Watching The Market Change
A housing report from the Washington Post. “Sam LeBlanc tried to cushion the blow when he gave his wife, Karyn, the bad news. Her condominium isn’t worth nearly as much as she thought. ‘I was a little crushed,’ Karyn recalled.”
“Increasingly, though, research shows that emotions play as big a role as intellect. Sam did a lot of market research and decided they should ask $269,000. The number came as a blow to Karyn, because she knew similar units, including some she thinks weren’t as nice, sold last year for $280,000.”
“‘You want to believe it’s worth a lot more because you’ve invested your time and energy on it,’ Karyn said.”
“‘It’s classic loss aversion,’ said Christopher J. Mayer at Columbia Business School in New York. ‘You don’t want to realize the loss. It leads to housing markets that don’t function very well. You’ve got a lot of houses on the market and they aren’t selling.’”
“Mayer said that people allow their wishful thinking to overcome realistic perceptions because they don’t want to view themselves as having made a mistake.”
“David Laibson, who teaches psychology and economics at Harvard University, said a common error people make is believing that homes can’t drop in value below what they paid for them, and, in particular, that they can’t fall below their mortgage amounts.”
“‘There seems to be a psychological resistance to taking losses on the sale of a house,’ Laibson said. ‘People think they’ll make money on it. . . . That logic worked for a long time, and now anyone who bet on that logic is being burned.’”
“Of course, real estate agents say they haven’t needed research laboratories to teach them about buyer and seller behavior. ‘You always view your house as more valuable than the numbers will justify,’ said Owen Heine, an agent in Strasburg, Va. ‘Every person views his house as a castle. It’s human nature to love what you have.’”
The Wall Street Journal. “With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. Economists report that contract-cancellation rates for big builders were running around 40 percent. Anecdotally, real-estate professionals say they are seeing a similar dynamic in existing-home sales.”
“‘There are a whole lot of people running from contracts,’ says Alexandria, Va., real-estate attorney Beau Brincefield. He is currently representing more than 50 buyers who are seeking to get out of contracts on single-family homes, townhouses and condos, compared with none a year ago.”
“Even though it may mean losing a deposit that could run tens of thousands of dollars, many buyers are deciding that is less onerous than the alternative.”
“Sean Shallis, a real-estate strategist in Jersey City, N.J., says that roughly 22 percent of his sales have fallen apart before closing this year because the buyers backed out,. With the market cooling, buyers have decided they can buy a similar property for less. ‘The longer your property is under contract, the longer the buyer has to talk and think about it and watch the market change,’ he said.”
“Mr. Shallis himself is among the would-be buyers with cold feet. Late last year, he agreed to pay $595,000 for a new two-bedroom condominium in Jersey City for his in-laws. He pulled the plug on the deal this summer. ‘My exit strategy was if they didn’t move into it, we could sell it or rent it,’ Mr. Shallis says. But that plan made less sense after the price of similar properties dropped to as low as $529,000. Mr. Shallis walked away from the contract and lost his $30,000 deposit.”
“Denis and Michael Budge put their two-bedroom house in Carson City, Nev., on the market a little more than a year ago at $495,000, so they could move to another home they had already bought in Waldport, Ore. After some nail-biting months with few showings and no offers, they finally landed a buyer, who signed a contract in June for $425,000.”
“But during the escrow period, as prices in their area continued to slide, the appraisal came in, at $395,000. The Budges were still willing to sell, even at that greatly reduced price, but the buyer backed out the day before the closing. Now they are stuck with two mortgages. ‘We thought we were going to relax and enjoy our retirement,’ says Ms. Budge. ‘Not any more.’”
“Amy Crews Cutts, deputy chief economist at Freddie Mac says the current jitters are largely a result of investors fleeing the housing market in the last few months, which ’slammed (it) into reverse,’ and consumers’ fears that the bubble had burst. The result: a huge backlog of unsold homes, which could further depress prices.”
“Glenn Nudell recently got $115,000 in concessions when he bought a 12-year-old five-bedroom home in Skillman, N.J., for almost $1.1 million. If the seller hadn’t agreed, he says, ‘I’d have backed away.’”
“But then he had to sell his eight-year-old, four-bedroom home in Princeton, N.J. But he couldn’t sell it until he had knocked $70,000 off of his original $630,000 asking price. Is he concerned that the buyer of his house might back away from the deal before it closes next month? ‘Of course,’ he says.”
“Mayer said that people allow their wishful thinking to overcome realistic perceptions because they don’t want to view themselves as having made a mistake.”
This happens all the time in the stock market too but the margin clerks handle the “loss realization” if debt is involved. I read the ELN Yahoo board for weeks after that retail cult stock blew up and dropped from 28 to 3 in a couple of days. A lot of those people were long stock, short puts and on margin. Not a one of them sold unless they were forced out.
And here we are two years later and ELN has barely come half way back.
