December 9, 2007

Has Anyone Given You The, ‘You Were Right’ Speech Yet?

Readers suggested the reaction of others as a weekend topic. “I would love to hear from you Californians if any of your family, friends, co-workers, etc. have given you the, ‘you were right’ speech yet. I’ve gotten it from a couple people here and we are nowhere near the meltdown stage that California is at. It would be great to get the details and how you reacted to it.”

One posted, “CA has wayyyyy to much ego for any come-to-jesus moments. Thats reserved for you angst-ridden Woody Allen, New York types that feel it necessary to talk about everything in excruciating detail, over n over n over until I just want to step in front of the A-Train. (is there really an A-train & not just in the song)??”

One had this. “My father kept telling me to buy this piece of crap condo for 500k or I would be priced out forever because in 5 years it was going to be 1 million. Right now they are priced under 500k with being months on the market infact, houses in the area are edging closer to low 5’s.”

“Now they send me articles like this…”NEW YORK (Dec. 6) - Housing markets from Punta Gorda, Florida, to Stockton, California, will crash and suffer price drops of more than 30 percent before the housing crisis is over, a report from Moody’s said on Thursday.”

“So, they think these people should be bailed out because realtors talked them into houses they can’t afford. My Father wants houses to stay high and protect his ‘equity’ and I want houses prices to fall so I can 1) buy a home for my family and have it paid off when I retire and 2) look at all those smug people and say, ‘I told you so.’”

A response, “How sad. I’m a Dad and I own my house and I want prices to fall so that 1) my daughter will be able to afford one some day, and 2) my taxes remain reasonable.”

“It’s my home. I’m trying to pay it off. I would appreciate it if it didn’t inflate to such ridiculous heights so that I get taxed out of it. Actually, I would like it to go to zero, because no matter the tax mill rate, zero times whatever is still zero.”

“I also think it would be nice if my children could afford to purchase a house someday, and make it their home.”

And another, “Your dad is a jerk. He doesn’t need the ‘equity,’ he needs to pay off his house and live there. You’d think he would be more concerned that his children and grandchildren can afford houses.”

One has friends in the business, “LOL. Everyone is now ‘not talking about it’ because we have a friend who is a broker who made 140k in 06 and is going to be lucky if he clears 25k this year. If housing values do come up accidentally, everyone looks at me and does the stressed out, thin lipped ‘don’t let her say I told you so’ thing.”

One from Orange County, “I finally have been hearing the you were right comments. Father in law said it was different here, no way were prices going to drop, but when the OC register said prices were down 8% last month, he capitulated and said I was right.”

“Funny how I was saying that all the funny financing, no doc loans were the root cause of this for the last 2 years (got this from this blog - thanks guys!).. and he didnt want to listen. Now that the paper finally prints what we have all been saying here, he finally gets it.”

A reply, “It’s strange how sometimes only the written word has the power to convince.”

One noticed this, “Most I have come in contact with now pretend they knew all this information all along. They’re all suffering memory lapses about conversations we had. Of course, they had their fingers in the ears and were going la la la when I used to talk to them, so it’s hard for them to remember what I was saying.”

Another concurs, “That is what I’m seeing as well. It was so self-evident, after the fact. I just shake my head. It is amazing how many knew the bubble would pop.”

One got this at work, “Several coworkers (in northern Calif.) have said I was right, and I even won a bet from one since he finally conceded there was a bubble and it has popped (we debated the topic for the last few years)…. But another just bid on a house even after I sent him here a few weeks ago….I’ve decided to hold my tongue, anyone who doesn’t get it by now is hopeless. Sold my own place in April and got out just in time thanks to what I learned here.”

One poster knows some FB. “Nah, the FBs I know are just ‘vewy vewy quiiiiet’ about the subject right now. But then they don’t have much time to talk because they are working a lot of overtime. One guy I have known professionally for a long time is suddenly throwing himself into his job in a way he never has before. The situation seems to have done wonders for his work ethic.”

And another, “Yup, the guy down the street from me who thought his house was worth 350,000 (in my neighborhood 190k or 200,000 tops) two years ago I told him no way. Now he says it’s worth 250,000 then he waits for me to agree with him (I don’t) so he’ll be dropping his price again because wishing prices are long gone.”

“He’s not too happy about the downturn. The guy down the street has his house for sale listed at 369,000 !!! I laugh everytime I drive by it.”

One saw progress, “Close family always supported me. (I’ve been correct on other bubbles in the past.) However, some uncles and cousins still aren’t there. But I’ve kept one cousin from buying a condo.”

“Coworkers have gone from yelling ‘buy now or be priced out forever’ to quietly coming up to me with bubble information. (Even if I already know it, I’ll ‘pat them on the back’ in order to help spread the news.)”

One from an Ex, “I haven’t gotten the ‘You were right’ speech, but my ex did ask me - point blank - ‘How do I get out of it?” - referring to his Florida ‘investment’ condo.”

“Coming from him, it’s the equivalent of ‘down on my knees begging for forgiveness for being a bonehead’ from a normal person.”

One wasn’t successful, “I’m worried about our nephew and his wife who bought a condo in Valley Village, LA in 2004, interest only ARM. I don’t know when the reset is. I urged them not to ‘buy’ it in 2004, but he and his parents didn’t want to hear it. It’s my husband’s family, so I keep my mouth shut. Hopefully they can afford the reset.”

This one had better luck, “Yes, yes, yes, and yes. It’s too late for some close friends and relatives. I’ve convinced quite a few people to belt tighten and live below their means recently. When people say ‘you were right,’ I just say ‘Thanks!,’ and that’s the end of that conversation…unless the person is a bubblista, then we rant on for hours.”

As did this poster, “No one from SoCal, but two friends in PA have acknowledged that I was right. One is grateful because I enthusiastically convinced him not to do a flip in Tampa 2 yrs ago.”

And this one spotted a trend, “I’ve had two people tell me they were happy they didn’t buy last year when I talked them out of it, and two people who were happy they sold last year when I told them to (they were both thinking of renting out the houses.) But no ‘you were right’ from any of them. Most people would rather think that it was their own idea.”

One on investments, “I wrote on a thread a while back that an LA friend who had invested in REITS had divested thanks to my advice and saved 50K. He admitted that I was right.” One was brief, “I have gotten a few of these in just the last two weeks…two went as far to say something like…’you saw it three years ago.’”

And finally, “I am in North County San Diego. When I check, I am beginning to see people I know on the Preforclosure list. I don’t talk about personal finances with any friends, but I have, in a very measured way, when asked, discouraged my son and his wife from buying for the last couple of years.”

“Every week my son thanks me.”

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Comment by Ben Jones
2007-12-09 09:51:32

‘Up earlier than usual on a recent Sunday, I made a pot of coffee and opened The Times’ Real Estate section, where a barrage of rather desperate-sounding come-ons caught my attention. Real estate pages have more exclamation points these days than a Tom Wolfe essay. Reduced! Foreclosure! Back on the Market! New Price! I circled half a dozen listings; plugging their addresses into Google Maps, I charted an itinerary across the city, from Hollywood to the beach and back east again.’

‘I wasn’t looking for a house. I was looking for a state of mind—a mood. Since the mortgage crisis hit earlier this year, the reaction in the real estate market has stretched the metaphorical imaginations of pundits across the country. For many of them, falling prices offer definitive evidence that the housing bubble has popped. Others prefer the term ‘correction,’ which always makes me think of the market as a test we’ve all been taking for the last five years or so and are now getting handed back to us, our mistakes circled in red marker.’

‘For me, though, those metaphors are too final, too black and white. A bubble pops or it doesn’t. A correction happens or it doesn’t. But the L.A. housing market now is marked by none of that neatness or binary logic. The feeling at the moment is more like the sensation you get when you suddenly realize that your toes no longer touch the bottom of the swimming pool or the ocean.’

‘During my Sunday tour, I saw exactly one prospective buyer, at a run-down place in Mar Vista. The only other people I came across were bored-looking agents. Each one greeted me a little too eagerly.’

‘Prices move up and down all the time, but the current downturn holds unusual significance for Southern California. As the market edged higher during the last decade, and then higher still, we neared a final divorce between typical incomes in this city and real estate prices.’

‘A few weeks ago my wife and I took our daughter to the Santa Monica Pier to go on the rides. As one of them—the bumper cars, if I remember correctly—began to slow, a few kids started to take off their seat belts.’

‘The ride is not over!’ the teenage operator bellowed. ‘The ride is not over!’

Comment by ex-nnvmtgbrkr
2007-12-09 10:55:12

Nice Sunday morning column.

Comment by david cee
2007-12-09 12:23:19

The LA Times Real Estate section has a column of page 8 where Fannie and Freddie as of March 1, will be adding fees for any down payments below 30%, that’s right, 30%…and FICO scores below 680. PMI is also raising their fees, and there will be no PMI available below 5%.

Comment by hd74man
2007-12-09 18:19:15

RE: 30% down payment requirements (non-fee)

Kiss of death to current valuations.

