Buyers “Not Willing To Overpay” In California
Inman News reports on California. “Luxury home values posted slight gains in Los Angeles, San Diego and San Francisco in the third quarter of 2006, as housing markets overall continued to see a slip in sales, according to an index released by First Republic Bank.”
“‘This trend is due to growing inventory, longer sales time, and greater caution among buyers because of the uncertainty in the market,’ said Katherine August-deWilde, COO of First Republic.”
“In Beverly Hills, buyers are more cautious than they have been in several years. ‘There is some hesitation in all price ranges,” said (realtor) Steve Frankel in Beverly Hills. ‘Buyers are being sensitive. They’re saying, ‘I am willing to pay, but I’m not willing to overpay.’ Two years ago, they would overpay and wait for the market to catch up.’”
“In San Francisco, prices and sales appear to be falling. ‘I see price reductions, and homes selling below the asking price,’ said (realtor) Naomi Glass. ‘Few things are moving. People are hesitant because they see an uncertain market.’”
From the report. “Wendy Ramp in Del Mar said the mid-tier has clearly softened. ‘We have too much for sale.’ She said that some sellers are reducing prices and noted that transactions are falling out of escrow at a higher rate.”
“In the high end of the (San Francisco) market, Caroline Kahn Werboff said there have been some price reductions. She said some buyers are reluctant because they believe prices will decline.”
A commentary at the North County Times. “It’s too delicious to pass up Tom Beckmier’s invitation to offer some ‘insight’ into the ’spike’ of trustee sales that have recently appeared (Letters, Nov. 15).”
“All things being relative, we would argue that 38 trustee sales advertised over five days does not a panic make, let alone a ’spike,’ and we certainly hope Mr. Beckmier’s invitation is not a veiled inference that either lenders or real estate brokers are primarily responsible for this market ‘adjustment.’”
“In the early 1980s, runaway adjustable-rate mortgages and the savings and loan industry collapse fed that decade-long recession, and lenders learned from that mistake to impose caps on how high adjustable loan rates could escalate over any given time period.”
“Fortunately, only a small minority of homeowners are trapped in these loans and the majority of those will ride the wave. But the sky is not falling. The market is adjusting.”
The Press Enterprise. “Throughout Southern California and the nation, homeowners who have benefited from creative financing, pushed by the lending industry to make housing initially more affordable, are awakening to its downside.”
“While listening to the radio in the summer of 2005, Mike Spanos heard a commercial for a mortgage promising a 1 percent interest rate for three years. ‘I thought it was a great deal,’ said Spanos, who had lost his job and was looking for a way to cash out money from his home to live on.”
“So Spanos refinanced his house in Montclair, he said, without understanding that the 1 percent interest rate…did not cover the actual interest charged on the adjustable-rate mortgage which changed monthly, recently reaching almost 9 percent.”
“In Riverside and San Bernardino counties, adjustable-rate mortgages or ARMs accounted for 72 percent of homes purchased in the first nine months of 2006.”
“Christopher Cagan, director of research for a Santa Ana-based property information service, said falling home prices will hurt those who bought homes in the past couple of years with 100 percent financing or maxed out home-equity lines of credit. Such homeowners are likely to discover they owe more than their homes are worth.”
“Cagan…estimated that 35,541 Inland households are likely to default on their loans.”
“‘Underwriting standards have gone down because everyone was trying to get their share of the market,’ RealtyTrac’s Rick Sharga said. ‘You can’t absolve the home buyer from all guilt either. If this is the biggest investment you will ever make, shouldn’t you understand what you are signing?’”
“Pete Nyiri, owner of Corona-based Top Producer Realty and REO, said he already has seen many homes going into foreclosure that were financed to the hilt with adjustable-rate mortgages. Nyiri said this month he was marketing 100 properties taken back by banks in Riverside and San Bernardino counties. A year ago he had none.”
“George Guerrero, a real-estate broker and housing commissioner for San Bernardino County, said he has seen people with option ARMs lose up to $55,000 of equity in a year. He said some of his clients who are selling their homes to escape option ARMs ‘will walk away with almost nothing’ after they pay off the mortgage and commissions and sometimes penalties for paying off the mortgage early.”
“Spanos said until recently he had no idea how his option ARM worked or that the payment he was making was piling more debt on his house. He said he wants to refinance into another loan but is having difficulty because of the equity he lost and because he must pay a penalty if he refinances before three years.”
“The bachelor, who has landed a new job with an annual salary of about $68,000, said he doesn’t want to sell the four-bedroom house he calls his ‘dream home.’ But he said even with a roommate, he can’t afford to boost his monthly payment from $3,034 to $4,985 to cover the interest or to $5,334 to start paying interest and principal.”
“After getting the latest rejection from a lender for refinancing, Spanos said, ‘It doesn’t look good. It looks like I am stuck in this loan.’”
‘Despite a cooling housing market where prices have fallen slightly, affordability continued to worsen in most California markets during the third quarter of 2006, the California Building Industry Association says.
CBIA’s analysis found that during the third quarter of the year, affordability fell in 14 of the 28 California metro areas surveyed. Adding to what the CBIA calls ‘the grim picture,’ in 20 metro areas fewer than 10 percent of the homes could be afforded by families earning the median income there.’
The Voice of San Diego:
‘You’ve got to roll with the punches if you’re going to make a real estate-related business work. In the housing boom, we saw a huge wave of newbie real estate agents and mortgage brokers flood the scene.’
‘Now that the market’s been cooling off for a while, there’s a new crop of try-your-hand business people. They’ve launched foreclosure counseling agencies offering help and education to the ever-growing number of homeowners in various stages of foreclosure or default on their mortgages.’
posted ” “Cagan…estimated that 35,541 Inland households are likely to default on their loans.”
Hey no big deal! 3 years ago when a job move was having me look in the area, they would not piss on me if I was on fire! Sign the list and get out of here. Don’t call us we might call you.
Spanos…mortage Darwin award winner?
This guy makes $68K per year and doesn’t even read the summary statement for his mortgage loan? Sounds like he must be in marketing (high salary, low IQ, handsome face)
“So Spanos refinanced his house in Montclair, he said, without understanding that the 1 percent interest rate…did not cover the actual interest charged on the adjustable-rate mortgage which changed monthly, recently reaching almost 9 percent.”
Boy, where do we begin with this guy? George, that was my concern. Who is paying someone this stupid $68K?? Only an idiot of the highest order would assume that a 1% loan covers interest. Multiply Mr. Spanos by thousands and we get a picture of what CA is facing in the coming years. Good riddance. Maybe the financially prudent people will finally be able to afford a house once all these clowns foreclose.
Maybe we should mate this dude to the woman yesterday from Colorado. The kids would be good for the draft.
Ouch!
Ouch, is right. Take those kids and draft ‘em and train ‘em with deadly weapons? Yikes. I dunno about that plan.
It does make me wonder, though, what these people were taught about (1) contacts, and (2) salesman. Maybe I was lucky. My dad always impressed upon me the validity of contracts, even ones I signed but hated. And he also impressed upon me that a salesman’s word is worthless against anything in writing. Ignore the (mortgage) salesman and read the (mortgage) document.
The sad thing is, this isn’t a half-literate sharecropper in the anecdote; this is someone who is allegedly educated, at least well enough to make $68k, but who is but obviously lazy as a slug when it comes to money. This is the same kind of guy, perhaps, as some dreamy-eyed friends of mine who can’t believe the awful lease they got suckered into on a flash BMW. “But the guy at the dealership said…” Ha ha, suckers!
At least they won’t be driven bankrupt by it.
posted ” Ouch, is right. Take those kids and draft ‘em and train ‘em with deadly weapons? ”
Well, if the Inland Empire or Palmcaster you won’t have to train them to kill. Just bail them out of jail and sign them up.
Don’t get too excited about 68K, that’s like minimum wage here, my 22 YO college dropout brother made 55K+ his first year out.
Wow, you must be a member of the elite.
posted “What irritates me (here in Portland) is that I barely make 70 with two degrees and 20 years’ experience.”
That would urinate me too.
Wow, you must be a member of the elite.=Investor Girl
Wow, you must be an out of work computer geek.
