“Those Who Don’t Think They Are In Denial Are In Denial”
The Reporter from California. “Economic growth in the Vallejo-Fairfield metropolitan area will be among the strongest in the region, says a recently released study. ‘Part of the story,’ said professor of business economics Sean Snaith, ‘is housing and the larger trend of this demographic shift from the coastal areas of California, inland.’”
“Much of that migration was driven by the real estate boom in recent years, and though Snaith admits ‘that party is coming to an end,’ he said, ‘by no means is this going to be a bubble crashing.’”
“In fact, the business school likens the housing market not to a bubble, but a souffle. ‘A bubble is something that’s driven by speculation,’ Snaith explained. In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
The LA Daily News. “It had to happen sometime. The median price of a San Fernando Valley house had to fall. Last month it finally did, by just less than 1 percent. And, just maybe, November brought us a glimpse of what the residential real estate landscape is going to look like for months to come.”
“‘We’re kind of right at the price point now that we’re going to have to get used to,’ said John Karevoll, an analyst at DataQuick. He’s neither a cheerleader nor a market basher. He simply interprets the numbers. ‘We’re way ahead of the game. It just depends on how much of the gains we made in the past four years we get to keep. Is it 95 percent, 90 percent or all of it?’”
The Orange County Register. “With the housing boom over, its dark side is coming to light, including fraud. Pam Houchen, the former mayor of Huntington Beach who helped dupe lenders and borrowers in a real estate scam, is a good example of a national phenomenon.”
“Mortgage fraud, ballooned as the housing market heated up, according to government data and industry experts. That’s bad news to the many mortgage companies based in Orange County, because they face losses when fraud involves inflated home prices.”
“Peter Norell, who leads a Santa Ana-based white-collar crime unit of the FBI, said fraud is being fueled by the volatile housing market, an increase in loans available to consumers and the widespread use of automated lending systems. ‘The market is riper than ever before’ for fraud, Norell said.”
“For a seven-county area that includes Orange County, 4,326 suspicious banking activity reports were filed in fiscal 2006, nearly double from 2005, according to the FBI. And the 2005 total was up 30 percent from the prior year.”
“Don Currie, founder of HighTechLending Inc. in Newport Beach, said loan volume is falling with the market, and people who work on commission are struggling to keep up their incomes. ‘A lot of people go to desperate measures to keep their production and lifestyles up,’ Currie said.”
“And more consumers stretch the truth when home prices or interest rates are high, Currie and others said. They exaggerate their income and assets to qualify for loans.”
“Sometimes customers lie when buying a second home; borrowers falsely say they will live there in order to qualify for better interest rates, he said. Currie said the second-home lie contributes to defaults and foreclosures, which hurt the market. In tough times, an owner will default on a second home before his own home, he said.”
“‘It’s probably one of the most rampant misrepresentations that you have,’ Currie said.”
The Contra Costa Times. “Christopher George, (founder of) a San Ramon-based mortgage firm, is on the front lines of the housing market in the Bay Area. The once-muscular realty sector has turned flabby lately. And some home owners are getting unpleasant surprises from their adjustable-rate mortgages as bigger payments kick in.”
“Q What’s your assessment of the housing market in the Bay Area? A ‘We are still in a flat and, in most cases, a declining market. There seems to be more inventory on the market. Most folks are still questioning whether they need to be aggressive in reducing their prices so they can sell their home.’”
“Q Are sellers still in denial? A ‘Those people who do not think they are in denial are still in denial. I think a lot of people have seen the market soften before and have seen it correct itself very quickly. They figure that in a couple of months the market will come back and surge again. But this is different. This is very different.’”
“Q How is it so different? The difference in the housing decline is far deeper this time than it has ever been. Interest rates have gone up. Folks have stopped making multiple offers. This time we see a lot of things that are problematic for the industry. Foreclosures are up, not just in Northern California, but also above the nation. In some cases foreclosure rates here have doubled, tripled, even quadrupled. But the big change is early payment defaults on mortgages.’”
“Q What is happening with these defaults? A ‘They involve people who have defaulted on their mortgage in the first six to 24 months of their mortgage. They can’t pay their mortgage because they did not state their income properly, or their payments have gone up because they had option ARM mortgages.’”
“Q How have all the foreclosures affected the Bay Area housing market? A ‘You have created a whole new reason to depress the market by flooding it with more inventory. This inventory largely is coming from lenders who have these homes that have defaulted. In some cases they aren’t even in foreclosure yet. There s a lot of pressure on home prices right now.’”
The North County Times. “A cooling housing market and recently higher inventories for new homes have caused many new home sellers throughout North County to offer incentives, such as lower prices and fancy vacations, to increase home sales.”
“Incentives aren’t going to matter much to the Silvius family. David Silvius said he knows that he won’t be able to afford a home in North County on his potential salary without significant struggles. David and his wife, Brianna, said they would rather pay $200,000 for a 3,400-square-foot home in Texas now than save for a 3,000-square-foot home worth $700,000 in Carlsbad, regardless of incentives.”
