‘Every Week Something Is Cheaper’
The Sacramento Bee has this update from California. “Sam Webber had it all during the real estate boom. The former accountant bought old houses, fixed them up and resold them for more than he paid. It was a good independent living until four months ago when the bottom fell out of his game.”
“Now as home prices have declined 5 percent from last year in Sacramento County, Webber is what analysts call ‘upside down.’ He owes banks more than his two remaining fixer-uppers are worth. He’s missed mortgage payments on each. Worse, he’s tied up his entire savings and previous profits in remodeling the houses.”
“Webber has one last hope to avoid foreclosure, selling the houses for what he can get and persuading his bankers to accept less than he owes. ‘The house in North Sacramento, I’m $305,000 into the bank, and it’s worth $280,000. I’m trying to get the bank to agree to $280,000,’ he said.”
“Known in the real estate trade as a ’short sale,’ this desperate, but practical tactic, negotiating less than a complete payoff to lenders, reappears like clockwork when real estate markets sour. Elk Grove real estate agent Derek Kirk recently counted 264 short-sale listings in El Dorado, Placer and Sacramento counties compared with fewer than 50 six months ago.”
“‘I made a decision to do this as my livelihood,’ Webber said recently as he begins a job search. ‘All my income was coming from the houses. This time it’s burned me. I’ve tapped out every dime I have.’”
The Contra Costa Times. “By the time Janie Kent received the notice that her two-bedroom, one-bath cottage in San Leandro was going to be sold in three weeks, she was desperate. ‘I was in denial, sitting in my house and didn’t know what to do,’ said Kent. Kent isn’t alone. Hundreds of people in Alameda County will lose their homes this year; 176 already have. Thousands more will sit in their home, awaiting what they feel is the inevitable outcome.”
“Home foreclosures are on the rise across the East Bay, with Alameda, Contra Costa and Solano counties all reporting data similar to the post dot-com bust years of 2000-01.”
“Alan Wolf, a mortgage banking attorney said that interest-only and negative amortization loans seem to be fueling the higher default rates. ‘Once those refinanced adjustables hit, it’s going to be a big problem,’ he said. ‘This is not the bad year. Next year is going to be the bad year.’”
“San Ramon Loan consultant Ed Jeffry puts some of the blame on lenders who haven’t been historically gentle with borrowers but also faults borrowers for not thinking through loan decisions. ‘A lot of problems occur when people enter into a high-cost or subprime loan,’ he said. ‘Usually because there’s no plan and no strategy.’”
The Press Democrat. “In Windsor, where homes stay on the market longer than anywhere in Sonoma County, some newer neighborhoods sport ‘for sale’ signs on every other block and sometimes several on the same street.”
“‘Price reduced’ and ‘price reduction’ are common inducements on the signs in front. It is a scene repeated across Sonoma County, from neighborhood to neighborhood, cul-de-sac to cul-de-sac. Behind those for sale signs are sellers who have put their lives on hold as a market that stayed red hot for so long has turned cold.”
“Now the market has reached a kind of psychological standoff, with sellers reluctant to accept the reality of falling prices and buyers holding onto the expectation of even deeper cuts. Some forgot that home prices could go down, as they did in Sonoma County in 1993 and 1994. That downturn lasted four years.”
“‘A year ago, you got away with murder. You sold a house no matter the condition,’ said Sandy Geary, broker in Rohnert Park. ‘Buyers have almost too much choice. I have buyers who come back and every week something is cheaper,’ Geary said.”
“Brett and Amy Reiter lowered the price for their Santa Rosa home nearly 4 percent to $515,000 to attract potential buyers, but they have received only one offer since putting their home on the market in March. ‘When we first put it on there was a lot of interest,’ Brett Reiter said. ‘But no one was ready to jump on anything. It seemed like people were waiting, knowing prices would go down some.’”
The Sac Bee article has lots of short sale info.
If short sellers have 401K assets, they should be forced to bring that money to the closing table. Why force our banking system to be the bag holder, and eventually the general public.
I believe even in bankruptcy 401K cannot be touched. I doubt this will change.
Banks need to learn to have tighter loan standards. Why should corporate America get off scot free?
Both parties are getting hurt in this particular transaction, and it sounds like the seller will be wiped out.
I believe that you are correct. However if borrowers believe that taking a taxable distribution from their 401k is less onerous than bankrupcy, than banks are may be unlikely to agree to a short sale if people have sufficient funds to cover the price. But of course the big factor is the “recoursness” laws of the state in question.
because the banks created this fiasco with easy credit and no income verification.
‘Once those refinanced adjustables hit, it’s going to be a big problem,’ he said. ‘This is not the bad year. Next year is going to be the bad year.’”
Its already Sept 06… only T minus 120 days and counting…
There are really two major banks that need to be watched: Washington Mutual and Wells Fargo (I guess Wachovia can now be lumped in with their recent purchase of a subprime lender). From what I can tell, most of these crappy loans came from Countrywide (not a bank) and a bunch of subprime lenders who then sold the notes on the bond market. If you have a retirement account and can pick and choose where you invest, stay away from the bond markets, GSEs, REITs, etc. These (and the subprimes) are going to be the places that are going to take the hits.
There are really two major banks that need to be watched: Washington Mutual and Wells Fargo
Absolutely-Wells Fargo and their rackeetering appraisal management company called Value It was king of hiring the
24 hour turnaround rubber stamper appraiser. The guy I knew who handled all their work used to have an office right next to the head of the mortgage origination branch. He did his reports as “instructed.” These slimebags deserve the gutter.