My company pays deadwood, stupid people way too much money. How do I know this? I did the budgets. We are talking a typical complete buffoon, no personality, no real initiative: 55k. 68 is no longer that high at all. What I want to know is how he eats or pays taxes after that mortgage.
What irritates me (here in Portland) is that I barely make 70 with two degrees and 20 years’ experience. OTOH, I could make more if I wanted to. I would like a life too.
In Silicon Valley starters are 2-3 yeas of experince will get 75K… someone with say 20 years climbed from 35-85K. Not much difference … Should have I been born later in life?
I thought with 20 year exp., the tech people make over 100K up to 150K.
$150K news to me … that would be around what VP’s get for Salary.
But theres fewer jobs.
2 degrees + 20 years experience = 70k
NYCboy + high school diploma = much more
God bless America.
By the way, my previous post was not to brag. It is just to show that this country still has a lot of opportunities. I just worked hard. I didn’t cheat anybody. When the guy next to me complained about being sent on a trip I shut up and went. When the guy next to me bitched about working 9 hours I shut up and worked 10. When the guy next to me refused to do any extra work on his own time I spent my weekend studying my job to get ahead. I have had co-workers tell me not to get to work so early. It makes them look bad. I replied, “maybe you should get here earlier.”
I didn’t give up my life. I just worked a little harder than the rest. It has made all the difference.
The salaries in silly valley used to be good before 2000 when everyone and their brother was hiring for Y2K. They have really gone down. I had wondered how people were managing to stay in the BA with all the job loss. I’m guessing they’ve all been living off their houses or getting a realtors license.
And my last post to myself.
I was also willing to relocate. A house anchor will keep people from doing this.
If my job is gone tomorrow I should be okay. I earn like it’s 2006 and live like its 1999. The #1 rule of being a wage slave - make them need you more than you need them and you will never be a slave.
Thank you for letting me rant tonight. Good night to all. I did not mean to offend TXchick yesterday. I continue to love Imploder’s posts. And I have a lot of respect for Ben’s calm and logical postings. Be safe from debt!
The higher home prices go with or without higher salaries, the more likely we will see jobs being shipped out elsewhere. Its the Silicon Valley way! Its been that way now for 20 years. If prices continue, employees will demand higher salary which will lead to job being shipped. Therefore the $1M 1700 sq single level 60’s rancher will be unaffordable in 10-15 years because there will be no jobs. Given that the price of goods and services are now declining. Go out and buy a full blown laptop for under $500.
As one VC told me back in 2003, “What can be invented has been invented”… Thats it!
NYCBoy,
You sound like my clone - I’m also doing well in NYC with a high-school diploma. Same recipe for success: work hard, be ethical, focus on results, study endlessly.
After two years, degrees are unimportant to most companies: you get paid based on how much the employer wants to keep you.
Cost of living in Manhattan is extremely high, so $70K in a median US city equals about $280K in Manhattan salary. It’s really hard to compare raw numbers when $70K doesn’t even pay the rent on a 4 bedroom apt here.
With globalization underway for almost a decade the pressure on global salaries to equalize will become more and more of a force. That means negative pressure on “overpaid” western salaries and positive pressure on “underpaid” eastern salaries.
Evolution…..and bad corporate politics.
SeattleMoose,
I certainly see median Western salaries declining with respect to median salaries in Indian, China, etc. I also see mean salaries in both locations rising (not in a good way — a few people are pulling in more and more or the money.)
I’m not sure what bad corporate politics has to do with it — perhaps you could expand on that point.
I think evolution is more accurate (although it’s a very general term.)
My gut sense is that the internet and other tech has suddenly made a tiny subset of various professions vastly more productive. E.g. I was talking to a lawyer recently and she said she was basically billing $300/hr for doing Google searches. Pre-internet, she would be worth less than an average lawyer with good rhetorical skills, not she is worth a lot more.
“So Spanos refinanced his house in Montclair, he said, without understanding that the 1 percent interest rate…did not cover the actual interest charged on the adjustable-rate mortgage which changed monthly, recently reaching almost 9 percent.”
Note to Mr. “Stupano” DON”T SIGN FINANCIAL INSTRUMENTS “without understanding” THEM!
What the Fu@k! Are we suppose to feel like he got taken advantage of because there was “fine print”?
I mean, of course everyone believes the loan commercials, cause they’re on TV, right? They must be true!
Right imploder . The thing that bothers me about this guy is some lender put him in a house ,(his dream house ),and he didn’t really qualify . If you include real payments on PITI ,( $5,344.00 plus taxes & insurance etc.),the monthly nut exceeds his income .This guy is going to be racking up interest added to the mortgage balance and he will soon exceed the 125% limit and they will raise his payment regardless .
He went to this lender because they were creeps that put people on loans they cant qualify for and he signed the documents because he knew he couldn’t really afford that expensive dream house property .
These people can’t all really be this stupid, can they? I think many of them have the capacity to think and do due diligence but just not the inclination. Just follow the crowd and trust the guy with the handsome face and nice smile. Brother. Makes you wonder how a lot of these people avoided swallowing marbles and reached adulthood.
As long as you don’t chew ‘em, marbles pass on through pretty well. Or so I’m told.
I can verify. Marbles pass through no problem. Jacks, on the other hand, are quite upleasant.
I always wondered where the term “Jack Ass” came from
lol! good one.
That’s how the actor Rip Torn got his name…
“These people can’t all really be this stupid, can they?”
It’s a confederacy of fools…
confederacy of dunces!!! lol
I actually have some sympathy for those who don’t read and understand 20 pages of legalese. BUT, that 1% is like a giant blinking, warning sign that THERE IS A CATCH. How can you be SO dumb that you don’t realize that there is no way that 1% is the whole story.
Back to NYCBoy’s comment: I made my choices similarly to yours. I basically shed a lot of baggage, rented since 1996, and my income is very high (well into 6 digits). I am up in years, but very flexible and very able to take the stress of moving to another city within a week to get the high income to finance my T-bills, savings bonds, muni bonds, and precious metal buying habit. A colleague who is my nephew’s age is shocked at me because he figured I have a house and I tell him I rent and have few possessions. He drives a Lexus and I drive a Toyota economy car. He and his wife have a house. I value my freedom very highly. I meet a lot of interesting people by working in different cities. I consider myself a permanent vacationer, living all over the U.S. in the large metro areas and checking the surroundings. We are witnessing what may be a major stock market peak and the biggest RE peak in decades. What goes up, must go down. There is no better time than now to have trailing stops on all your stocks and to be completely out of real estate and into the other asset classes - mainly government securities and precious metals.
Oh, I’d make more money in Silicon Valley or NYC… but then I’d have to live there. I did that. I went through a divorce seven years ago that put me back at ground zero. Since then, I remarried, my wife and I have put $160K into our 401(k)s, bought five acres together, and replaced the trailer the land came with, with a triplewide (well-made). Our mission: Pay it off. We have a 30-yr fixed at 5.875, and we pay the equivalent of three extra payments a year. So hey - we’re not getting rich, but we are making progress. No fancy vacations, no fancy cars, but we don’t need blinds in our house (that’s the privacy we have). And that, to us, is priceless.
This is a good example of the low quality of education that one recieves in this country. If we would teach finance on a lower level in high school and make it manditory we would unmask the banking industry.
If you can teach banking on an IPOD none of this next generation will pay attention.
If you can’t teach banking on an IPOD none of this next generation would pay attention.
If the statement contains the three payment options, how can someone not know the consequences of making the minimum payment? Wouldn’t you think to call the toll free number and ask the mortgage company?
Can’t tell you how many of these contracts I have read for family and friends that had no idea what they were getting into. They hear 1% interest and can’t dial the phone fast enough.
Then I’m the a______e for explaining the conditions in the fine print. LOL. Screw-em let them figure it out themselves.
One couple I met with was locked into an IO option arm with a no refinance clause and a 10% fixed rate at the end of the teaser period. Fortunately the NJ predatory lending case will likely get them out of the real dangerous parts of the contract. Still they will end up with a 600-700k mortgage on a house they bought for 500k 2 years ago.
I willing to bet that at this point most of the victims have no idea just how screwed they are. Darwin work your magic.
His gross salary is $5666 a month. His fully amortized payment is $5334.
He deserves foreclosure.
And the loan officer who approved the loan deserves prison time.