Comment by Pondering the Mess
2007-12-10 10:32:01

God, I hope that is true. That would break the back of the stupid market and put the last nails in the coffin of the madness - $400+K “affordable, starter, zero-lot, town-houses” and the $600+K starter McMansions… I want to see it all end, and this would be a good way to do it. Let’s see the average American spender come up with 30% of $400K - hahaha!

Comment by travanx
2007-12-10 00:03:17

I have kind of heard it. People still ask if I am looking too. Still no one wants to hear how bad the market is. Even with everything in their face on the news and websites. I was hoping for the mortgage freeze because I still think its funny that stupid people get bailed out. I also can’t wait to see what else is done to “fix” the housing market.

Should be a very interesting time to live through.

Comment by Professor Bear
2007-12-09 10:03:08

My MIL gave me that speech. First time I’ve been right about anything in fifteen years of married life ;-)

Comment by SFMechanist
2007-12-09 11:15:56

Hahahaha…. funny topic!!!

Yes!! Several people have now in fact, without me prompting or even raising the topic. I try to be modest. I tell them I’m not right until things have returned to fundamentals. They go back to thinking I’m crazy.

Comment by Professor Bear
2007-12-09 14:36:55

My rule is to never, ever discuss real estate unless someone else brings up the topic.

Comment by Chip
2007-12-09 20:11:23

PB — I agree 100%. You cannot win with the a’ginners, no matter what facts you present, yet you can get laid with the right loser if you’re smooth enough with your sympathy. Sort of, lose-win in a guy sort-of-sense.

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Comment by Muggy
2007-12-09 10:08:15

“Has Anyone Given You The, ‘You Were Right’ Speech Yet?”

No, and for some I hope that day never comes because it means the will have lost it all, for others I anxiously await that conversation.

Comment by ex-nnvmtgbrkr
2007-12-09 10:58:18

Also, being right means you’ve still got money. The last thing I want is a bunch of “you were right” fools to come looking for a handout. Better to hang low (pun intended).

Comment by Muggy
2007-12-09 11:45:01

I have family situation that may require a handout at some point. They all make fun of me for being conservative and not “living a little.” They have no idea the things that will come out of my mouth if they ask me for money.

Comment by phillygal
2007-12-09 13:04:59

Such as…what?

C’mon Muggy, don’t leave us in suspense!

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Comment by phillygal
2007-12-09 13:35:17

don’t know when the reset is. I urged them not to ‘buy’ it in 2004, but he and his parents didn’t want to hear it. It’s my husband’s family, so I keep my mouth shut. Hopefully they can afford the reset.”

The appropriate question is: will YOU be able to afford the reset…when they come knocking on your door

Comment by Lisa
2007-12-09 10:10:18

On the way up, everyone who bought was a financial genius. I do think the ride down is going to be quieter…how many people will readily admit they made a huge financial gamble and lost, that they are up to their eyeballs in debt for an overpriced POS?

And we complain about inflation in everything except home prices. I don’t have children, but I do not understand how parents would WANT young adults saddled with a mountain of mortgage debt. I wonder what sort of conversations are taking place around granite kitchen counters this weekend all around this country.

Comment by are they crazy
2007-12-09 10:52:47

Lisa: On the way up those that bought WERE financial geniuses. You could get in with little risk or money. The trick was to not refi, not HELOC, sell high and take the money and rent. It was nice to get over $200K tax free for doing nothing. Just too many people got too stupid and too greedy.

Comment by Lisa
2007-12-09 11:11:51

“Lisa: On the way up those that bought WERE financial geniuses. The trick was to not refi, not HELOC, sell high and take the money and rent.”

Well, that’s me in a nutshell, but I do not see myself as a financial genius. I would call myself lucky, bought in 1996 in the Bay Area, rode the wave of the housing bubble and sold… and walked away with a tax free golden egg. I never bought thinking my house was going to make me rich. I was just ready for my own place and was in a place to afford it financially.

Comment by Ann
2007-12-09 17:39:17

I just enjoy watching the ones who made fun of my husband and I, who wouldn’t HELCO and wouldn’t buy “investment” properties with the “free and easy” loan money. They called us old fashioned, said having it all is what it is all about..Well..THEY HAVE IT ALL..the headaches, the bill collectors, the stress of making those multiple mortgage payments, the stress of trying to keep their credit from sinking..I will just continue to sit back and watch the show…

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Comment by sf jack
2007-12-09 11:15:56

Financial geniuses?

Some, perhaps. But there are many who bought around here at particular times who were just plain lucky.

Lucky that some idiot dupes were willing (and enabled) to support higher prices than what they paid.

That’s not genius.

Comment by SFMechanist
2007-12-09 11:22:40

Yeah, those who bought and investment property in 2002 and sold in November 2005 were either geniuses or very very lucky. Or had friends on the inside. With financial markets governed at the discretion of a small cartel I stay away from that messy business.

Comment by are they crazy
2007-12-09 11:44:08

I think a combo - I had been watching prices skyrocket and knew it couldn’t last forever at the same time loans were so easy. We chose a 30 year fixed and when it looked like the market was going to dive, we sold. It wasn’t all luck, but it was luck that we had to move from LA to a cheaper area of SoCal for daughter’s schooling in 6/03 and she was done in 6/06.

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Comment by sf jack
2007-12-09 11:07:32

The beginning of the ride down has definitely been quieter in this part of the Alt-A Bay Area.

No one, especially because the prevailing CW here is that everyone locally is smart, rich, and sophisticated (not to mention politically aware, good looking, fashion forward and technologically savvy!) - wants to admit they were wrong.

No one has come right out and said “you’re right”, and they may never say that - it’s just that no one no longer tries to be dismissive and say “you’re wrong” (unless they’re the REIC). And besides, most of the local debt zombies could not even accept that there was a bubble, never mind that it’s now deflating.

This reminds me of how (and I mentioned this on the HBB years ago) some local TV newscasts began their opening in the late dotcom era with something like “And now the 6 o’clock news, from The Best Place on Earth.”

I never saw anything that obnoxious in such a public way while the Fed was supercharging the housing market, but nonetheless the smug level here still went beyond scale, once again. Though one could hope it was tempered by the earlier bubble experience.

Comment by SFMechanist
2007-12-09 11:39:41

I liken it to Las Vegas. When people come back they tell you how they won $500 at the slots. So cynical me, who should probably just shut up, says, “oh, so you quit playing with $500 more than you started with?” to which they inevitably reply that they lost $800 at roulette, so are really down $300. People are happy enough to blow their horn when things go well, but get real quiet when things take a down turn.

I do everything I can to avoid this whole topic with people who have bought between 2000-present (other than telling them I’m going to wait another year or two to buy if they ask) because no way can they look at the overall situation rationally.

Comment by SFMechanist
2007-12-09 11:57:25

EDIT: present company excepted.

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Comment by travanx
2007-12-10 00:08:50

I understand completely. I lost a lot more thurs and fri in the stock market than I made the rest of the year. But it depends on what I end up selling for if I take a real loss or not. Stupid me went all in on the shorting indexes right around when the freeze happened.

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Comment by kelowna_steve
2007-12-09 15:40:37

You haven’t even seen smugness until you’ve come to British Columbia. Our new logo’s for the province and on our license plates that just came out this year is exactly that ‘Welcome to the Best Place on Earth’. The housing bubble is still going strong here so we haven’t been brought back to reality yet.

Comment by Kris
2007-12-09 22:09:53

“The best place on Earth” I live in Vancouver Canada. That is the claim that is now being touted here in a market that has doubled in price in 5 years. I see the “writing on the wall”.
I just sold.

Comment by Swordsman
2007-12-09 10:18:36

“Has Anyone Given You The, ‘You Were Right’ Speech Yet?”

Yes. A construction superintendent friend of mine who I’ve been telling for two years that the bubble will pop has reactivated his contractors license to do small remodels. Seems his base salary without commissions isn’t enough to keep his head above water.

We had the “talk” when he asked me to work after hours on his stuff. It’s all after hours and weekend stuff but it’s all cash work.

Comment by LJsurf
2007-12-09 10:21:27

I have a friend who was going to buy (first time) two years ago in Huntington Beach. He thanks me now for talking him out of it, he knew something was wrong when the realtor had a “great software program” that made bank statements.
I have yet to convince another friend who is trying to sell in Laguna Niguel, for 1.1 mil. His neighbor has just listed their place for 850, same model. He’s taking the “we’ll see” attitude for 08′.

Comment by bulwark
2007-12-09 11:13:38

He should report that Realtor to the authorities for bank fraud.

Comment by Misstrial
2007-12-09 10:23:09

Repost from my Local Observations Thread posting:

“ATTN: Californians - MANY cars or cars towing trailers with Florida license plates heading WEST on the 10 fwy (towards CA & AZ). FL realtors/mortgage brokers/appraisers fleeing the law? Don’t know, but sure seems suspicious.”

Talked to 2 CA homeowners last weekend here in NM that want to move back to L.A. You all should have been there when I told them I’d offer $100k less for the house For Sale next door. They tried to veil their shock, but their eyes popped too much to hide that reaction. I was the first new buyer they’d come across, i.e.: I’m not going to pay whatever, I am going to set the price and that was new for them.


