“What Premiums Need To Pop Out Of The Price Froth?”
Readers suggested various costs that need to come out of home prices. “What ‘premiums’ need to pop out of the price froth in order to restore affordability? Here is a partial list:”
“1. Appraisal fraud premium (needed, for instance, to pay for builder incentives plus the current market value of a new home out of loan proceeds, or cash-back deals, etc.)”
“2. Subprime premium (due to money loaned on very loose terms — e.g. no money down w/ backloaded debt repayment schedule — to those who will be unable to repay it).”
“3. Irrational exuberance premium (due to buyers who truly believed real 10%+ YOY home equity gains forever were a realistic possibility).”
“4. Flipper squeeze premium (due to flipper encroachment into segments of the housing market, like SFRs, which were traditionally far less commonly used as investment vehicles).”
“5. Move-up premium (buyers from other locales throwing massive amounts of recent home equity gains into a supersized down payment).”
“6. McMansion incentive premium (comps reflect the market value of new McMansions + cars, vacations or cash back deals which are included in the purchase price and financed on the mortgage loan).”
Another added, “7. ‘Dead Man Walking’ premium (property sits because owner insists on a price which gives them a profit {or, these days, which leaves them above water})?” One said, “Commodity and labor premium (abnoramlly high lumber, copper, and labor prices (etc…) due to irrational housing demand (new houses and home improvements).”
The Washington Post. “Knowing what is really hot, vs. what used to be hot but has gone cold, is key to understanding the real estate market today, real estate agents say. The National Association of Realtors recently reported that there are 3.82 million existing homes for sale in the country, more than double the number of unsold homes on the market in early 2001, before the real estate boom began.”
“‘When people have more choices, they become pickier,’ said Melinda Estridge, a real estate agent (in) Bethesda.”
“Will those gleaming stainless appliances help sell your home? How about that spiral staircase? Spiral staircases, are definitely out, the agents said.”
“Some relatively new features, things that were hot just a few years ago, are starting to feel dated, or are actually inciting a negative backlash at least among some buyers.”
“Stainless steel appliances, for example, now draw criticism because some models are hard to keep smudge-free. Glass-front cabinets lose their appeal to some neatness-challenged homeowners who have trouble keeping their dishes arrayed in tidy rows.”
“Some real estate agents say vessel-style sinks, the sleek bowl-shaped, above-counter bathroom sinks, are falling from fashion because they, too, are hard to keep clean.”
“Jane Fairweather, an agent in Bethesda, and many of the real estate agents surveyed, aren’t too keen these days on those cool-looking bowl-style sinks. Water can splash out on the floor, leaving the owner mopping up over and over, particularly during parties when they are getting a lot of use. Several of Fairweather’s clients have ripped out their vessel sinks and replaced them with standard cabinets.”
“‘These fancy sinks are great, wonderful, but when it comes to utility, where do you put the toilet paper and the things you don’t want people to see?,’ said Mark Gude, an agent in Northwest Washington, who specializes in the D.C. market. ‘Bowl sinks are on the way out. Shaving in them is not fun — the gunk, the soap scum, gets everywhere.’”
“Fairweather (said) bamboo, with its variegated honey tones and unique grain patterns — is losing popularity in single-family houses. The problem? They just aren’t as durable as some other kinds of floors.”
“‘People see them as a wonderful new thing, but their day-to-day utility is less than hardwood,’ Fairweather said. ‘They’re not as sturdy, they’re much softer than hardwoods, and if you’re raising children, they’re not so good.’”
“Ginger Harden, a real estate agent in Vienna, said a buyer who was purchasing an almost-new condo in Reston loved the beautiful bamboo floors. When the transaction closed and the seller’s furniture was removed, though, it became apparent that the flooring had faded with exposure to the sun.”
“‘You could see where every piece of furniture had been,’ Harden said. “It was a negative to my buyer.’”
“Stainless steel kitchen appliances, not too long ago a must for any kitchen that wanted to be considered luxe, are beginning to get mixed reviews. The real estate agents gave them a thumbs-down, saying that many buyers were irritated by the need to wipe down the steel all the time to conceal fingerprints. Real estate broker Mark Nash acknowledges that builders say they help sell houses, but said some buyers who own them have gotten irritated by the upkeep.”
“‘I’m hearing people say, ‘I’m tired of it,’ Nash said. ‘They say: ‘I don’t have time to polish it. I have kids. I have dogs. It’s too high maintenance.’”
“So what are the new basics? ‘You want something that in 10 years will still be desirable,’ says Theo Thompson, who had a house built for himself a year ago in Vienna. ‘You want something that in 10 years will still be desirable,’ Thompson said. ‘There are some trendy things that are kind of cool, but look at the houses that were built in the 1980s and 1990s — people think they need to redo the whole thing now.’”
I wouldn’t pay a premium for ‘urban living’ for one. I’m skeptical of the ‘everybody wants to live here’ deal too.
IMO, one thing that is huge now that will become a big issue: all these incentives the builders are throwing in. I was talking with a broker about a new subdivision where this is happening. The flippers ads in the paper always mention tens of $thousands in additions, like entertainment systems. But this broker was telling me he has to explain to sellers that this stuff doesn’t add much, if anything to the resale value. Even though it’s new. The more important qualities are location, floorplan, number of rooms, etc.
