“A Lot Of Sellers Are Still Being Unrealistic” In California
The Union Tribune reports from California. “Most home sellers and real estate agents in the county would like to forget about 2006. The median home price had its first decline in 11 years. The volume of sales shriveled by 24 percent. Between July and September, foreclosures were three times as high as the summer of 2005.”
“But still the prices in many San Diego neighborhoods remain in the stratosphere.”
“In his office in the upscale Kensington neighborhood of San Diego, real estate agent Rex Downing is spending much of his time these days telling clients something they don’t want to hear: Don’t ask too much for your home.”
“‘A lot of sellers are still being unrealistic about what their property is worth,’ Downing said. ‘When I get sellers who take my advice, I can still sell a home by the optimal day. But not all clients will take my advice.’”
“In the past month, Downing sold two homes for sellers who took his advice. But he says that most hopeful sellers still come in with prices about 10 percent higher than the market will bear. ‘They’re either going to have to drop those prices or pull their home off the market,’ Downing said.”
The North County Times. “Carlsbad financial planner Judy Stewart said she advises clients not to buy a home that costs more than three or four times their household income. ‘I don’t let clients reach for real estate,’ said Stewart. ‘If they can’t afford it, they can’t afford it.’”
“Unfortunately, many homeowners now believe that they stretched too far during the real estate boom of the last six years. As prices rose dramatically in that period, many borrowers chose risky loans to buy homes that they couldn’t afford with conventional loans.”
“A growing number of borrowers want to replace those loans, according to experts. However, because home prices have stabilized, or even fallen, some homeowners now owe more on their mortgages than their homes are worth.”
“Two of the most dangerous loans have become popular. The California Association of Realtors said earlier this month that 43 percent of home buyers statewide chose to take second mortgages, typically 20 percent of the purchase price, in addition to a first mortgage covering 80 percent.”
“The percentage of homeowners carrying a first and second mortgage is the highest since 1982 and the second highest in the last 30 years, the association said. Also, First American Real Estate Solutions said 60 percent of all loans taken out for home purchases statewide in 2005 were adjustable-rate mortgages.”
“Victoria Johnson, president of the San Diego chapter of the California Association of Mortgage Brokers, said that she has been flooded with people trying to understand their adjustable-rate mortgages.”
“‘There aren’t bad loans,’ she said. ‘The problem is how they are being used.’”
“Then there is the negative-option, adjustable-rate mortgage, sometimes referred to as an ‘option ARM.’ ‘I think the people who got into option ARMs a few years ago are in a world of hurt,’ said Stewart, the Carlsbad financial planner.”
The LA Daily News. “This year should be a good one for Ventura County’s economy, with rising employment and incomes, but there are several potential problem areas, according to economists who presented their economic forecast for the areak.”
“‘We are seeing very low population growth and very strong economic growth in Ventura County,’ said Bill Watkins, executive director of the UCSB Economic Forecast Project and a former research economist at the Federal Reserve.”
“The high cost of local housing will continue to drive away high-paying jobs, he said. As an example, his report pointed to Technicolor’s recent announcement the company is moving hundreds of manufacturing jobs out of the county.”
“The report also noted that Countrywide Financial’s growth over the past real estate boom has greatly contributed to economic growth, so any decision it might make to relocate jobs or merge with another company could have serious economic consequences locally.”
“‘So far at least, the county is pulling off the economic hat trick of strong economic growth in the presence of weak population growth,’ he said. As for housing, ‘Realtors are having a terrible year,’ he said.”
The Whittier Daily News. “California experienced a large spike in foreclosures, with 6,080 in the final quarter of 2006 compared to 875 in the same period in 2005, according to DataQuick.”
“Some home buyers have gotten into loans they just can’t afford, said Alex Del Haro, president of the San Gabriel Valley chapter of California Association of Mortgage Brokers. Some loans include prepayment penalties the borrower is not aware of, he said.”
“Interest-only loans or adjustable-rate loans affect many first-time buyers at the 15-month mark, said Chris Vigil, Realtor/appraiser in Whittier.”
“‘We’re seeing a lot of short sales in my office,’ he said. ‘Two or three years ago, we never saw those.’”
The Press Democrat. “Across the United States, more Americans are banking on rising home values instead of the stock market and savings to pay for their retirement.”
“‘They think of their houses as a savings account more so than a generation before,’ said Bruce Dzieza, a Sebastopol financial planner. ‘It’s become more of a commodity, and people have the attitude that real estate will never go down.’”
“The recent housing downturn and declining property values doesn’t appear to have lowered Sonoma County residents’ expectations that homes are the key to financial stability in retirement.”
“‘The majority of clients we get, that’s their biggest asset. And they don’t have a lot for retirement,’ said Dale DeGennaro, president of the North Bay Chapter of the California Association of Mortgage Brokers.”
“A couple sold their Sonoma County home more than a year ago and became renters while continuing to work. ‘They fell in love with renting. They liked the cash flow from their portfolio,’ Dzieza said.”
“Dzieza put together a retirement plan for another couple keyed to the sale of their Sonoma County home. But the couple purchased a ranch in Oregon a year ago before selling here. Now, they have about $400,000 less to work with because their Sonoma County home sold for less than they expected.”
“‘It won’t ruin their retirement, but it will have a dramatic effect,’ Dzieza said.”
The Record.net. “The coming layoffs of about 100 Stockton-based workers at Washington Mutual should surprise nobody. A good number of those people work in WaMu’s sub-prime lending arm, Long Beach Mortgage, one of the nation’s biggest sub-prime mortgage lenders.”
“Sub-prime loans are aimed at higher risk borrowers, people with little to put down, and people who, to be honest, might be buying more home than they can afford.”
“People who in a normal real estate market, couldn’t get into a home, or at least couldn’t buy too much house for their income, squeeze into the market. But what if you hit a financial speed bump? Or, what if the market takes a jarring dip? The pool of buyers dries up? Interest rates climb? The inventory of homes for sale balloons? Prices slip? And that’s where we find ourselves today.”
“It probably will be a while before we see what we saw at the height of the boom. In the first quarter of 2005, 42 percent of all mortgages in San Joaquin County were interest-only loans. The heady times started heading south by the end of that year.”
“Foreclosures are climbing. In the fourth quarter of 2006, foreclosure notices in San Joaquin County reached their highest level in at least 10 years.”
“So what’s an aggressive outfit like WaMu to do? Pull back. And that’s just the signal the bank sent last week.”
A reader sent in this history of San Diego:
‘The true ‘boom’ period extends from the summer of 1886 to about February, 1888—about eighteen months in all. In the summer of 1886 people came faster than ever, and it became very natural to ask where is all this going to end? Nearly every one of them bought something, nearly one-half of them became immediate settlers, and the majority of the remainder declared their intention of returning in the winter to build and remain. Such a state of affairs would have turned the heads of almost any people, but still the Californians kept quite cool. It required the professional boomer to touch off the magazine.’
‘In the summer of 1886 the professional boomer came. The business of this class is to follow up all lines of rapid settlement, chop up good farming land into town lots 25 or 30 years ahead of the time they are needed.’
‘The natives could not look on such scenes as these without being infected, and it was not long before they became entangled in the whirl. They not only laid out additions and townsites, but bought lots of others; not with any expectation of using them, but with the same idea that all the others had—to turn them over to someone else in sixty days at an advance of at least double or triple the amount of the first payment.’
