The Last Five Or Six Years Were Not Normal In California
The San Francisco Chronicle reports from California. “Ask any real estate appraiser: Being badgered to overstate home prices is a fact of life, they’ll say. ‘We get pressured every single day to inflate our values,’ said Dan Tosh, principal at an appraisal firm in Brentwood. ‘We get people telling us we’ll never work again, or they won’t pay us because we won’t play ball.’”
“Many real estate experts say appraisal inflation is pervasive in an industry in which pressure to close deals is all-consuming.”
“‘This makes things such as Enron and WorldCom look small by comparison,’ said Ted Faravelli, executive director of the California Association of Real Estate Appraisers and principal at San Jose’s T.E. Faravelli & Associates, an appraisal firm. ‘It was an epidemic.’”
“As home prices spiraled up during the most recent real estate frenzy, con artists found plenty of ways to skim off the top. Inflated appraisals were one of the tools in their arsenal.”
“‘In the mortgage fraud cases we’re uncovering, the linchpin of most of the fraud is a doctored or questionable appraisal,’ said Tom Pool, a spokesman for the California Department of Real Estate. ‘It’s a fairly common scam for properties to be overvalued and then purchased at an inflated price, with the difference coming back to the real estate broker or others involved in the scam.’”
“Faravelli said that appraisers who gave in have told him they figured the rapidly rising market would cover their tracks anyway. ‘The pervasive attitude was, ‘I know it’s not worth this amount today, but six months from now at the current rate of appreciation I’ll be covered so it’s OK,’ he said.”
“When appreciation hit the wall and stalled out early this year, fake appraisals suddenly became more apparent. While market forces obviously depressed prices, if they were artificially high to begin with, that widens the gap.”
“Pumped-up appraisals ‘create what I call phantom equity,’ Faravelli said. ‘Appraisals are arguably the easiest part of the entire process to tweak. After all, it’s just an opinion, and everyone has one.’”
The Sacramento Bee. “Will that lure more local buyers into the market? Many real estate insiders say people are motivated more by lower prices than interest rates. They advise against expectations that falling rates will prod a spike in sales any time soon.”
“‘I think everybody is still going to be on the fence, regardless, until the economy gets into balance and we come out of the stoop we’re in,’ says Joshua Sanchez, a mortgage consultant at Sacramento-based JCL Mortgage.”
“The peak rate for 2007 came in June, at 6.74 percent. For a homeowner with a $300,000 loan, that means the monthly payment would be $1,943.80, before property taxes and homeowners insurance.”
“Buyers taking out the same loan at this week’s 6.26 percent rate would pay $1,849.10 a month, before property taxes and homeowners insurance.”
“The savings: $94.70 a month.”
“There’s no question that today’s buyer’s market is brutal for individual sellers. They have to compete with each other and with deep-pocket home builders that are rolling out the deals. If that isn’t enough, banks are muscling in with their own foreclosure deals.”
“Indeed, here comes another giant auction. Auctioneer Hudson & Marshall makes its second trip this year to Sacramento on Nov. 18. It’s auctioning more than 200 area bank repossessions.”
“Today brings one more answer to the question: ‘What will these builders do next to sell a house?’ Take a cue from car dealers, maybe.”
“This weekend, Irvine-based MBK Homes is putting its Sacramento division president in its models to personally negotiate with would-be buyers. Forget the usual agents and middle managers who take your offer to higher-ups. At MBK’s Camden Place, you can talk to the chief himself, and see who blinks.”
“The builder, a new player that entered the Sacramento market last year, is trying to sell 66 houses in Citrus Heights. Models opened in June, originally priced from $298,990 to $375,990. MBK Homes reports two sales so far.”
The Orange County Business Journal. “Standard Pacific Corp. hung a big Southern California marketing and sales effort in September on the phrase ‘Mission Possible’ and pulled off 227 home sales during the incentive-laden campaign’s two-week period.”
“Declining market values are the least of Standard Pacific’s problems right now. Analysts are questioning how successfully the company can operate with a heavy debt load that totals close to $2 billion.”
“‘We don’t see how (Standard Pacific) can afford to continue to leak cash or to absorb JV debt,’ said Vicki Bryan, analyst for GimmeCredit.”
“Andrew Parnes, chief financial officer for Standard Pacific, says the company has twice this year gone back to its bank group to renegotiate terms of its loans. If increased pressure arises from banks to pay down more debt, the company says it won’t resort to an out-and-out fire sale or distressed sale to raise cash, said Parnes.”
“Home sales at Lennar Corp.’s Central Park West development in Irvine are being halted until the housing and mortgage markets show signs of recovery. And new construction at the 1,500-home project is being delayed, the Miami-based company said.”
“The shift at Central Park West, one of the few big projects to go forward amid the downturn, is the latest sign of the tough environment facing builders in Orange County. Home sales here in September were down by nearly 40% from a year earlier, and builder concessions are knocking down new home prices by up to 20% in some cases.”
“The company is opting to postpone sales rather than offload the homes at steep discounts, which is the norm at other projects going up in the county.”
“If a builder can hold off sales now, and afford to keep housing inventory on its books, it might prove to be a smart decision. Factoring in discounts, nearly every new-home sale made in the area these days is being made at a loss, said Rich Knowland, formerly the head of OC operations for Lennar.”
“The next generation of Orange County homes is likely to include more density, have a greater emphasis on quality locations and may even be less expensive than the projects you see being built now, county planning directors were told.”
“‘We have to find a price’ that grabs buyers’ attention, said Richard Douglass, Centex division president for Southern California.”
“Factoring in larger concessions of late, homebuilders have seen the median price of a newly built home drop by more than $100,000 in the past two years, to about $630,000, Douglass said.”
The LA Times. “Speaking to a gathering of industry professionals Friday, longtime California real estate titan Fred C. Sands called the housing market ‘pathetic’ and said some agents needed to start looking for other work.”
“‘If you’ve been in it for five or six years and are barely making a living, you might want to think about what you were doing before and get back into it — you can come back in a couple of years,’ Sands told members of the California Assn. of Realtors meeting in Universal City.”
“He added that he could speak with candor because he was no longer in the home-selling business. Such frank remarks are rare at gatherings of famously upbeat real estate agents, but Sands said those in the business needed to remember the last slump and realize ‘the last five or six years were not normal.’”
“The soaring market of a few years ago will be followed by a correspondingly sharp decline, he said: ‘The longer the up cycle, the more excess there is, and the worse it is for what follows.’”
“Wealthy areas won’t escape unscathed, Sand said. ‘We saw 25-year-old guys buying $3-million houses,’ he said of the questionable mortgage practices of recent years. ‘Someone who makes $100,000 a year can’t afford a $2-million house, but that’s what’s been going on,’ Sands said.”
“‘The idea that everyone is supposed to own a home is baloney,’ he added.”
“Speaking with Sands was Alan Long, president of the Southern California region of Sotheby’s International Realty Inc., who also told agents to cut listing prices to speed sales. Rising foreclosures could cause prices to fall 20% below 2005 levels, he said.”
wonder how the writer’s strike will affect LA real estate? I know lots of industry people that bought investment property in other states as well. Gotta be hard to pay that neg am arm when the rent is still 800/mo less than your payment, especially with no income.
Discussed this with my daughter (TV writer) on the phone a couple of minutes ago. She doesn’t think the strike will last that long.
Excellent. If my Battlestar Galactica episodes are delayed I’m gonna be pissed.
Man, me too!
No offense, but who watches TV? I can get the same thing on the Internet, including the bad language and innuendo, without commercials. The writers should write something lasting, not the lowbrow garbage we’re fed through TV.
I would like to personally thank the “Federal” Reserve for pandering to Goldman Sachs and in the process decreasing the value of my down payment savings.
Participate in the shot heard around the world!
http://www.thisnovember5th.com/
All of my writer friends think it will last a long time. Neither side wants to budge. The last one was 22 weeks and a disaster for the economy. The industry never fully recovered.
Writers are you Kidding me…….they should go on strike and hopefully it will thin the ranks.
FAR too many have jobs produce bottom of the barrel “reality” shows…
time to weed them out…i hope 1/3 never get hired again.
actually, most reality shows/gameshows etc use non-union writers, a by product of the last strike… careful what you wish for…
You have to wonder what will happen to all these million dollar plus homes in California and elsewhere.. Even if the price drops 50+%, the upkeep on 3000+ sq. ft. houses will strain most of the possible buyers.
Nah… Haven’t you heard, everyone here is rich! And the new line is that wealthy foreigners will buy all the properties anyway. Apparently we are now outsourcing our local housing markets… :-p
“Haven’t you heard, everyone here is rich”
That’s funny! I wanted to post that same message.
‘Nah… Haven’t you heard, everyone here is rich! And the new line is that wealthy foreigners will buy all the properties anyway. Apparently we are now outsourcing our local housing markets…’
What can they get for a ROI, maybe 6%, if they rent the properties out? I am sure that every foreigner will love owning a piece of America, tax, lock, and shackle.
I agree totally. The cost of maintaining and owning a home (taxes, etc.) are going up. The value of the home is going down. It’s not a good situation.
Well take homes 1m plus in SF South Bay Area like Palo Alto Saratoga Los Gatos etc… they went from 350K in 1997-8 to well over 1m by 2001 and than doubled again by 2006…
a 50% haircut would be generous to the seller.. at best.
Many of us who knew about the apprasial fraud put two and two together and saw the writting on the wall. It will not be surprising to see many of these million dollar homes take a big hit.
There just isnt anyone left with deep pockets who will or can purchase these homes 5 or 10 years down the road.
“‘If you’ve been in it for five or six years and are barely making a living, you might want to think about what you were doing before and get back into it — you can come back in a couple of years,’ Sands told members of the California Assn. of Realtors meeting in Universal City.”
“He added that he could speak with candor because he was no longer in the home-selling business.”
A man of integrity.
No A man of integrity would speak with such candor while he was still in the business. When he would still have something to lose. Would you say Al greenspan is a man of integrity now that he turned honest after he left the fed.
unless your pull my leg
Agreed. What did Fred Sands preach when he was still in the business? “Real estate always goes up?” “They are not making any more land, you know?”
Sands left the business well before this bubble started.
I don’t think Fred Sands was ever scum when he was in the residential real estate business .I wonder what he would of said or done had he been in the business during these bubble years . It always has been a surprise to me that you didn’t see more objections to this real estate mania from the talking heads in real estate , and it seems like everyone took their talking points from the NAR /CAR chief cheerleaders .Didn’t the liable brokers in any real estate office think something might be getting out of hand ?
“…Didn’t the liable brokers in any real estate office think something might be getting out of hand ?…”
A lot of them did but they didn’t have reporters visiting their offices. Some like myself knew something was different but didn’t really and truly clue in untill I started visiting here and went to a social function and noticed way too much happy talk about reckless behavior with loans.
NAR/CAR are only looking at and reporting what they see in the data. Most of those guys are far removed from the actual day to day of the industry.
Also you had a rush to the door by newbies and overzealous managers trying to ramp up sales. Not discounting their hand in this mess. But in short everybody got caught up in the low rates, compound that with lenders opening the floodgates to credit and willing appraisers. And you see what you have…
You mean to tell me mrincomestream that there wasn’t open discussions in offices about how the stupid lender just bought another one ,or how about the double escrowing deal that so and so was doing ? You didn’t hear any realtors screaming on the phone at a appraiser that they wouldn’t get any more work if they brought in appraisals like that , etc. You don’t have to answer my question, but I’m sure even good realtors or brokers saw other people pulling shit .After a while in a mania everybody starts believeing their own hype and all the hype that is going on around them . I’m sure it was gun ho gun ho sales ,and isn’t this great that real estate always goes up, and selling houses is so easy ,isn’t life grand .
You know that I like you mrincomestream ,and I think your a truth seeker and a funny guy ,but when you first came to this blog I thought you were a little brainwashed yourself by being out there .Anyway ,I marvel everyday at the unfolding of this mess ,and its down right scary sometimes .
Hi Stream,
I’ve had private conversations with people close to the ground level, and the truth is, they felt something was wrong, but they were not sure just what the heck it was.
This is why I believe the SIVs are larger than the managers realise. I fear for many. The pain will be excruciating.