I never understood (and still don’t understand) how you can get the buyer to pay for a new home and a new car (valued at $50K) out of the loan proceeds without the help of $50K-worth of appraisal fraud.
That’s a good one; subtract the cost of the freebie BMW Mr Seller.
Very funny! And it’s true. The bubble is not dead yet. BMW sales were quite good in the US in 2006. I will be convinced that the bubble has imploded when the sales of BMW crater in the US. Not the case yet.
It would be nice to make a statistical analysis between real estate bubbles and the number of BMW’s sold. I am convinced that there is a 99% correlation! Almost a perfect statistical fit!
1/3 of all cars are leased out now. And with all of the luxury car ads I’ve seen that advertise lease deals, I’m sure just as many, if not more, luxury cars are leased out as well. Auto leasing is just another form of debt, just like 100% financing on a house.
And debt is just a legal form of thievery: if you borrow money and default, you’ve stolen from the lender, if you borrow and pay back the lender, you’ve stolen from your future.
Its funny.. how if your an accountant you would know something about these deals in other industries as governed by SOP 97-2. It called for all elements to be segregated. Its total bogas fraud to include revenue or cost of car as part of home deal. You cannot do that in other industries. This is really illegal under GAAP. Think about it… the home builders are actually pumping up the revenue numbers on their financial statements. Revenue is meant to mean homes and not BMW…Why is the SEC not all over this???? They would would all over other industries….??? #$#@$@#$
Louie Louie –
Thanks for an outstanding, eye-opening post. I tried to explain to my sister (an attorney) why builders tricking stupid buyers into paying in advance for so-called “incentives” out of loan proceeds is illegal, and she did not get it. But then, she would not know what GAAP (Generally Accepted Accounting Principles) stood for, either…
“Think about it… the home builders are actually pumping up the revenue numbers on their financial statements.”
It goes way beyond that. The value of “inventory” (= raw land, options to buy land and completed homes) is all tied to the current market value of homes. Without incentives included in the price, all that inventory would face a writedown as well.
Yes, automotive sales are already falling. Ask Mr. GM or Ford for a reason the supersized SUV are sooo lonely. They are claiming that the slowdown in housing is the culprit. 2007 is crystallizing as a poor year. Wasn’t in the early ’80s that everyone had to have a Porsche ? And sales fell off and board members & investors questioned the CEO’s logic of depending so heavily on NA for sales ?
Yes Getstucco I agree . How the builders are getting away with this is the question . I guess the builders have these connections with their special sub-prime lenders with their special appraisals . People have to remember that new home tracts become used tracts and why should builders be above the law just to move inventory . I know the builders appraisers are not considering the kickbacks because the builders are giving them as well as zero move in ,(meaning a 100% or more loan . )
Aren’t kickbacks generally illegal?
IMHO , they are illegal or they must be accounted for by a reduction in the appraisal . If the appraisal is reduced than the loan amount must be reduced .
I think what is totally overlooked is FAKE BIDS…
There was lots going on in Australia. Govt down under had to pass laws to stop the abuse. Once passed multibids disappeared overnight prices actually fell in prime locations. …
Fines of 25K on individual and 60K on firms scared the realtors str8. Its out there even in the US dont be fooled. The market needs to be total transparent and fines imposed on realtors.
Louie Louie,
As soon as government figures out that it can replace lost revenue from property taxes with RE fraud fines, they’ll dance their way to the courts with dollar signs in their eyes.
I’ve always hated cars..over the past 4 decades I have bought 4 new cars…but more than a dozen RE properties. I drive a beat up 2000 Huyndai Accent that my son used during his Mayo residency. Paul Kangus of the TV nightly business report drove a 1970s Impala for decades too…I remember a show a LONG time ago where he claimed that the typical American family blows $400,000 in lost opportunty by buying a new car every few years. BTW my career was in the oil industry.
‘urban living’
Reminds me of the San Francisco homeless people parked infront of you building smelling of urine. Really Chic baby! Really Hip and so chilling..
When you are stoned, I guess you can’t smell the urine all that well…
in nyc we have the finest urban living a $1200 a sq ft can buy!
don’t get me wrong i love the city but the areas where they are building these glass yuppie castles are not quite
the fancy nyc address you would expect for that kind of cash (brooklyn is the real culprit for this nonsense, as well as chinatown which if you have never been there has some of the most god awful smelling streets especially in the summer)
I went by two of the neswest super high design glass condos in NYC today:
40 mercer http://www.40mercersoho.com/
and
40 Bond http://www.40bond.com/
Both super high design, but super high price tags. 40 mercer is at least in Soho, but is is right on broadway which is nothing but stores that cater to NY kids and is extremely noisy.
40 bond is on a so-so East Village cobblestone street.
I suppose I would pick the quieter cobblestone street but walking arouns its nothing but young hipsters.
And it will cost you millions to get in both.
“‘You could see where every piece of furniture had been,’ Harden said. “It was a negative to my buyer.’”
In other words, you didn’t negotiate a credit at close of escrow for your buyer so they could have the floors refinished.
Ok. Now THIS is funny.
Translation to FB’rs - Your house isn’t that special, REDUCE the price…
Exactly.
It amazes me how many insist on chasing the market down. Today my fiancee and I toured a 1.35M home that would sell quick at 1.2. But will they do that… nope. Note: I’m not paying that much, but I do accept there is always a market and that for the right price anything will sell.
