“It’s An Oversupply And An Inability-To-Buy Thing”
A report from the Arizona Republic. “Marilyn Olinger can give you a tour of her house, but it won’t be the kind from a beaming new-home owner. Instead of bragging about the space or crown molding, Olinger sees only flaws: a peeling porch roof, flaking stucco, chipped doors, bowed walls.”
“She contracted for a new home more than a year ago and has spent countless hours calling the builder to get workmanship problems fixed. ‘I have been through hell and back for the last year,’ Olinger said.”
“Cheryl and Joey Gustafson are also fed up. Crushed ductwork when they moved in resulted in enormous electric bills during the hot months. The tile floor in the master bedroom has cracked, and a bowed wall has Cheryl concerned about the foundation.”
“‘We’ve spent no less than 100 hours of effort to repair and make phone calls,’ she said. ‘The stress was horrific. I told myself if I don’t relax, I’m going to kill myself.’”
“The Gustafsons have been reimbursed for repairs, but…calls to the builder left them feeling like they got the runaround or their home was subpar. The Gustafsons paid about $376,000, but ‘as far as I am concerned, these homes are worth substantially less than what we’ve all paid,’ Cheryl said.”
“‘A big piece of crown molding just fell on my head,’ said Eric Barna. ‘I was cooking and closing a cabinet and it just fell. That’s pretty crazy.’”
“Barna said the first night he moved in, he said, the plumbing was clogged up. Then there’s a wavy fence he’d like fixed, walls that aren’t level, scratches in appliances. ‘This has been a long, ongoing thing,’ Barna said. ‘They’ve worked on some stuff. At this point, I don’t think anything else is going to be done.’”
The East Valley Tribune from Arizona. “With once-massive waiting lists dried up and thousands of homes sitting empty in new subdivisions, Valley builders are trying to jump start sales by offering hefty financial perks to real estate agents.”
“The market turned, inventories shot up dramatically and homes began sitting on the market longer. It’s a cyclical process, said John Fioramonti, managing director of real estate research firm Hanley Wood’s Valley office. When the market is hot, builders don’t offer commissions or incentives, he said.”
“But when the market turned sour in 2006, they began giving 6 percent to 10 percent commissions, Fioramonti said. ‘That’s outrageously high to try to mend some fences,’ he said.”
“From a marketing standpoint, reaching out to real estate agents is more cost effective because they have instant pools of buyers to tap, Fioramonti said. Valley builders need to rid themselves of an estimated 12,000 to 14,000 homes.”
“It’s not just the builders who are offering incentives. Homeowners trying to sell existing properties are too, said Frank Dickens, president of the Arizona Association of Realtors.”
“Dickens isn’t convinced, though, that offering incentives to agents is a major advantage for sellers. ‘A good broker will do what’s best for a certain consumer,’ he said. ‘The last thing they look at is what the compensation package is.’”
The Review Journal from Nevada. “Home appreciation in Las Vegas has slowed dramatically from the torrid pace of two years ago and turned negative in some areas of the valley last year, a local housing market analyst said.”
“With nearly 18,000 homes for sale on the MLS and sales of existing homes down 24.1 percent in 2006, prices started to slide at the end of the year. The Greater Las Vegas Association of Realtors reported a 2.6 percent decline of median home prices in January to $302,000.”
“Kurt Lehman of Realty One Group found it ‘hilarious’ that consultant Steve Bottfeld predicted positive home price appreciation at the Crystal Ball 2007 housing seminar in February. Lehman said prices have to come down after the spikes of the past few years.”
“‘Simple economics says that 25 (percent) to 35 percent appreciation in housing asking prices doesn’t work when wages and salaries only go up maybe 3 percent,’ he said. ‘It’s an oversupply and an inability-to-buy thing. The market cannot bear these prices.’”
“The percentage of people who could afford a median priced home in Las Vegas dropped from 79 percent in 1999 to 14 percent in 2006, John Restrepo of Restrepo Consulting Group said. ‘We’ve had (price) adjustments here, but it’s not making homes any more affordable,’ he said.”
“Lenders were bending income-to-expense ratios three and four years ago to get people into 100 percent mortgages, literally more house than they could afford, Lehman said. Now Las Vegas has the second-highest foreclosure rate in the nation, he noted.”
“A local homeowner who asked not to be identified put his home on the market last year at $430,000 when comparable homes in his northwest neighborhood (ZIP code 89131) were $450,000. It sat for months. He kept lowering the price and recently sold it for $350,000.”
“‘I still do not know why this home did not sell in the $400,000 range,’ he said. ‘I have just about every conceivable upgrade in this house.’”