“‘We don’t want to struggle for 10 to 15 years to give our kids a yard,’ said Brianna Silvius.”
Classic line from the LA Daily News! “It just depends on how much of the gains over the past 4 years we get to keep. Is is 95%, 90% or all of it?” - Hysterical!
I live in the valley and a 2 bedroom condo in my building sold for $629K last summer (05) and this spring a 2 bedroom condo was listed at $649K and kept getting reduced until recently it sold for $499K. The kicker was that the buyer got cold feet and walked away from the $499K offer.
And things haven’t gotten really bad yet. Unemployment is still at 4.5% and interest rates are still artificially low. What planet are these people living on?
Add the L.A. Daily News to the long list of completely untrustworthy news sources in the msm.
But this is different. This is very different
One of the truest statements I have seen yet….
But the big change is early payment defaults on mortgages.’”
Bingo. That’s the biggest storm warning. And the ARM resets have barely even begun. True ugliness ahead.
Being a renter feels kind of like being one of the two-legged passengers on Noah’s ark.
“That’s the biggest storm warning.”
Even bigger than whatever is in store when Fannie Mae finally comes clean on its books? Uh-oh…
As Jim Rogers notes in his recent book regarding Fan and Fred.
$7.5 trillion lent against a now questionable asset base.
And “government sponsored” is not the same as “government insured.”
Let the bloodshed begin.
David and his wife, Brianna, said they would rather pay $200,000 for a 3,400-square-foot home in Texas now than save for a 3,000-square-foot home worth $700,000 in Carlsbad, regardless of incentives.”
When David sees what kind of 3400 square foot house he can get for 200K in TX, he may rethink that. You’re talking 35-50 miles from downtown in horrible traffic, in a crappy cookie cutter tinderbox which would blow over in a stiff breeze, with nothing but the local Blockbuster for entertainment.
Good grief. 3400 SF for 200K Not hardly. Not even here in Waco. There are a handful of nice houses in my suburban neighborhood NW of Waco but they are in the 2300 sf range, not 3400. Around here $200 grand will buy you a decent 2300 sf 4 br 2.5 bath 2 car garage house on a large 1/2 to 3/4 acre lot in a decent subdivision. Certainly a liveable house but not anything close to 3400 sf.
I’m with txchick. I got no idea where you have to go to find that large of a house in that price range unless you are talking about older junk in a declining subdivision.
Yall know that housin in taxes is cheap right!
Yep jim ain’t nobody moven thar! yep! Just uh bunch o rednex yep yep. (sarcasm off)
I don’t belive most of the peple in the country truly understand the cost of housing or the economy in the south central part of the country. Sure housing is less than that of the costal areas, but I think they look at some of these web sights that give median household income among other stats and think that they are correct. I went to one sight and it listed the median income in Tulsa, OK as ~ $15,000 per year!!!! WTF!!! Somebody needs to correct the mis-information, now granted the median in Tusla is lower however it is multiples of the $15,000 stated on this one web sight I saw.
About 5 yrs ago (during the .com bust), you could easily buy a nice 3400sqft house for $200k here in Austin. You still could today, but it’s all a matter of location and what everyone calls upgrades. Here is TX, space (not upgrades) seems to be the number one priority when building houses. So it is common to buy brand-new, very-large houses complete with postage stamp lots, $2 globe light fixtures, cheap carpet, $.69 tile, etc. Check out any Austin neighborhood currently being built by Lennar (sp?).
In fact, you can buy a new triple-wide trailer and drop it on an acre plot about 15 miles from downtown for less than $150k easy. For folks who love space, you’ll like TX. If you care about anything else, you might want to look around at other areas of the country.
Californians are moving in droves into my neighborhood. And buying their houses with cash, no less. I live in neighborhood about 25minute drive from downtown Austin. Houses are from 2600sqft to over 5000sqft, lots from 1.5acre to 5.0acre, prices range from 300k to 600k. The Californian neighbors I met cannot shut up about how happy they are to have made the move to TX. I never lived in CA, but I know TX. So if they are so impressed, then CA must be a real hell hole.
txchick, ken:
you both are right, Texas is slightly more expensive than many Californians think (especially when taxes are brought into play).
that said: I have a friend who bought in San Antonio recently for $220,000 and got a 3000+ sq foot house, and she works in San Antonio proper at a school. So it can easily be done.
And also, you have no idea how shitty SoCal (including North County) is. A $300,000 Mcmansion in Texas is SOOOOOO much better and nicer and better built than a $700,000 North County home.
And also, North County is in the middle of NOWHERE. It often takes over an hour to get into San Diego proper depending on traffic. It will take about 1 hour to OC and 2 hrs to LA. (It’s only 130 miles from san diego to la, but it would take me 2.5-3 hours to get to LA if there was little traffic, and up to 6 hours to get to LA if there was traffic).
And despite what people say, North County really only has Blockbuster too. And the ocean that nobody goes to because there’s too much traffic, it’s too hard to get to, and because it’s polluted and dangerous.