Whenever you make a bet you are putting yourself out as smarter than the other side of the equation.
Admitting you were wrong is too tough for many who gamble (though they imagine themselves “investors”). A professional knows when to fold and understands every hand cannot possibly be a winner. Most of the rest of us don’t. Our “investments” represent more than money, they represent ourselves. To sell a loser is to admit YOU are a loser (not true but, sadly, an emotion widely felt).
Which is why some otherwise bright women just can’t seem to dump the dipshit they’re with.
Great analogy. Emotional dependence on anyone or anything kills. Expectations slay the reality of the situation.
“Whenever you make a bet you are putting yourself out as smarter than the other side of the equation.”
Either smarter, or more desperate…
To sell a loser is to admit YOU are a loser (not true but, sadly, an emotion widely felt).
I agree. To sell a loser means I f*cked up. To not seller a loser would mean, well, I’m a loser.
Ben, you threw us a lot of red meat in this one. From the article:
Buyers, he said, need to be aware that they are dealing not just with a house but also with a seller wrestling with his ego. Sometimes it might be smarter to let the poor fellow keep his price, but ask for other concessions that might actually be more valuable. A new roof, new appliances or substantial assistance toward the closing costs all have material value, but they allow the seller the dignity of maintaining the price at a level that leaves him standing tall in his neighbors’ eyes.
My god, could that be any more pathetic? WHO CARES WHAT YOUR NEIGHBORS THINK???? Jesus, people! Grow a backbone. WHO CARES?????? You’ll take a financial bullet so you can one up your neighbor?
Sometimes, I think we must be in a “Truman Show” type laboratory and don’t even know it. If so, the puppeteers have to be very amused at how easily manipulated people are, worrying about what their neighbor got for a house while other things are on fire all around.
“WHO CARES WHAT YOUR NEIGHBORS THINK????”
Do you remember how people would brag about how much their home was “worth” and how much “money” they made. I can’t tell you how many times I had to sit through long boring dinner conversations regarding f*ing RE. Now I don’t have to hear it anymore and the same idiots aren’t as “rich” as they thought. Ha Ha.
That advice disgusts me. In what is likely the largest financial transaction people will ever make, who gives a rat’s ass about stroking some seller’s ego? It’s business, and emotions play no part. This article is full of gems, but it ended with a thud. Incentives are for suckers.
Your gonna be moving anyway? They aint even gonna be your neighbors if you can get the dump sold. F*** em’.
Right — this brings a new meaning to the phrase “Beggar thy (former) neighbor.”
I’m sure you mean “Bugger thy Neighbor”.
GOOD NEGOTIATORS, the ones that win more than they lose, care about everyone’s feelings. “Capture their hearts and their minds will follow.” If you want to really want to win in this real estate crash, you will still need negotiation skills to get the best deal, and that means understanding what the other party needs. I worked with many REO managers during the RTC era, and their job sucurity was more important than giving away houses. Their list prices were always too high for what I wanted to pay, but once I made a full price offer, with a inspection contiungency, I was able to negotiate $1,000’s of dollars off on the least little defect.
As long as the REO manager had a paper trail to show why he sold me a $300,000 house with a $100,000 worth a repairs, deals got done.
It’s the same conversations that were happening in 1999 and 2000 during the NASDAQ run. I was sick and tired of people who were talking about how much they were making on dogsh*t.com, a hype that I never bought into.
By 2002, the only comment I ever heard about the dotcom stocks was once from someone who said “My portfolio is so far in the red, I don’t even want to talk about it.”, and so we didn’t–it was nice.
I can’t wait for homes to become a place to live again…
Wow, always hitting it right on the head there txchick! People are funny animals indeed. I honestly think public education and popular entertainment are resposible for this mindset, but not for the reason most people think.
My reason is that they both often/always have an underlying message that affirmation of one’s identity(self esteem, etc) must come from peers, rather than from inside yourself.
And of course what better way to impress or win the admiration of peers than through material increase.
I personally learned this lesson, and probably 80-90% of it’s meaning when I was about 8 years old and was the first kid on my block(and indeed half the town) to get an Atari2600(I guess I’m dating myself here).
I had kids who had treated me with indifference or even derision the day before, coming up and(I kid you not) offering to be my best friend if I would let them come over and play my Atari. It happened more than once.
I realized then that of course they weren’t really interested in being my friend, they just wanted to play with my Atari.
So of course I did the only reasonable thing a boy in my position could do at that point. I invited them all over to play anytime they wanted. And then I started charging them to play. Plus I would sell them candy and kool-aid(™) too. The tax free revinue was great!
Ahhh the good old days….
Anyway I think those kids grew up to be the FBs of today, who have all their identity wrapped up in the material things they “own.”
I grew up to be a happy renter, at least for the time being. With some of the money I saved, I could afford to build a kick ass MAME setup. If you’re not familiar with it, it’s a classic arcade game lovers wet dream.