“Bob Hamrick, CEO of Coldwell Banker Premier Realty, said what happened in Las Vegas is not that properties are worth $100,000 less than they were a year or two ago, but they may not have been priced accurately then.”
The Las Vegas Business Press. “The modest increase in taxable sales last year indicates that, relative to Nevada’s population growth, discretionary spending is declining, an analyst said Thursday.”
“‘We’ve seen the per capita spending, in the aggregate, in decline,’ said Brian Gordon, a principal with Las Vegas consulting firm Applied Analysis.”
“The latest figures indicate that taxable sales fell in seven counties last December compared to the same month in 2005. They were Carson City, and Churchill, Clark, Lincoln, Lyon, Storey and White Pine counties.”
“Gordon said this decline in one of the state’s largest sectors proves consumers have been less eager to open their wallets compared to 2004 and 2005. The state is still rebounding from a housing market that did an about-face starting in late 2005.”
“‘We’re in the process of the real estate market finding a new equilibrium,’ he said. Many consumers have money tied up in real estate they can’t offload because of softening demand, Gordon said. He speculated others may be playing it safe now that their net worth is leveling out or declining.”
It’s not just in Arizona:
‘Problems with Sean Bourke’s new home started with what he calls ’small stuff.’ Pools of water gathered in the driveway. Chunks of limestone broke off the outside walls. Heat stopped flowing to the upstairs bedrooms. New neighborhoods such as Bourke’s, the Legends of Hutto subdivision, are common in Hutto. In the past five years, 3,855 houses have sprouted in this city that was home to only 1,250 people seven years ago.’
‘Luxury condo projects are struggling to go vertical due to high construction costs and inexperienced developers, says Restrepo Consulting Group, a Las Vegas-based economic research firm. There were 136 projects totaling 71,519 units as of mid-February, yet only 9 percent are coming out-of-the ground. Another eight projects, combining for 3,654 units, have also broken ground.’
‘While Strip views are an attractive feature to many out-of-town buyers, Las Vegas still lacks the ocean/water views would make it as prominent a high-rise condo market as cities like Miami, Seattle, San Diego, Chicago and Vancouver,’ said Restrepo. ‘Our research also shows that 70 percent of the projects that have gone vertical are located in the resort corridor and 85 percent have been purchased by second homebuyers, investors and speculators.’
‘In Las Vegas alone, 5,688 properties are in pre-foreclosure, 2,926 homes are up for auction and 3,918 bank-owned homes are for sale, according to RealtyTrac.’
The shoddy construction is EVERYWHERE. And it extends throughout ALL the builders. ANYTHING built during this bubble (2000-present) is highly suspect, IMO. What you get on a job site is maybe 1 or 2 journeymen supervisors and the rest are all hispanic laborers. I only mention hispanic because I would bet many are not even in the US legally. I’m also fairly certain that many if not most of them are quite inexperienced in building homes. Not only is the bubble going to implode, but people’s homes may also! Truly a pathetic example of how craftsmanship and pride are going away in our culture.
“Not only is the bubble going to implode, but people’s homes may also!”
This reminds me of an issue I think about occasionally, which is whether there will be a post-bubble reassessment period, when market fundamentals sort out the actual value of bubble-era construction compared to what was built previously. My guess is that the market value of bubble-era construction will drop faster than the market value of everything else, to reflect shoddy construction as it comes to light through careful inspection.
Interesting question. I’d certainly pay a slight premium for something that has proven itself against the test of time.
Here in CA, the most interesting cases to watch will be the condos. Construction defect law remains for 10 years after completion, and even when carefully put together condos and other attached homes can be problematic.
I’m not sure bubble-era homes will drop that much *faster*, but they will definitely drop. Fast-forward to 2035, and homes built in the bubble-era will probably be less desireable in the eyes of home buyers. Buyers will go for homes built before the bubble, and homes built after the bubble. It will simply be statistically safer.
I don’t think people’s memories are that long. Most people today don’t even remember that there was a bubble 15 years ago.
Yeah, in 2035 they’ll be saying things like “what bubble? real estate only goes up”. They will have forgotten the bubble of 2020, not just the one from 2005.
2035? - I’ll probably be gone.
I am on record for predicting 2035 is when houses in the bubbliest parts of CA will get back to late 2005 prices in nominal terms.
Stucco- I’ve been thinking the same. Centex may be getting all the kudos & awards in NorCal (JD Powers etc) but that’s only relative to the POS they’re competing against. I’ve just begun my DD but I’ve already ruled out post-2000 SFHs. Would love to learn more (here?) from those who recognize good craftmanship.
