A Boom-Bust Cycle In California
The Mercury News reports from California. “The East Bay is among the regions most vulnerable to a slump in California’s housing market, a downturn that could be the worst in a quarter-century, an economist said Monday. And in a grim forecast, home sales activity could plunge more deeply by the end of the year, Robert Kleinhenz, an economist with the California Association of Realtors, told a conference meeting in San Francisco.”
“‘We’re definitely in uncharted territory,’ Kleinhenz said. ‘We haven’t seen the worst of the credit crunch in our numbers yet,’ Kleinhenz said.”
“The housing hazards in East Contra Costa and the Tri-Valley are akin to the jeopardy that confronts Central Valley communities such as San Joaquin County, Kleinhenz said. ‘You had a lot of new homes built in those areas,’ Kleinhenz said.”
“The implosion in home sales will likely trigger a boom-bust cycle in the East Bay, he said. Stagnant home sales have eroded residential building jobs. ‘The new-home construction overhang is having an adverse impact on the East Bay and the Bay Area,’ Kleinhenz said.”
The East Bay Business Times. “A proposal pending in a U.S. Senate committee that would raise government home-loan limits in California and other high-priced markets could provide a life raft for thousands of East Bay borrowers caught between softening home prices and skyrocketing adjustable-rate mortgages, mortgage brokers say.”
“‘We are just at the beginning. It hasn’t even started to get bad yet,’ said said Michael Tacconi, a broker in San Ramon and past president of East Bay CAMB.”
“‘Now with the market, they can’t afford the loan they have, they can’t refinance into a better deal and they can’t sell their home,’ he said.”
“‘In Alameda County, 21.4 percent of the 4,864 properties on the MLS as of Sept. 3 were in foreclosure, owned by a bank or in negotiations between the buyer and the seller to accept an amount less than face value as payoff of their mortgage,’ according to Movoto.”
“In Contra Costa County, 29.6 percent of the 6,365 properties listed were distressed, and 29 percent of 2,403 Solano County properties were posted because sellers are in distress, Movoto found.”
From Bloomberg. “Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.”
“Morita, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years. That mortgage became too expensive when her lender quoted a rate of 7.6 percent. She’s now applying for another mortgage.”
“Homeowners like Steve Binder are feeling the sting. Binder had an agreement in early August to sell his three- bedroom, 1,600-square-foot condominium for $618,000 in Aliso Viejo. The deal fell apart when the buyer was rejected by banks after he sought 100 percent financing that included a jumbo mortgage plus a second loan.”
“‘Our house is in turnkey condition,’ said Binder. ‘The only reason it won’t sell is what’s going on in the market.’”
The Bakersfield Californian. “Carl Cole, David Crisp and three employees of Crisp, Cole & Associates misled lenders on more than $12 million worth of loans, state regulators said in an accusation filed Monday. The 25-page document says actions by Cole, Crisp and the employees constituted fraud, ‘dishonest dealing’ and ’substantial misrepresentations of material facts.’”
“Principals and employees of Crisp, Cole & Associates deceived lenders into thinking the buyer planned to occupy a given property, the report states. This might have allowed applicants to receive more favorable loan terms, said Beth Cheatwood, a loan officer.”
“‘Most of the subprime lenders would not even consider a non-owner-occupied stated-income loan,’ she said, adding fees and interest rates are higher on investment property loans.”
The Daily Press. “As if a dismal housing market and the incredible shrinking mortgage scene were not bad enough, home sellers have a new enemy to contend with: Large homebuilders.”
“Builders of new tract homes have begun pricing them well below the median. At KB Home’s new Hacienda de las Flores, homes start at $225,000.”
“What a contrast to the median home price in the High Desert, which is $293,843, according to the Victor Valley MLS compiled by Larry Trombley.”
“Even more discouraging are creative buyers thinking to capitalize on a sky-is-falling mentality. ‘A lot of people seem to be watching television shows that say, make a lowball cash offer and the home will be yours,’ Local broker Caroll Yule said. ‘But sellers are just going to be offended if you go $100,000 lower.’”
“Jack Fales, a longtime local Realtor, said prices still have not fallen enough. ‘They’re just not down there far enough to get everybody excited about buying one,’ he said. ‘I think the market on the interest rate is messing things up, too.’”
The Orange County Register. “It’ll take until 2011 to sell the last of the homes now on the market in Santa Ana, according to one statistical report released recently.”
“‘Demand for Orange County (real estate) has taken a hard hit because of the current (lending) market crisis, dropping to its lowest level in years,’ wrote Steven Thomas, president of RE/MAX Realty Services in Aliso Viejo, who provided the latest home-supply calculations.”
“‘The reason our statistics in Santa Ana are so high is we have tons of subprime properties,’ said real estate broker Molly Doughty. ‘It’s really harder (to borrow money) now. … You’ve got to have excellent FICO scores.’”
“Sarah Covarrubias, former manager of Seven Gables Real Estate’s Santa Ana office, said at least half of Santa Ana’s listings are bank-owned properties, ’short sales’ going for less than the mortgage amounts or that are in pre-foreclosure. Problems are greatest for homes selling for $600,000 or less, she said.”
“‘There is a huge amount of inventory, and we have difficulty qualifying buyers (for loans),’ Covarrubias said. ‘It’s really become a sad situation.’”
“This is ugly. The call-it-what-you-want mortgage mayhem has the Orange County housing market in a chokehold.”
“By Thomas’ math, the number of shoppers countywide entering contracts to buy existing O.C. homes is down 600, to 1,206 last week. That’s a 33 percent decline in just four weeks. And it’s no seasonal quirk. In the same period of last year, the number of deals in the works dropped by only 116.”
“Thomas’ data shows the problem is most acute in the middle of the market: pending deals for homes priced from $500,000 to $1.5 million. Deals are off 40 percent in this prime slice. Meanwhile, the rest of the market is down 21 percent.”
“‘My opinion definitely changed the last few weeks,’ says Thomas, who helps run a family-owned brokerage with nearly 400 salespeople. ‘There’s a giant squeeze on demand thanks to the financial crunch.’”
“I dialed up Lou Mac, a Santa Ana broker who sold me my first house, a Santa Ana condo, and helped me sell it in 1993 when I moved to Trabuco Canyon. Things are not pretty in the old neighborhood, not far from South Coast Plaza.”
“He can take a stroll from his Santa Ana home without worrying that he’ll miss a critical phone call. That’s because the phones aren’t ringing.”
“Even steep price cuts, roughly 20 percent in Mac’s area, aren’t helping. For example, he sold a three-bedroom unit in my old condo complex for $484,000 in June 2006. (I gulped since 13 years ago I sold one for $130,000.) A similar unit now lists for $399,000 – and isn’t moving.”
“His own portfolio feels the pain. Four months ago, he was all-but-ready to close the $580,000 sale of a Garden Grove property he owns. The deal died when the buyer’s lender – New Century, the one-time subprime giant – closed its doors. He’s now listing that place for $539,000 with no luck.”
“‘It’s a scary scenario,’ Mac says of the ultraquiet market.”
“I asked Mac how today compared to the painful down cycle of the early 1990s. He offered only modest comfort. ‘We haven’t had it as bad,’ Mac says. ‘It was worse (in the 90s,) no question.’ That comes with a qualifier: ‘So far.’”
“Mark Boud from Real Estate Economics in Irvine thinks O.C. homeowners are behind the curve, or, at least behind local developers, when it comes to discounting.”
“‘Most new homes are now a bargain compared to resale listings,’ he says, noting big incentives in freshly minted projects. ‘Too many existing homebuyers are hanging onto a listed price that is overstated.’”
“He thinks a seller should be thinking a price drop of 10 percent to 12 percent is in order. ‘Resellers need a bit of a reality check,’ he adds.”
‘Most of the subprime lenders would not even consider a non-owner-occupied stated-income loan,’ she said, adding fees and interest rates are higher on investment property loans.’
If they start putting people in jail for this, we’ll be out of space in less than a week.
If you read the list of accusations the meat is in the area where they used their familes credit informationa and stated they worked as the CEO of company X and made X when they were the receptionist or the bookkeeper. The other meat is in the straw buyers, who they promised to make payments on properties after the loan closed and they promised to split the profits.
I agree on the non-owner occupied stuff. At least they will lose their license and it might put some fear in others?
You really nailed those guys Crispy. You called all this a long time ago.
Yep, they’re ridin’ the Joshua tree bigtime!
hee haw!