But as inventory grows, sales will slow… Once the stupid sub-prime loans go back to requiring a down payment and tax record verfication… We’ll get rid of that horrid fraud premium.
I stick with my prediction that bubble markets are going down 30% to 60% in nominal terms.
Price to income
Price to rent.
and soon REOs to monthly sales.
Important ratios people forgot.
Neil
“I stick with my prediction that bubble markets are going down 30% to 60% in nominal terms.”
Yes.
“Price to income
Price to rent.
and soon REOs to monthly sales.
Important ratios people forgot.”
Yes.
Went to see the new communities they are developing in Apollo Beach, FL last weekend. KB lady told me they are building a new hospital and mall right nearby and pushed that as one of the most important reasons why the area will grow and why prices won’t “stay low” too long. I checked with the Apollo Beach Chamber of Commerce. They said both of those plans are on hold and have been for some time. So is the builder lady lyin’ or dyin’? How about the neighborhood? Hmmmm…
Right, this is like a wax museum. Sellers stand still awaiting buyers. Hospital and mall construction stands still awaiting occupied housing. Buyers stand still awaiting price reductions, hospitals, and malls. What will change first? Perhaps the KB lady’s place of employment.
How about fraudulent statements meant to induce sales?
I live in a 1000+ home development with CC&Rs and really really nice PRIVATE public areas and recreational facilities. There was an adjacent pocket of land that was privately owned, right at the corner of Busy Street and Commute Highway; a developer put in two new houses with the most awful floor plans imaginable, and bedroom windows at perfect car headlight height. When the houses were open I toured, and asked the agent about the recreational facilities; without batting an eye, she said they were all city owned and public. I knew better, cause I pay for the privilege. Wait till the new owners try to get Spot into the dog park to play, or take Johnny and Sally to the pool.
Ultimate:
I had heard that the proposed hospital in southern Hillsborough County that you are talking about did not get a certificate of need from the county and was scrapped. That was like at least a year ago. She’s lying.
And there it is. Thanks, Jannifl. Any clue about the alleged mall? Can’t seem to find much info.
How about the lack of buyers neg. premium . In other words, the borrowed from future buyers neg. premiun that created higher demand from 2003-2006 .
I wonder what prior buyers are thinking now that they see all this excess inventory with price discounts . Can any of these prior borrowers trust real estate hype ever again ?
Also , I look at granite counter-tops now and they remind me of a fake market were people overpaid for that look .
I remember at my last house I had ceramic tile and it even held up to the hot heat from pans from cooking .I would not mind having a copper sink however .
I think anything that makes the house more energy efficient will come into fashion in the future and would be a good improvement .
What gets me are the buyers who buy a home with a decent kitchen, sometimes even new, and immediately gut it and put in new cabinets and counters and appliances because the color didn’t suit them, or just to make them look like all the other trendy kitchens. Cherry cabinets/granite counters/stainless appliances are the harvest gold/avocado of the new millenium. I hate to see all that waste of resource.
bedub:
Amen. If something still works, why replace it?
And I’m a woman. I just don’t get that mentality.
headline in LA Times Sunday 1/7/07
Bubble’s pop was akin to a slow leak.
time for buyers to wade on in.
article not available for downloading from Times until tomorrow. this is from todays version of tomorrow’s paper
email
kenharney@earthlink.net for more info on his article and what he must be smoking
Did an angry letter from some guy named Lionel make it in there?
unless there is another lionel from PP, answer to your question is Yes.
Nope. That’s me.
“Bubble’s pop
wasis akin to a slow leak.”I noticed that too. Using the past tense as if it’s all over, settled, end of discussion.
Ken Harney writes for the Washington Post as well and he has always seemed an industry shill.
Ken Harney i think was the first to expose appraisal fraud in 2001 or 2002. Much of his work actually hit Wall Street Journal.
http://www.therealdeal.net/issues/November_2004/1099355223.php
His piece for this weekend is on the Wash Post
http://www.washingtonpost.com/wp-dyn/content/article/2007/01/05/AR2007010500839.html
I knew those avacado green kitchen appliances would’ve come back into style sooner or later. Just like my 80’s bright red ski pants.
Or habitrails.
“So what are the new basics?” - affordable prices, you nincompoops.
the new basics - affordability and ease of maintenance
linoleum, Formica countertops and carpet. Affordable, easy to maintain, easy to change out — if you should ever need to.
Granite/SS kitchens = flippers. I’m not paying for someone else’s taste.
What a lamea*ss article. Do agents really think that the stainless steel fridge is the make or break on a home sale. My gosh, get real…… bottom line it is price $$$$$$$$$$$$$$$$$$$$$$$!!!!!!
______________________________________________________________
Comment by mad_tiger
2007-01-06 11:31:19
“‘You could see where every piece of furniture had been,’ Harden said. “It was a negative to my buyer.’”
In other words, you didn’t negotiate a credit at close of escrow for your buyer so they could have the floors refinished.
_______________________________________________________
I agree with this comment completely….. Terrible that the agent did not spot that in the first place…. spot it in the walk thru… TERRIBLE! Also what about the damn home inspector not seeing that also. Everyone in the RE market from inspectors, lender, agents, and title co…. all are greedy…just get the deal done…nothing else and nothing more…….. who cares about the buyer.