I would mostly agree. In the midwest, your average SFH these days has vinyl siding (ok, maybe brick in the front), foam core, standard insulation, and then sheetrock as the inside wall. Thieves are starting to realize that all they need is a utility knives and 45 minutes to cut their own door.
Around here, high rises are the only newly-built buildings worth trusting. Unions make sure they are the only people on site and the city keeps a good eye on construction. The permitting process and energy-efficiency requirements ensure pretty decent quality and keep the fly-by-night developers working on small stuff.
isn’t building in the desert and FL kinda simple- no basement, just a slab and CBS ?
If by CBS you mean Card Board and Stucco, that would be about right.
That’s a very good point. When I look at the homes I have owned, it is quite interesting that the ones that drew my attention were older home. My first house in Seattle was built in 1935 by a plasterer. It had beautiful ceiling detail, an amazing fake stone exterior, and a fireplace surround that I thought that I thought was sandstone, until I started to strip the paint off. I have to say that insulation, wiring, etc. was not current, but those were minor details, easily rectified. My second house was in north Seattle (Lake Forest Park) and was built in 1935. I did lots of insulation type upgrades, but the structure was great. I currently live in a house built in 1929, in Napier, New Zealand, that survived the 1931 earthquake with no damage. The original kauri wood has been refinished, the cedar paneled front lounge with kauri flooring is immaculate, the closets, trim, windows (with original brass openers) are wonderful. Maybe we need to think nore about what lasts and what is functional. I doubt that I will ever purchase a new home, unles I have built it. They used to know how to build, and time has validated their skills.
Here in Florida, there was so much construction, there were not enough official inspectors to handle the load, so the state gave builders permission to hire their own inspectors, with consequences every bit as bad as those described here.
Even with real inspectors, Florida construction has always been horrible, and we’ve always joked that inspectors report whatever they’re bribed to. Building houses out of particle board with styrofoam “architectural features’ all liberally sprayed with cheap stucco in a hurricane state is simply beyond belief. Yet, I would venture to guess 90 percent of all home construction here is exactly this. The particle board crap actually turns to sawdust when it gets wet, and they use it for floors, stairs, outside and inside walls, roofing underlays, and anything else they can staple together. The styrofoam is interesting, because you can stick your fingers through it. Crown molding and floorboards are made out of plastic.
This junk, even before the bubble, wasn’t worth a fraction of the asking price, but during the bubble it got much, much worse. Some building sites had nothing but illegals working, none of whom could read instructions printed in English, and many of whom could not read instructions printed in Spanish. All our officials turned a blind eye or openly encouraged the hiring of illegals. Many, I suppose, invested heavily in condos and houses themselves.
“so the state gave builders permission to hire their own inspectors”
Ha! I did not know that. Perhaps these inspectors also were licensed appraisers. Kill two birds with one stone.
Florida Statue 553.791 allows for Private Provider Inspectors. This allows a builder to pay for inspections. Contact your legislator and demand more oversight of this process. You can file a complaint with the DBPR (Department of Business and Professional Regulation) against the inspection company. I have filed complaints against my builder and inspection company. The investigations are still in progress.
“‘We’ve spent no less than 100 hours of effort to repair and make phone calls,’ she said. ‘The stress was horrific. I told myself if I don’t relax, I’m going to kill myself.’”
Will this be the first suicide of the housing bubble?!@#
-R
Houses take maintenance, even new ones. Anyone who thought that a new home would be perfect and maintenance-free needs to relocate out of fantasyland.
Agree with you that homes need upkeep, but this is different. Your walls should not be bowing, and your ceilings should not be peeling/separating this soon after construction. Debris should be cleaned out of the plumbing, and doors should be properly hung. The fact of the matter is that these homes are utter crap, and I think the builders should be held accountable in the egregious cases.
That all being said, they should have thought twice about buying a bubble home. Anyone could see how rapidly those things were going up, and one should naturally question the structural integrity. No pity coming from here.
That’s what happens when you buy a home from a big builder. They are more interested in profit and bottom line. If a house is built under 4 months (which most of them are), you can expect all of the above to happen.
A house made of wood needs to settle in before you start hammering in sheetrock and moldings. In areas where you have a seasonal temperature change, in winter time you can see joints as much as 1/2″ when wood is contracting and expanding with the temperature changes.
When you build an entire home in in one season, the materials haven’t even had a change to go through a full weather cycle, so expect to see cracking spackel, wood cracks, bending, etc.
You’d be best to be a second buyer on anything made from the “big” builders in the US (Toll, Beezer, Hovnanion, KB, Kara, etc). Let the first owner deal with all the BS, you can take it over after it’s all fixed.