“He deserves foreclosure.”
He deserves a lobotomy. He’s already gotten an ice water enema. So, that’s something.
In LA people pay some bit@h with a Euro accent big money for this type of “irrigation”.
Why waste a good lobotomy? Saw dust feels no pain.
Amen! These groups are glorified loan sharks. You’d be safer borrowing money from a gang member.
You are right! What a mess!
Back in July 06, the New York Times did a piece on men opting out of the job market titled “Men Not Working, and Not Wanting Just Any Job”. Here is a gem from that piece:
“To be honest, I’m kind of looking for the home run,” said Christopher Priga, who is 54 and has not had steady work since he lost a job with a six-figure income as an electrical engineer at Xerox in 2002. “There’s no point in hitting for base hits,” he explained. “I’ve been down the road where I did all the things I was supposed to do, and the end result of that is nil.”
“Instead, Mr. Priga supports himself by borrowing against the rising value of his Los Angeles home. Other men fall back on wives or family members.”
Oh, thank you for that post! I read that article too (it was carried in the Los Angeles Times). I.could.not.believe.that.he.was.borrowing.against.his.home’s.value! HELOC????
All I could think of was that its just a matter of time before this guy is living in a cardboard box on Santa Monica Blvd.~sigh!!!~
~Misstrial
I saw that article. It would be great to see a follow up article in a couple of months.
I remember that article. I remember thinking as I read it, ‘doesn’t that guy realize he will have to pay that loan back?’
He’s going to end up with no equity at all, and then no home.
I remember this article well.
Looks like Mr. Priga wont be up to bat anymore. He may not even have a spot on the bench. He probably won’t even be on the team anymore. The greedy arrogant fool.
He is 54…..so he can move in with his kids…or an old folks home…..
“Spanos said until recently he had no idea how his option ARM worked or that the payment he was making was piling more debt on his house. He said he wants to refinance into another loan but is having difficulty because of the equity he lost and because he must pay a penalty if he refinances before three years.”
Uh-oh! Gee, does this scenario sound familiar?
It’s beginning to sound like a broken record.
He still doesn’t realize what’s coming though…
“After getting the latest rejection from a lender for refinancing, Spanos said, ‘It doesn’t look good. It looks like I am stuck in this loan.’”
Don’t worry dude, you won’t be stuck in that loan for long. Foreclosure will take care of everything (well, except for that little bit about the IRS).
“The bachelor, who has landed a new job with an annual salary of about $68,000, said he doesn’t want to sell the four-bedroom house he calls his ‘dream home.’ But he said even with a roommate, he can’t afford to boost his monthly payment from $3,034 to $4,985 to cover the interest or to $5,334 to start paying interest and principal.”
How the “F” did he afford the original payment?!?!? My wife and I combined make almost 3 times what this guy does and even we wouldn’t want to have to make those payments.
Yeah, his current I/O payment amounts to 88% of his GROSS salary! Good luck with that one, Mr. Spanos!
There are more people in California doing that then you think especially in Los Angeles. Has been that way for years I personally could never understand it.
It only makes sense against a backdrop of double-digit home price inflation.
I understand what you’re saying. But it doesn’t make sense. If missing one paycheck or a car repair causes turbulence. Then did you really need that house. Probably not. Too many people get caught up in the flash. Lou Minatti had a post earlier about the diffence between here in Riverside and some part of Texas for the price of 268k Now you expect some disparity but a 2400 sqft difference. What’s so nice about California that justifies that type of spread. I myself will be glad when folks start to question that. The weather and being on the coast are fine. but it doesn”t justify that kind of difference.
I grew up in Riverside and I’ll be back there this weekend. It aint the coast.
exactly!!!!! Food? What is that?! He can’t even afford Ramen!
And how many times did we hear that “This loan program is for sophisticated borrowers”? And “Of course we only qualify people for Options Arms based on the full payment.”
His loan comes out to about 660k. Who the hell would pay that much in Montclair.
How does he afford it?
He doesn’t save anything towards retirement, doesn’t participate in the companies matching plan…nothing.
Meals of wheatgrass and top ramen. People who do it don’t think about retirement and matching plan. They believe their house will cure all ills. Have seen it too many times.
I have a colleague at work, and, well, the best way to describe him is this: He’s one of the assh*les who just paid $2000 for the new Sony Playstation. Oh yeah, and he’s 42. Never married, leases a $110,000 Porsche, eats out every night. He recently let it slip that he doesn’t have a 401-k plan, doesn’t have a savings account, doesn’t invest. When I asked about his 401-k, he said, “I can’t afford it.”
Guess what - he just announced that he’s buying a condo … apparently the same building that George Clooney lives in. He hasn’t gotten a mortgage approval yet - he asked me if I knew anyone. I can’t wait to see how this works out …
L.A. is filled with idiots like this. I remember filling up at a gas station and watching a young girl eat water crackers like it was her last meal while driving a new BMW with a prada purse on the seat grand total of her fill-up 5 bucks. It’s one of the reasons I won’t own property in WH,HH,SO all flash no cash.
Your guy will go out and get a 100% option arm or something equally as crazy and in 2 years he’ll be on the street blaming the industry for his demise.
“WH,HH,SO” imploder will guess: Woodland Hills, Holmby Hills?, Sherman Oaks…. 2 out of three?
Probably 1 out of 3…if I’m right…
West Hollywood
Hollywood Hills
Sherman Oaks
Ya OC I think your right!
Yea, he’s right. You get a lot of wannabe’s who think it’s their god given right to trash your place and live 3 mo’s rent free while they wait on their next “deal”. No thanks I’ll take the ghetto palaces. In some instances those types of tenants are worse than crackheads.
“I remember filling up at a gas station and watching a young girl eat water crackers like it was her last meal while driving a new BMW with a prada purse on the seat grand total of her fill-up 5 bucks.”
Next time you see my sister, tell her I said hi.
WH = Woodland Hills
WeHo - West Hollywood
All the panache went out of BMW-driving when they made them so cheap to lease.
His house is his retirement….or so he believed.
Why does a bachelor need a 4 bedroom house?
his concubines, why else?
Anyone know what the market is like in Loma Linda?
A friend of mine just sold his condo in Newport Beach and moved there. Bought a brand new attached home in some new development. Zillow is showing $450K for a 4/3 2180sf, abou a mile south of I-10. Sort of surprised since he works in Newport Beach, but is commercial real estate broker so I guess he can afford the long trip. That’s a long way out from Newport isn’t it?
Well that was a stupid ass move. 60 miles each way…. Not only that he picked a funky area.
The only nice part of Loma Linda is right around the hospital. In the small hills above. Outside of the Teaching Hospital It’s pretty sparse.
A big drive to a deserty nowhere.
“The only nice part of Loma Linda is right around the hospital. In the small hills above. Outside of the Teaching Hospital It’s pretty sparse”
You know your SCal area Mr Imploder! LL is a very small community just south of San bernardino, still kept up fairly well compared to the IE hellholes around it. The Hospital i believe is connected to Loma linda university. LL still maintains it’s Presbytarian ambience, though the ragged IE hellholes are inpinging all around it.
It’s actually a Seventh Day Adventist community. Developers are trying to overrun this city with new houses, 3000 sqf house to a 5000 sft lot.
Yeah, not the best move unless he has a large family and needs the space…
WTF? Newport Beach to Loma Linda? Talk about slumming it!
From what I can tell, Loma Linda is one of the nicer places in the IE. And making the move out of Newport right now is probably pretty smart. Long way to fall in that place.
There is only one reason for a Newport Beach-based real estate broker to sell a Newport house and move to Loma Linda, and that’s that the broker isn’t selling and has been forced to eat his lovely Newport house.
‘Buyers are being sensitive. They’re saying, ‘I am willing to pay, but I’m not willing to overpay.’
Why the hell didn’t the buyers say this years ago? This is long overdue!!!!!
Two years ago, they would overpay and wait for the market to catch up.’”
In 1990, we bought a home in the Bay Area for 325k, in a neighborhood of 400k-500k homes. Two doors away on the same street was a comp to our house still for sale for 439k. Man did I think we kicked A$$!
That was until the comp sold a year later for 335k. While we had a pretty nice roof over our head, it still hurt just as much while I kicked myself in the A$$ for the next 10 years.