‘A necessary result of the folly was to raise the price of good business property beyond what business could afford to pay. Farming property, in too many instances, was raised too high in price, though nothing in comparison with city property.’
‘So it went on for 13 months with prices constantly rising; people coming faster than ever, and acting more crazy than ever. It soon became quite unnecessary to show property. It was greedily bought from the map in town by people with no idea of even the points of the compass. . . . Most of the speculators had no need to resort to the banks. Coin was abundant everywhere. A man offering to loan money on mortgage would have been laughed at as a fool.’
‘The great boom collapsed in 1888, the first symptom of stringency in the money market coming early in that year. Those who were speculating in margins threw their, holdings upon the market, first at a small discount, then at any price, and before the close of the month of January, there was a wild scramble and confidence was gone. ‘Save yourself’ was the sole thought of those who had been foremost in the gamble for the ‘unearned increment.’ During the spring and summer, all the floating population and much that ought to have been permanent, had faded away—some 10,000 of them. Not less than $2,000,000 of deposits were withdrawn from the banks, which were no longer able to make loans on real estate, and were struggling to keep themselves from enforced liquidation.’
‘All works of public and private improvement were stopped, and there was much distress among working people. Thus the spring and summer passed in deepest gloom and foreboding, and actual suffering among those who had lost all. In the fall, a better feeling began to prevail. The banks weathered the storm, for the time being, and the citizens began to hope for a steady and healthful growth for the future.’
Now that’s a selling panic.
Awesome! Next year is the 120th aniversary of the panic of 1888. How many times has this scenario repeated itself in deja vu fashion since then?
Yeah, but if you had bought at the peak in 88, and held on till now, you’d be dead.
ROFLMAO…….
So…if you hadn’t held on till now, would you still be dead….?
hmmm I am seeing a definite correlation here.
Two Thousand Zero Seven selling, whoops just a bit too late,
Now this year they gonna panic like it’s Eighteen-Eighty-Eight ….
Sung by the “Speculator Formerly Known As Rich”
(Sorry Prince)
I was interested to see if this scenario of 1888 was itself a repeat, and found evidence! I found a book printed in the 1930s and made a summary of the boom-to-bust of Chicago in the 1830s. Very spectacular, and just thinking of the amounts listing in terms of current dollars is mind-boggling:
1795 - United States purchases 6 square miles from Indians (unknown price)
1830 - land valuation (at US minimum of $1.25/acre) for current footprint of Chicago is ~$800/sq mile ($168,800)
- First sale of lots to public, highest price is $100 for 80×180 lot (September 4, 1830)
- lot along South Water sells for $42 (LOT A)
- average value of original town approx $25/acre
1832 - lot on corner of Lake and Wells (80×150 foot lot) sells for $39
- lot on corner of South Water and Dearborn (80×150 foot lot) sells for $78
- lot on corner of South Water and Clark sells for $100 (LOT B) (80×180 foot lot)
1833 - Pottawatomie Indians sell 20,000,000 acres surrounding Chicago to US govt for $0.06/acre
- LOT A sells for $66 in October 1833
- LOT A sells for $800 on November 30, 1833
- October 4, 1833, 142 lots with an average size of 3.5-4 acres were sold at an average of $60/acre
1834 - LOT B sells for $2,000 on March 15
- LOT B sells for $3,500 on June 1
1835 - LOT B sells for $15,000 on June 10
- Land in Chicago becomes so popular lots are sold at auction in New York City
- a half-interest in an 80-acre tract at the corner of Halsted and Chicago sells in NYC for $80,000 (a profit of $77,500 in a few months)
- lot at corner of Dearborn and South Water (80×180 foot lot) sells for $9,000 in March and $25,000 in December
- Owner of 272 Lake Street turns down offer of $100,000 for property
- Block 134 of the school section sells for $400 on March 20 and $2,200 on June 6
- Land farther from the center was selling for $10-$12 an acre as far as 6 miles away, but beyond that was still selling for $1.25 an acre.
- Land office in Chicago records sales of 370,043 acres
1836 - By summer, total sales value of land within Chicago is $10,500,000.
- At the prevailing prices for June 20, the 2.5 square miles surrounding the corner of State and Madison was valued at $5,900,000
- The School Section, which sold for $38,000 in 1833 is valued at $1,200,000
- highest value for a lot is at corner of South Water and Dearborn, $152,000
- average price increase for “downtown” is 1000x since 1830
- average price increase for ring around “downtown” is 400x since 1830
- average price increase for 2nd ring is 100x since 1830
- average price increase for 3rd ring is 40x since 1830
- average price increase for rest of land within present city limits is 10x since 1830
- period of most rapid advance in prices ends in July, but prices still increase slowly through the end of the year
- Land office in Chicago records sales of 436,992 acres
- Banks in Illinois hold $8,296 worth of foreclosed property
1837 - Feb 27 - State of Illinois is on the verge of a financial crisis
- State borrows money in New York and Philadelphia
- US Secretary of Treasury orders land offices to refuse bank bills of non-specie banks for land payments
- Illinois banks suspend specie payments indefinitely
- Becomes nearly impossible to borrow money on real estate or to renew existing loans
- some land owners are still able to sell for full land value into June, but with extreme difficulty
- Land office in Chicago records sales of 15,618 acres
- State Legislature extends repayment time for buyers of canal lots
1838 - Land office in Chicago records sales of 17,640 acres
1839 - US govt sells land formerly occupied by Fort Dearborn, yielding $100,000 on land that was worth $900,000 in 1836
- Lot at corner of Dearborn and Randolph sells for $200 (sold for $7,800 in 1836)
- Chicago is subdivided with enough lots for 100,000 residents at a time when only 4,000 people live in the city
- Banks in Illinois hold $57,138 worth of foreclosed property
1841 - Banks in Illinois hold $534,421 worth of foreclosed property
- State Legislature gives up, grants clear title to owners of canal lots with unpaid loans
1842 - State Bank of Illinois fails
- Total land value in Chicago falls to $1,400,000
- Land in “downtown” area worth no more than $10 a front foot
- Land in first ring worth no more than $100/acre
- Land further out worth no more than $2.50/acre
- Banks in Illinois hold $1,243,327 worth of foreclosed property
Brian:
“1795 - United States purchases 6 square miles from Indians (unknown price)”
“Indians is an insulting, archac, politically incorect term!!!The proper term is “Casino Owning Americans”.
1921 was the biggest price decline of cpi on record
no big gov bail
soon started the biggest boom
2000 was completely deferred by greenspin and big gov
or was it ?
the new year of the pig has started today (chinese) and portends bad omen for assets in general..
How does it portend for pork futures?
….hey, Hillary is running for President
I was at the Hotel Del Coronado today. They have a display in the shops area that gives the history of the hotel. The original builders went broke finishing the project in 1888, and the hotel passed to their creditor John D Spreckels in 1989. I was reminded of today’s condo projects in downtown San Diego, many likely to go BK finishing the towers.
oops… 1889
“I was reminded of today’s condo projects in downtown San Diego, many likely to go BK finishing the towers.”
