Let The Chips Fall Where They May
The San Francisco Chronicle reports frorm California. “Israel Medina admits he got too gung ho about the idea of getting rich by flipping Bay Area real estate. Medina, a Concord resident who ran a limousine company before wading neck-deep into the housing market, has seen not one, but 11, of his Northern California properties move into foreclosure in the past year, he said. ‘I was a real estate tycoon; I had everything,’ said Medina. ‘Now I have nothing.’”
“More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures.”
“‘During the frenzied period, you got people rolling the dice and buying as many properties as they could,’ said Andrew LePage, an analyst with DataQuick.”
“What they all had in common was the hope for a payday.”
“A Marin resident invested $1 million in four properties that a construction company owner told her he would fix up and flip; she lost all the money, her good credit and her own home. The Marin resident, Rose Hodges, said she attended Marin investment clubs and met many people like herself who wanted to learn how to invest in real estate.”
“‘All these Baby Boomers started inheriting money from their parents and looking for ways to invest it. And the real estate market was booming,’ said Hodges, who learned the hard way that such investments can have a big downside. ‘It’s crazy out there and people ought to know.’”
“Medina said he dabbled in real estate for years and made some money before gambling too big and buying 11 properties at virtually the same time in early 2006.”
“He said he lost the luxurious, six-bedroom house he was occupying in addition to 10 others he was trying to sell, plus most of the limousine business he had been running for years. He said the financial mess has left him penniless, facing bankruptcy and lawsuits, and saddled with a $3.6 million tax bill.”
“‘It was a really, really bad investment,’ said Medina, who said he lost hundreds of thousands of dollars of his own money that he had invested in the homes. ‘I should have bought fewer homes. I never should have gone so crazy.’”
“Why would investors buy multiple properties in a pricey market where their carrying costs - mortgage payments, taxes, insurance - would certainly eclipse the potential rents? Flipping and fraud appear to be the primary motives.”
“Doug Pollock, whose Florida company, Information Data Services, conducts private investigations of mortgage fraud primarily for title insurance companies, said fraud may be involved in many of the cases of investors facing multiple foreclosures.”
“Pollock said some investors may have tricked lenders into giving them loans on multiple properties by purchasing many properties at the same time, so lenders who saw their multiple loan applications would think they were just shopping around for the best loan.”
“But he said some of the blame should go to the lenders and mortgage brokers, who were so eager for loan origination fees that they gave little scrutiny to their borrowers.”
“‘I think this kind of activity is responsible for more of the subprime lending crisis than what you’re hearing about. And the lenders have a lot to account for in this mess,’ he said.”
“Mario Tellez and Maria De La Vega listened attentively to a foreclosure auction on the steps of the Alameda County Courthouse. With the rapid-fire rattle of a few words, a Livermore duplex the couple had bought to pay for their children’s college education reverted to the lender for the unpaid mortgage of $589,900.”
“Tellez and De La Vega…earn about $5,000 a month. Yet, on paper, they look like big-time real estate investors. They own four houses in Livermore, not counting the one that was foreclosed upon at the auction. Adjustable mortgages on the properties are due to go much higher next year, and Tellez said he doesn’t see how they will be able to keep up.”
“The couple financed their family home in the 1990s with savings from a taqueria and a business cleaning restaurants at night. Over the next few years, as the real estate market soared, the house appreciated so that by 2002 they had almost $300,000 in equity.”
“That’s when a friend convinced them that they could put that money to work by investing in more properties. At first, the investments worked out well. They bought two properties for about $450,000 each and rented them out. Those properties went up in value, too.”
“‘The Realtor said, ‘You’ve got a lot of equity now, why not continue to do this?’ Tellez recalled. So they did, taking out more equity and buying two more investment properties until they had five total - one for each offspring, plus the family home.”
“Unlike many investors, they made down payments on their properties, so they had equity to start. But once the market slump began, much of their equity was wiped out as prices declined.”
“Last year, payments for the duplex that ended up on the auction block soared to $6,000 a month - double the rents the property generated. The couple tapped their retirement funds to pay the soaring mortgages. After emptying their savings, they fell behind on payments.”
“Tellez tried to reach the lender to see if he could refinance or get a break on the rising loan costs, but he could not get an answer.”
“‘We had almost $200,000 in the bank, but it’s gone,’ Tellez said ruefully. When the mortgages on his other properties reset next year, he won’t be able to make the payments, he said.” “The family’s primary concern now, Tellez said: Make sure they can keep their original home, where they still live.”
The Sacramento Bee. “Even in a region with more than 7,600 foreclosures in just the first 10 months of the year, no place has been hit as hard as Western Avenue in North Sacramento. On the block where Irene Marshall lives, 16 of 45 homes have been foreclosed in 2007 – more than on any other block in the four-county region, according to a Sacramento Bee analysis of thousands of foreclosure records.”
“One block away adds four more foreclosures to the tally. Several houses – such as one next door to Johnson’s – are for rent but can’t find tenants.”
“Western Avenue…has had problems. But, by several accounts, Western Avenue was getting better when multiple new homeowners – most carrying expensive subprime loans given to borrowers with shaky credit – moved into the neighborhood during the past three years. They were chasing bargains and believing the hype about everyone being able to own a home.”
“Now, with the collapse of the housing market and the plunge of home values, Western Avenue’s best chance to escape its past appears to have come – and gone.”
“‘This is like a Third World country,’ says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street. ‘People go by and think, ‘We don’t want to live in this neighborhood.’”
“It’s not at all difficult to pinpoint what happened. Of the 16 homes foreclosed on the street’s hardest hit block, at least 13 had been bought with adjustable rate mortgages, according to a Bee review of property records.”
“Most of the loans carried above-market rates of between 7 percent and 10 percent. Several owners also had piggyback loans that allowed buyers to put hardly any of their own money down.”
“Most of the foreclosed homes changed hands at the tail end of the housing boom, when prices were near or at their peak. At the time, they represented a bargain in the Sacramento area, with half of a duplex selling for as little as $125,000.”
“Jack Poe is among the few who has seen opportunity in Western’s crisis. The ATM repairman and his sister were able to buy half a duplex from US Bank a month ago for $86,000, well below the $125,000 to $200,000 prices similar homes on the street were going for just a few years ago.”
“Poe got a taste of reality right from the start: Someone stole the air conditioner from his new place while it was vacant.”
“‘We don’t have a lot of neighbors right now,’ says Poe, who formerly lived in a rented house in Rancho Cordova. But he’s upbeat about having 800 square feet of his own now. ‘It’s finally nice to say, ‘I’ve got a home.’”
“It’s no secret in Sacramento that two and three years ago, thousands of area residents bought houses bigger than their wallets. Thousands more tapped their equity-rich homes like an ATM machine, buying into the high life of cars, swimming pools and backyard barbecue patios.”
“Those were days without brakes. In the home building industry it’s still widely recalled how little it took then to buy a house. If you had a pulse in 2005 and could prove you were alive, you qualified. Here are your keys.”
“Now, it’s not funny. A growing multitude of those buyers, alongside owners who refinanced and others with their usual troubles of divorce and job losses, are being blown back out of their houses.”
“And recently announced plans by the federal government and the state of California to save some of them in the name of saving the economy are provoking protests from people who say they’ve played by the rules. Their rallying cry is personal responsibility and living within your means.”
“‘My wife and I bought our first house without any first-time buyer tax breaks. We had to live in apartments and delayed having children until we could afford a down payment,’ said Ron Loutzenhiser, a retired state employee in Galt.”
“A homeowner for 33 years, he opposes a mortgage bailout of subprime and other borrowers and pronounced himself ‘infuriated’ by a recent spate of ‘tear jerker’ Bee stories about people in fore- closure. Dozens of others said the same in calls, e-mails and reader comments on the newspaper’s Web site.”
“‘People nowadays don’t want to sacrifice,’ Loutzenhiser said of the lack of down payments, loans that didn’t verify incomes and use of home equity to pay off credit cards. ‘They want it all, what a lot of us took years and years to accomplish.’”
“Proposals to modify global financial contracts to bring short-term relief to U.S. borrowers risk long-term damage by sparking enduring uncertainty in the mortgage system, said Steven Sheffrin, economist and dean of the division of social sciences at the University of California, Davis.”
“‘For the greater good, you’re talking not just about the immediate future of these borrowers, but the future of their sons and daughters,’ Sheffrin said. ‘It’s really about a small set of today’s homeowners against a whole future set of homeowners.’”
“Talk to someone waiting to buy a home, and you’ll see what Sheffrin is talking about. They’re offended the government is stepping in. They worry that a bailout will artificially prop up home prices that have been fast falling in their direction.”
“There’s a lot of us waiting on the sidelines for prices to come down to an affordable level, says Chris Stafford, in Sacramento. ‘A lot of us were priced out of this market.’”