-Richie
Great summary, Richie. I can vouch for everything you say because I’m renting a bubble unit!
I currently live in a Streng home from 1972. I can honestly say that I’d never own one even which is too bad since I love the contemporary lines.
Before moving here I lived in a Moderne home (1934) and Craftsman 4-plex (Aladin kit 1918). I had no trouble with the older homes - they were a pleasure to work on.
I also live in DAVIS, Gwynster. ($old last $ummer. whew.)
I just Love them stylish Strengs — but I do also hear nightmare flat-roof stories.
Anyhoo, a 3/2-1500ish sf-on a 6000+sf lot in the College-named-Streets of Davis Streng Central still have to go down another 30% in real terms to pencil out for our fam.
sigh. that’s a lot to hope for…
I love/hate you, Davis! You Dreamy Teletubby Land, you!
Coroners Report: the deceased is alleged to have stood under faulty moulding and screamed herself into a deluge.
This story reminds me that many innocent people will get harmed by this bubble.
With increasing profits, these HB’s threw up crap as fast as possible to make huge profits.
They dropped quality as quality takes too long. Instead they used cheap unskilled labor and shoddy materials. The sale was done deal BEFORE construction was complete, so now the homebuyers are hosed.
sad.
it does make me realize that I may never buy a new home again. My home has it’s quirks, but it’s almost 100 years, so obviously was built to last.
HIC
When the market has corrected sufficiently so I’m prepared to buy (=~50% real-price haircut in the bubble-states), I will follow DinOR’s Rule:
Do not buy anything that was built, renovated or refi’d in the past 6 years. The quality issues already surfacing from brand-new tracts are scary and only going to get worse.
> Do not buy anything that was built, renovated or refi’d in the past 6 years.
Why would you exclude refinanced homes? Many owners just switched from a fixed 30-year to another fixed 30- or 15-year with a lower rate, without cashing out a lot. That seems to me perfectly rational in 2002-2003.
The assumption (pretty valid) is that most refis over the past 6 years were of the cash-out variety, and now the refi’d home is most likely carrying a larger mortgage than it may be “worth”, based on historic price-rent/price-income metrics. In other words, it’s pointless to try to fair-ball a FB that cannot afford to lower his/her price.
“…my home has it’s quirks, but it’s almost 100 years, so obviously was built to last.”
I agree entirely. We always talk about the history in our 1929 house. Original cupboards and granite counter tops (or dishwasher for that matter). Yeah there were some mediocre upgrades done over its life, but the original cedar siding will probably out last anything built today.
My friend works for the phone company in the Poconos and tells me about these five-year old homes where the cheap vinyl siding just breaks off in his hand when he is trying to run lines. And theat’s just the beginning.
My father came along with me to help inspect the house I bought (1984) and am still in. Small, cozy, and tight, it was built by real professionals. Anyone who even contemplates buying a home should bring along someone with some construction savvy to check out the systems, the foundation, and the roof, even if they have to pay for a trustworthy inspection. Regardless of the location or the ‘feel’ of the place, if there are any issues with those aspects or any other major elements of construction, walk away, now.
“Bob Hamrick, CEO of Coldwell Banker Premier Realty, said what happened in Las Vegas is not that properties are worth $100,000 less than they were a year or two ago, but they may not have been priced accurately then.”
I can’t decide whether this man is a total moron or an existential genius.
He’s probably right- up until last year sellers would look at the last batch of sales and add 10% to their listing price.
Why do I picture the AFLAC duck staggering out of the barber shop wnen I hear this coment?
I would say he is confessing his past sins of overpricing his
clients property!
Price vs. value. You can always pay more than the value of an item, that’s easy. But you’ve got to be on your game to pay a price less than the value.
Or a crook who will twist reality in any way necessary to facilitate the continued fleecing of the GFs…
The lawyers are going to make a killing off all of the construction defect lawsuits in the coming years. Some of them are going to be legit, but the vast majority are just going to be “jump on the bandwagon” suits that are filed. The homebuyers are going to be looking for any source of income they can get to pay for these houses, so, when someone knocks on your door and promises to get you money if you sign on the dotted line for the class action suit, very few people will say no. The problem is going to be that these case can take years to finish and when the cases are finally settled the homeowners usually don’t end up with a lot of money, because of all of the lawyer fees.
I agree. Sure, some of these places have problems, but most are not out of the norm as far as defects are concerned.