Washington Mutual is just clueless. Horrible, disfunctional management in their mortgage division Not slimy like WF-just ignorant of the markets they were investing in.
‘Once those refinanced adjustables hit, it’s going to be a big problem,’ he said. ‘This is not the bad year. Next year is going to be the bad year.’”
Damn right. Most already took out their equity out with a HELOC and already spend it for paying down credit cards, new cars, vacations, remodeling, pool, etc… Once the bill comes due and they figure out that the HELOC equity is no longer there but they still must pay it, the fun starts. The true panic bottom in this RE bubble won’t happen for at least another 12-36 months depending on the area you are in and when the big rise in your market happened IMHO. Hold tight. The panic selling has not even started yet. Let them sweat, bills pile up and exotic loans reset. Only stupid, idiots and morons would be buying now trying to catch a falling knife. You ain’t seen nothing yet. The bubble crash fun is just beginning. This is just the 1st inning. The greedy stupid ones that are holding on for dear life now will be the ones selling at the bottom at the end. Happens every time.
The real reason that sales and prices are down in SACTO is that it was over 100F for 11 days in a row. But look on the good side, the Spring selling season is just around the corner. The Xmas selling season is coming. The Halloween selling season is coming, The Thanksgiving selling season is coming.The Lent ect ect ect
Are you blaming it on the weather? You are not serious are you?
“Owww look at me Marge, I’m making people Happy! I’m the magical man, from Happy Land, who lives in a gumdrop house on Lolly Pop Lane!!!!…… By the way, I was being sarcastic.”
– Homer Simpson
This is a comment form the Press Democarte article by an (unidentified) reader…
“Yes, if sellers actually WANT to sell their home, they must give up the ‘mental equity’ and price the home based on recent sold price data. I recently bid on a home, basing my offer on SALES (not listing) data. The bid was rejected by the seller.”
I like their use of the term “mental equity”…
- “Now as home prices have declined 5 percent from last year in Sacramento County, Webber is what analysts call ‘upside down.’ He owes banks more than ….
Poor Mr Webber is in complete denial thinking there’s only a
5% DECLINE.
He is toast and had no business investing every dime that he had in this false media driven herd mentality.
Excess profits lead to ruinous competition.Nuff said.
Actually, it’s the reporter quoting that #. Mr. Webber is pricing in an 8% decline, assuming that 305K amount he’s “into the bank” doesn’t include a 125 liar-type loan for (Cough, Cough) “resident owners”. (Were they still doing 125 loans in California in ‘05?)
One would think (hope) that Mr. Webber has been flipping long enough to easily absorb a loss on his last 2 properties. Or is it mostly Vegas style flippers in Calif, playing “Let it ride”?
What a complete dope this guy is. This is his livliehood and he can’t come up with 25 or 50K? Are you kidding me? I don’t think the reporter could have found anyone more stupid and inept.
I think he represents 90% of the flippers and speculators out there!
Yeah, just doesn’t have all those heloc checkbooks lying around like you do.
So how does it feel be 15% less “wealthy” (if we can belive anything you’ve ever said to begin with) with more to come on the downside?
I have no concerns as long as people like you keep paying their rent and paying off my mortgages for me. How does it feel to buy houses for people like me?
I don’t get your animosity, I like renters.
Trust me. The person from whom I buy a house (if I ever do) will not make a dime in profit. That I will make sure of before I do it.
Tx, you miss the point. Renters like you make owners richer with every rent check you pay. Owners, aka Landlords, never want you to BUY any house - just keep renting.
hmmm…didn’t Warren Buffet say something about leaving a little on the table?
I know another “VA Investor” who has had two empty rental homes since July 1. July, August, and likely September with no renters. And he owes more per month than even the rent he’s asking for. (The total mortgage payment is ~4,500 a month). We are building up rental inventory like crazy here in the exurbs. I imagine it’s better further in, but I can’t stomach the thought of buying anything now and pretending to myself that it’ll cash flow.
We have negative population growth in Virginia. Lereah pointed that out on his lovely PowerPoint slide. I know so many who are heading to cheaper parts with equally good-paying jobs.
Va-Investor,
I guess that extra $1-2k/month I’m saving by renting versus buying in SD is what going somewhere other than my ING and OptionsXpress account??? Seriously, if you’re going to troll here, you need to do better than “but you’re paying the landlords mortgage for them..” sure, if they bought several years ago, otherwise, the numbers don’t work. Go back to craigslist until you can come up with something accurate and original to argue with.
It would be virtually impossible for a “newcomer” to be positive cash-flow today. Long time investors can afford to udercut them significantly.
Recent Landlords are mainly in that situation by default. They probably bought to flip and seriously misread the market.
Arwen, I believe you are in Loudoun County. Arguably, Loudoun has been hardest hit so far.
That is the first I heard of neg. pop. growth in Virginia. A very well respected economist at George Mason claims just the opposite. He states that Fairfax County will add something like 30,000 jobs next year. I can’t think of his name but I’m sure you have seen him quoted in the Wash. Post.
JWM,
I did buy years ago (starting 25yrs ago) and tenants have paid off most of my mortgages. If you truly are “saving” your savings, then good for you.
NV investor -
I think you’re misreading this blog if you think that anyone here thinks it’s NEVER good to buy real estate, either to live in or as an income property and investment. The bubble of the title began at a point in time and is beginning to deflate - when the metrics (and various posters are using various measurments) indicate that it’s a good time to buy - as it probably was 25 years ago - they’ll step in and do so. I imagine you either made similar calculations then - or went with your “gut” and gut lucky.