Weren’t you reminded of today’s condotel unit sales — at the Hotel Del???
yes, the Hotel Del is building condos like crazy on the north side. I guess they’re not even running out of land on Coronado Island. Who woulda thought that?
A lot has been written on this blog about the boom/bust of the late 20’s in Coral Cables/Miami. George Merrick was the visionary for CG, but he died penniless, betting all of his fortune on trying to turn CG around. Now a new development which shall go unnamed is basically trying to take on his legacy. Hopefully for them that won’t include the part about going bankrupt.
Also read the big tulip mania:
http://en.wikipedia.org/wiki/Tulip_mania
“The coming layoffs of about 100 Stockton-based workers at Washington Mutual should surprise nobody. A good number of those people work in WaMu’s sub-prime lending arm, Long Beach Mortgage, one of the nation’s biggest sub-prime mortgage lenders.”
what will surprise most people is that they are unable to fefi their 2/28 I/O, that they got in Spring of ‘05, when they had a 50% Debt Ratio.
This scenario has been (or will be) repeated twice since then (1886). Kondratief 60 year cycle (60+60=120 years). Other one was the great depression.
The Great Depression happened in 1946?
I guess one could say it ended around 1946. I agree its not exact. Plus or minus 10 years ? Just thinking out loud.
sorry that’s ‘refi’ not ‘fifi’
“Fe, fi, fo, fom, I smell the blood of a clownafornian”
Sacramento Clownifornian Flipper Saga Doubled:
December 2005: SF Bay Area investor gets woman to put up credit record to buy a 2800 sf house for $495,000 using 80/20 sub prime 100% financing. They put $10,000 into the house getting it ready for sale. Hold “fake” auction in February: “First bid” over $589,000 takes the house on Sunday night. They are priced hilariously over the tanking market, so no bidders showed up all weekend.
They hold the property for 12 more months, chasing the market down in $10,000 increments. Fast forward to January, the property is in loan default. Realtor sells it for $450,000 on a short sale. Second holder takes big hit. Woman has ruined credit and leaving California (according to Realtor).
New buyer is Asian couple. Put $180,000 down payment, financing $270,000. Rent: $1800/month. Net proceeds after expenses: $1,000/month. Debt service carrying cost: $1667/mon. The new buyer has $8000/year negative cash flow.
Assuming Sacramento area properties continue dropping 6% in 2007, then hold even for four years, the new buyer will be $73,000 upside down by 2012. Good show.
Neil, we are gonna need a lot more popcorn for the second feature.
Bubblewood Elementary School Pop Quiz:
In the above referenced story-
Name the four bagholders in order of stupidity. Stupid to stupidest. Extra credit for MVR (monetary value of retardation).
“The new buyer has $8000/year negative cash flow.”
Looks like that figure doesn’t even include the opportunity cost of lost interest on the $180K down payment. At just 5%, that would be an additional $9,000/yr. in lost interest.
Well, all that appreciation they’re going to see should make up for THAT, right? Umm…..right?
Wow, with appreciation like that, I’ll run out of popcorn and wine.
I’ve decided this show is like a Russian novel. It take a while to understand what’s going on… but once you do… you’re facinated despite the shear volume of time it takes to follow the story. By the time the villages burn… its not horrific as its played out in such slow motion.
Got popcorn?
Neil
Neil, I loved the Russian novel analogy. You have to figure out what’s going on, but also have to figure the names an nicknames of all the characters to know that Alexei Fyodorovitch Karamazov is also Alyosha, or Sasha according to who’s talking. In the bubble it took me some time to figure out the variations between Adjustable Rate Mortgage, negative ARM and toxic loan, which are more or less different names for the same thing.
too_true
I thought you were going to elaborate on the Fifi thing. I’d rather have Fifi than a Refi.
“Carlsbad financial planner Judy Stewart said she advises clients not to buy a home that costs more than three or four times their household income. ‘I don’t let clients reach for real estate,’ said Stewart. ‘If they can’t afford it, they can’t afford it.’”
Right on Judy……..affordabilty is what it’s all about right now.
“Carlsbad financial planner Judy Stewart said she advises clients not to buy a home that costs more than three or four times their household income.”
That’s great that an advisor is saying that, but banks used to say that as well. 10 years ago, they didn’t want to write loans for more than 3x- 3.5x max someone’s gross income.
As for 43% of California buyers using piggyback mortgages, what happens when banks cut back on writing those 2nd mortgages, which I believe some of the subprimes are already doing? I wonder if the buyers from 2002-2006 are going to be permanently underwater on their homes.
It’s not just subprime seconds that are in trouble. HSBS recently reported big losses in regular second loans.
I think a lot of “prime” buyers got in way over their head. Looks like their about to join the ranks of the “subprime”.
yeah but if you stick to this advice, you’ll never buy a home in southern california. it’s like 9x household income now. suddenly alot of people are starting to tolerate their in-laws just to own a house. that’s just crazy.
These ratios baffle me. All my “mortgage” life, I bought at 2.5 times gross and we never had a lot of play dough left over. Having a few kids certainly is a part of that, but many of these people have children.
I was single when I bought at 2.5x gross income, and even that was tight and with no kids! Mortgage, insurance, property taxes, all the utilities, maintenance, etc.
If folks are at a 50%+ DR based on their mortgage alone, I shudder to think what the overall picture is. No wonder people have been tapping the House ATM. There’s no way those numbers will work over the long term.
I agree. Back in ‘79, my first house was 2.5 times household salary, next house in ‘88/’89 was somewhere around 3-3.5. Even the “1031″ townhouse that I bought with the proceeds from selling a condo in ‘99 was under twice my salary…and that wasn’t counting the $20k down.
9x income is worse than ridiculous. My brain wouldn’t even take that in as an option; that would be nothing less than financial suicide. I value my peace, comfort and quality of life too much than to put myself in such a position.
BayQT~
LA is 11x income, OC is 10x income.
#1 and #2, respectively, of the most unaffordable markets in the WORLD as of the LA Times today.
Willie E coyote runs out over the ledge.
As long as he doesn’t look down, he won’t fall.
But we’ll make sure he looks down.
LA, OC, Ventura, Riverside, and San Bernadino counties are toast. San Diego (obviously) too. California in a year… will be interesting.
Got popcorn?
Neil
yeah but if you stick to this advice, you’ll never buy a home in southern california.
That’s nonsense. It was less than a decade ago that the median house in SoCal cost about $250k. With 20% down, that would require a mortgage of $200k, so anyone with a $70k salary (or for a couple, only $35k each) could have qualified under the traditional rules.
I’m quite confident that, adjusted for inflation, we’ll get back to that point within the next 5-7 years.
But even a 70K salary was hard to earn when homes were 250K. That’s why homes were peaked at 250K.
We’re all not going back to good old days - our standard of living is based on cheap oil and that is ride ending.
These luxury condos and McMansions are a joke but their inflated prices and current crash doesn’t mean housing will become cheaper.
The bottom of the market is moving upwards.
The bottom of the market can’t move upwards if incomes don’t follow.
But even a 70K salary was hard to earn when homes were 250K. That’s why homes were peaked at 250K.
Maybe for individuals, but for couples? $35k wasn’t exactly a princely salary, even in say 1998.
I had the $70k salary then, but chose not to buy because of uncertainty about how long I would stay in SoCal. (Good move, as I ended up moving away and back twice in the ensuing years.)