In the end, if I were raising a family on a modest income, I would take Tx over SoCal every single time.
When you’re young and raising a family, you don’t need high culture and stuff to do. You need cheap things to do, parks, and safe schools. All the rest is not important. Texas has that (in nicer neighborhoods, but that’s no different than SoCal)
No mention of recession. Market problems are resulting from people misrepresented income or primary residence and / or have an ARM resetting.
We’re going to keep 90% of the gains 2002-2005? What do they put in the water at DQ?
“Not a cheerleader”. LMAO. His very framing is typical DQ REIC BS.
The going rate on a decent condo in the SCV is dropping, from $450K at the peak to $400-415K right now. In 2002 the price was around $280K. so the ‘gain’ peaked at $170K. We’re already down 40% (40K/170K)according to the DQ analyst even-handed math.
The reporter’s complicity in the snow job (representing the pitch as totally without bias) is even more amazing…
Notwithstanding the many voices predicting much larger and long term drops, Mr. Gregory Wilcox reports that “Those inside and outside the industry agree that prices are leveling out…”, without even a hint that anyone might disagree, let alone prominent business leaders and economists.
Yet another shill. {Sigh}
From the Daily News article:
”I would be shocked if prices dip below the $500,000 level. That would take a major turn in the economy, and that’s just not there,” said Jim Link, executive vice president of the Van Nuys-based Southland Regional Association of Realtors.
“I’m shocked, shocked to find there is gambling going on here.”
“Sir, Your winnings.”
Oh… thank you..
Gregory Wilcox reports that “Those inside and outside the industry agree that prices are leveling out…”
Hey Greg, I’m outside the industry and I don’t agree, sorry.
Hate to burst your “bubble”.
Oh wait, no I don’t.
Oops down 25%.
“In fact, the business school likens the housing market not to a bubble, but a souffle. ‘A bubble is something that’s driven by speculation,’
Bubbles pop, souffles collapse, in the end we’re not talking about *if* they have a catastrophic event but how quickly the event occurs.
I’m adding Souffle/bubble comparisons to my list of housing bubble phrases I hate along with the dreaded #1 “Snapping Up”
I think Snaith has ambitions to succeed Leareah as NAR’s “chief economist.”
You know, I kind of like the souffle concept. Once it falls, there’s still something left. It’s not pretty, not what’s expected, it’s not what was promised, and you shouldn’t serve it. It’s a sticky, gooey mess.
Recipe for Housing Souffle
2 part speculation
2 parts loose lending standards
2 parts toxic loans
4 parts excess liquidity
1 part REIC propaganda
6 parts sheeple
Mix liquidity, lending standards, sheeple, and loans into a large economy. Slowly stir in speculation. Whip to a fervor and slowly add propaganda.
Allow to rise, add more propaganda. If it stops rising, add more propaganda, and toxic loans.
Must be served exactly when the souffle is at the top. If if starts to fall, add propaganda, and more loose lending standards.
Chances are that this recipe will fail. It has never been successfully baked in the past.
Excellent! I nominate this for post of the week!
Good one, Backstage!
what if my souffle starts dancing on the bottom of the pan?
Crap, I just sprayed my coffee out my nose and on the keyboard!
That is classic
The big difference is that most popping bubbles simply disappear leaving only a very light splash. On the other hand, a ruined souffle leaves a horrible, inedible mess that requires a lot of work to clean up and may leave the cookware damaged. Regarding the relative unpleasantness of cleanup the souffle comparison might actually be the better of the two. This mess is going to leave a stain.
and the souffle guy neglects to mention that this is the guiness book of records reigning champion for worlds most poofed-up souffle ever baked!
“housing bubble phrases I hate along with the dreaded #1 “Snapping Up”
Mo, I’m with you. I HATE that. And I hate “snag” and “scoop” with equal ferocity. The writers make out every buyer to be home
run hitters. WhyTF can’t they just say “purchase”.
I wonder if the banks are snapping up their foreclosures?
Probably depends where in Texas. Maybe it’s some boondocks small town and they don’t work in a big city. Small towns are nice. I think there are lots of places like that in east texas, san antonio, etc.
What is the SCV?
Santa Clara Valley, aka “Silicon Valley”. It’s in the Bay Area.
~Misstrial
I think he was referring to the Santa Clarita valley in Los Angeles county.
Droves say goodbye to Golden State (and god knows I’d like to be one of them)
http://www.mercurynews.com/mld/mercurynews/16208270.htm
I am not surprised. I enjoy visiting CA, but have no idea how people can live in that smog infested, gridlocked, overpriced death trap. I am happier with a less stressful, slower pace on a day to day basis.
Yeah, I hear ya. I had a conversation w/someone I might have liked to work with out there in L.A. but one look at that rental market . . . forget it.
I replied to your post with some details in the “Fire Sale” post today.
“When the Kansas job came up in early 2005, Brown and his wife, Teresa, sold two Bay Area homes and happily settled in a suburb of Kansas City. They have never looked back.”