I don’t think jail is the best option. Instead, take away bankruptcy as an option for those with liar loans. Let them live as debt slaves, paying off their debt with the threat of jail if they do not.
Is this a jail-time thing or just fines, etc?
I say bring back the chain gang to clean up urban blight, garbage on the sides of highways, etc. Hard, manual labor every Sat and Sun. 10 hours. Rain or shine. No excuses. Or jail, if not.
I say bring back the chain gang to clean up urban blight
Urban blight such as the hundreds of thousands of hideous suburban shitboxes that were built in the past decade!
I think I remember reading a lawyer saying there are two kind of real estate fraud (perhaps on a link from this blog). One for residency and one for profit. Both are illegal, both could result in jail time, but juries put the latter in jail and prosecutors won’t bother with the former. When the “denial” phase is over, and the “blame” phase begins, I hope more than just a few show trials take place. How about fencing in entire neighborhoods in the IE and throwing 100,000+ liars in jail and filming it.
As luck would have it, The Guv-a-na and various sundry politicians passed a $8 Billion Bill a few months ago, allowing yet more prisons to be built in the Golden State…
Who Knew they’d need more cells?
Section 523(a)(2)(A) of the Bankruptcy Code excepts from discharge in bankruptcy “any debt . . . for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by . . . false pretenses, a false representation, or actual fraud.” 11 U.S.C. § 523(a)(2)(A).
Wouldn’t it be nice if this were actually followed? I’ll be crossing my fingers.
My lender changed my loan docs to make me an owner occupied on TWO houses I was buying at the SAME time despite my clear declaration that I was not going to be occupying them.
MoMoney:
Did he change that part before or after you signed the contract? Also, did you report him?
LOL surely you jest…
I didn’t find out until I checked the Maricopa Assessor’s website, it’s against the law in AZ to rent a house while claiming it to be owner occupied. At that point it was several months after closing and I had no idea what was going on and just assumed sloppy paperwork at the time.
You should report the guy.
Did he change it or did the clerk in the tax office just check the same block she checks every time?
I sold a house yrs ago and bought another one and the county had me living in neither one. Then sent in closing docs and they had me living in the sold and renting out the new, called them again and again, etc. Never did get my over paid taxes back (homestead exemption).
I am refinancing a house with my existing lender, who now sends the payment invoice to where I moved (renting). The rep suggested I could get a better rate if I said I was living there. I was dumbfounded. I told her I clearly was not living there and she just said everyone does it and the lender never checks. Idiots all. I am using a different lender.
My, how the loan worm has turned…
“Morita, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years. That mortgage became too expensive when her lender quoted a rate of 7.6 percent. She’s now applying for another mortgage.”
This just shows how seriously out-of-whack housing prices are to financial fundamentals. I’m guessing Morita makes more than the median income and w/$300k down is effectively buying a $500k house, but even she can’t afford it.
The article only says she doesn’t want to pay the higher interest rate that’s now attached to an interest - only loan. She probably could just get a regular fixed 30 year loan with no problem.
What I want to know is why, if she can afford $300K down and the house is $800K, does she need or want an interest - only loan in the first place?
Probably can’t afford the payments on a regular fixed loan. PITI is about $4k/mo (taxes might be a lot higher than the 1% I estimated), so she would need an income of $150k/year to squeeze into this house… IF she didn’t have any other debt. What if this woman has med school debt, etc…? How much does she actually make? $500k is still a lot of money to borrow, even for a successful professional in a major city.
She could be doing IO because she’s paying of medschool/gradschool bills, and expects to have them done in a few years, whereupon she can start amortizing the mortgage. Risky? Yes. But it’s one of the few reasons I could think of using an IO. On the other hand, if she just waits 2 years, I bet she can have the 3 bed house for 450k.
She’s trying to use I/O for the same reason 2/3 of San Franciscans have I/O mortgages: they can’t afford their properties. Sure, the delta between a regular loan and I/O is not large - but she’d have to downgrade to a $700K property instead of $800K to swing the payment. Heaven forbid.
Don’t think that she’s wealthy because she has a $300K down payment - this could be pre-bubble equity or a 0% loan from mom and dad. Lots of that going on here.
For so long people thought that the Bay Area, at least San Francisco, would be immune from any correction. Now it’s becoming apparent that the San Franciscan making $200K/year buying a $1.0 million property is just as over-levered as the forklift driver in Stockton who makes $45k/year and bought a $225K property. Whoops.
she is a neuropsychOLOGIST ( no med school debt, but postgraduate which is less ), so her pay is somewhere in the 100k range (average) so even with 300k down, 500k is too much if she went 30 fixed, interest only would lower the payments to where she can afford.
she is a neuropsychOLOGIST ( no med school debt, but postgraduate which is less ), so her pay is somewhere in the 100k range (average) so even with 300k down, 500k is too much if she went 30 fixed, interest only would lower the payments to where she can afford. these are all assumptions ofcourse, bottom line NO MORE FREE MONEY.
I’m lovin it
..she doesn’t want to pay..”
She’s acting like it’s a flip.. wants to get in as cheap as possible. She doesn’t want to invest a lot of dough.
The story illustrates and supports the notion that the mortgage market is at fault for slow sales these days.
And that seems to be the new NAR mantra, repeated in many stories.
Blame the credit crunch instead of blaming their pigheaded sellers who refuse to lower prices.. and thus preserving “Real Estate never goes down (unless you drop your price)”.
Well said. The cheap money is gone, and it’s not coming back.
People should remember what they knew for years: that a $50,000 income won’t pay for a $400,000 house.
$50,000 income won’t pay for a $400,000 house
Ha! Piker. Here in La-La-Land nobody has price-income multiples that low anymore (8X). 10-12X income is the new “standard”.
Do I get a gold star after my name? I’d like to feel that I was instumental in stopping a friend from buying a house in SLO county. Suzanne is alive and well however. His wife went to a subdivision in Nipomo, the Woodlands! She then comes home and nails the poor basta-d, tells him she wants a new home because of all the foo-foo stuff they ‘offer’. Two of his friends, including moi, tell him that he will have to join the HOA with all restrictions. Now this guy doesn’t have the CC&Rs or Bylaws even though they took his deposit (State Law), but he reads them when he gets them.All cash deal. All sorts of restrictions so he calls and says he’s going to cancel. Oh, they didn’t give him two other significant required pages of the docs when he signed. The General Manager just called him at home while he was out to dinner. Will keep you informed. If they won’t give him his deposit back he can always stop payment.This tract is really hurting and I think the prices will be down another $100 k by spring 2009.Remember, Friends don’t let friends buy houses.
I spoke with a banker I know the other day asking about a 30 year fixed rate on a jumbo. He quoted me 10-11%! He said that their source of these loans dried up completely.
He then tried to sell me on a 5, 7, or 10 year ARM. Needless to say, I’m not ready to buy. In any event, he said that with 25% down, they would still need proof of cash reserves for 18 months of payments.
Amazing on both counts, that a 30 year wasn’t even really available, AND for a 10 year ARM they require 18 months of payments in the bank. Wow.
“Amazing on both counts, that a 30 year wasn’t even really available, AND for a 10 year ARM they require 18 months of payments in the bank. Wow.”
If this is really what’s happening on the ground, then CA is toast. It’s virtually impossible to buy in the Bay Area without a jumbo loan.
Rental,
If it becomes the norm that 30-yr. loans have dried up, or, will cost you 10-11%, you can officially call an end to home debtorship. Homes would have to sell at 50, 60, 60, even 80% off current list for anyting to move.
Neil, I think we gor this one right if this becomes the norm. Then again, we can always refi a loan, but you can’t refi a buying price.
“Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.”
I want to feel sorry for her, but in reality, she was saved from screwing up her life. Even at 500K, she is looking at more than 5 grand a month when all is said and done. On top of that, did she really want to catch that falling knife? Second, if she still needed an interest-only loan for 10 years, what is the deal with that. Lastly, in effect she is buying a 580K home with no money down. 880-300=580. In this climate, even with her 6-figure salary, 580K is just plain nuts.
With her education, quit the job, move to some small town and open shop and buy cash outright for 150K and bank the remaining 150K for a rainy day. How hard is this? I know, she probably has family near. Well, if you want the house bad enough, then changes need to be made.
I for one, even if I had her salary, would touch a 580K loan!
Offer 417k loan plus big 2nd or FHA 362k plus big 2nd or drop price with NO 2nd??? 300k down is outstanding.
