The American Dream Is Not Really The American Dream
The Union Tribune reports from California. “Like other buyers who used risky financing to purchase their homes while banking on rapid real-estate appreciation, Maria and Oscar, who asked that their last names not be used, are facing ballooning monthly payments they know they cannot afford. Now feeling trapped in a depreciating real estate market, many of these frightened homeowners are hoping to stave off foreclosure by taking whatever steps they can.”
“In the first two months of this year, default notices issued in San Diego County quadrupled over what they were a year earlier, and analysts are predicting those numbers will rise.”
“When Maria and Oscar realized that they weren’t going to be able to continue making their mortgage payments and also pay their steep property taxes, they opted to move in last year with Oscar’s parents. At the same time, they rented out their three-bedroom house in Eastlake, which helped cover a little more than half the $3,000 monthly payment on the two interest-only loans they took out to finance their no-money-down purchase.”
“But with the mortgage due to increase to more than $4,000 next month, the couple has put the house up for sale, realizing that they will likely lose money on what they believed was a sure thing three years ago.”
“‘We don’t dodge our bills, we just had a bad deal.’ said Maria.”
“Maria said that she and her husband recently reduced the price on their house to a little above the $512,000 in loans they currently owe on the property ‘We’re looking at selling it for less than what it’s worth and cutting our losses,’ said Maria. ‘We just don’t want to throw our money away.’”
“The vast majority of homeowners who are now finding themselves in desperate situations are victims of disreputable brokers and lenders, believes Gabe Del Rio, homeownership director for the nonprofit group Community HousingWorks. But they also were banking on a real estate market accustomed to double-digit increases in appreciation.”
“‘Those people made assumptions of making money and using the cash out to supplement their income, and those times seem to be over,’ del Rio observed.”
“Where last year his office would receive one call a month from homeowners with mortgage delinquency woes, the calls have now mushroomed to several a day, he said.”
“Richard Novelo, who purchased his Lemon Grove home three years ago for $381,000, is hoping that the terms of his high-interest-rate loan can be modified before he misses any more of his $3,800 monthly payments.”
“Advised that his poor credit would make it difficult for him to refinance, he finally settled for a new loan that has put him into a far more precarious position. He was able to pull some cash out but his payment ballooned to nearly $4,000, and his loan amount has risen to $420,000.”
“‘The broker was in it only for the money and didn’t really think about the situation he was putting us into,’ said Novelo. ‘If we could do it all again, we wouldn’t do it. The American dream is not really the American dream. It’s more like an American nightmare. All of a sudden, that small apartment we lived in doesn’t seem so bad.’”
“Reacting to a nationwide spike in subprime loan defaults, lenders recently raised their requirements for loans to borrowers with low credit scores. Some analysts say the industry is overreacting. ‘I see it as definitely a bad thing,’ said Greg Wickstrand of GMAC Mortgage Corp. in San Diego.”
“The collapse of the subprime market ‘is something that was waiting to happen, with investors buying any loan originated, regardless of the risk,’ Wickstrand said.”
“‘The trend has been to make loans that satisfy the needs for Wall Street and now it is all coming crashing down, but the ultimate loser is the borrower who can’t make their payments,’ said Kevin Stein, associate director of a lending watchdog group. ‘San Diego is right in the heart of all of this. There have been a lot of questionable loans sold in San Diego. We have a whole lot of loans that have been made where people didn’t understand and couldn’t afford their payments. To me, that is an indictment of the industry.’”
“San Diego County homeowners are defaulting on loans at a rising pace. In the first two months of this year there were four times as many default notices issued as were issued during the same period of 2006. Foreclosures here tripled over that period, according to DataQuick.”
The Orange County Register. “New Century spokeswoman Laura Oberhelman said the company was overtaken by unforeseen events: rising loan delinquencies, a change in the type of loans Wall Street would buy and New Century’s financial backers cutting off its credit.”
“‘All of these events converged on the company over a matter of weeks, and clearly that was never projected,’ Oberhelman said.” “Interest-only loans, which expose borrowers to drastic payment spikes when principal comes due, peaked at 29.6 percent of New Century’s originations in 2005, up from 19.5 percent in 2004.”
“More than 40 percent of New Century’s loans were based on stated income. Through the first three quarters of 2006, stated documentation loans were $19.2 billion, 42.3 percent of total lending.”
“Amanda Milano, a former senior loan processor who worked at New Century for four years, said she witnessed a deterioration in its guidelines last year. Still, she said, any mistakes New Century made were common in the industry. ‘It’s just that we were larger,’ Milano said.”
“Brett Buchanan, a former New Century loan processor, described the pressure he faced when outside brokers tried to get New Century loans.”
“‘The norm would have me talking to one broker who was obviously fishing for guidance on packaging a kinky deal with another one on hold … because he couldn’t get more rebate by jacking the borrower’s rate any higher and another one in the lobby frothing at the mouth because we found out the W2s he’d submitted were doctored,’ he wrote.”
“Karen Waheed, an underwriter with the Home123 retail unit of New Century, said some loan applicants called themselves landscapers or tree surgeons and reported dubious incomes of $10,000 to $15,000 a month.”
“Waheed, who was laid off April 2 after three years with the company, said exceptions were also made that allowed elderly borrowers on fixed incomes to get adjustable-rate loans that would eventually become unaffordable…though she personally wouldn’t approve such a loan.”
“‘It got to a point where I literally got sick to my stomach,’ she said. ‘Every day I got home and would think to myself, I helped set someone up for failure.’”
The Desert Sun. “The Coachella Valley Workforce Housing Summit (plans) to address the following at the summit: Will affordable housing be available for all valley residents? How do we house the new residents? Will there be enough jobs for current and future residents?”
“‘The housing market is starting to balance itself out, but the county median housing price is still significantly higher than the median household income,’ said Emilio Ramirez, deputy director of housing for the Riverside County Economic Development Agency.”
“Compounding matters is the impact that ‘exotic loan’ lending could have on the valley.”
“‘There is potentially a higher incidence of foreclosures and bankruptcies because of the mortgage loans that were taken out,’ Ramirez said. ‘I’m hearing (anecdotally) that if they can’t sell their house, they just leave it.’”
“But with the mortgage due to increase to more than $4,000 next month, the couple has put the house up for sale, realizing that they will likely lose money on what they believed was a sure thing three years ago.”
By sure thing, they speculated the price would go up and they would make a ton of money from some other poor shmuck. Well guess what they are someone else’s poor shmuck, and should not have gambled with their future.
I predict they’ll walk before it’s over.
I agree, I am sure they will walk.
‘We’re looking at selling it for less than what it’s worth and cutting our losses,’
No, the home will sell for what it is worth, not below what it is worth. Idiots.
That’s what I was going to say. I’m also tired of people pricing their homes at 25% over last year’s market value then reducing it to 15% over last year’s market value and couching it to would-be buyers as some sort of bargain because of its 10% price reduction. Seeing a lot of that lately. One guy “reduced his price $100K”, as if it had ever been worth what the original listed price was. Sad thing is, I know people who get sucked in by that kind of crap, as if they’re actually “saving” $100K by buying the house. Idiots, indeed.
“We’re looking at selling it for less than what it’s worth and cutting our losses,” said Maria.
I love that line, too. As for the dummies who want to buy because they are “saving” $50K or $100K, perhaps genuine mortgage underwriting will stop most of them in their tracks.
Just this week, my Maine landlord has cut his asking price by $50K (9%). It will be interesting to see how many more showings this reduction produces. I doubt it’ll produce a sale, mainly because the house is kind of wrong for the local market — steep stairways unsuitable for seniors and unsuitable for small kids. Need a couple of NYC childless yuppies in their 30s-40s … but it’s a 9-hour drive to NYC so not good for weekends. Hmmm.
Actually, I think most houses will eventually sell below their real, fair-market values. I can’t see how the price collapse will stop at fair-market levels. The bubble grew from irrational greed and it will burst with irrational fear. Irrationality causes over adjustments. Even rational people will recognize this fact and expect over adjustments making them a self-fulfilling prophecy.
Looking at all those historical graphs of inflation-adjusted housing prices (and the roller coaster video), it always seems that the greater the over-pricing during a bubble, the greater and longer the under-pricing at the bottom.