Nobody is against re ownership, just against prices that don’t make sense from a business point of view.
And then you woke up.
Spare us.
Bull market geniuses. They never know when to stop.
How much could he really have made during the “boom” if all it takes are two houses - houses which he apparnetly borrowed money to buy -to burry him?
I was wondering the same thing.
Maybe he has a new boat, RV, took some nice vacations, ate out a lot, new set of cans for the wife, lipo (unsucessful), etc..
He was using the gains to live on while he was redoing the homes. Assume 6k a month living expenses, that wipes out 72k a year in gains.
Don’t quit your day job!
I’m sure he’ll be very happy doing the tax returns for more wealthy and prudent people instead of being the unrecognized Donald Trump he always knew he was. That’s got to suck. To back to the real world of being a wage slave.
I don’t agree with letting this flipper off the hook. If he has a personnel residence he can use that to bring money to a short sale . Short sales are not to bail out flippers on second and third residences IMHO .
Hey ,there is a bigger issue here that we have been talking about for 2 years. When the bust comes and the bailout comes (and it will come) I dont want my tax dollars paying for all of the irresponsible flipping, spending, lending etc. Hey why should the ones who didnt go to the party foot the bill-I will lose my mind if this happens.
I will probably just leave the country if we get a tax payer bail out on the biggest financial bubble in history. When citizens of a country start avoiding all responsibility (we didnt know anything about the details of that mortgage man!), and they start voting themselves (through the people they elect) benefits, you know this will not end up pretty for the mighty United States of America.
I’m not sure how the U.S. is going to be any worse off than it already is? Not to get off topic but we already are comprised of citzens voting themselves benefits that are unaffordable. The U.S. is bankrupt with no possibility of paying it’s obligations. It is no different than someone with a NegAm loan and I suspect that loan will be called in the next couple of years. Any bailout will just hasten what is already baked in the cake. If you are offended by a U.S. default then you should consider packing your bags right now as this RE collapse is just a side show to the main event. IMO of course.
…It’s not what we want, it’s what will happen. The irresponsible will get bailed out. It’s like illegal immigration, I don’t blame the immigrants it’s those that allowed them to gain benefits ,and welfare at our expense. We will pay….don’t you just know it? …Wasn’t it Jefferson that said is once the constituancy is able to vote for their interests will be the end of the republic? The buck stops nowhere…I,Me,My…get as much as you can as long as you can. Game over….
Actually it was deTocqueville who wrote that. He wrote a little treatise on the American experiment with democracy. It really amazing how what he has wrote about has come to fruition over the last couple of hundred of years. If what he and other predict about the cycles of democracies and empires are true than this housing bubble is going to just be the start of a couple of really messy decades for America.
I will probably just leave the country.
If things go south, many may be illegal aliens in some other country.
I’m not sure but I think most flippers have comitted fraud by stating that they are living in the property (taking a homeowner mort rather than investment mort). Becuase of fraud, fine them big and let them figure out how to pay (sell primary residence or 401K if need be).
The issue isn’t bailing out flippers, it just won’t happen. Bankrupy IS the sympathy that we should show them, and is the best that they can expect to receive. The issue is bailing out the banks. Apparently the amount of MBSs held by banks is quite high. I don’t think that the Government will let more than ~5% of the market capitalization in the banking sector to go insolvent and be liquidated by the FDIC.
I looked up Sam Webber on the California Board of Accountnancy website and did not note that he is actually a CPA. I do not know exactly what type of an accountant he is, but I know he is not a very good one if did not see this housing bust coming. Its like a drug they cannot stop flipping and developers cannot stop building. Morons all of them. Oh well.
Local guy in charge of Beazer Sacramento was on the real estate radio show today and said buyers better jump on the housing incentives now, because once inventory drops they will go away. He is full of shit.
I think Sam needs to sell his own house and bail himself out of this mess. They guy probably rents thinking that home ownership is only for suckers that buy his dumps. That house is in north Sacramento, which probably means North Highlands. North Highlands is a shit hole. Local movie theater is triple XXX rated and the schools make kids dumber.
ALL Public Schools make kid dumber!!!
“ALL Public Schools make kid dumber!!!”
No, just you.
All your house are belong to us. Somebody set us up the real estate bust.
Sam Webber was an accountant? If anyone should know better, it would have been Sam Webber. Am continually amazed at these stories.
Im an accountant in bay area. It was no brainer we started to have a housing bubble in 1999-2000… driven from cashing out stock options and not by any fundementals. Many in the accoutning/finance field already see this.
Sadly we have too many going into the accounting in order to get rich… this guy was an example of not applying his own education and experience in life…
HE BURNED HIMSELF! HE WAS GREEDY !
Now he wants the bank to pick up the slack ….scrxw him .
Lot’s of people aren’t cut out for accounting or lawyering, they go into it for the money. When they find out how tough the work and dues really are, they look for something else to jump to — usually something they have seen that is easy money from their own clients. It happens to journalists as well. Hey, it’s a free market — when the money is easy, anyone can and will jump in and do the same thing. That’s how all bubbles are arbitraged away by market forces. Contrast with government sanctioned/granted monopolies where there are severe and expensive barriers to entry, there is no arbitraging.
He was driven by the invisible hand, and his failure is our gain. Bravo! Here’s to more short sales.
A short sale is not your gain if the bank you deal will folds or your 401 k investments goes belly up or you have to pay your tax dollars or have a tax increase for a massive bail out .
Putting as much responability for losses back in the hands of the risk takers is only right .
