Bits Bucket And Craigslist Finds For September 1, 2006
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
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update from the h&r block conference call
http://immobilienblasen.blogspot.com/2006/09/update-conference-call-hr-block-hrb.html
Guten Morgen, Herr Feddersen.
“tighter standards coming / srengere kreditrichtlinien kommen”
Regarding the tighter standards, there is a progression involved:
1) Talk about tightening standards at some point in the future.
2) More talk about tightening standards.
3) Circulating proposed guidelines (I think this already happened some time ago?)
4) Implementing tighter standards.
5) Enforcing tighter standards.
And if you get to 4), the big question is whether the new rules actually have any teeth. It is possible that standards can be passed which sound on the surface like they will address a problem, but whose details are written to have little-to-no impact, even if strictly enforced.
test
no fico under 580 and more doc sicnce the last weeks
Get Stucco …..The secondary market will just stop going for the risky loans now that they realize the defaults offset the profits expectations . If we had loan regulations in place before the boom it would of prevented how inflated the market got ,the demand would of been lower ,builders wouldn’t of built as much, etc. etc.
I believe in 2002 there was a pause in the market . That was the point where the market really had gone as high as it could go without unreasonable risk . The market should of stalled and stagnanted at that point in 2002 ,(like it wanted to ),until incomes and rentals caught up . Instead the industry fed the false housing boom . I believe from 2002 onward the get rich quick attitude took hold with all the game players on all levels .
Wiz,
Agree totally.
Jan — Imen a bitten confuzden - ist der a tranzlationverken fur dis?
Just teasing, BTW. Everything is available below — read the article thoroughly, twice, last night. Late, ironic, better than never.
wanted to make sure that everybody gets this story from business week. a must read
what a difference a year makes….
http://www.businessweek.com/magazine/content/06_37/b4000001.htm
Why couldn’t this article have been written 1-2 years ago to actually WARN people to stay away from this type of lending? Why are these articles always written in hindsight?
Because the money hasn’t been made at that time.
when you comape this cover with the from the last year you really want to puke. everythin that they are now “discovering” was negleted/denied last yera. you only had to look an the cover. amazing
here is the comparison
http://immobilienblasen.blogspot.com/2006/09/nightmare-mortages-business-week-cover.html
I still have that TIME issue. Keeping it as a remembrance of all this madness.
Even though I agreed with Tchick, you do bring some good info to the blog JMF….
feel now much better
CYA
Or epitaph.
This is a long article, but very much worth the read. A few snippets that caught my eye….
“…their broker was paid more to sell option ARMs than other mortgages; that their lender is allowed to claim the full monthly payment as revenue on its books even when borrowers choose to pay much less; that the loan’s interest rates and up-front fees might not have been set by their bank but rather by a hedge fund…”
“…while they made up at least 40% of mortgages in Salinas, Calif., and 26% in Naples, Fla., they’re not just found in overheated coastal markets: Through Mar. 31 of this year, at least 51% of mortgages in West Virginia and 26% in Wyoming were option ARMs. Stock and bond analysts estimate that as many as 1.3 million borrowers took out as much as $389 billion in option ARMs in 2004 and 2005…”
“…Up to 80% of all option ARM borrowers make only the minimum payment each month, according to Fitch Ratings. The rest of the money gets added to the balance of the mortgage, a situation known as negative amortization. And once balances grow to a certain amount, the loans automatically reset at far higher payments. Most of these borrowers aren’t paying down their loans; they’re underpaying them up….”
“…The rest of the option ARMs remain on lenders’ books, where for now they’re generating huge phantom profits for some lenders. That’s because, according to generally accepted accounting principles, or GAAP, banks can count as revenue the highest amount of an option ARM payment — the so-called fully amortized amount — even when borrowers make only the minimum payment. In other words, banks can claim future revenue now, inflating earnings per share….”
And a great quote from James Grant, (neg-am accounting is)”"frankly a fraudulent gambit. But what it lacks in morality, it compensates for in ingenuity.”
“mortgages…26% in Wyoming were option ARMs?” Wyoming? I lived there for 5 years while going to school. Get this. Casper, Wyoming has a huge, huge boom going on. Why? Oil, oil, oil. One of the largest natural gas deposits was found in Wyoming about 4 years ago. How many people 2 years out of high school do you know have jobs paying $70k a year? They are all over Wyoming…oh and no state income tax. But still 26% still are getting negative amorization loans. Huh? What is even more interesting is that people don’t realize how much money is in that state due oil, natural gas, coal-bed methane, coal mining, and, I hear, they are looking to possibly open uranium mines. Yet, they still are doing these stupid mortgages. Boom and bust should be Wyomings motto.