That’s where I am…I would be interested in investment property with 25% positive cash flow … owner financed even better at 6%
…
The rule is simple. If you can’t afford the fully-amortized payment, they you are in the wrong house.
Why is it that someone $30k/yr who overstated their income to “buy” a $600k house with no money down is entitled to live there.
You think Welfare was bad? That was nothing. Fiscal irresponsibility, and in most cases, blatant fraud, is going to be rewarded hansomely. Just don’t keep your money in dollars, as you can see, they are devaluing daily against everything. Gold, Euros, Pound Sterling, Oil, hell, even Zimbabwe stocks.
What grates my gizzard is the lack of personal responsibility many of these dopes display. Don’t sign off on legal docs unless you know what you’re getting into, and knock off the look what they did to poor me crap. Can all of us change our legally binding agreements to conditions more favorable to us because we got taken? Pu-lease! Let’s hope there’s no government bailout from these idiots.
‘We just don’t want to throw our money away.’”
Find a new cliche folks. That’s soooo 2006.
But I thought only we bitter renters were throwing our money away…?
Dang!
You mean all these years I have been renting I have been throwing my money away? You mean all of my equity in dividend paying stocks is not really equity? It is all fanthom wealth?
Doh!
Got 10% down?
This is the neighborhood I sold out of, right at the same time they were buying. I don’t want to sound like a smart a@@, but I also knew it was a sure thing… sure to go down from the ridiculous prices that the speculators were paying.
“Maria said that she and her husband recently reduced the price on their house to a little above the $512,000 in loans they currently owe on the property ‘We’re looking at selling it for less than what it’s worth and cutting our losses,’ said Maria. ‘We just don’t want to throw our money away.’”
Less than they think it is worth, maybe - but I doubt it is less than it is actually worth…
Maria said that she and her husband, who together earn roughly $90,000 a year, recently reduced the price on their 20-year-old lake-view house to a little above the $512,000 in loans they currently owe on the property.
What are Maria and Oscar thinking? Everybody knows that most people in San Diego make well over $250,000.00 per year! (How else would they aford those hi-priced homes?)
These two statements stuck out in the UT article:
Maria and Oscar have “two interest-only loans they took out to finance their no-money-down purchase”
and then they found out they were coming up short every month. However, “We don’t dodge our bills, we just had a bad deal,” said Maria.”
You’d kind of hope to be able to tell 100% financing and two interest-only loans meant a bad deal before you signed the papers. Trying to pawn this off on the loan agent as a “bad deal” completely waives the responsibility from Maria and Oscar - where it belongs.
“Ode to Oscar and Maria”
Maria and Oscar want to break even.
But they’ve priced their house a smidgen too high.
They’re grasping for straws, some hope to believe in.
But the market is cruel and there’s no one to buy.
They bought at the peak with a loan hard to pay.
Now to lower the price they will lose, God forbid.
They say they don’t want to throw money away…
But alas, when they bought it, they already did.
Nice
Just to repeat what I said the other day re “The American Dream/Nightmare:” the “American Dream” is not owning your own home. The American Dream is that if you work hard and save hard you have the opportunity to eventually earn the ability to own your own home- that unlike serfs of old you are not beholden forever, and therefore have the opportunity to move yourself up by your bootstraps.
In other words, America provides the ability to dream and to meet lofty goals involving wonderful concepts such as freedom- the house being merely a symbol.
The American Dream is not and never has been I want it, and voila it is all handed to me automatically right now. And if it is not I get to go back to live with my folks and get to talk cynically about my victimhood.
Except of course in pieces written by journalism majors whose work area includes an entire bookcase full of all editions of Bartlett’s General Cliches, and Roget’s Sophomoric Assumptions.
“Bartlett’s General Cliches, and Roget’s Sophomoric Assumptions.”
That’s pretty funny.
indeedy! What a fun game! Any more entries?
1) “Subprime loans are important to expand homeownership to underbanked communities”
2) “No nationwide drop in median price ever! OK, since the Great Depression!”
3) “Real estate makes more millionaires than anything else!”
4) “It’s always a good time to buy—or sell—a home!”
5) US: “Get in now before you’ll be priced out forever!”
UK: “Get on the first rung of the property ladder!”
6) “We’re fighting them over there so we don’t have to fight them over here”
7) “Mistakes were made”
Don’t forget this one:
“Here in South Florida, we’re working off a totallly new paradigm than we have ever seen before”
My favorite from where I live and the patron saint of RE shills everywhere, Gary Watts’ “15% is pretty much in the bag for OC in 2006″ For 07′ he has a modest 7% appreciation predicted.
Oh yeah, Gary Watts. Haven’t heard much from him lately, as they say he has been precarious by his silence.
Probably had his money (debt) where his mouth is.
And if it is not I get to go back to live with my folks and get to talk cynically about my (victimhood)/ MANHOOD! LOL
–
“The American Dream is that if you work hard and save hard you have the opportunity to eventually earn the ability to own your own home…”
You are talking about American reality in the past. Now, all you have to do is dream and there are fairies who come to fulfill those dreams.
Jas
The American Dream is that if you work hard and save hard you have the opportunity to eventually earn the ability to own your own home…
The American Dream has been outsourced to China. Literally.
Or politicians who will bail you out with other people’s money.
Funny how I never viewed homedebtorship as my “American Dream.” When will Americans stop thinking like lemmings? Homedebtorship is NOT the “American Dream”!
Absolutely nothing wrong with renting and leaving the scene with 30 days notice when you get good and fed up with barking dogs, unmowed lawns, car stereos, etc… My quality of life is much better because I have more control of what neighborhood I want to live in. If a rental house two or three blocks down is available and there are no barking dogs over there then guess where I am going to live. Why not?
When I worked for an employer I never made more than $50k/year in W-2 wages, but now I am self employment with monthly dividend income and long term capital appreciation. I do not believe I could do this if I had “invested” in
alligatorshouses. I can pay cash for a McMansion if I wanted to, but I won’t allow myself to pay the 6% equity tax, pay for furnishings and utilities for such a big house, and be tied down like this to a dang building!Got 10% down?
“‘The housing market is starting to balance itself out, said Emilio Ramirez, deputy director of housing for the Riverside County Economic Development Agency.”
“Compounding matters is the impact that ‘exotic loan’ lending could have on the valley.”
‘I’m hearing (anecdotally) that if they can’t sell their house, they just leave it.’”
I guess my understanding of the phrase “balance itself out” needs to change.
The inner ear makes the necessary adjustments to balance itself in the face of a dramatic and prolonged plunge downward. This must be the “balance” spoken of.
Perhaps that ‘Ringing’ in the ear is the sound of ‘Jingle Mail’
“There may be a slight ringing in your ears. Fortunately, you’ll be nowhere near them.”
- Sideshow Cecil
San Diego Countians: you can check your neighbors tax payments here. They were due on April 10th. Just enter any San Diego County address to see their payment status. People who have been HELOCing to pay their taxes most likely do not have that option with credit crunch:
https://sdtretax.com/ebpp3/
Crap!!! My land-lady has not paid her property tax on the condo I’m living in. I knew she was pretty close to being buried. Now this confirms it. Time to move before I lose my deposit.
I sense in a situation like the one you describe that, she may not have your deposit anymore. And if her renter moves out, she may have a hard time finding a new renter. And thus would be bankrupted at that point.
That is what I’m afraid of too. She is currently trying to sell the place, but it has been on the market for a one and a half months with no luck.
The good thing is I know where she lives and I’ve seen her house. It’s in a nice place here in SD county (for the locals, Carmel Valley). I’m sure that a good lawyer could get it out of her (along with his costs).
No, just take your deposit out of your last month’s rent. If you are at ALL uncertain about her ability to pay it that’s the route I would take.
When I was in a similar situation about 8 years ago I didn’t do that (thinking I was going to be the nice responsible guy) and never saw the money again.
I have a sense that a new industry will develop to providing insurance for renters of neglegent property owners and property owners returning security deposits. It would kind of be like liability insurance required for commercial truck drivers. Commercial truck drivers are required, to my knowledge, to legally be required to maintain higher insurance to cover damages to others. And it is because their harm can be so much more severe as a result of their accidents or neglect. And I think property owners that want to run a business of renting property, must be held to higher standards, like that, even those that make several hundred dollars a month “under the table”, renting out rooms in thier house.