Best,
Leigh
“You mean to tell me mrincomestream that there wasn’t open discussions in offices about how the stupid lender just bought another one ,or how about the double escrowing deal that so and so was doing ? You didn’t hear any realtors screaming on the phone at a appraiser that they wouldn’t get any more work if they brought in appraisals like that , etc.”
Wiz-
LOL come’on yer killing me this is L.A. you hear that stuff bubble or no bubble in every office. Admittedly I was a little was brainwashed until I went to that party I spoke about that was a real eye opener. Because again the stuff quoted above I saw everyday. But as we all know now something way more sinister was afoot thanks to Mr. Jones and his blog.
mrincomestream …I’m glad you laughed at my post because I was hoping you would see the humor in it .
We were trying to figure out what was going on as early as 2001/2002, since RE had doubled (or more) since 1997/1999 in our area. By 2003, it was manic, and we asked some very decent Realtors what was going on…where was the money coming from?
These realtors (who I still trust to this day) shrugged their shoulders and said, “we’re trying to figure that out ourselvess.” For some reason (????), although they saw some of the “strange things going on” in the mortgage business, they truly believed that there were masses of new residents coming to CA and that everyone had suddenly gotten rich (dot.com winners, etc.).
It was only when you stepped back and looked at it from a macro perspective that the picture became clearer. I found out by finding UK blogs on their housing bubble…realized the same thing was going on over there & it was not because of the sunny weather. Eventually, Ben got his blog up and the rest is history. Nothing is different “here”. This is/was a GLOBAL CREDIT BUBBLE.
But ,at some point ,I’m sure the realtors starting noticing that the lenders were getting bolder and bolder regarding the junk that they would approve ,and at some point the realtors test the waters and find out that anybody gets approved ,and than people are taken to houses they would not normally qualify for because there was knowlsge that the lending was getting crazy .
Yes. I was being sarcastic. I had added html/xml looking tag containing the word sarcasm and another with the end tag delimiter, but the parser interpreted it if as though I was trying to use a real tag and left it out of my comment. Another failed attempt at comedy.
well its funny how people with our views were getting scoffed at. Now I think by the end of the year everybody will change their tune.
Real estate is an awful investment.
I am sure we will see it again maybe 2050
From previous threads… more OT here…
RE: Fred Sands… This is a sea change, this guy carries a lot of weight. As mrincomestream said yesterday… the fat lady is singing… Now if sellers (and current buyers) will just remove their earplugs…
Also, the biggest thought that jumped out at me while reading his advice that agents should move to more affluent areas was: “Oh, great… now every hungry realtor in LA is gonna descend on the west side!”
Any dropped listings here will get scooped up quick by the zombie realtors from the valley… It’ll be like Dawn of the Dead!
RE: the fat lady is singing: “Many real estate experts say appraisal inflation is pervasive in an industry in which pressure to close deals is all-consuming.”
Whew…the top’s blown off the garbage bucket
Whatta stink!
hd74man …Wow ,the appraisal scam cat is out of the bag .Why did it take so long ? Can you imagine the bulk of appraisers bringing in the value based on future possible value ,rather than the value as of the day of the appraisal .The system had to be corrupted in order for the mania to take place .I wonder if people are going to sue for future value being their apparaisal amount rather than the true value at the time of the appraisal .Game players wanted future value so bad ,so the ponzi scheme could flourish, that future value was created in present tense .Anybody that knows anything about appraisal practice knows that future value cannot be a variable considered in a appraisal and present value based on comps., based on the day of the appraisal ,is a market value appraisal .Still ,the underwriters should of turned down the loan because the jerk borrower couldn’t afford the payment .And now Wall Street and the rating agencies wonders why they had so much fraud in lending .
If one can prove a fraudulent appraisal, doesn’t one have the right to have the contract deemed null and void?
I’m not a lawyer, but if I were in this position, I would be seeking legal advise!
I reread what I wrote and had to laugh at how stupid it sounds.
Let me try again.
The time to hire an attorney is BEFORE zillion dollar decisions are signed. OK.
All the sob stories (I) we read on FBs, one would think the attorneys would be searching out those said FBs (like ambulance chasers on TV), for class action lawsuits.
Any lurking attoneys at this hour?
Opinions appreciated!
Leigh
Big lawsuit filed by the DA of New York against a Big Appraisal firm and Washing Mutual involving appraisal collusion between those parties . Like hd74man said ,all the companies were doing it .
I hear the DA for NY is going after bad appraisals and the cronies…
ALBANY, N.Y. — New York Attorney General Andrew Cuomo said Thursday a major real estate appraisal company colluded with the nation’s largest savings and loan companies to inflate the values of homes, contributing to the subprime mortgage crisis.
“This is a case we believe is indicative of an industry-wide problem,” Cuomo said in a news conference.
Cuomo announced a lawsuit against eAppraiseIT that accuses the First American Corp. subsidiary of caving in to pressure from Washington Mutual Inc. to use a list of “proven appraisers” who he claims inflated home appraisals
Unless WAMU was selling off these loans, I can’t understand why they would want inflated appraisals. The appraisal exists to protect the lender — so they know there is enough collateral to back the loan.
What am I missing?????
Unless WAMU was selling off these loans, I can’t understand why they would want inflated appraisals. The appraisal exists to protect the lender — so they know there is enough collateral to back the loan.
What am I missing????
This is what a lot of people don’t understand about companies…
It was certain people in the company. Salespeople. Maybe they personally get commission or bonus. They wanted to be able to compete with other banks and make the deal… at the long-term expense of the firm itself.
Federeal reserve and Greenspan should be sued for their policies which cause collapsing dollar and steal money from wage earners and savers to wall street banks. There’s even front-running of the interest rate decisions. Its very unjust and primitive to let few bankers control the value of money and give them so much power to affect your lives. Fed should be made accountable!! Greenspan is one evil sob.
Of course the last 5-6 years were normal. Let’s look at the facts:
1. An unrestrained government entity creates credit and money out of thin air. This money goes to the wealthy and elite first, who use it to invest in a market that has underinflated demand. Sometimes this market is stocks, sometimes commodies, sometimes housing.
2. When the underinflated demand takes off because of a slowly growing cost increase, the middle class takes notice. Because the wealthy spent their newly created dollars fast, somewhat of a trickledown occurred, giving the middle class a tiny wage boost (even though real cost increases exceeded wage increases). The new wage boost tricked the middle class in believing they were wealthier. The new wealth gave them the desire to invest to make money. Since the newly inflated market looked safe, some of the middle class bought into the newly inflated market.
3. Government-licensed shills proclaimed the strength of the newly inflated market, based on less than 12-24 months growth. These licensed shills, which we can call CPAs, stoke brokers, real estate brokers, bankers, or anyone else that requires government regulation and oversight, received a significant commission based on the middle class’ investment in the new scheme; the commission gave the shills more reason to proclaim the solidity and safety of the newly inflated market as an investment opportunity.
4. A few middle class early investors turned around their investment for a profit. As time progresses, more of these early investors made more money as they turned the investments around, then purchased new investments in hopes of making a bigger profit. The early middle class investors became shills for the scheme, promoting it to friends and family who were withholding. Eventually enough money trickled down to even the poor in the form of wage increases, even though all living costs went up even more.
5. As the late comers started to enter the investment market, the price inflation skyrocketed, making some early investors millionaires. They used this money to buy even more properties, and with all the middle class investing, the supply of the market decreased, causing the prices to go up even more. Since the poor now had wage increases, they, too, were able to buy, as the shills for the government lowered the standards for whom they accepted into the investment scheme.
6. As supply started to outstrip demand, free market forces caused prices to fall. Because of the poor on the margins, and the lower middle class, who were both unable to truly afford the investment, some investments were sold at a loss. That loss caused other investments of others to fall, which caused more investments to be sold at a loss, greatly increases the supply of the investments.
7. Now there is more supply than demand, as the early wealthy elite investors escaped the market before the price drop, vaccuuming in more money from the poor and middle class, but leaving them with a high cost of living that occurred due to point (1): the creation of new credit and money.
8. The new oversupply of the investment scheme leads to huge price drops, which brings more government regulation and intervention in the picture for the future.
The wealthy and elite, along with the government, both got what they wanted: either much more money than before, or more power to control markets.
Q.E.D.
This is EXACTLY how California, and almost every other State, has worked for decades, specifically since 1913. Nothing new to see, move along.
Good post ,but I think this bubble is a little bigger than your average bubble and it got a little more corrupt and also the leverage game was more pronounced by the faulty lending .Had the lenders even required the normal 20% down ,this bubble could of not gained the hold it did . This real estate bubble reminds me very much of the buying on margin that occurred in the late 1920’s. Like today with real estate leverage ,the margin buyers of stock in the 1920’s could not pay when the bill was due on the margin call .
Thank goodness all my relatives stayed out of real estate the last 7 years.
Yes but did you stay out of real estate in the last 7 years is the question bill in Maryland ?
I have a $25,000 timeshare, on which I owe $14,800, so I cannot accurately say I stayed out of real estate. Other than that, I rent.
I’ll likely be the first, and last, person to only blame the Federal Reserve and the entire Federal government for keeping it in existence.
I can not, and will not, blame lenders, brokers, realtors, or anyone else, for protecting themselves in a contractually-finalized transaction. I’m a capitalist, and I detest lenders, brokers and realtors in general, but they secured a profit because another person signed a contract. End of story.
All bubbles are created solely due to the allowance of government for partial-reserve or fractional-reserve banking. That is fraud, plain and simple. If you sign your name to a contract, and it goes bad, it is your fault. Anyone can hire an attorney to review a contract, and should. If you didn’t, don’t blame the person who wrote the contract if it is terribly written, or if their verbal promises weren’t included. That’s your fault.
It is time for full reserve banking. This we must demand from those in office. Want to really screw the banks? Force them to keep 100% reserves.
Banks who willingly lend to borrowers that cannot hope to repay are together capable of screwing up any system..
The friends of Rothschilds will not give up their power and free money entitlements. You are dreaming.
Would you give up a free “rake” of every dollar printed in America? The FED was set up while the Congress went on Christmas recess by a special group of parasites.
Their families have been living off this country since and will continue to do so.
I’m with you, but Americans are too brainwashed to see who is robbing them.
In amongst all the paranoia about the Rothchilds, Rockefellers, and other NWO “parasites”, I personally find it extraordinary that the “powers that be” are toying with us for so long - surely, if these people are all-knowing and all-powerful, they can simply make us slaves in one foul swoop, and sit back in a cave somewhere stroking a fluffy white cat going “BWAHAAHAHA!”
Why wait? Why toy with us sheeple?
Those Jooooos aren’t stupid, you know!
For God’s sakes, spit it out! The Joooos are the Fed’s shareholders and owners, aren’t they? Let’s call a spade a spade!
The current one is the USA’s 3rd try at a central banking system .. first near 1790’s, second in the 1830’s and this one since 1913. It was passed into law only because there was a Dem president and Dem majorities in both houses..
So, one blip in the economy and the Class Warfare is already starting .. not too unusual.. But it’s kinda suprising to see so much of it on this blog, which otherwise exhibits higher than average common sense and intelligence.
It will run rampant in the general population in the coming months as the economy sours..
Hillary is no doubt thrilled.
Force them to keep 100% reserves.
C’mon, that’s just straight crazy. How would a bank ever make a loan? And if you say they lend their capital, then why would a bank ever take a deposit.
Unless we’re talking about going back to bank-issued currencies, which historically had its own problems.
Force them to keep bigger reserves, I agree.
Force them to keep 100% reserves.
I agree, the proposal is nonsensel. Why not just criminalize banking?
No, a “100% reserve” (i.e., non-fraudulent) bank can make loans, but only out of time deposits that the depositor cannot withdraw before the end of the stated period. In other words, if you lend money to a bank on a 5-year time deposit, they can lend it out for (up to) 5 years. The fraud comes in when they lend out money that they also promise to repay on demand (or earlier than the end of the time deposit). Then both the depositor and the borrower have claims on the same money.
Ah, OK, not as crazy as I thought then.
Hmmmmmm, I’ll have to think that one through. It would certainly mark a change from what happens now.
I can hardly wait to watch the years of Frontline investigations into the Subprime Real Estate Fiasco.