The thing is, your new house is sold as a ‘lifestyle’; it’s a dream that will create memories, a grandiose sense of accomplishment and wealth…
But in the end, it is just a house: drywall, vinyl and stucco. After this realization the walls aren’t ‘level’ anymore, appliances are ’scratched’ and the crown molding bites. Plus, you overpaid…
The new ambulance chaser
I’m a lawyer. I’m not in the ambulance chasing business. But let me ask you this: is it better that the screwed buyers get some compensation, or better that they get nothing?
Because without a lawyer, you won’t see a nickel of your money back.
I recently sued for the first time. I had some car repairs done, the work was shoddy, I was promised, in writing, a refund of $400. What happened? 6 months of phone calls, and one ultimatimun in writing. NOTHING.
But I spent $15 to file a lawsuit, and had the money within 10 business days. That’s peanuts, but just goes to illustrate a point: many people are scumbags, and won’t pay the money you are rightfully owed without legal action.
So please, spare me the lawyer bashing.
“many people are scumbags, and won’t pay the money you are rightfully owed without legal action.”
Hell yeah! Good lawyers may be few and far between, but the diligent ones are worth their weight in gold. If guys like you weren’t out there shoving it back in the face of scumbags, can you imagine what people would try to get away with? Sad, but true.
Not all attorneys are created equal, I’ll be the first to say it. Some do a fine job for their clients and some just care about billable hours. I’ve worked with both types.
Indeed lawyers do not create clients, rather cleints create the need of lawyers.
If I were an attorney I would be watching this unfold rubbing my hands together, not because I take pleasure in the pain, but because I know I am on deck and can right some wrongs while earning a living.
A short story- I have a friend who is a litigator and a good one. I have been trying to convince him that these natinal builders are ripe for a class action suit. Seeing as they built poorly, had their own appraisers, title companies and lending arms and as such could be considered “de facto predatory lenders”. Everything works if you will.
His only issue is the cost of such litigation.
It ain’t easy.
I’m not a lawyer, but have never understood the lawyer bashing. Of course, there are wretches who are lawyers, but it is as unfair to judge all lawyers based on this minority of lice as it would be to judge all baseball players based on Barry Bonds’ behavior.
Having said that, I agree with Brooklynite’s poist. When I was a young and easily manipulated young man of 19, I bought a used car and some extra “service package.” Well, it turned out that the service package was a sham and I tried to get my money back from the dealer for about six months. I then filed a claim in small claims court and received a call from the salesman a couple of days later. I went to pick up a check in the full amount the next day; he even had the f$%^ing audacity to suggest that it was all some big misunderstanding and why would I hurt his feelings by taking him to small claims court. That’s when I realized that people who sell you things are not doing you a favor! It’s sometimes easy to miss that.
I’m already hearing the radio ads and seeing the print ads for these clowns in Phx. Almost as many as plastic surgeons.
“100 hours” is just the beginning. I went through a construction defect case that took 5 years which is not at all uncommon. A lot of newer homes are junk, and quite a few of them were bought with risky loans on top of everything else that’s wrong. There are going to be a lot of newer homes that end up bulldozed I think…maybe that was planned obsolescence?
walls that aren’t level,…
That’s never good.
A level wall is not good-should be plumb. Floors should be level. Picky, picky!
SLO - my dad was a small biz GC. I grew up stepping over every kind of level known to mankind.
Out of plumb walls, floors on which you can roll marbles downhill, clogged plumbing, projectile crown molding: it’s all good!
I guess my post was an abbreviated way of saying Mr. Barna purchased himself a teardown of the not-too-distant future.
Back to square one, Eric B!
My wife and I remodeled our house overseas recently. Once she got fed up and rid of the unskilled or skilled-but-kickback-taking relatives she had hired (thinking to help them out), she hired local craftsmen in the city rather than the “village people” and got excellent work with the simplest possible tools for around $5 a day. It was fun to watch the real craftsmen work.
We had a guy in our TX home today to measure for about 250 sq ft of flooring work. He spent almost an hour measuring and entering the measurements into his hand held CAD program. My wife was tapping her foot the whole time. Her guys in the Philippines would have had the old floor out, string guides down and concrete mixing for adhesive in that time.
so maybe the problem here is that the walls are becoming level, and the floors are becoming plumb.
As long as they hold the ceiling, it’s ok…
Walls should be plumb and their corners should be square.
I can skip the plumb walls. All I ask is that the floors and ceilings be very level and the corners be very square.
All I ask is that the floors and ceilings be very level and the corners be very square.
Doesn’t that imply plumb walls unless you live in a non-Euclidean geometry?
Not really — there is some art involved. Totally square corners and plumb walls are also real bad acoustically. I’m not defending the crap but everything in a well built house ain’t quite as simple as perfect geometry.