Wyoming??? I was born there (Sheridan) and still have family in various parts of the state, and most of Wyoming is about like the Moon, except not as scenic. If the bubble has reached the non-Jackson Hole/movie star part of Wyoming, then we really have gone into the Twilight Zone.
the good thing is that greed will be defeated. the banks will probably lose money on these because most of the people will foreclose and the property values won’t be enough to pay off the loans
and then Uncle Sam asks everyone to tighten their belts and suck it up for the greater good of the country… i’d feel a lot better about tightening my belt if i could tighten it around AG’s scrawny neck.
from the jobs report.
this must be a joke or a drastic change in the cooked / spinned birth death model
The construction sector added 17,000 jobs in August, the strongest pace since February
Don’t forget the Fed Funds rate pause, which could have the “accidental” effect of respiking the punchbowl.
This is from Jeff Cooper’s daily S&P update. BTW, Ben, check out the Dallas Morning Snooze this a.m. for the big foreclosure story. I tried to post it here but it doesn’t seem to be happening.
(Cooper)
Conclusion: Most investors in the U.S. look forward
and see a weakening housing market. But there is
little fear unless you have to sell or unless you are
the CEO of a homebuilding firm. Interestingly, a
friend of mine who had lunch with the president of the
one of the most prominent homebuilding companies in
the U.S. mentioned to me that this executive was more
frightened of the shape of the housing market than he
has been in 40 years. But most Americans do not
believe in the hiss of the air coming out of the
housing bubble and that it has a rattle accompanying
it.
They do not believe that the air coming out of the
bubble will turn into a hurricane for the rest of the
economy. They believe that everything will be well
contained and will be managed by the authorities –
just like my father used to believe (despite living
through the Depression) that the Federal Reserve was
in control and that the economy would be well managed
and that the stock market was immune to crashes. Most
Americans remember the last recession from 2001 almost
fondly — after all, it spawned the greatest boon in
housing prices ever. The wealth effect from that
explosion in real estate saw homes used as an ATM
machine like never before.
But it is no fun to hear that a contraction in real
estate could have an equal and opposite effect of the
upside. After all, consumers have adapted to high
gasoline prices. Recession? We got over the last one
with flying colors. Why worry?
But as economist Stephen Roach warns: “For a
wealth-dependent U.S. economy, the bursting of another
major asset bubble is likely to be a very big deal.
… With U.S. fiscal and trade imbalances now larger
than five years ago, the fallout for the rest of the
world could be more devastating than the aftermath of
the dot-com boom.”
Hmm, more devastating than the aftermath of the
dot-com boom? Is the bear market over? Is the
three-year rally on the S&P after a near perfect 50%
drop from March 2000 simply a return rally to test the
breakdown point?
Regarding the foreclosure story, just go here; it is the top story:
http://www.dallasnews.com/
Better link:
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/090106dnbusforeclosures.333103f.html
What we’re seeing here is the leading edge of the most marginal homeowners going under.
Zooming out from the bubble for minute, I think we should recognise that a *small* amount of housing price inflation is a good thing in a normal market (if we ever see such an animal again). Since housing normally moves rather slowly and housing transactions have so much financial friction, slow inflation is helpful in keeping the market from freezing up by washing out the nominal transaction costs for reasonable holding periods.
What’s scary here is that the *absence* of *massive* housing price inflation in North Texas is killing marginal borrowers. The examples given, seen through the lens of a bubble market like SoCal, are frightening in the sense that here, Ms. Jones and Mr. Fenton would be unable to pay the rent on one-bedroom apartments.
Attempting to map this back to North Texas, these examples seem to indicate that average houses there can’t be priced over about $75K, yet somehow they are. So either $100K+ is a bubble price in North Texas, or these FBs rode the HELOC to Hell. Or was it both?
I must admit that I have trouble with concept of a newish, modern SFH in the year 2006 being worth less than $100K, but there it is. So I’ll go out on a limb here and predict property tax revolts in Texas and Florida sometime in the next two years. All it will take is six more months of articles like these, and there will inevitably be a political reaction. A Jarvis-style tax revolt seems the most likely outcome in states that have high taxes on real estate.