“I’m sure that a good lawyer could get it out of her…”
I’m sure that a good lawyer could get it into her too.
A lawyer will want to be paid, whether they are successfull or not. An this creates further financial risk to the renter. Perhaps there will arise a renters insurance policy that provides coverage for negligent landlords that default on refunding deposits. And then the insurance company can go after the property owner with their shark lawyers (wink)(smile) while the renter can have the peace of mind that they will get their deposit back. And perhaps that policy would include coverage for if the property owner doesn’t take care of making property tax payments or does not maintain the property, including plumbing. And if the renters is forced to find other lodging accomodations, the insurance would provide coverage for the renter to rent tempory housing and expenses resulting from the displacement. And if the renters has to permanently relocate, the insurance would provide coverage for moving costs and costs associated with finding comparable housing. And again the insurance agency can go after the property owner for those payouts resulting from property owners that are liable and/or negilgent, or even criminally liable. And the insurance company has high priced, in-house legal teams that can do the investigation, and prosecute the property owners for the harm they cause their insured clients.
YOU are Legally Entitled to have your Deposit returned….
So you can withold the rent, and IF the landlord sues you a REAL defense is that you wanted to protect your deposit in event of a foreclosure.
Seriously, If she files BK you out SOL….the money is probably been spent anyway, so your only recouse is to not pay rent, and let a Judge decide how much she gets.
In fact the landlord has a much higher legal responsiblity to protect tenants deposits then to pay the mortgage.
But if you HAVE A Year’s LEASE then you are Fuxxed until it expires, so be careful.
where do you find a legal distinction to arrive at your statement
“In fact the landlord has a much higher legal responsiblity to protect tenants deposits then to pay the mortgage.”
It seems to me that these two things would be seperate in terms of legality. In California, there is a law regarding deposits for rent, but I don’t recall an reference in the law that weights mortgages against them.
However, I have seem reference to legal precedence, weighting debts, liens, and mortgages, when their is a default or bankruptcy.
The Landlord has fiduciary responsibilty to NOT use your deposit for any other reason but for damges aused by you.
A judge will not look too kindly if the landlord used it to pay the mortage or taxes.
Also the Landlord has the right to say you can use the depsoit for the last months rent…NOT the tenant… remember that in court!
Lots of tenants assume they can do this and a judge will weigh that stupidty against the landlords illegal use of your security desposit.
Someone I knew a few years ago lost her deposit and the landlord declared bankruptcy. She was not aware of the bankruptcy and took the landlord to court where the landlord informed the judge of the pending bankruptcy.
It was my understanding that in VA the landlord must hold the deposit in a separate account. The way I see it is that the landlord spending the deposit is equivalent to theft and I can’t see how that can be forgiven in bankruptcy - but it was.
Also the Landlord has the right to say you can use the depsoit for the last months rent…NOT the tenant… remember that in court!
What landlord would ever agree to that? You can’t use the deposit to pay rent illegal. But if the landlord is going bankrupt or getting foreclosed what are you going to do?
Take the sink?
JJ - bankruptcy court is really not very good for creditors. That’s its whole point. Nevertheless, many people are surprised by just how bad it can be. I’ve worked with a lot of creditors over many years now, and they are shocked every time - every time! by how much they lose. From people who paid for furniture which was never delivered to unfulfilled home improvement contracts to supplies paid for and delivered, to unpaid rent or unreturned rent deposits, when the other side files for bankruptcy, most of that money is lost immediately and forever. This is a hard lesson in why you don’t let receivables pile up, why landlords file the required notices the day after the grace period expires, and why so very, very many FBs are going to cause so much pain to everyone else.
Example: I was in bankruptcy § 341 meetings last week. There was a nice young couple who seemed quite ordinary. The Trustee’s office has a special investigative branch who was there questioning them. Seems they obtained a $630k first trust, a $140k second, then took out a $50k credit line, then less than a year later they were in bankruptcy. When asked why the credit line and what happened to that money the wife responded “We had to finish the basement and put a deck on the house. It came without a deck.” Of course. Isn’t it obvious that you must do those things now on credit rather than work hard, save the money to do it and enjoy it after it has been earned?
The investigator then proceeded to ask about the $100k in credit card debts and unsecured debts they ran up, including $40k on an Amex. It was, according to them, all run up in the last two years. I don’t know whether they had debts to family and friends included there, although people in such situations normally do. Those folks will never see that money again.
Further inquiry to some of the debtors’ counsel who were in those meetings revealed that this was a typical scenario nowadays. Many of the debtors’ counsel indicated that they would not take such cases because of the inevitable investigations, hearings, and additional work involved.
It’s really strange to hear debtors’ attorneys say they are turning away work.
No way! Looks like the person who purchased my old home has defaulted on property tax. Yikes! Tax was due 4/10/2007 and no payment. Also, another 11K default.
Sweet!
Here’s the site for the SF Bay Area, Alameda County
http://www.acgov.org/jsp_app/treasurer/tax_info/index.jsp
Does anyone have a read on the level of tax delinquincies compared to last year? I was reading something in the newspaper today which said that the subprime lenders don’t escrow for taxes & insurance, whereas prime loans are escrowed. In fact, I believe this oddity was discussed here before. Wonder how many municipalities in CA and FL are going to have budget shortfalls?
Orange County reported a 5% delinquency rate recently, the largest rate they have ever had. I have also read that subprime lack of impound accounts have contributed greatly to the problem. Property tax delinquency is not persued by the taxing agency until down the road so I assume it gets paid after the mortgage, car, CC, groceries, etc.
I read that too about subprime not being escrowed for taxes, etc.- because subprime borrowers can’t afford it- LOL. The article actually SAID that, right? As though it was a reasonable explanantion!!
It’s like the whole country’s taking lessons in critical thinking from the NAR. You know, the way nothing they say makes SENSE if you parse it out. And now everyone’s doing it as good or better than the NAR!
What a screwed up system. I wish it would just collapse already so we could begin to determine once again what’s sane and what’s insane.
In the meantime, I’d love some news about who’s still making these outrageous loans. How long will it take to clear this crap out?
There were so many tax liens in Seattle this year (on the foreclosure lists) it was nuts. This has got to be a huge problem everywhere. Think we’ve seen the end of municipal pet projects for a while.
My brother’s property taxes were 5x my rent. Yes, those taxes are an income deduction (right?) - but the 1060sf crapbox is in one of the worst & most dangerous neighborhoods in San Diego (betw 805 and 15, just north of El Cajon Blvd). My 780sf apartment is in Rancho Bernardo.
2007 is going to suck.
-Rent
Yearly tax bill vs. monthly rent, of course.
Sweet: you can do this for OC, too:
http://tax.ocgov.com/tcweb/search_page.asp
I looked up our rental house. Total Net Taxable Value is $182,727; Zillow.com “values” it at $560,000. Heh.
What do you think this chart is telling you?
http://finance.google.com/finance?q=CURRENCY%3AUSD
Got Gold?
Not much.
The Yen went the other way.
Too much leverage in gold right now.
We are busting on people speculating in real estate and recommeding another speculative investment. Great.
Here is an interesting analysis on the bond market you may want to read.
http://www.gold-eagle.com/editorials_05/andros041407.html
Try to understand the difference between journalism and marketing.
Or just click on the order form to the left of the article.
Hey, thanks! I knew you’d have the answer!
referring to any of those sites kills your credibility, they are trash, any newbie investors reading this blog should be made aware of that
Um, yeah. I’ve been following 321gold and Goldseek since about 1999, and have made extremely well on my precious metals investments. Let people read them and judge for themselves if they’re crap or not.
Oops, I meant, “made out extremely well” on my precious metals investments.
I love owning my gold, but really, those websites are about as reliable as listening to an oil company about global warming - or listening to Enron about energy regulation. They’re not impartial.
good point James
we get a lot of belly laughs on this board about NAR propaganda, how you have to be a complete idiot to fall for it, and then some posters go straight to gold selling websites and swallow the spiel hook line and sinker
a lot of gold speculation is done in the futures markets, 90% margined. got panic?