TWO houses = TWO mortgages
There’s more to this story than quality of life……..
Actually high tech career is very stressful. If your lucky and land a great gig with great company and management it you get to have a balanced life. But what companies are hiring today as management is a horror story. Makes many peoples lives a nightmare.
I’ve worked in hi tech for years. Only at the beginning of my career, when I worked at a bank, did I have any decent managers. Terrible, pathetic, incompetent, even evil management is the norm in hi tech. Looking back I’ve decided that the “best” managers were actually the evil ones, because at least they were smart. An incompetent manager will not only drive you crazy but is unpredictable. I started a couple of my own companies and that was no solution either as I then had investors to deal with. Of course I had picked them so at least I could fault myself.
This article reflects what we’ve been studying. Latino outmigration is escalating every year, even the latino birth rate is down in dense urban areas such as SF (which has one of the worst child/adult ratios in the nation).
I know some people were predicting that hispanic community was going to save the housing bubble but it’s not going to happen. I can’t wait to see the 2006 and 2007 census estimates. I just wish the USCB would give us raw data instead of “massaging” it before distribution. I’m sure the numbers will be worse then what is released to the public.
BTW, Sacramento, which has a huge slavic population as well is loosing them as well as they migrate to places like North Carolina. Our asian demographic seems to stable thus far.
I think in Sacramento it is getting increasingly difficult to find good workers. A lot of people feel priced out and are moving away.
losoing=losing
On this thread more often wrong than right. We are not illiterate on this site but will appear to be if quoted by the MSM.
I lose money when I let lenders prey on me with their loose practices. Neil, spread the word, please, as you are the most recent and guilty activist. And welcomed for being so active. - : )
Overland Park- I bet he’s going to work for Sprint. That’s fine until the next round of layoffs. Then he’ll find that KC is a one-company town for people with his skills.
“Droves say goodbye to Golden State…”
Hey, I’m one of them. Being a late boomer, I hit the California job market right about the same time as the Arab oil embargo, and a slew of new EPA regulations became law. Then Reaganomics flooded the state with cheap Mexican labor, ushered in high interest rates, and Deep Pockets liability with sky-high insurance rates. OK, back to school for that degree, but now outsourcing is holding wages flat. I’ve spent my life like a surfer trying to catch a wave that’s gone by, sometimes gaining on it, but not quite able to get to the front side of it for a ride. Another problem: simply being honest doesn’t get one far in the Golden state of fancy financial fraudsters and social welfare parasites. Maybe the bursting housing bubble combined with the looming demographic crisis will cause a fundamental shift toward middleclass economic opportunities again.
For now, the bottom line is that it’s simply too expensive to raise a middleclass family in California. Today in central Washington state, I have a modern 3br/2ba w/1550-sqft with a $600/mo PITI ($50k down) all electric central-air home with stable $0.04/kw-hr PUD power, a T3+ fiber optic VPN router with a fixed IP address on my exterior wall for $40/mo, zero revolving debt, actual retirement savings, and mom at home raising the kids.
“Peter Norell, who leads a Santa Ana-based white-collar crime unit of the FBI, said fraud is being fueled by the volatile housing market, an increase in loans available to consumers and the widespread use of automated lending systems. ‘The market is riper than ever before’ for fraud, Norell said.”
Hey, who on this blog is the guy that is trying to expose the scam up in Bakersfield or Sacramento where the buyers bought 5 homes 200K over comps?
You may want to contact this Peter Norrell guy.
Paladin.
I saw this article and I am on it. I will be talking to the reporter too. Thank you, John
My congratulations on your can-do activism. The West in general is mired in abject passivity and you are a hopeful exception. How about taking a crack at illegal immigration next, or rotten politicians, or the nonsense of affirmative action? Just kidding. Somebody gotta do it though. Or we are doomed.
Let me bring you an example of a typical family in L.A. who bought a house in 2005. I know this family through friends. It is a family of five and part of it is on welfare, part is on SSI. They bought a house in Panorama city for $600000 and mortgage is on their relatives name. Head of the family make $3000.0 ( under the table), wife and grandma bring around $1500.0 SSI money, and two kids with father on welfare around $1000.0. They hardly pay their mortgage, and the food comes from the restaurant where the head of family works around 14 hours a day. Lately they got another $100000 equity (?) loan and bought a store in order to make some money, where the disable wife works, and they bought another Mercedes-Bends with the rest of the money. I heard that there are even people who bought houses on their adult kid names, where they live with their section 8 programs, so we are the ones who is paying for their mortgage so they can live there and laugh on us. America is a the GREAT country.
Add your story to the list of frauds going on . I guess the easy money brings out the best in people ,(not).
Your story is the only one so far that I have heard of where a party used some equity to open a business ,(while they of course are ripping off the government with the disability and section 8 claims .)
BFD…the only thing that matters is the commission the POS loan orginator made on that $600k loan.