My idea of a short sale is a struggling family that lost their job , they can’t sell the house to cover the note under current market conditions ,can’t find a new job yet , and they are out of money totally ,even savings . The foregoing would be short sale material ,not a investor on his second or third house .
no, he was not driven by the invisible hand. he was driven by crime, the bank regulator, the Fed, the President, whoever, who decided wink wink just start throwing money at these putzes, dont bother verifying income, dont bother verifying this purchase is really a primary residence. it’ll all work out, you’ll see. in the long run we’re all dead anyway.
let’s say ive contracted to buy 100 widgets from supplier. supplier delivers the widgets, but i dont pay. then the government says they’re going to close the courthouse for the next five years. It wasnt the “invisible hand” that just made me richer.
-
“The cobbler’s children go barefoot.”
There was a story about an accountant who got an ARM, and didn’t realize it would reset, etc. So when there are multiple accountants who get screwed that should know best, it gives me less hope for the future.
People in SF Bay Area really do beleive RE prices cannot crash or even decline more than 10%. Its special and all that.
They are fairly new to the Bay Area and have no real background history regarding is economic dynamics.
I would say far more have sold at the top and moved out of the region for retirement.
It will be just another chapter in Boom and Bust cycles of California…LOL… How many have we had since 1849 ??? Far too many and people still dont learn. I have been in 6 cycles including electronics/high tech/real estate during my lifetime.
The locals think that way too. A friend of mine, a Berkeley native, insists that Berkeley is “special” and that home prices there NEVER go down, except in the 6 months following a major earthquake.
Perhaps we could view this as an earthquake. It’ll cost as much, or more, and ruin as many people.
Heh. Too true.
And the actual fault just keeps loading up.
At least with an Earthquake ostensibly the pent up stresses in the earth are relieved.
“They are fairly new to the Bay Area and have no real background history regarding is economic dynamics.”
I think that is very much the case. There are a lot immigrants (but not just immigrants) who work in the hi tech think that houses will continue to go up for ever.
This is the American Dream, and they are living it.
After the economy goes down the toilet starting next year.
I think they will all pack their bags and head back to their
native country. They wont be taking back any homes with them.
“It will be just another chapter in Boom and Bust cycles of California…LOL… How many have we had since 1849 ??? Far too many and people still dont learn. I have been in 6 cycles including electronics/high tech/real estate during my lifetime”
LA area has gone thru quite a few RE Boom and Bust cycles since it’s emergence as a city in the 1850′S. LA is particularly supceptible as it has not had a long history and was sprung too quickly out of the Desert scrub, which has attracted all types of get-rich quick RE scams(get rich from the oil boom and hollywood!!). It has been said that LA is the biggest fraud and con artest mecca region in America. Too many strangers abd newcomers, too many uprooted in lA leads to the quick-buck schemes and a get-rich quick mentality. Maybe the yaer-round sunshine engenders a fealing among folks that life here should be lived to the max, that there are no limits as to easy living, easyborrowing and life is a bowl of peaches.
Californians are a spoiled bunch, too used to the good life without painful consequences. A good hard econmomic depression will purge this region of all the rot and flotsam.
you’ve lived through 6 cycles? so you’re like, what, 40?
Just had a conversation with a house owner in Vegas. 2 houses. Both underwater but he thinks that in a few years, house prices will come back up so he’s holding on. Betting with his 0% interate rate loan with balloon in 5 years, that he can sell at a profit.
How many will hold on and will they be the brilliant ones, while conservative me sits in the sidelines?
This inflation thing is the bing unknown. Pretty clear that in real dollars prices go down but in inflated dollars, we may easily see nominal prices flat to a bit higher. Isn’t this the cure all?
Simmssays…To Be Cool in College
http://www.americaninventorspot.com/school_supplies
Is her name LV_Landlord?? LOL
The comment often gets thrown around that inflation is the way out of this. However, it’s important to differentiate between wage inflation and cost inflation. We used to have a relatively closed economy so those two would march in lockstep. Now with globalization that is no longer true.
I have no doubt that the fed can create as much cost inflation as they want, but that doesn’t put any more money in borrower’s pockets to pay the mortgage off. I fact it reduces it since they have to pay more for everyday consumables.
What we need is wage inflation and with Chindia in the picture I don’t see how we do that. The only way I can see to create wage inflation at this point is to cut off all trade with the outside world. Printing money and dumping it into the system won’t do it, that will just accelerate off-shoring of jobs and reduce the money flowing into borrower’s pockets.
Not to mention most consumer debt is not fixed, but adjustable. Once the FCBs get tired of sitting on the long end, they will be hit hard.
But there’s really no limit to the US ability to devalue the dollar. It’s as simple as a declaration that all Old Dollars are now worth 10 New Dollars (but debts stay the same). It doesn’t matter how inconvenient or unprecedented or even illegal it is. All obstacles will be overcome if the political will is there. The only question is how strong the demand will be (keeping in mind that the creditor class is pretty powerful too).
There are limits. A rapid, all-out devaluation would likely turn the US into an international credit pariah, and sink us into depression.
As said above, isn’t it amazing that the people that were responsible ,and saved could see their dollars reduced to nothing via inflation because irresponsible loans ,and policy was condoned ,and encouraged by Govt. & Biz. …I really am hoping that this unwinds slowly as I ,and my family has been responsible, but am fearing the worst.
We tried that with the Smoot-Hawley tariffs and it made the Great Depression greater.
No because, raising house prices need rising wages, easy credit and low low interest rates. Two out of three won’t do it. In an ecomomic downturn, there will be a lose of jobs!