Comment by Chip
2007-12-09 20:23:05

Misstrial — tonight I e-mailed a RE agent in the SE US about a listing of hers in the boonies, her most expensive one by a long shot. It’s not perfect for me, but my offer will be WAY less than perfect for the owner, if I make one. Once the presumed euphoria of the Paulson Plop is over, presumably by week’s end, sellers should be thinking hard about what offers they turn down. You (presumably) and I are vultures and will pounce on a great deal. Sellers are just carrion. Sooner they know that, sooner they’ll be out of their misery. Apologies to vegans on the board, but that’s the way it is, ’bout now.

Comment by Tom
2007-12-09 10:26:29

Check out this article in the SF Chronicle. Good Stuff!

A couple of points.

● “The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value - right now almost 10 times their market worth.”

● “The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.”

● “And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.”

And just how bad can things get? Pretty damn bad:

● “The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even FDIC.”

Comment by joeyinCalif
2007-12-09 10:49:24

Those selling the “freeze” have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures.
It’s an easy sell. Obviously, loans that are performing are far more desireable than those which default..

But with fast-depreciating collateral, the last thing investors in mortgage bonds ought to do is put off foreclosures.
Really? These bondholders are not at all anxious to sell, assuming anyone wanted to buy. They do want to forestall foreclosure, despite what this author thinks they ought to do.

People who have no skin in the game can imagine all sorts of reasons why this rate-freeze is a bad thing. Those who are involved are in favor of it.

Comment by sf jack
2007-12-09 11:10:44

joey -

Do you have “skin in the game”?

Are you “involved”?

Comment by joeyinCalif
2007-12-09 11:34:08

Although people like that author don’t know it, we all have skin in this game. It’s not about who committed fraud, who will pay their dues and who will skate.
This is about keeping food in the grocery stores, gasoline at the pumps, electricity at the switches and the banks’ doors open.
If this thing crashes uncontrolled we’ll all lose more than a little skin.. it’ll go deep.

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Comment by sf jack
2007-12-09 11:54:46

Real journalism from the San Francisco Chronicle!

In the comments:

jbunniii wrote:

This is the first article regarding the proposed interest rate freeze that actually makes any sense! Well done to the Chronicle for publishing it, and no surprise that it wasn’t written by a journalist! I don’t know Sean Olender, but I like the cut of his jib!

Posted 12/9/2007 9:12:32 AM


joey -

Everyone has skin in the game? I thought you just said those “who have no skin in the game”?

I’m pretty sure the author’s aware of what could happen and he’s just pointing out the real reason for this kind of bailout.

Thus far, the delaying of legal action seems to be the only explanation that is making any sense.

It’s not unbelievable that this could be a story of Hank Paulson and his cabal of jackasses on Wall Street trying to defuse what will be an increasingly angry group of investors - wherever they may be.

“Look, look, we’re doing something… it’s just going to take some time.”

Comment by sf jack
2007-12-09 12:07:48

Sorry, I have to acknowledge that I got excited - the term “real journalism” could be an exaggeration if one is looking for investigative reporting and such (I have given the paper a hard time in the past).

Nonetheless, this is great that the Chronicle is taking the lead in having a critical eye toward this situation.

Comment by joeyinCalif
2007-12-09 12:15:42

It’s the same ol’ same ol’.. The Chronicle is attacking the Bush admin, Paulson in particular along with the plan..
I’d like to see New York Sen. Chuck Schumer ask him what he knew about this staggering fraud at the time he was chief of Goldman Sachs.
Yeah.. get Chucky nipping at his ankles..

“Federal Reserve and the U.S. Treasury are trying to limit the liability of their banking friends under the guise of trying to help borrowers.”

If Clinton had done it the Chronicle would be singing his praises to the high heavens.

Comment by joeyinCalif
2007-12-09 12:28:10

Thus far, the delaying of legal action seems to be the only explanation that is making any sense.

Attorneys do tend to think there’s just never enough suing goin’ on..
“I see fraud people.. all the time!”

Comment by sf jack
2007-12-09 12:30:49

In this case - they’re right!

Comment by joeyinCalif
2007-12-09 12:38:59

i know there was some fraud at every stage of the game… but another conspiracy? I’m gettin kinda bored with Bush administration conspiracy theories. Isn’t there some rumor of a sex scandal? Maybe him and Paulson in a men’s room? ..anything to break the monotony?

Comment by jbunniii
2007-12-09 18:12:57

I’m gettin kinda bored with Bush administration

Hear, hear!

Comment by Dan
2007-12-10 00:17:35

I had a long story to tell about “being right” … so, I’ll link an article instead.

Comment by San Diego RE Bear
2007-12-10 22:45:33

Am I the only one who sees through this troll and REIC hack? How many times does he have to say this is for our own good or set out the “rules” about how we should treat RE agents (i.e. kiss their asses and don’t be too demanding) before everyone sees what he really is? Yeah, I would say the troll has a hell of a lot of skin in the game.

Comment by SFMechanist
2007-12-09 11:51:02

For the small select group of people who would benefit from the freeze, those are the same people for whom foreclosure would be the most compellingly advantageous (i.e. no equity and crappy credit scores already). It’s something that banks would have probably done anyway because a rate freeze is better than foreclosure–if banks could. Now that such mortgages tend to be securitized, the investors wouldn’t like the idea, so banks/loan handlers need the help of government, and politicians want to look like they are doing something.

If this was the “bailout” and government would wash it’s hands of the matter, I would support the measure, because government intervention could be a lot worse. But this is probably just the beginning of a series of bailouts, which needs to be opposed by anyone who favors a responsible and fair economy.

Comment by are they crazy
2007-12-09 12:27:40

What will the whole credit score sham really matter down the line? It’s such a stupid game anyway and once the majority have low credit scores from foreclosures, short sales, credit cards maxed out or job losses the game will be over. If they stick to high credit scores there won’t be enough people eligible to buy anything. Sure, there’s plenty of HBB’s with cash and great credit scores and there’s probably some others there also, but I don’t believe when the fat lady sings there will be many left.

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Comment by Isoldearly
2007-12-09 12:51:53

Tom if this journalist is one tenth correct, there are going to be some mighty big sparks flying in the financial world. So what should I wish for? I hate those slimy folks who did the fraud but do I hate them enough to want our entire financial system to collapse?

Comment by manhattanite
2007-12-09 13:45:12

great find! i forwarded the original url to david leonhardt at the nytimes, telling him they better get on the real story of whom all these bailout plans are designed to benefit.

Comment by AKron
2007-12-09 15:10:52

“Those selling the “freeze” have suggested that mortgage-backed securities investors will benefit because they lose more with rising foreclosures.
It’s an easy sell. Obviously, loans that are performing are far more desireable than those which default..”

This is not necessarily true. One of the ‘metrics’ used in valuing MBSs (pre crash) was mean time to payoff, which tended to be about 8 years. Change in time to payoff is a significant source of risk in MBSs- if interest rates rise, the bondholders would gain if the time to payoff drops, as they can then move their money to a better investment.
If defaults only end up returning, say, 50% to principal, the foreign bondholders might prefer that to being stuck with an unsalable bond that is paying 7% in falling dollars- the present value of that income stream might be only 25% of par.

Comment by Housing Wizard
2007-12-09 16:10:48

Wow ,wow …and more wow …Avoidance of lawsuits is the only thing that can explain these bail outs . But does it change the fact that the powers want to put the cost of this fraud bail out on the backs of the taxpayers ? Fraudulent loans and appraisals have a high default rate .

I guess you can have some legal issues that are so big that they are to big to bring to court ,especially if you added punitive damages . in fact ,any party in the United states that was some how affected by this fraudulent lending bubble ,that did not commit any fraud themselves or conspire with any parties to help anyone else commit fraud and has been affected by this false real estate market has grounds for complaint .The parties that have grounds for complaint are the ones that are expected to bail this puppy out and endure a fallen dollar because of these greedy crimes . No Justice ,it’s to big .

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Comment by bulwark
2007-12-09 11:17:28

So we tell China suck it up. They got what they wanted–our entire industrial complex. We shouldn’t be their debtors, too.

Comment by Poshboy
2007-12-09 11:25:09

An incredible find, Tom. Wow, this article pulls no punches. It’s one of the best MSM articles I have seen in a while about what is really going on at the Treasury Dept. bldg. on 15th Street NW. Hope it gets distributed wide and far.

FDR faced a similar conundrum after he found out Wall Street was going to finance a coup d’ etat against him in 1934. He let the whole thing drop one he realized he would have put in jail the only people who knew how big American businesses worked, not a smart thing to do in the midst of an massive economic depression. (Archer, Jules: “The Plot to Seize the White House,” 1973, reprinted 2007.)

Comment by SFMechanist
2007-12-09 12:09:16

People in San Francisco are just mad because the Paulson plan doesn’t help them any.

Comment by exeter
2007-12-09 12:32:20

But but but…. Isn’t corporate america honest and full of integrity? I see jail time for these lying asshats.