The rest is irrelevant.
hd74man …I agree with you more than anyone that loan orginators commissions were the driving force resulting in faulty loan packages and inflated appraisals .
actually, it is very relevant. Being able to get about 1/2 of your mortgage pay for by section 8 is not too bad. on top of that they probably received food stamps which covered a significant amount of food or they probably could cashed the food stamps for 75/80 cents on the dollars. cool huh? and the best part is once on welfare and section 8, no one seems to get better…hmmm. I wondered why?…. Almost impossible for the agency to prove and it is in their interest to push the paper around rather than do real work. This is not conjecture. I do know someone who had done this and is still doing it. She and her family is banking something like 2k a month for the last 15 years or so.
Mike
Yea you would be amazed at the number of folks doing this in Los Angeles. Every once in awhile they bust one and the amount of money and services they have been given are always astounding.
Lets not forget that brutal beating on a TV reporter by a RE fraudster caught on tape in San Diego.
Can’t cash food stamps anymore they use electronic cards. I guess they could buy food with the card and sell it. Dry goods mostly I would imagine.
Paying the mortgage with Section 8 payments to their adult children! Ingenious.
And the best part is that the adult children get a tax write-off because the amount of rent recovered from section is always less than the mortgage and upkeep on the rental house. A win/win situation always. Section 8 housing is the ultimate goal for many people (mostly immigrants /or naturalized citizens) as your housing is paid for almost indefinitely…(as long as you have some children in the house). Also on the note about food stamp, you can still cashed out. Just need a small time supermarket that is willing to accept the food stamps, you pay for the food, then give you back a cash refund for the purchase food sans a “restocking” fee.
Mike
Isn’t there a debit card now. How does the scam work.
“Much of that migration was driven by the real estate boom in recent years, and though Snaith admits ‘that party is coming to an end,’ he said, ‘by no means is this going to be a bubble crashing.’”
Is it possible that the collective mass of hot air about no bubble crashing could somehow keep the bubble aloft?
Everyone knows a bubble can’t crash, it pops under stress.
not if its got super-souffle power.
“Economic growth in the Vallejo-Fairfield metropolitan area will be among the strongest in the region, says a recently released study. ‘Part of the story,’ said professor of business economics Sean Snaith, ‘is housing and the larger trend of this demographic shift from the coastal areas of California, inland.’”
Hah! Vallejo is as close to the water as you can get — right on the San Pablo Bay. And Fairfield is part of the Greater Bay Area as well — one of the first towns you reach in the Central Valley as you drive away from Vallejo towards Sac. If it turns out there was no bubble in Fairfield, I will eat my hat.
My in-laws bought a place in Fairfield. For $250K I can almost see why people would buy there- almost. But at 750K? HA. There is still empty land everywhere.
If Fairfield doesn’t drop at least 60% I’ll be shocked.
Just like the ripples of a stone dropped in water, the areas adjacent to bubble epicenters have been puffed up similarly. We all see it in the major bubble areas across the country. Any city within even mildly insane commuting distances are affected by the ripples.
However, the prof is probably correct in that Solano County’s ability to sustain higher real housing prices has increased over the years because of the economic growth in the region.
Does that mean there isn’t a bubble? No. The wealth in the region has grown over the years, but all that means is that the bubble $ amounts change, not the presence of a bubble itself. Anybody can pay way too much for an asset even if its fundamentals are good.
(And what makes people think that a souffle is some sort of soft landing anyway? What cook here, at some point, has made a souffle which deflated in a hurry and left you with an inedible mess?)
David and his wife, Brianna, said they would rather pay $200,000 for a 3,400-square-foot home in Texas now than save for a 3,000-square-foot home worth $700,000 in Carlsbad, regardless of incentives.”
Two years ago a gent working in Salinas for a national company asked a got a job transfer with a promotion to Texas for the same reason. He and his wife are now divorced, and he quit his job since they wouldn’t transfer him back to CA. He came back, moved in with mom and dad and hopes to get picked up by his old company now that he is back. Meanwhile he can get on the CA unemployment roles.
He and his wife are now divorced
Yup, nothin’ like a good ‘ole divorce to upset the financial applecart.
Yup, nothin’ like a good ‘ole divorce to upset the financial applecart.
———————————————–
For absolutely everybody involved. Nobody wins in a divorce.
“A cooling housing market and recently higher inventories for new homes have caused many new home sellers throughout North County to offer incentives, such as lower prices and fancy vacations, to increase home sales.”
I still am waiting for some homebuilder to post an explanation here of how you can finance a new home plus $50K+ in goodies on the same mortgage loan without something in the neighborhood of $50K+ in appraisal fraud to make the loan work?
OT, but interesting
Go and catch a falling dollar, Chairman Bernanke!!
http://www.stltoday.com/stltoday/business/stories.nsf/0/445FEDD9D2F549FF8625723E007C9B3E?OpenDocument
“Those people who do not think they are in denial are still in denial.”
Those people who do not realize they are GFs are still GFs.
Those people who not drink are in denial.