AB dada, couldn’t agree with you more. The corrupt Fed and the parasites who control it also fund and control leading candidates of both parties so fractional reserve system and Fed is going to be here with us till more people are enslaved and realize how their lives are controlled by Fed. we can have our own 100% reserve banking by converting (at least part of) our savings into somethings whose supply (and hence value) cannot be controlled by Fed - ie. gold other precious metals etc.. its too unfortunate we have spend our time and resources to just protect from inflationary Fed instead of allocating it to producing something which creates value.
why is my tin foil hat ringing?
I want to know who the recipients of the HOPE NOW campaign are. Not as individuals, rather the demographic profile including income, debt, age, education,and location.
Why is this important? They are about to get bailed out.
Good post, A.B. Dada.
IMHO, this bubble can be viewed as the result of wage & wealth disparity. As the wealthiest people amass greater wealth, there is more money looking for “investments” (and returns of even more money), and less money circulating among the productive citizens. This forces the workers to take on more debt to replace wages, but still keeps prices high or forces them higher…making them take on ever-increasing amounts of debt to pay for ever- increasing costs of goods & services.
It can cycle for a long time until the workers reach the point of exhaustion & become unwilling/unable to pay their debts. Then, it may well work in reverse. We are seeing the pull-back in credit & will likely (hopefully) see prices fall.
‘Someone who makes $100,000 a year can’t afford a $2-million house, but that’s what’s been going on,’ Sands said.”
Understatement of the year. However, one could afford it for the initial year or two with option ARMs or low teaser rates. Much to the chagrin of sellers, 6 to 7% borrowing costs preclude even 2002 prices. Back to 20th century we go!
>> Back to 20th century we go!
Yep, back to the days of the Clinton administration.
Uh, literally.
In California this bubble was in full effect by the time Bill Clinton left office in January 2001.
not so much a bubble 1997-2000 as a restoration from the post-crash 1991-1996 era. Wages & rents supported 2000-era valuations.
Only ‘affordability’ lending supported 2004-2006 valuations.
Actually the SF Bay Area prices more than doubled from 100 to 200 per sq ft. I would say we can go back to 1997-8 prices adjusted for inflation. So going back to 2000 would also be unsupported by wages and inflation valuation.
In San Diego, prices doubled by 2001. I also believe we will see pre-2001 prices, very likely mid-90s prices if we have a severe recession/depression. That can’t be ruled out.
I salute you CA renter. Lets have a prayer ring. In 97′ I was ready to buy. Oops 280k turned into 450k and so on and so on. Maxed out at 650k.
Munch a Bunch of Fritos….corn chips!
If you were wise enough to avoid the foolishness and mania of the past few years, I have no doubt you will be able to buy when this bottoms.
Best of luck to you!!
“Home sales at Lennar Corp.’s Central Park West development in Irvine are being halted until the housing and mortgage markets show signs of recovery. ”
Lennar must have financed a lot of construction loan carrying costs into these houses. Lennar would not be sitting on them if the money was coming out of Lennar’s own pockets. However, I predict that in less than 12 months (if Lennar is not BK by then), there will be a quiet deed-in-lieu to the lender(s) on these houses.
As referenced in the story, this is not Lennar’s normal strategy, so my guess is they are just trying out somebody’s conference call idea - perhaps some kind of short-term market test for, say, 60 days during this normally-slow-anyway holiday time. Probably told a lot of their sales people to take a break and check back after New Year’s.
“‘The idea that everyone is supposed to own a home is baloney,’ he added.”
Buh…buh…bbutt, this is George Bush’s “ownership society”. Under his watchful administration, more people are “homeowners” than at anytime in the history of America.
What are we supposed to believe??
Surely you are mistaken, I thought you meant to say, “Debtorship Society.”
Surely, YOU, sir, are mistaken.
I’m thought you meant to say the “Don’t Tase Me, Bro” Society…
or rather, “I thought.”
Yeesh!
Don’t Braise Me Toe.
…pirate said to cannibal…
“‘The idea that everyone is supposed to own a home is baloney,’ he added.”
I am so tempted to send the quote and reference to a buddy of mine who tsked tsked me for being in my 40s and not owning real estate. But I have been persuaded to cut down “I told you so.” Another friend in the same circle keeps reminding me that I was wrong when I told him gold will go up to $1000 by the end of 2006. Creep! Okay 2008! The same guy sold me four ounces at $529 per ounce because he was so sure that gold is a bad thing to own. Bob Brinker said so! LOL Geez, the second out of two people I know who heard of Bob Brinker and are cult followers.
bob brinker is like a broken clock
‘bob brinker is like a broken clock’
He is somewhere between Larry Kudlow and Larry the Cable Guy. My pet peeve with him is that he toes the line on inflation numbers that the gov reports. I want to believe that prosperity is as simple as adding money to a system and watching things grow, but fool me once shame on me….
BTW, I still get a kick out of the latest edition of Burton Malkiel’s “Random Walk Down Wall Street”.
This is an “ownership society”–homedebtors are owned by banks.
The San Francisco Chronicle reports from California. “Ask any real estate appraiser: Being badgered to overstate home prices is a fact of life, they’ll say. ‘We get pressured every single day to inflate our values…’”
********
Hey! The LNAA - about a 1,000 days late and many dollars short on this subject. This is embarrassing.
Why couldn’t the Chronicle have done some real reporting when it could have mattered?
[LNAA = Lamest major city Newspaper in All of America = SF Chronicle]
sad but true, am an SF native, grew up w/ the Chronicle (and delivered it as a kid), it used to be a decent paper but is now just one step up from a tabloid, especially the online version…
SF Chronicle has been laying off staff and some of the good reporters have left the newspaper.
So all these people are getting laid off. Are the mortgage companies gonna help them all out or what? : )
The appraiser thing seems easy to solve.
It should be buyers hiring the appraisers to come in for a fixed fee.
The bank hires another appraiser for a fixed fee (perhaps through a firewall).
That eliminates most of the conflict of interest.
RE: It should be buyers hiring the appraisers to come in for a fixed fee.
What most of the general public never really understood about the mortgage loan process is that the appraisal function is performed for the benefit of the lender, since they are the principal who pays the appraisal fee directly, and thus becomes the designated client who controls the work
Because J6P pays an “application fee”, out of which the appraisal fee is taken, he simply becomes a 3rd party interest, to which many appraisers negate forming any type of “reliance” thru their limiting conditions statements.
What should have transpired as the appraisal industry became more and more corrupt, was for buyers to put into their P&S
contract that an independant valuation would be made by their OWN appraiser (paid for themselves which would designate them as the client) and then make the final purchase dependant upon there being a reconcilation of data between both reports.
Too late now for scores of FB’s.
Funny how things always look better in hindsight.
Wow, what about the paper work that shows that a FB was charged for the appraisal as a outright defined expense in spite of the mortgage broker ordering the appraisal ?These borrowers might have more leverage regarding complaints .
But you just know that the FB’s thought that they were getting a independant appraisal from a third party with no influence from the lender or realtor ,(unless it was a total fraud cash back deal ).You just know that the FB’s would clap their hands when they found out that a appraiser endorsed their decision to overpay for a piece of property .
Oh, by the way ,your appraisal was based on future value because for sure the market will catch up to what you paid for your overpriced POS . Wow.
Wiz~
The entire breakdown of the appraisal profession took about a decade beginning around 1992/’93 when the FEDS
told the states to begin licensing appraisers.
In a nutshell the states set the qualifications bar as low as they could. Alot of old farts who’d been in biz were grandfathered, and the only educational requirement was a high school degree.
When I first started in the biz it was an undiscovered profession. However, once the government got involved and provided the proverbial yellow brick road to get into the profession, the hordes descended.
And when the newbies got in-they needed work. And how do you get work? By being coerciable and aquiescent to punchin’ the number the mortgage loan officer tells you to.
And it all played right into the hands of the lending sleazebags. With the legions it allowed them to shop for whatever value they wanted.
I disagree with the comment about an appraisal being just an opinion. Technically, it’s an opinion supported by statistically and concrete market data. The do a proper and appropriately developed residential appraisal can take anywhere from one to three days.
The hacks were knocking out 3 and 4 a day.
As the saying goes-garbage in, garbage out. Then again, because of the competition fees have remained flat or declining for the last 15 years. So the lenders have gotten what they paid for-which is shit.
Eventually it all boiled down to a personality and boot licking contest, with the amount of business you could attract virtually extraneous to your skill or knowledge levels.
The high honchos knew about all of this crap years ago.
But nobody wanted to remove the grease from the skids.
I find it halarious to hear pundits exclaimations like all this corruption and malfeasance is some sort of revelation.
hd74man . I agree with you that a appraisal is not just a opinion but rather a science that is based on facts and figures, research ,etc.
Also ,didn’t you post once that a group of appraisers went to Congress complaining about the state of affairs and they were turned away ?
Anyway, I wasn’t in the business in over 10 years so all this crazy lending practice, including appraisals, has been a shock to me verses how lending and appraisals were done in the past .
RE: Also ,didn’t you post once that a group of appraisers went to Congress complaining about the state of affairs and they were turned away ?
A lot of experienced FHA/HUD fee panel members went to DC to complain when their work evaporated once the system evolved from an autonomous FHA controlled rotational system to a situation where the mortgage companies could pick they’re own appraiser.
The change was made by Congressional act.
I was on the original FHA/HUD panel for 10 years.
Once the new system was implemented I never got another piece of work.
Wow hd74man ,sorry to hear how the change took a good appraiser like yourself out of the loop .Thanks for explaining in more detail what happened .
I guess mortgage brokers picking their own appraisers hasn’t work out so well and so much for the arms length transaction . I wonder why Congress didn’t think that the change would create a conflict of interest and I wonder who pushed for the change . When the sh*t hits the fan ,I can’t help but think that this congressional change might be brought up .
Scores of homeowners have also been participants in the pressure to inflate values because they have depended upon using their home equity like ATM machines. The homeowners choose the mortgage brokers, who in turn choose the appraiser for their multiple refinances. They don’t care whether or not the appraisal is accurate, only that the value will allow them to cash out enough equity to cover the disparity between their income and their expenses and debts.
Trust me, there are plenty of homeowners out there who don’t have subprime loans but are still going to be in deep doo when their debts climb, incomes stall, unethical appraisers are blackballed out of business and they can’t sell their homes for what they owe.
RE: Trust me, there are plenty of homeowners out there who don’t have subprime loans but are still going to be in deep doo when their debts climb, incomes stall, unethical appraisers are blackballed out of business and they can’t sell their homes for what they owe.
Lottsa great truths coming forward on this thread.
“What should have transpired as the appraisal industry became more and more corrupt, was for buyers to put into their P&S contract that an independent evaluation would pe put in by their OWN appraiser …”
But, but … but if the buyer got an HONEST appraisal then he would have become knocked out of the chance of buying the house and getting rich on the appreciation.
Remember the mood of the country when all this was going on: Nobody wanted and honest appraisal, not the broker, not the lender, not even the buyer.
You bring up a good point combotechie about the way people act in a mania when they think they can’t lose . A number of borrowers would of just thought the appraiser was a jerk if he/she didn’t hit the mark .However ,a number of borrowers would of thought twice about a purchase had the appraisal came in lower and might of reconsidered the price they offered .
Unless I misread you, I think you’ve got it wrong. When we’re talking about the loan process, the appraisal is for the lenders benefit, not the borrower/buyer. It’s the lenders money on the line, not the buyers, and the appraisal is everything to the lender. Therefore, anything having to do with valuation should rest with the lender. Wouldn’t you want it that way if you were the one lending the money?
It’s only when the risk of the loan remains attached to the loan that the lender cares about an honest appraisal. If the loan is a junk loan but it and the risk that it carries is pawned of to someone else then the lender has no incentive to care. His only incentive is to get the jucy fees obtained from originating the loan.
Let me rephrase my last post:
It’s only when the lender has to keep the risk of the loan that he cares about the loan’s quality. If he can get a jucy fee and then pass the loan (and the risk) off to someone else then he has no incentive to making sure the loan is not junk.
Yep. Which is why mortgage lenders/investors should be the ones to come up with a list of appraisers that the brokers MUST use. There should be an agreement between lender/broker — and the LENDER should follow up on default stats to determine if any appraisers need to be knocked off their lists.