Comment by hd74man
2007-12-09 18:40:39

RE: I see jail time for these lying asshats.

Yup…retribution is coming.

Somebody is surely gonna have to take the blame for the death of guaranteed double digit housing appreciation for the masses.

My guess is it will be lowly appraiser’s and independant mortgage broker’s as these two groups have virtually no political power.

Cuamo’s lawsuit will set up the hanging gallows.

Comment by hd74man
2007-12-09 18:26:40

RE: fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies - all the way up to senior management - knew about it.”

AG Cuamo in NY will blow the roof off the sales agent/ origination/appraisal rackeetering schemes in his prosecution of eAppraiseIT.

The high honcho’s for eAIT will gladly rat out everybody in order to save their worthless azzes.

The banksters will have no place to hide

Comment by Housing Wizard
2007-12-09 18:42:44

Hi hd74man . Looks like the fraud issues you often have talked about are behind this sudden move by the government to “make it go away ” by bailouts .

Interesting times .

Comment by tolak
2007-12-09 19:58:26

One problem in the article is that he points out the culpability of Goldman Sachs, but later on cites their report as support for the expected magnitude of price declines. As pointed out by Ben Stein recently, GS may be using such reports to enhance their bet against the housing market. Also remember that the ones standing to profit the most from increased fraud awareness are lawyers; this writer is one.

Comment by Frank Giovinazzi
2007-12-09 22:10:45

“Every file contains a crime.”

This is what I’ve been saying to myself as I talk to people in foreclosure, refi and/or short sale scenarios. It started when I was talking to one couple who got jammed different ways and I told my sis, “there’s at least four crimes in that file.”

Related, we know of someone trying to nail a realtor for stealing a big check, and the state official told her flat out that there aren’t enough investigators to look at every complaint. Mind you, this is for a theft of over $200K.

Comment by Housing Wizard
2007-12-09 10:27:46

A couple years ago when I tried to tell some people about the faulty lending that drove prices up ,they looked at me in disbelief and you could tell they thought I was having a “senior moment ” of brain freeze . One lady that I urged to transfer some funds into something safer told me in essence that “I should of explained it to her more “. How do you explain something that the lenders/ industry/media /advertisers /government /REIC was trying to hide ,without sounding like a nut cake ? Interesting ,this same lady changed her account for different reasons ,and she is out of arms way ,just by luck .

I talked another person into pulling their offer on a low price listing at the time ,that has since gone down in price .

But in general ,during the mania and for some time after ,people didn’t want to listen and the media flow supported their belief that at the worst real estate would just level out ,and the economy would continue to be good and strong .

At this point, when the media airs the President talking about bail-outs for FB’s ,and people can see the excess inventory where houses aren’t selling , nobody want in ,and everybody wants out .

Comment by cactus
2007-12-09 15:32:44

I tried to tell people the whole easy money plus liar loans were causing a RE bubble and was told that I was no expert and their RE friends were making money and knew what they were doing.
RE always goes up in CA. 1990-1996 can’t happen again the economy of CA is too diversified now. I think now the feeling is RE hasn’t dropped that much so my selling and moving away was a over reaction and I might never be able to move back unless I buy back right now at the bottom. Haha ask me next year how they are doing.

Comment by Ben Jones
2007-12-09 10:40:42

What I notice, both in individuals and the media, is a tendency to try and step over the acknowledgement stage and straight into talking about it matter-of-factly. I think this comes from embarrasement that they could have fallen for such an obvious falsehood. It was the same with the internet and stock bubbles. There isn’t any doubt in my mind that this was the financial mania to beat them all, and history will probably record it as such. But we are in that funny period where people are just waking up to it, or still in denial. Every day I find ‘there was a bubble there but not here’ quotes, from all over the world. There had to have been a bubble somewhere!

Locally, I just have some resentful FB’s giving me dirty looks. But what can you do?

Comment by joeyinCalif
2007-12-09 11:00:40

well.. Why not skip the main course.. crow.. and go directly to dessert?

Comment by are they crazy
2007-12-09 11:08:22

Seems, Ben, nowadays everyone feels they have to “be in the know,” but timing is everything. Too early, you’re a tinfoil hat fool; to late, you’re a johnny come lately. You have to be in the know just when whatever the subject is becomes the #1 blurb on network news or the cover of Time.

Comment by spike 66
2007-12-09 14:27:22

But what can you do?

Hey Ben, you have the daily chronicle going back years. Future historians will be mining your blog. Consider yourself another Daniel Defoe and his Journal of the Plague Year.

Comment by clearview
2007-12-09 14:15:13

I’ve had no “you were right” concessions from any of the realtors here in Santa Barbara, Ca. But so what. Their businesses are in the crapper and my business is growing just fine. Their dirty looks and angry comments remind me that I’m winning and they’re losing. It makes me work harder so I really kick their asses in 2008.

Comment by Housing Wizard
2007-12-09 16:30:33

Ben, you did a lot . You saved a lot of people from a bad financial fate regarding this bubble . Maybe you helped in stopping this fraudulent bubble before it went on for more years . You did the only thing a person could do and provide a counter voice to a insane world of brainwashed people . Your a real humble guy and you downplay what you provided . My thanks ,and I know everybody feels the same way .My motive for posting here was to try to influence the lending industry to change their ways ,but I ended up getting addicted to this blog .

Comment by cassiopeia
2007-12-09 20:26:04

You did the only thing a person could do and provide a counter voice to a insane world of brainwashed people .


Comment by Pondering the Mess
2007-12-10 10:43:52


You’ve done a lot for many people, Ben. Thanks!

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Comment by txchick57
Comment by txchick57
2007-12-09 10:45:19
Comment by Paul in Jax
2007-12-09 10:58:05

If 14,164 DJIA needs an asterisk because “nobody knew,” then what’s going on today at 13,620? According to the logic of the article, market is more irrational and overvalued today than then. Which will likely be borne out eventually: all market would have to do is fall at least 10% from here. story almost guarantees a down week: “Stocks are likely to rise this week.”

Comment by sf jack
2007-12-09 11:27:57

“On April 27, with MBIA shares at $70.93, the Goldman analyst predicted a 13 percent rise on the horizon and upped his recommendation to Buy. Again in July and October, he touted the stock.
Meanwhile it dropped due to its CDO concerns. It was only on Nov. 2, with MBIA shares below $35, that the analyst dropped his rating to Neutral.

‘Credit market conditions had been steadily deteriorating ever since the bubble burst in housing,’ said Michael J. Panzer, the author of “Financial Armageddon.” ‘Any analyst the claims he didn’t see it coming is kind of an idiot.’”


Kind of an idiot?

No - they were definitely idiots.

Either that, or purposefully duplicitous.

Comment by Bystander
2007-12-09 10:45:44

Every time I look at my brokerage balance after shorting NEW, AHM, IMH, DFC, DSL, FED, CFHI and HMB is thanks enough!

Comment by laughing boy
2007-12-09 10:49:59

Here in the Bay Area - SF to be specific - people I know seem to remain uninformed about the bubble or they’re clearly ignoring it, maintaining hope against hope that prices won’t drop here, only everywhere else. Several colleagues have very recently bought homes and/or are in the process of securing loans. I don’t even bother to discuss it with them, but if the subject of the bursting bubble does come up, they hold firm that it won’t happen here - however, you can clearly see strain and worry in their eyes.

Comment by RinCA
2007-12-09 11:09:19

This has been exactly my experience here as well. It is a shame because these people are generally well-educated and otherwise quite aware of what is going on in the world…

Comment by SanFranciscoBayAreaGal
2007-12-09 11:50:22

Just go out on the mls listings and Craigslist. I see prices reduced, short sells, willing to pay closing costs etc. It is happening, just slower. There was speculation that happened here also and people buying houses that they couldn’t afford.

“Be patient my little grasshopper.”

Comment by SFMechanist
2007-12-09 12:17:01

I feel your pain.

Comment by AnnScott
2007-12-09 10:54:55

All the time and they have done so for over 2 years.

Early on when I was ask why we were renting rather than buying, I simply said “Do I look stupid? Why would I spend $$$$$ to buy that place when I can rent if for 58% less? A house is only worth what it will bring in as rent.” Now the rent::value ratio is something that is widely understood around here as many people have houses that they rent out on a weekly basis to tourists. They thought me quite clever.

In 2006, I intervened with a young (mid-30s) friend who had caught the flipping bug. She had bought a small house that had been on the market quite a while. (The local realtor told me that she wouldn’t show it to anyone who lived here as it has a plywood foundation that had bowed out and had had to be strapped in.) This young woman is neither stupid nor lazy -MA from an Ivy League, school psychologist, has a B & B that she and her mother run, and waitresses on the weekends & during the summer (very good tips from the tourists.) She was, however, naive and bought into the myth. She had bought the place before I heard about it. Did the shingles, new kitchen floor, new carpet and new paint -did about 1/2 of the work herself. She put it on the market - for about $50,000 more than she paid on and on top of the fact that she probably overpaid by $50000 given the price to rent ratio. (And we are talking linoleum floors - not wood.) It sat for 3-4 months. Her mother mentioned it to me. I sat down and explained the reality. We found an excellent tenant (over 65, had moved here to be near her daughter who is a doctor in town.) The rent just covers the mortgage, taxes and insurance but at least it covers it. With the subsequent 31% price drop, she may be able to sell it and break even in about 15-20 years.