Hey Brad,
You’re from Boise, I like you. So I’ll just say to ignore gold in this environment is not smart. There is no shame and perhaps some wisdom in 10-15% of assets in physical gold (not the futures etc. that you are right to criticize for the mom and pop investor). And over the last 6 or 7 years, gold has outperformed most other assets by far.
No need to become a bug, just some inflation insurance.
The way I see it, gold will never become currency again. If the dollar collapses, we’re either going to switch to a well-managed existing currency or some trusted entity will create a well-managed currency.
Gold is for jewelry and industrial use.
It tells you to buy the FXA as the USD is being inflated by 10% per year. CD’s and bonds will only cut your losses in half. The stock market will be lucky to keep up with the real inflation numbers as the Fed pumps liquidity into the system to keep prices from crashing. Imagine the consequences of housing and the stock market crashing just as 80 million baby boomers get ready to retire. I guess Purina would be a good investment.
1. the USD is being inflated by 10% per year
2. the Fed pumps liquidity into the system
unwarranted assumptions that are used as scare tactic selling techniques
we are supposed to take these at face value
they have about as much predictive value as: “land: they’re not making any more of it,” or “buy now or be priced out forever.”
My next vacation I’m hoping to get a chance to visit your world, it sounds so nice!
it’s not so bad, my Vanguard account is just under $1 million, appreciating nicely, nothing in there that keeps me from sleeping well at night
Touting your net worth or assets in here is tacky, tacky, tacky.
“it’s not so bad, my Vanguard account is just under $1 million, appreciating nicely, nothing in there that keeps me from sleeping well at night”
Hehehe, nothing bad has happened, yet. We’ll see how well you sleep over the next couple of years. I love folks like you who think they have it all figured out. This next year or two ought to be interesting for us all. Don’t be in such a hurry to impress folks with your account balance. Not only is it in bad taste but it isn’t even impressive.
Yes, Dan is just another person that thinks that financial history began the day he was born. Newsflash — unless it’s cashed out, that Vanguard account will likely evaporate just like a homeowner’s equity.
The disclaimer “past performance is not necessarily indicative of future results” will soon have new meaning for anyone long the markets.
If we’re going to brag about net worth, just remember, here today can be gone tomorrow. I’m sure there are a number of people here who could give you a run for your money re. net worth (though I, unfortunately, am not one of them).
Show me an investment that is not “speculative” that pays a positive return at least 5% above the inflation rate. Remember it has to be a not speculative investment.
And don’t even tell me that core CPI actually represents the true inflation rate.
give me a hard one next time:
http://www.oid.com/public/html/excerpts/CenturyMgmt082006/CenturyMgmtExcerpt2006.pdf
it is very important to look at an investor’s long term track record, this guy is the real deal. real information, not scare tactics
The NAR had a long track record of never having YOY price decrease. Well throw that history out the window, there is a new sheriff in town.
Thanks for the link Brad. My previous reply has disappeared into the electronic ether.
Everybody has something they want to sell to us Brad. Real Estate, Stocks, Bonds, Gold, and even Beanie Babies are out there for the consuming populace to place their bets on. It is obvious to me that you don’t like what the Gold-Eagle folks are selling as it is biased against your investment stance. In return you have a need to sell your stance and ridicule anothers. That is completely acceptable and even quite normal behavior in my opinion. Nobody wants to think that the future may be contrary to their beliefs.
I am glad that you have announced to the blog what you are trying to sell, either to the blog at large but more likely, to yourself. Reassurance of a position can be a painful part of life for a speculator that may be emotionally attached it. Let’s say that you are a deflationist, and I believe that we will see stagflation and on the long shot hyperinflation. We have opposing speculative viewpoints. I at least have the guts to say that I am a speculator and not an investor.
Show me the companies that you have a controlling interest in and then you can be deemed an investor.
Nobody has all the answers. Nobody.
You can invest in the Lou Pearlmen fund for a slam dunk.
I wouldn’t use the term “slam dunk.” CIA head George Tenet has forever discredited the phrase in his eagerness to tell George Bush and the neo-cons what they wanted to hear before invading Iraq.
Do a search for Lou Pearlman on Google News.
How about my 6 month bank deposit account here in New Zealand paying 7.85%? The only problem is the exchange rate, although the NZ dollar has gone up about 10% on the US in the last 4 months.
I suspect that anyone who actually has such a sure fire (non-speculative) investment isn’t telling. At least if I had one, I wouldn’t tell.
I have 20% of my net in PM’s. I look at it as insurance not speculation.
I don’t know squat about the market, but I certainly know inflation is not at 3%. ..Hope you prove me wrong ,and everything turns out great…
when we casual observers look at inflation we alway key on items we know have increased the most, they are the most noticeable of course. We always ignore items that have fallen in value. Inflation take all basket items into account. Plasma TVs were $5000 recently, now $1500. Computers are down, productivity up. Wages are flat.
I’m no expert, but posters here usually say something like: “look at health care and oil and tell me inflation is low.”
You can’t just pick out examples that confirm your opinion and ignore what doesn’t.
OK, you can, but you won’t make a profit that way.
“You can’t just pick out examples that confirm your opinion and ignore what doesn’t.”
Why not Brad? The FED does it all the time.
So what’s your agenda Brad? Give us peons a clue as to what is the proper way to defend our assets are going forward. Oh wait, you’re not an expert. Never mind then.
I’m not an expert, but I am a successful investor, and a lot of what gets posted here about inflation is just paranoia.
The FED has been walking a tightrope trying to avoid a Japan style deflation. Why aren’t posters here worried about that? We had bad deflation during the Great Depression.
I don’t have an agenda, but when I see posters parroting the party line from websites that only want to sell them something, I don’t want them to be the only voice. Websites don’t want to talk about the deflation risk because they won’t be able to sell anything.
When inflation is truly a threat, long term bond prices rise. Or maybe the big money centers are dumb enough to loan money at low rates that will be paid back in far cheaper dollars. Big Wall Street investment banks are not in the business to lose money, and you will go broke underestimating their intelligence.
“So what’s your agenda Brad? ”
———————————–
actually my agenda is to make it clear that these website DO have an agenda, and it’s not public service. These are FOR PROFIT sites.
the “facts” they present are only to PERSUADE you to dig deep and buy
presenting them as some kind of objective “analysis” is naive in the extreme
caveat emptor
Brad, I believe your comment (”When inflation is truly a threat, long term bond prices rise.) may have been better said as “When inflation is truly a threat, long term bond interest rates rise.” Bond prices actually go down, I think. In other words, rates go up and a bonds value goes down.
Brad,
I appreciate your opinion site like “gold eagle” are no better than a “Learning Annex” ad for RE and “The Donald”
Brad, I enjoy your posts, but “When inflation is truly a threat, long term bond prices rise” is no longer true. 20 years ago true, today the buyers of Long term US Government debt are China, India, Malaysia etc. They are buying the debt to keep their economies moving. Foreign purchases are keeping long term rates low, should they stop buying our debt interest rates would go through the roof - but we would not be able to buy goods from these same countries.
One of the results of Federal Reserve Policy and of foreign purchasers of our debt is a tremendous stock market bubble. Bubbles burst, the stock market has been in a bubble since 1994. A minor collapse in 2000 immediately reinflated by Federal reserve policies.
“Big Wall Street investment banks are not in the business to lose money” that is correct for the Wall Street Investment firms, but I bought my first NYSE seat for 25K when they could not give the seats away. When the market goes bad, the Wall Street firms close up, they are only as good as what they did yesterday.
“I have no idea on timing. It’s far easier to tell what will happen than when it will happen. I would say that what is going on in terms of trade policy is going to have very important consequences.” Warren Buffet
I know what will happen - so does the Federal Reserve.
From Bernanke and Gertlers Paper 1999
Monetary Policy and Asset Price Volatility
abstract of the Federal Reserve Meeting on Monetary Policy 1999
“Over the past twenty years the world’s major central banks have been largely successful at bringing inflation under control. While it is premature to suggest that inflation is no longer an issue of great concern, it is quite conceivable that the next battles facing central bankers will lie on a different front. One development that has already concentrated the minds of policymakers is an apparent increase in financial instability, of which one important dimension is increased volatility of asset prices. > In a presentation at the Federal Reserve Banks of Kansas City’s 1999 symposium, “New Challenges for Monetary Policy,” Bernanke and Gertler examined the role that asset prices should play in monetary policy. They concentrated on three issues: why policymakers should care about asset price volatility, how asset price volatility affects the economy, and how monetary policy should respond to changes in asset prices.”
file is pdf - caution 36 pg pdf
http://tinyurl.com/3bh5mz
bingo
When the market goes down, so too will Berkshire Hathaway. BRK-A is a good fund and is going to trade like a well run closed end fund. But it does fluctuate and carry a huge premium.