My only point is that I could have afforded a house then under the conventional financing rules. Since then, my salary has more than doubled, but now all I can qualify for is a house in Compton, unless I’m willing to lay down a huge downpayment.
We have two choices: either everyone’s salaries must double, or prices (which are set at the margins) must drop by half. The latter seems far more plausible to me.
all I can qualify for
I meant to say, all I can qualify for under the conventional guidelines. Obviously a bank would loan me a million if I was feeling suicidal.
Fundemantals, ladies and gentlemen are like gravity, pulling you back to earth. 2.5 to 3 times household income is normal, offordable and rational.
If at the 8 or 9 times level, when you run out of steam and plummet back to earth, you may end up making a crater that bottoms out at 1.5 to 2 times.
What is likely to happen is that for a while, prices will be at fundementally low levels. Time to buy.
When you can buy a house, and I predict we’re going there, at 1.5 to 2.0 times your income, it’s buyin’ time. The real stat to watch is when median income gets below 2.5 times median wage.
Also, rents have to be approx 10% less than it costs to buy a specific house.
The problem is that when it comes to housing numbers there are so many friggin liars, you really have to dig for the truth.
Takes some effort but that is what I’m thinkin’.
This reminds me of the dot com bubble. People were saying “We don’t care about P/L and all that stuff. Just what has the stock done lately.” I don’t know about lately, but eventually it kicked their a** when it fell to earth.
Fundementals are called fundementals because they are..well
fundemental.
I meant the median house price gets below 2.5 times median wage
Arrest that woman. She’s UnAmerican. Eight to Ten times income to buy the McMansion? What say the bretheren? Satisfactory? hehehehehehehe
“Carlsbad financial planner Judy Stewart said she advises clients not to buy a home that costs more than three or four times their household income. ‘I don’t let clients reach for real estate,’ said Stewart.
If people started to follow this guideline about 2 houses would be sold this year in California. Figure it out, median price about 500K and median income about 50K. Either homes have to come down 60% or incomes have to go up 100% of alot (not a little) of each in order for this guideline to be feasable, as Sienfeld use to say”I dont see it happening”. Some things gotta give!
I bought in Marin County in 1996, and there were plenty of “starter” homes for 2.5x to 3x a decent gross income. Not anymore. It’s 6x & up, up & away from there.
I was surfing the listings in Marin County last week, and what a joke it was. Talk about a million dollar shack.
My dream home in Tucson is for sale still at close to double what its price was zillowed at in 2003, only four years ago. Let the panic of ‘07 begin!
Yes Tucson was ranked the 10th most overpriced city in the country in one of the national mags from about a year ago. You’re right on with the 2X in the last 2-3 years, its ludicrous. The for sale signs are sprouting like weeks in this Lennar development, and many of them appear vacant.
If people could only buy a house that is 3-4 times their income, then no houses would sell, that’s true at first. Then house prices would drop and then finally people would be able to buy an affordable house. The greedy banks who have offered these exotic mortgages are to blame for the high priced, unaffordable homes we have today. If they had stuck to the old way of determining affordablity, then we wouldn’t be in this mess right now.
The loose lending definitely shoulders a lot of the blame. But so do these stupid FB’s. They should have considered the purchase price of the home, not just the monthly payment on some wacked out high tech super duper superbly fantastical exotic option ARM. Apparently they never heard the expression, “If it sounds too good to be true, it probably is”.
Absolutely, the banks are the prime facilitators in this bubble, with a little help from appraisal fraud and a side dish of artificially low interest rates.
IBTD. Innumeracy and greed on the part of buyers were the primary facilitators for this upcoming fiasco. When I moved to the DC area in 2005, I got sticker shock. But a local friend advised me that his family loan business could get me anything up to 800K. No questions asked.
Sounds attractive, doesn’t it. Until you actually run the numbers. But a large number of people (> 50% ?) are not able to perform the simple ‘back of the envelope’ calculations required. And so they rely on ‘professionals’.
It’s lack of financial education, and lack of interest in acquiring the basic skills that facilitated this mess. Let’s not make victims out of fools.
“Innumeracy and greed on the part of buyers were the primary facilitators for this upcoming fiasco.”
And furthermore, it is not the drug dealer nor the kingpin’s fault, but rather the addicts who use the drug. Individual responsibility for everyone!
Gee, Stucco, “Individual responsibility for everyone!”
Thats kind of harsh!! You mean I have to move out of my parents house!! I’m only 35!!. I could afford my own place, if it wasn’t for those credit card companies, those snakes!! Hey, they sent the cards!!! It’s their fault!!
The real kicker was that my house payment doubled, my taxes tripled and my insurance quadrupled. What was that all about???? I didn’t know they could do that!!!
So, I lost my house, my wife left me (wait, that was a good thing) and I had to move into my parents tool shed.
Where was the Government in all this??? My unemployement is running out!! Can they do that???
Wait a minute….hey Ma, whens dinner???
The tool shed isn’t so bad….it beats taking responsibility for my own actions. My Ma says people are just being mean to me.
A good friend of mine just put an offer on a house in Arcata, CA that was accepted. The house has lost 10K over the last month according to Zillow, and she put in the offer for list price on the first day of listing. Both me and another friend tried to change her mind. But she went for it (sad to say, it was kind of like a “treat” for her after a bad break up). She is so screwed. I raised my glass when everyone congratulated her, but I refused to say anything. At some point we are all grown ups, and she’s going to have to live with it. I just feel so bad for her (and somewhat offended that she didn’t listed to me!)
When it comes to emotional decisions people rarely listen to advice they don’t want to hear. I’m sure at least someone suggested she go for it and she ignored everyone else. Misery loves company. Some bagholder needed someone to comiserate with…
peterbob; There’ s the whole problem in a nutshell.
Need we say more?…… Heck yea!! Sorry for your friends “unwise” decision, but it’s fun laughing at this stuff. I know it’s harder when it’s a friend, mainly because they may tap you to help them out.
John Wayne said “Life stinks when your stupid”
AMEN!!!! Why all of a sudden everyone is waking up to pure economic sense? No one questioned the stupidity on the upswing but now that prices are headed in the tank financial people are expressing what a few us knew all along, and that is, you have to pay back all of this MONEY you borrowed at insane terms!! OUCH!! and it will only get worse.
I know it’s “different” now but my intent is to buy an asset I can afford to pay off. I really want to own something outright and be able to fund my retirement at the same time. I still have 30 yrs to retirement so I still have some room. Remember when people used to throw “buring the property paperwork” parties?
I say that and people laugh at me. I was raised by a single mom who came here from Berlin in the 40’s. She grew up during the depression in Germany and she taught me to save everything but that seems old-fashioned now. I really don’t get it.
The woman that refinanced 5 times in 6 years for 58,000 in fees on a 75,000 house could have burned the (previous) paperwork several times. The modern equivelent?
Burning the mortgage is soo 20th century. The new plan is to burn the upside down house for the insurance payoff. Which brings up the question: If you’r upside down, will the insurance company pay off the mortgage, or can the bank get a defficiency judgement from you for the rest of their money?
Jim:
No and Yes, in most cases.