My local bankers and I gossip regularly about economic news. One of the tellers is thinking about buying and the bank VP looked at her, looked at me and said to the teller “Don’t do it until you talk to her. Do what she says” - and pointed at me.

We made an offer on a darling small inn here in town last winter. In preparing the offer, I spoke to both banks in town - both of whom know us quite well. Now the inn is not exactly in good financial shape but it would be a nice part-time retirement business. The owner, however, is nuts. He has it priced at $575,000. Using the income and costs from 2006, it had grossed $92,500, had expenses of $41,000 but he didn’t pay his elderly mother who lived in the manager’s apartment and ran it single-handedly. I worked the numbers, figured that on an average year I could get it up to $135,000 with expenses of $86,000 (wages, webste, updates) and that it would take at least 3-4 years to get it that level. In the meantime, the thing could barely pay for increased staff and forget a mortgage. The owner was willing to do owner-financing. (It has been on the market for a year by then.) I called my 2 banks, told them I was writing the proposal, what the asking price was and what the income/expenses were, and ask if they would loan on the property at any price. Both sputtered that no way could it begin to pay a mortgage and that I knew that before I ask. I laughed and said I needed a refusal to lend in any circumstances to get the seller to deal with reality. Both bankers found it very funny and both said (with great relief in their voices) “Oh that makes sense. You are too clever and know too much about business to have been seriously asking us to lend. Now if you can get him to bite on the price you have in mind (less than 1/2 the asking) with owner financing while you reorganize it, we know you can bring it back up into a nice profit in the 3-4 years you are thinking it will take and we would be happy to lend the money to you.You know what you are doing.”

BTW - seller had a cow. And a year later STILL owns the place and revenues have dropped further since his mother was too ill to deal with it the past year. It is still on the market. Maybe I’ll buy it in another 2-3 years. In the meantime, I’ll go to the beach and fiddle with my perennial gardens.

It can take me 1-2 hours to run in and out of the local convenience store because someone will stop me and ask for my predictions about property prices, should they put their house on the market to buy a bigger one for the kids or just add a modest family room, refinancing options for someone caught in an ARM, the economic trends and the impact of the economy on the main business here of tourism. (Its a very small town. It is such a small town, everyone knows the kind of books you checkout at the library and I have the reputation being deeply into economics and public policy matters even though retired.)

The head of village planning and assessments thinks me very clever because I know what is going on in market and we discuss the implications for the tax base and village budget. (Village council was less than clueless that the taxes will drop sooner or later until I mentioned it at meeting the other night. They took me seriously, turned rather white and ask, in stunned voices, for something in writing explaining it in detail to them because it sounded ‘complicated’ and for me to sit down with the assesor and identify trends.)

Then there was the investor who was considering buying rental properties either single or up to 4 flats. A couple afternoons with me and my calculator and explainations and the project was shelved indefinitely.

So yes, I not only get a lot of ‘gee, you were right’ but far more ‘what should I do’ and ‘what is going to happen.”

Comment by Paul in Jax
2007-12-09 11:39:39

Just wondering, re the 30-something flipper: If somebody buys a house with the intent of fixing it up and selling it, and then realizes they are facing no gain or a loss rather than a profit, why would they then decide to become a landlord? Unless one expects prices to rise relative to rents, why does it make sense not to dump it now? How does she “break even” by holding this for 15-20 years - isn’t this a tremendous emotional drain to have to constantly worry about the value of the property?

I can guess the answer has something to do with not being able to “afford” to sell it, but even if she is under water, and unless she really wants to be a landlord (an unpleasant profession for most) selling the house and working something out with the lender would seem to make more sense to me.

Comment by Tim
2007-12-09 12:02:05

What would they say to their friends when asked how much money did you make? They got cht to prove. Also as you noted, they are usually too leveraged to bring money to the closing table, and dont want to destroy their credit. They intend to continue flipping as soon as the market turns, and they need willing lenders. It’s not a hobby. It’s a profession. They are visionary designers making the world a better place one blighted house at a time. LOL

Comment by SGA
2007-12-09 22:34:03

Inflated future dollars can pay off an old loan in dollars quite handily.

Comment by AnnScott
2007-12-09 23:10:35

No way could she begin to even recoup her buying price. This area was sliding summer of 06 and since July 07 has taken a 30% hit on the difference between the 2006/2007 list and actual closing.

She won’t walk away because of the village. This is a tiny place (all of 380 year round residents) She grew up here, works for the school, has the B & B in town……. and the lender was our little local 2-offices bank. Her parents would kill her if she tried to get out by handing back to the bank and thus sticking her neighbors (the bank officers) with it. (And I do mean honest-to-god neighbors)

So she has kept it. It doesn’t make a profit but it doesn’t lose anything. It is a matter of honor when you know everyone and nothing is anonymous - no hiding from bad choices and walking away to let someone else clean it up. Being a landlord in this village is very easy. You know everyone, and the local doctor’s mom is a pretty good choice of tenant.

I used the 15-20 years based on the assumption that it has lost only 30% in value and that will be the bottom. (Okay -not true, but a good working hypothesis.) Assuming things stay flat for up to 5 years with the coming option ARM and hybrid ARM mess and assuming 3% inflation appreciation after that, it will take 10 years of appreciation to make up the 30% or so.

(BTW- beautiful up here and a great place to be retired early. We don’t lock doors, have a fabulous beach on Lake Michigan and are surrounded by a US National Park. Downside is the infestation of 2nd homebuyers and tourists. Oh well.)

Comment by Flic
2007-12-09 10:59:38

I am now the envy of all my friends and family and have gotten the “you were right” talk from numerous people. In 2005 we were looked at as being crazy for not getting in on the Real Estate “game”. They used to laugh when I said it was a house of cards ready to collapse. Just 2 weeks ago I was with friends I had not see in 2 years and they kept saying how they wished they were in our shoes (renting). They are now underwater on a Florida purchase they did in 2005 with an I/O loan along with a HELOC’d Denali XL. …..

Comment by az_lender
2007-12-09 14:02:21

What I get from New Yorkers is, “You were right about California.” What I get from Californians is mostly silence, but one Cal I know very well did say to me, w/r/t my May ‘06 sale of my Maine house, “Gosh, you act so quickly.” Meaning that my first whiff of an impending disaster resulted in my unloading the house tout-de-suite. Must say, I read HBB a couple of months before it dawned on me that my house wasn’t Different, wasn’t necessarily going to hold up in a down market. In fact, in my town, I probably would’ve done better to sell that thing fall ‘05, except the renovations weren’t finished then.

Comment by RinCA
2007-12-09 11:03:19

No, pretty much everyone I talk to in the SF Bay Area thinks that I am way out of line to even suggest that housing has to drop at least another $200K before the market begins to normalize. With asking prices (for an average older tract house) between $700-900K and typical mortgage payments that are double or triple what you can rent these houses for, I do not think I am out of line at all. I don’t expect the “You Were Right” speech from anyone around here until 2009, or later…

Comment by Ben Jones
2007-12-09 11:07:58

Excellent point. There is a huge tendency to finally admit there was a housing bubble, but a 5-10% drop will fix it. Even though prices have already dropped that much in many places.

Comment by SFMechanist
2007-12-09 12:43:03

In the past, when I explained things to people, I didn’t just say there is a “bubble that is going to pop” or “prices will go down” but rather the underlying mechanism of the problem (hence my name) in terms of easy credit and debt securitization. Now that the MSM is echoing what I’ve been saying for over a year, friends of mine have no choice but to admit my intellectual superiority! Well, maybe I wouldn’t go that far, but at least they have to give me some credit (no pun intended).

Comment by aladinsane
2007-12-09 11:22:37

We realized that we, along with every other owner of a residential house that had owned it for at least long enough to collect the tax-free profit booty…

Were actually living in casinos, not homes.

And one thing this ex-gambler knows is, your winnings aren’t yours until you cash out and leave the house of chance.

We sold our green felt jungle a couple of years ago.

My 2 sisters on the other hand, made many bad choices and ended up owning 5 casinos between them.

This xmas get-together should be interesting~

Comment by Dr.Strangelove
2007-12-09 12:40:38

“And one thing this ex-gambler knows is, your winnings aren’t yours until you cash out and leave the house of chance.”

Once read a story of a Blackjack Dealer/hard-core Gambler playing craps at another casino in Vegas…He was winning big, but punch-drunk. A friend of his new better than to try and make him quit while he was ahead, so he called the Gambler’s wife. The Gambler’s wife comes to the casino and keeps hounding her husband for chips…a stack here, a stack there, then she goes home. At one point the guy is up big–$100k or so–then rides it down and loses it all. He wakes up the next day with a doozy of a hangover and is pissed-off at himself because he didn’t cash out.