I must admit that I have trouble with concept of a newish, modern SFH in the year 2006 being worth less than $100K, but there it is.
Yeah, you should have seen the look on a spec builders face when I told him the house he’s trying to sell at 500k is only worth 250k based on the rent / local incomes math.
The only alternative to property taxes in Texas is some sort of state income tax (sales tax is already 8 1/4% in most cities).
A lot of politicians and wealthy people do not pay much in property tax in Texas anyway, as they have had their properties re-zoned to a “recreational status” and pay a much much lower tax rate than ‘regular’ citizens.
Any politician that comes out in favor of a state income tax will have to run for his life.
Auction market pricing is on the way in Dallas!
—————————————————————————-
“A number of people stretched themselves to the hilt to get qualified for even higher-priced homes than they could reasonably have expected to get in the past,” Mr. Gaines said. “I think this frenzy of easy credit has led to the high numbers of foreclosures.”
Market effects
Most troubling for North Texas homeowners, the flood of foreclosures could affect the overall housing market, industry analysts say.
In the late 1980s and early 1990s, a frenzy of home foreclosures caused by the regional economic collapse contributed to more than a 25 percent decline in overall residential values.
“We know that most of the foreclosures are going back to the lenders and then being offered for resale,” Mr. Gaines said. “We also know that historically, the lenders are generally forced to offer the properties at discounts in order to move them.”
Out of the more than 8,400 homes sold at foreclosure in the first half of 2006, only about 600 were purchased directly by outside investors. The rest went back to the mortgage company, according to Foreclosure Listing Service.
Connie Zetterlund, a Dallas real estate agent who specializes in foreclosed-home resales, said the number of such listings is ballooning. So far, lenders have been unwilling to slash their prices, she said.
“I don’t think they have gotten the news that the market is slowing and there is a glut of foreclosures,” Ms. Zetterlund said.
The timing is bad for these distressed properties to land on the market. Overall home resales have been dropping in recent months.
“Everyone of us needs to be heads-up about what this is saying about the stability of our economy,” Ms. Cunningham said. “Housing has held up our economy for so long.”
Yeah, don’t ya love it? These f**ing idiots like the SDCIA crew that that other jerk who stalks me in these forums (all living in bubble areas) all just know way better than I do that Dallas is just an untapped motherlode of future bubble wealth. Bullshit.
I’m here to tell them that unless they’re selling to each other in Dallas, the local population is “all in” and leveraged to the eyeballs. They have been since the late 1990s. My friends and acquaintances are bankruptcy lawyers, trustees, etc. Give me a freaking break.
I believe I may be who you refer to when you say ” other jerk who stalks”. Allow me to respond by observing the following.
Offering critical analysis of another poster’s position is not stalking. Additionally, I’ve never suggested Dallas is “is just an untapped motherlode of future bubble wealth”. I invite you to review the posting on this blog to find evidence otherwise.
I have observed that some areas in Dallas are more desireable in light of their location, walkability and offerings of entertainment and as a result, they have appreciated. How much of the appreciation in these areas was due to loose lending and negative interest rates? Some, but not all.
Your suggestion that the local populace is ‘all in’ is suspect at best. You’re collecting evidence from BK lawyers and trustees who, as a result of their professions, deal with the insolvent. Of course they observe overleveraged people, but to extrapolate that to the general population without further supporting evidence is illogical. If you presented data that indicates the BK rates are higher, home equity is less, CC debt higher, etc for the DFW area, then you’d have an argument. Your technique is flawed in that your data source doesn’t have a large sample, only those who are already in trouble financially.
Furthermore, I’d suggest your opinions on anything relating to the DFW area, and perhaps TX, are highly biased in light of your experience in that area. It is unfortunate that you have lost the ability to be objective about the area, but clearly, this is the case.
There are many areas which have multiple tract home developments in the exurbs, AZ, CA, FL, etc. DFW is not the exclusive province of dumb development depite your suggestions that it is.
No, I wasn’t referring to you unless you’ve changed your name. But thanks for playing.
I see, do you not have any comments on my observations?
Where is Txchic? She should be basking in this info!
Too late!
