“No One Is Paying Last Year’s Inflated Prices”
A housing report from the Arizona Republic. “Home prices are a touchy subject in the Valley. People aren’t bragging about how much their home appreciated in a single month. There are no bidding wars for homes. No one is talking about how they’re going to spend their equity.”
“No, homeowners today are watching every sale in their neighborhood, cringing if they see ‘For Sale’ signs lingering too long and losing their tempers when neighbors drop prices.”
“‘The housing market hasn’t cooled as much in central Valley neighborhoods,’ said real estate agent P.J. Dean. ‘But if you are trying to sell a home in Surprise now, good luck, because that’s where speculators snatched up homes, and builders are offering the best deals.’”
“In the Surprise ZIP code of 85374, home prices hit a low for the year in August. Home prices in the Buckeye ZIP 85396 hit a high in February and have been yo-yoing since. In the Gilbert ZIP 85297, prices have been falling since June. In the north Valley, prices in Anthem fell to a 2006 low in August.”
“‘Most people who bought on the fringes last year are likely going to have to hold on for at least three years or sell for a loss,’ said real estate agent Margie O’Campo.”
“In January, when the Valley’s housing market started to come down from last year’s wild run-ups, about one-third of metro Phoenix’s ZIP codes experienced small price dips. Now it’s more than half. ‘The Valley’s housing market is going through a definite and obvious correction,’ said O’Campo de Castillo. ‘Homes are selling, but they have to be priced right. No one is paying last year’s inflated prices.’”
“The Valley’s price dips are a result of supply and demand. There are 45,000 homes on the market across metro Phoenix now, compared to fewer than 20,000 last October.”
“‘What was Phoenix’s asset last year has become its liability this year: available land,’ said Tim Sullivan of (a) San Diego-based real estate consulting firm. ‘The investor-driven new-home buying frenzy came because the Valley had land.’”
“He said now all those new homes that investors are trying to flip, as well as the ones builders can’t sell, are dragging down the area’s housing market and some home prices.”
The Review Journal from Las Vegas. “In Nevada, 6,523 homes entered some phase of foreclosure in the third quarter, an increase of about 80 percent from 3,499 homes in the second quarter and roughly double the rate of foreclosure activity in the third quarter of 2005, said Tom Adams.”
“Broker Bob Hamrick (said) that Southern Nevada’s higher foreclosure rate isn’t based on overall economic fundamentals. Rather, Hamrick blames the higher rate of defaults on homeowners who borrowed more than they could afford, and the lenders who allowed buyers to overextend themselves.”
“‘There were purchasers who bought real estate and did not truly have the ability to make the payments they knew they would have to make,’ Hamrick said. ‘They bought based on the absolute expectation that real estate would continue to go up. Those people are getting caught.’”
“Robert Klausmeier, a sales agent in Las Vegas, said competition in the mortgage industry also contributed to the home-buying binge. As some banks loosened underwriting criteria and offered interest-only plans, other lenders followed along to retain business.”
“‘It got to the point where people needed to show very little to get a loan,’ Klausmeier said. ‘Now, the interest-only periods on some of those loans are over, and with some bad luck (for buyers), problems are starting to come to fruition.’”
“At the same time, a glut of housing inventory is suppressing price increases and hurting sales prospects for homeowners seeking a way out of mortgages they can no longer afford. The Greater Las Vegas Association of Realtors reported a record 20,815 homes for sale in September, an increase of 57.4 percent over the number of homes on the market in September 2005.”
“Sheldon Klain accepted a job with the city of Dallas in the spring. So he and his wife listed their Las Vegas home for sale in April and prepared to move. The Klains had an offer on their property, a 2,200-square-foot home on a third of an acre with a pool, at the full listing price of $475,000 by May.”
“But the sale fell apart when the buyers backed out at the last minute. Now, in addition to the $1,400 a month the Klains are shelling out for their Texas home, they’re carrying about $2,800 in monthly mortgage payments on their Las Vegas property.”
“It’s a burden that Klain, who took a $10,000 pay cut when he moved to Dallas, and his homemaker wife can’t swing. They’ve been unable to make payments on their local home since July, and their mortgage lender says they’re in default.”
“‘This is a very difficult situation to be in. It’s very emotional,’ Klain said. ‘We tried to cover all the bases. If we hadn’t sold our house right away, we wouldn’t have bought a new house. We’d have rented an inexpensive apartment. It’s been tough on us.’”
“Klain believes the slower market cost him his home sale. The buyers who backed away from purchasing his home also canceled the sale of their house and decided not to move at all.”
“‘I think they saw what was happening in the market,’ said Klain, who bought his home in 2002. ‘They thought the market was going down and they thought they were paying too much.’”
“Klain said his bank has given him until mid-December to pay off the mortgage on his Las Vegas property. If he doesn’t, they’ll repossess his home. He’s had two offers since the initial sale fell through. One buyer didn’t accept Klain’s counteroffer; the second dropped out of the deal after Klain’s lender failed to respond quickly enough to his offer.”
“The home, now reduced to $419,000, is still in the MLS. ‘This has really been a roller-coaster ride for us,’ Klain said. ‘We’ve never been in a situation like this in our entire lives, so this is rough. We’re just waiting.’”
“‘I think we’re just scraping the tip of the iceberg as to what we’re going to see in foreclosures,’ said Klain’s Realtor, John Izzo, who has worked in real estate sales for 20 years, five of them in Las Vegas.”
“In the Surprise ZIP code of 85374, home prices hit a low for the year in August.”
In the neighboring ZIP codes of Yurfukt and O’Sheyat, things were even worse.
Surprise! Real estate doesn’t go up forever.
Yea, I guess this confirms all the info about Surprise that bloggers gave me last week, per my friends investment. Thanks!
We are currently at about the one year anniversary of the full scale real estate market retreat. Interesting that the whole thing has basically fallen apart just prior to 2007 when the biggest wave of ARMs and Cinderella loans start to reset. 2007 is going to be a very interesting year.
Ben, I hope you will still be providing your excellent coverage through 2007.
I hope Ben continues to provide his excellent coverage well into 2020!