It has been very easy to trade the foreign currency markets (over the last few years), a currency trader need only agree with the US government that the dollar is strong and needs to go down in value.
The rules are changing for the currency traders. The IMF meetings over the weekend make it very tricky to wish to be long the Euro any longer. Ditto the Yen is starting to get incredibly cheap. The liquidity in the NYSE individual-stocks has dried up, the index-issues are keeping the market going in an up pattern, but when the currencies switch so will the equity market. The real bids on most of the S & P 500 stocks are pts below the “trades”, the real offers are at the market. There are a lot of stocks offered.
I have been long BRK, I have been short Brk - now there are easier ways to trade the same positions with less risk.
Please explain how M3 can expand by 11.5% per year while US inflation is only 3%.
I would be very interested in hearing a response to this as well.
The 3% is the “adjusted inflation rate” - Yeah, I know Inflation is supposed to be a measure of the expansion of the economy, but such minor details …
“Please explain how M3 can expand by 11.5% per year while US inflation is only 3%.”
————————————–
please explain what M3 measures and where the 11.5% comes from.
last I heard they are not reporting M3 anymore.
the interview with Arnold Van Den Berg that I linked above confirms that M2 is actually decreasing.
my off the cuff guess would be that M3 measures the money supply as regards bank loans. Banks can create money and they do so every time they make a loan. The Fed can only influence this by changes in the reserve requirements. But bank loans have to be repaid, if they are not then it seems the money supply is reduced by that amount not repaid. Loose lending, creating money from nothing, is always followed by tight lending, which can cause deflation. Think the Great Depression.
I believe, as Van Den Berg has pointed out, that the Fed will defend the dollar, and raise rates if necessary. All of the Forbes 400 are billionaires. They want all those DOLLARS to retain their value, and they have influence.
You are assuming that those billionares haven’t already diversified at least a portion of their holdings out of the dollar and US assets. Buffett, Soros and Rodgers all have moved part of their assets out of the dollar (and literally out of the country all together). They are all massively short the dollar.
I would be willing to bet that any sophisticated billionaire has diversified out of the US dollar already, and would be able to handle (and maybe profit) from any dollar crisis.
Much of the M3 is being used as money by the rich outside of the USA, and the economy of the world ex-USA has been growing strongly.
Russia has turned around massively and is getting rich—but now their rich are switching from dollars to euros.
Brad makes some good points, to be paranoid about everything can be unhealthly for your net worth. Sure housing is a bubble but is the stock market? I would think with inflation many stocks would be a good investment, companies can and will raise prices to offset inflation. See Exxon.
M3 also measures foriegn holders of debt. So they are counting are huge deficits against us. M3 is currency from all over the world. M3 shot up pretty high the last few years while M2 was going down (dollars flying away).
Based on the M3 numbers there is no housing bubble and no stock bubble. There isn’t really an asset bubble. What we do have are supressed wages due to globalism.
Anyhow. Still hopeful that China breaks open the piggy bank and buys engineering services from us. We could do wonders building roads, power distribution, irrigation exc exc… That would balance out the defict and improve quality of life on both sides. We’d have a lot of people going overseas to work and drive up wages.
Its a dream but I hold out faint hopes.
China graduates some 600,000 engineers a year, while the U.S. bounces around between 60,000 and 70,000. So their top 10% are the same in number as our entire graduating class for any given year, roughly. I’d say China probably doesn’t need to buy engineering services from us. Witness the Three Gorges Dam project, the largest hydroelectric power project in the world.
Right, so when I can’t afford to eat, drive or get medical care, I’ll be able to watch lifestyles of the blinged and hoed on my big ass TV.
And Larry Kudlow’s ugly mug will be even bigger as he spews GOP propaganda about how low inflation is.
let’s pick the staples in life and look at the increase….nobody needs a big screen, but they need gas and food
The four big slices in the family’s budget pie are housing, transportation, healthcare and education. Each of these items has experienced a 10% or more rate of inflation for each of the past five years while incomes have gone flat or declined when adjusted for inflation.
“Plasma TVs were $5000 recently, now $1500.”
I don’t have a plasma TV, and have no intention of getting one. Heck, my current TV isn’t even hooked up since I hadn’t used it in close to a year anyway.
“Computers are down,”
My current computer was bought in 2000. Electricity and internet access (which are going up in price) are my two largest computer expenses, with depreciation (the cost of hardware - measured by exponential decay with a halving time of 18 months) running third.
“Wages are flat.”
I don’t have employees.
In my case, health care is my number one expense. Rent, transportation, energy, and food round out the top 5. Transportation is under control (exactly flat at 1.66/trip since the last fare hike in 2003), but the rest are heading up, up, and away.
John Williams at Shadowgovernmentstats.com calculates inflation the way it was traditionally calculated (before hedonic adjustments) and he shows inflation at around 9-10% per year.
So, I went to visit my sister out in Orange County, CA last week for Easter and had to eat some humble pie. Despite my (contained) warnings about the housing market being weak, she recently went under contract to sell her ~1200sf house in HB in the mid-$600k’s (maybe 5% less than peak comps), with total time on the market a grand total of six days. She also said that despite the growth in inventory, in her target segment ($800k) there was not a lot of inventory or price flexibility.
Does anybody on this board see the same thing? I thought she was going to be on the market for 6+ months, but 6 days?? The market out there is making me look like an idiot!
Lots of easy money still out there.
Also remember as far as M3 is concerned, housing is priced just about right.
M3? Where is that found these days?
M3 and housing correlates? Please explain.
Here’s a link to one site that has reconstructed M3 numbers.
http://www.shadowstats.com/cgi-bin/sgs/data
M3 includes all credit extended by banks and other institutions. It is the equivalent of hard cash in the marketplace; both spend equally well. So when M3 expands all asset classes related to the credit expansion should rise in price.
Hi BM, I get your point but when a person says there is “correlation” I usually like to see it demonstrated.
Got Japan?
Lauder,
Understand that the home still has to close. Anyone can get a lender’s pre-approval letter. They are handing them out right now, just to get apps in so they wont get their butts handed to them by their idiot loan production managers. They throw everything up against the wall and then see what will eventually make it through pre-doc and pre-funding underwriting.
There is a chance that she got lucky and found one of the handful of truly qualified buyers (under the new credit/income guidelines) in the OC, but odds are, the home will fall out of escrow. Most people with good credit at this point, know that something’s up with r.e. and are being a bit more picky, otherwise sales numbers wouldn’t be dropping and r.e. agents / mortgage brokers wouldn’t be looking for other work right now.
I also dont believe that is little inventory in the $600k to $800k price range. This is traditionally the area that has the most FB’s, people who only make say $50K to $100K but stretched with toxic loans to qualify. These are homes that would have been $250K 6 to 10 years ago. This price range is imploding and people are trying to get out, left and right, with many unpublished asking price reductions.
Did I understand this right? With a household income of 75K, I should be looking at a 600K instead of a 210K house? The only way to do that would be to go stated with a teaser. I know we talk about it all the time but that’s insane.
Oh cmon Gwyn : ) you can afford it on 75k
But you would have to get used to Alpo.
I thought the same thing about the 450k 2bd condo next to me. It sold in about 8 weeks (unknown price) but I was sure it would fall out. I was wrong, a young couple is moving in. Either this couple had a huge down payment and a very healthy income, or the toxic loans are still available (anyone care to make a bet?).
Don’t be surprised to see movement, sales have not completely stopped. Just as builders must build to stay in business, lenders must lend to stay in business. As for the buyers, most people are oblivious to what’s going on in the market. I’ve had two intelligent, successful people tell me lately that I NEED to buy a house. I politely tell them I don’t think this is a good time and they just look at me like I’m an idiot. Even the FB’s don’t know what’s in store for them, and won’t until it’s their turn to cross that rickety bridge.