Gwynster,
You’re Mother’s values are what I would call “enduring” values. The values we see so many people adhere to today are what I would “fad” or “transient” values. The fad values have short lifespans because they can only exist within a small window of time while the social and economic conditions support them functionally. The window for the current transient values on borrowing has closed and your Mother’s version will be coming back into vogue soon. As you are here, you will know by now that for many of us, the enduring values have always been our guidelines and we saw the fad for what it was.
Now, as far as getting it, I have no idea why people do stupid things, but I know we do. I would guess it has a lot to do with Greed, Status, Insecurity, and being just plain bamboozled into it. If you think about the message the MSM and REIC put out as the bubble grew it was quite a powerful bamboozle. But even the bamboozled must sign on the dotted line.
And now we are in this bizarre situation where buying today for the majority of people all but guarantees financial distress in their future.
I am curious if a lot of potential buyers are still thinking this dead horse is going to spring to life and win the race?
Why else would someone buy now?
Oh, I guarantee you there are still a lot those running around.
Most people plan their yearly vacation more carefully than buying a house. This thing has not really hit the mainstream.
That Yahoo survey that said that 70+ per cent of those interviewed thought real esate prices would continue to go up.
They buy because they can handle the payments until they can not.
Around the same time, up north aways in “Redondo By The Sea”, 19th century flippers, pinned oranges to non orange trees, in an attempt to upsell their property, (the granite counter, of it’s era) to the rubes from the midwest. I think I remember reading @ one time, the railroad fare one way, from the midwest to California, was down to one Dollar, in an effort to get people to come to the pacific coast, then known for it’s fine air quality.
in an effort to get people to come to the pacific coast, then known for it’s fine air quality
Wow. Some things DO change.
“A man offering to loan money on mortgage would have been laughed at as a fool.’”
Panicking like it was 1888 — with a big difference.
“‘There aren’t bad loans,’ she said. ‘The problem is how they are being used.’”
AKA “Guns don’t kill people, people kill people”.
Ford:
“Pintos aren’t bad cars, the problem is the way people keep insisting on rear-ending them.”
GM:
“Corvairs aren’t bad cars, the problem is the way people keep insisting on driving them with windows up and the heater on.”
Yugo:
“Yugos aren’t bad….., Oh … what’s the use…!”
You know what they called the rear window defrosters in the Yugo showrooms?
Handwarmers.
A guy goes into an auto parts store and tells the clerk, “I want a gas cap for my Yugo.” “Sonds like a fair exchange to me!”, replies the clerk, handing him the gas cap. -
ROTFL
The phrase is ‘Guns dont kill people, Doctors do.’ hehehehehehe
lately i’ve been looking at the amount of money slushing about and it feels like there a huge chunk thats about to evaporate 3-7 trill.
I wonder whom will suffer the aftershock more
I only hope the banks, FB’s, and MBS investors.
Taxpayers. That would be us.
A fool and his money are soon parted….
When the market was hot, buyers didn’t ask, “can I really afford this house?” They said, “I don’t care what it takes, get me into this house!” Thus we have the fools who used “option-ARM” and interest-only loans.
Now those chickens are coming home to roost.
And they are all roosters! >:(
Bobr;
I believe that say has been revised to ” A fool and your money are soon partners”
““The high cost of local housing will continue to drive away high-paying jobs”
huh?
ah, the ‘unearned increment’ part of the #1 above is your basic Georgist vocabulary.
“Unearned increments in land are not the only form of unearned or undeserved profit, but they are the principal form of unearned increment, and they are derived from processes which are not merely not beneficial, but positively detrimental to the general public. ” — Churchill
It was this California property boom that brought the rise of the Georgist “Single Tax” land value taxation to public attention.
More quotes here.
Although this doesn’t seem to make sense on the face of it, I get where the statement is coming from.
In Sonoma county, there was, at one time, a booming tech economy. Unfortunately, as housing costs rose, the tech companies were having a great deal of trouble attracting talent. The typical midwestern engineer recruit would get excited about a $100k salary, until he saw that the typical $500k Sonoma county tract house was probably one-third the size of the one he owned in Ohio and out-of-reach anyway. The salary requirements got more and more out-of-whack with divisions in other parts of the country. As a result, those tech companies, like AFC & large chunks of Alcatel, Cisco, etc., started moving work back to Florida and Texas where they were headquartered and it was less expensive to recruit & retain employees.
My husband and I watched it happen over the eight years we lived there. As jobs left & hiring stagnated, his days got longer and more stressful, and we lived in constant fear that his employer would close up shop. (His former employer is still there, but hanging on by a thread.) Finally, we’d had enough. We moved back to the middle of the country. We have a much more comfortable life here, and while I miss the good times in CA very much, we know that we can’t ever go back.
I thought Churchill said “Lets bomb the Germans!”
Ah, an idea that still resonates today!!
“When I get sellers who take my advice, I can still sell a home by the optimal day – the sixth day of listing – with an offer that’s above the asking price. But not all clients will take my advice.”
I believe it is still possible to sell a home in San Diego within six days, if the home is priced to market value. Apparently, lots of sellers are overestimating the market value these days…
“I believe it is still possible to sell a home in San Diego within six days, if the home is priced to market value. Apparently, lots of sellers are overestimating the market value these days…”
You’re right. And the truth is, a lot greedy sellers are shooting themselves in the foot. They could still reap a lot of the rewards of the bubble if they were realistic. While prices are certainly off from peak, they are still pretty good, and better than they are gonna be soon. The smart ones are realizing this and taking what they can get. The losers are riding their homes to the bottom.
“The smart ones are realizing this and taking what they can get.”
The smart ones are lowering the comps to levels that are driving the idiots’ wishing prices further and further out of reach.
As in, virtually 100%. Anyone have a clue as to how many housing units sold in San Diego within the first (original first) six days of listing?
If you let me list it for $100.00, I bet I can get $200.00
Would you buy my car for a dollar? Heck yea, sight unseen! Would you buy it for a Million dollars? What are you nuts? In the “Mona Lisa” in the trunk?
If you advise you sellers to list way below market, heck yea you can sell a house. If sale are down 30%, yoy, that means that thay are selling at 70% of last years level, which is still a lot of houses. The cheap houses sell first. Even in a good market.
I’m sure that statement is completely true.
So now if lenders are deciding not to offer 80/20s in subprime, and certain stated loans, and there is no change in rates or the bwr’s income, or even if housing prices stay the same…they are still in trouble.
How?
Because if they had an ARM the margin on subprimes is normally 5-7%, that’s plus the index, which is usually the 1 yr Treas. or LIBOR (anywhere from 3 to 5.5% over the last 5 yrs). Most have an initial cap ranging from 1 to 3%, and then every 6 mths or a yr a periodic cap ranging from 1 to 3%. Typically a lifetime cap is 5 to 10%.
So, given that most people that did subprime purch deals put down less than 5% over past 3 yrs they have little to no equity when the 1st reset comes (typically, 6 mths, 2 yrs, or 3 yrs). Say the avg rate was 8% on a 2/28 purch. Now its reset time (Index + Margin) =
(5 + 6) = 11, but it’s capped at say 1.5% So they go to 9.5% then next yr 11% (if the index were to remain).
You can see how painful this will be if they can’t refi.
This is also the ‘non interest only’ senario.
The interest only senario is much uglier.