Refreshing to read about a realtor with a brain. “…I think we’re just scraping the tip of the iceberg where foreclosures are concerned….” said John Izzo in Las Vegas. This guy should be careful or he could get drummed out of the Corps of Realtorwhores for telling the truth and have a letter “T” branded on his forehead for “Traitor”. However, it’s the same-old-same-old story. People not earning enough to pay for grossly overpriced houses. THAT is why this market will meltdown. Yup, 2007/8 and possibly 2009 are going to be very interesting. Of course, if the democrats win the upcoming election, when the real trouble starts the gang of criminals headed up by that idiot in the White House will say it’s their fault.
The buyers who backed away from purchasing his home also canceled the sale of their house and decided not to move at all.
but wait… i thought all real estate was local?
“‘Most people who bought on the fringes last year are likely going to have to hold on for at least three years or sell for a loss,’ said real estate agent Margie O’Campo.”
Oh no Margie, at least 5-6 to break even; in approx. 3 yrs we’ll be nearing the trough.
This isn’t the first stupid quote from Margie in the press. She’s had SEVERAL stupid quotes like this in the past few months.
If you like, you can write her and tell her how stupid her opinions are.
Margie@ArizonaDreamRealty.com
“‘Most people who bought on the fringes last year are likely going to have to hold on for at least three years or sell for a loss,’ said real estate agent Margie O’Campo.”
O’ Margie, You’re missing #3 …and the biggest option.
…They will walk away which is what a disproportinate # will do !
..Check out Jim Stacks’ graph…Looks like it added that second shoulder for the next plunge down….
http://investech.com/
“But the sale fell apart when the buyers backed out at the last minute. Now, in addition to the $1,400 a month the Klains are shelling out for their Texas home, they’re carrying about $2,800 in monthly mortgage payments on their Las Vegas property.”
“It’s a burden that Klain, who took a $10,000 pay cut when he moved to Dallas, and his homemaker wife can’t swing. They’ve been unable to make payments on their local home since July, and their mortgage lender says they’re in default.”
Hey, real estate is local, just in two locations for this couple. And the number of people I know with multiple homes is amazing. Where I wor, people who are relocated are keeping onto their house so that they aren’t “priced out of the market.” In the past, if they alternate job location was known to be for more than 2 years, they sold. Now, people are greedy and are keeping their house, renting it out (out a loss, usually to a coworker who is relocated TDY). This puts multiple markets at risk.
We’re starting to hear more and more realtors ™ blaming slow sales on “other markets.” (Of course, their market is different.) So how long until a national slow market effects everyone?!?
Right now… yawn. We’ll be in the stalemate for a bit longer.
Neil
Well the obvious question is
“It’s a burden that Klain, who took a $10,000 pay cut when he moved to Dallas, and his homemaker wife can’t swing.
Is there a reason the wife won’t work to save this situation? And I don’t want to hear any BS about little kids.
Assuming childcare for two kids runs $1000/mo. and another $200/mo. for misc. work-related expenses (drycleaning, lunch, parking, whatever) Wifey needs to make about $20K/yr gross to break even.
Actually, she would make out better if she watched someone else’s kids after school. Assuming she watched two kids for three hours a day, five days a week, and was paid $7/hr per kid (under the table, of course) She would gross $210 a week. Back out a little for snacks, and she is doing as well as if she had a $30K job, compared to working fulltime.
She can easily work nights at Winn Dixie while her husband babysits.
When I Googled Sheldon Klain, I found someone who was a supervisor in the City of Las Vegas’ Building Code Enforcement Division. Since the Sheldon Klain in the article now works for the City of Dallas, I am guessing that it’s the same guy.
When he worked in Las Vegas Klain had several subordinates, and appeared to be a fairly senior midlevel manager, so I am guessing that he is at the very least a middle aged guy. It’s not likely that he had his have young children, unless she’s his second wife.
There is also a Sheldon Klain who graduated from Fairfax High in LA back in the late 60’s. Could this be the Sheldon Klain from Vegas? I don’t see why not.
Here’s his picture. Scroll down:
http://www.dallascityhall.com/code_compliance/Staff.html
Sheldon looks more like Shrek than even Michael Eisner does.
How does that guy have little kids running around? He sure had a big smile for the picture. That’s good. He will need that sense of humor.
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this dumb dog-catcher should have realized a house isn’t “sold” until he gets the money. another Darwin award winner.
I doubt that he has little kids. I was just trying to point out, in a roundabout way, that he’s a Boomer. Not that there aren’t many, many financially illiterate Gen-X’ers out there, and not that the Gen Y crowd is showing many signs of being far more sensible and responsible than their parents and older cousins. It’s just that I’m convinced that this sort of thing is most prevalent among the Boomers.
Think of how stupid Sheldon is. The man grew up in CALIFORNIA — he knows all about the RE cycles, he’s seen prices rise and fall for the last several decades. He’s in his 50’s, employed in a responsible midlevel government positon — yet his house is going into FORECLOSURE.
This guy has no excuses. NONE. And he’s still going to lose his rear end. Fool!
The stupidest thing Sheldon did was to make a counteroffer to a prospective buyer. True, I don’t know what the offer was, but unless it was a real low-ball he should have taken what he could and been done with it. Most likely his pride got in the way and he couldn’t “just give his lovely LV home away”
my guess is Sheldon wanted to take the money and run but wife wouldn’t allow it.
Gekko posts “this dumb dog-catcher should have realized a house isn’t “sold” until he gets the money. another Darwin award winner.”
Just like your hero….. should not say “Mission Acomplished” until it is. I would compare him to a “dumb dog catcher” …. but I don’t have anything against dog catchers.
A moron boot licker should not claim victory untill it happens…. just like your Darwin friend should not claim sold untill they have the money in hand…. Right you simpleton?
imploder has “extra sensory abilities” imploder picking something up now. imploder sensing AE Newman may harbor “negative” opinion about George W. “Dumbell” Bush
POSTED: “Just like your hero….. should not say “Mission Acomplished” until it is. I would compare him to a “dumb dog catcher” …. but I don’t have anything against dog catchers.
A moron boot licker should not claim victory untill it happens….”
Please! Spare us the left wing tripe. You’re waisting everyone’s time.
One needn’t be a left-wing wacko to believe W was idiotic to prance around on that air craft carrier, playing the part of a hero. Plenty of red staters cringe at the thought of that too, or they will in a couple weeks.
I think that was the salient point of the thread.
The mantra is very tired. Bush is an easy target for the religious left. Try to come up with some new material.
The banner “Mission Accomplished” was erected to honor the crew upon its successful…..mission, accomplished.
Is there a reason the wife won’t work to save this situation? And I don’t want to hear any BS about little kids.