WELL TIMES ARE CHANGING BABY!!!!
Hey, that article was in the cheerleader oops, I mean real estate section. If you want analysis you’ll have to crack opwn the business section.
and even there, your chance of running into RE shills is probably 40%
Did anyone see this? I posted it but it did not show so I am posting again…. sorry if it posts 2 times…
GERRI WILLIS, CNN ANCHOR: With stock markets roaring towards Dow 11,000, near a five-year high, and the latest outlook on jobs is strong, and President Bush is touting the economy. So why is the housing market slowing down?
Good morning, I’m Gerri Willis. Today on OPEN HOUSE, we’ll tell you what’s going on, the good news and the bad news.
We’ll also look at what you can do to improve your credit rating.
But first, the housing market.
Joining me is Mark Zandy, chief economist for Moodyseconomy.com.
Mark, welcome.
MARK ZANDY, CHIEF ECONOMIST, MOODYSECONOMY.COM: It’s good to be with you, Gerri.
WILLIS: You know, I think people out there are concerned, they’re worried, and they’re wondering, what is your overall outlook? Because, look, your outlook goes to people all over the industry. The professionals look at it.
ZANDY: Well, the economy’s fine. We are creating a lot of jobs, but, of course, all that brings is higher interest rates, and the higher rates are going to be very hard on the housing market. And I do think housing is peaking and will be measurably weaker a year from now.
WILLIS: I know a lot of people think that a slowdown is really going on here, but when will a slowdown for real estate affect prices?
ZANDY: Well, I think that will be most evident in the spring. Right now, we’re starting to see inventories of unsold homes begin to build. Applications for mortgages to purchase a home are beginning to decline. So we’ll see sales weaken, but it won’t be really until the spring that sellers give up and start cutting prices on their homes.
WILLIS: Well, let’s look more specifically at your outlook, city by city. I know you’re predicting a downturn for some 16 markets across the country, many of them in California on the West Coast. What’s the story there?
ZANDY: Well, there we’ve seen a significant increase in pricing over the past several years. Affordability has collapsed, and as interest rates begin to push up even higher, for — it’s just become completely unaffordable for entry-level buyers. Moreover, there’s a significant sort of pickup in demand for investors recently, and they’re going to be finding it very difficult to continue buying as the interest rates rise.
So that market is — the California markets, in particular, are going to be very sensitive to these rising interest rates.
WILLIS: San Diego, Santa Ana, Riverside, Los Angeles, you’re really looking at a lot of cities in Southern California that are affected. How far will prices fall?
ZANDY: You know, I think we’ll see peak-to-trough declines in prices of 10, 15 percent, under reasonable interest rate assumptions. So suppose interest rates rise a percentage point between now and the spring, I think we’ll see 10 to 15 percent declines in those markets.
WILLIS: But you’re saying peak to trough, and, you know, those markets have gone up dramatically. So if you were to look at a chart of these prices over time, the impact isn’t as dramatic as it first sounds, right?
ZANDY: Yes, absolutely right. If you bought in three, four years ago, you know, you’ve enjoyed a doubling in prices. So 10, 15 percent isn’t going to mean a whole lot to you. It is going to mean a lot to those people who have bought in in the last six, 12, 18 months, because, for them…
WILLIS: Right.
ZANDY: … this is going to be a heartache, yes.
WILLIS: Before we go to the East Coast, let’s talk about Vegas quickly. Now, here’s a market, I’m telling you, it’s been on fire, but you say it will probably be hit the hardest.
ZANDY: Yes, it’s a very speculative market. And a lot of investor demand. And we’re now starting to see a lot of building, condominium towers going up. And with that increased supply, in combination with a lack of affordability and higher interest rates, I really do believe we’re going to see some very significant price declines in that particular market.
WILLIS: All right, let’s go to the East Coast and talk about two areas. The Boston area, which is going have some problems, and then Florida, which it doesn’t seem like you believe Florida’s really going to get hit by a downturn.
ZANDY: Well, I think the problems in Florida are going to be more pronounced as we make our way into 2007. It’s going to take a little bit longer for the problems there to develop. But I do think the condominium markets along the coast in Florida, everywhere from Miami up the East Coast to Jacksonville and up the West Coast to Tampa, I really think those markets are highly speculative and at very significant risk. But it’s going to take a little longer for those markets to correct.
The Boston market already appears to be correcting, if you listen to brokers and realtors in that area — part of the country. They’re already starting to say that prices are coming down, that sellers are slashing prices. So that market is already beginning to correct.
WILLIS: All right. Well, you know, Mark, I could go on and on, but we’re out of time. Thanks for being with us.
ZANDY: It was a pleasure. Thank you.
WILLIS: Now, if you have the right strategies, no matter the market, you can help boost your home’s value.
Joining me now from Salt Lake City, Utah, is Sid Davis. He wrote the book “Survival Guide for Buying a Home.”
Sid, welcome.
SID DAVIS, AUTHOR, “SURVIVAL GUIDE FOR BUYING A HOME”: How are you?
WILLIS: I’m great. You know, we’ve been talking a lot about some of the markets that are the tippiest, the ones that have gone up the most. But there are a lot of markets out there that will do very well over the next couple of years. How do you know which kind of market you’re in?