If the wall isn’t level, how can I walk on it???? Oh…I see….
Well, one thing’s for certain - when this bubble subsides in a few years, I’m not buying a house built anywhere near the time that it occurred. Sure, the majority of the homes were great, but I’m just far too concerned that there would be problems. Heck, even our family friends had their beautiful non-bubble home built in 1994 leak from essentially new PVC piping and nearly destroy it.
When all is said and done, there’s going to be a sea of blood - FBs, lawyers, appraisers, loan officers, big banks, subprime “bag”–er, bond holders, builders, and the little people.
Frank calls for subprime legislation
By Greg Morcroft
Last Update: 2:17 PM ET Mar 5, 2007
WASHINGTON (MarketWatch) — House Financial Services Committee Barney Frank, D-Mass., said Monday that there should be a national law regarding subprime lending. Speaking to an international banking conference, Frank said the law should ensure that banks, “don’t lend people more money than they can pay back.” Subprime mortgages are offered to homebuyers who fail to meet the strictest lending standards. Lenders specializing in such loans rely in part on big banks known as warehouse lenders to finance their operations. These backers require that subprime lenders meet certain minimum financial targets; otherwise, they have the right to end the business relationship.
—————————————————
Restrict mortgages to the amount a person can actually pay back… what a novel idea!
What a novel idea to pass a law regulating an industry which appears to be vanishing as I type…
“What a novel idea to pass a law regulating an industry which appears to be vanishing as I type…”
No sh*t! I can already imagine all the worthless legislation that is going to be proposed. I say let the market take care of it. Subprimes are and will continue to go under, and housing will become affordable again. The last thing we need is a bunch of a$$ wipe politicians getting involved.
The problem with “let the market take care of it” is that the market forgets.
All of this has happened before, and everybody thought back then that it was great idea. It wasn’t, it crashed, and nobody tried it for a long time. Then, when everybody who was there had died, and everybody who learned from them had retired, some bright young genius came up with this “great new idea!”
“Hey, real estate prices are going up pretty fast… Why don’t we loan a bunch of money out for people to buy it with. Who cares if they can’t pay back the loan, the appreciation will cover our bet. Worst case, we repo, and sell the place for more than we loaned out! We can’t lose! Why didn’t anyone think of this before??”
The purpose of regulation (well, one of them at least) is to ensure that colossal stupidity isn’t allowed again. Yes, it’s reactive, nobody can outthink the stupid.
The fact is, regulated capitalism is a good idea… Unless you think of the 1880’s as some sort of Golden Age. Worshippers of the Invisible Hand forget that there is another hand pushing back. People will only take so much, and the results can be pretty nasty. People give FDR a lot of flak now, but they’ve forgotten just how close to revolution this country came in 1930-1932. Do you know how many revolutions didn’t destroy the societies that had them? I can think of, well, one.
Tightly regulating the mortgage business would be a net plus for everyone, including the lenders. The investment banks and big investors who are holding much of the bag for all this will start pushing for it, because it’s in their interest (pun intended) to see the risk spread back down the foodchain. Right now, they’re holding most of it, and you can bet your billions that they’re not happy.
If somebody can’t repay a loan, then giving them one should be fraud. Because somebody’s getting lied to, and getting screwed. And while the borrower and the lender both have responsibilities, don’t forget:
Even if I leave all my doors and windows open, it’s still illegal (and morally wrong) to steal my stuff. There’s a reason for that.
–Shannon
–Shannon
The problem with legislation is that government forgets. Remember all the 1930’s era legislation that was being repealed in the 90’s?
The real problem is that humans are involved. There’s no way to legislate away human nature. Markets aren’t perfect, they’re just faster and have (usually) less unintended consequences.
Check out WM today. Starting down the slippery slope. Those leap puts I bought last week are paying off. Thought about buying some on Countrywide but Murillo is too sneaky. He will probably pump and dump (more) and screw the option players. Play ball.
I think we should first limit the government’s ability to borrow money to the amount they can actually pay back and see how that works.
If you can print more as needed, where is the problem with paying it back?
OT: rumor at Aaron Krowne’s website that Fremont got totally bagged Sunday morning. If this were true, wouldn’t the MSM have caught wind of it? Should I take it as false, even considering the stellar track record of ml-implode?
May take longer for the MSM to actually follow up and get verification of the facts. I think MS Implode has a bit more flexibility to post things when he gets them. Of course the MSM may not want to post this right away due to conflicts of interest as well.
“Dickens isn’t convinced, though, that offering incentives to agents is a major advantage for sellers. ‘A good broker will do what’s best for a certain consumer,’ he said. ‘The last thing they look at is what the compensation package is.’”