50% DR become 75% Debt Ratios.
Thebiggest question is how many of the 1.3 trill in subprime are ARMs, and how many can not be refied, divided by the average loan size (about $180,000),
should give a idea of how many homes will hit the market.
One of the results of this, absolutely for-sure, will be the return of seller financing. Desperate sellers anxious to avoid foreclosure will take back the second, probably pulling their 401K money to cover the short sale. So they’ll just get screwed a little later on, when the buyer is belly-up, instead of right now.
For what it is worth, I found this at the Center For Economic And Policy Research. http://www.cepr.net/ As a defination of Appreciation associated with their housing affordability calculator.
“Appreciation: Historically house prices have moved in step with the prices of other goods and services, like food, cars, and energy. The last eight years have been unusual since house sale prices have on average hugely outpaced the rate of inflation in other items, although there are large regional differences. No economist has been able to identify any underlying factors of supply or demand that would explain the sharp run-up in house prices. In the absence of fundamental changes in the housing market causing higher prices, it is highly probable that there is an unsupported “bubble” in the market– similar to the tech stock bubble of the late 1990s.
This Housing Cost Calculator assumes that house prices again follow their historic pattern of just keeping pace with other prices. This means that those areas that have seen a sharp run-up in house prices will see a sharp correction. For simplicity, the calculator assumes that this correction occurs over the period that the person expects to own the home. This assumed timeline may be too quick if the intended period of ownership is very short. On the other hand, it is also possible that prices will over-correct, with houses selling for less than their long-run values for a period of time, as happened with many tech stocks after the collapse of the stock bubble.
This simplification misses many specific factors affecting the prices of a particular house. Some areas have simply become more desirable places to live during the last eight years, and therefore some of the increase in house prices in these areas will likely remain. Within metropolitan areas there will be important differences between neighborhoods, with some areas rising in price relative to others. Finally, a specific home may have features that cause its value to rise relative to other homes in the neighborhood.
In short, the Housing Cost Calculator assumes that the path for all home prices, from 1997 until the owner’s projected sale date, will follow the historic average path of home sale prices nationwide. In fact, the prices of some homes will rise more rapidly than the national average, but the price of some homes will also fall relative to the national average.
The calculator assumes that house prices will drop by the amount that they have risen in excess of inflation. For simplicity, this is assumed to take place during the time that a home buyer is holding the house. It may take longer than that, but there is no way of predicting how long it will take for the bubble to deflate. Since house prices have not, over the long term, risen faster than inflation, there is every reason to believe that the bubble wealth created over the last eight years will disappear. The calculator therefore takes into account the expected losses for potential home buyers at present, assuming that the bubble-inflated prices return to normal while they are still holding the house.”
The also have an interesting PDF white paper: 2007 Housing Bubble Update: 10 Economic Indicators to Watch.
WOW. I ran my numbers. It said if I can rent for less than $2,700/mo. I should rent. Lucky me, my rent 1/4m of that!!
Dude, everybody knows renting is where it’s at.
dc area - on a 750K purchase, 20% down, sell in five years….
“if you can rent for less than $6,500/month, renting may be a better option.”
Oops…I hit the send button too soon…
Correction, “if you can rent for less than $9,500 month, renting may be a better option”
lol - For $9,500/month, I might have a shot at shacking up with Dubya in the Lincoln Bedroom.
Not that I’d want to.
Yeah,
kicking Jeff Gannon and Condi out of that bed is probably more trouble than it’s worth…
–Shannon
Just checked for a $600k (median priced) dwelling in Orange County, with 10% down, 6.36% interest rate. Even if I stretch the time horizon to 30 years, it tells me that I am better off renting if I can find a place that rents for $2500/month or less.
Given that $600k would only buy a condo here, I expect that if anything, their appreciation assumptions are optimistic. In a normal real estate market, it’s quite reasonable to expect that a condo won’t even keep up with inflation, and almost certainly will not if you include the association fee.
P.S. This calculator asserts that Orange County will enjoy a 63% real deflation to revert to trend, then track inflation (i.e. zero real appreciation) after that. That might be the most bearish predication I’ve seen yet. Needless to say I will be overwhelmed with jubilation should the chance arise to buy a house at 37% of its current price!
Looks like SF condo market is tanking HARD
“Okay, so for a while we’ve been hearing rumblings from brokers to builders that the developers of The Infinity have been considering going rental rather than sales with their second tower (at least initially). That being said, we haven’t been able to confirm it as fact.
And now according to Frederick, it’s rumored that One Rincon Hill’s second tower has been put on hold. Once again, we haven’t been able to confirm (and we’re not sure if that’s simply sales, actual construction, or both).
If either of the rumblings are true, it’s not particularly positive commentary on the near-term strength of the market (particularly with regard to new development absorption). On the flipside, either action would increase the near-term scarcity of ownership opportunities in these developments (and help throttle back San Francisco’s current pipeline of condos).”
http://www.socketsite.com/archives/2007/02/two_very_big_unconfirmed_rumors.html
I say: “Very overpriced shoebox SOMA/South Beach San Francisco condos for everyone!!”
Including one for each of the realtors lying about the state of the market around here.
I’ve been saying for a long time that many could become rentals before they are sold.
Why would anyone buy one of them?
Someone would have to pay me to live in one of those.
flags of our fathers
had to sell war bonds
now they just print the $$$$$$$$$$$$$$$$$
interesting lines in the movie
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/02/18/REGL7O6FH81.DTL
“So overall, Bay Area housing has always been expensive and over the years it has become even more so. However, there are a variety of financing options available today that are allowing individuals to break into the market. Just realize that you may need to live farther away and more than one person in your household may need to be pulling in an income. The good news is that your property taxes will rise at only modest levels and your homeowners insurance premiums may even decrease.
Also, keep in mind that home appreciation is on hiatus. With interest rates still near record lows and a healthy inventory, that certainly makes for a buyer’s market. Of course, if history is any indication, prices will start to climb again before you know it.”
Tell that journalist it’s more likely prices will fall again before you know it.
Regarding all these properties purchased thru subprime loans and the upcoming wave of foreclosures in LA:
In Long Beach, CA I have been scrutinizing the 80 foreclosed properties and also perusing the 550 NOD’s. The prices folks in long beach payed for these defaulting properties is astounding. $700,000 -800,000 for 5/3 or 4/2 or even 3/2’s, 1500-3000sq ft, 50-80 yr old SFH’s in really crapped out areas of Central, north and westside sections of LB. Probably quite a few of these FB’s took out MEW’s. The small 2/1 WWII-built shoeboxes show average $350,000-400,000 for default amts.
Long Beach is a very close representation of the entire LA county Market. If what i see on defaulted loan amts is any indication, Lenders, banks, and the secondary holders are really going to get pummeled on all the defaulting overappraised properties in LA. We might be talking about 10’s of BILLIONS in loan/property devaluations/bank losses for waaaay overappraised prices on thousands and thousands of defaulting POS properties JUST IN LA COUNTY, especially the inner LA areas.
POSSIBLE MOTGAGE FRAUD ALERT FOR PALLADIN:
property on Adriatic st in Long Beach 90810, a NOD. Amt of loan-$979,153. 3/1, 1012 sq ft, SFH , yr 1944. Comps in area are $450,000=500,000. Look in Foreclosure.com under pre-foreclosures, listing page 2 or 3.