“There are those who contend they don’t fix a bigger problem: the potential economic fallout of hundreds of thousands of foreclosures across the nation. At a recent home builder gathering in Sacramento, one speaker worried about 2,000 to 2,500 foreclosure properties a month coming onto an already glutted local market next year and really driving down prices.”
“‘We saved our money while our friends and co-workers bragged about how much equity they just cashed out to buy their new boats and cars,’ says a recent post on The Bee’s Web site. ‘Now while they’re on the verge of losing everything we are preparing to buy our first home next year. … Life lesson: Live within your means.’”
“Finally, there is the so-called ‘moral hazard’ argument. It holds that bailing people out of their foreclosure problems will only encourage them to take the same risks in the future. Consequences, goes the argument, are the teacher of lessons.”
“As a reader recently put it, ‘Let the chips fall where they may.’”
“Those who wisely waited to buy a home until the ‘irrational exuberance’ of the recent buying frenzy subsided now find their plans put on hold as this government action works to keep home prices at an artificially inflated level.”
“And while most Americans sympathize with their fellow citizens who may be about to rejoin the ranks of renters, the question must be asked: Should taxpayers be compelled to make good the bad lending and borrowing decisions by others over whom they have no control?”
“The answer by most is a resounding no.”
The Ventura County Star. “The number of people leaving the state exceeds the number entering the state domestically, though it does not outnumber those coming in internationally. In 2005 and 2006, the state was losing people even as it was gaining jobs, the forecast reports.”
“Counselors at Consumer Credit Counseling Service of Santa Clara to Ventura counties are seeing more middle-income earners coming in with financial worries. On average, families are carrying 20 percent more debt than a year ago and those seeking counseling earn 24 percent more. Housing delinquencies also have more than quadrupled among those seeking assistance.”
“More people are considering leaving Ventura County for a place with a stable economy, instead of remaining in an area where they’ve seen wages and home prices fall as the cost of living and gas prices go up.”
“Perhaps the greatest issue that decides who stays and who goes is housing. People still want to own homes, and many are willing to go somewhere with less-desirable weather and lower pay if it means owning a home.”
“Marianne Moise’s sister moved to Las Vegas because it was cheaper to live there. Mark Moise watches guys who retire from the city pack their bags and move out of state.”
“Angela Ulin was raised in Santa Barbara and moved to Ventura about 15 years ago because the rent was cheaper. Now that the 37-year-old and her boyfriend are looking at houses, however, she said it’s more and more likely they’ll have to move to buy a home.”
“‘We’re both making decent wages for what we’re doing in the area,’ she said. But after the rent and other bills are paid, what remains each month leaves a mortgage out of reach.”
“There is some hope that more middle-income earners will be able to stay in the area as housing prices fall. Steve Carrigan of Pinnacle Financial Corp. said he’s hearing that more and more. His company conducts homebuying workshops.”
“‘Families are literally saying, Thank goodness for this housing crisis, because we may actually be able to stay here,’ Carrigan said.”
There is a lot of baloney from the other side in these articles, and I’ll let you guys go through it. But one position from the VCS piece needs to be looked at:
‘Because the rest of the economy has stayed strong while home sales have declined, most sellers aren’t in a position where they have to sell. That has created a standoff between buyers and sellers that the UCSB forecast predicts could end in one of two ways: Either a large number of people lose their jobs, increasing the pressure to sell and driving down prices; or, what is deemed more likely, buyers will eventually be pushed back into the market at current prices.’
Dream on, surfer boys…
The only way buyers will be pushed back into the market at current prices is if suicide loans return in a really big way. Very few potential buyers can afford the market if they have to qualify for an honest loan. Not going to happen.
“…if suicide loans return in a really big way…”
So you don’t think infinite-lived taxpayer-guaranteed forbearance measures are up to the job, then?
“infinite-lived taxpayer-guaranteed forbearance”
Nope…only a full blown, government sponsored, “this is like the S&L crisis” bailout will do the trick…and even then…most people still can’t afford to buy a house using the restricted lending guidelines.
As Hoz has said, it’s about affordability.
Agree with a/g &GH.
Ain’t going to happen at least with me. I’d rather have a really really large retirement fund/savings funds than buy an overpriced house in coastal Cali. Especially in Ventura county (Oxnard, Santa Paula) where there are criminal gangs galore. Ventura county is not that big of a deal to risk my financials with anyway.
~Misstrial
Now the dinosaur wants direct financial aid to “homeowners”. If they own why do they need help?
http://biz.yahoo.com/ap/071216/greenspan_economy.html
The mere thought of this makes my blood boil. Greenie needs to just pass on to his next place of lodging. Something tells me it will be warm where he’s going. And I’m not talking Florida.
“This is like a Third World country,’ says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street. ‘People go by and think, ‘We don’t want to live in this neighborhood”
I always have that same feeling going thru LA city. At least 80% of it . Come to think of it that could describe 60% of LA county. UH Oh !! I am now labeled a racist Non-PC extremist bigot.
“And recently announced plans by the federal government and the state of California to save some of them in the name of saving the economy are provoking protests from people who say they’ve played by the rules. Their rallying cry is personal responsibility and living within your means”
IN CA the state motto should be ‘ save the deadbeats and screw the responsible citizens’
“Especially in Ventura county (Oxnard, Santa Paula) where there are criminal gangs galore. Ventura county is not that big of a deal to risk my financials with anyway.”
here in LA Criminal gangs galore is a vast oversimplication. The Gangs and illegals are simply part of the LA landscape and social fabric like it was almost a normal thing to have them. It does not even merit a single line in the LA Times as it is assumed that LA gangs are soooo passe a subject. Or it may be that the gangs here are simply smart and savy and are wise to the ways of the police and justice system and keep a low profile and engage in illegal criminal activities serripticiously and always out of sight. Such things as drug dealing and engaging in asorted scams and frauds by gangs and illegal alien criminal rings can after all be conducted in such a manner as to stay under the radar of the LAPD and sheriffs dept.
Large parts of LA inner areas are gangland-controlled turf zones minimally policed. These are the famous third-world ghetto pockets such as Compton, Pacoima, San fernando, wilmington, South gate, entire SCentral LA off the 110, Maywood, bell, montebello, East LA, The inner ring arounf DWTN, La Puente, Inglewood, Lennox, Lynwood, North Long Beach, ect.
Next riot these folks will swarm out and pillage and loot like Genghis khan pilliging Samarkand.
I say if they give a cash bailout, all those who were responsible and rented or took out loans they could pay back should withhold the amount given to the gamblers when tax time comes around.
Greenie is trying to bail out his new boss, Deutschebanke. We just got a foreclosure on a POS duplex in Pismo for 598k.Worth 400k, maybe.
I saw G.Steffanopios? interview him today. He is a money pusher pure and simple. His policy of easy credit and money has addicted the world to credit. This has awakened the inflation monster that will eat our GDP.
Very nice, Peter, you know your ghettos!
There’s just soooo many…
RE: Next riot these folks will swarm out and pillage and loot like Genghis khan pilliging Samarkand.
You arent’ far off in your description.
I’ve been readin’ that gang havens like LA &Miami for the have been the dumping grounds for cheap surplus Eastern Bloc assault rifles.
Big clip weapons that used to go for $1500. and were deemed unaffordable by ghetto standards can now be had for $150/300.00.
When these weapons come out of the closet, you sure the fook better be livin’ somewhere else.
Does he actually say anything or does he simply hedge his bets by taking both sides? Take a stand UCSB professor and quit hedging your bets!
“On the one hand… on the other hand…”
Give me a one-armed economist!
– Harry Truman –
There is a third possibility. The builders keep building and undercutting sellers all the way to the bottom.
There is no other way to survive. No builder will give up in peace.
Nice observation. That’s exactly what happens to start a new cycle.
“Either a large number of people lose their jobs, increasing the pressure to sell”
OK, that’s reasonable…
“or, what is deemed more likely, buyers will eventually be pushed back into the market at current prices”
By what, getting more jobs, therefore “increasing the pressure to buy”?
I’m sorry, there is no “pressure to buy”.
In the past, there were quite a few “pressures” to buy, but these “pressures” seem moot for at least the next 5-10 years:
1. Buy now, or be priced out forever.
2. Bid against multiple offers, otherwise you will ose your dream home.
3. You friends and family will think that you are not mature or financially stable unless you buy a house.
4. You are missing out on the really swanky and upscale dinner parties that your neighbors are throwing, because they don’t invite stinky renters.
5. You won’t be able to find a date because you do not own property.
6. Your coworkers will think you are an idiot or at least feel sorry for you that you are not financially savvy enough to grasp the concept of ‘leverage’.