“And more consumers stretch the truth when home prices or interest rates are high, Currie and others said. They exaggerate their income and assets to qualify for loans.”“Sometimes customers lie when buying a second home; borrowers falsely say they will live there in order to qualify for better interest rates, he said. Currie said the second-home lie contributes to defaults and foreclosures, which hurt the market. In tough times, an owner will default on a second home before his own home, he said.”
‘A bubble is something that’s driven by speculation,’ Snaith explained. In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
Mrrrrr. Snaith, ’speculation’ means to invest in the hope of a gain but with the risk of loss and to form a theory about a subject without firm evidence. Obviously, you are functioning in an alien environment.
Why did you remove the realty times. com link? Did the REIC make any threats? LOL
GS,
“I still am waiting for some homebuilder to post an explanation here of how you can finance a new home plus $50K+ in goodies on the same mortgage loan without something in the neighborhood of $50K+ in appraisal fraud to make the loan work?”
GS, I am waiting for the IRS to step in a tax these little ‘goodies’ as INCOME in the year they were given. How is it any different then winning prizes on a game show.
My guess is the builders are using “special lenders” and “special escrow companies “that write up the incentives by side agreement . It’s either fraud regarding the lender,in that the appraisal/loan amount isn’t adjusted for the incentives , or it’s a issue for a IRS tax bill for gifts or both .
Look , every penny has to be accounted for in a real estate transaction . Do people think that they can just make up new rules just because the market took a unexpected dump ?
They’re not income, any more than it’s “income” if your car dealer throws in a plasma TV if you buy a new Toyota. You are paying x number of dollars to buy y goods.
If you buy a dozen doughnuts at the bakery and they throw in a muffin, is that “income”? Of course not.
Income means getting paid money for something you do (like on a game show), or return on investment. Not a discount on a list price.
then why should you pay taxes on forgiven debt? it’s just a discount from the original list price
I’m not saying it’s taxable as income . Its taxable as a gift .
“In fact, the business school likens the housing market not to a bubble, but a souffle. ‘A bubble is something that’s driven by speculation,’ Snaith explained. In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
This is absolute nonesense. Speculation absolutely was the key driver in the current bubble. This bubble is a classic speculation driven bubble and is evidenced by the number of buyers with more than a single property. The number of non owner occupied properties purchased over the past 5 years, The number of properties purchased and then flipped shortly thereafter at a substantial profit (or loss more recently). The number of folks taking on more debt than they can afford based on the assumption of rising prices for starters. Clearly, in a very short amount of time prices became completely disconnected from reality and in some areas are absolutely absurd. What person who can REALLY afford a $700K house is going to buy a 2000 sf stucco box in some area of San Diego? I am certain as anything that this will all come apart at the seams once the numbers of foreclosures get high enough to catch the eye of regulators.
stocks bid up on no earnings but potential=bubble
Houses bid up on no positive cash flow but potential=bubble
Where do I contact Mr. Snaith for my internet business degree ?
Mr. Snaith is a great name for a Harry Potter character
I agree with you GH ,of course the bubble was due to a speculation driven market that was supported by this easy money lending .
Exactly, Wiz. The speculation could not have happened without the suicide mortgages & EZ lending. Both are complicit.
“Much of that migration was driven by the real estate boom in recent years, and though Snaith admits ‘that party is coming to an end,’ he said, ‘by no means is this going to be a bubble crashing.’”
“In fact, the business school likens the housing market not to a bubble, but a souffle. ‘A bubble is something that’s driven by speculation,’ Snaith explained. In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
Just when we think we’ve gotten past the hype from the MSM, it rears its ugly head again. I swear, they will do and say anything to keep this bullshit going on as long as possible. I can’t help but feel like this has gone beyond the realm of just having differing opinion to the propoganda end of the spectrum.
When REIC finally collapses, all these freaking idiot prognosticators need to get their comuppance…not just be allowed to slink away into obscurity. It’s irresponsible statements like the one above that are getting FBs and GFs into trouble. Enough is Enough.
Amazing just like inflation, The Fed kept telling us that there was no inflation, then why do we try to fight it.
The same thing for the bubble, if there is no bubble then why do these RE idiot try to reinforce the nonsense that there is no bubble????? Answer is obvious - There is a bubble!!!
“In fact, the business school likens the housing market not to a bubble, but a souffle. ‘A bubble is something that’s driven by speculation,’ Snaith explained. In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
okay…one of you old timers help me out here. didn’t lereah use the stupid “souffle” analogy earlier this year? I think it was around february or so. I think it was around the same time he was calling for single digit price gains….ha ha….real-a-hype’s not working!!
Or wasn’t he claiming we would see “only” 5-10% annual price increases?
BTW, why was the REIC not screaming about how a bubble didn’t exist back in 1996? Perhaps because buyers didn’t need to be convinced that there wasn’t a bubble? Surprise, surprise! When the market is at bottom, buyers will automatically enter. No need for the shills when the market is truly ripe.
http://www.msnbc.msn.com/id/6116427/
does anyone here believe Bernanke and Paulson have a snow balls chance in hell in having Chinese prop up are housing fiasco?