Txchick, you may know a great deal about a lot of things, but when it comes to kids, you don’t know jack. Kids, especially young kids, need their mothers. It’s a blight on our society that so many children get packed off to kiddie kennels each day because Mom & Dad value the accummulation of material objects over the well-being of their offspring. The better solution is for people to live within their means, and to recognize that kids want YOU, and your time, not a McMansion, designer clothes, and a new SUV every other year.
If you’re not going to take responsibility for raising your own kids, then for God’s sake, don’t have them. Everything else is secondary.
With the rise of the Internet, you can stay home with the kids and work at the same time. My sister has two small children, ages 3 and 1. She works part time, from home, as a contractor to Microsoft. Of course, a better plan of attack would have been not to buy a new house until the old one sells (duh!!).
Well, with sexist pigs like you out there TXchick, who needs guys?
I think the decision for mothers to go back to work and ignore the little ones is a much bigger crisis than losing a few bucks in RE. I usually appreciate your barbed opining, but that moronic jab put you in a realm that I am guessing you know little about.
“‘I think we’re just scraping the tip of the iceberg as to what we’re going to see in foreclosures,’ said Klain’s Realtor, John Izzo….”
You bet Izzo…I’m afraid we’ll be seeing a lot more horror stories like the Klain’s.
“No one is talking about how they’re going to spend their equity.”
No one should have been thinking about to spend their home equity in the first place. Maybe for repairs or renovations or in a dire emergency, but not for toys, granite counters/stainless appliances, tvs, etc. Not for vacations, not even for education, etc. I really don’t understand why people don’t see this for what it is “secured debt”. I am not saying that you can’t do anything else until the house is paid off, but the MEW thing is just so out of control.
I think many of the serial refinancers really missed the opportunity of a lifetime. When in the 15 & 30 yr mtge rates, were in the low an mid 5% range, they could have locked in that super-low rate, not taken $$$$$ out to spend on “junk”, spent a few years aggressively paying down the mtge and have been free clear much sooner than later.
yeah, yeah, I know, why prepay a 5% note?, when you can do better investing…because 99% of the people will end up always finding something else to buy rather than invest…
actually i prepay a 5.375 fixed note. i believe (contrary to what my entire extended family is advising) that if you hammer debt when the rate is low you can later use free cash flow to invest with very long term goals. not having a mortgage payment will permit this. keeping this ‘cheap’ debt in my view just eliminates that long term flexibility on the investment side.
You are in denial.
denial? i dont understand. once i have eliminated the mortgage payment i can go way long on investments… how is this in denial?
Gotta agree with jonaskinny, paying off your mortgage is almost always a good idea because it gives you flexibility if bad things happen. For instance, what happens if you lose your job and have a $3K per month mortgage payment? That mortgage is going to eat you alive. On the other hand, if you own your house free and clear and lose your job the situation is not quite as dire and you have time to deal with it.
Its funny. Laugh.
http://tinyurl.com/y7m2gg
The irony of that cover is that the house is supposed to be flying away upward; given the turn of the RE tide, that house now could be construed as falling to crush that poor little family…
Boo hoo.
Shades of the Wizard of Oz. It looks like the wife might have on some Ruby Slippers.
This one is much more appropriate:
http://davidlereahwatch.blogspot.com/2006_06_01_davidlereahwatch_archive.html
Soho, you have it all wrong. “Decades” to sphincter boy Lareah are only 5 years long. His decade ended in 2005.
Do you own in Soho? I can’t afford to own in this town and we do pretty well. Had another idiot tell me that I had to buy now, just the other night at a Hudson Street eatery. I almost shouted at her how stupid she is and told her about 50 reasons why not to buy. I would have to break nearly every simple economic rule in the book if I were to buy in Manhattan. I also explained how now is the greatest time to rent in NYC history, due to ridiculous disparity and the coming fall in real estate prices.
My wife told me that the woman at the table next to us didn’t like what I was saying. I’m guessing she is trying to get her husband to buy that Florida condo.
“Broker Bob Hamrick (said) that Southern Nevada’s higher foreclosure rate isn’t based on overall economic fundamentals. Rather, Hamrick blames the higher rate of defaults on homeowners who borrowed more than they could afford, and the lenders who allowed buyers to overextend themselves.”
Wrong, Broker Bob. The forclosure rate is indeed based on economic fundamentals. More accurately, it’s based on societal fundamentals, i.e. rampant greed, desire for instant gratification, and the willingness of financial institutions and the deeply corrupt, malignant RE industry to aid and abet mass stupidity and irresponsibility.
Broker Bob seems the think the problem is limited to a manageable number of FBs who overextended themselves to get into houses they couldn’t afford. What this dipshit fails to grasp — or more likely, what he and his ilk doesn’t want John Q. Public to grasp — is that these “vanguard” FBs, still relatively few in number, are the first ripples of what will be a financial tsunami. As Shakespeare said, when troubles come, they don’t come as single spies, but as battalions.
The bursting housing bubble won’t lead the nation into a severe financial crisis: it will simply escort it there. Each successive wave of FB-lemmings that is foreclosed on, will lead to further tightening of the credit markets, new comps (bottoms) being set, and still more homes flooding the market as legions of RE industry flotsam and jetsam become “redundant” and are forced to sell off their own houses and possessions. In a culture where only about 1% of the population seems to have the intelligence and discipline to set aside enough money for a rainy day, the liquidation selling is going to be brutal. It seems that our entire population is in debt up to their eyeballs, leveraged to the hilt, and only the lunacy of inexorably rising home prices (and the Fed’s out-of-control M3 funny-money printing press) kept the whole Ponzi scheme from crashing down. This “sound economy,” where nobody actually creates or produces anything while consuming recklessly with borrowed money, is going to tumble down like the house of cards it is.
Don’t kid yourself the crash is going to be limited to the housing bubble — the concentric circles are about to get a lot bigger, and uglier.
I have predicted Greater Depression to start within this decade and the Housing Bubble simply sealed that fate.
My prediction was based on the study of Americans’ financial behavior, especially, the leaders, and they have not disappointed.
Jas Jain
Oil’s the problem. It’s a problem, globally. Our (Industralized Earth) economic growth is pegged to having cheap, accessible oil.
The idea the US economy is going to sink into a “Greater Depression” and the rest of the world float on bye is nonsense.
We’ll devalue the dollar and all those lending us money will lose becasue the debt is pegged to USA currency.