He thought he lost it all, however, completely forgot he was giving his wife chips at his friend’s urging.

Turns ot he gave her about 10k.

Sometimes I feel like the Gambler’s “friend” that made the call. I feel good for at least trying to educate friends about the bubble–even though most didn’t listen. A good friend of mine and his wife didn’t listen and they’re about 100k underwater right now. They don’t say “you were right”, but I can see it in their eyes. We don’t talk about real estate these days.


Comment by Tim
2007-12-09 11:34:33

My friends and family are not as nice. I still get the “prices are only down 5% but you lost 20%+ in appreciation” speech (note i sold in 2005 so it could be worse). Followed by you better buy now cause its not gonna get any lower. I am still labeled the insane, intellectual guy always thinking the sky is falling, missing all the opportunities for easy money. Granted they do not live in FL or CA, so they don’t have upside down friends yet, and rarely follow the news. 2008 will be a bad year for them. I have actually tried to encourage several not to buy in the last few years, but rather than listening to a friend who graduated summa cum laude in economics and then got his jd from a top ten institution, they decided to follow the advice of their realtors and brokers. They can’t believe I dont jump at the current 5% off buying opportunity. So the “Psycho Timmmmmmmmmmy” lable continues.

Comment by phillygal
2007-12-09 13:17:31

…but rather than listening to a friend who graduated summa cum laude in economics and then got his jd from a top ten institution, they decided to follow the advice of their realtors and brokers.

Now I don’t feel so bad.

I don’t have the academic creds, however I have spent a lifetime in and out of real estate…as the daughter of a contractor (I was doing his payroll at age 12)…then owner/manager of a couple dozen rental units…I worked in the REIC during the boom, and I sold my house very close to the peak in my area. But I never made a living selling real estate and I don’t have a real estate license. So in their pea brains, that translates to being Real Estate Uneducated.

Plus, the Realtwhores were feeding them what their delusional greedy minds wanted to hear, and those of us with either the academic education or “life training” were just too GD real for their liking.

Comment by snake charmer
2007-12-09 14:33:17

Sounds like my relatives, who are well-meaning in their minds but have no clue on this. Back in the spring of 2006, several of us were driving through bubble-bust North Port, Fla., and I was having to be very assertive as usual on the subject of my renting, which, given my thirtysomething age, has made me a family embarrassment. One frustrated relative said that “prices are never going to come down!” and I offered to bet him $1,000 on the spot to the contrary. Good thing for him he didn’t take me up on it.

I’ve had a couple of co-workers remark off-handedly that I was right. One joked that I was “Nostradamus.” But I don’t see anyone else who has even the slightest grasp of the scope of this, or, even more importantly, wants to know.

Comment by tarred and feathered
2007-12-09 23:24:56

Tim: When reality hits them with a sledgehammer as they start to fret and cry, just nod and smile. You might want to comment on an expensive vacation that you may take later in the year.

Comment by San Diego RE Bear
2007-12-10 23:06:52

“but rather than listening to a friend who graduated summa cum laude in economics and then got his jd from a top ten institution, they decided to follow the advice of their realtors and brokers.”

Unfortunately, it is sometimes harder for people to listen to well-known practical voices over the flowery rhetoric of salespeople with really good smelling snake oil. :( Keep trying Tim but just remember they will always have to live with the mistakes they make and next time they probably will listen.

Comment by Paul Kanterman
2007-12-09 11:37:40

We live in NYC, and for so long people were telling us you have to buy now, real estate never goes down, you’re a fool to rent.

We don’t hear that anymore. Now all we hear is how smart we were not to buy, that we should wait. This, coming from one friend with a $4500/month interest only payment, makes me feel good about our decisons, yet sad for the situations some of our friends have gotten into.

Comment by aimeejd
2007-12-10 11:36:28

I can’t believe people in NYC are actually starting to wake up and smell the coffee. It used to be akin to sacrilige to suggest that it was possible for the Manhattan residential R.E. state market to do anything but go up–this place was world headquarters for “It’s Different Here Industries, Inc.” I’m hearing nothing but the sound of silence now.

Comment by FP
2007-12-09 11:47:41

Had a conversation last night with a FB. Her Loan has been resetting and is really eating away her disposable income. I told this person to try to refinance. She said she has a chance to close on a loan (another ARM) but the payment is going to be a few hundreds dollars more and that she can’t afford that. I didn’t really know what to say? I just blurbed out the Government Rate Freeze and she should call the the Hotline.

She is pretty much toast. I feel bad for her because she was genuinely excited about the house and it was never meant to be flipped. She can’t afford a 30 Year, she can’t afford an extra few hundred dollars for another ARM that can buy some time. I don’t the rate freeze will help anyways. She lives in the Bay Area (Santa Clara County).

Comment by Paul in Jax
2007-12-09 12:58:17

she was genuinely excited about the house

That is the word, for sure. People are always “excited” when they do something they know is dangerous.

Comment by caveat_emptor
2007-12-10 09:32:37

“She can’t afford a 30 Year, she can’t afford an extra few hundred dollars for another ARM that can buy some time.”

She can’t afford the house.

I’d be excited to have a new Ferarri. I could probably walk down to the dealer and convince them to let me drive one away. That doesn’t mean I can afford it, or that I should try to find a way to let me keep one without paying for it.

Comment by SeattleMoose
2007-12-09 11:49:02

A guy at work was just about ready to buy 6 months ago (moved from Phoenix..ouch!!!) and his wife was pressuring him to buy. I sent Bubble Blog links to him and they are renting now. He is the only one who admitted to the bubble….all the smug wine and cheesers simply don’t talk to me…like this was all my fault!!!

A year ago they could hardly wait to talk to me to brag about their “wealth”…

Time to take it up a notch and start approaching them about the “special” market here. If I were a truly evolved soul I would not want to take them down a notch but they were SO DAMN SMUG and ARROGANT that I can’t help myself.

Comment by phillygal
2007-12-09 13:19:47

If I were a truly evolved soul I would not want to take them down a notch but they were SO DAMN SMUG and ARROGANT that I can’t help myself.

Oh, stop being so evolved, and let your hair down for once.


Comment by bill in Maryland
2007-12-09 18:51:07

they were SO DAMN SMUG and ARROGANT that I can’t help myself.

Same deal for me. I think it’s too early to be smug. So far prices have not gone much compared to what level they will go down to. I think in five years I will break out my e-mail archives and shove that back in their faces. They were arrogant to ridicule me for renting, for being a 40-something year old man with no real estate. I’m not laughing yet, but I will laugh uncontrollably in a few years.

Comment by speedingpullet
2007-12-09 11:59:57

I’m not getting any ‘you were right’ talks, but, interestingly, I’m also not getting the ‘are you totally insane?!?!?‘ speeches I used to.

One particularly bullish couple I know can now bear to hear me mention a ‘downturn’ in housing without the kneejerk - ‘but its different here (’here’ being the Sherman Oaks hill in L.A) - so I guessI can claim a minor, if Pyrrhic victory..
One bright light on the horizon - a friend recently sold her 4 bed house in St Petersburg, FL, for about $50K less that what she wanted for it at the beginning of the year, yet still seems happy to have sold it. Her fiancee here in Westside LA just sold his condo for a nice profit in august, and instead of pooling the money to buy something right now, have decided to rent a nice place in Mar Vista for the forseeable future.
While I can’t claim that my warnings were what made them do what they did explicitly, I know that my advice had a small influence on them, in part, to sell while the going was good. Be thankful for small mercies, I say.

Comment by phillygal
2007-12-09 13:27:16

My one friend who was sweating two mortgages for close to a year - and was saved by an out-of-town buyer - acknowledged it was prudent for me to wait to buy after I sold my house.

Another friend who is having difficulty unloading his overpriced POS told me I did the right thing by sharply undercutting the market and getting out while the getting was good.

disclaimer: I never actively counseled anyone against buying. I would offer what I knew, if asked. Otherwise I stayed out of people’s decisions, due in large part to what the posters here described in their commentary.

Comment by exeter
2007-12-09 12:11:35

“Most I have come in contact with now pretend they knew all this information all along. They’re all suffering memory lapses about conversations we had. Of course, they had their fingers in the ears and were going la la la when I used to talk to them, so it’s hard for them to remember what I was saying.”

That reaction is EXACTLY what I’m experiencing from those who suffered KoolAde induced euphoria. I think this reaction is just another means to not to be brutally honest about the fraud the RE bubble really was. They still need to hold on to SOMETHING as a means of self-preservation and most can never really concede to reality and admit defeat.

As we all have mentioned here before, there is a twisted and unfounded pride in house-ownership for the past 5 years. One just cannot bring himself to understand that the 3 year old comp down the street doesn’t translate into the $$$ they think they’re owed today, hence the bubble is/was self-evident.