Lets make a chart with two columns…in one column, list the pressures for sellers to sell (now and in the future)…and in the other, list the pressures of buyers to buy (again now and in the future).
Now make a guess about how things will turn out.
“Your coworkers will think you are an idiot or at least feel sorry for you that you are not financially savvy enough to grasp the concept of ‘leverage’.”
Lol, isn’t this one true. Continuing on the saga of the young lady in her 20’s saddled with a 5 bedroom house ($600,000 loan on $60,000 salary) who spent the past two years bragging about her house, she has been trying to get BF to marry her for about 4 years. He keeps putting it off, but she is still planning out the details. He works about 2 hours from her house and she knows a commute like that is out of the question for him. She was talking about selling the house recently - but I guess she looked into the market and figured out that wasn’t going to happen. Now she is planning to rent out her room (she has two roommates already) and rent an apartment when she gets married. With this plan, even if she can get $1,000 per room (ridiculous when dozens of rooms are renting in the same city for $700 and under), she will be eating $1,000 a month on the interest only payment, plus taxes, plus insurance, plus upkeep, plus trying to watch over the roommates from 2 hours away. And she ends up in a rented apartment. How is this a good plan?
Hmm - can I go long nun futures?
She’ll likely end up marrying some feckless guy, and then slowly drain the financial life out of him. In the end, the courts will blame him too.
webcam + girl + 2 roommates = on-time mortgage payments
ROFL! misogynistic and yet still cracks me up
“4. You are missing out on the really swanky and upscale dinner parties that your neighbors are throwing, because they don’t invite stinky renters” #4 sounds so silly but it is completely true!
Tell Ben Jones thank you for the lovely xmas present article today.
Last night I dreamt I had two shopping carts full of hard cash money! I go to a bank and they are too busy help me count it and don’t want it anyway. Then I got scared because I couldn’t steer both carts myself out of the bank.
Anybody hear about that 180k that was found in the walls?
“5. You won’t be able to find a date because you do not own property.”
You won’t want to go to class reunions because you don’t want to have to lie and say you bought a house in California.
I find I get a lot of (newfound) credit in social situations when I tell people that I sold my Maine house in 2006 and am waiting a while to buy another.
1. Buy now, or be priced out forever.
That always struck a nerve with me whenever I heard it.
How would people be able to afford buying any sort of home if the price was just going to keep on going up and up and up but wages weren’t increasing at a comparable pace? Seemed to me that basically, at some point nobody would be able to buy a house. Anywhere.
A LIMO driver with 11 properties and Greencrap want to help bail him out….I’m truly scared….and I’m still out of work.
—————————-
who ran a limousine company before wading neck-deep into the housing market, has seen not one, but 11 of his Northern California properties move into foreclosure in the past year
There is a contact button on the VCS article. I passed along my comments on the article, which in essence was a very polite way of saying these types of statements are total BS.
I guess this dude hasnt heard about the lending and liquidity crisis. Even if there were a pool of morons wanting to buy, they no longer qualify. Wall Street is desperately tyring to get rid of mortgages right now, underwriting and due diligence is the new trend.
http://homeguide123.com/articles/New_Poll_Gauges_Public%27s_Opinion_of_Subprime_Rescue_Packages.html
Doesn’t look like there is much support for subprime bailouts.
And doesn’t look like too many American voters are fooled by the MSM propaganda campaign to distort the real purpose of bailouts, either.
Nice try, Senators!
Speaking of opinions on a bailout -
http:/biz.yahoo.com/rb/071216/usa_economy_greenspan.html
“[Greenspan} warned against any sort of bailout plan for homeowners that interfered with the normal functioning of markets." ...
"Trying to prevent them [markets] from going down just merely prolongs the agony.”
oops, make that http//biz.yahoo.com/rb/071216/usa_economy_greenspan.html
Apparently a majority of those polled see through the false advertising that accompanies subprime bailout measures, which MSM financial reporters conveniently overlook…
Senate passes subprime legislation
By Stephanie Kirchgaessner in Washington
Published: December 15 2007 01:31 | Last updated: December 15 2007 01:31
The Senate passed a bill on Friday that could help an estimated 200,000 homeowners avoid foreclosure, bringing lawmakers a step nearer to enacting legislation addressing the subprime mortgage crisis after weeks of deadlock.
The bill raises the limit on the number of loans available through the Federal Housing Administration by allowing the federal agency that insures mortgage loans to halve the required downpayment for an FHA loan. It also increases the maximum allowable loan to $417,000.
http://www.ft.com/cms/s/08ee3922-aaa7-11dc-a779-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F08ee3922-aaa7-11dc-a779-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
Great so FHA is now subprime? Why don’t we do no down payment’s and 1% teasers? How about piggy back 80/20’s?
Is it any wonder that Tony Soprano found it so easy to run his HUD scam in season 4? Sometimes The Sopranos captures reality so well it is scary. These government agencies were designed to be corrupt and cheated.
And all the refinances and all the new loans have to appraise - and the refinances have to appraise for more than the payoff on the 2nd mortgage.
And the borrowers have to meet the income/debt caps of not more than 30% of gross for mortgage, taxes and insurance , and not more than 40-41% for all fixed debt which means car payments, credit cards, similar debts and including the mortage, taxes and insurance.
FHA was $362K, now $417K - same as VA, same as Freddie, same as Fannie…….yawn.
FHA was 3% down and has been for decades. The $110,000 house 20 years ago that required 3% down needed $3000; and the same house is now $220,000 and 1 /12% down is $3000.
Big deal. The VA always has, and still does, do 0 down.
Hardly going to make one wit of difference.
The appraisal requirements will eliminate a lot of refi but the real killer is the income/debt limits.
I agree…bought my first home through FHA…it was great start for a new home buyer.especially at that time when housing was very affordable…mortgage payments equaled just 2 weeks of only MY paycheck..
RE: And all the refinances and all the new loans have to appraise - and the refinances have to appraise for more than the payoff on the 2nd mortgage.
The mortgage company/bank doing the FHA/HUD loans pick the appraiser they want to do the job since Congress eliminated the autonomus fee panel system in 1992.
Appraiser’s who report the market accurately will be quickly and efficiently black-listed. The “fix” is totally in.
Nothings has changed here except the US taxpayer will be the ultimate bagholder instead of foreigners.
And let me say-as a former FHA/VA foreclosure appraiser for 15 years-as a “lender” of last resort”-FHA/HUD/VA underwrites some really shit-bag properties.
It’s the ultimate sell-out by the Washington politicos.
We are sure lucky the economy is merely slowing and not heading into a recession. Otherwise all these gloomy stories coming out of California would be quite worrisome. Like this one, for instance:
Budget battle heats up
Governor sees across-the-board cuts; Núñez looks to tax hikes
By Kevin Yamamura and Aurelio Rojas - kyamamura@sacbee.com
Last Updated 2:10 pm PST Friday, December 14, 2007
Republican Gov. Arnold Schwarzenegger plans to seek across-the-board budget cuts to solve an estimated $14 billion deficit, but Democratic Assembly Speaker Fabian Núñez said Thursday the state should now consider tax hikes.
http://www.sacbee.com/111/story/567019.html
Wait until they start cutting the flow of funds to the city, county and special districts. That when the fun begins.
Crispy:
you don’t know the half of it. That type of horsetrading is already going on.
I fear towns like mine will lose big on this, as the big Ca cities/counties go on a hunt for cash…:(
ECONOMIC PREVIEW
Fasten your seat belts, economy getting bumpy
By Greg Robb, MarketWatch
Last update: 12:01 a.m. EST Dec. 16, 2007
WASHINGTON (MarketWatch) — Investors! Please return to your seats and make sure your seatbelts are securely fastened: The economic outlook is going to get bumpy.
Economists are increasing the odds of a recession next year, at the same time inflation is looking downright scary.
So make sure you are seated before peeking at the data.
“The economy is weakening rapidly,” said Kurt Karl, chief U.S. economist for Swiss Re. “I’m at 45% probability of recession and it is rising.”
“It is going to be a bumpy landing. Whether it is a hard landing or a soft landing depends on what seat you are in,” said David Wyss, chief economist at Standard & Poor’s.
http://www.marketwatch.com/news/story/fasten-your-seatbelts-bumpy-economy/story.aspx?guid=%7BD5C71ECA%2D40F2%2D4217%2DA903%2DDD43B1581D84%7D
“Whether it is a hard landing or a soft landing depends on what seat you are in,”
Renter’s aisle, please.
Anyone hungry for some dripping red meat?
P.S. Don’t be surprised if the NAHB housing market index shows an uptick on Tuesday. It has been at a record low level for two months straight now.
This week’s calendar returns to the principal cause of the current woes, the weak U.S. housing market.