If she can’t afford it, who can? She probably makes over $ 150K a year.
She’s a “neuropsychologist” not a neurosurgeon. Basically that means that she has a PhD in Psychology (not an MD) and has completed a 2-4 year residency in clinical neuropsychology. Her income will depend on who her employer is or how successful her private practice is, but my guess is that she takes home no more than $80-100k.
IMHO , if the appraisal is solid ,a 300k down payment is a strong statement of having skin in the game and that borrower is not going to walk .The lender doesn’t have very much risk with a loan like this ,and her credit scores are good .I would make this loan at the best rate possible ,providing the apraisal is sound and current .
“‘Our house is in turnkey condition,’ said Binder. ‘The only reason it won’t sell is what’s going on in the market.’”
That and because it’s about 50% over-priced.
Beat me to it. I have a hard time speaking the words “condo,” “Aliso Viejo”, and “$618,000″ in the same sentence.
there’s are many tracts of detached condos in Aliso Viejo. effectively pretty much the same thing as a detached SFR except for the form of ownership.
The only reason?????. how about your price moron
‘The only reason it won’t sell is what’s going on in the market.’
That’ll do it, every time.
That was my thought as well. WTF? Is he saying the market is the market?
The only reason I couldn’t breathe was because my head was underwater. Duh.
A must read … Great synopsis of realtor/wall street spin from Tom Tomorrow:
http://www.salon.com/comics/tomo/2007/09/10/tomo/
Sweeet! Bubble-bailout anger has gone mainstream. If even Tom Tomorrow is anti-bailout, we’re in pretty good shape, public opinion-wise.
It’s bad when a “a neuropsychologist in the San Francisco Bay Area” with 300K down can’t get a loan. Maybe the lender has a problem with a “nuero” “psycho”
What is the first thing which comes to mind when you hear that title?
Yeah, and she can’t even afford the INTEREST ONLY FOR 10 YEARS at a measely 7.5% Whiskey. Tango. Foxtrot.
perhaps Miss neuropsychologist needs to think about why she needs a 800k house versus a “cheap” 600k house. Jesus people are stupid: the story of the Bay Area; people who live here because they want to live somewhere full-o-smart people yet can’t make rational nor intelligent decisions…
EVERYONE I know here in the B.A. has made a SHEDLOAD of free money playing the real estate game.
I’ve lived here 1973-1981 (growing up) & 2000-now (as a worker-bee).
Not saying I’m going to buy anytime soon, but I certainly do not expect prices to go any further down than 2003-2004 levels. Too many buyers looking to flee to quality.
If she just waits a year or two, that 800K house will be 600K.
‘But sellers are just going to be offended if you go $100,000 lower.’”
And your point is?………….
My response, if anyone ever tells me an offer is “insulting,” is going to be something like, “No, ‘insulting’ is me saying your mother dresses you funny. This is business.”
this is the new age where you have to watch every thing you say or do even like you said when doing business.
Insulting is when I ask the sellers to write me letters explaining why I should buy their house….LOL
Uh-oh, here we go: “Insulting is me saying your mother __________” (go for it folks)
Okay, hate the lonely post……
“Insulting is me saying your mother…. is cleaning herself off in my car as we negotiate the price on your house….. do yourselves both a favor and take the 100k hit, because she’s rentin’ it from me on the first. Her rent is negotiable, this price isn’t.”
(I hoe you’re happpy, that wasn’t enjoyable to write)
‘But sellers are just going to be offended if you go $100,000 lower.’”
I will merrily spit out popcorn as I laugh in the face of whomever told me that. Once I stop laughing it is “Do your fiduciary duty or I we yank your license because I’m going to shove the complaint so deep it will be easier to remove it from the other orifice.”
Oh, I like bottomfisher’s idea of a small gift. I was reminded of the Petunia from Hitchiker’s Guide, so I’ll modify his suggestion. Of course with the price cut!
Got popcorn?
Neil
I find it curious that a lowball offer is considered insulting, yet hanging some hideously gougerrific fantasy price isn’t. WTF?!
Dear sellers, its me again. Sorry I offended you with my last offer of 100k under your asking price….so…..I bought you a Penata you can beat to relieve your anger….I am now prepared to offer you $200k under your asking price……how ya like them apples?
Or, “Dear Seller, f*** you and the horse you road in on. If you don’t like my offer, prepare to be royally f’d by the next person’s offer. Mine will have been your best bet.”
Love,
BayQT~
Well first off, who are the asshats even making lowball offers on these wishing prices? Don’t they read or go outside after work?
When I see prices take a 50% hit from peak pricing THEN I MIGHT make a lowball offer from THAT price level. I hope the price I offer offends the hell out of them. Who gives a rat’s ass whether I offend them or not? I’ll pick out 10 properties that fit my needs then I’ll lowball them one by one. By the time I get around to actually considering a purchase I’ll be one of the very few people both looking and qualified. If a seller wants to turn their nose up at my offer then f*ckem, who cares?
They can spend the next 20 years getting ass-pounded by the banker or lose their house to foreclosure for that matter. Most likely I’ll be dealing with a bank at that time anyway. These asshat Realtors and sellers clearly don’t have a clue what they are doing. They are setting prices looking in the rearview mirror without any respect to what is coming down the pike. Now that I think about it, I’ll definitely wait to deal with a banker instead of some emotional seller, or I won’t buy at all. These “oooh, don’t offend the seller” type of comments piss me off, sorry.
By the time you get around to buying, only people with equity will be left in their houses. The a$$pounding will have driven all the speculators into foreclosure. Imagine… hundreds and hundreds of bank owned homes to lowball as far as the eye can see….
Besides, lowballing early (And I mean REALLY lowballing, with at least 50% off the peak) would be cathartic, yes?
Most definitely cathartic! Good point.
We should all begin lowballing like this.
We’ll become stories at the cocktail parties, adding just a little bit of doubt in everyone’s mind as to the real value of their home. Perhaps some people will sell their home for only 10% less than their ask, but decide NOT to buy their next house yet, thinking that if some people think homes are worth 50% of the list prices, perhaps they might fall to that level…and the downward spiral is strengthened.
Grassroots psychological warfare.
“Your mother’s ugly. Your wife’s a skank. Your kids are stupid and here’s my best offer you stupid ba$tard. Take it or leave it.”
I’m just practicing for what my offer will eventually be in 2013. For now my offer is, “- - - - -”.
And, NYC, don’t forget to add:
“If I see any damn squirrels, I’ll shoot them on site. Now write me a letter why I should buy your $hitbox.”
Remember, if you’re not ashamed of your (lo ball) offer, then it’s not low enough. Help me out here Bloggers; Who said this first? Was it getstucco, joeschadenfreud, or who?
i recall getstucco saying that about 2 years ago. whether or not he is the originator i can not say.
It’s still early in the game, and there’s a wide spectrum of buyers.
But the idea that a lowball offer is offensive in this market is nothing but NAR propaganda while an intelligent, motivated seller who acts offended by such is.. acting.
Why would you even bother talking to a “seller?”
There will be so many foreclosures coming down the line, we only need to be telling the holders of REOs how much we are willing to pay.
We’ll be hearing ” a lowball offer is better than no offer at all” from more and more realtors as this goes on.
The real estate/flipping shows on cable are starting to air new “un-happy ending” episodes now; some of the realtors are having to talk down sellers unwilling to accept the new reality.
Your first offer is many times the best you’ll receive…that’s a cold rule of thumb, and I have the hard knocks to prove it.
There will be an SF Bay HBB party at Arguello Park on Saturday, September 15th at noon.
I will bring potato salad and a frisbee. If you’d like to attend, please post what you plan on bringing.
Afterwards, we will migrate to a drinking establishment. Looking for suggestions on where to go for that.
Please RSVP if you wanna go. No one has commited yet.
“Please RSVP if you wanna go. No one has commited yet.”
Please disclose what the “V” in “Big V” stands for, and then I’ll take the matter under advisement.
Luv, Jen
I think you should hold it in a McMansion that’s advertising an open house. Then you’d get free BBQ or something, with scheudenfraude for dessert. I bet everyone would come. You could harass a reator as an appetizer.
That’s hilarious. Sign up for a HB smart mob at various open houses.
Why not raid a bunch of open houses for the free food? Get a prty bus, fill it with 80 HBB’s and hit about 30 open houses. Now that would be a party!
Now you are thinking Tom!