And as interest rates dropped through the late 90’s we had a hard time refinancing to get a better rate because we didn’t have the necessary LTV. Damn honest appraisers!
That quote is why prices CAN’T just hover a current levels and wait for incomes to catch up. The ONLY way to justify current prices is appreciation and the fear of being “priced out forever.” Without continued appreciation, there’s NO REASON to pay current rent multiples to own.
Why the hell didn’t the buyers say this years ago? This is long overdue!!!!!
Why?,….. because the banks are saying no more free money (at least not as much as before.
I think it is more than just tightening by the banks because I am still hearing/seeing evidence of fairly looose lending. I believe buyers as a whole are quite clueless and rely on the “professionals” to “guide” them in buying a house. Very few do much due diligence or make an effort to really understand the conditions of the loans they take out. Even fewer spend any time researching the market. Like sheep to the slaughter IMHO buyers flock to the agents and brokers with some misguided expectation that these wolves will steer them down a path that is financially good for them. As we all know here, the wolves only have one thing in mind, lamb stew. When they take a leg, but legs are growing back it does not hurt. But when they take a leg and noting is growing back it hurts. I also think that very few buyers are aware of sources of information like this blog. Only because MSM is picking up on the downturn are mainstream buyers becoming aware. So I guess my question is “Why didn’t the MSM question prices years ago?” I am not letting buyers off the hook because Melody is right, they should have objected to overpaying. I think greed, like hunger, led the sheeple down that path. Baaaaaaad choice.
“After getting the latest rejection from a lender for refinancing, Spanos said, ‘It doesn’t look good. It looks like I am stuck in this loan.’”
Dude! You’re not stuck in this loan… soon you will be stuck upside down in bankrupcy and the IRS after you for 100k in forgiven debt.
Hence the corrolary: The more you earn the more you are in deep s***t
$600K in Montclair, Ca. Try $400,000 in forgiven debt.
LMAO, what an idiot.
If affordability is that low, they just need to redefine the index again.
Let’s have a round of applause for LA County: “Los Angeles County, for an eighth consecutive quarter, continued to have the nation’s lowest affordability of the 203 metro areas surveyed, with just 1.8 percent of the homes sold affordable to the county’s median-income family.”
It may be one of the last to drop, but with affordability like that, it ain’t going to sat at some “permanently high plateau.”
Good old Orange County comes in at #3 on the list with 3.8% of the homes sold being affordable to the county’s median-income family.
I make just over median income for the county, and nope, I can’t afford anything.
Hey, my household makes 2 times the median household income for OC and I can’t/won’t afford a median priced McShitbox.
Don’t feel bad, affordability will come back. Deferred Gratification.
Same here, together with my husband we make a little more than 2 times median OC income and the only thing that we can actually afford is a fucking one bedroom condo in a SHITTY area, forget about a nice one bedroom in Irvine, I’m talking Santa Ana downtown here!!! We are waiting for the prices to drop by 40-50% or else bye bye California! In the meantime we’ll keep renting.
“All things being relative, we would argue that 38 trustee sales advertised over five days does not a panic make, let alone a ’spike,’ and we certainly hope Mr. Beckmier’s invitation is not a veiled inference that either lenders or real estate brokers are primarily responsible for this market ‘adjustment.’”
I guess it is neither the lenders’ nor the brokers’ faults that the loan underwriting guidebook has been torn to shreds then burned into ashes…
This sort of lending where they are putting people on loans that the real payments would exceed their income explains to me why there was so much prior demand for property in California . I blame it on the slimeball lenders .
Had the lenders practiced good lending the demand would of stayed down and the prices would not of skyrocked . Add to that how the lenders supported the speculators driving the prices up and the demand was totally F-a-k-e . You have to not only be a willing buyer but you must be A-B-L-E buyer for a comp to be valid . What a joke .
A speculator who would be up-side-down within 2 years if he/she doesn’t sell is also not a qualified borrower for a long term loan .
It’s insane that they didn’t figure in the neg. cash flow against the income of the speculator buyer . Oh yea that’s right , it was going to be owner occupied even when the flipper owned 2 other properties and lived in a different state than the subject property ,yea right , great underwriting .
I don’t blame low interest rates as much as I blame easy bogus underwriting of loans that are being passed off to the secondary market bagholders .
I’m sure if anyone got concerned about their payment they got the old line ,”Dont worry you can always sell at a profit or refinance in a few years because real estate always goes up 20 to 40% a year “.
The most disturbing aspect of this IMO is that the Fed is playing mum, rather than acknowledging that there are some problems in the lending industry which need to be addressed. This is why I fear they may try to use inflation to make hordes of highly-leveraged fools look smart, while employing the Disraeli “Never complain, never explain” PR strategy.
I highly doubt that the Fed can inflate the problem away without causing the dollar to crash (and taking most of the global economy with it). Given the choice between seeing a real estate market crash or global financial collapse, I can’t see the Fed choosing the latter.
To put it a bit more cynically, the 99.95th percentile of wealth in the country would prefer seeing tens of thousands of foreclosures rather than a collapse of the US dollar. For the most part, they’re creditors, not debtors, and generally distaste inflation. They’ll use whatever influence at their disposal to steer US fiscal and monetary policy away from inflationary tendencies.
A lot of households (and lenders) are going to have to take their lumps over the next 2-3 years. Its going to be ugly, but it has to happen. There’s just no viable alternative.
Walt,
Are you sure the choice between a real estate market crash and global financial collapse is mutually exclusive? Or might there be a middle way, consisting of stealth inflation (remember, for example, that home price increases are not inflation, because homes are assets, not consumption goods) coupled with manipulation of T-bond yields to hide the bond market’s natural reaction to inflation concerns? Just wondering…
“stealth inflation”
Wouldn’t that have to translate to wage inflation to even make a dent in affordability (sans price drops)? Not gonna happen with outsourcing and insourcing…now-a-days, they are even outsourcing mediacal diagnoses…nowhere to run, nowhere to hide.
(that should be “medical”)
arroyogrande –
Thanks for assuaging my inflation paranoia! I truly have a hard time envisioning any way for the Fed to create stealth inflation in order to save the housing bubble from near-term implosion, but I nonetheless have a deep-seated fear that they may be seeking some kind of easy way out. Not too many Fed chairmen were made of the fiber that Paul Volcker was made of.
Hud foreclosures dried up sometime ago in California and are still not back….I’m starting to think the low unemployment (if CA) is what is keeping alot of folks afloat.
Those guys made a killing on that trash they couldn’t get rid of it fast enough
My wife and I have been having the employment conversation now for a couple of weeks. What we are wondering now, is hwat will happen once all of the illegals dont have construction work anymore? Then what will places like CA, FL and AZ look like from a recession standpoint. There is already talk of many industries starting to exhibit slow sales. I think the timebomb is fastly approaching for places like CA. its going to get ugly. High crime, rioting, etc.
I think the timebomb is fastly approaching for places like CA. its going to get ugly. High crime, rioting, etc.
—————————
You’re not alone in having this concern.
Hey and OJ’s back in the news, flashbacks to the early 1990s.
“All things being relative, we would argue that 38 trustee sales advertised over five days does not a panic make, let alone a ’spike,’ and we certainly hope Mr. Beckmier’s invitation is not a veiled inference that either lenders or real estate brokers are primarily responsible for this market ‘adjustment.’”
Oh, yeah. Adjustment allright. Check out this graph.
http://www.sddt.com/Finance/EconomicIndicators.cfm
Enter 1982 as start year. You’ll see that we are adjsting just like in 1990, except faster and from a lower starting point.
And it’s “implication,” not “inference,” for the idiot REIC-dude’s benefit.
Great chart… thanks
“All things being relative, we would argue that 38 trustee sales advertised over five days does not a panic make, let alone a ’spike,’ and we certainly hope Mr. Beckmier’s invitation is not a veiled inference that either lenders or real estate brokers are primarily responsible for this market ‘adjustment.’”
Signed: Danny Savant and Andy McIntosh who operate a real estate and property management company in Temecula.
Well there you have it folks…………”Real estate agents and Lenders” two of the main players in this whole mess claim they are without any blame…………..WTF
http://www.sdlrealestate.com/
Check out Mr. Savant’s operation…no wonder RE in SoCal is so out of hand.
