabby 1000 sqft houses on a messy lot. And then “No, i repeat, NO air plane noise”. This property is about 1/2 mile south of the flight path (take-off from Lindbergh). We live more than 1 mile south of the fligth path, and we can hear the planes loud and clear…..

FYI — Sales just coming out today for my market in South FL (Greater West Palm Beach). These aren’t “official” numbers from the Florida Association of Realtors. They’re stats updated at a website operated by a local brokerage firm. Anyway, June looks to be down 41% YOY in sales activity AND median prices look like they fell almost 5% YOY. More stats available at

http://www.ipre.com/trendg/index.htm

I was watching TV this morning and there was an infomercial on buying houses by just paying the back taxes. They showed all kinds of houses that were appraised at 170K that were bought for $900 dollars. They said you could even buy and sell these properties on the internet without even leaving your home. Of course they want you to buy their proven program. What’s the deal with this? What about the money still owed to the bank?

Will this period be seen retrospectively as the period when homebuilder stocks capitulated?

http://tinyurl.com/f5boq

Thanks to you all who posted info on the CDs and T-bills! I’m in almost the exact same position as lililegs in that I have an inheritance coming my way in the next few months and don’t really have a clue what to do with it.
Thanks for the suggestions and warnings!

Here’s a FB who needs a roomie to pay the mortgage obviously. Oh, and he’ll throw in the Playboy Channel!

http://dallas.craigslist.org/apa/182967697.html

Where to invest your money? Herb Greenberg suggests cash.

http://blogs.marketwatch.com/greenberg/2006/07/the_ultimate_ri.html

I don’t think anyone has mentioned this yet, but the SEC is about to announce charges against up to 60 major US corporations for stock options timing violations. I don’t know if any builders are on the line… yet. If there are indictments or civil actions, the precedent will be set for all kinds of shareholder derivative actions, however.
http://news.yahoo.com/s/nm/20060717/bs_nm/accounting_stockoptions_cox_dc_1

What goes around comes around. Folks may find this letter to the editor resonates here:

‘Funny Money for Housing,’ your Nov. 10 editorial endorsing rent vouchers, was appropriately named. Decades of funny money in the form of state, local and Federal grants, tax benefits, subsidies and programs totally unrelated to a free market have rapidly escalated the cost of housing and real estate and abetted a furious speculation that appears to be beginning the process of unwinding itself in spite of all these massive efforts.

…There have been several land and housing ”booms” in the history of the United States. These generally have been associated with major socioeconomic explosions: the settling of the Appalachians, the westward push by the railroads and the like. The current boom seems to be fueled by the post-1929 Depression philosophy that ”every American is entitled to the best housing (including vacation homes) he can squeeze out of the taxpayer.” Such thinking is found neither in the Mosaic tablets nor the Bill of Rights.

All the ”booms” of the past have come to an end. Let this one expire as well.

(Letter to the editor in the NY Times - Nov. 18, 1981)

Here’s another deja-vu type article. Apologies for the length but this isn’t available on the ‘net:

High California Interest Rates Lured Investors To Big Losses
By Robert Lindsey, Special to the New York Times
June 15, 1982

The great California land rush of the 1970’s has soured into disaster for thousands of investors in California and other states, according to regulators. Those lured by promises of interest rates of 25 percent or more invested billions of dollars in home mortgages and now stand to lose more than $250 million, the officials say.

”I think the loss could range between $280 million and $700 million and it could go even higher; the problem seems to be accelerating,” said L. Lee Brazil, the state real estate commissioner.

”Many of the people who are losing their money are those who can least afford it -retirees, older people on fixed income who’ve invested their life savings and are losing everything they have,” he said.

Some of the money was taken through outright fraud by ”whitecollar criminals,” Mr. Brazil said. Other money, he said, was lost by novice mortgage brokers who, thinking that the state’s sizzling housing boom would never end, took investors’ money and lost it when the market collapse began about two years ago.

State Usury Law Was Abolished

Those losing money, Mr. Brazil explained, had made loans through mortgage brokers to homeowners for second mortgages, after the abolishing in 1979 of a state usury law that limited interest rates to 10 percent.

The problem, officials said, was rooted in the euphoric housing market of the late 70’s. In many communities, prices of homes began to rise at a rate of 3 percent a month. California was gripped in the excitement of a gold rush. Real estate agents and middle-class investors began to speculate as if homes were wheat futures or gold.

To finance their investments, many families borrowed the money, taking second and third mortgages on their property. Soon there was a proliferation of mortgage brokers, companies that acted as a middle man between borrowers and lenders. The brokers were virtually unregulated and were required by state law only to have a real estate broker’s license to set up shop.

Promises of Major Payoffs

The brokers, who took a fee from borrowers of 10 percent for a loan, obtained the money they lent from people in California and other states by promising, in newspaper and radio advertisments, huge gains from investments.

”The people were promised 25 percent or more by some of these mortgage brokers, and they were told it was secured by real property,” said Steven Gourley of the State Department of Corporations. ”They figured if anything was secured by California real property, it was going to go up.”