The expatriate mainland chinese I work with claim that the PRC really had to clean up it’s act to get into the WTO and it’s getting harder and harder to buy counterfit goods. Much of the reform came as a result of pressure from the US so they do listen despite foot dragging. Whether they can get the PRC to float the currency this soon is doubtful in my mind.
“China’s central bank to issue daily benchmark interest rate from January”
“….The benchmark interest rate will be based on the quotations for various inter-bank lending and borrowing rates at different banks”
This means the market will set the rates. Adios $. Be careful of what you wish for…
Yes — for the same reason I believe Trump will be able to (again) talk his lenders into forebearance the next time he goes BK…
TEST
Test
Not driven by “speculation”? Really? By definition a holder of subprime MBS is participating in “speculation”; they could obtain income through a Treasury Bond or even a Prime MBS
Yeah, that part did crack me up. There is speculation in EVERY SINGLE aspect of this game. The ARMS are taken out as a pure gamble that asset appreciation will out run the reset period. That’s speculation. And some ungodly high percentage of mortgages in Calif. are ARMS. All speculation.
Myth “The longer you wait the lower the Price.” :
http://bakersfieldbubble.blogspot.com
I thought the myth was “The longer you wait, the higher the price,” as real estate always goes up. (Change this to “real estate always goes up over the long run” if prices happen to be currently falling.)
From the article in the Orange Co Register, New Century did not make $1 billion worth of loans because of suspected fraud this year. Now that is a number that gives you pause to think.
The FBI agent covering mortgage fraud in SoCalif should have a staff of 50 people unless he is just going after the big , sensational fraud cases. Small cases of individual loan fraud involving agents, appraisers and loan company people will not be prosecuted just like in the last cycle. I am still seeing unethical actions, loan people lying on applications, over charging, misrepresenting the loan features (fees, rates, payments, prepayment penalties.) There must still be huge profits for certain lenders and wall street securitizers.
New Century made two loans at $250,000 over the market value in the JTS Estates at Lincoln Crossing. This company seems very foolish. I sent an e-mail to the company president about these loans and they are reviewing the documentation. They had no idea the two loans, for a total of $1,550,000, were secured by only $1,100,000 of real estate. I think it would be a great idea to start a blog listing all the fraud deals we see out there (I am tracking 14 in Placer County now).
New Century made loans in The Estates at Lincoln Crossing in the last 2 months where the loan amounts of $785,000 & $765,000 exceed the values by $250,000. I e-mailed the president of the company, who replied on a Sunday to me, that he would investigate. I sent him more supporting documentation. I hope they nail the crooks. The builder might be complacent on one of the loans. He has been trying to unload 50 homes for 6 months at $200,000 discounts…..and still has 35 to 40 of them going into the new year.
And you’ll continue to see it go down, perhaps even excellerate in the next few months. Desperation breeds desperate measures. It’s a runaway train, my friend. There’s no stopping it now. All that’s left to do is hunker down and wait for the spectacular crash. The S&L mess of the early 90’s is gonna look like baby fart when compared to our upcoming party. So kick back and take notes, cut clippings, save quotes……..cause heck, who knows, you might write a hell of a novel about it one day. I can see it now, “The Great Deception” . It’ll be a best seller…..if anyone has any money left to buy it.
http://www.economist.com/finance/displaystory.cfm?story_id=8381960
http://en.wikipedia.org/wiki/Bubble_and_squeak
Here’s my Fairfield version of the “broker friend of the family” story that everybody here has experienced.
About a year ago, I was having a lunch with family in Fairfield who also happened to invite the broker friend who put them in their house. I knew what was coming next.”So do you own a home?”
And then it was like a checklist of any asset bubble:
- Newcomer to the field? Check. She used to be a Director in something totally unrelated to real estate and was laid off.
- Easy money to be made? Check. The broker was busy patting my relative on the back for making such a smart decision. “You must already have $100K in equity,” she would crow. I love it how people assume that paper gains, and leveraged returns at that, on a historically illiquid asset during a very unique time frame are permanent.
- Superiority over all other investments? Check. I got a horrified look when she found out that I was putting my rental savings in the stock market. Never mind this ignores many decades of historical data of residential housing vs. equity returns. Never mind that she’s including leveraged returns for housing ROI. Never mind basic diversification principles. Never mind that I might actually be a good steward of my money.
- Willfully ignoring economic anchors? Check. I mentioned that I just don’t see how you can afford a home at even 5x your income as a first time home buyer. “But you can take equity out of your home as it goes up in price.” One of the great financial snowjobs in recent times is convincing the everyday family that getting a bigger loan from your bank is “taking equity out of your home.” The only thing you’ve done is take a bigger loan from your bank. Unless you have a better investment for that loan, you are digging yourself a grave.
So, to reply to one of GS’ other posts in another fashion, yes, there is a bubble in Fairfield.
“In terms of the housing market, he said, ’speculation wasn’t the key driver.’”
Ok, who wants to take this one?
LOL! Nevermind, I see the issue has been thoroughly addressed.