Nice post Tchick….
they added 14.000 people in the construction buisness by the birth deat modell. in this kind of a cycle.
enron acounting.
in total they added 121.000 via the b/d modell.
enron lebt/ is alive.
a summary on my blog later
http://www.immobilienblasen.blogspot.com/
95% of all jobs createt via the birth deat modell
http://immobilienblasen.blogspot.com/2006/09/us-arbeitsmarktstatistik-enron-lebt.html
The Fed isn’t done raising rates. The US dollar is getting pounded on the foreign exchanges, and the ECB will be raising their rates too. The Fed will have no choice but to continue raising rates to protect the dollar in the face of massive federal and trade deficits. If they don’t, then really bad things happen (I know bad things are happening now, but they can get worse).
I’m getting really excited about a 1987 style crash. 90% short already, just trying to time the rest. I may even go on margin which I don’t usually do on short side plays.
I know you are aware of this fact, but it always bears repeating: there is no downside limit to the risk exposure on a short. The stock can go up for any reason to any level. Always remember that the fundamental problem the market is dealing with right now is one of irrationality. In an irrational market, anything can happen.
Is there any advantage to traditional short sales (which can get squeezed) over put options?
You can make more money but it’s riskier and if I’m short one with a lot of others in it, I usually hedge w/call options (which are always expensive in those cases). These are longer term plays. Right now, I have a good sized short on Cisco and Apple, both hedged.
Don’t understand the margin comment made. As far as I know , all short sales are margin trades. You cannot short stocks in a Cash account. The greatest advantage to shorting stocks as opposed to buying puts is that you are not battling the clock. You will pay margin interst though and LT derivatives such as LEAPs can give you a pretty solid time frame to see your dreams(nightmares) realized.
When I say margin, I mean I commit more to the short side in sales than my account balance. My personal accounting system.
Be careful out there!
I think you’re wise to cover your butt witht he calls tx . small price to pay for some sleep- some famous guy said ‘markets can remain irrational longer than you can remain solvent’. But I agree , the time is coming sooner rather than later when all this sh*t must finally be accounted for. I too am as short as this guy:
http://news.yahoo.com/s/ap/20060830/ap_on_fe_st/nepal_shortest_boy
Oh, and just to clarify it a little more, I don’t short in cash account. I have highly leveraged trading accounts with anywhere from 20-1 to 100-1 BP. They’re in LLCs in some cases and other vehicles so there’s no margin problems.
20-1,100-1 . That’s great margin leverage.
20-1 100-1 on the short side? Wow, you should consider changing to shortchick57…
More negative than me by a long shot. But I’m more conservative from the looks of it too.
“Wow, you should consider changing to shortchick57…”
LOL.
The CSCO play looks good. Another trader with a lot of experience suggested that one yesterday. Speaking of shorts, GG’s down 10% the last two days. And there were some 5 million shares short on GLG. It was up 20% yesterday. Ouch! Energy and metal stocks doing decent today. The small ones that is.
also short the homebuilders and added today the sp500
added also some sp shorts.
Speculation will get you nowhere!!!
Sorry, just finished another read of Intellgent Investor
I’m getting really excited about a 1987 style crash. 90% short already, just trying to time the rest. I may even go on margin which I don’t usually do on short side plays.
Like the saying on the wall of my grandma’s kitchen, “A watched pot never boils.”
Housing sector is fairly flat on news that helps keep the Fed from raising rates. Perhaps that is all priced in. Lately I have been mostly buying puts on lenders. Today I bought some more Nov SPY puts after the initial run up. We’ll see if that was a good short term time, or if the market keeps going up this afternoon.
Today I bought some more Nov SPY puts after the initial run up. We’ll see if the short term timeing was good, or if the market continues to go up today.
The housing sector was fairly flat this morning, on what has been considered good news–data that should please the Fed. Probably another pause is already priced in.
Lately I have been mostly buying puts on lenders in my bubble portfolio, but have also started to buy puts on retail, such as GAP (GPS), Dress Barn (DBRN) and Applebees (APPB)
I don’t know about a 1987 style crash, but I think the rally in stocks is about over now.
I don’t trust the short side of the stock market here. Falling long rates make stocks more attractive, ceteris paribus. I said go long the 10-year at 4.90 a couple of weeks ago (check the blog) for a move to 4 1/4% - 100 b.p. below funds - and I’ve got it about a quarter of the way there. I know, I know, there’s a fairly strong bullish concensus for bonds, which is a somewhat negative contrarian indicator (less so for bonds than stocks). But I’m hanging on - still would rather be long the bonds (Treasuries, of course) than short stocks, even though both could be considered recession plays.