I can’t tell you how many offers I wrote for clients back in the early 90s (when the market was in the toilet) using some sort of “incentive” for the buyer, seller to pay closing costs, new carpet, whatever. We knew that seeing that higher number on the contract would sway the seller, even though the net out was the same. It’s all psychology.
Yes, people care VERY much what other people think when it comes to their RE transactions. They know they will be grilled by their friends, neighbors, family. It’s just the way the world works.
We sold our home in Aug 04 for a crazy price. Banked a lot of cash and are waiting to buy something (obviously!). BUT, living through these last couple years was a bit painful. No matter how right I knew we were, I still cringed when people looked horrified at the fact that we would sell, or even better, that they would assume we were in some sort of financial distress that we had to sell and rent. It’s been great the last 6 months or so, now that everyone pretty much sees the market falling apart.
Agree with you, people now respect us “bubble sitters”. Especially if we identified ourselves as such sometime before Labor Day 2006.
What about before Labor Day 2005? Those were tough times for “bubble sitters.” Oh what a difference a year makes!
“Sam did a lot of market research and decided they should ask $269,000. The number came as a blow to Karyn, because she knew similar units, including some she thinks weren’t as nice, sold last year for $280,000.””
How bout this statement? 5% less than you thought? Cry me a river Be@ch!!! Talk about unreal ego concerns? My suggestion. Cut it 10% of 15% and get the Heck out! Otherwise, by middle of 2007 you’re gonna really have something to Be@ch and cry about! Gaud, Get a Grip!!!!
Man, I think Karyn has needy written all over her. Sounds very high maintenance.
Deb,
Interesting point. I wonder if people assumed we rented instead of buying last year because we were in financial distress? And I probably blabbed enough about my views that real estate would take a dive that people assumed I was a bit daft as well…
” people assumed we rented instead of buying last year because we were in financial distress”
Absolutely right! Been living with that stigma for the last 6 years, while renting a very, very nice townhouse. But all my
so called friends put me on their “B” list for parties and events. Now that the real estate world is upside down,
LIVING well is the best revenge.
Don’t want to sound negative DC, but where did you find these “friends”?
Deb, it sounds as though your logical side prevailed.
While I imagine the underlying psychology of these types of decisions is complex, it appears from my own observations that some personality types seem to deal better with these decisions. A psychology or behavioral economics PhD dissertation in there somewhere.
We’ve all seen the chump in Vegas that keeps pulling out the cash to keep playing instead of taking a break.
No matter which side you are on with this issue, either consequence is frightening.
If you believe housing will tank, it is a disaster for the whole economy. Think you are well insulated because you are a saver and dont carry a high debt load or work outside of the housIng industry? Think again. Even if you are all of these things, your family is not. We will be forced to help those close to us manage this crisis in shape or form which will erode our savings.
If you believe housing will moderately correct but basically sustain and increase ( i know no one hear does but i am playing Devils Avocado) then we are still screwed. Who the hell wants to sign up for a .5 million loan. I know so many who have that i dont think realize that this is a forever obligation of 4k month. I would actually live in a trailer and blow 4k month on having fun. Just think what kind of vacation you could take every month for 4k.
That’s been my MO for over 15 years. I’d rather rent the rest of my life than have to work at a “job” (as opposed to self employment) to pay for a house.
Oh but you’re “throwing money away on rent, you could be building equity in a house” How many times have we heard this? Maybe after prices fall enough…..
Not to mention the abused “tax deduction” line.
Sometimes I think I’m the only person out there whose life is so simple that I can only take the standard deduction. What I wonder, though, is how many people look at the mortgage interest deduction as an absolute benefit, without subtracting the “free” (ha!) standard deduction or at least running a compare via a PC tax prep program.
You obviously have to account for a loss of the standard deduction, but in my case the state income tax (deductible) almost covers the entire standard deduction.
No, you aren’t the only one here who takes the standard deduction. There’s no state income tax here, and my mortgage payment (15-year fixed) doesn’t have enough interest in it to make it worthwhile to itemize. Not to mention the reduction in audit probability!
Chip - I have been trying to explain this simple tax concept to some very highly educated people (doctors, lawyers, biologists, teachers, college professors, etc…) but nobody is capable of understanding what I am saying. Their brainwashing by the RE industry is so complete that they resemble zombies as they spit out the usual rhetoric (”if you rent you will never build equity and you will loose your mortgage interest deduction and you will be screwed, screwed, screwed.”)
Had the same discussion with someone one time and asked them if the tax deduction was such a good deal, why didn’t they get a HELOC? Shortly after that conversation, they did. Bought some cool, but expensive, stuff.
For a lot of people I know, the deduction gets phased out
And we won’t even talk about the people that make that argument and don’t save a dime in a matching 401k. .
I haven’t looked for some time, but years ago I found the number of people that itemize vs take the std deduction was a much smaller percentage than I thought. Have no idea of the numbers now.