“sales have not completely stopped”
Right. Even with the big drop in sales numbers, there are still plenty of FB happily walking off the cliff every day. It’ll take some time for the mentality to completely shift. This is what I tell myself every time an overpriced pos sells in my neighborhood.
A lot of people I talk to on the streets seem to feel this is a temporary blip in the RE market. A similar feeling was around in 2000 - people were buying Intel and DELL stock at “bargain” prices. Look at how the stock market performed in 1930. While history books will call it a 1-day crash - it was more like a downward trend full of peaks and valleys.
sales are down by 20% - 30 % not by 100% , so still there are buyers out there who has no clue about whats happening. for them 5k reduction is a big bargain. i still see lot of people in MA, and NH who are buying the houses. when you talk to them u realize that they are not aware of the situation.
true in my experience….put my place in Northern CA on the market at a good price about a month ago, got an offer in 3 days, escrow closes in 2 weeks and it looks like it will fly….the realtor was surprised I wanted to list it below her recommendation but I’ve been hanging out her for too long and want to unload it before the storm breaks….a 5-10K “discount” netted a quick sale (I hope)
The market out there is making me look like an idiot!
NO your sister is a BIG GIGANTIC MORON, just wait she will prove it to you in a few days…..
She will NOT lower the price even by a few thousand, and finalize the sale, if the apprasial is a few $K short or wont deduct a few thou if things need reapir…..or maybe pay a fw Thous for closing costs
You will hear the MORON say: “I’m not givng my house away!”
Of course…. maybe she is very very smart and knows that she is the luckiest woman in America right now!
JUST WAIT…she will have the house and will file BK this year…. because she will find a way to screw this up.
This is not entirely fair. I mean, yes there are tons of FB’s out there that are on the edge, but not everyone that “owns” a house is on the brink of BK. I mean, my brother-in-law’s income has gone up ~2x since they bought this house, so it’s not like they’re about to file if this house doesn’t sell before their next mortgage payment. Why do you assume that “she will find a way to screw this up”? Because she went out and bought a house at some time in the past? Give me a break.
Overall this experience makes me think we on this board need to be a little more grounded in what’s happening in the real world and understand how slowly this train wreck is unfolding.
I personally think this is a disaster bigger than the telecom bubble I lived through 5 years ago, but it’s going to take far longer for it to play out.
I agree i may not have been fair……but how do you know they didnt spend and Heloc’ed all the money out
and they NEED to get all that money or they are screwed?
Only time will tell if she will do the right think and really SELL the house ……
“1200sf house in HB in the mid-$600k’s (maybe 5% less than peak comps), with total time on the market a grand total of six days. She also said that despite the growth in inventory, in her target segment ($800k) there was not a lot of inventory or price flexibility.”
I don’t know where in HB this sold house was at but Mid-$600,000 ’s? Hope it was near the beach or south of Garfield ave in a top-flight neighborhood, and even then paying that price in todays downtrending RE Market is foolish. Not to take anything away from HB because overall it is a fairly clean, middle class city with abundant parks and that long stretch of white sandy beach. Problem is HB is not exactly a swanky upscale city: it is more like maxed-out-on-credit middle class FB’ers. HB still retains vestiges of it’s blue-collar past, and there are still lots of energy-related fields/infrastructures, as well as assorted blue-collar trailer parks near the active/former oil-derrick fields.
The folks who still own SFH properties with some equity, and maybe even recent buyers, are probably hanging on to their homes and not going to sell in this adverse RE climate, at least in the better south parts of HB. Condos/townhomes are another story: there has been a massive amt of cookie-cutter multi-unit tracts springing up along Garfield/Main/York ave near the City hall area all way down to the beach. I expect a wave of FB’ers to shortly unload these stamped units at firesale prices in the near future.
Don’t eat that pie until that contract actually closes. I’m seeing extraordinarily high levels of loan denials right now which cause contract defaults. If your sister didn’t get a decent deposit on the contract (and most don’t right now) she could be in a much worse position when the contract defaults.
Hey GS, aren’t you in 92127? If you are check out Jim the Realtor’s site: http://www.bubbleinfo.com/
It looks like your area saw an increase in sales with a decrease in price per sq. ft.
“When Maria and Oscar realized that they weren’t going to be able to continue making their mortgage payments and also pay their steep property taxes…
Excuse me, but in California, you can figure out what your property taxes are going to be on day one…they aren’t going to go up while you’re there (Prop 13); they didn’t suddenly get “steep”. (whether or not the rate is too high to begin with is another discussion)
Yep, that’s the probably the best thing about the California market. You _know_ what you are going to be paying in 10 years.
Yeah, but you don’t know what you’re going to be getting in return for your taxes. Now that prices are falling, the tax base is going to decline. People who bought post-2001 and don’t sell, or walk, are going to file for reassessment at current market rates.
The old-timers are going to have to get used to getting what their own taxes pay for, not what the new buyers’ taxes are paying for.
Not to be pedantic, but property taxes in CA can and do go up over time. Localities can vote to tack on additional property tax hikes to pay for particular programs, for instance.
worthy borrowers, who [...] can’t afford the payments
Isn’t that an oxymoron?
Well, of course. Aren’t banks easier on “nice” people who can’t meet their obligations? You know - an extra six month’s forebearance or interest rate reduction for people who write those letters detailing why their adorable family deserves to get a break? Heck, they can even adapt the letter they submitted with their contract, if they’ve got it saved on the ol’ Dell.
Oh, they’re not? Gosh - everyone looks so cheerful in those mortgage company commercials - I just assumed they’d cut “worthy” borrowers some slack.
[side note: I'm sure the one silver lining of the downturn for realtors is that they don't have to read/submit any more of those "sell us your house for less than the other folks offering more because we're nice people" letters. I always thought "hey - if you're so swell, I'm sure your relatives, co-workers, friends, or current neighbors would be happy to kick in $10k or $20k for you. But, instead, you're asking a complete stranger -- the seller -- to forego money for you on the basis of a page of nice (but possibly unverifiable) things about your fabulous family."]
“It’s your dream to buy a home,” she said. “All of a sudden your lender comes back and says no, I can’t close your loan because the product you qualified for no longer exists.”
Boo hoo, it’s my dream to be a billionaire, but I am not deluded into believing that it’s my right.
There are thousands and thousands in San Diego and Orange County who hold jobs” but can’t document their incomes.
“Can’t” document their incomes? How hard is it to photocopy the last few years’ tax returns? And if they don’t have any tax returns to photocopy, then they are probably tax-evading felons who belong in prison, not in a mortgaged house.
“‘It got to a point where I literally got sick to my stomach,’ she said. ‘Every day I got home and would think to myself, I helped set someone up for failure.’”
OMG! Is she trying to say she was a victim too?
No, that she has a delayed conscience.
I really think this confession from this underwriter is proof that the sub-prime loan industry knew they were making bogus loans .When a underwriter knows they were setting up people for a big fall than you know they were just rubber stamping any application.
I still believe that the borrowers got helped with the liar loan applications by the front line loan agents in order for the borrowers to know how much to put down for income on the loan application .
I really feel like I’m watching a movie in which I don’t like any of the people in the movie and could care less what happens to them because of their greed or lack of ethics .Maybe the employer would of got rid of this underwriter had she not rubber-stamped the loans ,so maybe she knew she would be without a job had she not gone along with it . No excuse IMHO ,but people will do alot of weird things to keep a job sometimes . She could of been a whistle-blower and taken the heat for objecting ,but it takes alot of courage to do that .
‘We just don’t want to throw our money away.’”
Hey, isn’t that what they always say about renting?
“New Century spokeswoman Laura Oberhelman said the company was overtaken by unforeseen events….”
BS! If you put strawberry pickers in 700K homes, the outcome is very predictable.
“It got to a point where I literally got sick to my stomach,’ she said. ‘Every day I got home and would think to myself, I helped set someone up for failure.’”
On the contrary. You should feel proud of yourself for providing a valuable service to mankind. Kind of like selling cigarettes to cancer patients.
And every day she got up, went to work, and found new folks to set up for failure. I guess the money was just too good. Drug dealers probably feel the same way.