As for F’d Lenders, looks to me like Wachovia and SunTrust could be two of the better (short) plays, not quite as picked over as WaMu, FNMA, and others.
here is something for you all. my wife was out last night and someone she knows has been selling their home for a year with no luck.
northern NJ, house fully paid off, bought decades ago. 2006 property taxes were around $10,000 with a 2005 market value of low $500,000’s. Asking is $639,000. quick zillow check says it’s overpriced.
I know some of you are tired of the same old rehash, so here is another personal anecdote:
I’m a CPA and a conservative type of guy. I come from a large family and spend a pretty fair amount of time helping my family and friends with income taxes, financial advise, etc.
My family and friends first realized I was an idiot in early 1999, when I advised that they move out of the stock market. Their realization was proven when most realized a gain of about 35% for the year 1999. By the time the market crashed in 2000/2001, my past advice was pretty much forgotten.
In late 2002, my advise to everyone was to stay away from housing. I give this type of personal financial advice professionally, objectively, and confidentially (from my end) and only when I am asked for my opinion.
Again, as I was firmly planted in the “overly conservative” camp, nobody listened to me. I have actually been ridiculed and am the butt of jokes at gatherings for my stupidity. I’ve been renting, everyone else has made “tax-free—I am reminded” hundreds of thousands of dollars in home-equity (even those that bought in early 2005).
One member of my family bought a house early in the game (2002) which has turned into a really good investment for him. Even though I advised him against it at the time, I now agree that he got in at a good time. The property has increased in value by around 110% ($250k to about $520k), so I figure by the time the market comes down that should still be a reasonable entry point.
This same family member (who happens to be an older sibling) is a blue collar worker in San Fran and makes about $65k per year. He bought a second house at the end of 2004 for $600k on an ARM. Before he bought the house he came to me to ASK ME for my advice, which I gave him. He sent a mass e-mail out to everyone we know in common to let them know the advice I had given him, to explain to them what an idiot I am, how all my years of schooling were obviously a waste of time. I’m not a sensitive guy, but this was pretty uncalled for and has created a bit of tension between us.
After purchasing his second home, my sibling decided to quit working and become an investor in real estate and the stock market. He funded this through home equity loans. To prove the legitimacy of his new found profession (he went to the Donald Trump real estate seminar earlier this year, and attended a 3 session stock-picking seminar also) he began giving the family updates on his stock picks and financial savy. I can only assume that his option trading didn’t work for him, because he returned to work 6 months later, with HELOC on both his houses.
Two months ago he bought a third house for $600k which he was going to “fix-up” and flip. He got an option-ARM with a 7 month prepayment penalty. His first house payment is covered by a renter, his second two houses are costing him $6000/month.
He called me a few days ago telling me he was in trouble, he had started drinking, and couldn’t sleep. He asked for advice on what to do next. Advice.
Stick his head in the oven would be my advice.
and don’t forget to blow out the pilot and then turn the thing on full blast. and keep that match handy
I think I would have that email framed next to my diplomas.
What ever you tell him, make him agree to attach that advice to LAST YEAR’s mass email and re-send it. He NEEDS to burn, sounds like he will.
Better yet, it’s likely that an a$$hat like that probably wouldn’t have bothered to use blind CC’s on his original. So you can mass Email his current financial details and your advice.
I would expect this might increase “the tension between us”, but this is definitely a case for some schadenfreude.
Bwaaahhhaaa I like that, really I do.
Was that you or an imposter a few days back with a couple of ‘Road to Damascus’ posts about the bubble?
I noticed the absence of the ‘e’ in ’stream’, and just wondered . . .
“…but this was pretty uncalled for and has created a bit of tension between us.”
You’re a lot more patient than I am. Your brother sounds like a total asshole, frankly. He sounds like the kind who always will take credit for himself if your advice is right and blame you widely if your advice is wrong. My advice: no advice. Ever again. A mea culpa is just going to set you up for another round of sucker-punching.
Remind your family of the value of an education! Let this guy be an example for your circle of family and friends. The storm is coming and it is now time to for all of these FB’s to pay the piper!
Also, don’t help him out. He needs to eat some humble pie!
god, can i empathize. my relationship with my sister who i was always close to all my life has been destroyed by my telling her that yes virginia there is a housing bubble. this started last december when i told her her house ( a dump in southern boston suburbs ) was not going to increase in value any more and that she should sell it for 450k. anger, rage denial. boy what a moron i was.then in feb my mother died and in may my father leaving her as executor. of course, she is screwing this up royally as well.”if i just wait the housing prices will start going up again….”etc. “arent you finally going to get smart and buy a house with your inheritance” lol
Four words come to mind, “…I told you so!…”
CPA , you can lead a horse to water… Funny how two apples could fall so far from the same tree. I get the feeling though that you’ll still try and help him out with sound advise , like maybe stopping the bleeding now and reevaluating , rebuilding. I hope he listens this time.