Get one person to wear a Realtor jacket and the rest are “buyers” getting a tour of highend listings.
Everyone keeps mum while chowing and drinking. 20 minutes into it start the chatter about foreclosures and credit bubble, etc. Somebody has to make a point to sneak off and leave a steamer in the master-bathroom.
There are all kinds of possibilities! This has you-tube written all over it!
How about leaving an upper-decker in the toilet?
godammit…I just shot pepsi out my nose all over the keyboard. Thanks a lot
That there is some funny shat.
You could also put in 20 or so looowball offers just to mess with em.
D@mn that’s a good idea. We should do that down here in SD.
Wish I could participate, but I’m out of that area. Still want to say thank you for trying.
“said at least half of Santa Ana’s listings are bank-owned properties”
Don’t look now, but the sky IS falling.
Even in California!!
Holy cow!
It won’t be long until that pain spreads.
As I’ve stated before, Christmas 2007 will suck!
Neil
I don’t want to imply how bad it is, but the new state bird for California is…
Chicken Little
Candy Christmas, anyone?
Neil, I wish this was true, but I think it will take longer– at least in the Bay Area.
I don’t mean low Bay Area prices in 2007, just a very belt tightening holiday gift season. Oops! It will take a while for the big cities to go anywhere. Cest la vie.
Got popcorn?
Neil
“A proposal pending in a U.S. Senate committee ….. to lift the limit in high priced areas like Calif.’
- Cool. If it gets to the House for debate it should be DOA.
I am sure that Ma and Pa Kettle down in Kentucky are rooting for the loan limit to be raised for far away So Cal.
I dunno — California actually has more power, relatively speaking, in the House (where representation is based on population, which CA has a lot of), than in the Senate, where CA and Rhode Island have the same clout.
“The implosion in home sales will likely trigger a boom-bust cycle in the East Bay”
Oh, I see. I thought it was the boom that triggered the boom-bust cycle.
Now you’re just nit-picking
“‘Demand for Orange County (real estate) has taken a hard hit because of the current (lending) market crisis, dropping to its lowest level in years,’ wrote Steven Thomas, president of RE/MAX Realty Services in Aliso Viejo,
“…broker Molly Doughty. ‘It’s really harder (to borrow money) now. … You’ve got to have excellent FICO scores.’”
I am so sick and tired of this, crisis talk, there is no crisis in lending, we are returning to sane(r) lending standards. Imagine that, you actually need decent credit scores to borrow money, and you might only qualify for 1 home.
I am so sick and tired of this, crisis talk, there is no crisis in lending, we are returning to sane(r) lending standards.
Mike, I’m not sure you’re familiar with the proper definition of “crisis.” In the modern English, crisis means “Any common situation where the person declaring a crisis was unprepared for reality, instead they are living in a dream world hoping for sympathy, or help when they won’t return the favor.”
Let’s look at common crises:
1. Job Loss crisis, only a crisis if you didn’t save and keep a decent resume with job references.
2. Health situation crisis, only a crisis if you didn’t save more than your deductible, top off your adequate and well-research insurance policy, and properly plan your will and trusts for your heirs.
3. Home problem crisis, only a crisis if you didn’t save, maintain your home well, and thoroughly inspect your home before buying, as well as re-inspecting in every 3-5 years for new problems.
4. Car crisis, only a crisis if you didn’t save, maintain your car well, and thoroughly inspect your car regularly before traveling or relying on it to get you to work.
5. Credit card crisis, only a crisis if you didn’t set up autopay, keep your balances well below 10% of your maximum, keep your spending to a minimal level, and keep track of your cards in your thin, limited-space wallet.
6. Kid crisis, only a crisis if you focused on all your child’s needs, planned your child-birth properly and well in advance of conception, investigated any changes or situations in your child’s life that didn’t seem positive, and passed down your good traits to your child as early as possible.
Those are the crises I’ve seen in my life, and all of them are ones you can prepare for so that they’re not crises, but simply dips in the road we call life.
Here are some real crises:
1. You or a loved one are kidnapped.
2. You get in a car wreck in a remote area, and your cell phone flies out the window and is crushed while the other driver is unconscious.
3. You are on a great date, back at the person’s home, and you have the feeling of massive diarrhea coming on.
Other crises in life:
-It turns out you’re ugly.
-Your last name is Pimple.
-You got a degree in neuropsychology, then someone asks you to explain the difference between “neuropsychology” and “psychology”.
Neuropsychologists actually look at brain structure and try to correlate it with behavior. They do things like research brain damage/degenerative diseases. They don’t sit there and talk at your skull saying “Hello Mr. Brain! How are you today?”
“Neuropsychologists actually look at brain structure and try to correlate it with behavior. They do things like research brain damage…….”
Perfect, she’ll be the first doctor/patient, analyzing the behavior of purchasing this 880k house.
“Doctor, heal thyself.”
“Hello Mr. Brain! How are you today?”
“I’m not at all well. I have an irresistible urge to catch a $800,000 falling knife.”
Believe it or not, there are NeuroEconomists:
http://www.neuroeconomics.net/
LMAO!!!Where do I send the bill for the new keyboard.
I printed this comment out and hung it on my office wall, alongside a foreclosure chart, list of pending ARM resets, and a graph showing the average savings trends of Americans over the past several decades. It fits quite well.
Cheers for the laugh.
I ran out of popcorn once…..ad to crisis list also?
Emergency airlift on its way.
Team popcorn is standing by to prevent this from ever becoming a crisis.
Got popcorn? If not call 1-800-schadenfreude (now watch that be a real number…)
Neil
Hmmm. 800-724-3363…calling it now. No answer. Wait. Office of an attorney. Hilarious. Dewey Cheatum and Howe…or something like that. Royal, Brown, Code Victor and William. Pressed 4 digit extension 2311. Got Bill’s VM. I left a message that Neil should be delivered more popcorn. Ha! See what you started Neil.
The real crisis is when you are on that great date, back at her house and you see her standing up peeing!
Happened to a buddy in college! can you say “crying game”
“I asked Mac how today compared to the painful down cycle of the early 1990s. He offered only modest comfort. ‘We haven’t had it as bad,’ Mac says. ‘It was worse (in the 90s,) no question.’ That comes with a qualifier: ‘So far.’”
Let me save you ther suspense, Mac. Six months from now the early 90’s will seem like a picnic.
Here’s an interesting phenomenon:
During this entire fiasco, the Realtors have been saying that everything is fine, housing only goes up, the HBBers are Chicken Little, blah, blah, blah. Now they’re trying to convince Senate and the Fed to give them a bailout, and all the sudden, it’s “Batten down the hatches ’cause we’re going down and the entire Universe is gonna go down with us.”
Hmmm …
Jack “Fales” another unbelievable name at the HBB.
Ben, how about a blog topic or contest to list all the great names over the years?
Don’t forget in this one, a loan officer named Beth Cheatwood!
“Kleinhenz predicted an easing of the credit crunch by the end of the year.”
Yes, I’m sure investors will be clamoring to lend money when they don’t even know what crap loans they’ve already bought.
I live in the East Bay and it seems at least for my immediate neighborhood in the Bay Area proper, sales have just come to a complete skidding halt. I mean literally 1-2 months ago it was like someone just shut the water off and the flow stopped.
You’d see maybe a home here, and home there selling as recently as June or July. But after that- nadda. There’s several homes down the street from me- your typical Bay Area small, un-updated, paint slapped POS with prices anywhere from 800k and down to a “steal” at 575k. There’s even this one disastrously bad condition home painted this god-awful Smurf blue for the tidy sum of 675k.
It also seemed that as recently as a few months ago there were A LOT of open houses on weekends. That and lots of people riding around looking at them. Lately however, there has been very few and even fewer people looking. There’s been a few homes that went up suddenly, had a few frantic open houses with quick “price reduced” signs put up shortly afterwards only to suddenly become simply vacant homes with for sale signs and no more open houses.
You get this feeling that things have really dramatically ended. The BIG question I’m now asking myself is if the prices really will come down. Things have been so incredibly overpriced and out of reach- even for someone like me who makes a upper ten salary and has saved since I was a kid, that I almost don’t believe things could ever become remotely affordable. The prices are so insanely high that they would have to fall at least 40% before I’d even start raising an eyebrow.
Now I sit and just dare people to buy a home here. Go ahead stupid- buy it.
“The prices are so insanely high that they would have to fall at least 40% before I’d even start raising an eyebrow.”