However, the boom ended in 1980, when persistently high rates for conventional mortgages made it impossible for many people to sell their homes, causing prices first to stabilize and then to decline.

‘Creative Financing’ Came Next

The real estate brokers, to maintain sales in the changing environment, introduced what they called ”creative financing.” Under this concept, homeowners anxious to sell their home permitted buyers to defer paying part of the sales price for a period of time, often three years, while charging a moderate rate of interest.

In return, buyers agreed to retire the entire debt at the end of the three years in what sales agents called a ”balloon payment.” Usually, sales agents assured buyers that bank mortgage rates would have declined within three years and that it then would be easy to arrange a long-term mortgage at a moderate interest rate.

However, this has not happened: Banks have not lowered rates, and in recent months thousands of people have faced deadlines for the balloon payments.

Many have not had the money. Partly because of this, the number of foreclosures this year is more than three times the 1980 rate.

Defaults Have Multiplied

Meanwhile, as home prices declined, the instant real estate profits of a few years ago have vanished. More and more people have been unable to sell their property and have defaulted after falling behind on the high-interest loan payments.

Since March 1980, according to Mr. Brazil, the real estate commissioner, at least 54 California mortgage loan brokers that had taken in $1.4 billion from investors have gone out of business. In turn, nearly 50,000 investors from California and many other states have lost their savings.

More than 7,200 investors, for example, after hearing promises of a return of more than 20 percent, invested $80 million in the Golden Plan of Sacramento; about 4,000 people invested $35 million in Atlas Mortgage of Sacramento; and 6,000 people invested $100 million in Universal Financial in San Bernardino. All three companies are now defunct, and investors do not know whether they will receive any of their money.

Fraud and ‘Bad Loans’

Some of the investments, Mr. Brazil said, are adequately secured by real estate. But experience to date indicates that at the companies that have closed, 20 to 50 percent of the investments will be lost because of ”bad loans” made by the defunct companies or, in some cases, because of outright fraud.

”We’re talking about losses to investors somewhere between $270 million and $700 million,” Mr. Brazil said. This figure, he added, did not include more than $27 million in missing borrowers’ deposits to trust accounts that apparently have been stolen, he said.

Mr. Gourley, the Department of Corporations official, who has investigated the problem for more than a year, said he expected the loss to run at least $250 million. ”It’s not over yet,” he said.

Mr. Brazil said that evidence of fraud had been found in more than 20 percent of the 54 companies that have gone into receivership.

Prosecution Has Been Spotty

In some cases, brokers are being prosecuted for fraud, he said. Many are unlikely to get caught because the state has too little manpower. Moreover, local district attorneys shun prosecution of the frauds ”because they can be quite complicated and they’re not as glamorous as other kinds of cases.”

The state officials agreed that the root of the problem was inadequate regulation of mortgage loan brokers. Under California law, any real estate broker can act as a mortgage broker and become, in effect, a financial institution. Yet the brokers are not required to file financial data with any regulatory authority.

Mr. Brazil is seeking legislation to require more accounting from the brokers but said that he expects resistance from the state’s real estate lobby.

”It was promises of incredible returns on their money, promises of five, six, seven and ten points above the prime rate that did this,” Mr. Brazil said. ”People were trying to beat inflation. When retired people are wiped out like this, it’s truly a tragedy. I think it may have just started; I think what we’re seeing may be just the tip of the iceberg.”

I know this is at the bottom of the page on the bit-bucket thread, but I was hoping some of the black belts might have an opinion here.

Why does it seem there are so many bubbles more or less at the same time? If you look around you can find some evidence of commentary on:

- Housing Asset Bubble (we all know about that)
- Credit Bubble (helped fuel the one above)
- Commodity Bubbles (not sure about this but I have seen it mentioned)
- Oil Bubble (very unpopular here, but I think it exists. I believe that oil prices are about 30% above fundamentals or more)
- Trade / Export Bubble (how China sees the west)
- Private Equity Bubble (Just read about this today at iTulip.com)

What is all of this? How can there be so many bubbles getting ready to blow all at the same time? How on earth can this be? Is most of this just people hyping to draw readers to their articles and web sites, or are we looking at a global economic calamity of previously un-witnessed scope?

Any comments or insights would be most welcome.

Buyers today are more committed, which is good for sellers,” says Susann Haskins, co-manager of the Long & Foster Real Estate Inc. Potomac/Cabin John office.

I am confused by this saying. Buyers are now stalling, wanting a lower price. How is that good for a fucked seller? These realtors know so much more than the rest of us.

Still mining for Greater Fools:
It’s 4am outside of Syracuse and I just awoke to an infomercial about how to get rich flipping real estate. I too can have an exciting life! More info at http://www.carleton995.com

This is really at the end of the comments, but read the following from Ripoff Report from a byre in Phoenix
http://w3.ripoffreport.com/reports/ripoff199019.htm
Seems the base price of the house he bought from a builder dropped by over 10% within 2 weeks.