I just can’t believe what an idiot Savant is.
clever dude
Gotta love the 1999-styled website with the midi playing in the back.
“Visitors to our office may recognize young Jenny McKnight as our former “Director of First Impressions”, or “Receptionist” in the boring universe. After three years as the team’s center guard, Jenny obtained her real estate license and moved to a sales desk under the wing of her grandmother Carol.”
Bwhahahahahahaaaahhhahhhha….hold on…I can’t stop laughing….
UM…. may i raise my hand and ask why dont you get 2 or 3 roomates you have FOUR bedrooms.
Maybe not what you had in mind for your ‘Dream House”, but untill you make a lot more money and find a wife that does too, i dont see any other option…… DO YOU?
==========================
The bachelor, who has landed a new job with an annual salary of about $68,000, said he doesn’t want to sell the four-bedroom house he calls his ‘dream home.’ But he said even with a roommate,
LOL. I thought it was only women who married for a paycheck.
Is it just me or the words “Dream House” and “Montclair” don’t go together?
Ha, good call. I think Idiot Savant is confusing “dream of owning a house” with “dream house”.
Oops, meant Spanos…
LOL ockurt.
Hell no! I know MANY successful women who have dudes after them because they are meal tickets. But that is not the issue. It is that they are too dumb to tell these barnacles to fvck off….
Sure. we tell them to go away. They’re called ex-husbands >; )
I just can’t stop laughing at this post. Lol. . Does everyone just get on the bus without knowing where it’s going?? Now you can keep trying to change seats on the Titanic but you know where you are going.
Just rearranging the deck chairs here on the Titanic. Nothing to see, please move along toward the back of this ship.
Also, I don’t get a bachelor with a 4BR house. I wonder when he bought the house - was it recently (so he’s a speculator) or was he married before? Or does he want to marry a Chinese chick? (they often give extra points for having a house).
WTF? Some of the rednecks who turn up on this board really floor me.
i wish there was a blog for “real estate bears that think they are really funny and dream of being screenwriters”….it would clear this blog of alot of trash posts.
Definitely. What Ben’s blog needs is more bores like you. Better than sleep-eze…ZZZZZZZZZZZZZZZ!
I hate to say it but having a house is WAY up on the priority list of most Chinese parents, if not girls themselves. In China, that is. My girlfriend’s father thinks my not having an overpriced Chinese apartment means I am not mature enough for his daughter, although he wouldn’t outright say this to me.
I know his comments were said in a pretty messed up manner, but they are true.
While we’re stereotyping, let me chime in with my in-laws. Korean. When my wife and I said we were looking at houses in 2005, they said, “Oh no, don’t buy a house now, everything’s overpriced. Wait a few years, you’ll make out a lot better.”
Their sentiment matched our feelings as we were actually seeing prices, DOM, and whatnot. Anywho, that’s what prompted me to do some research into this, and what led me to this blog.
So to get back to the stereotyping - housing bears, marry a Korean, not a Chinese person.
Look a redneck!
LOL!!!
Good point, Richard Allen, about Mr. Spastic needing 2 or 3 roommates. As of two years ago, I was living in Pasadena CA, two blocks from the Ritz Carlton, with three roommates. Cheap that way. Then what happened? They all insisted on buying houses. Oh okay, I bought one too. But sold it this summer in an appropriate panic. Anyway I am sorry they broke it up. Will be hard to reconstitute with civilized people. This time, though, I suppose I can advertise with some line like “Unite against the housing bubble!”
azl, that sounds close to San Marino?
Very near San Marino
“Dream House”?
A $5000 MO Mortgage is a nightmare on 68K a year.
I assume this guy just took a big chance hoping to make some easy money on the way up, and ended up losing his shirt on the way down. There is no way I would be willing to risk it all on a single shot gamble!
Dream House = I own it (as in, NO MORTGAGE) + easy to clean. Forget the 2000 extra sq ft, the granite, all that tile and yucky grout and stainless steel that scratches and pits. I have one that is all mine in 60 days, nice and cozy.
I have one that is all mine in 60 days, nice and cozy.
——————-
Congratulations! (I agree about easy to clean…)
Speaking of overpriced California real estate, the article presented by CNN and noted in Ben’s blog last weekend about the young couple in Visalia who wants to move back to the East coast:
http://money.cnn.com/2006/11/17/real_estate/help_Basile_Neuffer/index.htm?postversion=2006111709
Well, I found their house:
http://tcmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Kaweahmls&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N213223995,-N45096,-N,-A,-N3317782
Purchased last year and they still expect to make a $40K profit, while similar homes in that subdivision are $20-30K lower even now.
Even more interesting, according to the Tulare county assessor,the house was purchased only in HER name, and being that they aren’t even married, what are the odds the two will split up over the house? Or just decide to move back East and conveniently “forget” about the house? After all, only her credit would be trashed.
Good to see the guy getting out alive for once
The builder is offering about 70k worth of incentives over the Neuffer/Basile estate, for 324k, so they are still about 100k away form selling at the current inflated market price. This is sadly amazing how the next generation of GF’s can’t even comprehend what is going on, as it unfolds right before their own eyes.
Don’t worry, “The Worst of the Housing Bust Is Over”:
http://www.voiceofsandiego.org/articles/2006/11/20/survival/903wsj.txt
I’m glad I don’t pay to read WSJ.
“While 20 economists predicted home prices would rise next year, 24 forecast a decline. Just eight of the economists forecast gains greater than 2.1%, which is their average forecast for consumer-price inflation through mid-2007. The Ofheo index, which is closely watched by economists, has never posted a year-to-year decline.”
“Of the forty-nine economists who responded to a monthly Wall Street Journal forecasting survey, 65 percent believe the worst of the housing bust is “behind us,” while 35 percent believe the worst is yet to come.”
Think back to college. Who became economists? At the UofW it was the people who couldn’t hack engineering, law, or medicine. Not exactly the “cream of the crop”.
Goes a long way explaining why the stock market behaves the way it does….
And what were these geniuses predicting a year ago? If you want to know what’s going to happen next year - listen to people who got it right for this year. Yes there were a few.
Speaking of overpriced California real estate,
The story highlighted in CNN/Money and referenced in Ben’s blog this weekend, concerning the young, unmarried couple in Visalia trying to move back to the East coast:
http://money.cnn.com/2006/11/17/real_estate/help_Basile_Neuffer/index.htm?postversion=2006111709
Well, here is the house:
http://tcmls.rapmls.com/scripts/mgrqispi.dll?APPNAME=Kaweahmls&PRGNAME=MLSPropertyDetail&ARGUMENTS=-N213223995,-N45096,-N,-A,-N3317782
But they may not be as dumb as they look. According to the Tulare county appraiser, the house, bought last year, is only in HER name.
Thus, what do you wanna bet that the two pack it up and leave anyway, without selling the house? Either the two will split up over this or, more likely, with only her credit trashed, the dude can still buy another house back east, given they weren’t married at the time of the purchase.
Beautiful. Incidentally, a check on the Tulare county MLS shows that there are several identical houses in their neighborhood for $20-30K less than their asking price.
BearCat, you are the Michael Richards of housing bubble blog, idiot.
Sorry for the double post.
http://www.mortgagenewsdaily.com/11202006_Housing_Market.asp
“Housing Starts Dive But Builder and Buyer Confidence Are Up”
Looks like NAR has been passing the bottled optimism around (or is it glue they are sniffing?):
“But while builders appear to be pulling back in actual building activity, their confidence seems to be rebounding. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) gained two points from the October survey and is now at 33.”
Wow, from 31 to 33. It’s like saying “I’m drowning, but the water is nice and warm….”
“Perceptions of current sales moved one point higher to 33 while the component gauging expectations for the next six months was up four points to 46 and perceptions of buyer traffic improved to 26 from 23.”
”
NAHB President David Pressly said, “More and more builders are seeing light at the end of the tunnel. Our members are telling us that the market is steadying after a significant downward correction. On the demand side, we look for sales to stabilize and gradually move up in the coming months. With builders continuing to offer significant sales incentives and affordability on the rise, home shoppers have greater opportunities today than they have had for several years, making this an opportune time to buy.”