Even the I/O buyers talk about building equity. WTF?
Boy, this speaks volumes…
People, I’m friggin speachless…
txchick57 - It’s been my same MO for the past 6 years. I simply could not see working all of those hours at a job that I hate to pay for all of the expenses of an aging house. Better for somebody else to subsidise my housing costs while I save and invest elsewhere.
I know people have been looking at me for some years as if I am a dufus, but that never bothered me. In the past 3 months my net worth has increased by about $110k. They can think of me as a dufus if they want, but my renting is what has made this possible for me. In some years I will have enough to comfortably pay cash for the houses these people live in, but I am still not so sure I would want to do that. It feels far to good to rent from somebody else who is cash flow negative and be able to move on with 30 days notice to the next FB landlord because of the new dog on the block that barks endlessly.
For those who think that renting is never an option - think again! Renting has given me a tremendous amount of freedom (from a job I hated) and riches.
“Who the hell wants to sign up for a .5 million loan.”
Lots of San Diegans, provided (1) they only have to pay interest or less, and (2) they don’t have to put any skin in the game.
Wonder what makes them think they have no skin in the game. If they’re planning to walk, don’t they care at all that they will have no credit in the future?
They’ll have some skin in the game when the IRS shoves a tax bill at them to account for forgiven debt from the bank (assuming the bank doesn’t go after them for the shortfall)
I don’t know what makes them think they have no skin in the game, but the key motivation is what they believe when they sign the contract, and not the underlying reality of the situation.
Apparently, having good credit today is not as important as it once was. Maybe it will be again seomeday.
“Who the hell wants to sign up for a .5 million loan.”
“Lots of San Diegans, provided (1) they only have to pay interest or less, and (2) they don’t have to put any skin in the game.”
And a half mil only bought you a fixer at that. I’m starting to see REO’s here in Serra Mesa for 70k to 100k less than they were purchased for in 05. House around the corner sold on 04/11/2005 for $555,000, asking price today $468,900.
“Even if you are all of these things, your family is not. We will be forced to help those close to us manage this crisis in shape or form which will erode our savings.”
Actually my family “is.” And I personally don’t think our govt should ask savers to bail out spendthrifts, although I am reasonably convinced that it will anyway. This is what comes out when a populace with buckets of money and boxes of stupid is governed by a constitutional republic.
A former constitutional republic, you mean. We now have an executive tyranny.
I don’t think asking will be involved.
Our rent isn’t anywhere near what we could qualify for on a 30 year fixed using standard ratios, yet we can’t get ourselves to sign a lease longer than a year. Homes aren’t exactly throwaway impulse buys, so how do these GFs seriously rationalize 10x DTI purchases? IMO they’ll be mulling that question over for a very long time…
On another note… when the HOA board vote was coming up a neighbor was surprised to discover we were still renters: “Oh, I thought by now you could have bought your place.”
“Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays. New imaging technology, meanwhile, is allowing scientists to peer inside people’s brains while they wrestle with financial decisions.”
Only Chicagoans think like robots.
“Of course, real estate agents say they haven’t needed research laboratories to teach them about buyer and seller behavior. ‘You always view your house as more valuable than the numbers will justify,’ said Owen Heine, an agent in Strasburg, Va. ‘Every person views his house as a castle. It’s human nature to love what you have.’”
Ah, there is enough fodder, right there, in that paragraph, to keep us going for hours. Actually, now that the “bust” is a cold, hard realization, and one that most here have seen coming for a long time, I guess the fun part and only thing to do is to now contemplate “human nature”.
God knows there will be plenty of books about all this!
“Amy Crews Cutts, deputy chief economist at Freddie Mac says the current jitters are largely a result of investors fleeing the housing market in the last few months, which ’slammed (it) into reverse,’ and consumers’ fears that the bubble had burst. The result: a huge backlog of unsold homes, which could further depress prices.”
For the record, is this an acknowledgment by Freddie Mac that there is a real estate bubble? Because some highfalutin players in the land of government and quasi-government entities seem to still be in denial on this question. I have a hard time getting my brain around the idea of consumers’ fears that a non-existent bubble has burst.
I wondered if her name(crew cut) was some harbinger of what’s about to happen to those FRE and FNM loans.
My last house went into a down cycle 2 times in the course of time owning it . A prior neighbor of mine priced her house 230k above market to make up for the last real estate deal she lost money on ,( somehow thinking she could make up for her prior equity lost ).
Im going to be down on my current house once the market corrects fully . So what , there are worst things that could happen to me .
Nobody likes to lose money .Just don’t jump off a building .
If your a short term investor that got caught in the down turn, get over it .
Either bite the bullet now and get out before it becomes worst ,or look to holding for a very long term investment with all the draw-backs that go with that .
And all you rah rah people for real estate ,get over it ,the market is what it is .