That’s not even slightly inconceivable, though, considering that they went up that much in only 2 years from 2003 to 2005.
That’s true… but quite honestly, does anyone think prices have a chance of falling that much? I mean seriously. I’d love for that to happen, but given the fact that there’s literally thousands of people priced out of the market, I wonder what the effect of even a marginal drop would be. If there are neuropsychologists willing to shell out dough for 800k homes now, then imagine what it might be like if prices go from -say 650k to 550k? Still way overpriced, but people who are impatient will probably jump the first chance they get to just barely squeeze into something that sucks away all their income.
At this point I am crossing my fingers.
That much and then some in the worst hit markets. THis will almost certainly over correct on the down side. (I’m talking about inflation adjusted dollars.)
My prediction -
prices will fall by some value in nominal dollars, and more in inflation adjusted. Let’s say 10% nominal20-25%, based on commonly accepted cpi of ~3.5% per year over 3 years. But this will equate to 50% based on the blogosphere inflation rate of 10%. So everyone will be able to say that they were right!
I doubt the suggested 10% rate just because my personal expenses are about the same as last year. Gas did go up, then it did come back - from a peak of $3.60 to now about $3.10. Food’s really the only thing that has gone up for us, but it’s not a huge part of the budget as we don’t go out that often.
Well, eventually yes, because just like this neuropsychologist, those who jump to purchase because they have lost patience have a good likelihood of being foreclosed on by the bank because, in the end, they won’t be able to afford it. Just like what is happening now, everywhere, to those who bought huge mortgages they couldn’t afford and now are facing foreclosure. When the market hits bottom, which will take a long time I think, prices will have reduced between 40% to 75% depending on the area. Have you read Shiller’s predictions? Google it and you will see what a Yale economist thinks about it. This is the guy who predicted the dot com and housing busts. He is smart …
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
Hope this isn’t a double post:
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
“people who are impatient will probably jump the first chance they get to just barely squeeze into something that sucks away all their income.”
This is a good point. What might prevent that from happening would be if there is a general perception that prices are in freefall. Once prices start heading down, how many will be willing to buy before there’s a sign of stabilization?
Well it’s not like it’s never happened before. This is a regular process like El Nino it happens every 20 years or so. Prices dropped about 40% in most of SoCal in the early 90’s. That bubble was minuscule compared to this baby. Prices in Japan fell something like 70% when their bubble popped in the early 90s. I bet they didn’t think that would happen. I can easily see 50% happening, especially in areas like the central valley, the IE, NV, AZ etc. When prices go up 300% in 5 or 6 years it’s almost juvenile to think they can’t come right back down again. I’m ready to buy but I’ll wait till the dust settles.
“Prices in Japan fell something like 70% when their bubble popped in the early 90s”
And that downward spiral lasted 14 years.
Yes, prices will come down. As someone who bought in 2001 I’m now resolved to the fact that I overpaid, although my cumulative expenses are less than rent - for now. I figure my house will be worth about 10 to 20% less than I paid at the bottom. Anyone that bought in 2000 through 2007 is just dead in the water now, unless they plan to stay in the house for 15 years or more. I plan to sell my house, possibly at a loss, and buy another house for 1999 or less prices. Last week I talked about making an offer of $330 on a house listed at $495 - but I’m not going to now - that house will be worth $250 when this is all over.
Wow, you are the first home owner I have ever heard of, who is resolved to this. Kudos to you! Although, if you bought in 2001, I think you will end up being fine actually.
It’s not really about the money, just the reality of how much things will correct, and overcorrect. Up until a few days ago I thought the carnage would be contained to 2004+ buyers, but a few articles I read over the weekend and some honest assessment changed my view.
If I lose 20% I’m still looking at an average monthly cost of about $700 to have lived in a nice house for 6+ years. Rent would have cost me twice that.
And as I said, I plan to sell low, and buy low - real low.
If I lose 20% I’m still looking at an average monthly cost of about $700 to have lived in a nice house for 6+ years. Rent would have cost me twice that.
Then you’ve done well and you are looking at a home properly (as an expense). No worries, just build up a bit of cash to trade up.
One of my coworkers just sold (price 2/3rds peak, just under 100% profit for him post commission) and will buy again in two years. Have you considered that?
Neil
Neil - not really. I like my house for now, and figure that a lowering tide drops all boats. If I need to sell at 1999 prices, I’m buying at 1999 or less prices. My total money “in” the housing market is cumulative, and when the time comes that I cash out and move to some retirement home to live out my days, I hope to see a gain overall, but who knows. I could probably sell this house for about a 50% gain right now, but then I’d need to deal with moving. This house represents about 15% of my net worth, and will only become a smaller portion as I get older. I don’t consider my car or TV an “investment” either.
I’m totally with you on this. Buying right now in the Bay Area, even with “price reduced”, is financial suicide. I rent in Livermore and I’ve noticed the same thing you’re talking about here. I go on morning/evening walks around my neighborhood and I collect flyers for homes that are for sale and there are so many homes that have just been sitting for so long. Many of them have been reduced in price by 100,000 to 200,000, but even so, they are still too expensive. Right now I’m just watching and waiting and saving my money for when they do become affordable because I believe at some point they will be.
And, you know, it is funny because many of the home owners that I know seem to think the prices are normal, that value only increases here in the Bay Area, and that they are *so* entitled to this false appreciation that has occured since 2001. They get offended when I talk about the housing downturn and the home value depreciation that is going on. It’s like they are denying it even still when it is happening right before their eyes. I think they do this because it’s an emotional thing. No one wants to think or believe that they are losing wealth but at the same time, they have to be realistic if they want or need to sell their home at some point.
So true. I was actually part of a local activity group in my neighborhood last year. I was one of the few renters there. ANY mention of the then pubescent housing bust was almost taboo. These people were so entirely tied to the value of their homes- including retirement- that there simply was no other answer other than that their homes were worth a LOT of money and they were banking on this to be true forever. The worst ones were those that had bought recently. Interestingly enough, a lot of the older established residents totally agreed with me. They too believed prices would come down.
Jetson Boy:
I too was the doom/gloom guy at events in my area (Rockridge area of Oakland). We’ve rented there for a long time and watched prices triple in the past 10 years. The “fortress Bay Area” and “its different here” kool-aid was very very strong, particularly that we did have rich people buy in the area (one a divorcee with a good lawyer and another was a Pixar millionaire). Everyone — save for these two — who bought pre-bubble felt oh so special. Now, it is different. Zero sales in the area and suddenly noticing a lot of open house signs around. 2008 is going to be UGLY.
One other question: where in the East Bay are you Jetson Boy?
Home prices in the bay area SHOULD have tanked between 2001 and 2004-5 (down 15% or so, total so possibly flat with high inflation), and should just now be starting to recover.
The next two years could be brutally ugly.
Prices were in fact pretty flat 2001-2004. I was renting for $750/mo then and saw no great appreciation in the market to push me out of that deal.
For some reason they took off like a rocket in 2005.
I sold in long island late 2005. Moved to San Ramon right after and currently rent. I live across the street from 3000-5000 new homes that were built starting in 2004. Most start from 800k and go up to 2.5m. The city of San Ramon is toast. We are an hour outside of san fran and if someone were really “rich” enough to afford these prices they would have moved in closer to San Fran. Lennar and Centex are still offering new construction at these same crazy prices. These people are part of the “Noveux “Arm” Rich Class”. They are in for a world of hurt. There might be some people out here that can afford these prices but there are not 3 to 5 thousand of them. I might buy an existing home in a few years at 2/3rds off current prices but the city services out here could be destroyed given the wealth destruction that will take place out here.
Gee, most of the sellers here in Sierra foothills seem to be waiting for one last Bay Area retiree/2nd house buyer to come and pay them 500K for a perfectly ordinary house. Is there going to be a problem with that?
Melissa, substitute West LA or Seattle for your apt description of the Bay Area and it would read the same. The arrogance that runs through these places will be the fertilizer that nourishes their ultimate downfall. I think in a lot of ways it’s going to be worse in these places because no one can imagine prices declining, leading people to stay in the game longer.
Similar to when Galileo he was providing insight to the universe. They (sheeple) will dispute logic and science due to there inability to face reality.
“Get outta my way, can’t you see I’m from East Bay,
I met Slash, I got a rose tattoo…
I bet I have
Way more piercings than you!”
-NoFX
Trying again:
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
Eating posts like maniac:
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
Let’s see if this gets through:
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
When posts get eaten, where do they go?