Brokers should have NOTHING to do with the appraisal, IMHO.
hd74man,
everything you have been saying abou the appraisal business on this blog has been right. If you could see it so clearly, than other appraisers know it was a crooked game as well. They went along with the scam, you declined. Congrats.
Interesting to know whether this is covered under the RICO statutes, given the amount of collusion involved, and the huge amounts of money. Waiting to see what kind of indictments start getting handed down.
Get rid of the phantom bidders by having all buyers present and then you get rid of more than the fruad in appraisals.
I tackled this subject this subject well over a year ago and got my balls handed back to me by a lot of the posters here when I made the suggestion that appraisals were a joke and needed to be abolished. There is no way to get unbiased valuations with the way things are. When you’ve got LO’s and realtors ordering the appraisals, what do you think is going to happen. It’s like setting a jar full of cookies infront of a suger-junkie kid and expecting him not to dig in. And i don’t care what kind of fines start getting handed down, this will continue until the system is scrapped. Infact, it will only get worse the more these guys continue to starve.
The way I put it back then was that you don’t need an appraiser figure out enough of an evaluation to base loan parameters on. Let me illustrate what I mean. Let’s say your the man loaning the money. Imagine if the person requesting to borrow money from you, to be secured against the home they were buying, called and said “hey listen, don’t worry about the appraisal. I’ll take care of it for you and send it along with the other information you requested”. How would you respond? I’m sure with a hearty “hell no!” Everything having to do with the valuation of what you will be lending YOUR money against would surely be handled by YOU personally. No one on the other end, or even representing the other end, would ever get their fingers in the process. Now as for the appraiser, who the heck needs them. I mean c’mon, how many of you here can pretty much figure out valuations for any given area by what you already have at your fingertips (without access to MLS). We’ve all figured out how to peel beneath the layers and discover for ourselves what’s going on in any given area. That’s how most of us here are able to disseminate the nuggets of info we post here. Now how much more so for you, Mr Lender, having access to MLS and other sophisticated data sources. All you would have to do is hire an inspector for a couple hundred bucks to go out and inspect the property you intend to lend money against. Not appraise it, just inspect it. Then send me a report that insures the type, quality, area, ect. Armed with that info, you would have everything you need at your fingertips to figure out a valuation to base your loan parameters upon. Appraiser? Sorry, no need. Adios Mr Appraiser as we know him.
It’s just a friggin’ joke, and like I said, it needs to be scrapped. Not overhauled, completely done away with. There - I said it again. Now go ahead and hand me my balls again.
“…Infact, it will only get worse the more these guys continue to starve…”
A thinking man would be buying stock in Kinko’s right about now…if you were crying about fraud before just wait to see what the next few months bring as industry folk really start getting hungry.
Oh I hear you. Desperate times breed desperate acts. In fact, just by doing a little data mining on my own this morning I uncovered what I am sure are several cases of fraud here in my hood.
Hear, hear. The whole appraisal process seemed really obnoxious to me. The appraisers I worked with didn’t spend 3-4 days working on the numbers, they came into our house for about half an hour, and then a few hours later, sent some comps in a templated form to the lender. Nothing that I couldn’t do by myself. All they did was interfere in a transaction between a lender and the borrower. If the borrower can be trusted not to default, go ahead loan the money, if the borrower can’t be trusted - like many can’t, some “professionals” cursory opinion won’t save the lender’s bacon.
Sounds reasonable to me. Eliminate one more middle man.
Appraisals are done for the lender ,and in this market for the final loan investor so the value of the asset can be determined to determine risk if the property goes into foreclosure .
Often times buyers pay a up front appraisal fee or pay the appraiser when he comes ,and many lenders collect this fee or will not even process a loan unless they get this fee up front .
So,ex-nnvmtgbrkr ,regarding your comment about not needing appraisers ,what if the property was burned down ,how would you know that if you just looked up the stats on a computer ?How would you know if the property had adverse circumstances or not ,or even had landscaping or was to code .
The underwriters I use to deal with would sometimes even go out and check out the property themselves to double check the appraisal on a low down deal . I don’t think you can ever get rid of a on site appraisal in house lending ,it just needs to go back to not being corrupt .
“How would you know if the property had adverse circumstances or not ,or even had landscaping or was to code .”
Home inspector.
Sorry, appraisers are headed for extinction.
He did say in the post that he would require an inspection, which would seem to meet all of your concerns without the need for an appraisal.
Nice to see someone was paying attention
Mr ex …But ,if you get into just having someone inspect the property ,but not appraise it , who will determines market value ? I guess I’m not clear on who the neutral party is that is going to determine the value for the loan and check out the comps to make sure they truely are comparable .
Correct me if I’m wrong ,but it seems to me that you are suggesting that the lender/loan agent determines the value of the property once a non appraisal inspection is made .
Sorry about my last post because I was called away by my family and I didn’t get to complete my thoughts or questions .
Appraisal fraud (i.e. pumping the value for some sort of cash-back deal) is an old problem- it is hilarious that it is being ‘discovered’ now. About fifteen years ago (yikes!) I worked indirectly for one of the nationally-chartered mortgage companies (in the sense that I was doing research and my co-workers had money from those companies). Apparently FMac/FMae were suspicious that appraisers were overvaluing properties, so we were set to the task of coming up with statistical models and writing code to help do ‘back up’ hedonic appraisals (with spatial components) so that the lenders could investigate any major discrepancies between the computer-generated appraisal and the ‘on-the-ground’ appraisal. So this fraudulent appraisal problem does not seem to be new at all.
On the other hand, many years back, when I was shopping for a house, a really good appraiser (who did a nice, careful analysis of comps) got the seller to knock 5% off the house price. THEN a good inspector (an engineer) did a bang-up job and found every obscure defect in the place and got the sellers to ameliorate them all. So I am not going to bash ALL appraisers and inspectors.
I am a bit embarrassed by the low standards that characterized many HOUSE appraisers, because appraisers, in general, have to be extremely knowledgeable in their field (for instance, commercial property appraisers, antique appraisers, business valuation appraisers, etc.)- IIRC some house appraisers were paying their kids to help out with the ‘plug an chug’ appraisals. As far as appraisals going extinct, I would not expect that to happen entirely. If I was purchasing land, commercial property, etc. for a business expansion, you had better believe that I will pay an expert to give me an opinion on the right amount of money to offer on the property (and I would look for an appraiser with a good reputation). Perhaps the appraisal business will move from self-employed to in-house at the banks, where their fortune will be more tightly bound to the lender.
Well, lenders use to hold their loans until they became a “seasoned loan ” (meaning a holding period of two to three years to see if the loans were a good pay ),than they were sold off to the secondary market . Lenders did not make bad loans under that sort of system .
RE: Apparently FMac/FMae were suspicious that appraisers were overvaluing properties, so we were set to the task of coming up with statistical models and writing code to help do ‘back up’ hedonic appraisals (with spatial components) so that the lenders could investigate any major discrepancies between the computer-generated appraisal and the ‘on-the-ground’ appraisal
Your models would only work in urban areas with a heavy population density which have the capacity to provide a vaild statistical base for analysis.
“Hedonic appraisals with spatial componets” for appraisals done in the rural regions of upper Montana or northern ME?
Uh, I don’t think so…
“Hedonic appraisals with spatial componets” for appraisals done in the rural regions of upper Montana or northern ME?”
This research was directed only at large metropolitan areas. That’s where we had the data- never claimed that they would work elsewhere. For instance, we always chuckled about the Alaskan (outside Anchorage) market, where you can find a McMansion right next to a quonset hut surrounded by dead snow machines.
RE: IIRC some house appraisers were paying their kids to help out with the ‘plug an chug’ appraisals.
Spot on observation AK.
How else would you expect these chucks to do their 24 hour turnaround times
Once an appraiser gets a rep as a number hitter, the amount of work which comes his or her way is incredible.
I saw extended families of the most incredibly corrupt hacks control entire markets all in violation of the Uniform
Standards of Professional Appraisal Practice provisions.
As far as the comments relative to gettin’ rid of appraisers…
might just as well get rid of the auditor function for the financial sector while your at it.
Then see what that brings about.
too
A co-worker who bought last year in central LA just got their first property tax bill - $8 grand. Ouch. This is on top of repairs, insurance and monthly maintenance they pay on a 2br condo…
That’s almost $700/month. Heck, you could buy on a 15 year note in some areas of this country. And very nice too. Sunshine tax, my butt. Not worth it. Will continue to rent.
Sweet! Supporting the socialist county gubment of LA and their entitlement programs! Next time I am in LA renting, I should write a letter to the editor of the leftist Times openly thanking the buyers of overinflated homes for subsidizing light rail for slobs such as myself who pay very little tax.
Bill, I love your take. You are so right. This is one of the most understated part of the whole bubble, IMHO. Take a home for 720K. In CA that baby is 1.1% taxed, which for easier math, let us assume 1%.
1% of 720K is 7200, which….=$600/month. As I posted higher up, you could a very nice place in some areas of the country for that as your mortgage payment. heck, be a WalMart greeter at that rate. 160 hrs/month x 5/hr. = 800/month. A little tight, but if you have a spouse working for the same or more, manageable. I realize that any and all types of health, auto, fire, etc. insurance is gone. But, if you really want the house then you have to figure out how to make it work, not just use some “exotic” mortgage product.
Nothing new is taxed at 1.1% unless it’s in an already well developed area. Most of the new developments have Mello Roos added in and are running from 1.6% to 2.0%. That makes the tax bill on those new $700k stucco boxes about $10k to $14k per year!
you are right, my brother paid $528k in bakersfield and his tax bill is around $8k a year! ouch! i have yet to see how that will effect him so far.
Developers need to start taking that back on their own shoulders. Mello-Roos is a direct benefit (profit) to the developers/builders. If they can’t make a profit otherwise, perhaps they shouldn’t pay so much for the land (and offset developments costs w/lower land basis). Perhaps make a smaller margin? Nah!
…”Someone who makes $100,000 a year can’t afford a $2-million house, but that’s what’s been going on,’ Sands said.”…..
“Speaking with Sands was Alan Long, ….who also told agents to cut listing prices to speed sales. Rising foreclosures could cause prices to fall 20% below 2005 levels, he said.”
There’s a big problem with these two statements. A 100K job used to qualify you for a 300-400K home. 20% off two million still leaves 1.6 million. Now 80% off would leave an affordable home for the 100K per year person.
Klownafornia still has a way to go.
Look, let’s be genreous here for us Klownifornicators. Let’s assume the best, for arguments’ sake, so no one can say we are all doom and gloomers. With a magic wand everyone in CA now makes 80K/year. Taking the 3X income, again being generous, but safe, that means the top of the line is 250K house, which with 20% still runs you 1200/month+HOA+Mello Roos+Taxes+Repairs/maintenance=$2000/month.
Okay, let’s assume the spouse works for the same salary. You could get a 500K home.
Numbers like these just don’t work unless 2 people are working and make 80K a year, EACH!
So, this fantasy land of 600, 700, 800K+ homes is just that, fantasy. When you couple it with the shacks on less than postage-size lots, you get even more fantasy than Tolkien could have ever dreamt up.
We are no seeing what happens to fantasy when the real world enters in. Swirling in the toilet bowl!
Well, let me show you how I dissected what he was saying…
Say you have a million dollar house today according to him when forclosures really hit the market, which by all accounts that I hear will be early next year. So right now your house is worth 2005 prices. By all accounts L.A. has appreciated roughly 20% Y.O.Y. right…
So right now that million dollar shack is worth is worth 600k
1,000,000.00-40% = 600,000.000
Follow me so far…
Now when the foreclosures began to come back on the market early to mid 2008 your property will be worth 20% less. Why because the banks/servicers will need to dump property so that they will be able to survive and they will be your competiton. So…
600k - 20% = 480k
So by the 3rd or 4th quarter of next year your million dollar piece will be worth 480k then there will be a 5% drop untill R.E.O. levels reach an acceptable level hence his comment.
“Let go of the fear another agent will take over and sell it — they won’t”
A co-worker who bought last year in central LA just got their first property tax bill - $8 grand. Ouch. This is on top of repairs, insurance and monthly maintenance they pay on a 2br condo…
Boy ouch is right. It’s hard for me to get my mind around the taxes. We have a newer 2000sf house on 6 acres and pay $2100 a year. I can’t even fathom $8k for a 2BR condo, no less.