Look on the bright side, Wizard — if the gold and bond markets over the last two weeks provide any indication, those of us with a cash stash risk losing it to high future inflation. Schadenfreude for everyone!
I could tell you stories about money I have lost and money I have gained in the course of my life . When your in retired status however you like to be ahead of the game .Still, I would rather be broke in America than any other country in the world .lol
Same here
I dunno about that one. If I was broke I’d prefer somewhere with a stronger welfare state. Free housing, medical etc. Sweden? Now for the rest however, the taxes would be insufferable.
Give me some sunshine. Swedish summer + NZ summer.
Figure out a way to get FF miles to pay the whole thing.
In one of those socialist states (denmark?) the state pays to send people to spain in the summer to treat depression. Guess you can have it all.
There are a lot of “investors” using “pay option mortgages.” How are they going to be able to hold on long-term? I don’t think it’s possible unless they have a heck of a lot of money in the bank — and, if they did, why would they be getting “pay option” mortgages in the first place?
I am working today taking loan application via phone from around the country. Today i wll give you a pulse of what i am getting.
605 credit score, 61 dti 278k loan on 65k income on 285 house value in bradenton….loooking for bill consolidation second for 40k on the cards…denied
What’s DTI? I cannot find it in “teh Google”.
Debt to income ratio …add all on your monthly CREDIT obligations and put them in the numerator of a fraction. Then place the household GROSS income in the denomintor. That ratio is what lender use to evaluate your ablility to re-pay a loan. Generally, you should be at 24/36 i.e. 24% of your gross income should go to your mortgage including taxes and insurances. And spend no more then 36% of your income toward all of your creditors. Thid does not include hhld expenses such as phone bill, elec. etc…
Looks like you were posting as I was guessing (below).
61% of GROSS income in credit obligations????
I take about 15 apps a day and most are denied for DTI reasons. 61% would actually be on the low end of what i see daily though, my data is biased. My bank markets for debt consolidation and we buy lists of people that have “x” amount of credit card debt from the credit bureau. So, the people that call me are not a representative sample of the overall public.
Do you mean there are still people out there with good credit who are dumb enough to compete with the buyers who borrower at a 61% DTI???
61% DTI???
Here’s to you Mr. and Mrs. Too Much Homebuyer
Thanks, Chris — that clip is destined for the Housing Bubble Hall of Fame. Don’t miss “Real Financial Heroes” parts 1 and 2 as well…
I wonder how someone can actually fill out a loan document with a 61% dti ratio and not see a problem on the horizon. Personally, I only net about 60% of my gross income each month.
“That ratio is what lender use…”
Did you mean “what lenders used to use?”
Well …yes. There is really no debt ratio limit any more it seams. WE go as high as 55 dti. I was speaking in a tradtional sense.
But doesn’t this tend to create a vicious circle, where the only people who buy homes are dumb or have nothing to lose (like that Colorado parollee that Ben posted on last week who bought several homes in between prison terms)? Why would anyone with good credit and a sound mind be willing to compete with these 55 dti buyers who can bid up the price to a level which virtually assures their future bankruptcy?
I’ve asked this question a couple of times now, and gotten no response whatsoever. Not even a flat “No”. But I’ll try again, seeing as you’re in the business.
Is anyone marketing non-dollar mortgages to get the payment down for desperate borrowers? Seems to me that an I/O Yen mortgage at 5% or so could appear to be an absolute lifesaver for some people, while still giving the lender a spread given that Japanese overnight funds are 0.25% and even their 10-year rate is only 1.75%.
GS,
Previous post aimed at MDMORTGAGEGUY.
old sales expression …
Sell to the masses eat with the classes
Sell to the classes eat with the masses
Unfortunately, the masses of american’s really are stupid. Just look at our speach maker figurehead and his leadership that is influenced by an imaginary invisible magician.
ajh- way over my head, im just a schlep LO with no real understanding of currency markets.
ajh-it would seem to me that there would be a real problem if the dollar weakens substantially against the yen and you’re paying off a yen denominated loan with devalued dollars. Esp given that many seem to think the dollar will go down because of the twin deficits.
Debt To Income (percentage)?
Is the 61 DTI 61% of their income is used servicing debt on housing?? Oh my god, I hope not.
So, using those numbers (which, as I understand, are tradional loan values) how much money do you need to make to afford a 400K loan, assuming no other debt? I have worked the numbers myself before, but I would like to see what a professional says.
400k @ 6% @30years=$2398PI + say $400 TI=$2798 piti(principle and interest, taxes and insurances add hoa or any annual assesment fee if they exist)
so. 2798/.24=$11658 is what you should make monthly gross to support this loan.
Note: this is Fannie Mae’s guideline which i think is too liberal. This calc neglects to factor in the cost of savings (15% of gross) and child care (large monthly obligation depending on the number of children in day care).
“Note: this is Fannie Mae’s guideline which i think is too liberal.”
Not surprising, given that the company which issued it is exempt from filing financial statements.