Try this one on for size:
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch those who bought at the top watch every single one of their unwise “ingenious” investments go under.
There must be some big internet lost-and-found or something.
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o ARM (interest-only, adjustable-rate mortgage) deal with a TEMPORARILY low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the PITI (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their stupid “fool-proof” investments go under.
To where the monsters roam, of course.
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o arm (interest-only, adjustable-rate mortgage) deal with a temporarily low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the piti (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their unwise “ingenious” investments go under.
OK, try this one on for size.
Well, anybody who even slightly wanted to buy a house over the past few years has already done so, even those who couldn’t afford it. “How could they have bought a house if they couldn’t afford one”, you ask? Simple: They got an i/o arm (interest-only, adjustable-rate mortgage) deal with a temporarily low payment, and now they are trying to sell or refinance, but are most likely getting foreclosed upon.
In other words, the market was borrowing from future demand from at least 2001-2006, maybe earlier. The result is that the only people left renting are as follows:
1. Temporary (perhaps illegal) residents
2. People who’s incomes are so low that they couldn’t even afford the i/o on the way up, and won’t be able to afford the piti (principal + interest + taxes +insurance) on the way down
3. People who make plenty of money, but didn’t want to overpay on the way up, and certainly aren’t going to overpay on the way down
So we have no problem here. All we have to do is kick back and watch all the fools who bought at the top watch every single one of their unwise “ingenious” investments go under.
I imagine that some of the blog’s phrase/word/anti-spam-filters swallow some..
Seems that everytime i’ve actually lost posts, it was during a connection glitch or a period of flaky upload/download speeds.
I’ve waited from 5 minutes to 8 hours or more for a post to appear, and no longer assume it won’t eventually pop up.
OK, let’s try this again:
Anyone with even the slightest inkling to buy a house in the Bay Area has already done so, even though they couldn’t afford it. “How can a person buy a house they can’t afford”, you ask? Here’s how: By getting an i/o ARM with a temporarily low monthly payment. That’s why they’re all in default now. There are only 3 types of people who haven’t already bought a house in the Bay Area:
1. People who are here temporarily (maybe illegaly), and won’t buy here ever
2. People who’s incomes are so low that they couldn’t even to buy with interest only on a teaser rate on the way up, and certainly can’t afford to pay PITI on the way down
3. People who have money, but know the real value of a house and certainly aren’t going to buy one at least until ret vs. buy calculation starts to work out
That’s why it’s a fallacy to think that there is a huge pool of buyers is out there just waiting to buy any stinky house they can get their hands on at any cost they can afford.
My sentiments entirely. I am (and have been for the past 3.5 yrs) been on contract down here in Live-no-more, CA. My wife and I contemplated purchasing here several times, almost bit the bubble bug, but chickened out (annually renewable contract, etc). We just recently sold our place back in Vancouver BC (another bubble waiting to burst) but am quite contented sitting in a big bucket of cash for now. My colleague on the other hand, well he just plunked down his deposit on a cool $1M McMansion two months ago, regardless of my continual beratement, convinced that this is only a minor correction and the fact that they got the place at a bargain price; oh yeah, that and the ‘fact’ that the realtor had another buyer coming in that evening that was believed to be making an offer of the asking price. Sheesh, a fool and their money are soon parted.
My neighbor has had is place on the market three times now in the past six months, the last time for only two weeks. In the two week period he had two open houses and not one body over his threshold in the entire time! (and he was asking $20K below the other comps in the area, so I thought he might have had at least a few tempted early nibblers).
I think there will be a rude awakening in this area over the next twelve months, August (with the tightening of the credit standards) is simply the beginning. Now we will start to see the true effects of ‘it’s different here’. You bet it’s different here, the cliff is a lot steeper.
add #4. People who are “slightly” priced out. These are the clowns that will delay the ultimate free-fall
No such thing as “slightly” priced out, given the complete lack of lending standards.
Hey Bronco:
I know it’s too late for you to read this, but I can’t resist.
I don’t think there are very many people who are “slightly” priced out becuase the i/o teaser-rate loans just dried up, which means that monthly payments just doubled or tripled. So anyone who was slightly priced out a few months ago based on monthly payment is now utterly and astonishingly priced out.
Hey TJ & the bear:
Jinks!
They didn’t actually buy a house, they just traded signatures with the bank.
Since the current median home price of California homes at $478,000 is only affordable to a vanishingly small portion of the population, affordable housing policy dictates the size loan that FNM/FRE can purchase should be bumped up to $625,000??? What percentage of Californians can afford that kind of debt burden? It has to be less than 10%.
Nobody in their right mind would dare to suggest that $625,000 qualifies as affordable. Why not just come right out and admit that FNM/FRE have switched their missions into providing unaffordable housing?
“The House-passed bill, HR 1427, would allow mortgage repurchasers Fannie Mae and Freddie Mac to securitize and sell loans of up to $625,000, or 150 percent of the conforming loan limit of $417,000, in areas where the median home price exceeds the conforming limit. Currently, the only recognized high-cost areas are Alaska, Hawaii, Guam and the U.S. Virgin Islands. California’s median home price was $478,000 in July, according to DataQuick Information Systems. The median is a mid-point; half sell for more, half for less.”
The legislation that would HELP is LOWERING the caps, and basing them on median salaries. If they passed a law capping gov loans in any given county to 2.5 times the median salary of said county, things would shake out more quickly, and be less likely to inflate.
Now you are talking affordable housing policy!!!
P.S. In case it is not perfectly obvious, HR 1427 has absolutely nothing to do with affordable housing, and everything to do with baling out lenders and speculators, whiled propping up home prices at permanently unaffordable levels as a consequence. More foreclosures will result in the future among the GFs who are presently tempted to rent money from the bank in order to temporarily own homes they cannot afford, at which point I guess Congress will have to pass further bale-out measures to help the next generation of FBs. Red State taxpayers will be big losers if such a measure passes, as they will get to help Blue State residents buy homes priced at levels no midwesterner can fathom, and will eventually get to share in a too-big-to-fail bailout of FNM when it is no longer possible to contain the black hole balance sheet.
P.P.S. Let me be the first to predict that if HR 1427 passes, (1) home prices will not suddenly turn up again (there is too much on the market above $625,000 which will never sell) and (2) we will have a mirror image of the 15-year plus Japanese real estate deflationary slide to look forward too. This measure is a band-aide which will serve to lock in the current malaise rather than let the economy quickly correct (e.g., by realigning home prices with incomes) so we can get on with our collective lives.
Thanks for your input on this Prof Bear. Very interesting read.
Bills like that make me wonder how retarded you have to be to run for office. “Hey, raising the levels of Fannie Mae in the past hasn’t helped affordability, so let’s do it again!”
Most incredible are the stoopid-fook MSM journalists who fail to question the utter absurdity of insinuating that $625,000 homes are “affordable.” After all, affordable housing is FNM’s and FRE’s mission, right?
Why should people who rent or live in $150K houses have to subsidize the mortgages of people who live in $625K houses? I thought Barney Frank was for the little guy? He’s supposed to be one of the smarter, more honest guys in Congress, so this does not give me much confidence in the rest of them
“Even more discouraging are creative buyers thinking to capitalize on a sky-is-falling mentality. ‘A lot of people seem to be watching television shows that say, make a lowball cash offer and the home will be yours,’ Local broker Caroll Yule said. ‘But sellers are just going to be offended if you go $100,000 lower.’”
Oh ok now they are creative buyers watching T.V. shows. Gimme a break. It couldn’t possibly be that the property is over-priced. LOL. I hope folks keep hitting them over the head with these 100k+ below list offers. They’ll stop being offended soon enough.
They need hitting with 300-500k under listing price offers.
“What can be doubled in price, can be halved in price”
“What can be doubled in price, can be halved in price”
Actually, I think if you spin this quote properly to sellers who won’t budge, you can still get the sale…
Example: Seller bought home for $300,000, same home in neighborhood would sell for $600,000 in 2005. Seller wants $579,000 and won’t budge (due to taking out $279,000 in HELOC and refis).
Seller won’t budget to a $279,000 price drop because that would mean not making any profit.
My solution: Tell seller that they realized a 100% gain on their property in just a few years, but you’re only asking for a 50% discount. That’s still a 50% difference between the two!
See if that works on the suckers.
New show coming “Steal that house” replacing “Flip that house” in the same time slot and channel.
I’m looking for “Strip this house” — how parting and tearing down a house is makes you more money than selling it.