Amen Jas, my brother from a different mother. Only I wouldn’t limit any prediction to Americans’ financial behavior — I would predicate it on the absense of core values and moral absolutes, including, but not limited to, fiscal responsibility, integrity and honor in personal and professional dealings, deferred gratification, and a sense of community.
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Jas - I bet you’ve predicted 9 of the last 0 depressions.
My suggestion is to be smart enough to know what you don’t know.
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“More money has been lost anticipating bear markets than was ever lost in them.” – Peter Lynch
The NASDAQ went from 5,000 to 1,100 in about a year. What does Peter Lynch say about that “mother of all bear markets”? Lynch is just another pompous jerk that thinks all of his quotes are meaningful. A lot of people still haven’t recovered from that one.
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Have you been on the sidelines anticipating a bear market in our latest run from Dow 7,000 to 12,000+? If you put all your eggs in the Nasdaq basket in the late 90’s/early 2000’s, that’s your own fault for failing to diversify and not staying the course.
5 TRILLION Dollars of wealth was destroyed during the NASDAQ bubble bust. Many people were spared the pain of that, who were non invested in it. If you were invested for the long hall in 2000, and totally diversified in the total market index, like they told you, you should be, you are still underwater today, 6 years later. So much for the diversification and long hall theory.
Unfortunately, everyone will be touched this time around, by the 10 TRILLION Dollars of wealth destruction on its way, in the greatest housing bubble bust of all times.
Mike/a.k.a.Sage…I’ve done a personal analysis of the NASDAQ bubble burst many times (even with illustrations). I don’t agree with your statement “5 TRILLION Dollars of wealth was destroyed”. No wealth was “destroyed”. More accurately that wealth was transferred (not literally lost or destroyed). Think about it, for all the folks that lost a lot of money (including me), someone, somewhere, gained (stole) all of that money. I firmly believe that the markets are manipulated somehow and the NASDAQ bubble burst was one of the biggest stock market manipulations of all time. The whole system is partially rigged, though I do know who “stole” all the money I lost in my WorldCom stock.
“I firmly believe that the markets are manipulated…”
I agree completely with you!
Jas, do you think that dollars will be worth something if it gets really bad? I see a lot of people say dollars will lose all value. But what if people try to hoard dollars and lending standards tighten to the point where it is very difficult to get a loan?
I don’t buy into the “buy euros, gold, yen” etc. argument. I think if the U.S. crashes it takes all others with it. We will see what China and India are made of when things go bad. I can’t imagine the abuses in China that are getting swept under the rug. Your opinion is appreciated.
Make sure you consider the other side of this argument. If deflation (a decrease in the money supply due to credit destruction) occurs, the value of the dollar could increase. I’m not saying it will, but make sure you understand the other side of the trade.
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Good point. Someone here recommended the “Fooled By Randomness” book. We need to all keep in mind that it’s very difficult to predict the future - hence it’s important to stay diversified and always hedge your bets. We’re not as smart as we think we are.
My life has been full of terrible misfortunes most of which never happened. ~Michel de Montaigne
Michael-Great quote!
the deeply corrupt, malignant RE industry to aid and abet mass stupidity and irresponsibility.
Man, I like that line. Truer words couldn’t be spoken.
“No One Is Paying Last Year’s Inflated Prices”
Guess what? I won’t be paying this year’s inflated prices either.
Or coming years of falling price.
Pretty soon people wouldn’t be paying the 2002’s inflated prices in California.
Jas Jain
What’s really incredible is that the public seems to be becoming more and more aware of just how dire the housing bust will be, and how severely it will impact the economy — but at the same time, people aren’t fleeing US dollars the way they should be.
Anyone reading this board should be seriously considering diversifying out of US dollars into (at the very least) a mixed bag of equities and gold and (especially) SILVER. Because the housing bust won’t just hurt the FB’s. Its going to hurt all over. And people holding precious metals will (as is historically always true) laugh all the way to the bank.
Is it any wonder to people that Ben’s other blog is “Money and Metals”?
diversifying out of US dollars into (at the very least) a mixed bag of equities and gold and (especially) SILVER.
The upcoming housing/credit bust is going to massively reduce the purchasing power of US$ holders. So just what makes you think that the US$ price of gold or silver will go up? Gold goes up in inflationary times (pretty much by definition).
Great idea, at least until the govenment bans private citizens from holding gold again…
Three reasons why the government is not likely to outlaw/confiscate ownership of gold. (1) There is no longer any direct link between the gold and the dollar. (2) The government is in the business of manufacturing and selling gold coins to the public (3) Any outlawing of gold would send a very clear message to our foreign creditors that hyperinflation was coming real soon and would instigate a collapse of the dollar.
There is also a (4). Even if the government outlawed gold, what makes you think people would turn in their coins?
I should explain (1) to those who don’t know. In old days a dollar was redeemable for gold. You could take $35 (I think that was the official price) to a bank and exchange it for one ounce of gold. One of the reasons that Roosevelt outlawed private ownership of gold was that he feared people with dollars would make a run on the government stockpiles of gold.
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“‘I think we’re just scraping the tip of the iceberg as to what we’re going to see in foreclosures,’ said Klain’s Realtor, John Izzo, who has worked in real estate sales for 20 years, five of them in Las Vegas.”
It is funny, because I just used that phrase in an e-mail reply a couple of hours ago. Looks like this iceberg will sink the Titanic, the US E-CON-omy. Keeping the economy going by Finance Fraud, now that is an idea that can only appeal to the US Central Bankers.
Jas Jain
“But the sale fell apart when the buyers backed out at the last minute. Now, in addition to the $1,400 a month the Klains are shelling out for their Texas home, they’re carrying about $2,800 in monthly mortgage payments on their Las Vegas property.”
“It’s a burden that Klain, who took a $10,000 pay cut when he moved to Dallas, and his homemaker wife can’t swing. They’ve been unable to make payments on their local home since July, and their mortgage lender says they’re in default.”
“‘This is a very difficult situation to be in. It’s very emotional,’ Klain said. ‘We tried to cover all the bases. If we hadn’t sold our house right away, we wouldn’t have bought a new house. We’d have rented an inexpensive apartment. It’s been tough on us.’”
Hmmm. If they “backed out at the last minute” then your house WASN’T “sold.”
Idiots.