I bet you didn’t pay roughly 625k for you property either…
Mrincome, no one should either, except the very wealthy. The idea that people earning 75-100K/year, WITHOUT the wife working, or maybe earning an extra 10K/year, is ludicrous!
When I think of a 625K home, I think of a 5-6 bedroom min., real brick, on an acre or 2, plus a pool, and a semi-circular drive, which has a vette and a porsche. Obviously, the guy is a lawyer or doctor and everything is paid off. No HELOC for this family.
Of course, this coming from a guy who grew up in Northern NJ.
When I think about the homes in Mahwah or in Upper Saddle River, that’s what I think of when I think 625K. Not some PoS stucco job that will fall apart if the Santa Anas even sneeze .
LOL, and you would be right in your thoughts. Not too long ago 625k would have bought something along those lines, when I say not long ago I mean within the past 8 to 10 years. Maybe not Bel-Air or Beverly Hills but Pacific Palisades, Hancock Park, Palos Verdes, Los Feliz, Hollywood Hills, Manhattan Beach, Redondo Beach, West Los Angeles easy… the cost properties may have been a little smaller than what you described but all the rest would have been comparable.
You left out “automatic fire suppression system indoors & out” as one of the qualities of your $625K house.
Ghostwriter,
What state do you live in (if this question is too personal, my apologies)?
“They advise against expectations that falling rates will prod a spike in sales any time soon.”
Please tell this to the boneheads at the FED, those rates need to go UP not down.
Mo Money I realize that the FED has a lot of reasons to keep rates down, but I have to believe that someone in the room is yelling for lower rates because if they ever raise to say 7-9%, you can really kiss the housing market goodbye and maybe forever, in terms of making serious bling like this bubble. Imagine trying to finance that 500K joke PoS with a 9.5% fixed rate. Yeah, that’s right, $3,363.42/month and that’s with 20% down. After you add in the HOA, Mello Roos, tax, etc. Wow, mamma. That baby is going to eat you for $4500/month. Absolutely unsustainable for all but maybe 5% of the populace/buyers. And even those people probably have enough cash to buy outright.
Anyway, my point is that while everyone is screaming for more liquidity added to the markets, I have to believe that 1 person on the FED reminds them that raising rates will kill whatever is left of housing.
Its not the FED’s job to protect the housing market nor the stock market. All the complainers want the bubbles to keep going but at what price ? Brazilian style inflation is where we are going.
“All the complainers want the bubbles to keep going but at what price ?”
Personally I think it should explicitly be the FEDs job to deflate bubbles. The whole excuse for insulating the FED from Congress/Exec. Branch was so that they could avoid the temptation to overstimulate the economy for political purposes. So, instead, they overstimulate the economy for the bankers’ purposes. This is why the only worry about inflation if it involves wage inflation (gasp! some of the green tide going to the working class!). I think the retirement pay of FED governors should be based on the absence of stock, housing and other bubbles.
At the very least, the Fed should have some concern about the value of the US dollar.
By doing what they’re doing now, the dollar is toast.
Let’s also remember that since the Fed’s best interests is the banks’ profitability (cynical, I know), perhaps they simply want to see credit spreads blow out.
If they continue to lower the short end while credit dries up at the long end (esp. bonds & investments other than Treasury stuff), the bankers/investors who borrow short/lend long are winning.
“…Rising foreclosures could cause prices to fall 20% below 2005 levels, he said…”
Everybody is focusing on the fact he told the Realtors to get out of the business. That’s not news that was going to happen anyway.
The big deal is the quotation above…he tried to delivered the punch softly by saying “could” but everyone know he meant “will”.
These guys have already been informed about what’s about to come down the pipe. They are very well connected in the banking industry. As I have said before 1Q08 you’re going to see drastic changes in pricing in the L.A. market. These guys have sent off the warning shot. With the message to all involved “get out now”. Really had nothing to do with the Realtors. Anyone truly informed about real estate in Los Angeles knows about Fred Sands.
“…Wealthy areas won’t escape unscathed, Sand said.”
That comment was specifically for his previous Hollywood Hills/Sunset, Beverly Hills, Bel-Air clientele who think it’s only going to affect the little people. He’s about the only one who can get through to their thick skulls. The message is I know what you are doing stop flipping to the fresh meat and get out now. Take the money you have made and be satisfied.
A lot of people don’t really understand that a vast majority of those houses in that area are owned by a small group of families who have been there for generations. They sell to the unsuspecting and then buy them back at the foreclosure auctions when the new hotshots money runs out.
Sands sending off the warning shot will not be taken lightly in Los Angeles.
I had the same reaction. Sands was the man for West Side RE for years, and probably knows the high-end market better than anyone.
It’s still a bit hard to see what’s going on here unless you look carefully, but the “signs” are becoming more apparent. As in For Rent signs on houses in areas where nothing has been for rent in years. As in those signs staying up - people aren’t even biting on overpriced rentals
> A lot of people don’t really understand that a vast majority of those houses in that area are owned by a small group of families who have been there for generations.
Ding, ding, ding! We have a winner!
Prop 13 has dialed in the “landed class” in California to an unbeatable advantage in fixed costs.
I would like to hear our dear friend, Mr. In the Bag Gary make some comments on Fred Sand’s statements. Would be hilarious.
Bill in Maryland, remember, it is your civic duty to catch a falling knife to bail out the friends of relatives (LOL).
8K for tax on a 2bd apartment with granite countertops (I mean condo). Gee, my 2700 sq ft home tax is only $2000 per yr also. Great to be out of Clownifornia and somewhere else that at least feels sort of normal. House next door listed at the wishing price of $310K. Doubt he will get it. May $280K. Identical size, but no where near as nice as ours.
“I would like to hear our dear friend, Mr. In the Bag Gary make some comments on Fred Sand’s statements. Would be hilarious.”
He doesn’t have anywhere near the credibility or track record Sands has, he would be laughed and ridiculed into seclusion.
Last 5 or 6 yrs of CA not normal. I don’t think anything was normal there in the 17 yrs I lived there (both in LA and SF area). Just one person’s humble opinion. But definitely agree last 6 were not.
Thinking about this, by no means an expert on anything, but do you think the next thing would be to lengthen the mortgage terms? Like car dealers nowadays want to finance a car for 72 months, when not so long ago, 48 months was the max do you think the mortgage companies will try to do this to lower payments, and keep people from defaulting? If they do, would it even work?
Midwester we have discussed this issue before here. Don’t take that as an insult. Just pointing out the impossibility of making it work.
Let me show you.
100K for 30 years @ 6% will run you right at $600/month for the P&I. If you have 200K under the same terms, it will be $1200/month.
Now, let’s go to the extremes…
100 years w/the same numbers will cost $500/month. Okay, you save a $100/month for 70 years. Ouch on the interest, though.
Now let’s try 1000 years, all with the same numbers…
You will still get $500/month.
You see, at some point the law of diminishing returns, combined with compound interest intersects one another. At some point you just aren’t paying down enough principle every month to get the interest part any lower.
Therefore, you would just be another “bitter” renter in the end.
ok, thanks for the clarification…guess I’ll be able to get a good deal on a house eventually cuz looks to me like housing will go bust nationwide. too many IO and ARM loans out there no matter where you live
No, no, and no.
First, mortgage companies are sheep, and just as they think the future includes always-rising prices when prices are currently rising, they also now are beginning to think that prices will always fall. Thus, they reason, if they extend maturities they could still end up with under water loans, since the longer the maturity, the smaller the principal payment, other things equal, and equity could decline below principal outstanding.
Second, the difference between payments becomes smaller and smaller the more years you add on - going from 30 to 50 or even infinity years will not make as big a payment difference as going from 15 to 30 (the higher the interest rate the less a difference it makes). More info - try searching on “bond duration”.
“Pumped-up appraisals ‘create what I call phantom equity,’ Faravelli said. ‘Appraisals are arguably the easiest part of the entire process to tweak. After all, it’s just an opinion, and everyone has one.’”
They create what I call ‘vanishing equity,’ as recent buyers of those fraudulently overappraised homes were left high, dry and naked on the beach after the credit bubble tsunami tide receded.
No appraiser can foretell the future! If they could they would not be appraisers.
An appraiser to changes their opinion of a value is just a politican in search of more moneyl
I think it became very easy to ‘tweak ” the income of borrowers on the low doc, low down loans ,as the housing boom progressed .
Look , a valid appraisal is very important because if the borrower defaults ,than the only thing the lender has is the value of the property to get his money back . It is really a very simple concept . If you add to the tweaked appraisals that the income figures were also “tweaked “,(in that the income was as inflated as the appraisals ),and you add to that the loans were designed to go up on the payments,or add neg. balances to the loan ,and you add the fact that the borrower had no skin in the game ,these were the highest risk loans for default ever made with nothing backing them in equity that the lender could get back in the event of a default .
Loan investors invest in real estate loans based on the bottom line that selling the property ,in the event of a default ,will get the money invested back . You can’t have a bunch of fake appraisal and a bunch of fake income and rate it as AAA paper in the secondary market . I just would like to know when lending changed and it became that all loan paper was good because real estate always goes up .
I just would like to know when lending changed and it became that all loan paper was good because real estate always goes up.
Some of it started in the late 90’s, when Congress “empowered” Fannie & Freddie to expand exponentially (they used to be much smaller) and securitize half of the residential mortgage market. Thanks to the default risk-offloading “magic” of MBSs/CDOs and other delightful new derivative products, the banksters could now lend without a care in the world.
Congress also passed the $250k/500k capital gains exemption, expanded the 1031 exchange to include residential RE, and set the “any two will do” rule (occupy a house for any 2 out of 5 yrs. and getch’yer tax-free money). Naturally, confronted with the opportunity to make a ton of tax-free money by flipping, speculators and con-men all over the country did the obvious: they took it.
Then Greedspan came along and (under political pressure from the ‘Decider’ & Congress, worried about the effects of NASDAQ bubble bust & 9-11 on the economy) dropped FF rate to 1% and held it there almost 3 years –the financial equivalent of putting the easy-money pedal to the floor and keeping it there.
Local government had no incentive to actually regulate or enforce mortgage/appraisal fraud laws, as price inflation was producing a windfall in property tax revenues for them. The incentives on the industry side were all in favor of fraud and price inflation as well, thanks to aforementioned MBSs/CDOs and price-based broker commissions and kick-backs that heavily favored toxic waste over conventional full-doc amortizing mortgages.
And so here we are.
Excellent post, Wiz!
Take pity on the appraisers, folks. Was an Appraiser for 30 years and fought all of the problems now going on.
But, as we are all intelligent people here, tell me, right now, what your home is worth! Couldn’t do it, could you!
And, an appraiser, in a falling market, is up a creek without a paddle, and just can not do it, as the buyer, and lender is looking for future worth, not present worth!
I used to tell buyers why they want me to confirm what they paid for the house! As that is a decision they made when they made an offer, If I am up or down on the price, they think it affects the value to THEM.
Oh, well.
Perhaps if enough of these Debt Palaces are torched by their upsidedown their FB’s, the Insurance Industry’s RISK CONTROL and ACTUARY DEPTS can give them a Replacement Value starting point….minus the price of the DIRT
Factoring in larger concessions of late, homebuilders have seen the median price of a newly built home drop by more than $100,000 in the past two years, to about $630,000, Douglass said.”
With medium income (family two wage earners) around 70K that numbers doesn’t make financial sense. The RE bottom will only occur when these ratios come back to earth. bring that medium price down to 200K and then the RE bottom will begin and a long period of sideways price action will begin.
“In the mortgage fraud cases we’re uncovering, the linchpin of most of the fraud is a doctored or questional appraisal.”
Oh, so now we lear from the MSM that the root cause of this mess is the fraudalent appraisals.
It is not the realtors (who spend a lot of money advertising in the MSM) who are at fault, nor is it the brokers (who also send a lot of money to the MSM) who are at fault, it is the appraisers (who send no money to the MSM) who are at fault.
I guess that makes guys like Mozilo a victim like everyone else.