We’ll show illegas enter into the houses at night. Stripping out all the copper wiring. Taking the plumbing fixtures and interior doors. Stoves and light fixtures would be next.What ever furniture remains will also be purloined. Windows and sliding glass doors as well. Looking forward to this show. Bring it on!!!
For angry foreclosed hh’s, I suggest “Trash that House.”
They have been replaying one of the Flip that House shows. At the end, they do a fast forward to a year later. Most of them did a lot worse than expected. One that I can think on in LA, ended up renting out the house after they couldn’t sell it for 6 months. They were thinking of letting it go into foreclosure. The guy looked pissed.
Figuring a 3-month production lag, I think we’ll now be seeing new episodes showing the dark side of flipping. It should be entertaining: greedy people meeting financial ruin - you can’t beat that.
“He thinks a seller should be thinking a price drop of 10 percent to 12 percent is in order.”
They can think 10-12%, but my offer will be 30% lower, and they better pay my closing costs, or fagedaboutit…..
Just some anecdotal housing goodies from Reno, where I am visiting relatives:
Hundreds of partially completed homes and townhouses sitting idle without any sign of any ongoing construction. My cousin’s 1300 sq ft ranch, without basement, was appraised at 325k six months ago and is now appraised at 250k. While traveling through town, we saw many a street corner filled with people holding signs which point to and advertise local developments. I heard that they make up to 20 an hour for their standing work. At least there is hope for those who want to hold signs for a living.
Could not believe how high prices got in Reno at the peak. Casino workers don’t make that much money.
Maybe FBs can do that to cover adjusting ARM payments.
I was at my Mom-in-laws in Moreno Valley last weekend and I counted 7 (SEVEN) sign spinners on one corner! Funny too, they are too freaking lazy to stand up and spin the signs now. Several of them had stools and the signs mounted on a tripod. Hell, if they had any brains they’de hook a freakin motor on the sign and they could sleep all day.
“Homeowners like Steve Binder are feeling the sting. Binder had an agreement in early August to sell his three- bedroom, 1,600-square-foot condominium for $618,000 in Aliso Viejo. The deal fell apart when the buyer was rejected by banks after he sought 100 percent financing that included a jumbo mortgage plus a second loan.”
He is the kind of 100%-financed Jumbo buyer the Congress will ask midwesterners to subsidize if HR 1427 passes.
CAMB believes the lack of FHA accessibility is “the major reason” so many Californians chose subprime loans to achieve homeownership, said Michael Tacconi, a broker with Meridian Financial in San Ramon and past president of East Bay CAMB.
More spin from CAMBodia - If liar loans to strawberry pickers never took place would houses be cheaper today? It’s the same argument with illegal drugs, if they weren’t illegal they would be cheaper.
Zillow is still behind the curve but has stopped giving the 30 day price change on some properties.
Does Britney Spears routine have anything to do with the coming recession?
You have to sign in now to get the 30-day change. It’s now included in a table at the bottom of the page.
Zillow is a total joke. It “zestimates” my sister’s house at $1.3 million even though it’s on the market for $999,000.
Visited Bay Area for business last week (from Boulder, CO)
Denial is alive and well.
Was chatting with 2 co-workers. One signed a contract to buy. Said he bid under listed price but had to up the bid to list price (due to another buyer) This is somewhere is San Jose area (near Campbell?)
Another one said she put an offer on 2 Cupertino area homes.
There were 5+ bidders in each case and she lost on both.
Both of them claimed that prices in good areas will never go down.
However saw lot more condo ads than usual. We have long ways to go to
change buyer’s and seller’s attitudes.
It’s true. My friend’s house sold in San Jose (Rose Garden area) after one-day open house. Only one offer, though. Close to asking. This area is still pretty oblivious overall.
Hey, Bronco:
That’s my neighborhood. Nothing is selling here anymore. When did your friend sell?
closed September 3. $850K. So-so neighborhood, right off of Camden, west of 880.
I see. Was it one of those really big houses that’s near the Greek Orthodox church? If so, then $850 k would have been a very low asking price. If it was just a typical 2- or 3- bedroom POS, then I should consider patent insanity as an alternative to accepting this new piece of information. Ugh.
Forgot to mention that coworker who bid on Cupertino homes had bid up more than 60K over list price and still lost. This was less than 2 weeks ago.
I was stunned !
As someone with friends in Cupertino, I have to agree. I asked them why they feel like they haven’t seen price drops yet (they’re both contrarians such as I), and they said that because of fresh flow of higher-paid workers, and a low supply of outrageous building, the supply for housing is high.
I wasn’t aware that Cupertino wasn’t overbuilt, and I believe I ever read here that the cookie cutter neighborhoods are all over the place. I think I also read (here) that jobs in Cupertino have fallen a tad, especially in the higher-paying tech industrry.
Any verification on either, one way or another?
I am stunned also. But bull markets often have their greatest run up right before the fall…
Oh well. Somebody has to be the greatest fool.
Got popcorn?
Neil
Yeah people in the bay area are still drinking the kool-aid by the gallon. A friend just bought a 50s track home in san jose for almost 800k. I gave him my 2 cents but his lady was making the decisions.
It won’t last though, and it reminds me of the dot com bubble actually. Same mentality.
You know, that just doesn’t sound right. House prices all over the Bay Area are coming down, even in San Francisco, which is the holy grail. It may be that the asking price was purposely set too low. That’s a common practice used to instigate bidding wars.
The question you have to ask is this: Are sales going up or down? Are prices going up or down? Are days on market going up or down? Just because a seller tells you there’s another offer, doesn’t mean the house will appreciate after you buy it.
That’s a common practice used to instigate bidding wars.
Its a smart tactic that will almost always work.
The trick is to walk away.
Got popcorn?
Neil
Crapertino will get theirs yet….
“One signed a contract to buy. Said he bid under listed price but had to up the bid to list price (due to another buyer). This is somewhere is San Jose area (near Campbell?).”
A common ploy.
BayQT~
I’ll wager that that ‘other buyer’ never existed.
…Add another FB to the pile.
Condos in N San Jose aren’t moving and the development I’m watching saw sellers lower prices 1-2% last week. Still 10% over mid-peak pricing of 2006, but the market is certainly in stand-off mode now.
From Bloomberg. “Anna Morita, a neuropsychologist in the San Francisco Bay Area with near-perfect credit, was certain she could get the loan of her choice to buy an $880,000 three- bedroom house.”
“Morita, with more than $300,000 for a down payment and a credit score of 825 out of a possible 850, was banking on a 30-year loan with interest-only payments for 10 years. That mortgage became too expensive when her lender quoted a rate of 7.6 percent. She’s now applying for another mortgage.”
No wonder half of the country is looney tunes. A psycho-doctor is buying a 800K house in the Bay Area? Isn’t the Bay area where a regular house is somewhere around $2 million? What part of the country can actually afford 800K houses? In some countries 800K can buy you a REAL mansion.
“In some countries 800K can buy you a REAL mansion.”
Not with the dollar dropping like a rock (79.50 last I looked).
Perhaps in local currency.
“Prostitution suspects were victims of housing market”
http://lohud.com/apps/pbcs.dll/article?AID=/20070911/NEWS02/709110363
What a country, man. What a country.
I was talking to a mortgage broker I know a couple of days ago about HR1427,he was convinced it would “save the market.” When I told him it wouldn’t matter if they raised the conforming limit to $10MM,our market price would still drop 50% plus,he got real quiet,and asked me why.PEOPLE CAN NOT AFFORD THE FREAKING PRICES!,THAT”S WHY!!.If buyers are qualified to GSE standards they can not pay anything close to current prices,end of story.BTW i am in sonoma county,and am licensed as a Broker.If you do not think Bay Area prices will drop 30% in inflation adjusted dollars in the best parts of the bay area,from todays prices…I would be happy to take your bets,and your money.
“If buyers are qualified to GSE standards they can not pay anything close to current prices,end of story.”
Tom, what are the GSE standards? Downpayments? Income to Purchse Price ratios? Full documentation? Can someone do an IO loan with GSE?
I used to think that Bay Area prices might drop “only” 30%, but after the events of the last month or two, I think 50% to 60% is not only possible but almost inevitable.
I use to think getting 50% off a bay area house would be the magic number…but for housing to truely be affordable, prices have to drop 80%. I really see it as a possibility because this kind of a RE bubble has never went this long, with some much lending coruption. Plus, all the local jobs here in the bay area dont pay much since most production either closed down, or has been shipped overseas.