Minor point, but in Bradenton, the TI for a purchase would be at least twice that. Estimate 1.8% of purchase price for tax; Bradenton is close to the coast so all of it or nearly all is in the high $ risk category.
$11,658/mo - that’s $139.9k/yr. I’m out.
Pls also note that there are other issues that come into play. My own position for example. I work 100% commision so, my income varies from year to year. I have a personal policy of not buying a home unless i can put half down and keep my overall dti less than 20 based on a conservative estimate of my future income. If you are a gov’t worker wth guaranteed raises the formula works quite well.
If everyone followed your personal policy, we wouldn’t have a bubble, would we?
Let’s just say that in the current lending environment, the amount of money one needs to make to afford a $400K loan falls far short of the amount one needs to make to afford a $400K house.
I’m out of toes and fingers counting the people I know who are in the same boat. I just can’t believe it. And when it’s pointed out to them (hey, I try sometimes!) that perhaps they could QUIT BUYING STUFF, they look like I just told them to sleep in a tent and eat Cheetos for the rest of their lives.
http://www.youtube.com/watch?v=fMudzRcPxLc
Steve Martin’s clip is still up on YouTube.
Speaking of toes and fingers I once made the mistake of asking my former girlfriend for a count of all her former lovers….she started counting on her fingers but soon ran out of fingers…
later she ran out of toes.
There was a hilarious version of that in “Four Weddings and a Funeral”!
Do you still have her phone number?
I can’t believe your not going to make that loan and give the guy some cash back to buy a car . After all the guy isn’t in prison ,he doesn’t have 8 other houses like Casey ,and it will only take him about 2 years to run up that 40K again on his cards ,can’t you find a appraiser that will up the appraisal …..Just kidding …lol
mdmortgageguy,
Can you send me an email offline?
sure, what is the email?
I thought my name would link to it, but it’s to the blog…it’s baltimorehousing at gmail dot com
done
“With real-estate prices falling around the country and even pro-industry trade groups predicting further declines over the next year, buyers are backing away from deals in droves. Economists report that contract-cancellation rates for big builders were running around 40 percent.”
Does this mean the DOC new home sales numbers are overstated around 40 percent?
Don’t know but, does anyone cook the books more than our own gov’t? The last vote i made was for Ross Perot. I was totaly in favor of his message. Run the gov’t like a business and worry about our own problems before worrying about the rest of the world. Wish he would run again. I think he would do even better in this political climate.
Yeah, he could campaign on the “giant sucking sound” of cashout home equity ATM money leaving the USA to buy Chinese manufactures.
Picture Ross Perot’s voice as he is explaining it to the american peeps.
“Now see, what we have here is a great big bubble. Our gov’t took these bonds and printed them on some pretty pink paper and sure enough we had every housewife in China wantin’ one of these. Take a look at this chart…”
LOL …So funny …
I’d vote for this guy…
http://www.fool.com/news/commentary/2006/commentary06110322.htm
The Fools mock him, but he speaks the truth.
After it dawned on me this wasn’t a well crafted staire of Orwellian newspeak, I realized that rather than being a clever rebuff of accepted financial wisdom, Motely Fool may actually be a huge joke on all who read it.
“debt” — also referred to as credit, checking accounts, demand deposits, and so on — is money. Furthermore, the government’s debt — or, more accurately, IOUs — is simply another form of wealth.”
debt = wealth. Reminds me of “work is freedom.”
“the federal government, because it can literally “create” money, can pay its bills even if it does not have enough on hand to cover those outlays at the time it makes them.”
Imagine my surprise. Who knew some government official could simply wiggle their nose, blink their eyes or snap their fingers and create all the money we could ever need. What a relief. Sign me up. Oh, and pass the Kool-Aid.
And people wonder why there is a negative savings rate. Money developed as the commodity that people arbitraged their real earnings into savings to protect future purchasing power. If you are going to lose real wealth by doing so (ie saving at 2% while the real not commisar inflation numbers are at 7%) you have to look for other avenues to save. That is the real tragedy of the housing bubble. Most people were not trying to make a killing. Most were and still are thinking they are doing the prudent thing. Yes, they were some greedy SOB’s on the margin. As this yoyo says debt for a government that issues the currency is never a problem. It just happens to be a problem for everyone who lives here.
CPI= commisar price index. Apologize if anyone else thought it before
I always assumed it stood for “Cheating Public Index” as a way to track the debasement of purchasing power.
What a dumb atricle. Desn’t the author realize that the US dollar is the reserve currency of the world, that everyone and their mother is “diversifying” from. Mike Norman really needs to wake up and look at the bigger picture, because when China, Japan, and a few others start bailing on the dollar in a big way, that potentially inflationary effect he talks about will be very Wienmar like. Here is a good article displaying the last months or so dollar moves by large investors & CB’s. I do take solace that Norman is on the fool.com, so I think that has a lot to be said, although I do like that site. sorry for the rant, but these near sighted fools always strike a nerve in me, while dupeing the common investor.