The discerning reader will note that she was laid off after three years. She didn’t quit to assuage her alleged guilt.
Has anybody noticed that the metrobrokers.com electronic odometer on the last pic on the HBB gallery is about to roll over? What happens when the number of houses for sale in the Atlanta area is more than 100,000? There are not enough digits on this electronic odometer.
Maybe somebody will climb up and attach a red “1″ to this sign? Problem is, nobody will be able to see the red “1″ at night.
This undesrcores how Metro Brokers never had any inkling that this many homes could possibly ever be up for sale in the Atlanta area.
It will be interesting to see how metrobrokers.com will be dealing with this dilema.
Got 10% down?
An excess of 100,000 does not require more digits. When it reaches a million, then you’ll need another digit.
Unless the meter has only 5 digits (99,999), in which case you’re right. You said the number already exceeds 100,000, so I was assuming it had six digits to show this.
Lol. Incredulous your original answer of $240k in the other thread is correct. (I included an explanation on how I was wrong.) You get extra bonus points!
But it will be interesting to see how Metro Brokers of Atlanta is going to deal with this dilema of not enough digits in their electronic odometer. I hope somebody in Atlanta will keep an eye on this sign and report to us what happens.
Thanks for pointing us back to that little matter on the other thread. I could not understand why you thought “incredulous” was wrong, I figured you were going to announce some semantic trick. Glad we all agree the forgiven debt was $240K.
There is new digital counting technology available:
http://www.yugop.com/ver3/stuff/03/fla.html
OT, here, but it’s Sunday, and I just wanted to know if anybody is as sick as I am of the realtors’ ads (and biz cards) with their smiling headshots. We have a couple of ‘em out here where they almost look like they’re laughing (all the way to the bank with their 6% commissions). What a bunch of self-promoting, unskilled, talentless zeros. Hope they all have to sell their Beemers and Lexuses while the market tanks.
if it’s any consolation, they’re all pretty desperate right now
more consolation: they are spending a lot on those ads that are not working any more
I know that part of what realtors are struggling with now are the sellers who refuse to lower their prices. Just yesterday I got a call about a house from a realtor who couldn’t help but laugh when she told me the price. Maybe that’s why they’re smiling in their ads now: their laughing at the sellers for a change.
The realtors who intend to survive the Great Realtor Washout of 2007/2008 will be those who refuse to “struggle” with delusional greedheads. They’ll simply refuse to accept the listing and opt instead for properties they can actually hope to close on in a reasonably expeditious manner.
My big indicator that things are not so swell in Realtor-ville is that most of those glossy, full-color flyers in those plastic boxes in front of homes for sale have been reduced to black and white copies…
And in one instance, to half-size black and white copies. Is it possible that agents are resisting actually PAYING for marketing materials to cut expenses?
Speaking of Sunday, the Sunday LA Times Real Estate Section is starting to pull a fast one. They usually feature a neighborhood a week and give a nice little boxchart graphic showing historical median price in that neighborhood in 1990, 1995, 2000, 2005, 2006 and 2007. This week the chart drops the 1990 and 2007 entries, only listing the medians from 1995 to 2006. Why?
It couldn’t be that these two omitted datapoints are the ones needed to show that price can and has gone down? Nahh, real estate only goes up.
Great catch - you should post that at piggington.com (they are highly-focused on LA and SD) - I’m sure that will be of extra interest there.
Notice that the area around Universal City (where I live and rent) climbed from $282,500 to $920,000 in that time period? Reversion to the mean will *kill* homeowners here.
I’ve been working in Southlake, Texas for awhile. Driving past large estates and dodging Lexus SUV’s. Long enough to see the realtor pictures change on a couple of large setback mansion properties
No, we only get the one - the fabulous Trent Spencer!
Every sunday he puts a flier and a little gift through our letterbox, despite the fact that we told him 18 months ago that we rent this place.
Still, the notepads (we’ve been given 3 since january) come in handy for shopping lists, and I enjoy drawing bandito moustachios over his insanely cheerful face…
What makes me sick is the article in Parade magazine today that shows a Utah real estate broker made $435k last year.
“More than 40 percent of New Century’s loans were based on stated income. Through the first three quarters of 2006, stated documentation loans were $19.2 billion, 42.3 percent of total lending.”
Uh, huh, that’s lovely. What a joke. The investors buying this crap are fools.
‘We’re looking at selling it for less than what it’s worth and cutting our losses,’ said Maria. ‘We just don’t want to throw our money away.’”
My, how the tables have turned!
I suggest that Maria and Oscar place a RED light in their front window and use what little time they HAVE in their house wisely.
Bought my 2 bedroom 2 1/2 bath..full basement townhome in 1997
for 140,000 in Morris county NJ…never borrowed against.. paid twice monthly..bought less house than my income allowed…
I feel so damn fortunate I never traded up..never borrowed against ..refinanced once…should have sold in 2005/2006 but
big deal…I aint gonna die and I love my home…
Paarl of Rhodesia
If more people had had your attitude about what a home *is*, we would not be in the mess we’re in. Hopefully, it’ll become the standard again in the next few years. And then stay that way for generations. One can only hope.
All of these lenders over the last 3-5 years have probably developed huge stomach ulcers if they have a conscience. The FB’s have huge migraines every night. How do any of them sleep in peace?
All of these lenders over the last 3-5 years have probably developed huge stomach ulcers if they have a conscience. The FB’s have huge migraines every night. How do any of them sleep in peace?
In the real world, Mister Potter wins.
His stomach is fine and his fee- based bank account is bursting.
F@cked borrowers are Somebody Else’s Problem.
This is off topic, but I wanted opinions on my theory of what is going to happen to housing prices.
I live in Chandler, AZ, where prices went up about 25% a year in 2004 and 2005, instead of the 7% they should have (this is not Detroit - our economy is still growing, population increasing, etc).
Now I’m not in some brand-new neighborhood with 1/2 the houses for sale, and I’m seeing prices hold steady and sales in 30-60 days.
I think what will happen in stable ‘hoods here is 0% to 2% appreciation for about 5 years, so that we revert to the mean of 6-7% a year. I really don’t see the same 25% drop for reversion.
Now California on the other hand will probably see -5% to -10% a year for the next 5 years or so, to get to realistic values. The IE is going to do much worse.
Any comments on this? My feeling is that house prices are flat for 5 years nationally, with real drops in 2005-2006 bubble neighborhoods.
BTW, I bought in 2001 and have no mortgage, so I’m not looking for some “FB” consolation, just conversation.
I think most people here will not agree with you. AZ too over-buildable, and the builders will crush re-sellers. My own guess would be that CA will hold up (a little) better than AZ, but this is just seat-of-the-pants thinking, based on CA’s restrictiveness about new building.
az_lender - you obviously know the market here. But one thing is that all the “buildability” left is farther and farther out - Queen Creek, Surprise, etc. Out there the builders will skin any reseller alive and that’s where a fast -40% could happen.
I’m talking about a 25 year old neighborhood in north Chandler - I expected to see -20% in sales prices from 2005, but am actually seeing +2 to 5% on houses in my ‘hood of about 180 houses - with one or two selling per month.
In about five years oil is likely to be north of $200 a barrel and gas about $10 a gallon, if you can get it. Within five years, Mexico will be exporting no oil to the U.S. Be careful of making any future predictions about steady anything, except inflation.
AZ: noboby has a crystal ball. Most likely SFH RE will revert to mean(grow at the rate of inflation) but in real terms from many years (because of CPI) will actually decline in value but as you say the prices will appear flat or sideways. Or they could take a huge dive! LOL
AZ Owner,
In 85086, north of Phoenix, our average monthly total inventory is around 600, selling about 35 homes a month.
I think the people selling are holding on but as the foreclosures are start increasing and with the inventories at these levels, the prices are going to have to come down.
It might be different in your neighborhood though. I know someone in the country club who got a contract on a house that was listed at $975,000. Of course we’ll see if it closes, but some areas are different and some sellers get lucky. At least you don’t have to worry about with your situation.
Lip
I think most people here are looking for homes to price out again in relation to actual incomes, based on a sane (ie. 10-20%) downpayment. (or, in my case- I’m allowed to dream, aren’t I? - a 50% minimum dp demanded by the bank. -LOL).