I’ve been annoyed with these stories always avoiding the “fundamentals” aspect of wages to home prices…
Then I remembered a story from my own life. I’m a magazine editor and I graduated from Journalism school (won’t say which one, because I love my alma), but while I was in school and tending bar an old drunk challenged me if I knew the “fundamentals” of Journalism…
I was stumped and he proudly shouted “THE TRUTH!” in my face.
Ironically, it was the best lesson I had. Better than my journalism history or law classes.
So you see, journalists themselves are disconnected from the “FUNDAMENTALS!”
The truth.
Correction: Truth is the FOUNDATION of journalism.
Just like having money before you buy something is a FOUNDATION of economics.
Well no, in fact that’s quite different from the actual foundation of economics (or more precisely investment).
The foundation of investment is that it’s a good idea to borrow money to buy something if the income from the asset exceeds the cost of borrowing the money. In others words, you have to be cash flow positive. In the case of an owner-occupied house, that means it has to be cheaper than renting.
My impression is that these days most journalism just entails running a spell check on the press releases they are given. I rarely see sources questioned, facts checked, things put in historical perspective. I am not just talking about this real estate mess, although obviously it’s in the forefront of what I’ve been paying attention to lately. Any article I read that I have any personal knowledge about is inevitably wrong or misleading. I don’t know if the problem is encroaching corporate influence or just lazy journalism, but it’s pretty sad.
http://www.usatoday.com/money/economy/housing/2007-09-11-affordability-chart_N.htm?csp=1
54% of people in Miami spend over 30% of income on housing
26.4% spend more than 50%. Ouch
Would anyone like to tell this guy how you feel?
JOSE CARRASCO
I read about your opposition to the goverment mortgage bail out by our government and I will sign your petition…………..when hell freezes over. I don’t understand why you’re so opposed to this since it will save many people from foreclosure which will have a terrible effect in out economy. We can already see the effect that this problem has had on banks, lenders and the stock market. It will only get worse. The government needs to step in and help people in times of crisis otherwise things can only get worse. I also disagree with your argument that many borrowers acted with greed when they bought their homes with questionable loans. I myself purchased a home and I dealt with 4 potential lenders of which 3 of them were pressuring me to take loans that I knew were not good for me. I had choices but unless you go out there and take the time to get the best loan possible you’re likely to get cheated because many lenders are unscrupolous. The only people that don’t deserve to be bailed out are speculators who thought they could make a quick buck. How can you call someone greedy who just wanted to own a piece of the American Dream? It’s attitudes like yours that made the Great Depression last as long as it did and damage our country as much as it did.
Kudos to Ben on todays article in the Online Journalism Review,
“Mortgage crisis no surprise to ‘Housing Bubble Blog’ community”
here’s the link
http://www.ojr.org/
If Pres. Bush really wants to save housing maybe all renters should get a 625K voucher good towards the purchase of any house. I’ll take two please.
From the Mercury News article:
Even worse, it could take six to 18 months for the housing market to recover in California.
O horror! Six to eighteen months to correct the worst housing market imbalance in history? Try six YEARS at a minimum.
Also I noticed that the article talked about the grim future for the East Bay’s housing market, but was curiously silent on that of the Silicon Valley, which will obviously be following suit not too far down the line.
Prices would only really need to drop by about 30-40% in Mountain View or Sunnyvale to be in line with incomes. When the median drops below $500k, things will make sense again.
On the other hand, if interest rates go up significantly things will have to drop dramatically. One of the few reasons why people could afford to buy at such high prices over the last 10 years were the low interest rates. A $400k loan at 6.5% is affordable if you’re making over $100k a year (about a third of families in the valley make that much), but at 12% you’d need to be making at least $150 to be able to swing it.
From the Bloomberg article:
Home values in America’s ritziest areas may decline by as much as 11 percent in the next 3 1/2 years.
O horror! As much as an 11 percent decline after house prices have tripled over the past seven years? Try 55 percent at a minimum.
11% a year, compounded.
the house of cards is finally coming crashing down, prices have fallen but much slower than i thought they would. look here is phoenix, southern scottsdale you have these old dumps for $300k. sounds cheap to california, but they were only $100k 5 years ago and they were dumps then too! anyhow, the credit markets assure the fall will be more severe than otherwise would have been the case..add all the forclosures peaking next summer, lack of affordability. and, well we have a perfect storm. plus, we are a debtor nation and all the foreign investors are going to get really burned and will not be back to loan soon. much of this MBS,CDO…stuff went overseas and btw..better hope your retirement fund did not buy the crap paper either. big losses are coming and loans are drying up so how can prices stay up…some houses have to be sold no matter what. like bank owned and new builders if they want to stay in business. this is going to get interesting! can’t wait to hear all the crying. sorry, the fed is too late even if they cut next week no one is going to borrow and lend. i hope the gov’t does not do a bailout because that will punish those who were responsible and reward those who were not, what a lesson for the american people.
“His own portfolio feels the pain. Four months ago, he was all-but-ready to close the $580,000 sale of a Garden Grove property he owns. The deal died when the buyer’s lender – New Century, the one-time subprime giant – closed its doors. He’s now listing that place for $539,000 with no luck.”
Regard LOU MAC the broker of this place…HOW IS GOING FROM $580K to $539K anything to even mention? That’s pathetic. Do people honestly think dropping to $539K is going to make the place more affordable? Oh geez..thanks…instead of a $3600/m mortgage I’ll stick myself with a $3400/m mortgage.
Thanks LOU…you’re the best!
Aiya….what kind of idiot would have a 300K downpayment and then blow it by buying a house with an interest-only mortgage? Anna Morita, the nueropsychologist with the high FICO, was sounding half-way intelligent til I got to that bit of the story.
Man. People have gotten dumber and dumber and dumber and dumber the past few years. We’re complete imbeciles here now. The last thing we need is politicians bailing people out for their over the top stupidity. We’ve just GOT to be allowed to learn from our mistakes so we can get smart again.
Well, WE’RE not dumb, of course. It’s only THEY who are dumb. ;0
Seattle . I agree with you about learning by mistakes ,but some mistakes can be so costly that everybody is harmed by them .
The mistake of this housing bubble is going to cause such pain and suffering for so many people that didn’t even invest in real estate that it sad. When you have a mistake that is so big that it throws a Nation into recession/depression ,(when it could of been avoided ) that’s just plain stupid . Black Swan events must be avoided as well as mass insanity like Hilter Germany ,or manias for that matter .
Some mistakes are just to big to make and that is why rules of the games come about .I’m all for people learning by their mistakes ,but not when a massive amount of people make a mistake and it ends stepping on my toes .
I was almost that kind of idiot. All of my life (at least 15 years of it - I’m 30) had been spent drinking and pissing away my days…then two years ago I got sober. After the fog lifted I got an awesome job, repaired my credit and my wife had come into a substantial inheritance (house in Glendora, CA that we sold in the first quarter of ‘05).
Feeling great about life I was ready to take the next step in what our society says makes you a responsible, happy adult. Yet I have ZERO perspective on “grownup stuff” since most of my experience was gained as a fall-down drunk; I had no idea that $600,000 was waaaaay too much for a 3br 2ba new construction in San Pedro, CA. I’m SO lucky my parents suggested I do some homework before I bought!!
Ben, the modest donation my wife and I sent during your fundraiser is severely inadequate to express my appreciation. HBBers - you fookin’ ROCK.
Keep comin’ back!
testing - posts not working?
Here is Alameda, prices are slowly coming down, but its usually a new listing where the price reflect a small downward change (for now). Whats odd, is there are more and more open home signs during the week.
My husband and I like to go to open houses-just to check them out. We have no intention of buying in this market. We noticed, there is less traffic in open homes these days, except for some of the really nice 1920’s character homes, which usually still sell right away for asking price. Whats interesting, is there are so many young couples with babies in these the quaint area with 800K-900K character, storybook homes. Years ago, I thought they were just wealthy rich kids moving in …now, looking back, I’m sure most of these loans are “piggy backs” or I/O. Lets face it - thats the only way people can buy homes in the bay area.
Very soon, it’s going to get really ugly here in Alameda. Thank god we are renting….
..since FHA is a “full-doc” program, exactly HOW will raising the FHA loan limits help those who got into “stated” programs and can’t document an income sufficient to qualify for their current loan? This is probably what? 75% of CA buyers…