That article made me so mad that I emailed the Fool.
urrrggghhhh
you guys realize, I hope that I’d vote for WALKER, not the numbskull who wrote the article! I think David M. Walker is terrific and brave!
“‘It’s classic loss aversion,’ said Christopher J. Mayer at Columbia Business School in New York. ‘You don’t want to realize the loss. It leads to housing markets that don’t function very well. You’ve got a lot of houses on the market and they aren’t selling.’”
It leads to markets that function very well for new home sellers, whose definition of loss aversion includes the money you lose by sitting on inventory while prices are dropping like a rock, and not so well for clueless home owners, who overestimate the chance that a buyer will pay their wishing price when they can get a new home with a free vacation on the side for less.
>“Increasingly, though, research shows that emotions play as big a role as intellect. Sam did a lot of market research and decided they should ask $269,000. The number came as a blow to Karyn, because she knew similar units, including some she thinks weren’t as nice, sold last year for $280,000.”
She’s crying the blues about getting 4% less? She’s in for a rude awakening.
That’s the first thing you’ve said in a long time that I agree with. $11K? BFD. That assumes they sold it for hubby’s price.
here in San Diego the flippers have gotten so blatent that they started flipping $2 million estates en masse. Check out this Paso Fino estate development in Carmel Valley, 4 of the 16 homes build in 2005 are on the market, some are empty and one is foreclosing.
The profit margin from those $1 million tract homes just wasn’t enough, I suppose.
It will be so beautiful to see the demise of all these SD McTrumps who thought they could make a mint by flipping in the $1m+ price range. Yesterday’s WSJ showed a repeat sales index for high-end SD homes has already fallen by 1% YOY from Nov. 2005 to Nov. 2006.
Sorry for the long post, but this is just too good to hide behind a link! And I hate to say, but I know first-hand the answer to the question raised at the end is “Yes.”
————————————————————————————————-
A Premier Expression of Flippers’ Greed
So you figure if you made $70,000 flipping a condo in 2003, you can make more. And you did. You then made $130,000 flipping a SFR in 2004. So you figure, why not flip a McMansion estate by the coast and make $500,000. Except everyone else apparently had the same idea. And looks like lenders were all too eager to loan the $2 million needed for each of the flip too.
Paso Fino is suppose to be a plush, exclusive, 16 home estate development in the Carmel Valley area of San Diego. “A premier expression of the home-builder’s art,” proclaimed Barratt American. Developed in 2005, most of the homes were sold in the mid to late 2005. In just one year, all these homebuyers suddenly realized:
A) why do I need a 5,000 sqft house?
B) I’m tired of coastal McMansion living, time to trade up!
C) I need to move out of America’s Finest City.
D) My low introductory 1% interest only loan that allowed for the purchase is expiring after a year, but so are my neighbors, argh!
E) I got the Notice of Default in the mail!
Everyone has a different reason to sell, I suppose. But 4 homes in a 16 home development all selling roughly a year after purchase. How likely is it that 25% of the residents suddenly feel like A, B, or C? Could flippers have gotten so greedy and so gutsy that they decided to start flipping $2 million estates en masse?
That is the thing that has struck me about this double bubble (stocks and homes). Note that at the same time these were occuring, the explosive rise in internet gambling. Americans have turned into a country of gambling addicts. That is all this is. We used to call Bernie at the local bar and place a couple hundred on the Giants. Then dot com came along and people started gambling their nest eggs. That didnt work so we doubled down with our homes. We, as a culture, are collectively turning into riverboat gamblers. We are so cavalier with our money its like we are alergic to it.
My prediction: The gambling craze (including hedge fund bubble) will die alongside the conundrum and the symbiosis which enabled it.
But the next step may be a new version of the Gin Craze, as happened in London in early 18th century - similar financial and social circumstances led up to it.
This has always been true, in most all cultures. Mid-20th century America was actually a bit of an historical aberration. You want to see some real gambling? - go to Macau. It’s elbow to elbow and lined up waiting to get a table and there’s no drinking or laughing. When I got back I was hot to buy some Las Vegas Sands (LVS) but it had just doubled from its IPO price - has nearly doubled again.
What does it mean? At the least, most people don’t take life seriously. At the worst, they even have a deep-seated hatred for life.
“gambling addicts” - my diagnosis exactly. Of course, renting and saving is also a gamble, and has often gone against us. But it’s a form of relatively cheap self-insurance.
Diversification is the best antidote to gambling with personal wealth, but it takes more thought and effort than most folks can muster.
What happened to the soundness of money?
Yes ,Get Stucco . Recently on FLIP THAT HOUSE they showed a over 1 mil house flips in Venture County ,than another one in San Diego County . The funny part about the flips were that they were only around 5 to 7 year old homes and the flippers were spending 100K or so to update them and flippers were expecting a 100k to 200k profit on the flips in 2 months .