Can,t give more details as i do not subcribe/register on any RE marketing site.
A Lot Of Sellers Are Still Being Unrealistic In California
NO! right now ALL Sellers are stuck on a cloud after a fluke in economics which will not be repeated for some time. Prices are at least twice what they should be in CA.
Real estate brokers keep the illusion going by continuing to claim if only their magic pricing formulas are followed, generally 5 to 10% lower than market high prices
All will then supposedly be well they assert
The reality is that potential buyers have always had the ability to make offers way below asking price
100% price appreciation in many markets over the last 5 yrs which has induced massive overvaluations - is not going to be fixed by slight price tinkering
Ventura County reality check:
“This year should be a good one for Ventura County’s economy, with rising employment and incomes, …‘We are seeing very low population growth and very strong economic growth in Ventura County,’ said Bill Watkins, … The high cost of local housing will continue to drive away high-paying jobs, he said. As an example, his report pointed to Technicolor’s recent announcement the company is moving hundreds of manufacturing jobs out of the county.”
OK, I live in Ventura County and have recently worked for Amgen and Countrywide and others. Here’s the reality. 1. Countrywide is the largest area employer. Nuff said. 2. Companies I work for need to pay $100K+ to attract experienced engineers or software developers, who would be making $65-80K/year in Denver or Dallas. Even then they must give concessions and 1/3 of the people I work with telecommute or work from home in other states. 3. Amgen bought 240 acres in Longmont, Colorado. That’s bigger than their Thousand Oaks Campus. They’ve announced plans to move 2,000 jobs by 2008, but they’re probably going to do something with the other 85% of their land there… or maybe go into cattle ranching. Yes. That must be it! Engineers at Amgen are actually jumping at the chance to move to a place with good schools (by CA standards) and $265K McMansions. 4. Enrollment in Conejo Unified blue ribbon schools is dropping about 8%/year now as families leave; enrollment at Mexican ghetto schools in Oxnard is not dropping as fast but graduation rates are. 5. The jobs that are “safe” are an hour away in Los Angeles. Yes, you can spend 2-3 hours/day commuting and make $100K/year and buy an $800K house in Ventura County or spend 30 mins/day commuting, make $80K/year and buy a $220K house in a place with better public schools and lower crime in 45 other states.
Of course some people like to surf so they won’t leave. We call them renters.
It’s not JUST the jobs that are leaving, but qualified professionals who have worked for 5-20 years and want to own a home are leaving for other cities/states where they can afford a home and a reasonable lifestyle on a single income. Now that home prices are clearly falling, those who do own homes are starting to jump ship and this outmigration is accelerating.
Yeah, the outlook is… er… good! (If you’re an eviction/foreclosure/prison industry/relocation assistance professional/gardener).
“Companies I work for need to pay $100K+ to attract experienced engineers or software developers, who would be making $65-80K/year in Denver or Dallas.”
“It’s not JUST the jobs that are leaving, but qualified professionals who have worked for 5-20 years and want to own a home are leaving for other cities/states where they can afford a home and a reasonable lifestyle on a single income. Now that home prices are clearly falling, those who do own homes are starting to jump ship and this outmigration is accelerating.”
This is exactly what I was referring to in my earlier post about Sonoma county. We finally go to the point that we couldn’t take it anymore, so we moved to Colorado. My husband found a job with a great tech company, doing the kind of work he loves without the constant stress. His salary turned out to be higher, believe it or not, especially once we factored in the lower taxes, and I no longer have to work to make ends meet. We settled in a small town outside Denver where the houses were affordable and the public schools were infinitely better. I’m not sure why we waited so long.
I hear you, we did the same thing. In my case, it was my wife that insisted that we moved back to her hometown and it was the best thing that we have ever done.
There was culture shock for me, since it took me a while to adjust; but now I would not trade it for nothing in the world.
the problem is even when making 100k+ in Silicon Valley a SFH in the south bay area is still 6-10 time their gross income.
People are commuting 2+ hrs ONE WAY to get live in a home they can afford and get to the job that pays for it. These people don’t see there children and days at a time and spouses only briefly.
When does quality of life out weigh ‘keeping up with the jones’?
“These people don’t see there children and days at a time and spouses only briefly.”
Bingo!
Of course some people like to surf so they won’t leave. We call them renters.
Renters are looking pretty damn smart compared with anyone who has bought in the past couple of years, let alone anyone who buys in the near future!
I’m a genius!
‘Renters are looking pretty damn smart compared with anyone who has bought in the past couple of years, let alone anyone who buys in the near future! ‘
Hey, I’ve been a renter too for nearly two years now. I agree with your statement but was pointing out that those staying in Ventura County (and the components of the population that are growing) are not those likely to purchase mortgages even when prices correct to the inevitable point when they reflect incomes.
You may be right, but I’m sure there will be no shortage of people to pounce on the new bargains once this cycle has bottomed out. Those will be the smartest ones of all. Here’s hoping that everyone on this blog gets that chance, if that’s what they want!
Thats what I live for.
Incidentally, this is my forth Bubble, and the worst in terms of unrealistic appreciation.
Guys, I made tons of money on the first three and hope to on this one. I’m 55 so this is my last round.
I mean whats the point of all this talk if it isn’t to ultimately profit from it.
Yea, I’m a greedy capitalist. Whats your point?
Good hunting to all you smart folks out there!!!
In the stand off between buyers and sellers we are the point where the trickle of sellers who are freely giving in becomes a torrent. More cool-headed owners are beginning to understand that they will not have a better opportunity to sell.
Posted from another, recent thread:
Comment by jerry from richardson
2007-02-18 16:10:44
“Lenders packaged their loans and sold them to Fannie Mae and Freddie Mac, which many people allege are backed by the taxpayers. The lenders get the profits and passed the risk on to taxpayers. Isn’t American capitalism a great thing?”
This is really the crux of the problem, isn’t it? Kill Fannie, the bubble dies, problem solved.
You might have a better chance of killing Social Security. The GSE’s are sacred cows. They were created to “help” Americans buy homes. I read they bought 35% of non-conforming loans in 2005 and 45% in 2006. Fannie is holding the bag for the homeless guy who bought those 12 houses in Tampa.
Then let’s stop blaming the realtors, D.L., Greenspan, Bush, the banks, the mortgage brokers, etc., because all the participants are acting in their rational best interest considering Fannie Mae is standing by as this government sponsored bagholder.
Killing Fannie wouldn’t be simple but, come on jerry!, it would sit better with most than outright killing Soc. Sec.
Once housing has become fully entrenched in it’s slide and sellers understand that the glory days are behind them and people are sick of RE and no longer consider it as an “investment”, that’s the time to explain to people that all Fannie does it hold/drive up the lower end.
At that point, it could be pretty easy to kill that nasty girl Fannie and her stinky brother Freddie.
Fannie, Freddie and FICA will all die without any help, thank you.
Jerry:
“Isn’t American capitalism a great thing?”
I would change that to “Isn’t American taxpayer a great thing?”
No kidding. Since when does a bloated, socialistic risk-redistribution scheme have anything to do with capitalism?