Tell him to dump his RE holdings and move on. If it weren’t a close family member I wouldn’t give him any advice. Sometimes, though, I think it is wise not to alienate your family members even when they do stupids things. Face it, you aren’t perfect either, and someday you may need to count on him.
I second this - but with an “I told you so” first
FWIW (not a lot) : I agree with this posting. The advice falls into two camps. The first are variations on I-told-you-so. Yes he was a dick, yes he deserves to be hit when he’s down.
The other camp is to recognize the behavior as the insecurity that obviously exists. Without knowing much, one brother that went off to be a tradesman, and another that went off to invest in himself by education, and then worked to gain wisdom in the financial markets. Sounds like a surefire recipe for your brother to behave like an insecure little kid when the opportunity arose.
So if you can demonstrate the wisdom to rise above the crap, give him solid advice (cut your losses, get a job), you will increase the positive energy in the world rather accentuate than the negative.
Having been in a similiar situation, I then suggest conscious avoidance for a while.
FWIW (not a lot) : I agree with this posting. The advice falls into two camps. The first are variations on I-told-you-so. Yes he was a dick, yes he deserves to be hit when he’s down.
The other camp is to recognize the behavior as the insecurity that obviously exists. Without knowing much, one brother that went off to be a tradesman, and another that went off to invest in himself by education, and then worked to gain wisdom in the financial markets. Sounds like a surefire recipe for your brother to behave like an insecure little kid when the opportunity arose.
So if you can demonstrate the wisdom to rise above the crap, give him solid advice (cut your losses, get a job), you will increase the positive energy in the world rather than accentuate the negative.
Having been in a similiar situation, I then suggest conscious avoidance for a while.
FWIW (not a lot) : I agree with this posting. The advice falls into two camps. The first are variations on I-told-you-so. Yes he was a jerk, yes he deserves to be hit when he’s down.
The other camp is to recognize the behavior as the insecurity that obviously exists. Without knowing much, one brother that went off to be a tradesman, and another that went off to invest in himself by education, and then worked to gain wisdom in the financial markets. Sounds like a surefire recipe for your brother to behave like an insecure little kid when the opportunity arose.
So if you can demonstrate the wisdom to rise above the crap, give him solid advice (cut your losses, get a job), you will increase the positive energy in the world rather accentuate than the negative.
Having been in a similiar situation, I then suggest conscious avoidance for a while.
jp-
Have you had a few to many cups of coffee this morning?
I am seeing your post.
I am seeing your post.
I am seeing your post.
Yes I have drunk many cups of coffee, why do you ask?
Many apologies.
When the post didn’t show up, I thought it was bombing on the cussing filter. “Dick” didn’t sound that strong to me, I use it all the time…
Ben, feel free to remove the multiples in that copious free time that you must have. haha.
I had this problem last night. There is a delay in the postings sometimes. While I’ve heard people mention the problem several times, last night was the first time it happened to me.
I had this problem last night. There is a delay in the postings sometimes. While I’ve heard people mention the problem several times, last night was the first time it happened to me.
ok, I did NOT make that last post twice…
LOL
Tell him to leave the house keys in the mailbox and notify the bank.
First, I would have him gather all his financial statements, loans, etc and bring them to your office. I would then print out the mass email he sent out to everyone and have him read it aloud to your face (just you, not anyone else). When he is done eating crow, you sit down and look over everything and give him the best advice you can. If he is a sibling and needs help to bail him out and you can afford it, do it (but don’t expect to be paid back). If not, try to find another route that he can handle on his own.
No need to disgrace him in front of everyone. Doesn’t change anything, but make you feel better. Besides, in the end, everyone will know that you were right even though they wouldn’t admit it.
I feel for you. Do you help or do you say “I told you so”.
My sister just closed on a home in Sacramento. I know that the area is tanking - not sure how much (I only track areas where I want to bottom feed in a few years). But my family has over 100 years of combined R.E. experience (parents, me, sister). So you think she would know better…
My advice… easy: don’t offer family members professional advice. In fact don’t offer anyone your professional advice unless they’ve paid for it. Now I offer housing advice all the time, but if this were my real job and if my professional credibility were held accountable for being right, I wouldn’t give it so freely.