I guess Home Depot will love those buyers who want to upgrade 2 year old homes for a flip .
Again , flippers in the old days use to be people who bought older run down houses under market ,fixed them up and put them back on the market for a modest profit in most cases.It was a positive for the neighborhood . Now we got people revamping and updating million dollar houses that are already in good shape expecting a big return for their decorating ideas . Who are the Greater fools in this situation ?
Speaking of Home Depot, I learned that the builder of the “spec” house I am living in is paying 20% (yes, 20%) on his Home Depot credit card.
Some dude on the SDCIA board claims to know someone who made 600K in a few months on a place in San Antonio. Personally, I don’t believe it.
No it’s true. A friend of my cousin’s knows him and he made lots of money in only one month!
Ironically enough, he’s also the same guy who dating the girl who heard her college roommate having sex in the next bed one night but in the morning found her roommate brutally murdered and a note on the wall (written in her blood!!!) saying “Aren’t you glad you didn’t turn on the lights?”
Am so happy this poor girl found a rich guy to help her afford therapy.
Denis and Michael Budge put their two-bedroom house in Carson City, Nev.,
I think this is what nnmortgbrk was talking about when he posted recently about Nevada….That market appears to be in big trouble…
“Sean Shallis, a real-estate strategist in Jersey City, N.J.,”
“Mr. Shallis walked away from the contract and lost his $30,000 deposit.”
What the hell is a real-estate strategist? Whatever it is this guys must not be a very good one.
poor karyn. poor, poor karyn. she is upset that her condo won’t sell for the same price as a 2005 comp. “mine is nicer”. poor, poor karyn. why did the author not disclose what karyn PAID for her condo? if she has had a 50% runup in a few years, then she made some money. poor, poor karyn.
“Denis and Michael Budge put their two-bedroom house in Carson City, Nev., on the market a little more than a year ago at $495,000, so they could move to another home they had already bought in Waldport, Ore. After some nail-biting months with few showings and no offers, they finally landed a buyer, who signed a contract in June for $425,000.”
“But during the escrow period, as prices in their area continued to slide, the appraisal came in, at $395,000.”
Meltdown in NNV. I had to deal with an emotional meltdown on the phone yesterday when I informed a client that her appraisal came in 75K less than the number she was confidently predicting. Seriously, this gal was devastated, then pissed, then vindictive, then denying…..heck, I think she went through the whole range of the grieving process in a 5 minute phone conversation. Yeah, I think it’s safe to say that folks are emotionally depedent on their homes value.
And she blamed it on you and your appraiser. Funny how you can show them the 1004 with identical homes selling on the same street and they still think they got jobbed by the appraiser.
“‘You want to believe it’s worth a lot more because you’ve invested your time and energy on it,’ Karyn said.
Oh Please. It’s a CONDO for gods sake, how much time and energy can you spend on a condo ?
If you are getting the place ready to sell, I’d recommend no more than four hours, to slap some spackle into the holes and paint onto the spots on the wall and to buy a few plants to set around outside for staging purposes. Any more time and money spent on improvements will not be fully recaptured in the sale.
LOL ..She was spending alot of time and energy dreaming about her big profits .
LOL. Just like Aesop’s milkmaid. I guess poor Karyn wasn’t paying attention in kindergarten.
“Do not count your chickens before they are hatched.”
And don’t cry over spilt milk! LOL
Good doctors usually like to AVOID treating or advising Friends, Family or Relatives for a Good reason. You might have to TELL the something THAT they DON’T WANT to HEAR !
“Glenn Nudell recently got $115,000 in concessions when he bought a 12-year-old five-bedroom home in Skillman, N.J., for almost $1.1 million. If the seller hadn’t agreed, he says, ‘I’d have backed away.’”
Another shrewd negotiator who will lose 100k’s in the next few years.
“…but the buyer backed out the day before the closing.”
As Yogi might say, “It ain’t sold until it’s sold.”
And why the rush to buy another house?
Sell (really sell) first, then take your time to get the bargain of your dreams.
“Economic researchers have found that emotions are a bigger influence than was previously believed in how people make financial decisions. For a long time, economists believed that human beings made decisions like robots, that people applied simple logic in making financial choices. But a body of research developed over the past two decades, known as neuroeconomics or behavioral economics, has shed light on how powerful a role the unconscious mind plays….”
ROTFLMAO! Marketers have known this for years. I’m glad too see these guys finally catch up, however.
““‘It’s classic loss aversion,’ said Christopher J. Mayer at Columbia Business School in New York. ‘You don’t want to realize the loss. It leads to housing markets that don’t function very well. You’ve got a lot of houses on the market and they aren’t selling.’””
These ‘Bubble experts’ are almost as annoying as the Real Estate “experts”. Must we have such statements of the obvious delivered to us by Columbia PHd’s? Gee, Chris… ya think?