A second NAHB survey released this week indicates that Americans have not lost confidence in housing as a worthy investment.
A survey conducted by RT Strategies between October 26 and October 29 showed that 81 percent of homeowners believe that the homes will increase in value over the next five years compared to 13 percent who thought values would decline.”
“The poll clearly debunks the more sensational media reports speculating on the demise of the housing market,” said NAHB President Pressly, “It is interesting to note that other polls conducted by major news organizations have come up with similar results, indicating that despite the current housing market downturn Americans resoundingly believe that buying a home is the best investment they can ever make.”
“Wow, from 31 to 33. It’s like saying “I’m drowning, but the water is nice and warm….””
I don’t think the water got any warmer. I think you just pi$$ed yourself. That would be similar to what the builders are doing. Except for Bruce Karatz that stands to get rewarded with $175 for backdating stock options to himself. Blow up Corporate America and salt the earth where it once stood.
“George Guerrero, a real-estate broker and housing commissioner for San Bernardino County, said he has seen people with option ARMs lose up to $55,000 of equity in a year. He said some of his clients who are selling their homes to escape option ARMs ‘will walk away with almost nothing’ after they pay off the mortgage and commissions and sometimes penalties for paying off the mortgage early.”
And this is unique? How many option ARMs are going to hit their equity caps in 2007 and 2008? I’m not thinking many will try to pay a normal mortgage. Heck, most wouldn’t be able to.
Did everyone else notice that the “clack clack clack” noise has subsided? Wait… we’re starting to accelerate. Put your hands up. This is only the start of this roller coaster!
Neil
Does anyone know if you can get a good deal on “Bank Short Sales” that are in foreclosure or not? Do banks let these go at 30 or 40% below market value or would they rather take the property back as an “REO”? In my area I have noticed a number of properties listed as “Bank Short Sale” and it says make any offer.
Way too early in the housing bust. The banks are as delusional as the FBs for the most part.
Wait until the regulators are squeezing the banks, years away in all likelihood.
Get to know the asset managers at your bank. At this stage they will try to sell at 100% loan value for two reasons:
1) they wouldn’t have made the loan if they thought the bottom would fall out of the market
2) hedge funds & FCBs are still buying structured mortgage products
As long as defaults stay low lenders make capital gains writing mortgages and selling them in pieces to these buyers. So they have a vested interest in not selling below loan value. Until the first bank blinks then its a free-for-all. My prediction is if housing doesn’t make a remarkable comeback in the spring, then banks will start hitting bids.
I hate to plug the loser’s blog, but over on iamfacingforeclosure.com Casey has written extensively on what he’s trying to do with short sales. Take his Larmont Drive property. He owes ~$340k on the two mortgages and is petitioning the lender to accept a short sale for $220k.
Good deal? At first blush you might think so, given that he got $330k in financing for it earlier this year. But keep in mind that he stole $50k at closing, so really that sale price is more like $280k. If you look at the pictures (and his own description), you’ll see that its not livable without at least $20k+ in renovations.
So the question is whether the property is even worth $240k (the $220k that he’s trying to get the short approved at plus $20k for repairs). Living about 15 minutes from that house, I’d say no chance in hell. Given the high-crime neighborhood and poor schools, I wouldn’t pay more than $150k even if it was in move-in condition (the property sold for $170k in 2003). FWIW, I believe that Casey claimed that $150k was the offer he received from a well established Sacramento real estate investor (but the bank rejected it).
REOs will be good deals in a couple years after the market has reached its bottom and banks are trying to sell them at 60-70% of their market value (at that point in time) to get them off their books. Unless you can find a bank that’s willing to take thirty or forty cents on the dollar right now (highly unlikely), you’re best off waiting until late 2007 at the absolute earliest.
I bought an reo once…agent had (imo) underpriced it (alot). Buying an reo (bank owned property cuz no one bid for it at the courthouse sale) can be a great deal (if you knew the bottom of this bust)..if you do decide to buy an reo just lowball it if its overpriced…..eventually an offer will be accepted.
“While listening to the radio in the summer of 2005, Mike Spanos heard a commercial for a mortgage promising a 1 percent interest rate for three years. ‘I thought it was a great deal,’ said Spanos, who had lost his job and was looking for a way to cash out money from his home to live on.”
It sounds like the BLS may have to create a new category of unemployment: Discouraged homeowners.
“In San Francisco, prices and sales appear to be falling. ‘I see price reductions, and homes selling below the asking price,’ said (realtor) Naomi Glass.”
I see debt people.
Falling to say the least. In one prime area near SF, I’ve noticed several high end homes reduced between 15-30% already. A lot of this has been hidden by relistings, but once people scratch the surface they’ll see what’s going on.
SF Has lots to fall. If you look at low an high end its due for big correction. Way too many +$1.0-1.5m victorians that were going for mear $200-300K 10 years back. The economy here isnt booming enough to justify these increases. Am I missing something here?
A couple of houses I’ve been watching in San Mateo, CA around Polhemus have had the dreaded “Reduced Price” sign added to the signs outside. Of course, they still have 7 figures in the price.
I see greater fools catching a falling knife
I bet that area will be hit last, as people will prop up the prices by thinking that SF RE can never go down.
“In San Francisco, prices and sales appear to be falling. ‘I see price reductions, and homes selling below the asking price,’ said (realtor) Naomi Glass.”
Does this mean people who already bought from her should be quiet and not protest? I know it’s not wise to throw stones when living in Glass houses.
Naomi talking!
“I see debt people.”
My next T-Shirt slogan.
And few adept people. Yet.
The Beckmeir guy (the hype realtor) in Temecula misses, as ALL these realtors do, the BIG elephant in the room.
INCOMES WHICH ALLOW PEOPLE TO PAY THE MORTGAGES! Jeeez. When are realtors going to stop chewing those magic mushrooms, pull out of their hallucinations and realize that (A) The 1% mortgages are history. (B) A little $5 calculator will tell them the TRUE numbers don’t add up even BEFORE they add in the taxes, repairs, insurance premiums and all the other incidentals that go along with house ownership. (C) Coming down the line are laws which are going to put a crimp in all the scams we have seen taking place as the government is forced to react to the flood of law suits which will start to arrive on the horizon against realtors, appraisers, fly by night mortgage brokers, builders, etc.
It IS going to happen as sure as the sun comes up everyday. We can look forward in the next few years to Washington hack politicians holding hearings and meetings and looking stern faced and responsible (joke) as they question the scam artists………then putting laws into force to, “Protect hard working Americans from these predators.” The usual sound bite crap they come out with.
As for the property market itself. It’s trending down. It will bounce around up and down on it’s journey to the bottom with the realtors (like the moron in Temecula) proclaiming that the “bottom is in”.
Personally, I figure 2000/2001 prices will be somewhere near the bottom IF (I repeat IF) there is no recession in the next 2 years. If that happens, depending on the severity if there is one, all bets are off. Also, interest rates. The USA HAS to attract billions of $$$ in foreign investor money every day. If another country like the UK or Japan offer a higher rate of return, the foreign investor will go there and, at the moment, in the UK for instance, they are slowly raising rates. Not lowering them. It’s called competition and the US dollar is no lnger the be all and end all of strong currencies so foreign investors will go where the best returns can be had.
Mike says:
You are definitely on to something here. People in the RE industry, as well as specuvestors, keep saying that the fed can just lower interest rates if there is a recession or significant slowdown. They view RE and our economy in a vacuum.
But we will have to raise rates to keep people buying the dollar. Australia is doing it and it’s hammering people who want to refi out of toxic loans - but the gov’t is doing it anyway. The fed isn’t going to step in to save FB’s, it’s going to step in to save banks and the dollar.
This scenario (amoung others) is why I do not believe the fed can drop rates in 2007. In fact, there is a risk of a rate increase. If the US losses those billions of loaned dollars, this economy will slow and quick.
I’m guessing as to the price drop… but its all going to be price/income in the end. Expect an undershoot. People are going to be scared to buy real estate in 2 years. The question is not if there will be a rout but for how long…
Doesn’t matter. We’re now in the dead season. We’ll have new information after the superbowl.