Bye Bye Housing Market
Good luck putting that $25k “forgiveness of debt” on your 1040. Sucker.
The 1099’s for this are gonna hurt. 40% Fderal and State taxes on phantom income.
He should have other expenses and losses to offset the “gain” — he’s a freakin’ accountant. If he can’t get out that he should go somewhere else.
His name is not listed on the California Baord of Accountancy website. It looks like Sam could not pass the CPA exam.
Shock!
Note to IRS: AUDIT!!!!!!!!!
Sam Weber -
You my friend are F’d!
He’s a totally unsympathetic character too. Look at the pictures. Looks like spent all the “profit” at Mickey D’s.
BAHAHAHA!
SHADENFREUDE to Mr. Weber!
I wonder how many others like this guy are out there? We have been waiting for this crap to be exposed. I bet there are thousands like him in the Central Valley of Ca!
Hey Crispy, Is that house listed in Bako for $2.2 million near the Seven Oaks or something like that golf course? I would like to know who the moron is trying to flip that thing.
On the golf course at SO. Realtor David Crisp is trying to flip. GOOD Luck.
http://www.Bakersfield.blogspot.com
OOPS. Dont even know my own address:
http://www.bakersfieldbubble.blogspot.com
David Crisp is a tool.
What is meant in the comments on your blog by the “Rambus pool?” Just curious, Rambus is one of my favorite short sells.
I’ve got a relative in Phoenix AZ who bought (did they really even buy them?) two sfh with the intention of renting them out while their equity increased 20% a year. Both were purchased with neg-am, interest only, & $0 down. I just saw them and they are an emotional wreck. Since they are close relatives I feel bad, i warned them repeatedly not to buy, they didn’t listen. They are upside down and now asking me ‘how long is this bubble going to take to hit bottom?’. They were not happy with my answer.
I’ll bet they wouldn’t get too emotional over the plight of the next GF they planned to extract the 40% profit from.
No sympathy here. None.
You’re right TC, they somehow felt raping and pillaging from future generations by hoarding real estate (they aren’t making any more). It was their moral right and obligation to ransom the next generation.
Me and my fiance’ both agree, these flippers *need* to feel the pain. I have friends and coworkers who I like who will loose *hundreds of thousands.* Awww… I’ve sent them links to my blog (shameless plug) and yet they won’t listen.
Greed deserves to feel pain. Simple as that.
Neil
Send em a big jar of vaseline and tell em they should feel damn lucky to get the consideration!
“Known in the real estate trade as a ’short sale,’ this desperate, but practical tactic, negotiating less than a complete payoff to lenders, reappears like clockwork when real estate markets sour.”
Cram downs, or the borrower’s put, are common in commercial real estate. I keep hearing Trump advertizing get rich quick in RE on radio and TV. I hope he includes a chapter on how to stiff the creditors and get away with it. Perhaps, in version 2.0, he can drop the rest and just expand on the bankruptcy part.
And Trump is a perfect example of a spoiled brat risk-taker ,that backed the lenders into a cornor ,because they gave him to much money years ago . Trump should of went belly up years ago instead of being hailed as a great business man . Trump never felt the pain ,so hes back trying to build luxury condos in Florida and other places . Apparently this time Trump is having problems getting a lender willing to finance his luxury towers ,(at least that’s what I last heard .)Apparently lenders learned a lesson even if Trump didn’t .
Clockwork? But I thought real estate markets NEVER sour!
George Soros on the Current Real Estate Market
I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001… Read More >
http://www.georgesoros.com/excerpt-realestate
Excerpt: Real Estate
George Soros on the Current Real Estate Market
I believe we are currently in the midst of a gigantic real estate bubble. It was caused by the determination of the Federal Reserve Bank not to allow a stock market decline in 2001 to turn into a self-reinforcing rout. The federal funds rate was lowered to 1 percent. Mortgage institutions encouraged mortgage holders to refinance their mortgages and withdraw the excess equity. They lowered their lending standards and introduced new products such as adjustable rate mortgages (ARMs), ‘interest only’ mortgages, and promotional ‘teaser rates.’ All this encouraged speculation in residential housing units. House prices started to rise at double-digit rates. This served to reinforce speculation, and the rise in house prices made the owners feel rich; the result was a consumption boom that has sustained the economy in recent years. Again, the bubble can be attributed to a short-circuit between the value of assets and the act of valuation. This short-circuit is called the wealth effect. (Read more in the Age of Fallibility)
Soros is a pretend populist. He restates the same things people (like us on this blog) have said for years. The truth is, no one is a bigger speculator than he. I imagine he did very well off the low interest rate carry trade. I especially enjoy his sermonizing about raising tax rates on the upper class as he runs his hedge fund from Bermuda, and pays no US tax. Everyone has an agenda, and Soros is no exception.
“Everyone has an agenda” You can say that again Diceman. Experts on any subject are bias, especially when it comes to money. The funny thing is that most people are easily persuaded.
Actually, the MSM (main stream media) may now start driving the bursting bubble story quite hard - elections are coming up in November.
I’ve got an idea. Let’s play blackjack; I’ll be the house and everytime I win, I take your chips from your side and put them on mine. But when you win, well then we’re just playing for fun and I keep my chips. Any takers?
Ooh! Ooh! Me me! First, let me borrow $600k in chips from you, then give them back to you, and cry while walking away, because, heaven forbid, some lender may not like me for 7 years! Or 2 years! Or six months, if you read some of the stories…
From the NY Times article on Ben’s previous post:
“Christopher J. Mayer, director of the Paul Milstein Center for Real Estate at Columbia University, argues that the recent drop in sales does not suggest that a larger bust is coming.