From now on, if they ask what you think, smile, made a casual quip, and let the discussion move elsewhere. Let this one go, and move on.
…also, indeed a lot of people have been raking in the dough with stupid investments. That’s what happens in the expansion of a credit bubble. It’s painful to watch. All we can do is have faith in the day of financial reckoning.
Advice is a form of nostalgia: dispensing it is a way of fishing the past from the disposal, wiping it off, painting over the ugly parts, and recycling it for more than it’s worth - BAZ LUHRMANN
“Many receive advice, only the wise profit from it.”
Publilius Syrus (Roman author, 1st century B.C.)
Maybe your brother has learned and is ready to evolve (somewhat).
I absolutely agree. Don’t say anything more than a diplomatic “I’m sure you’ll be able to get it all figured out, you’ve a very capable person, etc.” Don’t rub his face in it, don’t offer any real advice (which he’ll either ignore and mock you for, or follow and resent you for). Stay out of it! If you need to, tell him that you’re at a complete loss, that you care about him and want him to have the best advice, and that you know of a couple knowledgable CPAs. Give him their numbers.
Whenever my in-laws bring up RE (they own 4 houses, good lord), I just nod and smile. I also don’t tell them anything about my financial life.
BTW, you clearly got the brains in the family.
Refer him to a bankruptcy attorney. Let the attorney break the bad news to him. He will never accept advice from you now, and if he does, it will be a splinter under his skin for all eternity.
Once he files for bankruptcy, surrenders the houses, or whatever is appropriate under the laws of your jurisdiction, then you can tell him you expect an apology with the same publication that was made for the criticism. If, and only if, he refuses to do so, then you can consider other steps like publishing his bankruptcy or whatever. I strongly suggest you give him a chance to do the right thing first, however. High moral ground is usually worth the effort.
In other words, he’s an asshole.
CPAone - don’t listen to these smucks…geez they sound like gilted ex-lovers and bitter renters.
This is family. Always remember that. In 20 years after this whole mess is a distant memory you’ll be glad you helped your brother out. (and you will have earned the respect you crave)
Help the guy out…get involved and lay out a plan of attack. You sound easily qulaified for this.
Ps - What part of NO CA are you in?
Leaving aside my sarcastic suggestion further up, I actually agree with you here, all things being equal.
But I have a feeling DavidCee’s post below cuts to the chase, unfortunately. Suddenly my own family doesn’t seem so bad . . .
He didn’t call to ask you for advice, he called to ask you for MONEY. If it wasn’t this call, it will be coming soon. I suggest not taking calls from all your family and friends who you know bought houses in the last 2 years. They will be asking you for money real soon.
CPAone; I think that you’re brother is suffering from an inferiority complex. He needs to put you down in order to prop up his self-esteem. You gave him very sound advice, but he chose not to listen. Very sad for him.
“My family and friends first realized I was an idiot in early 1999, when I advised that they move out of the stock market. Their realization was proven when most realized a gain of about 35% for the year 1999. By the time the market crashed in 2000/2001, my past advice was pretty much forgotten.
In late 2002, my advise to everyone was to stay away from housing. I give this type of personal financial advice professionally, objectively, and confidentially (from my end) and only when I am asked for my opinion.”
Based on your record, it sounds like people should do the opposite of your advice for a year or so, then follow it.
Thanks to all who responded.
I plan on helping my bro as much as I can, without giving him a dime. I can advise, and prepare tax returns.
With capital losses limited to $3000 per year, I’m going to advise he sells all his properties (the first he bought should still clear him$100k if he gets out now). His new investment, he can offset the loss. I don’t know how to tell him to deal with the bank, but a short-sale won’t work as long as he has assets.
I really want to rub it in his face, but that’s just the little brother in me.
Thank you very much for the responses. I’ve been cracking up reading them. A lot of empathy out there…I think most of you have been in a similar position.
Thanks Ben for the outlet.
CPAone (or Jeff)
“…but this was pretty uncalled for and has created a bit of tension between us.”
You’re a lot more patient than I am. Your brother sounds like a total asshole, frankly. He sounds like the kind who always will take credit for himself if your advice is right and blame you widely if your advice is wrong. And he probably resents your greater education, thus taking the opportunity to slam you in front of others. My advice: no advice. Ever again. A mea culpa is just going to set you up for another round of sucker-punching.
http://www.msnbc.msn.com/id/14608814/
On housing front, it’s beginning to get ugly
Builders send danger signals; concessions may mask real price drops
Look away, if you can.