Neil
Right on. As a debtor nation we can not dictate to the world interest rates. We are operating on our historic momentum. When Russia got into debt trouble in 1998 their interest rates had to rise to 80% to defend the ruble. They were once a super power. When Argentina had the same problem in 2001 their rates went to 30%. In 1900 Argentina had the highest per capita income in the world.
Bank CD’s under $100,000. are one alternative. You can lock in a decent rate and if market rates go sharply higher walk away and reinvest with a small penalty. FDIC insured as well.
Here comes defation.
Also, interest rates. The USA HAS to attract billions of $$$ in foreign investor money every day. If another country like the UK or Japan offer a higher rate of return, the foreign investor will go there and, at the moment, in the UK for instance, they are slowly raising rates. Not lowering them. It’s called competition and the US dollar is no lnger the be all and end all of strong currencies so foreign investors will go where the best returns can be had.
Good post and I agree with everything that you’ve written. Just to play devil’s advocate, the one thing that the US has going for it is that (for the most part) the central bankers of other countries tend to rational, self-interested actors. They understand the complexities of international finance and the vital role that the US dollar plays (indeed, most reserves are held in US dollars). To that end, they understand that a collapse of USD can potentially injure them more than the marginal benefit of pricing the US out of foreign investment. In such a case, its possible that central bankers can craft of solution to gradually wean the US off its foreign investment addiction (both private and public debt) in a way that avoids a devastating global financial crisis. I strongly suspect that we’re already too far deep in the hole, but smarter people than me are working on the problem.
The x-factor is the decentralization of currency trading. As we saw in the late 1990s with Thailand, private investors can steer (or crash) a currency despite the efforts of central bankers. Their actions could derail even a well designed, coordinated, and executed rescue initiative by the quasi-governmental agencies.
” I strongly suspect that we’re already too far deep in the hole, but smarter people than me are working on the problem.”
Sorry Walt…have to disagree. I think YOU are smarter than the idiots “working the problem”.
“Personally, I figure 2000/2001 prices will be somewhere near the bottom IF (I repeat IF) there is no recession in the next 2 years.”
Great post, Mike! BTW, did you look over the raw data on past RE busts and recessions I put in the bits bucket? Because unless this time is different, we be in a recession sooner rather than later…
“we will be” … I didn’t mean to slip into Ebonics.
To conjugate the verb be…as in I be, we be
GetStucco
Yes, I read that post and I can tell you one thing foir certain because I’m an old fart who has seen it all many times before….It’s NEVER different this time. That said, you WILL probably see these current prices again but not for 15 to 20 years.
Agree with your time line. And these prices if inflation adjusted we may see never again.
Personally, I figure 2000/2001 prices will be somewhere near the bottom IF (I repeat IF) there is no recession in the next 2 years.
No recession? IF (I repeat IF) pigs fly.
My brother in law works at Texas Instruments and he says this is the first year they’ve ever shut down the day after Thanksgiving. Things are slowing down
agentjmf says:
“i wish there was a blog for “real estate bears that think they are really funny and dream of being screenwriters”….it would clear this blog of alot of trash posts.”
I’m sure others posting here will not judge you by your posts, so come on man get with the program and lets see what you can contribute to this blog and the topics being discussed here. A bit of advice in football terms………play the game not the man.
‘Despite a cooling housing market where prices have fallen slightly, affordability continued to worsen in most California markets during the third quarter of 2006,”
—————————————————————
this could continue even with prices continuing to fall, as lenders tighten standards. The credit crunch that alway follows a credit bubble will make even much lower prices unaffordable to the average buyer.
Yes, that’s why cash will be king.
Good post mike .
“‘Underwriting standards have gone down because everyone was trying to get their share of the market,’ RealtyTrac’s Rick Sharga said. ‘You can’t absolve the home buyer from all guilt either. If this is the biggest investment you will ever make, shouldn’t you understand what you are signing?’”
This is where I beg to differ with apologists for the unscrupulous lenders. The rules of the game changed a great deal in ten year’s time, and nobody in the lending industry seems to be making much of an effort to publicize the fact that the risk has been transferred out of the hands of the lender and onto the laps of the borrower and the buyer of the loan. Buyers will naturally tend to assume that a lender would not offer them a loan they have little-to-no chance of ever repaying.
Not apologizing for lenders but… Last year I was “approved” for a jumbo loan that would’ve required me to pay over 40% of my income in PITI. I looked at my finances and decided that it was not worth it. Are some lenders unscrupulous? Sure. And some are preying on the elderly/unsuspecting as well, which is horrible. But the majority well… People wanted to get rich quick. The lucky/smart ones did. The others we’ll be hearing more about as this unwinds. I took the time to learn about and understand what I could be getting into. Anyone who didn’t do the same is just plain foolish IMHO. This will be a learning experience for ‘em…
How does lame duck president play into the interest rate senario? I imagine when you have lame duck you may need higher interest rate to support dollar.
But I thought the Fed was an independent agency, completely immune from political pressures and only interested in the wellbeing of the economy and American people as a whole.
I don’t think the status of the presidency really matters all that much. For most of the 21st century, the Fed will either have to continuously raise rates (despite what it does to economic growth) to support the US dollar. At some point in the near future (within 20 years, I’d wager) the Fed will find itself in a no-win scenario. Ultimately, both a rapidly receding US economy or a collapsing US dollar will trigger the same cataclysmic event: the collapse of the global financial apparatus. So the fatalist in me says “It doesn’t really matter how we get there if the destination is the same.” 2020-50 (give or take a decade) are going to be some really miserable years.
Just in time for the baby-boomer retirement years!
Sure, and the baby boomer retirements only further frustrate any effort to realign US production with consumption. My head hurts whenever I give this subject any serious thought.
How about efforts to align the distribution of new home production with the needs of baby-boom empty nesters? Does everyone want to maintain a McMansion into their golden years?
Given the financial assets of the average boomer, and factoring in the coming decline in house prices, I think the outlook looks good for cardboard box producers.
lol
At some point in the near future (within 20 years, I’d wager) the Fed will find itself in a no-win scenario.
20 years? They’re there now! They are effectively paralyzed, knowing every move is a wrong one.
Sure, it’ll take another year or two before the SHTF big-time, but your cataclysm is only 5 years away at most.
Changes in median price measure changes in market activity. When there are more buyers buying less expensive homes than there are buyers buying more expensive homes, the median price falls. Conversely, when there are more buyers buying more expensive homes than there are buyers buying less expensive homes, the median price rises.
The median price indicates which price range is most active. Not all price ranges experience the same market activity at any given time.
Walt I couldn’t agree more! This one bubble after another bubble with a debt-driven, consumer economy that has a widening gap between the classes and so many idiots in the game can’t continue forever. At some point the gig is up. When that happens look out!
But doesn’t the prospect of a bad ending give our economic policymakers every reason to try to prolong the party as long as possible? So I would guess the gig will not be up until the options for prolonging the party are exhausted. Are we there yet?
That’s why I think Walt is close with his 20-year prediction. I might go a little longer, like 30-40 years, since we have all seen just how resilient the American Joe Sixpack consumer can be. What will finally do in this economy is when the global market is exhausted by US/worldwide companies (i.e. no more widgets can be sold to anyone because of too much personal debt and/or no one wants/can afford the crap) and the dollar is no longer the world’s reserve currency.
They have been prolonging the “party” of fiat paper currencies for over 30 years now. No one knows the exact time of the end, but I don’t think it can be postponed very much longer. Certainly not 50 years, and I’d be very surprised if it lasts another 20 years.
OT…….but a good read.
http://www.atimes.com/atimes/Global_Economy/HK21Dj02.html
Bay’s Housing Boom More Like Belly-Flop.
http://www.theledger.com/apps/pbcs.dll/article?AID=/20061120/NEWS/611200384/1004
“The bachelor, who has landed a new job with an annual salary of about $68,000,
I wonder if his new boss reads this blog.
In Merced over the weekend, and the developer signs are everywhere. I wish I had a camera to show you all the compelling offers: 40K off, 40% off; in the 100’s.
I think many here are missing the significance of the Spanos story. Six months from now, most people in this country are going to know at least one Mike Spanos personally. Which is to say they’re going to know someone who they thought was smart and successful who suddnely had his or her life wrecked by virtue of being a homeowner. Not a flipper, not a speculator — just someone who fell into the trap of the kind of home ownership that the REIC has promoting for the past five+ years. Because they’re friends with or related to this person, they’re not going engage in a lot judgmental discussion about whether he or she deserved what they got. They’re simply going to say: “Wow, if that can happen to Mike, it can happen to anybody. Homeownership can really be a trap.”