Oh, Puh-leeze.
“Dickens isn’t convinced, though, that offering incentives to agents is a major advantage for sellers. ‘A good broker will do what’s best for a certain consumer,’ he said. ‘The last thing they look at is what the compensation package is.’”
Oh brother, another David Leahry. Like RE agents are these altruristic saints not a bit interested in 10%.
“A local homeowner who asked not to be identified put his home on the market last year at $430,000 when comparable homes in his northwest neighborhood (ZIP code 89131) were $450,000. It sat for months. He kept lowering the price and recently sold it for $350,000.”
“‘I still do not know why this home did not sell in the $400,000 range,’ he said. ‘I have just about every conceivable upgrade in this house.’”
To paraphrase a famous saying…
“It’s the bubble, stupid!…”
“‘I still do not know why this home did not sell in the $400,000 range,’ he said. ‘I have just about every conceivable upgrade in this house.’”
Upgrade Shmupgrade. The smart consumers know that they can get upgrades done on their own for much less.
“smart consumers know that they can get upgrades done on their own for much less.”
An old architect once told me this exact thing. If given a choice, never take an “upgrade” from a builder because they are ripping you off. Go out and get exactly what you want and have it installed by a local pro or do it yourself.
I looked at a KB Home about a year ago. The salesperson was trying to sell me it by throwing in upgrades. I looked at her and said “I don’t want to finance any upgrades I can do myself for 30 yrs. What can you give me off the top in exchange for zero upgrades?”. She wasn’t a happy camper.
I love it!
I just visited a builder’s site in Colorado Springs the other day. My spouse and I are considering buying a previously built house by the same builder and wanted to look at their construction techniques.
We stopped by the office, and they had fliers touting a $10k shopping spree at Pottery Barn. I laughed out loud! Pottery Barn? Figures. I mean, come on, that stuff is crap. (Hmmm…I guess it’s a good match for the typical shoddy tract house.) But, I’d rather have $10k off the price of the house and do my own decorating, thank you very much.
Also in the office were several awards, including “Best Ad Campaign, Best Decorating, etc.” Just fluff! What about “Best Construction or Best Builder or Highest Customer Satisfaction?” Now, that might had held some weight with me.
We’re still considering the house I mentioned earlier. It’s undergone nice renovations, and it’s a good price in an excellent neighborhood. We’re waiting to see if the seller will come down a bit more. I’m patient.
Exactly. I have a storage unit full of stuff you’d find in million dollar houses that I bargained, traded for, bought from bankruptcy estates, distributors going OOB, you name it.
Just to make things more amusing… due to the inability to extract MEW, the aftermarket upgrades are stalling…
Contained downturn? Nyet.
Got popcorn?
Neil
If I were looking at buying from one of the homebuilders right now, I would make them believe that I was interested in all of the upgrades and then excitedly ask how much all of this free stuff is worth in dollars, and then when told, respond, “okay, I don’t want the stuff, just lower the price of the house by that much!”
Maybe I’ll walk in to a showroom (do they still have those) in my area and try this.
Re Fremont.
It’s looks to me like they’re a goner. They’re putting staff on leave, will not originate any new subprime mortgages, they’re working to “secure” data and serve customers (clearly a novel concept,) and Moodys cut their debt to B3 from B2 (from sucks to sucks terribly) and warned that it may be cut further.
Clearly none of the above are indicative of a going concern.
“It’s an oversupply and an inability-to-buy thing…”
Thanks for the insight Kurt. I guess you’ll be adding the “inability-to-pay-for-what-you-already-bought sort of thing” after the mountain of ARMs reset on over-leveraged boom buyers.
Apparently it’s not an “inability-for-sellers-to-price-things-at-a-level-that-will-clear-the-market” think either.
This is OT, but per Bloomberg “Citadel Investment Group LLC agreed to buy ResMae Mortgage Corp. for about $180 million, beating out Credit Suisse Group in a last-minute auction for the bankrupt mortgage lender. ..ResMae was considering four offers for its lending business in December, including a $55.3 million bid from Credit Suisse.”
Bit of a haircut there, eh?
You have to wonder. They’re paying more than 95 cents on the dollar for the loans.
Citadel Wins Bidding for ResMae, Trumps Credit Suisse Offer
By Steven Church and Bradley Keoun
March 5 (Bloomberg) — Citadel Investment Group LLC agreed to buy ResMae Mortgage Corp. for about $180 million, beating out Credit Suisse Group in a last-minute auction for the bankrupt mortgage lender.