There is not expected to be any good news from this sector. On Tuesday, the Commerce Department will report on housing starts and building permits for November. On Monday, the National Association of Home Builders will release its housing market index, a sentiment survey of builders.
Economists surveyed by MarketWatch expect housing starts to fall 3.3% in November to a seasonally adjusted annual rate of 1.19 million from 1.23 million in October. Starts have fallen to a level that’s off about 50 % from the peak.
“We built too many houses at too high a price. So prices have to go down, and we’ve got to stop building houses for a while to get rid of the excess inventory out there,” Wyss said.
Wyss said that homeowners are reluctant to sell their homes for less money than they could have gotten a few years back.
“They are past that now,” he said.
But economists don’t think the decline is finished.
Karl of Swiss Re expects housing starts to fall below 1 million units for a quarter. The last time this happened was in the first quarter of 1991, when the average was 894,000 units. It just so happens this was during a recession.
“Karl of Swiss Re expects housing starts to fall below 1 million units for a quarter. The last time this happened was in the first quarter of 1991…”
Though it has been said many times many ways, it seems worth reiterating that it took the U.S. national housing market about five years to right itself after this point in the last housing bust.
“‘This is like a Third World country,’ says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street. ‘People go by and think, ‘We don’t want to live in this neighborhood.’”
Uhh yeah, ya think so ? Duhhh… golly, just let me rush right into buying a marginal residence in an area that the residents obviously do not care about. I’m talking about the usual crap; trash blowing in the streets, junker cars lining the sidewalks, people just hanging out on the street corners glaring at every car that goes by .. oh yes, it just makes me want to run out & buy a house in yer neighborhood.
Hey, whiner. Newsflash; like attracts like. Decent people want to live among other decent people while sketchy lowlifes see crappy neighborhoods as the perfect place to hide out/ blend in with their fellow scumbags doing illgeal activities. If you dont care enough about yer area to clean it up or get some fellow residents to help keep it decent, you cant complain about attracting nice people.
Nice post. I agree completely but the concept of the flipper also has such a detrimental effect on neighborhoods. Growing up we had five houses at the end of our street. All of the kids hung out together and grew up together. The parents in those 5 houses have owned for a combined 200 years. There was no flipping.
was a real estate tycoon; I had everything,’ said Medina. ‘Now I have nothing.
zero sum gain!
Speaking of tycoons:
http://www.latimes.com/business/la-fi-lazarus16dec16,1,6535219.column?coll=la-headlines-business&ctrack=8&cset=true
We were walking home down Hudson Street last night. We saw a large residential building going up that I hadn’t noticed before. It was a condotel building. Guess whose name was on it? Yep, Mr. Trump. It was nice to have a good laugh as the wind pounded us.
http://longorshortcapital.com/lame.htm
On the other side: Roubini argues for rate cuts-
http://www.rgemonitor.com/blog/roubini/232729
roubini argues for cuts.
I love that…. it looks as though you are getting out in front.
deflation.
The answers to the current mess aren’t in monetary policy. I’m gaining a new appreciation for Mariner Eccles. The answers to the current mess are in addressing the political, fiduciary and fiscal failures that allowed a single generation to waste the savings of all previous generations of Americans in speculative and consumption excess that can never turn a profit for future generations
and the winning losers are?
They not only wasted the savings of all previous generations but screwed future generations to come.
The answer is crystal clear, and traditional. It’s too late now, but the error is actually obvious.
It’s Alan Greenspan’s fault. No, I don’t mean interest rates.
I’ve been “spamming” the blogs with my thesis for a while now, and I think Paul Krugman agrees now (and said it much better).
Alan Greenspan was in thrall to Ayn Randian fundamentalist anti-regulatory ideology. The kind most people outgrow after college, after they see the real world.
The solution was traditional, classic, moderate and fair government regulation.
The Federal Reserve has, and had, many powers and responsibilities beyond just one knob and the FOMC. Specifically they could have strenously investigated bank reserves and increased reserve requirements and crack down on the massivec deterioration of loan quality.
Once upon a time, “liar loans” were a felony, not a product.
Same thing with the dot com boom. The Fed has the power to increase margin requirements on stocks—the parallel to reserve requirements for bank lending. He didn’t, he just choked the whole economy with rate hikes, while letting the tech bubble blow up.
Greenspan needs to learn from a bartender. The way to deal with a drunkard is to cut him off from liquidity.
Not by raising the price of beer to everybody by 50 cents.
D’oh!
They worry that a crashing economy will hurt workers, well doesn’t inflation hurt workers as well. People spend more mon gas and food and less on goods and services. Thus fewer people will be employed and the ones that remian employed will effectively see their pay check shrink. They are not putting more money in the workers pocket they are bailing out banks.
LA Times is a motherlode today
http://www.latimes.com/business/la-me-merrill14dec14,1,4634663.story?coll=la-headlines-business&ctrack=6&cset=true
I guess it’s one of those moments best described by the famous quote:
“Burn me once, shame on me. Burn me twice, shame… uh, shame on… um…”
“‘Families are literally saying, Thank goodness for this housing crisis, because we may actually be able to stay here.’”
That was certainly my attitude in NYC in the early 1990s. There simply isn’t the acceptance that sky-high housing prices was a disaster in itself. Why? Because it is a disaster for young people who just want a home. High hope prices are a great deal for older people who already own and are looking to cash out, and flippers.
California is borrowing billions to create “affordable housing.” Affordable housing is considered a problem in NY and Boston. Lower prices are the solution.
I am trying to get our municipality to buy foreclosures direct from the lenders for use as affordable housing. But, not this year. I suggested late 2009 or 2010.Should be able to get them at 50-60% on the dollar, unless the FBs get in the action. By the way, if you’re going to die, do it 2010. No death tax.
I’m not sure about the “no death tax in 2010″ comment. I thought the latest temporary fix for the estate tax expired in 2010, thus going back to the old levels unless a fix is implemented.
You might want to check that before checking out in 2010 and delay dying until a new fix is put in place. Perhaps 2011?
You mean the dead multi-millionaire tax? Doesn’t sound as vile with it’s proper name, does it?
Medina, a Concord resident who ran a limousine company before wading neck-deep into the housing market, has seen not one, but 11, of his Northern California properties move into foreclosure in the past year, he said. ‘I was a real estate tycoon; I had everything,’ said Medina. ‘Now I have nothing.’”
Sounds like the housing market ain’t the only thing Medina waded into up to his neck. In retrospect, it appears that he waded in over his head, although it took him a little time to figure that out.
“Medina said he dabbled in real estate for years and made some money before gambling too big and buying 11 properties at virtually the same time in early 2006.”
(Hey, great idea!)
“‘It was a really, really bad investment,’ said Medina.
(No, actually, it was a really, really, really, really, really, really, really, really, really, really, really, really bad investment. But, hey, why beat yourself up over it?)
– Judge Smales
“You’ll get nothing and like it”
“There is some hope that more middle-income earners will be able to stay in the area as housing prices fall. Steve Carrigan of Pinnacle Financial Corp. said he’s hearing that more and more. His company conducts homebuying workshops.”
some hope = falling rents?
the Funky Concord Medina…
“Israel Medina admits he got too gung ho about the idea of getting rich by flipping Bay Area real estate. Medina, a Concord resident who ran a limousine company before wading neck-deep into the housing market, has seen not one, but 11, of his Northern California properties move into foreclosure in the past year, he said. ‘I was a real estate tycoon; I had everything,’ said Medina. ‘Now I have nothing.’”
“Medina said he dabbled in real estate for years and made some money before gambling too big and buying 11 properties at virtually the same time in early 2006.”
“He said he lost the luxurious, six-bedroom house he was occupying in addition to 10 others he was trying to sell, plus most of the limousine business he had been running for years. He said the financial mess has left him penniless, facing bankruptcy and lawsuits, and saddled with a $3.6 million tax bill.”
“‘It was a really, really bad investment,’ said Medina, who said he lost hundreds of thousands of dollars of his own money that he had invested in the homes. ‘I should have bought fewer homes. I never should have gone so crazy.’”
So what happens to these guys? I don’t really understand the changes in the bankruptcy laws I guess. Do they get to BK and walk from all this or does some follow them til they pay it off? With so many in debt this deep do you all think we’ll eventually see an amnesty of sorts for people who end up owing half a million dollars even after BK?
“Medina said he dabbled in real estate for years and made some money before gambling too big and buying 11 properties at virtually the same time in early 2006.”
Medina should be prosecuted. The reason he bought 11 properties at the same time (a la Casey Serin) was because he knew that credit reports aren’t updated fast enough to catch multiple simultaneous home purchases - so lenders weren’t aware that he was buying 10 other houses at the same time. Any bets he claimed that each of the 11 houses he purchased was going to be his “primary residence”, to get the lower interest rate?
That Medina’s a monster, y’all.