Comment by p smith
2007-12-09 13:06:20

I made an offer on a home last week (the second one in a few weeks). The realtor told me the home sold for over a mil 18 months ago. I offered 485 (cash deal).He told me it was too low! A bank owns the property and I asked him if he knew what a derivative is? He said no. I then told him untilhe can educate himself on what is happening, please do not give me his opinion on what is too low. Note: I must buy or rebuild due to the recent fires. My home burned down and my osnurance co. pays the replacement cost over my basic coverge. I might as well spend the additional monies. Otherwise, I WOULD NOT eventhink about buying now.

This is a crash

Comment by phillygal
2007-12-09 13:29:35

I then told him until he can educate himself on what is happening, please do not give me his opinion on what is too low.

phillygal loving this part of the descent

Comment by San Diego RE Bear
2007-12-10 23:12:48

Am so sorry to hear about your house p smith. I hope you were able to get some of the important things out - pets, photos, memories. Be well.

Comment by Big Bubble Popper
2007-12-09 13:27:30

Not really. The closest I have gotten is related to the “it’s a great time to buy” nonsense. In other words, now is a better time to buy than 2005/2006, but I should be buying now according to them.

Comment by Housing Wizard
2007-12-09 15:11:52

Wow, I just came back to find the post above concerning the fraud issues and investor lawsuits being the real grounds for the bail outs .I think I have said all along that the fraud issue was a big issue and I couldn’t understand why the courts weren’t weighing in on this Crime Wave . If you add the lending fraud crime wave and the wonderful misleading rating system adapted during the boom ,you have grounds for complaints by the investors .

As I have said before ,I didn’t see the memo from the investors in the secondary market saying “give us all the fraudulent loans you can muster because real estate always goes up “.Appraisal fraud and loan fraud really isn’t allowed in lending in spite of it gaining such widespread appeal during the boom . For the front line mortgage brokers and loan agents and real estate agents ,(who are agents of the lenders ) to think passing on the risk to the secondary market absolved fraud in the investment chain was just not right .Appraisers breaching their duty or starving and borrowers justifying fraud on the loan applications in order to get in on the easy money RE investment was also not right .
Contracts can be , voided or altered by the courts ,you name it ,if they find that fraud is involved . Insurance companies can refuse to pay on a claim ,and a note can be called if fraud or perjury is involved.

I somehow got the feeling when the first allegations of fraud came up against that big Appraisal Company by the New York D.A. ,and it became public knowledge ,the SHIF and serious bail out talk started up .
The entire real estate industry would not look good in a court of law in my humble opinion and a good % of the borrowers wouldn’t either. .But the guy or company that actually put up the money for the loans ,the guy /girl who will actually lose the money ,looks pretty good in spite of wanting a little higher yields than a CD’s if they were the victims of fraudulent lending and appraisals and borrower misconduct or loan application perjury IMHO .
I have said all along that this bail out seemed strange without determinations from the courts on liable parties . Apparently back room deals are being made to keep this out of the courts and to finally make the taxpayers pay for the crimes that took place during the mania IMHO .

Comment by Housing Wizard
2007-12-09 15:29:14

PS . Avoidance of lawsuits explains why the powers want to bail out borrowers that don’t really qualify for the re-set in rates and have low credit scores and why they have chosen the years from Jan 2005 onward because that is when fraud became as common as salt and pepper in the lending business . We can’t forget how commonplace it was for lenders and appraisers to close their eyes to inflated appraisals for cash back deals ,incentives that aren’t really allowed , and the builder deals with their “special lenders”.

The old housing Wizard keep harping on the fraud issues for the last 2 1/2 years ,but nobody is going to say to me ‘You were right “. Professor Bear always saw the fraud as a major issue also and some others ,well actually most of the posters here ….but I have been harping on it the most I think …maybe …actually I don’t remember .

Comment by Ouro Verde
2007-12-09 18:14:33

My two girl friends who each own 5 properties are too busy to lecture me anymore.
These two ladies are too busy looking for property tax money. Im off the hook for the Renting Is Burning money lecture I’ve heard a million times.

Fraud is the sneaky behind the curtain crap I want to know all about. Maybe they will have a new show called “Forensic Mortgage Fraud Files”.

(Comments wont nest below this level)
Comment by Housing Wizard
2007-12-09 19:04:41

Apparently if the borrowers didn’t conform to the loan guidelines and qualification requirements ,the agents were making the applications conform to the guidelines of the loans pursuant to fraud . Apparently either the borrowers approved of these phony applications or they were changed after the fact by the lenders agents .
Borrowers were even buying a bunch of property at one time and not disclosing the other purchases ,so all property could be included in their debt ratio and they could claim owner occupy on all properties . Somebody taught the borrowers these trick on how to fool the inept lenders .

Further ,it was common knowledge that one could make money by double escrowing a purchase ,whereby the appraiser had no knowledge of the first purchase ,that was flipped to a new purchase,without the first purchaser ever closing . How to get paid out of escrow without even ever closing the deal was a practice that was encouraged and practiced by many during the boom .

One of the practices that gets my goat was the fake bidding practice that raised real estate prices and is a horrible fraud in my opinion . Oh I can go on and on about how bad the fraud got and the different ways in which it took place .

Comment by Big V
2007-12-09 15:09:02

Unfortunately, the vast majority of people who initially laughed in my face, told me not to hold my breath, and accused me of being a conspiracy theorist, have now taken credit for “knowing it was going to happen”. These people are also taking it upon themselves to condescendingly explain the whole thing to me (being that I’m a ball of fluff and need the benefit of all their manly wisdom). Don’t worry, though, I’m definitely calling all of them on it.

There are a few people, however, who have given me credit. Most of these people are at work. I guess those are the people who’s respect I really care about, anyway.

Comment by Remain Calm. All is Well
2007-12-09 15:21:42

ben stein eats crow:
When the financial stock meltdown started, I was on a television show with Peter Schiff of Euro Pacific Capital, who warned that Merrill Lynch could be in very bad shape. I glibly said that I thought that its problems were limited and that the stock was a buy. Mr. Schiff was completely right and I was wrong. I had no idea that Mother Merrill, where I have been a happy stockholder for years, had been turned into a such a wild house of high-stakes gambling. I apologize to Mr. Schiff for my dismissal of his views, which turned out to be far superior to mine in this area. (I could do without his acolytes sending me endless hate mail, though.)

Comment by edhopper
2007-12-09 15:47:05

I do get the acknowledgement that I was right, but then they ask me now that the bubble has burst why aren’t I buying in this “Buyer’s Market”?
When I tell them i expect prices to fall anther 30% to 50% I get the same blank stares I did a few years ago when I talked about the bubble.
It’s a similar experience to talking to people who thought I was dead wrong about invading Iraq. Now that everything I predicted came true. you still can’t get them to to see how disasterous our policy continues to be.

Comment by cactus
2007-12-09 16:01:29

‘Ben Stein is a lawyer, writer, actor and economist.’ economist to movie people he lives in a bubble and can’t see how bad it has become outside of his bubble. Same with a lot of my CA friends over educated and over paid they have no idea how poor most of America has become. Some people make 140K a year and some make 40K a year, the jobs that pay in the middle are going away, far away over the ocean. Ben Stein should know this .

Comment by aNYCdj
2007-12-09 21:05:08

Hey I WOULD BE THRILLED TO DEATH to make $40K…as cheap as i am that’s enough for me.

Comment by jbunniii
2007-12-09 18:24:06

Even the more bearish of my friends believe that the price declines will be largely over by the end of 2008, and that will then be the best time to buy. The think I’m out to lunch for believing that prices will keep dropping until at least 2012, and probably remain flat (hence declining in real terms) for a few years after that.

Comment by SGA
2007-12-09 22:49:24

2012 - quite the year to be if everyone is right about it!

Comment by NoSingleOne
2007-12-09 18:30:34

Has anyone tried to say “I told ya so” to Greenspan yet?

I’d love to be a fly on the wall….

Comment by bill in Maryland
2007-12-09 18:39:56

Only one person I talked with is still in denial. For spite, he says he’s going to be looking to buy more real estate (with what?). The other people I mentioned “Real Estate Bubble” to over the last three years have not kept in touch. Silence. I expect no apologies. I also don’t expect that they will tell me “I told you so.” They will remain silent for several years still. They cannot stand that I am right.

I don’t even talk with the denial guy anymore. Stopped the communication last month. The final straw was a few e-mails where he made all sorts of insults, in addition to calling me a rent slave. Oh well. I never intended to be a connection for him to get back into an engineering contract at the client where I work. That’s another story. Let’s just say this: admitted to me several times that he charges for doing nothing. He was fired from the same client I worked for a year ago. Duh. I worked for that client and its parent company as a contractor since 2003. I don’t rub it in. I also know job shops who know the guy. One of them says he will never try to get that guy a contract. Bad reputation. That denyer is mostly into real estate. He has a rich uncle with several millions of dollars all from real estate, so by George he should be able to duplicate wealth that way. LOL. Donald Trump wannabe. Barf!

Comment by Ouro Verde
2007-12-09 18:42:37

Dear Doctor G.

Thanks for ruining my social life. Im the only one I know who rents.

Comment by SUGuy
2007-12-09 18:53:10

“It’s my home. I’m trying to pay it off. I would appreciate it if it didn’t inflate to such ridiculous heights so that I get taxed out of it. Actually, I would like it to go to zero, because no matter the tax mill rate, zero times whatever is still zero.”