Citadel, a Chicago-based hedge fund, offered about $20 million for ResMae’s lending platform and 98.5 cents on the dollar for the company’s $160 million loan portfolio, said Ron Greenspan, a financial adviser for ResMae’s creditors. U.S. Bankruptcy Judge Kevin J. Carey in Wilmington, Delaware, will decide today whether to approve the sale.
“Citadel stepped up and gave us a firm bid,” said Greenspan, senior managing director in FTI Consulting’s Los Angeles office. Zurich-based Credit Suisse had offered 98 cents on the dollar for the loans and laced its bid with conditions and adjustments, he said.
Citadel challenged Credit Suisse’s $19.1 million bid for ResMae’s lending operation last week, triggering an auction that began March 2. On Feb. 13, Brea, California-based ResMae had filed for bankruptcy protection and won Carey’s permission to sell its assets to Credit Suisse, bypassing the court-supervised auction normally required under Chapter 11 rules.
Credit Suisse spokesman Pen Pendleton in New York declined to comment.
ResMae was considering four offers in December, including a $55.3 million bid from Credit Suisse. The offers were rescinded after ResMae revealed that Merrill Lynch & Co. had demanded that the lender buy back $308 million in home loans that had defaulted.
The case is In re: ResMae Mortgage Corp., 07-10177, U.S. Bankruptcy Court, District of Delaware (Wilmington).
– With Reporting by Jody Shenn in New York. Editor: Farr.
—————————
Just to clear things up Citadel Investment offered $20 million for Resmaes lending operation… That is the offer that should be compared to the $55.3 million big from Credit Suissed in Decemeber…
The other numbers are from the value of ResMaes existing loan portfolio… (98.5 cents on the dollar)
They’re grabbing more market share ahead of an anticipated gov’t bailout. It’s all I can think of. Anyone else know why a hedge fund would be paying 98.5 cents on the dollar for loans that are so obviously worth much less? Or are they just looking to hide their losses somewhere? Ideas?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aaJPHzxiHXX4&refer=home
NYSE just fell off a cliff. -65 points, near the low for the day. Nobody wants to hold stocks overnight ! Or maybe a bad piece of news came in just before closing ?
Any bets on how the Asian markets do?
Usually the closing is indicative of mutual funds buys/sales. Hmmm…
If Joe sixpack is pulling cash out of his brokerage to fun his option ARM…
Not to mention margin calls. Don’t they realize the market is over margined?
Got popcorn?
Neil
Fremont lays off people and won’t make any more subprime loans.
http://www.bloomberg.com/apps/news?pid=20601103&sid=a8ZrsW8npG2E&refer=news
Given the recent news, I’d say that all subprime lending is gone and all 100% LTV loans are gone. Just in time for the spring buying season. And I am pretty sure that banks and mortgage companies are now going to expedite foreclosures to get them off their books.
There was a piece on Bloomberg about someone buying loan portfolios for 35 cents on the dollar this morning, but I can’t find it now.
Classic quote:
“Good company, strong work ethic, and they looked after their people. And we made good money. And it’s a shame that the Feds are on a witch hunt against us.”
Just wondering what you guys think. If loan portfolios are up for 35c on the dollar, would it be possible to grab individual mortgages out of forclosing portfolios, then foreclose on them yourself and take posession of the houses? This could be the back door way into getting REO property. What do you guys think?
that sounds like magic!
Neil
Can you further explain this — I know I should understand but clarification would be helpful.
Just to make things more amusing… due to the inability to extract MEW, the aftermarket upgrades are stalling…
Contained downturn? Nyet.
Got popcorn?
Neil
That article about Mary Olinger’s problem with shoddy construction of a new home - anyone read the comments below the article? Shoddy construction is not only confined to Richmond-American, but other builders. Just like a lot of you bloggers predicted, it seems a lot of shortcuts were taken and the hiring of illegal aliens to do the work to build crappy homes. I’m now almost beginning to feel sorry for the FB’s. Maybe if Ms. Olinger was quoted as saying she bought the house in hopes it would double in value, then I would be laughing hysterically at her predicament.
“‘A good broker will do what’s best for a certain consumer,’ he said. ‘The last thing they look at is what the compensation package is.’”
In what f**king world is THAT?.
One worries about the fate of families thrown out on the street when they can’t afford to pay their mortgages. I have a solution:
When all is said and done, and I can buy houses for 1/10 the price they were sold for during the bubble, I figure I can hire on the previous owners as servants. The father can be the butler, and do the yard work, the mother can be the maid and I can sell the kids off to China to work in a sweat shop making shoes for Walmart. It’s flawless.
Damn I’m good.
Please stop posting here, Mr. Cheney…