Truly funny! Thanks for the Tone Loc Ref!! D
“More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures.”
Bay Arrogance became common amongst the “investor” set.
I have a half dozen coworkers who will join the ‘five or more foreclosures’ club.
And yet there is supposed to be some bailout that can stop this? Shoot. This could be really entertaining! 
Got popcorn?
Neil
Doesn’t “five or more” mean they are officially “ace-holes”?
Got Joshua Trees?
Iowahawk is a victim of the subprime loan sharks!
[url]http://iowahawk.typepad.com/iowahawk/2007/12/please-dont-des.html[/url]
“The number of people leaving the state exceeds the number entering the state domestically, though it does not outnumber those coming in internationally. In 2005 and 2006, the state was losing people even as it was gaining jobs, the forecast reports.”
L.A. is quite the melting pot for the Pacific Rim, LAX being the Ellis Island point of entry for those fondues arriving from Asia, and the rest from the Americas, come mostly overland.
If our economy goes as bad as it looks it will, how many of these people will head back to their home countries?
One of my former colleagues in LA is an American citizen of Chinese descent who immigrated from Hong Kong. He told me the Chinese how the Chinese immigrants do real estate in the U.S. They buy low and sell high. They buy in cash. Usually when interest rates are high and rents are in line with PITI for the same square footage. I think that goes for other Asian groups. They don’t get bitten by the credit bubble like the several generations-old Americans.
Sorry a bit OT from housing ,
US Gov’t makes it very difficult for chinese to emigrate to US. They have to go thru all kinds of bureacratic red tape and fbi background checks courtesy of post 911. And the Chinese gov’t likewise puts strict curbs on chinese travelors on B-1 tourist visas and b-2 business visas so that they cannot jump ship and overstay . Lots of hurdles to go thru for Mainland Chinese nationals, even those who are highly intelligent ,college- educated and able to converse in english, to legally immigrate here to US.
Hong kong requirements probably less strict.
I am naturally against unrestricted wide-open illegal imigration from South of the border but why does US have such restrictions and hurdles against Well-educated skilled Chinese emigrating here? Do they fear chinese Terrorists? I would thin k that we should encourage more educated highly skilled East Asians and Indians to emigrate to US. They would turn out to be a great asset as they are by nature savers, very thrifty, very honest and law abiding and respect education.
US immigration policy is Stupid to say the least. 20-30 million uneducated latino peasants from neolithic age cultures allowed to swarm into US illegally along with uncounted hardened crooks and criminals, all with no skills, but bar and restrict college -educated highly skilled Asians.
Repeat: US immigration Policy is Asinine.
Well said peter,
This is the US mentality. They don’t want immigration from “unfriendly” (read - non caucasian or poor) countries. And for latinos, it is mostly not because they want, but they can’t (bar them from entering).
How many people will head back to their countries? I can easily answer that one: NONE!
It’s gotten a lot harder to re-enter the US now, so there is no way any illegal will take a chance on going back home to wait this out, and end up stuck back home, as as long as he/she can afford a case of Top Ramen & can rent/hang out with friends/relatives on a spare couch or simply a few square feet of room. Would YOU or I go back to poverty and despair if we had a choice? Of course not! (BTW, notice that the hispanics have a very strong family/ethnic/community system? Right - so that means they will not just turn their backs on each other . . like anglos.)
People who run their mouths about all the illegals finally going home have never BEEN to a truly miserable 3rd world country. These illegals are dug in like ticks in the US. You WILL NOT get any of ‘em to leave voluntarily.
The worst day in the US is better than the best day back in the Poverty-NoHope-Corruption-Reigns-Ciudad. A temporary financial setback or downturn in the US is nothing compared to decades of utter misery facing returnees going back their south of the border origins.
disclaimer; this is not an anti-hispanic diatribe. just a reality check of the facts of life - - - aka how things really are in the world. the ENTIRE world.
On the other hand, I run into an awful lot of (anglo) American retirees who now spend their winters south of the border.
It’s really not that bad an idea for retirement. There’s even a mostly American neighborhood in Tijuana now of white San Diegans that moved there cause of the high cost of living in San Diego.
In fact, quite a lot of asians have left in previous recessions.
You can just count how many high tech executives from Taiwan actually are US educated and left in the 80 and 90’s recessions.
Of course, if you are poor and uneducated, your mobility is limited.
My god! Four, six, 11 houses! The greed is stomach turning! I have more respect for those in the porn industry!
I know at least one former flipper who now works in the porn industry. At least he is in a more respectable occupation at this point.
Great, now he screws different kind of people.
Professor - I will spare you the details of the link between the limo and porn industry, but I assure you I could go indepth.
No pun intended.
“Last year, payments for the duplex that ended up on the auction block soared to $6,000 a month - double the rents the property generated. The couple tapped their retirement funds to pay the soaring mortgages. After emptying their savings, they fell behind on payments.”
Not smart touching the retirement fund!
Payments double the rent it generates. Wow, what an awesome investment! Good thing they bought 5 of those. Suckers!
“‘People nowadays don’t want to sacrifice,’ Loutzenhiser said of the lack of down payments, loans that didn’t verify incomes and use of home equity to pay off credit cards. ‘They want it all, what a lot of us took years and years to accomplish.’”
-Please don’t be to hard on us Californians.
Every second of everyday we are bombarded with the media saying how much we deserve, earned, need NOW every concievable thing that you can imagine.
I don’t know about you, but MY media all comes with on-off switches, or can be easily bundled up and recycled.
A lot of people seem to be missing something in this mess. I keep reading stuff like, “Many of these homes were bought by investors.”
Excuse me! Borrowing $600,000 just by signing on the dotted line to buy a house when you don’t have a pot to piss in (to quote my old cockey mother) doesn’t make someone an investor. Borrowing another $700,000 to buy yet another property when you still don’t have a pot to piss in still doesn’t make you an investor. You can borrow $50 million but that doesn’t make you an investor. How about we change the term to, “Many of these homes were bought by people who committed fraud with the aid of realtors and mortgage brokers. Most didn’t have a pot to piss in when they jumped on Mr. Magoo’s free money train and now that their “investments” have gone belly up, they have even less of a pot to piss in.”
Wall Street green lighted 100% LTV at the height of the madness. That was the whole game - buy now at a low teaser rate with little or no money down. If it goes up, sell for profit $$$. If it goes down walk away. That’s what these loans that Bush is so “worried” about were for. The sad part is for the most part it was legal. Under such circumstances why not try it if you have bad credit, are unemployed, just got out of jail, or have some savings from your limo business. Those poor ppl. How can we help them?
Many J6P and gangsters did rob the banks (legally) for 100K per house.
Once in a life time wealth transfer from Wall Street to Main Street.
Mike: agree with your point, but the culture continually changes the meaning of certain words. When was the last time you referred to someone who is happy and outgoing as “gay”?
If the MSM keep it up, the term “investing” is going to acquire the all the moral heft of the salesmen in Glengarry Glen Ross.
We’ll probably end up with a new word to distinguish what Warren Buffett does from what Casey Serin and the Funky Col’ Medina did.
“Jack Poe is among the few who has seen opportunity in Western’s crisis. The ATM repairman and his sister were able to buy half a duplex from US Bank a month ago for $86,000, well below the $125,000 to $200,000 prices similar homes on the street were going for just a few years ago.”
“Poe got a taste of reality right from the start: Someone stole the air conditioner from his new place while it was vacant.”
“‘We don’t have a lot of neighbors right now,’ says Poe, who formerly lived in a rented house in Rancho Cordova. But he’s upbeat about having 800 square feet of his own now. ‘It’s finally nice to say, ‘I’ve got a home.’”
Quote the ATM man…
Air conditioner, nevermore.
Jack Poe said, “Someone stole the air-conditioner.” He then said, “We don’t have a lot of neighbors right now….” Jack, here’s the tip of the day: Your copper piping is next on the list, followed by the electrical fittings.
Jack 6 Poe = Joe 6 Pack !
Anyway, off topic, some exotic places where the exotic loans ended up:
Lehman faces legal threat over CDO deals
By Peter Smith in Sydney
Sunday Dec 16 2007 17:05
Lehman Brothers (NYSE:LEH) faces the threat of legal action by municipal councils in Australia over the sale of high-risk collateralised debt obligations by the Wall Street bank’s local subsidiary, Grange Securities.
At least two councils in New South Wales and a third in Western Australia are considering litigation against Grange, which marketed Lehman-originated CDOs to dozens of Australian councils as well as to charities and a public hospital provider.
The losses suffered by the councils and charities are further evidence of the damaging impact of the recent global credit turmoil as it spreads from sophisticated large investors to small communities round the world - and is increasingly starting to hurt mainstream, risk-averse investors such as local governments and pension funds.