As long as southern Cailfornia sellers continue to cling to their greed on a house price, inventory will continue to grow. The house market will stall until sellers become realistic on the “buyer’s market”. Buyers are way too smart to pay the high prices on houses today, not when there’s foreclosures galore — they are prepared to wait until sellers loosen their grip on the market.
It’s a battle between “sellers and buyers” and in the end buyers will win, but sellers will have to learn the hard way.
Incredible inventory is growing daily — it’s no longer just a rumor — it’s truth and it’s here right now !! With all the illegal immigration and tax problems that California is facing — one wonders how much houses will be worth in the future. The state is not getting richer, but poorer. California’s future is very worrisome.
Native Californian here. I want to add to your comment. Renters have the advantage of very low housing costs and can wait as long as it takes for prices in California to come down to 50 cents on the 2005 dollar. The money that they otherwise would have to now pay in PITI should be going into series I savings bonds - the federal income tax on interest can be deferred for up to 30 years or until the bond is sold, whichever is first. The Series I bonds are state income tax free. The current rate is 4.52% with 1.4% of it fixed for 30 years. T-bills incur a federal taxable gain when they mature, and that’s at most 6 months. I still like T-bills with the slightly higher rate than savings bonds, but I am definitely biased in savings bonds. I want to keep as much income out of the liberals hands during the next 6 years when they will have power in Washington to destroy more of America.
The smart people are moving and the really smart have already left.
Well. I just had an interesting debate on Craig’s List. Evidently, if you commit mortgage fraud it’s not really fraud if you only do it once and it’s for your actual residence.
I wonder if this means that if you rob a bank (same as lying on a loan, only with a gun), and only do it once, that means it’s OK and you won’t be prosecuted.
Really, what’s other than the gun, what’s the difference? Either way, the bank is giving you a large sum of money that they wouldn’t otherwise.
Here is one for the fraudsters: Income gained thru fraud is subject to ordinary income tax in the year received. Interest padi on the loan amount in excess of the true purchase price is not deductible. Say you pulled $250,000 out in mortgage fraud. Please forward $107,500 to George W. and Arnold (in CA). And if you deducted the extra interest, the audit will get you for 10% penalty and 8% interest, for the 43% recapture you owe. The IRS will pay anyone 15% to 30% for reporting your fraud. That provides a $20,000 to $40,000 incentive for your jilted (ex-wife, girlfriend, lover, neighbor, …..) to turn you in and collect.
Watch your backs……..fraudsters.
Great little side income for retired flippers. Keep in mind, however, that the FIRST person the IRS investigates in any fraud dispute is the tipster.
“if you commit mortgage fraud it’s not really fraud if you only do it once and it’s for your actual residence.”
That’s correct. Also if you commit murder it’s not really murder if you only do it once and you kill your actual wife….or a Realtor, or a reasonable faxcimily, there of. I think they just added Ex Mother in Laws to the list.
Capitalism (or its hybrid form as practiced in the USA) despite it’s flaws works better than any other system. Socialism generally is great at dividing up all the poverty it creates, and at best demotivates the most productive members of a society.
The problem is the politicians are going to want to bail out people from making stupid decisions the last few years of this bubble - and that will only hurt things in the long term
Harry;
The problem is the politicians are going to want to bail out people from making stupid decisions the last few years of this bubble - and that will only hurt things in the long term.
Thats my biggest fear. Bailout the speculators with taxpayer money.
absolutely killer thread from SDCIA, lol: (Jeff divulges all of his investments, which he bought based on an article detailing the percentages of undervaluation in various cities around the US, Jeff tells us how many houses he bought and where, in 2004-5. Fast forward to the end of the thread and Jeff details some disasters in FL and crows about successes in SLC):
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=444014
From that same thread…
mstrom: “I have some great news for El Paso investors! I’m working with one of El Paso’s top home builders to construct 253 investor homes in one subdivision (I’m a broker in Texas and California). The homes will be managed onsite (similar to an apartment complex) by El Paso’s premier property management company…”
[shudder!]
Here’s part of Jeff’s post dated 1-8-07, towards the end of the thread. This guy has 14 houses, geographically scattered, hugely leveraged, looks to me to be hanging by a thread:
———————————————————-
“I am having difficulty renting two properties. One in ABQ (slow time of the year) and one in Cape Coral (too much competition or bad PM, I can’t decide). These two houses alone are costing me ~3k a month. Ouch!
Unexpected issues? Not really…other than the aforementioned vacancies–which are bad.
Can anyone connect me with someone in Cape Coral who can rent/LO my homes out?
I have one more home to close on out of my original 14 purchase agreements. It will be almost two years from signing the purchase agreement. During that time it went up at least 50k…and then down at least 50k. Oh well…
My equity position is listed earlier in this thread–no significant changes. Basically I have turned a 198k equity position in my personal residence into a 300k to 500k equity position in 14 rental houses–plus the right to never pay Federal income tax again. This new equity position is currently costing me 3k a month, when I rent my houses it will only be costing me about 1k a month (or less?).
Debt juggling is just fine, I have had to hit my “back up” cash reserves twice lately to cover vacancies–each time for 5k. Ouch. Without those darn vacancies I would be about break even…”
He refi’d his personal residence for $198K to buy 14 houses!!! OMG!!! He’s neg cash flow, using borrowed money to make up the difference!! OMG!!!
He bought at the peak 2004-5!! OMG!!!
LOL hillarious article. but I gotta admit he really has brass ballz to leverage your personal residence to the hilt in order to speculate in places you have never been before in your life just based on one source of information (not even two sources) you gotta be pretty insane. I agree he won’t have to pay taxes until he goes broke and it’s written off in bankruptcy so if thats his strategy its definetely working.
His “equity position” is costing him $3000 a month?
It’s the “debt = wealth” paradigm.
Oh brother…do any of these specuvestors see the value in actually having 3K of cold hard cash coming in each month? Or is a drain of 3K a month somehow more sexy, as long as it’s called an “equity postion”?
From later on in that post:
“My advice to others. Buy houses for very little money down, sell them when they go up a lot. If they don’t go up a lot then don’t buy them.”
Thanks Jeff. And how, precisely, am I to determine if they’ll go up “a lot”?
Casey could learn a thing or two from Jeff!!
Notice his tagline: “The first million is the hardest.” Does he mean it’s the hardest to pay back?
Obviously he’s in hiding at this point, probably in a foreign country wearing a disguise
Years back Houston houses could be bought in 30 to 40k range in the late 1980’s after the crash - many in good neighborhoods. However the big difference then for those buying multiple properties was the loans were generally assumable VA and FHA’s - making them easy to unload - and most important the principal balances owed were typically 1/10th or less of most investor houses today -with very fast rent-up which typically only required 400 to 500/month to go positive on cash flow
Alot of these crazy “investors” are going to go under - they’ve dug themselves in real deep
Seems like the realtors have bought into the false premise that “the housing market always goes up !” more than most people. An absolute squalid dump in “the upscale” Kensington neighborhood of San Diego just sold for around $500-550k. The buyer is a realtor who plans on scraping all the dog-poop off the floor, slapping some fresh paint on the walls and then renting it out for an unrealistically high $2500 a month. My quick-and-dirty calculations tell me that even with 20% down she’ll be over $2000/month in the hole. How can somebody delude themselves into thinking this is a good fiscal move…especially one of our very bright real-estate professionals ?