“brokers” should be “lenders”
“brokers” should be “lenders”
But the lenders are becoming ‘broker’ even as we speak…
I predicted last year that appraisers and mortgage brokers would be the scapegoats for this and that there would be endless perp walks and show trials. They’re perfect scapegoats for the powers that be. They’re individual independent contractors so they have no political power. Once you establish in the minds of J6P that they’re at fault then the institutional players can be bailed out as innocent victims. Also by enacting lot’s of “closing the barn door after the horses are gone” regulation the gov can convince J6P that the gov is in control and taking care of it.
At this point it’s all about scoring political points and deflecting blame.
RE: I predicted last year that appraisers and mortgage brokers would be the scapegoats for this and that there would be endless perp walks and show trials. They’re perfect scapegoats for the powers that be. They’re individual independent contractors so they have no political power.
Ya got that one nailed, good buddy.
i always thought that they would blame the rating agencies and the rating agencies would not have liability because they have disclaimers on everything they said .However ,all this collusion is looking so bad that I really wonder who will be blamed .
I’m sure they will find some of the appraisers that were involved with the fraudulent cash back deals and hang them out to dry ,but your average appraiser might not be liable because a good % of the loans defaulting are because the borrowers couldn’t even afford the payment and that is a underwriting issue and a possible borrower perjury issue .
I don’t think so, the system needs the rating agencies. So the failure of the rating agencies will be blamed on faulty data supplied by the appraisers and mortgage brokers and with them purged the problem will be declared to be “solved”.
You might be right diemos . I would love to know how a court of law would view what happened in terms of liability .Right now everybody wants to sue everybody else . But mark my words , I know someone is going to come up with the “mania defense “.
I’m afraid I’m past the point where I pay any attention to “law”. When push comes to shove congress will pass an Omnibus “Let’s cut out the sueing and get on with it” bill that will declare a pardon for everyone politically connected and reset the system.
Yep, that is what I mean by the “mania defense “,diemos Everyone will be pardoned and can’t we just move on .
“‘This makes things such as Enron and WorldCom look small by comparison,’ said Ted Faravelli, executive director of the California Association of Real Estate Appraisers and principal at San Jose’s T.E. Faravelli & Associates, an appraisal firm. ‘It was an epidemic.’”
Not a word of many of these real estate experts when the frenzy was in full force
I have to stick up for some of the appraisers. They circulated petitions and sent them to congress. Many spoke up loud and often, only to be ignored by the industry and consumers alike. Check my original HBB in the sidebar. I posted on some links and articles in spring 2005.
I agree. Our own dimedropped and hd74man are two here who have taken it on the chin because they wouldn’t go along with the game and were penalized for being professional. One of the things that most frosts me about the bubble are the numbers of decent folks, from homeowners to brokers, who were trashed because of the fraudulent mindset.
The honest appraisers mostly quit in disgust or their work dried up. Hopefully some of them will be getting back into the business, while their disgraced brethren ooze away along with their sleazy realtor and mortgage broker accomplices.
Sammy ,it was almost as if the lending business became so corrupt that the commissioned salespeople were calling the shots on what value the appraisals would come in at or the appraisers would starve .
Appraisers are suppose to be neutral third party agents in the lending process and not bitches for lenders or realtors on a deal they are going to make alot of money on .
Property taxes are based on appraisals ,insurance payments are based on so called objective appraisal values .What if the property tax man told you they were going to based your property taxes on future value of your property because real estate only goes up ?
This is getting pretty crazy if people think that a objective appraisal isn’t necessary in the lending process . I predict that the corruption will change the process and appraisers will be picked by a board on a transaction and the lender or the realtor won’t be able to talk to the appraiser . The whole process will be slowed down and if a lender or broker has a complaint about a appraisal ,than they will have to go to a neutral review board and list reasons why the appraisal was wrong ,etc. When systems are abused ,than the red tape regulation comes in to prevent the hanky panky .
Yes even Ken Harvey wrote the first article in Wall Street Journal back in 2003… only now its being picked up. So the Appraisal fraud I dare say goes back maybe 3-5 years before 2003.
http://www.highbeam.com/doc/1P1-80251244.html
OT….
I want the CA forum’s opinions on how I should get my ducks in a row to buy once my wife and I can afford it and we find a place we like.
Houseless bio:
Annual income = 65-80k (large portion of my pay is commission - wife is stay at home mom)
Savings + inheritance money = 200k locked, loaded & liquid
Debt = $23,000 car loan
My FICO = 727 Wife = 680
We live in the South Bay.
So Neil, mrincomestream, ex-nnvmtgbrkr and anybody else who cares to comment - will we be able to purchase something here in South Bay at some point? Should I pay the car loan off with savings? I’m a financial idiot (but much more well read since the last year or so of lurking here) so light on the j.t. treatment, okay?
THANKS!
IMHO…
The good…
-You have little debt. In fact, you could probably afford to pay off the car. Don’t carry any debt if you intend to get the best possible mortgage in the future. Whatever banks are left to loan money are going to scrutinize the heck out of all of us buyers.
-Get the wifey’s FICO up a bit if she is going to be on the loan. I know we all seem to think FICOs are not reliable, but it wouldn’t be a bad idea.
-Money locked in. Nice tidy sum. Heck, if this falls apart the way most of us see it, hang on until 250-300K will get you that really nice piece of Heaven. Then put down 50%. Save the rest for the emergencies, etc.
With 50% down you could get a 10 year fixed. Say, 5.75% for 10 years on 100K and you get 1100/month. Heck, where are goin g to find that in So Cal right now on anything other than a rental studio? Not bad, huh?
The bad…
Only your income as a percentage of commission. What industry are in? Are the commissions subject to annual volitility that could make things rough? Again, whatever banks are loaning in the future might not like to see 80K one year and then 60K the next. Although at 1100/month, I don’t see a real problem. You would be at most 4X income that year only.
Bottom line…
You are in great shape. How many freakin’ people have 200 large in the bank waiting? Your FICO is excellent. Your employment is sound, salary wise and the wife stays home (She could always work in a real emergency). This is another reason housing is insane. Too many dual-income buyers with no savings. One loses job, kiss Stucco Faux Chateau Garage Mahal McMansion goodbye.
Not that I have anything against 2-income, me and the wife did it. It’s just that a lot of these FBs have no thrid income to go to when the second or first gets in trouble, let alone any emergency savings, see above.
I hope this helps. I know the others will def. have more to say.
1) You should pay off your car loan. The interest on the car loan is much higher than what you’re earning on savings. In the future, I recommend you buy a used car instead of new, and don’t finance. Don’t worry, your FICO will be fine.
2) Keep saving and be absolutely brutal on your monthly costs so you can save as much as possible. Eliminate redundancies, buy cheap stuff, max out on tax-savings programs like FSAs. Keep your utilities low. Lower your rent if possible. It will be tough to save much % of your income in the LA area on 65-80k of income for two, so you need to be extra dedicated, but it can be done.
3) Since you have more than 1 year’s worth of living expenses saved up, you should consider putting a bunch of savings (up to half) in investments. You have to be careful, and make sure any investment moneys are not earmarked for anything within the next few years. Those investments should be well-diversified. Talk to a financial planner about that.
4) Will home values drop in the next few years? Very very likely. Will you be able to buy a home? I dunno, maybe you won’t have a job by then or you decide to move somewhere else.
Hi Houseless. If the $200K was almost all inheritance, that means you’re living paycheck to paycheck. I’m not condemning you - it’s hard to live nowadays on that, given the price of food, gasoline, and energy. Assuming that the Goldman statement we read earlier is correct, the average price of a house in California will come down to $380K by 2011. If you can preserve your savings, you’ll only need a $180K loan, which you should be able to handle on your income. It’s scary, isn’t it? When I was younger, I was always afraid that some disaster would happen that would prevent me from working and the family would starve. Just don’t buy anything. And you probably don’t need a $23K car - one that costs half as much would do just as well and cost you less in insurance/registration.
I am a manufacturer’s rep for a company that makes endodontic (root canal) instruments and I save 10% of every check I get.
The car is somewhat justified…it’s a Prius that costs somewhere between 8-10 cents per mile to drive when you factor in gas, insurance, maintenance, tires, etc. and I am reimbursed 44.5 cents per mile (the overage ends up making my entire payment most months). I let myself be REAMED on the interest (first new car and bought before I got a couple of collections off my credit report). The money is with a financial advisor (Linsco Private Ledger) but my wife deals with him as the inheritance money is hers.
I appreciate you input….it reinforced what I consider my largest weakness; that is impulsive, unnecessary spending. I am definitely guilty of being a member of the instant gratification club and giving in to my ego rather than making due with things that are adequate, though I’ve made some improvements since finding this site. Eating out and smoking remain as eaters of income, though : (
Thanks again for the comments, all!
I may be victim of eaten post (apologize if this doubles up)
Bottom line, I sell dental merchandise and this is just the end of my first year in the biz, so I’m not really sure about commission volatility. It’s been goin’ up slightly and gradually almost every month…I’m looking at a projected $65k the first year (just about coincides w/ calendar year).
I drive a Prius that costs ’bout 10 cents per click to operate (gas, insurance, maintenance, etc.) and am reimbursed 44.5 cents on the mile, so I make out okay on that one; I do admit I splurged and bought it when I got this job in a moment of “irrational exuberance” ; )
Since finding this blog I save 10% of every paycheck, but I still suffer from ego-fueled impulse buys from time to time - along with eating out many nights and smoking… : (
In any case, I aim to be more financially responsible and it’s constructive criticism such as yours REhobbyist, Home_a_Loan and OCDan that help steer me in the right direction. Thank you.
Suggestion:
Talk to your wife about whether you can live on your base salary plus some (low - 4% max.) annual percentage of your savings/investments.
If you can, then do so and have all your commissions channelled into your investment vehicle or vehicles.
NIA, so you might want to have you and your wife talk this over with your adviser.
Bottom line: you don’t want to be reliant on a commission stream until you have established a much longer baseline than a single year. This is exactly what’s now hurting many, many members of the RE Industry.
One thing I haven’t seen mentioned yet is, do not sink all of your savings into the down payment. It may feel good to get the lower monthly payment but it will not feel good if you have some expense that forces you to hold balances on credit cards at 12% or above.
I was just going to say what Lookin did.
Fairly conservative here, but think you are a ways from buying a house in LA. That’s a good thing, as many of us think we will not reach any sort of bottom for at least another two years, likely more.
My 2 cents:
1. Only use a max of $100K for a down payment.
2. A $65-$80K annual income, supporting a wife (and how many kids?) is not a lot in So Cal. I strongly feel that you should not commit to more than $1700 or $1800/mo ***total PITI**** payments, especially since you are on commission.
Summary: Use $100K for the downpayment & invest the other $100K in a very diversified portfolio. Look for a mortgage of $200K-$250K, MAX!!! The total cost of the house should be no more than $350K (down payment + mortgage total). Personally, I’d go no higher than $250K, but that’s just me.
BTW, it is actually better to only live on one spouse’s income, so having her stay home is NOT a liability…it is a good thing as she represents untapped income potential, in the event of an emergency. Dual income families who spend/live off both incomes are actually at a disadvantage.
Good luck!!!
One I would correct whatever situation that’s weighing the wife’s FICO down. It’s not a bad FICO score compared to what I have seen it’s golden, but there’s something there that needs to be corrected. Both having high FICO’s will get better rates and terms with little effort.
As one who has operated on commission I would probably take a different route if I were you. No matter what industry whether it’s selling shoes or selling rockets. Commission income tends to fluctuate.
I would take a portion of the savings and buy a income property. I would either live in one of the units and save even more money to buy something cash or use the income from that property to pay all or at least half of my house note after all expenses or paid on the income property.
Putting the other half of the note in a semi-liquid type of account for rainy day purposes, retirement whatever…
You won’t buy Manhattan Beach or Redondo Beach west of Sepulveda ever again for 80k per year. But you should be able to do East of Sepulveda in the future. Especially if you take my approach with the rental property. Also I might like to add don’t get suckered into trying to buy some huge 15-25 unit or a 2-4 unit trophy property getting inflated rents. 5 to 8 doors in a bread and butter area should do you fine something small the wife can handle not maintenance mind you but tenant calls and meeting a prospective tenant.