“A Marin resident invested $1 million in four properties that a construction company owner told her he would fix up and flip; she lost all the money, her good credit and her own home. The Marin resident, Rose Hodges, said she attended Marin investment clubs and met many people like herself who wanted to learn how to invest in real estate.”
Smelling like a Rose…
On the other hand, Ms. Rose Hodges probably gained some much-needed smarts.
“‘All these Baby Boomers started inheriting money from their parents and looking for ways to invest it. And the real estate market was booming,’ said Hodges, who learned the hard way that such investments can have a big downside. ‘It’s crazy out there and people ought to know.’”
This is why we had a housing bubble. The boomers needed to be relieved of their wealth by billionares who still don’t have enough money. It began at the top with the federal reserve while dubya looked the other way.
Actually, I thought it happened after Enron, tech bubble and stock market meltdown post 9/11. People decided to pull money out of the market and put it in RE where it was supposedly a safe bet. Just a recollection.
“investment clubs” anecdote:
Went to an “investment club” at one of the PHX trailer parks where I have made some mortgage loans. The people were into this stock and that stock yakkety yak. I said I was happy with my 9%-10% loans on properties in that very park, and suggested that I wouldn’t resent competition (although I might’ve if it had been much forthcoming). Nah, nobody wanted to take the “risk” on their neighbors (even a few years back), and they all had the impression that smart stock picking would net them more than 9%-10% per year. True, but what made them think their picking would be smart? Guess I shouldn’t knock all “investment clubs” though: HBB is one of the best.
I wonder if one of her clubmates was named Zuzu Petals?
“There’s a lot of us waiting on the sidelines for prices to come down to an affordable level, says Chris Stafford, in Sacramento. ‘A lot of us were priced out of this market.’”
Finally, they are getting it right. BUY NOW AND BE PRICED IN FOREVER (until you go belly up).
Looks like a lot of people put all their chips for the next 30-years on the Green-Double-Zero. Many are just starting to realize that it’s a Single-Zero wheel.
Whoops.
“He said the financial mess has left him penniless, facing bankruptcy and lawsuits, and saddled with a $3.6 million tax bill.”
How do you deal with a 3.6 mil. tax bill after losing everything?
Ask Al Capone. Maybe the feds won’t nail you for the fraud, but you can be damn well guaranteed the IRS is going to get you for non-payment of taxes.
“A growing multitude of those buyers, … are being BLOWN back out of their houses.”
lovely imagery! ‘backdraft’ & hiroshima combined….
“‘We had almost $200,000 in the bank, but it’s gone,’ Tellez said ruefully. When the mortgages on his other properties reset next year, he won’t be able to make the payments, he said.”
That’s expensive innovation, Mr. Lender.
What’s sad is that it sounds like Tellez and his wife had actually attained the mythical American dream. They’d worked hard, saved a lot, and owned their own home. How tragic and needless to throw away their hard-won gains on the advice of false or clueless “friends.”
Had they not been greedy a$$holes, that advice from friends wouldn’t have caused any loss.
It is their GREED that did them in - as they deserve.
I hope they starve.
I hear this here alot - GREED!!! — Frankly, wanting to make money is no sin. It is not greed, and it’s not wrong.
What did these people in was STUPIDITY. They bought “investment” properties with ARMs that reset to payments that the properties did not cover.
Wanting to make money is no sin - it is wanting EASY money - money you have not earned - money you commit mortgage fraud for - money you ‘invest’ with no sense of the devastation you cause (take a look at the up and coming slum in Lehigh Acres for further) that, in my opinion, qualifies as GREED and warrants a front seat on the fast train to hell.
“‘We had almost $200,000 in the bank, but it’s gone,’”
It was just the HELOC ATM they got the money from. Not like they actually worked for the money.
I’m not sure. It sounds like the 200K was real money they saved from hard work (cleaning restaurants was it?).
I read it as they saved up for the downpayment on the first house and then pulled out the 200K for buying the others.
A friend of my husband has had his home on the market off and on for almost 2 years. His price started at 599,000 and after a few reductions is now at 449,000. He received an offer the other day for 425,000, (after a long period of no interest) and countered 448,000. Of course my husband told him that he should have jumped on the 425,000 offer, but what does he know, he is but a lowly renter. When my husband told me about his friends counter-offer, I told him that, myself as a potential future buyer (seems the more money I save the less I want to buy), would be insulted by his counter-offer. Is this just me?
Julie, Pacific North West Ca.
myself as a potential future buyer (seems the more money I save the less I want to buy)
Weird but true here, too. Owning a house used to be everything to me, now, not so much.
Is this just me?
I don’t know if I’d be insulted, but I wouldn’t bother “negotiating.” If I was the only party to offer in two years, I’d offer $405K or something like that as my “counter”.
People are still hanging onto those dream prices. I know of house on the market in VT (absolutely gorgeous property) owned by an out of state couple who wishes to not keep up on the maintenance, etc. Their asking price is $750K. They got an offer of $660K (or there abouts) and turned it down flat. I guess they are going to “ride it out” - ahem. I’m thinking next year there are going to be kicking themselves for not taking it.
Got a link for the listing?
I went to look it up on realtor.com. No dice. I believe that the source and numbers were reliable but the listing isn’t there. (A client of mine who is a neighbor and friend of the sellers.) Sometimes listings don’t show in realtor.com because local agents won’t pay extra for the listing.
However, in looking for any sort of listing on the property, I submit these comical numbers -
Anyone up for paying $649K for 42 acres of raw land near smuggler’s notch ski resort? Ready for your tent, or given the snow, your igloo:
http://www.picketfencepreview.com/WolcottLAND.htm
or this property, which I admit is nice but seriously overpriced:
http://tinyurl.com/2jsj72
This property was bought and built after a large settlement from car accident about 10 years ago. (One of the owners is paraplegic.) The owners built it so they could keep horses and accommodate her wheelchair. Apparently they are selling it because, not surprisingly, they are running out of money to bring in nurses to help take care of the woman. (Wait - do you mean that settlement money might have had a purpose other than to build large, custom houses and keep horses???) My client had the original listing on this property and thinks it won’t sell until it’s south of $650K.
Or would anyone like this very ordinary house which has been on the market for 3 years, just 1 mile down the road from where I used to live:
http://tinyurl.com/3aq74r
Note the previous price in the description. 11+acres may sound impressive but this house sits in the middle of a farm field. You need to find a farmer or mow it down each year to keep the views. Heating it is a killer, though, as was relayed to me in a discussion with the woman who owns the place.
I would have countered with a photocopy of my a$$ if I were the potential buyer. I would have moved on to the next desperate FB. Something tells me you would get a call with an apology.
LOL!
Picture the realtor’s (sorry, REALTOR(TM)’s) office:
“Hey, the counteroffer is coming through on the fax machine now…WTF?”
As with any negotiation know how much you are willing to give before negotiations begin. You either get there are you dont. No one should ever feel insulted in a negotiation unless you are personally attacked. That said, dont low or hi ball (on either side unless you are willing to walk away). In this market, sellers should be more worried about the other side walking away.
You would be right to be insulted. They tell us it is a great time to buy because there are so many choices out there. Fine, since there are so many choices there is no reason anyone should put up with that seller’s nonsense.
Those that prepared and waited have only to be patient and drive a hard bargin.
I, WASP, am not from the Negotiating Culture, but I don’t see anything insulting in the seller making a counter-offer. The buyer can either counter back, or walk away. Where is the insult?
“I told him that, myself as a potential future buyer (seems the more money I save the less I want to buy), would be insulted by his counter-offer. Is this just me?”
People seem to worry about insulting each with money offers. I don’t worry about it either way, offering or when someone makes an offer. Different people are going to have different views about what something is worth. How do you come to an agreement if you can’t even talk about the price? I’m always looking for a bargain - *grin* - why would it bother me if others are doing the same?
I remember that my grandmother would get so steamed when people would counter offer prices at her yard sales. (”What’s wrong with the price???, it’s worth way more than the price I put on it, etc”) It was very entertaining to watch but I suspect it’s a hard way to function when your ego is wrapped in the eventual price of an object.
Hey, if they don’t balk at the offer–the offer is too high.
We sold our house a couple of years ago, after it’d been on the market for about 45 days, we received our only offer, $100k off our listing price.
We dickered back and forth and sold it for $60k off, as we wanted it gone.
This was in a HOT real estate market, mind you.
Take the $425k and exit, stage left.
Julie,
A lot of people are coming to the conclusion that renting is a lot better than buying. Owning part of the “American Dream” called home ownership has changed over the past few years for several reasons. In fact, for many it has become the “American Horror Story”.