This is what will turn public perceptions about real estate around, and take the irrational “sure-fire-investment” premium out of home prices. This process has already started — and it’s irreversible.
“This process has already started — and it’s irreversible.”
David Lereah has suggested that price appreciation would get back on track next year after a shallow dip. And wouldn’t the Fed rather have more housing inflation than catching flack for a nasty recession?
Is it time to buy the dip, or time for dips to buy?
It’s time for the dips to wise up — and they will. Homes will be priced as shelter, and shelter is a commodity. This is entirely appropriate because the McMansion crap that the major builders crank out is nothing more than a commodity, and certainly not a scarce one.
A book that many should read is the Two Income Trap. I don’t agree with all the solutions proposed by the authors, but they make an interesting case. So many people and families are relying on that 2nd income that when things go bad, there is no where to go, but into debt. This is what is really going to finally knock out the steam…no where to turn t keep making all the payments. When families are using 2 paychecks to cover 60-65% or more for housing, there is going to be some whiplash when things get tough, i.e. mom get seriously sick, can’t take out that second for junior’s college education because we already did the HELOC 15 years ago and the house doesn’t have enough equity for the third or a new first and second. While the bubble is slowly starting to pop, this things is going to take a good 5-10 years, if not 15 to finally shake out.
I’ve heard about this book and it’s on my list to read.
Yes, I agree that the shake out process will be lengthy, but I think many will be stunned by the “progress” (toward reality) we’re going to make in just the next six months.
The two-income household represents the desperate nature of America’s middle class to, well, stay middle class. Since the average 40K per year just doesn’t cut it anymore, why not go for 80K. Sad truth is, even 80K doesn’t go very far. The social ramifications are far reaching. Families become stressed, overworked. Kids are parented by the television and video games. Teens find it easier to have sex on their parents’ vacant king size bed. And to make up for not spending time with the kids, the parents blow the extra 40k on toys and dinners out - not to mention babysitters and commute costs, which are added to normal expenses. However, some two-income households are formed for the desire of luxuries, and not just necessities. Why have an 80k household when you can have 160k? …unless that still just isn’t enough…
At my daughter’s elementary school (Scottsdale, AZ), there are quite a few kindergarten children that can’t read very well and/or do their basic counting. In one case, a young boy is filled with rage, while his parents are divorced and the mom leaves him with a nanny and she goes all over the Southwest with her VP job. I almost fell over when my wife (who helps out in the class once a week) told me that the kid cant read/spell. But the dad drives an acura NSX and the mom I think drives a Hummer.
Its amazing how the parents sacrifice the kids for a nicer car and home (because it may take two incomes).
I dont think people understand that looks and popularity dont cut it too much anymore. You need to be able to produce in the global economy. I saw this coming a few years ago and I told my wife then that I was always going to make sure that my daughter could do readin, writin and ‘rithmetic. She is very attractive (blonde, blue eyes) and I dont want her to go through her youth years thinking looks can get you by. I saw a lot of that in the OC and at USC, and now I see it in wannabe OC (Scottsdale). But I think these people are in for a rude awakening. I’m black and I never had the luxury of getting by on Dad’s trust fund or on my great smile.
Excellent post, as is OCDan’s above.
I now make 75% of what I used to make a few years ago, yet I’m saving more money than I did before (not to mention am more relaxed and happier). When I was working more, I spent a lot more to compensate for extra hours worked and for having less free time. So all the extra money I made - and more - was just spent wastefully: eating out in expensive restaurants; entertainment; etc, without much to show for it.
And my wife and I will buy a house when we can afford it on my income alone - which we should be able to as I make a decent income as is. And my job is recession-proof, while hers is not. She makes a decent income also, but we’re not going to count on it for basic expenses.
4shzl
“Six months from now, most people in this country are going to know at least one Mike Spanos personally.”
You’re nailed it.
if lereah and the economists that are the saying the housing market has bottomed out, were on board the titantic, they would be saying, “goods news, folks, we won’t be hitting another iceburg”.
Lots of 4BR+ homes in SD are listed at $440K and under. Seems like last time I checked (maybe six months ago), the lowest wishing price was over $500K. That is a pretty hefty drop…
I’m thinking 2007 could be your “shock and awe” year. You know, -25%. $330K still sounds like a lot of money for a nothing-special tract home in smoggy, overcrowded SD. The San Joaquin valley ultra-bubble hotspots should drop even faster.
Three words tonight…….Housing Occupancy Elasticity:
People, how many homes are 25% occupied like Mike Spanos’ house? I submit it is a large percentage. In 2005, I saw many articles saying we can not possibly build homes fast enough in CA to meet demand. It seems we were building 250,000 units and needed 275,000. Well, guess what? In a declining economy, when times get tougher,the Mike Spanos’ of this world all get together and live in one house. Three others go vacant, putting 12 bedrooms on the open market.
I saw this happen in 1990-1995. There is huge hidden vacancy, just as you see here with Spanos. And even if there is no further degredation in the economy, Spanos will be forced to double up or give up. Either way, the household occupancy increases and something else gets vacated. Imagine what happens with rising unemployment, higher interest rates, a terrorist attack, a declining stock market, dropping retail sales….any one of these events will tank us further. And two will send us into the tail spin.
You are absolutely right about this. Culture adapts to economic imperatives. It always has, and it will again. And why not — don’t we all want to live like Will Ferrell in “Old School”? ;>)
To push your point a step further, reflect on all the second, third, and fourth home buyers in CA and neighboring states who planned to become McMillionaires on big home-equity gains earned by owning multiple properties with ever-inflating market values. If these guys suddenly become convinced that their McEmpires are turning into financial quagmires, the perceived shortage of housing to meet CA’s fundamental needs could vanish in a heartbeat.
“While listening to the radio in the summer of 2005, Mike Spanos heard a commercial for a mortgage promising a 1 percent interest rate for three years. ‘I thought it was a great deal,’ said Spanos, who had lost his job and was looking for a way to cash out money from his home to live on.”……“The bachelor, who has landed a new job with an annual salary of about $68,000, said he doesn’t want to sell the four-bedroom house he calls his ‘dream home.’ But he said even with a roommate, he can’t afford to boost his monthly payment from $3,034 to $4,985 to cover the interest or to $5,334 to start paying interest and principal.”
Now, please tell me that I’m wrong, but the way I read this, it looks like this guy was able to get this loan *without a job*. In the summer of 2005, he had JUST lost his job, correct? His plan was to live off his house, but, of course, that backfired on him. Fast forward to the new job that he landed, and he still can’t afford to stay in his house.
So, let’s go back to the first part. Can someone tell me how he got that loan with no job??? Did I misread something??
BayQT~
“No job - no problem…step into my office…we’ll fix you right up…”
Given the right set of circumstances, it could make sense for someone to tap into their home equity as a SHORT TERM strategy (ie less than 6 months) for overcoming a job loss, particularly if the alternative is borrowing from their 401k or raking up CC debt. No doubt that 90-95% of people who use their homes as ATM machines are probably doing it for the wrong reasons, but there are certain scenarios where it makes some sense. Although to protect themselves they should only extract a small portion of HE and have strong likely job prospects for the future.
Walt,
I see your point. And your key sentence was the last one. The job market is iffy at best so my guess is this guy didn’t really have the “strong likely job prospects”. But upon reading this excerpt again, he actually refinanced for the cash out, and found himself falling into a deeper hole because he didn’t educate himself before he signed. He was more blinded by the fact that he was going to have a big chunk of money in his hands to help bail him out of his *immediate* situation and didn’t look (or read) further than that…..thus, he wound up with a much bigger problem, even after he found a job.
Lots of problems here. First, he bit off more house than he could handle…then he lost his job….then, he was lured into the voodoo refinance option that he thought would save his life…BUT, he did not do his due diligence regarding the loan he was getting AND he probably trusted that the RE agent told him all that he needed to know. He was desperate and looking for a way out and the agent knew that. This was bad all the way around.
BayQT~