Also I’d wait about a year before I started looking at anything no matter which way you decide to go.
And don’t blow all your saving trying to get a property house or apartments. If I were you I’d cringe at the thought of spending half.
I wouldn’t spend any of the accumalated savings either trying to pay off the car, however I would add a few bucks more each month trying to pay it off. Nothing like cash in the bank my friend…
Also if you choose to go the income property route be careful don’t buy some underperforming piece of garbage generating less than a very solid 10% return on inflated soon to drop rents.
Do your research!!!
As a single female with assets I always tell people that I would need two husband’s worth of income to pay for a home in California.
That shuts them up.
Wow….lots of information to mull. mrincomestream, I think you are the voice I respect the most here….but I am not interested in becoming a landlord. I’m sure it’s a proven money maker (I see many examples of that on this board) but I don’t have the inclination to work that hard - that’s why I’m in sales! Other than tradeshows three of four times a year, I work no weekends or Fridays and I do three or four hour days.
My wife and I were planning on using 100k for our down so that we had prudent reserves ready (and leftovers to help w/ whatever repairs need to be made right away…) and our current thinking matches CA Renters post EXACTLY (except I may stretch to $2k total PITI)
BTW, two kids (6yrs boy and 4mos girl) and we’re done! I had a vasectomy so now I’m a cobra with no venom….
$94.70? If that’s what determines whether a house is affordable or unaffordable to an FB - then that FB is screwed and should never have owned anything bigger than a stick of gum. $94.70? Paaathethic!
“There’s no question that today’s buyer’s market is brutal for… ”
Notice how they insert “buyer’s market” in their comments.
Don’t be fooled. It is not a buyers’ market yet.
I agree with that and allow me to repost what I think are the signs of a buyers market::
I’m laughing at these guys who claim it’s a buyers market and it’s harder to sell a house we are no where near a buyers market not even close.
Buyers market examples-
1.) You smell your Realtor before you see him. Not his cologne but his car, sweat, and coffee that he got for free from the office and has been drinking all day to stave off hunger pains.
2.) When you pull up to a repo and find a closet full of suits and a suitcase and see last night’s take out from a cheap Chinese food place in the trash can with a nice car in the driveway no one in sight because the Realtor that was living there took off for a neighborhood walk when he heard the key in the door.
3.) When you pull up to a Realtors office and every Realtors car has squeaky brakes and the rims are covered with brake dust nevermind being clean. And they are all at least 3 years old
4.) When your soliciting listings from the bank and the first question they ask you are… how many cash investors do you have in your Rolodex?, how many did you sell last month? (anything over 10 and your an Allstar), and how close to the listing price that was 10% below the latest comp did you get (over 80% and your considered an AllStar), what do I have to price this at to get rid of it in 30 days? and then they price it at 5% less than what you recommended.
5.) You call your Realtor at 11:30 pm in his office to leave him a message for the next day when he comes in, he answers the phone and is happy you called.
6.) You make an offer 10 cents on the dollar and the Realtor encourages it and spends a week trying to get it done.
7.) You show up on Saturday to view a few listing with your Realtor and you wonder why he is carrying a phonebook plus he asks do your kids like McDonalds or Burger King because you’re going to be out for awhile…
8.) You’ve seen 50 houses and all of them are vacant and when you do see one with occupants the seller takes over the showing and when your ready to leave he offers to take 10% off the price, pay your closing costs, and give your agent a 10k bonus, then your agent promptly turns to you and says the 10k is all yours if you take the deal.
9.) You actually qualify to live West L.A. when you thought you had an East L.A. budget.
10.) Your Realtor asks to ride with you so you can review houses and it’s easier to give directions, when the real reason is A.) He has no gas in his car B.) The car he drives is worse than yours C.) his car just got repo’d the night before.
Get the picture…
Not even close to a buyers market.
And yes I have seen all the above in my career.
Mrincome: LOL! I had forgotten that when we bought our first house in the last slowdown the realtor had a junky car and we felt sorry for her! All we need to do is look at the realtor’s car to know when it’s time to buy - who needs complex financial projections! Thanks!
LMFAO!!!!!!
Holy heck. That is a post. You are to be commended for maintaining the relationship with a semblence of dignity.
allow me to repost
I think this blog will allow you to repost this once a month or so for the next few years until we bottom out.
Maybe we should even shorthand it. How about MISBUMC (MrIncomeStreamBUyersMarketCriteria)?
‘We get pressured every single day to inflate our values’
Perhaps hd74man (or others) can answer this:
Which agents (buyer’s or seller’s) are making threats to appraisers and how much do lenders use appraisers recommended by agents? Seems like lenders would have their own appraisers.
If the appraisal is done for the sake of the lender, what business does a seller’s agent have in pressuring the appraiser?
What are the ramifications for the sale if the appraisal comes in $10K short? The comps are the comps, the market is the market. If the buyer wants to pay $10K more than the lender’s appraiser says the home is worth, the buyer should make up the $10K difference. Screw the agents’ commissions.
My integrity is worth more to me than the ability for some bozo agent to make another $100 on the deal.
If I can say something . If a appraisal comes in lower than the purchase price ,than the buyer has a reason to get out of the deal.The lender will than only lend the money based on what value the appraisal came in at . The realtors have to go back and re-work the deal and the seller will be screaming that they will not lower the price and the buyer will be screaming that they want the seller to come down to the appraised value . In other words ,its a deal killer for realtors and mortgage agents .Agents hate to have to re-sell a deal . If the buyer agrees that they will still purchase the property, in spite of the lower appraisal and the fact that the lender will require more down payment ,than it’s ok ,but buyers usually don’t act like that .
It becomes even more of a deal killer if a buyer is a zero down buyer and they have no money to make up for the lower appraisal . Sometimes the lender has to charge a higher rate if the appraisal comes in lower and they than have to make a higher loan to value loan . So ,you can see how messy it gets if a appraiser doesn’t hit the mark on a purchase price transaction .
Regarding a refinance ,if the appraiser doesn’t hit the mark ,than the loan applicant that is looking for money is not going to get the money they are seeking ,or they might not be able to refinance at all ,so than the commissioned mortgage agent isn’t going to make any money on a deal that doesn’t hit appraisal wise .This is what is happening with alot of deals right now in the refinance business .
Buyers want that endorsement of a objective ,so called neutral appraisal ,and I have seen alot of buyers walk if the appraisal didn’t hit the purchase price . So you can see how corrupt the appraisal process became when the objective became to hit the mark or else ,never mind a objective appraisal in good faith for the benefit of the real parties of interest .
Also ,it goes without saying that a buyer that wants to engage in cash back fraud ,will need the appraiser to hit a certain number in spite of the true value of the property . Also, in the business ,commissioned salespeople like the numbers to be hit because of course their commissions and what have you are paid from the escrow and with all the different agencies getting a piece of the pie at closing (escrow,title fees ,loan costs ,tranfer fees ,and on and on ),the more the seller makes the more he doesn’t notice just how much money he had to pay to get his damn house sold that was inflated by the appraiser .
“Pumped-up appraisals ‘create what I call phantom equity,’ Faravelli said. ‘Appraisals are arguably the easiest part of the entire process to tweak. After all, it’s just an opinion, and everyone has one.’”
Its not just the appraisals that are fraud… people need to understand the realtors have been pumping up prices using phantom bidders.
Just look at Canada and they uncovered a huge scandal around phantom bids … after disputing such things actually happen.
http://www.thestar.com/News/GTA/article/256968?ref=EasyHUD.com/blog
The incoming head of the Toronto Real Estate Board has come out swinging against phantom bidding tactics after denying they even existed when she ran for the job three months ago.
“It’s dirty realty, it really is,” Maureen O’Neill said of agents who fabricate offers during bidding wars. She is now calling on the Real Estate Council of Ontario (RECO) to yank the licences of agents convicted of using phony bids.
“Boot them out, we don’t need them in the business,” O’Neill said. “I don’t think these people should be allowed to sell real estate.”
Phantom bids can be used by selling agents to spark extra rounds of bidding or to spook potential buyers into rushing or raising offers. The practice is considered a breach of ethics under the Real Estate and Business Brokers’ Act of Ontario – administered by the Ontario council – and realtors who are caught can face hefty fines.
There are more than 52,000 real estate agents in Ontario (26,000 in Toronto) and last year they sold 194,793 existing homes in Ontario (84,872 in the Toronto market).
An informal poll of 30 Toronto-area agents taken yesterday by the Star suggests that virtually all believe that some form of phantom bidding exists in the market. More than two-thirds said some kind of structural reform in the way bids were handled was needed to address the problem.
I would like to add that the double escrowing game was another way the prices got pumped up ,but I don’t know if that sort of practice took place in Canada or not .
I remember when a realtor told me that another bid was on a property I put a bid on I told the realtor to give it to the other guy and I walked . But anyway ,I think fake bidding is some kind of a really serious fraud crime . To induce a party to pay more for a property ,based on outright fraud about other written bids ,is really a awful thing to do in my book .Not only does it pump up the price of the house beyond true market ,but it causes the buyer to pay more for the house than they would of .
RE: Which agents (buyer’s or seller’s) are making threats to appraisers and how much do lenders use appraisers recommended by agents? Seems like lenders would have their own appraisers.
Lenders want the business from the real estate agent. In order to get that biz, they will utilize “recommended” appraisers from the local brokerage community. Honest lenders at first resisted, but eventually they had to get into the gutter with the sleazebags in order to compete.
I’ve always regarded the buyer’s broker title as a marketing scam.
They are working for a commission based the sale of a property-nothing else.
If I knew I was coming up short in a value-out of experience and professional courtesy I’d call the real estate sale people involved and say-look, (in the case of the buyers broker)-ah, I’m having some difficulty here…since you are acting in a fudiciary capacity
in the interests of the buyer-and have counseled them in making the offer noted in the contract… like what sales data did you use to back up your advice.
As the biz got more corrupted and the honest appraiser’s became regarded as nothing more than an impediment to process, I’d get more often than not…’F*ck off-do you own work. I got nothing to say to you.
Of course the buyers would be ignorant of all this. Brokers wouldn’t want to let on there was trouble brewing in paradise.
So you’d proceed with your number….come in $25k low, and the world would then explode.
The brokers would immediately request another appraiser, and you’d more often than not get stiffed on your fee.
The system was entirely rigged for the real estate and lending sleazes.
Good post hd74man …If people only knew just how much the buyers and sellers agents were just working for themselves ,they would just be shocked . Both the agents (buyer and seller ) are looking for the weakest link in the transaction to take advantage of .
i remember when I was in the business the RE selling agents were very helpful in getting recent comps for the appraiser because they knew if they didn’t the appraisal might come in lower .
Lenders have rules (based on the guidelines of the loan )that they can only make a loan of a certain amount depending on what the appraisal comes in at .Lets say a appraisal came in 20% lower than the purchase price ,than the lender would be forced to required 20% more down payment from the buyer ,which could end up being a deal killer for the real estate agents and the commissioned loan agent .So the system became corrup when the commissioned salespeople started calling the shots on who would do the appraisal because they would only give busniess to appraisers who would “hit their mark “.
When you think about a appraisal being for the purpose of assuring the final lender what their risk is on a loan ,you can see that the appraisal must be accurate or the pension plan or the bank deposits that invested in that loan will be taking on more risk than they in good faith put up the money for .
When they sell paper in the secondary market ,its all based on all the given risk factors that the loan has . So, if anything is not accurate on the appraisal or the loan application ,than a investor is getting payed a lower yield for a higher risk based on fraud . It would be a total break-down of paper bought based on a accurate rating of the risk factors of that paper .
So if you had tons and tons of paper that was based on fake appraisals and loan application fraud ,the final investor in loan paper is going to lose money rather than make money because there was fraud involved in loan documents or appraisal .
I just posted the above for people who don’t understand why the appraisal and the loan documents have to be accurate .
Thanks, I didn’t realize lenders relied on realtors in that manner.
oh, and I agree about the buyer’s agent thing…
“Andrew Parnes, chief financial officer for Standard Pacific, says …If increased pressure arises from banks to pay down more debt, the company says it won’t resort to an out-and-out fire sale or distressed sale to raise cash”
If they said anything differently, buyers would wait it out. So be smart, wait it out till the FIRE SALE.