If you own property, you are a stable cash cow for the increasingly financially avaricious state and federal government and their cash strapped agencies and it’s going to get much worse. Federal and State incomes are too high. Benefits are too much. Waste is built in. They need money and they are going to need a lot more money. We are in a serious financial mess and one of the ways we are going to stop the pain (but not eliminate it) is through increased taxes. The current adminstration and their business pals have sucked billions and billions of dollars out of their corporations because of “The-Idiot-In-The-White-House” who did the usual Republican move. Help the corporations and their CEO’s skim millions but throw the peons a few bucks to shut them up.
Unfortunately, the next administration, the Democrats, will get blamed for increasing taxes unless anyone is dumb enough to think the Republicans are going to get back in and continue to rob, steal, cheat and skim as they have done for the last 8 years.
Rents are interesting. They are basically a wonderful indicator of a free market. Those who rent out property can only charge what the market will bear. They don’t offer “free money” as Mr. Magoo did, to top up your rent if you don’t have it. A WalMart worker cannot afford $6,000 a month, so a property owner looking to rent his over-inflated $800,000 house which is only worth $250,000 in a normal market, has to bear in mind what renters can afford. He isn’t going to get $6,000. He might get $2,000. Meanwhile, the property owner will see his/her investment increase over the years at a reasonable rate of return. The past 6 or 7 years has been a fluke caused by incompetence on the part of the Fed, collusion by the Republican administration and corruption on the part of realtors and brokers. The six years of price increases we have seen will either collapse fast or sink slowly into the sunset over a few years but a return to affordable rental prices vs. affordable property values WILL happen. Use 100x the rents being asked is a good guide. The house I rent was valued, at the top, at $700,000. I pay under $2,000 rent. The house has already dropped to $575,000. When it drops to between $225,000 and $250,000, the bottom will be in. Not before. That’s why we have not seen the bottom (by a long way) of this meltdown.
Rent payments, even though they are creeping a little higher, are much, much cheaper than mortgage payments.
There is more. Property owners get saddled with repairs, insurance, etc. A friend just had his roof repaired on his home. $27,000! He’s had to take out a loan. There’s even more negatives to owning. The Social Security fund and the Medicare fund will run out of money. Maybe a lot sooner than we think. The shortfall will be addressed, through legislation, via “means testing”. If you own a property worth $500,000, that knee replacement costing $70,000, will only be partially funded by Medicare in a few years time. No cash? No problem. Reverse mortgage. In fact, the scumbag real estate brokers are already switching their greedy attention to this pot of gold. Read blogs like Broker’s Outpost for confirmation. However, if your money is in a place where the government cannot find it……
Finally, I can afford to buy any house on my street for cash, having sold 2 properties a few years ago and banked the profits. I had intended to buy when prices dropped but now I have NO intention of buying. My wife and I have not bogged ourselves down with a lot of material crap which we would have to get rid off. We can fold up our tent and move on in 36 hours. Something we are considering as we head into next spring. The feeling of freedom is wonderful.
I agree about the benefits of renting. I too sold my properties. I thought I would rent for a year or two, before buying again, assuming it would be a pain. The savings between my rent payment and what a mortgage would cost far outstripped appreciation, or should I say depreciation, I missed out on. If something goes wrong, it’s someone else’s problem. No tax hike surprises, etc. And as you noted, no matter what happens in my life I can be out in 24 hours. No worries. I sleep well at night.
I see your point about not being insulted by a seller; I guess it’s just the low-balling bitter renter in me.
Ben, I would like to thank you for this blog, before I found it I was very frustrated and thought that I was alone in thinking that the world had gone crazy. I had never even been on a blog before this one and over the last year and a half of lurking here I have learned so much. I found this site through an old Newsweek article on HBB, while doing research for an English paper, (in which I received an A, thank you very much) I have come back everyday since.
Mike, your right about the high cost of home ownership via taxes and repairs, I think one of my biggest fears is buying a home and then regretting it later. For the first time in my life I am debt free and have money in the bank (which sometimes you guys scare me about, but I don’t want to put it under my mattress) and I am very happy. I don’t want this to change in pursuit of the “American dream”
Julie
Wonderful post!
~Misstrial
deflation.
Mike, I agree with you that tax increases in one way or another are
coming . It will be interesting to me who the powers decide to bleed the most in the form of tax increases .
“‘This is like a Third World country,’ says Michael Davis, who grew up in the neighborhood and lives in a rented house on the street. ‘People go by and think, ‘We don’t want to live in this neighborhood.’”
http://www.youtube.com/watch?v=O3a1tfdQ7ms
Ben,
We are experiencing deflation in housing which directly influences the velocity of money. While it is still a week until the next weekend topics, I would like to suggest “velocity of money” as a weekend topic because I believe this is the crux of what the fed will be fighting going forward and it is a very real indicator of where the economy is heading and it shows clearly how housing will impact on the US and in fact the world economy.
Yes, Hanky Panky, this is such a very good idea. I would like to learn more about how the “velocity of money” is going to be affected by the housing collapse.
One of the above links to Roubini has him saying to cut interest rates because the house is on fire and that’s not a good time to be nit picking about inflation. Deflation will rule.
But if the dollar collapses then we pay more for oil and we get inflation anyway. And maybe real interest rates on mortgages go up even though the fed rate goes down because with the falling dollar we can’t attract the foreign money.
So, I really would like to analyze additional factors such as “velocity of money” to try to figure out what the heck is going on.
Like gold. It has pressure to go down because of the coming Depression; but has plenty of reason to go up as insurance against inflation and a potential run on the banks.
I assume you’re thinking that the velocity is going to go down. What data will tell us this? And if velocity does go down, then I assume that this fits the deflationary scenario?
Hard to figure it all out.
P.S.
The reason that I am a gold bug is because my definition of inflation is similar to Ron Paul’s which is an increase in the money supply. Money supply is way up. I think there might be a lag time before it shows up in prices which is the common thought of what inflation is.
So the increase in the money supply to me means that inflation is already baked into the cake (worldwide).
And to me the money supply is starting to have some parabolic characteristics. I think the rate of increase has doubled in the past 18 months. If it is parabolic, that rate of increase could double in another 9 months; ad infinitum, until collapse.
I think it is conceivable to have an inflationary depression.
If the velocity of money is slowing; wouldn’t that show up in the money supply?
Where do I find the rate of growth of the money supply?
Did you see this??? (not good):
Dec. 17 (Bloomberg) — Centro Properties Group, an owner of almost 700 U.S. shopping malls, plummeted 69 percent in Sydney trading after cutting its profit forecast as it struggles to refinance debt amid the U.S. subprime mortgage fallout.
Dividends are expected to be 40.6 Australian cents in the year to June 30, 2008, down from 47 cents in a previous forecast, the Melbourne-based company said today in a statement. Centro won’t pay a dividend in the first half.
The slump wiped A$3.3 billion ($2.9 billion) off Centro’s market value as the company said it may have to sell assets after it was unable to refinance A$1.3 billion of debt. Centro, which owns shopping centers in about 40 U.S. states including the Roosevelt Mall in Philadelphia and Clearwater Mall in Florida, increased its debt to 44.1 percent of assets after adding A$14 billion of American malls in fiscal 2007.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aHzee_C8fH7o&refer=home
I live in Glendale Ca. and just met with a friend who brought a home in Burbank (2005) with an ARM @ $600,000. I had not seen him for about 2 years, he looked like he had been beaten with a sack of oranges. 15 years older, bags under his eyes, he and his wife have shelved the idea of having children.
He got a dog and hangs out with it.
I Pray, “God, let Josh default and walk away, he really needs a break from the pain”, “As you love all your children, let the market die as fast as it can” , “maybe a gigantic Earthquake…, but it’s up to you, all I see is the suffering now”
He could not have picked a worse time to buy in Glendale! I sold in late 05 in Pasadena, just as the market hit the absolute highest point. The day I got that check I could not stop giggling, because I knew I had dodged a bullet. If I had held on even another month or two, I would have gotten much less.
“A Marin resident invested $1 million in four properties that a construction company owner told her he would fix up and flip; she lost all the money, her good credit and her own home. The Marin resident, Rose Hodges, said she attended Marin investment clubs and met many people like herself who wanted to learn how to invest in real estate.”
Still has her smug, not a total loss.
http://www.washingtonpost.com/wp-dyn/content/article/2007/12/14/AR2007121401521.html?hpid=opinionsbox1
Geo. Will: “The principles of “compassionate conservatism” are opaque, but they might involve liberalism’s premise that Americans are so easily victimized they must be regarded as wards of government.”
And for every act of government “compassion,” there is some party that is harmed. Example: You send money to feed the poor in Africa, you enrich corrupt bureaucrats and harm African farmers.
Wow. George Will does a great job of explaining the situation. All of the talk of bailouts is an abomination to America. Hillery is too corrupt to know that. Bu$h is probably too dumb. Paulson is just looking out for his buddies. And in the end none of it will work.