…
Moreover, few borrowers are falling behind on their mortgage payments, and the economy looks fairly healthy outside of housing.”
Does anyone else sense a disconnect between Mayer’s claim and ground-level reality? And do you think he is really in the dark, or just trying to fool some sheep?
Depends on the funding source for his University Directorship. If the foundation supporting the Paul Milstein Center for Real Estate wants only a particular viewpoint expressed, then Mayer will be the mouthpiece spouting that. I don’t think its what he believes as much as what the funding source wants to promote.
It is sad to see real-world economic realities turn so many bright guys into prostitutes…
Hedgefund
Dr. Christopher J. Mayer
Paul Milstein Professor of Real Estate
Director, The Paul Milstein Center for Real Estate
Columbia Business School
An economist and real estate expert, Professor Mayer has earned widespread recognition for his scholarship and teaching. He is the Paul Milstein Professor and Director of the Paul Milstein Center for Real Estate at Columbia Business School. In addition, he serves as a Visiting Scholar at the Federal Reserve Bank of New York, a Research Associate at the National Bureau of Economic Research, on the Board of Editors of Real Estate Economics and a Fellow of the Homer Hoyt Institute. Dr. Mayer also works as part-time research director and member of the Board of Directors of Oak Hill REIT Management, a REIT hedge fund. Dr. Mayer previously held positions at the Wharton School, the University of Michigan, and the Federal Reserve Bank of Boston. He holds a BA in Math and Economics from the University of Rochester and a PhD in Economics from MIT.
Professor Mayer’s research explores a variety of topics in real estate, including real estate cycles, capital markets, housing, public and private real estate markets, and debt securitization. He has also written on the market for reverse mortgages, and the link between local government activities and housing values. More recently, Dr. Mayer has examined economics of airline congestion. His research has been funded by the National Science Foundation, the Government of Canada, and the Real Estate Research Institute, among others. He has authored more than twenty-five scholarly articles on these subjects and is frequently quoted in the national media, including the Wall Street Journal, New York Times, CNBC, CNN, CBS TV, CBS’s Sunday Morning, ABC News, ABC 20/20, Nightline and National Public Radio. Professor Mayer serves as a regular real estate commentator for CNBC.
“His research has been funded by the ….Real Estate Research Institute, among others…” Says most of it right there. In any event, his views are not based on reality, no matter how many degrees he has.
In a lot of these cases, the 1099 for the discharge of debt won’t even affect the borrower.
There is an exception to recognition of dishcarge of indebtedness income to the extent that the taxpayer is insolvent.
I would think that a lot of these people meet that definition.
Mr. Webber:
“you gotta know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run…”
California Condo Bubble Threaten Coast Enviroment
http://biz.yahoo.com/ap/060827/shoreline_condos.html?.v=3
ENCINITAS, Calif. (AP) — On a sandy bluff overlooking the Pacific, surfer Mark Massara sees a developing threat to a California amenity: guaranteed beach access for average families.
Luxury hotel builders are hovering over the coastline, hoping to expand California’s shores the nationwide trend of developments split between high-priced hotel rooms and privately owned condominiums.
Where developers see opportunity in “condo hotels,” Massara and others see a legal loophole that lets private buyers snap up parts of the coast which are supposed to remain public. And that, he fears, will make getting to the beach harder.
In this low-key northern San Diego County surf town, dunes and ice plants are being cleared from land designated for public use to make way for 100 condos that will sell for an estimated $1.5 million each and 30 hotel rooms that will go for up to $600 a night.
Because the project includes hotel rooms, it is deemed to be for public use by the commission that oversees a state law protecting beach access.
“It’s like a knife at the throat of the Coastal Act,” said Massara, a lawyer for the Sierra Club.
Screw the Sierra Club and the Coastal Commission.
That’s right, dammit! Screw them, and dolphins and the little children and rainbows too! Let’s nuke the gay whales for baby jeebus, barbecue the spotted owls, and clean our teeth with old-growth toothpicks!
lol
Wow, thanks Chris. That is really funny. In a tragic sort of way since we (as a species) seem to be doing exactly that.
Drive up ,and down the coasts of Florida to see what happens when you screw the coastal commision…I thank the heavens for them evertime I drive down the coast…No wait there’s profit to be made..Let them build condos, you were right
No. Screw the greedy, rapacious developers and the local councils who are on the make and on the take with them, with ordinary citizens getting the smelly end of the stick.
I was a little harsh on the CC, I admit; I live in FL now and do miss the CA public beaches, but I do think the greedy, rapacious developers represent one extreme and the militant environmental groups represent the other.
Public access to the coastline is hardly ‘extreme environmentalism’ — It’s supposed to be a part of basic law– although outside of California it doesn’t seem to be much honored. I tried to go to the beach in MD a couple of months ago and couldn’t find a single free, public access location along the coast. Even the beaches in the small towns had warning signs that you weren’t supposed to walk on them unless you were a resident or paid some fee… All part of the new ‘ownership society’ I guess. Next they’ll be auctioning off air.
Auctioning off Air?? *gasp
In Maryland you can do whatever you want below the high tide line. So if you can GET to the beach you can always walk in the surf.
“We’ve already established what you are, ma’am. Now we’re just haggling over the price.”
- George Bernard Shaw
“Luxury hotel builders are hovering over the coastline, hoping to expand California’s shores the nationwide trend of developments split between high-priced hotel rooms and privately owned condominiums.”