In Syracuse our mill rate is almost 4.0. When prices decline the tax assessor’s office does not reduce the tax citing they need the money. IMHO unlike Real estate taxes always go up. NY state is such a basket case that here if your are successful they punish you, but if you can have multiple kids with different men or women you get rewarded with subsided housing, food stamps, health insurance, taxis for doctors visits, free drugs, energy bills are covered and cash in your pocket. NYS gives 40% more in welfare benefits than any other state. No wonder 33% of the population is on welfare.

Look at our tax amounts. It will make you weep.

The above house asking price is 249,900 taxes are $8600 a year

The above house asking price is 350K taxes 12K

The above listing asking price is 450K taxes 18K

The above house asking price is 533K taxes 20K

This house has been sitting on the market for over 3 yrs asking price 550K taxes 20K

The above asking price reduced to 750K on the market 4 yrs taxes 28K.

I would like to ask all the smart geniuses on this blog what advice you give a cash first time buyer in our CNY market and at what taxes is a house price insane. Any opinion on this subject is extremely appreciated. Thank you in advance.

Comment by Paul in Jax
2007-12-09 19:39:47

Mill rate is an old-fashioned term meant to confuse outsiders, like “keystone” in the jewelry business, or “par” in bonds.

It means $ per thousand (mille) of value. It is 10 X percentage tax. I’ve lived in towns in Virginia where tax is (used to be) around 0.7%, or a mill rate of 7 - I think that’s about as low as it gets. Are you sure you don’t mean a mill rate of 40?

Comment by Frank Giovinazzi
2007-12-09 22:52:47

RE NY property taxes — I’d like this to be a weekend topic sometime, including other geographical areas. Will they go down? Will there be service, salary, job cuts? What about defaults? Will this lead to a new wave Prop-13 movement?

Personally, I have a scenario called the “Population Bomb.” As in, when towns and school districts in certain regions refuse to cave to economic reality, people will leave en masse. Causing more price drops due to excess inventory — and leaving the teachers, civil servants and cops to pay each others’ salaries.

Comment by hd74man
2007-12-09 19:15:43

RE: You were right speech…

My youngest brother is the golf pro for a Jewish country club outside NYC. The place is established and has it’s share of high rollers and financial sharpies.

For the last 3 years, whenever he and I would talk, we’d jaw about what was transpiring in the RE game. I funneled a lot of the perspectives from this blog into our conversations.

He in turn would go back to the crowd at his club, and in varying informal exchanges tell everybody that the proverbial shite was gonna hit the fan-in a big fookin’ way regarding the housing market.

His comments were met with a great deal of derisive laughter, incomprehension, and scorn.

Now he says-people come up to him and ask-How the hell did you know all about this housing collapse? WTF? You got a crystal ball or something? You’ve called it all!

He just laughs and says-Be sure and listen to your older brother.

In our last telephone conversation his final comment was…Man, am I lovin’ this. Everybody thought they were so fookin’ smart…

Comment by Stars End
2007-12-09 19:16:29

I have tried to enlighten my fellow co-workers and friends re: the crash. Have been successful with one friend, she sees the writing on the wall. However, at work I have made no inroads at all. One co-worker purchased an “investment property” in 2005-6. This duplex is in the geographic center of the San Diego metldown, Chula Vista. I had advised her that contrary to her statements, her property WOULD be losing value. She told me that since the property was a duplex,..IT WAS DIFFERENT. I ended the conversation with “well, we’ll see what happens.” But I knew I had no hope of influencing her.

Comment by edgewaterjohn
2007-12-09 20:13:39

“The fear among economists is that the negative forces rattling investors could spread, forcing consumers and businesses to restrain spending and investment. While the odds of a recession have grown, Fed officials, the Bush administration and most economists are hopeful the country can tackle the problems and avoid that fate.”

This schlock comes from a b.s. story now on Yahoo! Proof that savers have the power - don’t buy their garbage! Your dollar is your (real) vote!

Comment by Pwned
2007-12-09 21:00:56

I know someone who bought a 2/2 LA condo in 2006 for $700k - at the time they were 100% confident they’d be able to sell in a year or two for a ridiculous profit and then trade up to a phat house. Recently that person told me they’ve learned that real estate isn’t an investment, and they’re just glad they love their condo…

Comment by bill in Maryland
2007-12-10 19:00:11

Sheesh! I rented for $1000 per month in a neighborhood where they built new condos in Torrance (next to a car paint shop and other industries). $700,000 condos. I watched them being built in 2004 and 2005. Perhaps those are the same ones. They are twice the price where they should be. Foolish buyers.

Comment by aeyra
2007-12-09 21:52:12

Once people give you the ‘You were Right’ speech, you know that SHTF. Shortly after, be prepared to see alot of Hallmark(c) BOHICA moments from the FB community. 30% drops are nothing. Does anyone here really think housing in Compton is worth $500K?

Got Lube?

Comment by Mike in Pacific Beach
2007-12-09 22:36:15

I told my parents who wanted to downsize back in early 2006, SELL NOW when it apprasied for 1.2 million.

So they didn’t listen and waited one more year, and my dad said, I should have listened to you. They put their home on the market 4 months ago and no offers. At the time they listed for 1.2, and I told them, put it on the market for 900,000, but they said all their neighbors were listing at over a million and they wouldn’t do it. So now it sits, and now they missed the 900,000 mark, so I’m expecting an “you were right” in about a year when it sells for 700,000 if that.

Comment by Crazed Opossum
2007-12-10 06:55:20

There is still waaaaaay too much denial in the greater DC-Baltimore area, where it continues to be “different,” and nobody wants to talk about how bad it could get. I saw an article in the WaPo, front page of the real estate section, talking about this “great bargain neighborhood” where you could get a STEAL and it’s such a grrreat location! Well, it’s a lousy location and the “bargains” were tiny old rowhouses priced from $400K to $600K. Uh-huh. And in Maryland, of course, everyone is clutching the pearl called “BRAC” and still telling me how wrong, wrong, wrong, I will be not to have bought property since the coming of BRAC will make prices skyrocket again. I’ve given up. Once in a while I’ll hear someone whine about their ARM reset or the fact that their mortgage is much harder to pay than they’d predicted and I don’t say anything but if they ask, I just smile and note that my rent (already cheap) has gone up $10 in the past six years.

Comment by Pondering the Mess
2007-12-10 10:58:35

Oh, yes - I live in this area and this is the way it is here. It is “different here” prices “don’t matter,” and “everyone wants to move here.” Nevermind the starter $400K zero-lot, tossed-together townhouses, the $600K McMansions, and the Post-War shoeboxes that start at over $200K. No, it is different here… oh, median household income for Maryland is only about $65K. I guess there’s no problem here!

And if anyone DOES say anything about the Bubble, they get the BRAC reply, about how it will bring zillions of people to every place in the state, and each of them will want a $600K McMansion and easily be able to afford them, so “prices will never go down here.”

Of course, prices ARE slowly going down, and our Dear Governor is raising taxes all over the place, so yeah, prices don’t matter - right!

Comment by bill in Maryland
2007-12-10 19:04:39

Re: BRAC, some locals have told me that Aberdeen Proving grounds will gain from it. We’ll see. Some of the promises haven’t come true yet. Look at Ridgecrest, CA. They were expected to get double the military personnel. That story propelled house prices up 200%. So far nothing happened. My buddy there says that it may be a farce.

Comment by ezkab
2007-12-10 12:14:01

Thank you very much for the blog. I have been reading the blog for a long time. I got a lot of info. from it and stop me from buying another home for my growing family. Now my question to you and I am sure everyone is asking; when is it a good time to buy? Two area in mind Corona or Fallbrook CA. Any suggestion

Comment by San Diego RE Bear
2007-12-10 23:29:49

Fallbrook has already fallen but still has a long way to go - would not start even looking until 2010 or 2011. (Or you may want to wait until 2012 so the most recent fires are over with for another four years.) No rush to buy and I suspect a lot of rental opportunites so you may want to rent there first and make sure you like it.

And don’t forget to “thank” Ben with the PayPal Donate link above if you really find this blog to be of value to you! :D

Comment by Markmax33
2007-12-10 14:05:51

I made a bet with my future father-in-law that housing prices would crash. He said he would pay for the entire wedding if he was wrong. A month ago he said he forgot the bet… : (

Comment by OCInvestor
2007-12-10 18:08:52

Is you father-in-law David Lereah by any chance?

Comment by San Diego RE Bear
2007-12-10 23:31:00

Wow, honorable guy. Hope the person you are marrying does not take after their father. :(

Comment by DJ
2007-12-10 19:41:14

At Thansgiving almost everyone was talking about how much prices were coming down and that they could come down as much as 30%. I was surprised by this, it sounds like the news has spread and folks are now acting like they knew this was going to happen and even tried to explain why. I just keep quite until some said I was smart to sell and rent. I said it’s all about fundamentals and when you ignore them they come back and bite.

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