That statement leaves even more unanswered questions.
Then what will Standard Pacific really do if debt is called?
If the banks call the debt and they can’t pay, maybe they’ll just give the banks the property. “Thy problem, suckah.”
Presumably the banks could sue, but what could they possibly get? Only assets are illiquid unsellable property anyway.
Thinking the same thing.
Sands on Friday asked audience members who worked in the San Fernando Valley to raise their hands. “I feel your pain,” he told them. He suggested that those who planned to stay in the business focus on affluent Valley areas or “move to the Westside.
just like a swarm of mesquitos, they are going to attack the ones with warm blood left in them!! ha! ha!
Guys I am shaking. I made my first offer today here in los Angeles. The price I quoted was 37% less than what the bank wants( its a REO) . I said I will make down payment of $200k and remaining would be loan. I did it thru redfin…I got a call from them and said someone ( my assigned agent) would call me on monday. Will keep you posted.
You overpaid…
How so? Seems like most REOs posted on HBB show 10-15% off peak.
Another 37% off is about 53% off peak. Everyone wants 50% off and M Nair seems to have found it…..if they accept.
Sorry…should be about 47% off. Still close to 50 though.
Thats correct. Like I mentioned in prev post the bank reduced the price from $700k to $560k with 4 weeks of listing it.
Oh ok maybe I’m wrong Let me see if I got this right you made an offer 37% below the 560k which would have made your offer around 350k on a 2100 sqft house with a 7900 sqft lot. That by your account you haven’t seen the inside of… is that about right?
yes
Refer to my post above about how I interpreted the words from Sands and Long.
Then I’ll say this:
IMO there are very few areas worth 350k example…
1500 sqft Culver City 3 & 2 worth about 225k
2500 sqft Torrance 3 & 2 w/of Western 325k
I can think of nothing in San Pedro worth over 250k same with Long Beach.
Anything East of La Cienega within the cradle of the 4 freeways the same with the exception of Westchester, Playa Del Rey, Marina Del Rey Ladera and Baldwin Hills at most any of those are worth would be 650k but would definitely have to be over 3500 sqft. for that type of price except for those with water views. Depending on positioning I would add another 100 to 150k for that.
Venice and Santa Monica 300 to 350k maybe 400k for 25 to 2800 sqft.
Get the picture…
Silver Lake, Echo Park, Mt Washington, Glassel Park, 100 to 150k areas, Compton, Lakewood, Downey the same…
Get the picture
how about SFV areas like Sherman Oaks, Burbank, valley Village?
If the bank was smart they would take your offer and run if it’s North of the Blvd. South of the Blvd get’s tricky depending on views and what not. But from your description I’m going to assume no view, and say mid to high 200’s. Maybe 300k depending on the layout of the neighborhood as far as seculsion and things of that nature. The Valley holds itself in high regards, but unless your sitting on a flat 15,000+ sqft lot and over 3500 sqft in living space with a kick ass view of the valley it’s not all that special contrary to popular belief.
Anything East of La Cienega within the cradle of the 4 freeways the same with the exception of Westchester, Playa Del Rey, Marina Del Rey Ladera and Baldwin Hills at most any of those are worth would be 650k but would definitely have to be over 3500 sqft
Am I the only one totally baffled by this geography? Westchester, Playa del Rey etc. are not east of La Cienega. Also, it’s strange to make exceptions for the listed locales, all mediocre in my opinion (Westchester is an outright shithole). Why should they be worth $650k when for the most part they were less than half that in the 1990s? Venice and Santa Monica are surely more exceptional than Westchester etc.
The bank reduced the price from $700k to $560k in 4 weeks. so it was already reduced.
I presume that you have had a competent inspector go over the house with a fine-tooth comb. Don’t skimp on that part…
I agree with mrincomestream… although it’s a nice haircut, still too much (money) too soon. That house’ll be worth $300K in two years, if not less.
Only you know if it is a good deal. I do, however, like the sound of 37% off the REO price! Good luck!
Isn’t it amazing how different some of us feel in this situation?
My wife and I made a low ball offer on a lot last month, and started getting worried when it seemed they might actually accept. Our fear was that we probably didn’t go low enough! Luckily, they countered and we walked away.
When you made the low-ball offer, did you even think it would be entertained? Are you nervous as heck now that they are at least considering the offer?
If they accept I will be so thrilled that I wont sleep for 3 days straight. More details - The SFV is about 2100 sq ft with a 7900 sq ft yard. Its gated..My wife and I HAVE NOT SEEN THE HOUSE FROM INSIDE. We saw the advt and drove by it 3 times. We got down and looked over the gate ..The front yard is cemented for most part and at least 3 cars can be parked there. There are 2 separate carports …The is a small grassy area too in the front. We dont know how the back or the inside looks like. It was build in 1979 and copper repiping and roofing was done in 2006. I still dont have a preapproved loan ..Should I be doing it now in case they accept or counter offer? Like I said before I will be making 200k downpayment…
RE: My wife and I HAVE NOT SEEN THE HOUSE FROM INSIDE.
Sure hope you made you P&S contingent on clear title and home inspection.
That’s the danger with foreclosures.
Buyin’ something “as-is” title and physical condition-wise would scare the crap outta me.
where are some of my comments? It got eaten away !!
anyway it was build in 1979. Wife and I HAVE NOT SEEN THE INSIDE. We drove by it 3 times ..Its gated. 2100 sq ft inside and 7200 sq ft lot. In front yard at least 3 cars can be parked. There is a separate carport for 2. Yard 70% is cemented. The grassy area has some small plants. We dont know anything about the backside. Should I be ready for a preapproved loan by now? ( I am paying $200k downpayment in case they accept).
If the bank accepts your price, and won’t themselves give you a terrific loan deal, then run (don’t walk).
And unless they already know, for Crissakes don’t tell them you’ve got $200K cash.
Sorry to be naiive, but what’s the negative in letting them know you have $200K for a down payment?
I mentioned above but to reiterate, do not put your entire savings into the house.
About 3 years from now I’d consider offering you $150,000 but would be too scared to do it because I’d be afraid I was going to lose half my money.
Groundhogday , what was your offer amount and how much did bank counter? Just want to know if bank will even come near to our ballpark.
More details, please. Neighborhood, condition, price, etc.
Your offer will be rejected. And someday in the future you will be happy it was rejected.
What on earth posesses a person to make an offer on a property without inspecting it first?
Confidence? X-ray vision? Do they channel the spirits of previous tenants?
i lost a post about the wisdom of buying in a falling market.. no real point in endless repititions of the idea of down payment evaporation.. some people just don’t care about 5 or 10K disappearing before escrow closes..
I have not signed anything. I agree with you that the “real offer” should be made after inspection. I made this lowball offer and offered a $200k downpayment to get a feel of what the bank is thinking. This is just to get them “in my door”. Once I inspect it and we like we will reduce our offer price furthur.
hey.. yer up late.. i hope you’re not losing sleep over this.
OK. So, you did not actually submit an offer. Well, that’s a completely different situation. I will sleep better
btw, in this market, if i was a bank and you waved $200K cash in my face to take some REO off my hands, i would send a limo to pick you up.
MNair,
If the property is south of the 101, and not too run-down, you’re probably okay.
That being said, you should be prepared for the possibility that even at that good price (for this bubble market), you may well lose money by the time we see the bottom.
If you plan to stay for a long, long time, and have no problem with the payments (on one income), congratulations!
Best of luck & keep us posted!
‘During the next few years, expect higher-density projects to grab the most attention, said Daniel Flynn, vice president of acquisitions for John Laing. Instead of 10 or so homes per acre, projects with 15 or even 17 homes per acre are more likely, he said.
That will make the projects cost-effective for developers, while getting the prices points for buyers to a more-affordable level, Flynn said.
Homebuilders are reconfiguring home layouts, driveways and common areas to fit that type of space requirement.
“You’re not going to get a big backyard, but you will get some private outdoor space,” Flynn said.’
Yeah right, one of those patios with a planter. Sounds like profiteering will have these developers pushing product that few people want.
This is in direct contrast to what folks in OC want based on an OC Register Lansner poll in taken in August,
“We wonder what you thought was the most coveted home feature from this list of items that scored high in this Realtor poll:
UPDATE 8/17
Here’s the results from 466 votes cast in what’s an unscientific sample of public sentiment:
• 45.1% Good backyard space
• 17.4% Hardwood floors, granite counters
• 12.7% Walk-in closet, master bedroom
• 12.0% Energy efficiency
• 11.8% Oversized garage
• 1.1% Ready for cable/satellite TV ”
http://tinyurl.com/2wnjr2
Wow ,your right ,the builders aren’t going to build what the poll people say they want . Will the poll people change their minds the more oil goes up in price ? Can’t imagine builders putting in real hardwood floors as a standard feature . Interesting that sq. footage of house wasn’t mentioned in the poll or number of bedrooms and bathrooms .
It is a completely understandable track to go down for the developers. Instead of reducing the asking price on the current product, just reduce the product in size and reduce the price. It is a compromise that local governments will quickly support as the more housing units stuffed into an acre translates into more revenue per acre. The problem with this approach is that buyers want as much space as they can get. I know I do. I will not even consider a zero lot line house. This is my choice and a prospective buyer and I realize that it is not an entitlement so I will probably pay a premium for external square footage. Here in SoCal it is of value to me because of the amount of time I can spend outdoors and the fact that I like my privacy. I do want a smaller house than the horrid McMansions that have been popular. I simply do not need that much. But should my needs change I want the property to be just large enough to allow for an addition at a later time. Plus, a place with room to grow a garden and fruit and nut trees will cut my market food and petrol costs and be healthier as well.
In terms of energy efficiency I think the smaller bungalows here with no AC, a gas wall heater and a fireplace are fairly efficient and if you consider building placement and orientation as well as foliage there is a good chance of energy savings as well. The large tracts with centralized retail areas could be improved by creating smaller tracts per retail blocks much like we see in Old Towne Tustin and Orange. I have not checked out Ladera or Talega so I am not sure if they have done that there. For me, I will consider a property that is within walking/biking distance to basic services and retail (school, food, entertainment, etc.) more valuable than the ones floating in a sea of cookie cutter look a likes that force you to drive out of the tract.
We, as consumers vote with our buying choices and when we blindly accept and purchase products that do not meet our needs we hurt ourselves.
Amen, oc-ed!!!
We also consider lot size to be second only to neighborhood (location).
How about we stop this foolishness and the developers just pay less for the land up front? That way, they can build **desirable** homes that people actually want to live in (usually smaller, single-story, larger lot, less density, etc.).
If they can’t make their margins by building the kind of homes thier customers want, it sounds like they are over-paying for the land.
In 2003, Fred Sands was saying the following…
“Q: Getting back to residential real estate, do you think we’re in a bubble?
A: Residential prices are terribly high but I don’t see the bottom dropping out. When the economy turns around, which is not going to happen overnight, and the Fed raises interest rates, you’ll see some pain out there where some people who were overly optimistic .may have to sell their property. There might be a slight correction, but not a major one, not like in 1990-1991. I don’t think we’ll see that again. I should never say never, but barring the economy just collapsing, I don’t see that happening.”
http://findarticles.com/p/articles/mi_m5072/is_17_25/ai_101495516
That sounds like a pretty reasonable summary of the situation in 2003.
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/28/AR2007092801345_Comments.html
This is an ..umm.. instructive article in today’s Wash Post. We sheeples are urged to buy NOW lest rates increase precipitously. We would then be priced out of the market, you see. Responders were appropriately dismissive at being thus patronized. One sourced this blog as a dose of reality - thought you should know. After seven such comments, the section was abruptly closed to further response at 2 p.m. I am a tolerant sort, but am getting resentful of being force fed the party line with no recourse.
http://www.prospect.org/cs/articles?article=homeowners_on_shaky_ground_in_california
“Factoring in larger concessions of late, homebuilders have seen the median price of a newly built home drop by more than $100,000 in the past two years, to about $630,000, Douglass said.”
Still ridiculously inflated. I’ve lived in California all my life and the last run-up made no sense at all. Despite my income going up substantially in the past 4 years, the houses were still unaffordable compared to the one we’ve lived in since 2002. I’m just glad we didn’t get sucked in because our mortgage looks chap at this point.