This is why you get 10% of the purchase price at the signing of the P&S contract…see below….
liquidated damages -
n. an amount of money agreed upon by both parties to a contract which one will pay to the other upon breaching (breaking or backing out of) the agreement or if a lawsuit arises due to the breach. Sometimes the liquidated damages are the amount of a deposit or a down payment, or are based on a formula (such as 10% of the contract amount). The non-defaulting party may obtain a judgment for the amount of liquidated damages, often based on a stipulation (clear statement) contained in the contract, unless the party who has breached the contract can make a strong showing that the amount of liquidated damages was so “unconscionable” (far too high under the circumstances) that it appears there was fraud, misunderstanding or basic unfairness.
this is why you should always get 10% of the sales price at the signing of the P&S to be used as liquidated damages in the event of default…..
liquidated damages
n. an amount of money agreed upon by both parties to a contract which one will pay to the other upon breaching (breaking or backing out of) the agreement or if a lawsuit arises due to the breach. Sometimes the liquidated damages are the amount of a deposit or a down payment, or are based on a formula (such as 10% of the contract amount). The non-defaulting party may obtain a judgment for the amount of liquidated damages, often based on a stipulation (clear statement) contained in the contract, unless the party who has breached the contract can make a strong showing that the amount of liquidated damages was so “unconscionable” (far too high under the circumstances) that it appears there was fraud, misunderstanding or basic unfairness.
The good thing about asking someone like me for a 10% deposit to be used for liquidated damages is that you’ll know right away that your house isn’t sold.
Why do idiots buy before they sell? We’ve NEVER been in that situation, and we’ve moved a lot. Yes, that meant short-term rentals and double moves, but not doing that seemed like just too big a risk.
Amen, their problem is poor risk management. If they had waited to buy until after they sold the first home, they’d have a fighting chance. It’s a story about bad decisions, not a bad housing makret.
In a hyperrising market, a lot of idiocy was forgiven. Worthless home improvements, poorly timed moves, etc. could all be mitigated by a 15-20% appreciation rate. Now that the markets entering free-fall, people are learning the hardway that you have to properly plan things, or get seriously burned.
Kinda like expense ratios on mutual funds in the last bubble. When GS is brining in a return of 20%, who cares if they’re taking 4% rather than 2% off the top? But when the fund starts losing 20% a year, people start reconsidering the virtues of index funds.
At the peak of the frenzied market, here in San Diego, housing prices were going up by $10K per month — at least. If you sold your house, rented and then bought in a few months later, you were down by AT LEAST $30K on the trade. Additionally, if you wanted to move up, due to the prop tax in CA, your payments could easily double even though you were not really getting that much more house. You had to use everything you got if you wanted to trade up.
That’s why so many of us sold to rent (looooong term). It’s the only way you could reasonably move up without risking your families financial future (that is, if we see prices come back down).
These people didn’t see any risk in the market. Some of the people who made out the best were the ones who got a contract to build a new house one year out and held onto their property until the last second. They locked in the lower price on the new house and got all of the appreciation on the old house.
People don’t seem to realize that all of the risk-taking that led to unreal gains on the way up will lead to spectacular losses once the mania subsides. This also applies to leverage in no/low money down flips.
In lots of Northeast towns, good luck renting w/o signing a years lease. I think that could be why some people buy before last home is sold. Even when that lease is up, you still have to time your next home purchase/closing date down to the end of your lease again or be paying rent and mortgage at the same time. Same boat every time. I know you can sometimes talk the owner into going month-to-month after the initial year but its really at the landlord’s discretion.
What you do then is to put your stuff in storage and rent one of those weekly or monthly hotel rooms. There are lots of extended stay hotels to choose from (at least where I come from).
And the other two situations for the Klains seem a bit off: on the second offer, they counter-offered and the would-be buyer said no. On the third offer, their “lender didn’t respond quickly enough.”
How can one house get three offers in three months (they stopped paying on one house in July) yet not one go through? The Klains seem to have a lot of excuses for defaulting on their mortgage, but the biggest one remains that they equated being in escrow with their house being sold.
Always a bridesmaid….
Looking at the Clark County records and zillow, the Klains house (5200 Gentle River Ave) was probably purchased in the neighborhood of $225k. The assessment info for 2006-07:
Land…..$70k
Improvements….$60559
Gross Assessed….$130,559
Taxable value land + IMP….$373,026
Interesting….
BayQT~
“Broker Bob Hamrick (said) that Southern Nevada’s higher foreclosure rate isn’t based on overall economic fundamentals. ”
What? All foreclosures are based on one fundamental; the owner can’t pay the mortgage. Macroeconomics don’t buy houses; people do. The market doesn’t care why you got foreclosed.
“Broker Bob Hamrick (said) that Southern Nevada’s higher foreclosure rate isn’t based on overall economic fundamentals. ”
ok… then just WTF is it based on? people don’t just wake up one morning and decide to stop paying their mortgage, because foreclosure has a nice appealing ring to it.
Maybe its because of Ben’s blog. All the FD buyers found the blog at the same time, and found out at the rate their property is derpreciating, they are better to default now and spend the next few years rebuilding; rather then keep throwing good money after bad.
Maybe there is a problem at the post office, and none of the morgage bills are getting through?
Maybe there is a national check shortage; people have plenty of money to pay the morgage, they just don’t have any checks to write it on.
I really think that there are totally reasonable solutions why people are not paying their morgage that have nothing to do with the fact that they are spending 70% of their take home pay on an IO negative am loan that is about to adjust on them.
We really need to stop thinking down such narrow lines of though. Look at David L, he always has some good “outside the box” thinking.
When imploder use to own house, sometimes imploder get mad and not send check to “teach mortgage company a lesson”. make mortgage company “sweat” no one mess with imploder. these people do same
Spending some time with family in Arizona right now, and took a drive out to Queen Creek to visit a friend. Man, is that place out in the middle of nowhere. Is it just me, or is it really isolated, even by Arizona standards?
My friend’s area is dotted with “for sale” signs throughout and more is being built. I don’t know who is going to buy all that is available and I don’t know all the places they would be working once they do buy that far out (my friend works from home. I don’t imagine all people in QC work from home?)
Jason,
Queen Creek is bubble-central for the whole friggin’ world. If it were not in the middle of nowhere, with no jobs, piss-poor access, tons of homes for sale and more to come, it would not be what it is. QC has it all when it comes to bubblicious attributes.