I am optimistic that the collapsing real estate bubble will sink many of these ruthless exploiters of our vanishing coastal resources into bankruptcy before they move much further with their evil plans.
“And they called it paradise
I don’t know why
Somebody laid the mountains low
while the town got high
Then the chilly winds blew down
Across the desert
through the canyons of the coast, to
the Malibu
Where the pretty people play,
hungry for power
to light their neon way
and give them things to do
Some rich men came and raped the land,
Nobody caught ‘em
Put up a bunch of ugly boxes, and Jesus,
people bought ‘em
And they called it paradise
The place to be
They watched the hazy sun, sinking in the sea ”
- The Eagles, The Last Resort
Perfectly apt! Thanks for that…
Yes, that was awesome.
Just heard about this Encinitas project on an KNX1070 today. I just hope this downturn happens quickly enough to terminate their plans.
>“‘A year ago, you got away with murder. You sold a house no matter the condition,’ said Sandy Geary, broker in Rohnert Park. ‘Buyers have almost too much choice. I have buyers who come back and every week something is cheaper,’ Geary said.”
“too much choice” for buyers??? God forbid!
there goes that “scarcity” sales close for Realt-Whores.
Really My God Buyers have choices. The bitch sounds like Saddam Hussien or something, we will dictate the market and charge whatever we want for a house. Sandy Geary can suck it!!!
>“‘A year ago, you got away with murder.
i loves how she admits to “murder” with no guilt/shame/conscience and is almost proud of it.
Ha! Sandy Geary the Saddam Hussien of Sonoma Co. Real Estate! Some sellers might even go for that in today’s market!
“I’ve tapped out every dime I have.” [Sam Webber]
I call bullsh@t. This guy probably has a pile of cash sitting somewhere, perhaps offshore. His short sale is just $25k more profit for himself. “Boo-hoo, poor me, I’ve HELOC’ed and bought and sold myself into the poorhouse. Please take this last house off my hands before I head off to the Caribbean or Brazil and retire! Wa wa wa.”
Taxpayers will be bailing out the belly-up lending institutions. He needs to make payments, with interest, on that $25k until it’s paid off. CPAs can be just as big a shyster as a lawyer or a politician.
In fact, the bank should look real close at who he’s trying to sell to. JMHO.
He doesn’t look smart enough for that. No, I think this is a home grown moron.
I recently went river rafting around the Kernville, CA area. 2 observations:
1) I saw several real estate “for sale” signs in Kernville. A very small town. Population is something like 2500. I drove by at least 2 real estate offices there, and I wasn’t even looking. It felt like the RE bubble had reached even this tiny hamlet.
2) On the road to Kernville, along the 178 from Bakersfield, I saw some huge housing developments. These were pretty much in the middle of nowhere! Look on google maps and check out the 178 between Bakersfield and Kernville - there’s nothing there! I didn’t bother to look for prices or anything, but there were a LOT of homes being built outside of town from Bakersfield. Who’s gonna buy all those homes??? The illegals working for the farmers??? That kind of stuff just freaks me out.
And now, the Balland of the FB, dedicated to Mr. Sam Webber:
Never thought I’d ever be
Best in the world at anything
Like Babe Ruth with a bat
Or Muhammad Ali in the ring
But that was before the RE Bubble came my way
And made me all I am today
The bigger they come, harder they fall
And me–I’m the biggest fool of all
Next stop… just up ahead
A treat for all the family
The world’s largest broken bank
On display for all to see
Get the Guinness Book folks on the phone
It’s a new world’s record for getting the bone
(and you know what they say…)
The bigger they come, harder they fall
And me–I’m the biggest fool of all
I’m the world’s biggest fool
Everybody knows my name
Folks all come from miles around
Just to see me hit the ground
Just to watch me take a fall
I’m the world’s biggest fool
That my claim to fame
From Tennessee to Tokyo
I’ve hit a new record low
I’m the biggest fool of all
This is the frustrating thing about this bubble. I really don’t think there are many safe places to hide. Sure, I’ve got the precious metals investments, and I hold some foreign currency. Also, I have short-term CD’s and MM accounts. But I just don’t feel safe. What do I think will happen in the fallout?
First, I think our government is going to work for those that put them there - big corporations. So I seriously doubt that anything will be done that helps ma and pa at the expense of big business.
Also, if a lot of people lose their homes and prices crash this presents a HUGE opportunity for the well healed folks. Why would they not want this event to unfold? Real estate for pennies on the dollar? Oh yeah, these Donald Trump types love a good crash!
So I am holding cash in various forms, with precious metals as an insurance policy. Do I feel safe? Nope. Anyone have any other ideas of ways to protect my cash positions? I’d love to hear them!
The bailout comes one of two basic ways: inflation or wealth transfer. I see a bit of both down the pike but more of the latter and don’t buy the hyperinflation scenario. What will happen is more socialism, more regulation, more stealing of money from the rich and giving it to the poor (I’m not rich), etc . The media will work the populace into a frenzy with story after story of families destitute, little Johnny starving and not being able to go to college, etc. etc. and all the time the big, bad, mean, rich, greedy corporations and silver-spooned people just go their merry way. Another ratchet up in tax rates and government spending. Sure, go long gold and short the dollar if you want, but don’t expect to get rich doing it.
“In recessions money is returned to its rightful owners.”