DAVIS: Well, that’s determined mostly by the days on market a home is. In other words, if you live in a neighborhood, and the homes are selling in two to three weeks, and all of a sudden they start selling in a month, six weeks, and two months, you know the market is slowing down. And conversely, if homes start selling fast, in a week or so, then you know your market’s heating up.
WILLIS: Sid, where do I get those numbers?
DAVIS: The MLS in all the cities have those numbers on their listings. WILLIS: I’ll probably have to call a real estate agent to get it, though, right?
DAVIS: Any real estate agent will be happy to give you those numbers for your neighborhood.
WILLIS: What about financial moves that I can take now? Is there — should I swap into a new mortgage? What should I do financially to protect myself?
DAVIS: Well, the biggest problem are those people who used the — or bought the interest-only mortgages. They go for about five or 10 years, and all of a sudden you hit the end of the leash. At this point, then you’ve got your full purchase price amortized over 20 years or 25 years.
WILLIS: And that can be pretty scary.
DAVIS: It can, especially if you qualified for your loan, you had a 40 percent ratio. In other words, that means that if 40 percent of your income goes to your house payment, but you pay 10 years’ interest only, and all of a sudden you’re — everything is compressed into 20 years, that means you could end up paying 60 percent of your income on your house payment, and that can get pretty ugly quick.
WILLIS: It’s really time for those people to swap into something else, a 30-year fixed rate mortgage. Shouldn’t they do it sooner rather than later, with the direction of interest rates?
DAVIS: Well, if I had an interest-only loan, those are usually 30-year loans, a fixed interest rate. But at the end of 10 years, they convert to amortization, and the payment is a lot higher. But if I had one of those, rather than incur the costs of refinancing, I would just pay $150 or an extra $200 a month on that loan and start amortizing, building equity.
WILLIS: All right. You also say this is not a time to over- improve your house. But how do you know what you’re doing is too much?
DAVIS: Well, you need to look at the neighborhood values. In other words, if everybody in your neighborhood has plastic counters or other type of cheaper counters, you don’t want to put in granite, because you won’t get your money out. If you love your kitchen, but it’s fairly recent, you don’t want to spend $30 tearing it out just to be trendy.
WILLIS: Right, OK.
DAVIS: In other words, you don’t want to put any improvements into your home that you’re not going to get out.
WILLIS: Home equity loan, or line of credit? What’s better right now?
DAVIS: I like home equity loans, because the costs are cheap on those, and you can pay them down yet keep them there active. In case you need some money for something, you can tap into them. And — but the downturn on those is, is that the interest rate continues to go up. They’ll go up also, and so your monthly payment can increase also.
WILLIS: Slippery territory out there, Sid. Thanks for helping us figure it out.
DAVIS: Yes, it’s good to be here.
WILLIS: Coming up on OPEN HOUSE, improve your credit score, lower your loan payments. We’ll show you how.
And later, lights, camera, decorate. We’ll transform our set for Christmas and show you ideas you just might want to use in your own home.
But first, your tip of the day.
(BEGIN VIDEO CLIP)
WILLIS: Closing costs down, title fees, appraisal fees, document preparation fees. Sealing the deal on your home can really add up.
But you can curb those costs. Get a good-faith estimate. All lenders are required to give you an estimate of your closing costs within three days after you apply for a loan. While it’s no guarantee, it will give you an idea of how much you’ll be expected to shell out.
Question all the fees. Make sure you know what each item is, and whether it’s required.
And don’t be afraid to ask for a reasonable cost break. You may be able to negotiate a better price on some items.
So get an estimate, and always ask questions.
That’s your tip of the day.
(END VIDEO CLIP)
(COMMERCIAL BREAK)
WILLIS: Looking for a mortgage, a car loan, or any other kind of credit? There’s a law on the books to make sure you get the best rate possible.
But there’s a problem. Not all of it is being enforced, and that’s despite promises from both Democrats and Republicans.
(BEGIN VIDEOTAPE)
WILLIS (voice-over): That was two years ago, December 2003, and at least in some ways, it’s no fairer today than it was then. At the time, Congress passed, and President Bush signed, the so-called Fair and Accurate Credit Transactions Act.
Among other things, it was supposed to require banks and other lenders to tell loan applicants when bad credit ratings automatically trigger higher loan payments.
EDMUND MIERZWINSKI, U.S. PUBLIC INTEREST RESEARCH GROUP: (INAUDIBLE).
WILLIS: This week, “Washington Post” real estate columnist Ken Harny (ph) agreed, writing that the current way of setting an interest rate “is not necessarily correct pricing. The systems are blind to botched information sitting in consumers’ files, a situation several national studies have documented as commonplace.”
Under the 2003 law, the Federal Reserve and the Federal Trade Commission were supposed to impose a notification system on banks. The FTC repeatedly declined CNN OPEN HOUSE’s request for an update. But, according to “The Washington Post,” an FTC attorney says it’s working on the project, and there is no target date.
That, in turn, has consumer advocates worrying that the plan could be watered down.
MIERZWINSKI: (INAUDIBLE).
WILLIS: Bottom line, make sure your credit report is clear of any errors before you apply for a loan.
(END VIDEOTAPE)
WILLIS: OK, so you can’t rely on that lender for any help. What can you do?
Allen Fishbein is director of credit and housing policy with the Consumer Federation of America, and he’s joining us from Washington.
Allen, welcome.