Yes I know, that may be absolute crazy-talk. However, if we go anywhere near actual incomes and downpayments again, I think your sideways or slight appreciation is a pipe dream.
As to the 25 - 50 % off in CA. over the next 5 years, who knows how long or how much. Nobody can predict that.
I’m starting to hope for 80% in 2 years. Ah well… I figure that’s as valid as your hope for 2% appreciation for the next 5 years.
The final numbers and time frames are impossible to predict with any certainty. We’ll all just have to wait and see what really happens.
I’m just thinking in terms of real inflation of 5%, house prices flat, and maybe wage inflation of 3.5%. In five years, you’ve inflated away 28% of the price bubble, and real potential buyers have 19% more purchasing power. Just speculating.
Even if we do see -50% nationwide, I’m still above water and I’m sure the 30% of homeowners with no mortgage will be too - maybe THAT will be the time to trade up?
House prices flat means there have to be enough people willing and able to buy houses at current prices as fast as the builders can churn them out.
And who might those people be?
25% annual increases in 2004 and 2005 means 56% total price inflation over a two year period, yet for some reason you don’t think that the reverse could happen? If anything, I would expect California’s prices to hold up better than Arizona’s, because many Arizona houses are in fact owned by Californians as “investment” properties. I expect prices in both states to drop considerably, but Arizona’s will drop more and faster.
We’re trying to sell, but we had to cut the price because it wasn’t moving,’ said Ellie, who is praying for a buyer so that they can get out of their mortgage. ‘If it doesn’t, I don’t know what we’re going to do.
When I read crap like this, I cant help but think of the people these idiots out bid and maybe one of them was using a real money with a straight lender and they were going to pay the full payment … and these Idiots knocked them out with funny money … and now they cry foul. How about the people you ran out of town … because it might have been me … or someone else on this or other blogs.
Cool.
Cow_tipping.
“We’re trying to sell, but we had to cut the price because it wasn’t moving,’ said Ellie, who is praying for a buyer so that they can get out of their mortgage. ‘If it doesn’t, I don’t know what we’re going to do.”
Maybe consider changing religions?
Ah, the greater fool theory where you hope that a greater fool than you comes and pays more than you did. You just don’t want to be THE greatest fool.
Richard Novelo pulled 40k out of his property when he refinanced but now hes blaming the lender for his current problems . What did this cat do with the 40k he pulled out ?
These people who already got a bunch of money out of their property who are now going to walk or claim victim or want a bail- out make me sick . I don’t feel sorry for people who took equity and now are bailing . This guy refianced because he got a bunch of money from it .
lauderdalian,
Irvine inventories been up steadily. Very few homes sold. The Orange County Register lists prices decline in all zip codes in Irvine.
My neighbor just sold his house after 3 months on the market with a 8% decrease from last year sale( for identical house but he has a bigger yard). So prices are declining but it won’t be a huge drop. In the 90’s same scenario, it dropped slowly for 6-years.
regarding inflation: a bit from charles smith blog:
In economic theory, inflation means expansion of the money supply. Fine. But in day-to-day living, supply and demand still rule.
This can be illustrated by one simple example. Let’s say money supply is shrinking, perhaps due to a massive credit crunch. In such a deflationary environment, prices should drop. But if petroleum and basic food stuffs are in short supply due to imbalances in supply and demand, Peak Oil, crop failures, etc. then prices will rise regardless of what happens to money supply.
In other words, macroeconomic changes in money supply will undoubtedly affect asset prices (housing, stocks, bonds, gold, etc.) but the cost of non-discretionary items will be set by supply and demand.
Charles is correct, but he leaves out a couple of points.
If gas prices go up, people will buy it at the higher price but they will buy less running shoes and diamond rings. Non-discretionary goods go up, discretionary goes down.
Substitution: people will buy hamburger instead of filet mignon. Public school instead of private. State college instead of Harvard. Chevy instead of Mercedes.
Credit crunches are deflationary (see above M3 discussion), and we have a credit crunch of massive proportions underway.
How often do you eat Filet Mignon? You make it sound like the average American eats it every night.
And what will people buy when even hamburger is too expensive?
And what will people do when even a Chevy is out of reach?
Answer: Hyper-inflation.
All countries are increasing money supply by at least 9-10% per year. Central bankers are a one-trick pony. They have one solution to all problems: print more money. It is the easiest way out.
We have a fed chairman who is on the record as saying he will drop money out of helicopters if it becomes necessary.
I have been buying gold and silver pretty much every month since late 2002.
Paper assets, including mortgages, and stock prices go down. REal things go up. Oil goes up. Food goes up. Gold goes up.
Remember the meltdown in February? Gold took it on the chin as well. Fact of the matter is, money sloshing around the globe has inflated the value of EVERYTHING, gold included.
brad:good point here is the link for your review:
http://www.oftwominds.com/blog.html
thanks lineup32, good stuff
Uh, I’ve been doin’ a lot of payin’ attention and drivin’ around OC lately. Talking to people, visiting places. I am increasingly getting the impression that OC (California) real estate is about to get pounded by a very big hammer.
I’ve watched this bubble unfold for years, always wondering if and when a pounding would occur, choosing not to purchase a home because of the excesses I perceived and because of the great deal on rent I could always get. But now the tide has turned, the phase has changed, the baby has burped. It’s clear now (more than before): recent speculators in Orange County are about to get their @sses handed to them.
Those of us who remain here in the OC marvel at how the economy can sustain the housing prices. Admittedly, illegals and ethnic communities are purchasing through their same-ethnicity contacts low-to-mid priced properties and are happy to live with the increased density. Traditional middle-class white families now have to endure the return of children, something white, middle-class families have not beforehand been expected in great number to encounter. Greater density and trouble finding a parking space.
Greater stratification in the OC between those in McBoxes behind gates, those in between, and those renting in high density apartments or condos.
No doubt the pounding will begin, but I am really unsure if the fires will be lit at both end or even points between.
People with their hands full (already own 3 investment properties), and want more, even with all the negative RE publicity:
http://www.prosper.com/lend/listing.aspx?listingID=122867
Will people ever stop with this obsession???!
From the beg:
“This loan will be used to cover a portion of the down payment for our next investment property. We hesitate in paying all cash, because we would like to keep a healthy nest egg in our savings account as an extra buffer to cover contingency items such as maintenance and turnover.”
Yeah. Sure. It’s so uncomfortable for them to use their own “healthy nest egg” that they are willing to accept almost usury rates (19.5%) on a 25k loan “to help cover the down payment”.
Some down payment alright. Kinda like putting the DP on a Master Card.
Big Red Bell Ringer: They yak about being all Christian and such. That’s never a good sign. I smell a spanking in the works.
Kinda funny, but my father has, for years and years, always tried to put large deposits for things on his credit card.
Of course the difference is that he pays his credit card bill in full every month, and he uses a card with a “rewards” program that is actually worth it.
I am sick of all the stupid mainstream press advice to people who are falling behind on their mortgage payment. “Contact your lender” and “go to a counseler” are typical of the bullshit advice they spout. WRONG! Let me tell you what you should do. First, if your mortgage is going to adjust and you know now that you won’t be able to make the payments, then stop making payments NOW. No sense throwing more money down the rathole. Rent an apartment for 1/2 of what your unadjusted mortgage payment was and move right away. Take the doorknobs, plumbing fixtures and furnace with you and sell them. Use the money you are saving on not paying the mortgage to pay off the car loans and credit card loans. Don’t worry about the house - they won’t even try to contact you for 4-6 months after you stop paying, and you won’t even live there anymore. Now continue to live with your expenses below your cash flow so you can accumulate assets. Don’t keep them in a bank account in your name, of course. And don’t worry, the banks and county courts are going to be so overwhelmed with foreclosures that I doubt they’ll bother to come after you. Just a mark on the credit report and you can write letters to the credit agencies claiming that the loan was “fraudulent” and taken out in your name without your knowledge.
So you’re saying one should use theft (and it is theft to steal security from a house subject to a loan lien) fraud and deception as a tool to enhance financial security. Wow, that’s much better than working things out with your lender or going through debt counselling! I guess honest people are just knuckleheads, then. Suckers.
Of course, while broke, they won’t be in jail. Good luck with your plan, though.