-
my current allocation on $1.25M -
CASH - 21% (Fed/State Tax Exempt MM Fund)
BONDS - 14% (Fed/State Tax Exempt LT Bond Fund)
STOCKS - 65% (Index 500 Fund + Health Care Fund)
RE - 0%
I have faith in the US broad market but I believe in diversification and cash. And I’m young enough to ride the volatility (37). Cash will be King and Cash will allow you to take advantage of opportunities when the blood is flowing in the streets.
Hoarding actual bricks of Gold or other “precious” metals seems ludicrous to me.
You have to believe there is a bubble in commodities as well. The housing boom has driven the price of base metals though the “roof”, so to speak. Also, the precious metals have been driven up by gulf oil money looking for a home.
When the American Consumer stops borrowing against the house, there will be less money out there competing for more resources. It’s not just the US: the whole world will feel the effects of this slowdown. Forget HD, TGT, and WMT. How many Chinese factory workers depend on frivolous American spending for their livelyhoods?
The only thing you’re not protected from is devaluation, which is a possibility given the amount of money supply. Your stock allocation with Health Care should protect you from inflation. Precious metals act like an insurance policy in both instances.
“Also, if a lot of people lose their homes and prices crash this presents a HUGE opportunity for the well healed folks. Why would they not want this event to unfold? Real estate for pennies on the dollar? Oh yeah, these Donald Trump types love a good crash!”
****************************************************************************
Ah…now you are getting it! Yep, they want the crash. Just as they did in the early 30’s. And for the very reason you note…so they can buy assets at pennies on the dollar. The Fed is about to pull the rug out from all those poor suckers who used suicide loans to buy homes they couldn’t afford. When those homes are selling for 10 cents on the dollar the big boys will sweep in and buy them.
Its called “pump and dump.” The Fed has been pumping easy money for several years. Now that the suckers have taken the hook, they are about to be reeled in.
Joe,
I think you are doing the right thing. There is so much uncertainty out there, it’s hard to paint a clear picture. I doubt we’ll get clarity untill next year. By then we’ll see how much damage the housing slowdown is doing, and how our Government is approaching it. Also, we’ll have a better concensus on inflation (even though it’s already here). In the meantime, focusing on liquidity and diversification is key. I do like precious metals, but I wouldn’t bet the farm on it. I say this because Gold is trading a little out of character. So diversification in metals is important. You might feel safer if you gradually build your metal exposure towards 20% of assets. You might want to buy some Global CD’s at Everbank.com but again, I wouldn’t bet heavy against the dollar.
Also, there are some great safe haven stocks out there. There are a lot of companies out there sitting on a ton of cash that pay great dividends i.e. shipping companies. Granted, they might not be very exciting in what they do, but who cares as long they make money and protect your investment.
Best of Luck!
James
“Behind those for sale signs are sellers who have put their lives on hold as a market that stayed red hot for so long has turned cold.”
But how can that be? I thought that all those people bought their dream house. Why oh why would you want to sell your dream house that you just purchased in the past several years? Perhaps you were using the phrase as a cover for GREED!
“Now as home prices have declined 5 percent from last year in Sacramento County, Webber is what analysts call ‘upside down.’ He owes banks more than his two remaining fixer-uppers are worth. He’s missed mortgage payments on each. Worse, he’s tied up his entire savings and previous profits in remodeling the houses.”
Oops! Remember: TIMING is EVERYTHING.
Good dis-membering of the Spin tactics by RE perma-bulls.
http://www.rgemonitor.com/blog/roubini/143257
A bit long, but a nice piece.
In Sacramento: 206 days on market. A case of chasing a down market.
MLS #: 60011176
Price Reduced: 02/21/06 — $485,500 to $480,000
Price Increased: 03/06/06 — $480,000 to $499,900
Price Reduced: 03/15/06 — $499,900 to $495,500
Price Reduced: 04/03/06 — $495,500 to $489,000
Price Reduced: 04/20/06 — $489,000 to $480,500
Price Reduced: 05/01/06 — $480,500 to $475,900
Price Reduced: 05/03/06 — $475,900 to $472,500
Price Reduced: 05/17/06 — $472,500 to $470,500
Price Reduced: 05/23/06 — $470,500 to $465,900
Price Reduced: 06/01/06 — $465,900 to $465,000
Price Reduced: 06/06/06 — $465,000 to $462,000
Price Reduced: 06/15/06 — $462,000 to $459,999
Price Reduced: 06/24/06 — $459,999 to $459,000
Price Reduced: 07/18/06 — $459,000 to $452,000
Price Reduced: 07/23/06 — $452,000 to $437,500
Price Reduced: 08/15/06 — $437,500 to $434,900
They bought in 03 for 309K. They have plenty more room drop still and I suspect they’ll do just that.
Not only does “Sam” look like a BK waiting to happen….he also looks like an MI waiting to happen. I wonder if the BK or the heart attack happens first. He needs a crash diet/ health makeover soon.
Sacramento Bee:
“What were previous short-sale cycles? Texas and other oil-crash states in the 1980s. California in the 1990s after military base closings and recession.”
This statement eludes to the most ominous clue in this cycle. In the previous short sale cycles were induced by outside econimic influences. This time the bust is preceding the outside economic events (job losses, recession, etc). This is the stuff depressions are made of.
Please excuse the Monday morning spelling (eludes s/b alludes, econimics?) and grammer errors!
I live here in the Bay Area and have been laughed at for the last two years because I recognized the manical nature of the market frenzy. I said then as I say now the market is primed for a crash. Now instead of being laughed at they look at me like the bad guy because I’m one of the naysayers who is bringing the market down. I’m just curious if the two people described in the stories ever invested in Beanie Babies thinking they were going to make a killing.
Easy money is never earned and seldom lasts.