Use2BinRE
Thanks for posting the interview. Zandy is Moody’s best and less of a cheer leader on the economy.
“ZANDY: You know, I think we’ll see peak-to-trough declines in prices of 10, 15 percent, under reasonable interest rate assumptions. So suppose interest rates rise a percentage point between now and the spring, I think we’ll see 10 to 15 percent declines in those markets.”
I hope Zandi finds the time to read this thread so he can learn why interest rates will make little difference to the outcome.
The sub-prime premium looms very large. It’s reasonably obvious to assume that lenders are getting very scared of these exotic loans. A few more sub-prime mortgage boiler rooms going belly-up and sub-prime mortgages will only be mentioned in history books. If the lenders stop funding them (and many are already) that means thousands of would-be buyers who are expected to come out in David Liar’s “spring bounce” and clean out the massive inventory build-up, will not get financed.
So, who is going to buy? Take the sub-prime out of the picture almost 100% and that leaves people with good credit AND a fat down payment. From what I know of the people around me (pretty stable white middle class for the most part) it ain’t gonna happen. Most are only just surviving in Bush’s “fantasy goldilocks” economy but are pretty much cash strapped. I know very few who could come up with a $50,000 downpayment for these over-priced, tacky, crammed together, stucco covered boxes.
Also, I think we need some more “disclosure” legislation. A potential buyer needs to be informed through disclosure of the incentives which the owner received from the builder. If a property is on the market for $400,000 and didn’t sell, I’m not interested in the “upgrades of $60,000″ which then caused it to be sold. As far as I’m concerned, that property is worth a maximum of $340,000………..that’s even if I was interested to buy which I might be 2009 or 2010 BUT, as my wife recently said (and we always owned property until a couple of years ago) “With the cost of upkeep, taxes and taking into consideration the realtors fees if we decided to sell a few years down the line, it just isn’t worth owning property in California anymore.” Looks like we will be renting for many years to come AND, I might add, we could easily afford to buy any house in this area.
Well said Mike. I’m in the same boat - I’m trying to be OK with renting forever here in CA but its not that appealing except on paper everything does add up nicely.
Mike says, “Looks like we will be renting for many years to come AND, I might add, we could easily afford to buy any house in this area.”
Yup, probably the majority of renters on this blog could say the same. It’s just obvious that it makes no sense to pay a 100% premium for “owning” instead of renting, and that the downside potential in house prices is enormous. It is indeed boring waiting for the market to rationalize itself, but let’s all just enjoy having the landlord take care of the maintenance chores.
I’m with you. My wife is pressuring me to buy a home because she wants “stability,” but I just can’t justify spending the money. I rent, and I will sleep better at night for the next 5 years because of it.
“So, who is going to buy? Take the sub-prime out of the picture almost 100% and that leaves people with good credit AND a fat down payment.”
Mike –
This is an important part of the story (the “subsidence” of subprime demand). But the other part which may not be clear to you just yet is how much more you, or anyone else with good credit rating and savings, could afford to pay for a home if you used a zero-downpayment pay-option ARM instead of something sensible like a traditional fixed rate loan with a downpayment.
Most subprime buyers have purchased their McMansion ownership status at the price of a high probability of future foreclosure. The unwillingness of you (and most others who are on the sidelines watching in amazement) to use a subprime loan to stretch your purchase price to a level where it put your household at risk of future bankruptcy will explain how a big chunk of subprime premium will vanish into thin air once the risk loves are kept out of the market by a resumption of traditional lending standards.
A post on another thread today from a mortgage broker site expresses a panicked recognition of what I have just explained here…
“The real estate agents gave them a thumbs-down, saying that many buyers were irritated by the need to wipe down the steel all the time to conceal fingerprints. Real estate broker Mark Nash acknowledges that builders say they help sell houses, but said some buyers who own them have gotten irritated by the upkeep.”
This cracks me up. Before retiring I was in the restaurant business with my kitchens having the basic stainless steel EVERYTHING. It looks great when new but is a royal PITA to maintain. Daily polishing which the employees HATED to do. One extra tidbit nobody has mentioned is SS has a “grain” so if not properly polished you can ruin the finish.
Another item I’m waiting to hear about are the upgraded “commercial grade” appliances. Who’s going to service them and just wait until they get a $500 bill for service/repair…..
O the joys of upgrades…..ROFL
I was in Restoration Hardware this morning. Not only do that have less furniture displayed/for sale, they are pushing towels, bedding, soaps and such in a big way.
And a huge display of cleaners. Stainless steel polish, glass polish, hardwood floor cleaners.. In their trendy packaging.
Not only do I not like the look, but noting the craze I did look at a few of those cold looking stainless steel appliances in the store recently when I was buying a new w/d. That was the first thing I noticed when touching them, my fingerprints were left on the surface and I stepped back and gagged and thought “how could this high upkeep” surface finish be in high demand? Same with the bowl sinks. I used one somewhere and couldn’t believe how weird they are.
Classic is for a reason.
I had stainless appliances in the place I sold in South Florida last year and they are a pain to take care of and I lived alone. I can’t remember how much extra I paid for them, but they aren’t worth it.
Now I’ve got a $300 apartment sized fridge and you know it keeps my food just as cold as the stainless one.