“He’s neither a cheerleader nor a market basher. He simply interprets the numbers. ‘We’re way ahead of the game. It just depends on how much of the gains we made in the past four years we get to keep. Is it 95 percent, 90 percent or all of it?’”
If 90% is his bottom …
He’s a cheerleader.
LOL reminds me of the glum faces of CNBC real estate reporters. I am begining to suspect they are hearing far more bad news from the street. Its no suprise there is no talk of softlanding. It more like be prepared for the begining of the crash. I think we will start to see more bad news until the full strike happens next spring when more homes saturate the market. That will be the end of the soft landing and start of the crash.
I think you are exactly right these loan outfits are going to leave a trail of fraudently loans across this nation. The crash is going to be bad, real bad.
When this is all said and done I hope we have mass mafia RICO judical hearings for all the guys at the top and show how they are connected. You know they will say I did not know what loan officers at desk level were doing. I had no idea.
“Sometimes customers lie when buying a second home; borrowers falsely say they will live there in order to qualify for better interest rates, he said. Currie said the second-home lie contributes to defaults and foreclosures, which hurt the market. In tough times, an owner will default on a second home before his own home, he said.”
“‘It’s probably one of the most rampant misrepresentations that you have,’ Currie said.”
Currie doesn’t get it. It’s not a “second home” lie that’s been rampant, it’s the “investment property” lie that’s been rampant. He just doesn’t want to give the impression that speculation was worse than currently believed.
In tough times, an owner will default on a second home before his own home, he said.”
Note to Arizona and Las Vegas: Greetings from So Cali, before it heads for the bunker.
“The once-muscular realty sector has turned flabby lately.”
Har! It’s the girlie-man market.
(Ok, no more posts for me on this thread … I’ve hit my allotment.)
“They figure that in a couple of months the market will come back and surge again.”
Heck they said that about high tech in Silicon valley.. “it’ll come back .. it always has”… Always? when did this always happen before. Fact is it didnt!
Now they are using the same jargon with real estate. Next spring will be a cold one indeed. Add this to the fact more californians are leaving the state, which is a secular trend.
“Mortgage fraud, ballooned as the housing market heated up, according to government data and industry experts.”
Imagine that, you mean when they create a system that uses stated income no doc loans that there might be an increase in fraud. Add selling the loans to nameless entitys all over the globe to boot and you get a recipe for disaster.
Let’s create a scenario slack jaw no brain loan officer who has no concept of ethics or business for that matter coaches minimum wage earner family through a loan application process, which includes a little hint, wink, wink to increase their stated income. Loan officer gets a commission and low income family gets a toxic loan for some piece of shxx stuccco box that will be foreclosed on in a year. So low wage earner just rented at three times the rental rate through a deed. Loan is then sold and lost in the shuffle, no harm no foul right. Wrong repeat this a thousands of times, which is exactly what is happening and we got a serious financial problem in this Country.
Well said David .
When I think about how this sub-prime lending factor pushed the prices and demand up it makes me want to puke .
That Appeal Court case where the verdict against Lehman was upheld is important IMO. I think there will be shock-waves in the secondary market over this . The Court was sending a message .
” At the time of the jury’s verdict ,legal experts said it was the first time a financial backer of an abusive lender had been held liable in Federal Court .”
entire article posted by smlandlord under Market Observations
“The LA Daily News. “It had to happen sometime. The median price of a San Fernando Valley house had to fall. Last month it finally did, by just less than 1 percent.”
I was just up in the SFV today, hung out with family and read through the RE section of the LA Times. If prices are down 1%, they’ve got a hell of a way to go before any sane buyer jumps in. Tiny 1950s ranch style homes, like 1600-1800 SF, surrounded by major boulevards full of apartments with low income tenants, houses with practically no yard, and no amenities of any kind within walking or short driving distance, are still listed for close to a million dollars in Valley Village, Studio City, and even Valley Glen. I am so grateful to be out of there.
“For a seven-county area that includes Orange County, 4,326 suspicious banking activity reports were filed in fiscal 2006, nearly double from 2005, according to the FBI. And the 2005 total was up 30 percent from the prior year.”
Can somebody describe the likely type of fraud scenarios they are talking about? Borrows misrepresenting or lenders misrepresenting?
Count me and my family as some of the folks that have already left California. I just returned from a visit there. It truly has turned into hell. Both, North and South (except Disneyland). I had some miserable experiences, making me glad to be gone.
This from the North County Times link:
Alan Nevin, director of economic research for MarketPointe Realty Advisors in San Diego, said smart customers could get incentives worth as much as 8 percent of a home’s retail price by buying this month. He said the most popular incentives are reduced prices, upgrades in home decor or appliances, and financial assistance.
He reminded customers to do their research and understand the difference between a good deal and a steal.
“Folks have really gotten into the belief that there are going to be massive price drops,” Nevin said. “People aren’t seeing the deals they anticipated because they aren’t there to begin with.”
I love that last paragraph. Let’s see how he changes his tune over the next few years. Idiot…