All the more reason to think that buying may very well lose its allure for a long time to come.
The chart says it all. Lots of wide spread damage to Bay Area Housing. It may have started with consumers but the employers
pretty much started and continue to move jobs elsewhere.
http://www.housingbubblebust.com/OFHEO/Major/NorCal.html
I hope that Medina winds up in prison sharing a cell with Casey. Phucking idiot. Due to people like that, I fled the Bay area.
Hey Medina.
I want to win everytime I go in a casino, just like you did. But sometimes you lose. Take your loss like a man and go crawl in a corner and hide your face in shame. Of course, I only go to the casino to evaluate them. Someone pays me to go. I do what I need to and leave. I get paid everytime. If I make $20 in the casino, an added bonus. Ciao’ to Clownifornia.
At least we don’t hear about those who lose big in the casino sit there and whine and blame someone else for the loss. They knew they had a chance of winning or losing.
http://www.wbaltv.com/news/14865594/detail.html
Homeowners Could Be In For Rude Awakening
Annapolis, MD — Maryland tax officials are reminding homeowners of a change in state law that means they won’t automatically receive a property tax break as they have in the past.
Maryland’s Homestead Tax Credit law puts a 10 percent limit on the amount of a home’s increased value that can be taxed each year. However, the change requires homeowners to now apply for the tax break. The credit applies only to primary residences and the change is intended to identify those who are illegally using the cap.
More than 700,000 Maryland property owners are due to receive new state assessment notices this month.
Here’s a way to have some fun: I went to the San Diego County property tax search page. Taxes were due on 12/10. You can enter a street name and zip code and see everyone who didn’t make their 12/10 payment on time, on this street there are multiple lates who owe over $10K for the six months- I hope the link works, it is for Ranch Gate Rd, zip 91914:
https://www.sdctreastax.com/ebpp3/Start.Aspx
OK, the link does not show the search results, you have to enter the info on the first line, just type in Ranch Gate Rd, and then the zip 91914.
I like that addition at thge bottom telling you that you can use credit cards without being charged extra but the credit card companies will screw you for another 1.8%. On $10,000 isn’t that another couple of hundred bucks? As the 1950 song went, “One day older and deeper in debt.”
The comment from Rose Hodges about baby boomers inheriting money and investing in RE is very telling. House rich boomers, afraid of the stock market since the dot.com crash, were a big reason for this bubble. There were looking for the big killing so they could retire. Millions of boomers out there and there dangerous.
The question is — where will they start putting money next, now that housing is toxic? Or maybe they don’t have any money left.
Excellent article on professor pigginton’s web site from foreclosuse expert Ramsey Su. What a surprise the Bush bailout isn’t as homedebtor friendly as one might think.
http://piggington.com/guest_commentary_ramsey_on_the_big_mortgage_bailout
The Big Mortgage Bailout — The Big Lie
by Ramsey Su
A few highlights from the above
The ASF/Paulson bail out plan is 34 pages but all you have to do is read the executive summary which is only five pages. I strongly encourage anyone interested to take a few minutes to read through it. I will post the link again: Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans
One short sentence on page 1 and one short paragraph on page 5 pretty much summarized the entire intent of the plan.
On page 1, the scope of the bail out is limited to:
• were originated between January 1, 2005 and July 31, 2007;
• are included in securitized pools; and
• have an initial interest rate reset between January 1, 2008 and July 31, 2010.
Any reasonable person may ask: if the plan is intended to help borrowers avoid foreclosure, why would a government plan be limited only to loans in securitized pools? ASF answered this question on page 5:
The modification maximizes the net present value of recoveries to the securitization trust and is in the best interests of investors in the aggregate,because refinancing opportunities are likely not available and the borrower is able and willing to pay under the modified terms.
Now that I have laid out the background, the bailout plan is much easier to understand. Every word in the proposal is intended to maximize the net present value of recoveries, nothing else. If you are looking for the section as to how it will help borrowers, let me know when you find it because I sure can’t.
Here are some of my analysis and opinion of various parts of the bailout plan:
FICO test:
• If the current FICO score is less than 660 and is less than a score 10% higher than the FICO score at origination, the borrower is considered to have met the “FICO test.” If the borrower meets the FICO test, the servicer will generally not determine the borrower’s current income.
• If either a) the current FICO score is 660 or higher, or b) the current FICO is at least 10% higher than the FICO score at origination, the borrower is considered to not meet the “FICO test.” If the borrower does not meet the FICO test, the servicer will use an alternate analysis to determine if the borrower is eligible for a loan modification.
While the masses may consider this FICO test totally illogical, it makes perfect sense under the profit model. The plan is to make anyone who has ability to pay, pay. The 10% higher rule is to weed out those who had taken steps to improve their credit score and therefore must have some money to pay and make them pay pay. There is no consideration for fairness, moral hazard, or just morals; this is purely about maximizing profits and our government is not only endorsing it, our government is promoting it.
Page 2
• All servicers of second liens to subprime borrowers should cooperate fully with this framework by providing information needed by first lien servicers and by agreeing to subordinate the second lien to any new first lien resulting from a refinance (with no cash out) under this framework.
• If the borrower also has a second lien on the property, this framework contemplates that the borrower is able to refinance the first lien only, on a no cash out basis. In order for the loan to fall into this segment, the second lien does not have to be refinanced; however, any second lien holder will need to agree to subordinate their interest to the refinanced first lien
.
My thoughts: There is no doubt that the 2nd lien holder is the biggest benefactor of these bailout plans. Their position improves from total loss to possibly no harm at all. Whether it is a short pay refinance or a 5 year freeze, the 2nd may get something out of nothing. They may be the biggest driver of these plans.
Page 3 – (Segment 2 are the targeted borrowers)
Segment 2 includes current loans where the borrower is unlikely to be able to refinance into any readily available mortgage industry product.
• Current: For purposes of this framework “current” means the loan must be not more than 30 days delinquent, and must not have been more than 1 x 60 days delinquent in the last 12 months, both under the OTS method. Corresponding tests would apply under the MBA method if the servicer uses that standard.
I wonder how many people, when they heard the word “current”, would define it as ASF does here. In simple terms, you are current if you are not delinquent by 1 payment right now or have not missed more than two consecutive payments in the last 12 months. Why is this “current” an issue? It is sold under the pretense that the bailout is to help responsible borrowers when in fact it is to identify those who can still manage to pay something.
“‘We saved our money while our friends and co-workers bragged about how much equity they just cashed out to buy their new boats and cars,’ says a recent post on The Bee’s Web site. ‘Now while they’re on the verge of losing everything we are preparing to buy our first home next year. … Life lesson: Live within your means.’”
Amen..brother..I rejoice in your words…especially since I just sent in my last car payment..no credit cards, no car payments, the house of my dreams and m-o-n-e-y in the bank..That is the American Dream…
NEWS FLASH - FED IS HOLDING FIRST EVER CREDIT AUCTION
http://biz.yahoo.com/ap/071217/wall_street.html
Any thoughts? Remember - this is pre-recession. This is going to be really brutal. I am raising my percentages as to what the ultimate bottom will be. Like I said, very few know what is happening inside closed meetings on Wall Street right now. Most talk is how to survive Armageddon.
I just received one of those mass emails from Barbra Boxer- who is well known for her incredibly liberal stance in politics. She too is proposing that the state government needs to step in help all those ‘poor’ homeowners who are about to be foreclosed upon. Her reasoning?- that if we don’t, then entire neighborhoods will be turned into ghost towns and crime will increase.
How stupid is that? I wonder if she has considered the alternative, which is that if those homes are abandoned, then the builders or banks will auction them off at drastically cheaper prices, sell them to people who likely have a better financial backbone, and therefor create neighborhoods of fiscally responsible people rather than keep people in houses who are barely surviving from paycheck to paycheck? I’d argue that neighborhoods full of cash-poor people would create more crime rather than squeaky-clean streets as she seems to be suggesting.
Never mind that BS, CA government is going to handle its own BK.
14b tax shortfall. And where her proposal’s money will come from?
Is it going to be 100b no down payment 0% interest from the Fed?
“We don’t have a lot of neighbors right now,” says Poe, who formerly lived in a rented house in Rancho Cordova. But he’s upbeat about having 800 square feet of his own now. “It’s finally nice to say, ‘I’ve got a home.”
The guy’s a fool. Two years ago I bought a motorcycle from someone in Roseville and the day I picked it up, I rode Amtrak to Sac then caught a trolley to take me to the end of the line at Watt St., where the owner of the bike was to pick me up. The trolley’s route passed through the north area of town (north of the American River), and if the Western Ave area is anything like the areas adjacent to the trolley line (Del Paso Blvd), well, I wouldn’t live there even if someone offered to pay me.