File this under car wreck, as in, you don’t really want to see it, but you cannot look away. I’m talking about the latest batch of housing numbers. They all show pretty much the same thing: sales slacking off, inventories rising.
Builders like Toll Bros. are saying they’ve never seen anything so bad in, oh, half a century. Builders, of course, aren’t the only companies to see their stocks get whacked. Lenders like Accredited Home Lenders and Countrywide Financial have been hammered, as has H&R Block, which announced one of what I suspect will be many charges for bad loans. Oh hey, and put First Horizon into the group that’s hurting for lack of lending.
The home ‘investment’ industry
I’m sure others have noticed, as I have, the increasingly desperate pleas from the housing-bubble cheerleaders, especially National Association of Realtors Chief Economist David Lereah. A longtime bubble denier — who, I think, is more interested in protecting his constituency of six-percenters than in offering realistic housing-market commentary — Lereah began asking the Fed to protect his bubble a couple months back. At the same time, he and his associates have tried to spin the situation with the news media, who, hungry for soundbites, are usually all too happy to parrot headlines such as “Existing-home sales down with softening prices.”
I can’t wait for David Lereah to declare a bottom.
“Look everyone, national house prices have dropped 5%. That’s the biggest drop in history! It’s all sunshine from here on, so start buying, prices will never be this low again!”
That will be the final nail in the housing coffin. A few idiots will actually listen to him, before the real pain starts.
Apologize in advance if this is a bit too NY-centric, but I found this hilarious.
http://brownstoner.com/brownstoner/archives/2006/08/pioneering_use_1.html#comments
Oh, that’s priceless. Thanks for sharing that with us
I let rip here a few months back with a rant about building standards for some new townhouses (=rowhomes) where I live in Canberra, Australia.
But nothing like that . . .
Yesterday in Rosslyn, a Washington, DC suburb just across the Potomac river from Georgetown. Saw several handmade signs (posterboard) and magic marker like you see for yard / garage sales. But the signs were for FSBO condos. “Buy no money down, $xxxx per month. Hurry!” ect… Looks like some really FBs with poor maketing skills. The signs were not even well made. Barely legible… Looked like what a second or third grader would do.
Another chief economist:
Frank Nothaft, Freddie Mac vice president and chief economist:
“By some indicators, personal incomes are growing faster than the cost of housing. Combined with the still historically low mortgage rates, this will help to support the housing industry as it levels off from the record highs of the last few years.”
From: http://realtytimes.com/rtcpages/20060901_rates.htm
I don’t recall seeing this posted, but according to NAR, housing affordability is at a record low. It’s never been the interest rates, except for the suicide/toxic loans. We are at the bottom of the pyramid and there is nobody left to buy.
http://www.businessweek.com/magazine/content/06_37/b4000001.htm
Not mentioned in the article is a provision in the tax code which restricts the ability to deduct interest on certain “cash-out” and Home Equity Lines of Credit (HELOC) and to reduce Alternative Minimum Taxable Income. Many folks and their accountants are clueless about this. A problem might arise if one borrowed “on their home equity,” or unrealized appreciation to purchase another property(ies) and didn’t properly report (”tracing rules and mixed-use mortgage calculations need to be heeded)the interest on the portion of the new loan which exceeded the original acquisition indebtedness. Most taxpayers simply take their 1098 forms, add up the interest, and report all of it on their Itemized Deduction page in the return. It’s not that simple when you leverage home debt to buy other properties or exceed the HELOC limit of $ 100k.
Can someone please tell me what is going on with inventory? Per ziprealty numbers, NoVa inventory is dropping rapidly. It appears houses and condos are selling out there like hot cakes.
If you’re referring to today, inventory always drops at the beginning of the month. Most listings expire at the end of a month. At that point, sellers have a choice: sit on the property off-market (pleasing the neighbors and screwing themselves); re-list with the same brokerage (lots of “new” listings within a week), list it with a different brokerage (lots of “new” listings within a week), or try to rent it (lots of new rental listings). The only anomaly re NoVa is that the Washington DC area has an above-average percentage of people who transfer in and out at fairly short intervals, so you’ll see more activity in both sales and rentals in the summer months, culminating in August. All IMO.