Funny to read this because just this past week I overheard an interior decorator telling someone not to put stainless steel appliances in their house cause it is so uncool now. His suggestion was the new slate gray enamel appliances and to paint the walls with a terra cotta(?I think).
Ruth, it’s not only that the SS is more of a pain to keep clean. It’s that you have to pay like $400 more for the exact same appliance because of the finish. Last year I had to replace the old fridge and I could not believe that there was such a price difference. Of course, I got the plain old white…
Formica counters, lava lamps and shag carpeting are a must for me:-)
…orange shag is the way to go with matching counters and lamps…groovy!
Dan, Im diggin that!
Or my all time favorite shag carpeting glued to the walls, especially in a victorian era house.
yea…thats cool…peace
Yeah that McMansion premium (”free” Lexus cars, for example) must go before the people notice that the market is falling significantly. Maybe sellers should give away gold instead of cars. If I bought a house at overinflated prices but with the top of the line Lexus ($80,000? Not sure). I would prefer $80,000 in that spot price of gold bullions - make them all American Eagles please. I would not want a depreciating asset.
Sellers are still free to throw in any incentive they want. If they don’t want their neighbors upset that they are bringing down comps, then they should pay the buyer to buy at the overinflated price.
Okay now. i want a Flagstaff Forest Highlands 24/7 guarded/gated house that is now selling for $800,000. Any of you have it for sale, I’ll buy it at $800,000 if you give me a $200,000 credit in gold bullion coins.
‘(”free” Lexus cars, for example)’
Do you think the buyers are so dumb that they don’t realize they are paying full price by financing a Lexus plus a depreciated house on the mortgage loan? Or are they “smartly” planning to go BK and leave the country, or execute some other dodgy strategy, to avoid paying for either the car or the house?
GetStucco
Yes, they are dumb which is why the exotic loans were so popular. Now they are coming out and saying, “I didn’t understand what interest free loans meant.” Sure you didn’t understand, sweetheart. You were only focused on the payments - not on the consequences of your stupidity a couple of years down the line.
They signed and “understood” they were in the RE and headed for early retirement, millions of dollars in a windfall and all the rest. Now that their capitalistic risk is not working out as they dreamed, they are victims of whoever has pockets to sue.
Mike I simply don’t get that. When you buy an appliance or electronics and have six months “no interest”, the first thing they explain to you is if you don’t finish paying for it after the six months they will charge the WHOLE amount of interest to your account (I believe Sears is the only one who doesn’t do this). So, if you ever bought a simple appliance on credit, you should know how things work…
Barkeeper’s Friend for that stainless steel. Works great.
Barkeeper’s friend is also the best for well water rust.
“What ‘premiums’ need to pop out of the price froth in order to restore affordability?
Maybe the Bob Nardelli Compensation Package premium?
But then I suppose you’d have to add back in the cheap & illegal installation credit.
i was always under the impression when stainless steel appliances are in the home they were high quality (sub zero) not the run of the mill crap with the stainless steel look over a cheap appliance
i envision years from now a landfill loaded to the gills with these cheap ss appliances and old granite coutertops as well
sell me the place as is, keep the damn cheap knockoff ss fridge
and granite tops, i will buy my own counter tops and appliances as well, like on those flip this house shows where stainless steel adds
10k in value, wtf? to who? oh some gf/fb moron with 106% financing, the dumbing down of this country is amazing
Add this to the list of “premiums”:
Builder pays buyers’ first 6 mortgage payments. Yep, first 6 months free. If this is happening in Seattle, and it is, then it must be happening elsewhere.
Somebody here mentioned last week that buyback periods on MBS may be increasing from 12- 24 months. Seems like a smart move if builders are going to pay the first half year of your mortgage.
Add this to the list of “premiums”:
Builder pays buyers’ first 6 mortgage payments. Yep, first 6 months free. If this is happening in Seattle, and it is, then it must be happening elsewhere.
Somebody here mentioned last week that buyback periods on MBS may be increasing from 12- 24 months. Seems like a smart move if builders are going to pay the first half year of your mortgage.
http://www.artsandcraftshomes.com/
The arts and crafts revival, which is the antithesis of the gaudy monstrosities of recent years, is picking up steam. Pity the FBs who poured tens in thousands into granite countertops, stainless steel appliances, and all the other artifacts of a soon-to-be bygone era of excess and tackiness. The new bywords will be simple but distinctive, functional, quality-built by genuine craftsmen and the few competent builders who will survive the onrushing housing and economic implosion.
Yeah, if I could only come close to having one of them left, all the small homes got torn down
No one has mentioned that granite is also a very high maintenance product … depends, depends. Some granites are really porous and stains can easily penetrate — coffee, citric acids, grease etc. that are very difficult or even impossible to remove. The degree these are a problem depends on the granite and the ‘degree’ of polish — the cheaper the granite the more the potential for problems. In kitchens you absolutely need to do a ‘beading water’ test before using the counter and continuously thereafter…. if the water soaks in even a bit then you MUST seal the counter — depending on usage etc. this might become a yearly/quarterly/monthly somewhat expensive procedure…. and the sealing can be compromised in many ways — ei. using the counter as a cutting board or as a rolling board or even by dropping a plate. Granite is far better than marble but it is much higher maintenance than most realize… ‘course the patina of some stains just might add ‘character’ and increase the *value*’
On the positive side, we’ll probably each have our own FB serf that’ll be more than happy to keep those granite countertops and stainless steel appliances sparkling clean, as long as we’ll let them set snares for the squirrels in the back yard, or rob the birds’ nests.