NO OTHER PLACE COMPARES. It is the Tiger Woods of the housing bubble.
Some of the subdivisions being built around Casa Grande/Florence/Eloy are just as bad. Been out to Buckeye lately? They’re in the running for the title as well. QC might win based on sheer volume of home still being built. Half the place is already vacant. What’s going to happen when the other half get foreclosed on?
No, actually Dubai is bubble-central for the whole friggin’ world.
Check out Daubai
http://www.ssqq.com/archive/vinlin23dubai.htm
But, but, but, it DOES have a nice ring to it. For some.
ockurt…if this works ™ its ampersand pound 8482 semicolon (no spaces in between each section)
A realtor I know here recently told me that a lot of buyers in Vegas have been getting mortgages for more than the property is actually listed for (they get it reappraised once they choose the property) with an agreement from the seller to have the seller give them the extra $ back at closing. He gave an example of people buying a $1 mil house, getting it reappraised at $1.3 mil and then making the seller give them back the extra $300K once it closes. He also told a story of a $510K house that sold and how the sellers didnt reduce the price, but instead gave the buyers $50K in cash after the house was sold. He said people do this all the time here–especially recently. Sounds to me like mortgage fraud is the new way to keep prices stable here in Vegas.
We just got news that LV prices have held steady YOY this month, perhaps this kind of stuff is why we arent seeing the huge price declines in the stats as I would expect.
What’s to keep the seller from keeping the extra 300k? Is the buyer going to take them to court and try to prove that they were comitting fraud, and didn’t get their cut?
I know. It just is WEIRD. He also said many realor put up the earnest money for buyers who dont have it. He said he had a few friends lose $ when the buyers eventually backed out. It’s all very strange
it seems to me the IRS would love to have an unfriendly chat with those who receive $50K in unreported and very taxable income
Good point. It used to befuddle me as to how a normal middle class couple making $60k a year household gross with a few kids could wind up tens of thousand in the hole with the IRS. Then I started following the real estate market more closely and it all made sense.
Queen Creek has a Super Walmart, so no need to drive anywhere to drive except for work.
I was just happy to get my rental under contract. It should close in 3 weeks. I dumped it for $210k (includes incentinves) while the others went back to renting theirs out or still have it sitting for 20-25K more than what I was asking. Still making a nice profit, so I can’t complain.
Wow, .. a Super Walmart!
Man, that changes everything!!!!
You know, if I live long enough to see WalMart and CountryWide go into BK, then I’ll die happy. CW will be gone by the end of this decade, I suspect. WM may take a while longer, but eventually even idiots recognize that durable goods should be, well, somewhat durable.
imploder take all his dates to Super Walmart. Queens Creek sound like nice place to imploder. Does Queens Creek also have Savon? imploder need place to do all of his magazine reading.
I’ve been watching the housing market from an Austrian economics perspective since 1999. While I definitely agree that we’re in a bubble, I don’t think the average reader/commenter here really grasps the meaning of the term “its economics” when it really isn’t.
The profits that WERE made by many in the rise of costs are still around — where did the money go? Sure, many people will be stuck in the homes, but foreclosure rates aren’t even at 2% and don’t seem to be heading there. We are still living in an inflationary economy — more dollars are being printed, albeit at a slower rate.
That new money has to go SOMEWHERE. Stock market? Hard metals? Housing? Commercial? It will go somewhere, and it will inflate prices somewhere.
We all know housing prices will correct, but how long will it be until a bubble in created somewhere (say, stocks), is cashed out by the smarter/earlier investors, and makes its way back into housing?
We’re all acting like a housing price crash means money is removed from the economy. It isn’t. Some investment banks might lose, but how many are truly invested more than 10% in housing stocks? Not many, if any. This means a 10% drop if EVERY investment tanked, and it won’t. People will try to keep their homes.
You know the current slower inflationary period created by Bernanke is strictly for this election. Then we’ll see interest rates drop for 2 years in order to create more fake fiat money, which means more inflation, which means prices might turn around again — in some market.
I’d HATE to see it happen in housing, but it has to happen somewhere. Or will we see the DOW bubbling to 15,000?
Why do so many people here think that the money just magically disappears? Those who profited bigtime from getting in and out early are still seeing 6-7 figures in their money markets and CDs. That money is burning a hole in their pockets, they’ll want to invest it in a new pre-bubble market. Maybe housing all over again in 08?
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1995-2000 - Stock Market
2000-2005 - Real Estate
2005-2010 - Stock Market
Capital chases RETURN.
i believe you are correct.
“Why do so many people here think that the money just magically disappears?”
Real money doesn’t disappear. But I’m assuming you’re referring to federal reserve notes. Look into how fractional reserve banking works. Money can be created out of thin air. It can also disappear just as easily. I believe the technical term is “credit destruction.”
Might I direct you Mish Shedlock. He will inform you of a couple of terms:
Deflation
Credit Destruction
imploder thinks A B DaDa has wrong name. imploder thinks name should be I Am DUM DUM. imploder thinks I Am Dum Dum should go to Library. Read Books. Thick Books. Also go to Savon like imploder does and stand and read magazines. All day. One’s with less pictures. While at Library use computer. Read Mish’s Blog. He explain to I Am Dum Dum where money goes. Then you be smart. Can change name back to A B DaDa and can be imploder’s friend. Sorry, my time up on Library computer. I must go. Go to mish’s blog. he make you smart.
“We’re all acting like a housing price crash means money is removed from the economy. It isn’t.”
It is. It’s called debt liquidation. And there will be plenty of it.
“The profits that WERE made by many in the rise of costs are still around — where did the money go? ”
Ford, GM, Toyota, WalMart, Home Depot, CostCo, Overpriced universities, Sony, Gap, Federated, etc. Up in smoke, basically. Debt-driven consumer spending has powered this whole expansion. Non-defense business spending has been pathetic.
Oh, and China has a big chunk of the cash, but they sunk it back into MBSes, so we may have the last laugh yet. ha ha ha.
Some investment banks might lose, but how many are truly invested more than 10% in housing stocks? Not many, if any.
—————————–
I think you’re just scraping the surface here. The institutional money is not so much in homebuilder stocks. There is much, much more money in the MBS and **derivatives** markets. Many of us think there will be a systemic event, triggered by unregulated hedgefunds and derivatives. **This is where the problem lies, IMHO.**
http://money.cnn.com/2005/09/22/markets/credit_derivatives/index.htm
Where’d the money go?