LOL!!!
Corian or one of the synthetic quartz counters are far better, like Silestone, than granite. Zero maintenance.
Our household is trying to decide what is going to happen to all the granite when it becomes passe and everyone wants it torn out. Any ideas? Perhaps it would make nice gargen wall material. Could it be crushed up and used to make a driveway? There’s going to be a bunch of it headed for the dump in just a few years.
With Corian you can usually sand out small problems at low cost — but even it has problems if you aren’t careful — placing a pot off the stove can deep burn or shatter the surface… but overall I’d take Corian or the generics over granite. Cost is less, look can be the same, and the problems are far less — winner in my book.
Anything but tile. Tile for countertops is ugly and accumulates crud in the grout. Me, I went for Corian.
Comment by GetStucco
2007-01-06 14:54:06
‘(”free” Lexus cars, for example)’
Do you think the buyers are so dumb that they don’t realize they are paying full price by financing a Lexus plus a depreciated house on the mortgage loan? Or are they “smartly” planning to go BK and leave the country, or execute some other dodgy strategy, to avoid paying for either the car or the house?
__________________________________________________
Mr. GETSTUCCO…. you and I are going to pay for their BK and they will be driving around in that Lexus(BMW). The only thing they will lose in the BK is the house…. These people have nothing to lose except the home they bought with that exotic loan. They will still keep & be driving their cars, living life paycheck to paycheck but instead of owning their home now they will be renting.
My husband actually say’s these people are smart…. they took advantage of the system. In a few years…. the BK will be no problem and they will be able to buy a home again because the stupid govt does nothing to tighten up the laws on lending….
Rant over.
Here in Florida if you file Chapter 7 you can keep a car but it can’t be worth more than a couple thousand dollars.
So the Lexus would be sold at public auction to pay creditors if you had another form of transportation….You can keep the house as long as you have kept the mortgage current and are protected in that respect.
You would have to sell-off any boats, waverunners or Harleys for certain. The Trustee does a deed and title search for any property you may own and also looks for suspicious property / title transfers within six months before you file ( IE: You sell your 24ft Grady White fishing boat to your Mom for $ 50 three months prior to filing )
Again, this is in Chapter 7 Bankruptcy here in FL. I know first-hand; my sister went through the whole process a few years ago.
It’s not pretty but at the time it was the right thing for her to do.
For more complicated situations ( like bigtime asshat flippers/ Realtors ™ who maxed themselves out ) you may not be allowed to file Chapter 7 but will have to file Chapter 13 and do some sort of workout within 5 years instead.
At any rate, nowadays when you file ( Since October 2005 ) your finances are subjected to a Means Test which determines if you can file Chapter 7 and walk away with a “fresh start” or if you have to go Chapter 13 for a workout.
CA Renter said:”linoleum, Formica countertops and carpet. Affordable, easy to maintain, easy to change out — if you should ever need to.
Granite/SS kitchens = flippers. I’m not paying for someone else’s taste”.
I totally agree with you CARenter. There are so many homes with the Granite/SS kitchen/ tile floors. Those items alone will keep me from buying a flipper’s place.
I found out that Granite is one of the worse materials to use on counters. Doesnt hold up to water, stains very easily, even stains from natural oil in your skin.
Granite & Stainless-The new Boom/Bust decor.
Zandy said:”You know, I think we’ll see peak-to-trough declines in prices of 10, 15 percent, under reasonable interest rate assumptions. So suppose interest rates rise a percentage point between now and the spring, I think we’ll see 10 to 15 percent declines in those markets”.
Sellers to learn a new term: “Peak and Trough”.
T said:”The degree these are a problem depends on the granite and the ‘degree’ of polish — the cheaper the granite the more the potential for problems”.
I have a friend who lives alone, bought high end granite c.tops and full backsplash, and within 4 years very obvious where she did her kitchen prep. Even the granite corners where she laid her hands had evidence of her touch.
I think most people dont realize they need to “seal” granite indefinitely on a regular basis. Who needs it all this high maintance?Granite is just as bad as stainless steel appliances!
Give me tile anyday.
Come on….. Arts and Crafts…. puke…. give me a break. I am all for modernism.
But the problem in the US is the cheapness of the construction, nearly universally poor taste (the nation is the epitome of the revenge of the upwardly mobile working class, the nouveau riche have appallingly bad taste) and the ultimate luxury today is a crappy OSB box with some tacky finishing and some sort of nasty faux-”Italian” interior with all the wrong colors. Stainless and granite, etc. is nice if it is well executed in the right setting. It’s not appropriate in a low end condo conversion in suburban DC, or some shoddy “luxury” condo.
Also, the trend has been toward paying $50-$100 for the same appliance with a different facia. Many years ago the SS appliances were a category of high quality like the Sub-Zero brand.
I rented a condo recently and asked to have the 80s dishwasher replaced when I moved in. I suggested a Bosch dishwasher with stainless steel tub for longevity with low expectations since they cost about $600-$700. Of course the dimwit owner did not comprehend the concept of a tub (the interior of the dishwasher) and thinks that he found a great deal with a standard dishwasher with a SS front that did not suit the kitchen at all in appearance.