For the 1st time ever, all of the Forbes 400 richest Americans are all billionaires. Like fizzy little bubbles, all that cash is rising to the top.
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Great article -
Fast forward to the next “unrealistic expectations” event: the residential real estate “bubble.” This event took what should have been “battle wary” soldiers of the investing world and convinced them again that overnight success was a rational approach to investing in real estate. As it was for many over the three-year explosion in the stock market, there was in fact “overnight success” in real estate as well.
This time it was somewhat different in nature. Although there are many beliefs of how long the expansion lasted, the reality - at least here in paradise - is that the longevity of the explosion was about 12 months. Yet again, investors like “sheep to the slaughter” again flocked to the watering hole and just about as quickly as it started, it was over.
Today we are still easing into what is likely be a protracted period of reality check as many investors sit with their “overnight success” portfolios of real estate stagnant as the water “pond” at Tigertail Beach. Only unlike the stock market, there is no liquidity with real estate when it goes dormant, and yet there are still significant costs associated with continued ownership.
http://www.zwire.com/site/news.cfm?newsid=17317872&BRD=2256&PAG=461&dept_id=457707&rfi=6
Here’s another bagholder. This town is a primo location, million dollar homes all over the place, 40 minute train ride into NY City, top schools in the state, etc, etc.
The bagholder bought for $755K in 2004, and just sold for $705K on Friday.
18 Meadowbrook Road
Short Hills, NJ 07078
Jun 15, 2004 - Closed $755,000 (MLS 1671861)
Mar 05, 2006 - $879,000 (MLS 2253723)
May 01, 2006 - $829,000
Jun 05, 2006 - $795,000
Jul 13, 2006 - WITHDRAWN
Jul 14, 2006 - $795,000 (MLS 2299446)
Sep 07, 2006 - WITHDRAWN
Sep 09, 2006 - $745,000 (MLS 2317848)
Sep 27, 2006 - Under Contract
Oct 20, 2006 - Closed @ $705,000
…..Never heard this…Scary, but what isn’t these days..
” Digressing for a moment, one small cloud appeared in the afore-mentioned Z1 report this quarter for the first time in 90 years. Up until this quarter, the U.S., in spite of the disparity in ROW holdings of over $10 Trillion on balance, had always received more income from its gross holdings overseas than it paid out to the ROW holdings….
….. For the first time, income is being paid on income and thereby compounding the ROW growth in disparity in holdings. Should this trend continue, and there is no reason to expect a quick reversal, it will exacerbate the growth in net ROW holdings.
http://tinyurl.com/yguph7
From above link:
“Should this theorem be correct, it is also global and immense as the cds market is over $27 TRILLION and growing exponentially.”
—————————-
Yes, this is what I referred to, above. The elephant in the room.
I see CFC and WM mentioned as headed for disaster. Is this the general consensus? Worth a short at this point in the game? Other better plays in terms of market shorts? I believe Downey Financial is mentioned here a bit as well. Thanks for opinions.
It might be a few years premature, but WalMart’s earnings growth is contingent on it being able to continue successfully penetrating new markets. They’re just about tapped out in the US and have mixed results on the international front. I don’t see them continuing to register double-digit sales growth forever. And when you’re paying your employees minimum wage with minimal benefits, its hard to boast profits through restructuring.
By the time this correction is over, CountryWide will be as toxic a brand name as Enron, WorldCom, etc. Even if the executives of the company avoid a widely publicized scandal centered around some facet of mortgage fraud, it will have burned too many people in too many markets. In five-ten years when people look back on the havoc brought on by flippers and liar loans, CountryWide will be among the most detested.
Besides that, they have an untenable business model to survive a protracted bear housing market. They have too many longterm leases in so many areas that won’t see high application volume for close to a decade. Moreover, they’re going to lose a lot of the “lowest-cost possible” market to internet-based lenders that can operate with far less overhead. A financial institution with so much fixed costs tied up in storefront space cannot survive catering to only a small segment of the market.
I’d certainly short CountryWide, but probably wait another year or two on WalMart. YMMV.
I would group New Century into the same class or worse as CFC. Their goose is cooked.
In five-ten years when people look back on the havoc brought on by flippers and liar loans, CountryWide will be among the most detested.
Let’s not forget Ameriquest now, who paid out a $325 mil settlement for predatory lending, and who has a former board director now runnin as a Dem for the MAZZ governorship
It’s interesting how the MSM repeatedly overlooks this connection.
Be careful shorting Walmart.
As the economy slows, people have less discretionary income. That typically means less consumption. However, Walmart has the cheapest of prices, and so it may take back market share from competitors like Target who have a more upscale feel, and higher prices for similar objects.
Walmart has also proven it is the best at shaving down costs. They already have put out significant discounts for the holiday season.
That said, if you meant “Washington Mutual” when you said WM, (most uf us use WAMU for that) then that is a company that has some considerable headwinds.
Shorting is always difficult to do, because it is TIME dependent (either because you’re doing it by purchasing a put which has a time expiration, or because you’re borrowing the stock from a broker, which will incur significant interest rate charges/fees). So you can be correct on the short, but not have the time or capital needed to wait it out.
before considering shorting, make sure you feel confident in the DIRECTION of the company, and also a timeline. Many here got royally screwed shorting the Homebuilders as example.
This is real world field data.
I do a lot of reviews of appraisals for major banks. Anything that looks weird I get to see it here in Orlando.
Last week I received a review of a report that on the face looked reasonable. One issue I had was the appraiser used sales from a subdivison across a major thoroughfare and it was a distinct dividing line in the neighborhood. The subject being in a new neighborhood, I thought I would run it and see what popped up. Well there were three sales in the past 4 months on the same street. This seems a bit odd obviously as the appraiser did not use them.
I reread the report and the appraiser said that there had been no resales in the neighborhood. Well, this is true but we had three recent sales right there and the neighborhood is dormant. Question; in a dormant neighborhood is a resale necessary to demonstrate market value? Nope!
The next issue to check is “what’s on the market for sale”. Right class? Well, guess what? There are a number of the same units on the market at $317,000 and $320,000.
Oh I forgot the subject house closed in March for $341,900. The appraisal I am reviewing is stating that the value of the unit is now $395,000. Wow, a $50,000 increase in value in 6 months in a declining market. Will wonders never cease?
The best part is this. I pulled the deeds on the listings and these specuvestors bought 3 years ago for $220,000 on the same unit. It just took the builder all that time to produce the units.
So basically, the people that bought lately are hammered by their specuvestor neighbors ability to freefall for months on end. Talk about a snowball effect.
Oh and another interesting part is noone in any home on the street put any cash down. They are 100% financed with what, class? That’s right, “ARMS”.
So here it is in a nutshell here in Orlando. Some of the homes being finished now were actually contracted for 3 years ago and some 1-2 years ago after the runup and the bogus statements by builders that costs had gone through the roof. Those folks that bought on the high end of the surge are coming on line right behind the guys from three years ago because of cancellations.
Each listing had started at $379,900 in February of 2006 and had been reduced 6-7 times to the current asking price with no offers.
As the 3 years old guys let the bottom fall out and freefall into the $250,000 end of the market Mr. 1 year contract is already $100,000 in the toilet.
How does this end? I write this guy up, the loan gets nuked and the homeowner is notified that the reason is his house is now worth less than he paid for it in March by approximately $15,000 and counting.
He is locked out of a 30 year fixed till hell freezes over and while his value freefalls his payments skyrocket.
Is this a great country or what? Folks this is not isolated. We have 10’s of thousands of these stories on the way, right here in Orlando.
As I drove out of the project I saw them delivering the construction trailer for the next phase of 235 lots to be begun tomorrow. I went on line and bless the hearts of the builder they have reduced the price of the same unit by $50,000 in the next phase, plus allowances.
Stay tuned.
Eric, That is a good question. I have another one:
Where are people putting their proceed money? I don’t thing precious metals are really the wisest way to go, at least for the bulk of it…and money markets at places such as Countrywide Bank and WaMu are a bit scary, given their relationship to FB’s.
Does any regular here use e-loan for stashing their savings? Anybody worried that such an “instituition” could go belly-up? They apparently offer the best yields on cash, but would be interested as to opinions.
Thanks.
i live in los angeles…. almost all the nice cars have plates beginning in ‘5′ meaning recently aquired plates… meaning new cars. i think its just that simple… americans spend and there has been a ton of cash on the street in the last few years. i think the stock market will do well over the next few years, but alot of consumer spending has happened in the last few years… that is where a ton of it has already gone.
We’ve used EmigrantDirect.com for over a year with no problems. No fees, easy EFT, good APR, FDIC insured. For the time being its where we are stashing most of our cash.
I split my cash into EmigrantDirect.com, INGDirect.com, and HSBC.com. They all have high yielding savings accounts (in the 5% range) and are perfectly liquid. Of the 3, I’d guess that HSBC is the most exposed to real estate (through Shanghai).
I also have a TreasuryDirect.gov account where I buy Treasury Bills/notes.
And then a little gold and silver, as well as mining stocks.
And then general S&P index funds for domestic exposure
And an international fund for int’l exposure.
And a Treasury money market as well
And one single stock holding (Berkshire Hathaway)
For me, it’s all about diversification now, because I’m simply not sure what’s going to happen with the economy. I have my strong intellectual arguments that I feel are very fundamentally sound, but I’ve seen time and time again that the markets are more PSYCHOLOGY than anything else, and I think anyone who tells you different is lying, or has been fooled by randomness.
example:
Fed increases Fed Funds Rate: the economy soars because it means the economy is doing well
Fed increases Fed Funds Rate: the economy tanks because borrowing costs have increased
Fed lowers Fed Funds Rate: the economy soars because borrowiing costs decrease
Fed Lowers Fed Funds Rate: the economy tanks because this means the economy is doing poorly.
Economics is really good at telling us why something happened in the past.
From St. Pete in Fl.
Amazing article about two sets of closing docs, inflating listing prices, and; well, you get the idea.
http://news.tbo.com/news/metro/MGBXTU3SKTE.html
There’s a lengthy discussion of this article on one of the other threads started today.
From St. Pete in Fl.
Amazing article about two sets of closing docs, inflating listing prices, and; well, you get the idea.
http://news.tbo.com/news/metro/MGBXTU3SKTE.html
‘This has really been a roller-coaster ride for us,’ Klain said. ‘We’ve never been in a situation like this in our entire lives, so this is rough. We’re just waiting.’”
Last time I rode a roller-coaster I was not waiting, however I did wait in a line for the roller coaster. So which is it are you waiting or aren’t you. I think you are waiting and you are not riding a roller coaster. Well keep waiting I am sure something should. Oh just a hint lower your price that might help.
Well you have to remember that the real estate game is a rollercoaster designed to excite aging baby boomers. For many, standing in line for a few hours is more exercise they’ll get in a month.
Yes interesting case Dan . I hope they nail this punk Molen for her double sets of closing docs. which proves she knew it was wrong . Lets face it , the listing agents knew it was wrong to . This investment company is the real ring leader in the scam .
“Valley home prices aren’t expected to dip much lower, but everyone is watching for signs the market is done slowing.”
Expected by whom Catherine, your favorite RE brokers?
Also, would you please quote that lying buffoon John Foltz a few more times. Have you written one article in your storied journalistic career without at least one quote from the Realty Executives Prez?
“When the supply/demand scenario is corrected, home prices will start climbing again,” said John Foltz, president of Phoenix-based Realty Executives.” (from the full text of this article)
Actually, Foltz is right. But I don’t think he means that appreciation returns in 2014 or so.
“We haven’t seen a decline in home prices in years, and I don’t think we will this year,” Foltz said. “For resale prices to decline, we would have to experience interest rates in excess of 10 percent and a job reduction of 40,000. Both are very, very unlikely.” (Catherine Reagor Article - The Arizona Republic
Mar. 5, 2006)
O/T:
Anyone else think these CDSs are waaaay underpriced?
“The index tracks 20 asset-backed securities that contain loans rated BBB-, the lowest level of investment grade debt. Based on the index, it costs an investor $267,000 to protect $10 million of bonds against default for five years, up from $205,000 in August. The investor would get face value for the bonds in exchange for the securities should a borrower fail to adhere to the debt agreements.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=adbsVAhN68TM&refer=us
Who’s insuring the insurers?
Excellent question. I believe that’s why the derivative market has really exploded — and why there is so much risk. Is there really that much money backing up all these derivatives, or is it just leverage? That, IMHO, is the $64,000 question.
low ? try next year
prices have been falling since June. In the north Valley, prices in Anthem fell to a 2006 low in August.”