The Party Is Kind Of Over In California
The North County Times reports from California. “Laura Lovell had a new home to raise her four children and every amenity she could want. But after the housing downturn left her husband unemployed and prevented the sale of their home for more than what they owed, Lovell was caught up in a foreclosure crisis that has swept through this city. She said the bank sold the home for $327,000, 32 percent below the original listing price of $480,000.”
“‘Everyone thinks these foreclosures must be people who just come in, living rent-free for six months,’ Lovell said. ‘Who’s actually losing their houses is not those people. It’s people who bought houses they could afford and had the housing industry take everything.’”
“In 2007, one of every nine Murrieta homes entered foreclosure, according to RealtyTrac and the Southern California Association of Governments. For every non-foreclosed home for sale, there are about three and a half homes in, or in serious danger of, foreclosure.”
“A full 80 percent of the area’s 35 December home sales were bank-owned homes the result of foreclosure. More than half of the month’s sales, 66 percent, sold for more than 10 percent below the original listing price. One home sold for 36 percent lower than the original listing, a $172,500 freefall.”
“‘In one word: terrible,’ said Barbara Baker, a real estate agent in Murrieta. ‘It makes it impossible for someone with a job offer elsewhere to get fair market value. It’s awful. I’ve been here since 1980 and I haven’t seen it this bad.’”
“Oceanside’s Ben Leau said he bought his home in 2000 for $283,000. He secured a loan with a two-year teaser interest rate.”
“Before the rate increase, he got another two-year teaser. After two more years, he refinanced again and again until he refinanced for the fourth time in 2005 for $414,000.”
“Leau said he put no money down on his home, paid no closing costs and estimates he has netted about $50,000 in cash from refinancing. He used the money to pay off $8,000 in debt and fund a vacation to Hawaii.”
“‘He said he can’t remember which lender he most recently refinanced with, only that it was one from a slew of mailings.”
“I called up and said, ‘I want to refinance.’ (The loan officer) said, ‘How much do you want?’ I said ‘I want $30,000.’ He said, ‘Do you want more?’ ” Leau said.
“He said he is not worried about the pending auction of his home and that he was excited about the possibility of renting a bigger, nicer house.”
“Unlike Leau, Fong Noimanivone in Murrieta is fighting off the foreclosure process and said she has not been affected by interest rate increases. She is stretching her monthly budget to make payments on her 30-year fixed interest rate mortgage because of her tenants’ failure to pay rent on investment homes she owned and has since lost to foreclosure and short sales in Arizona.”
“‘We have to cut down a lot on everything, on groceries, on gas,’ Noimanivone said. ‘We can’t go anywhere except to work and home, that’s it.’” “She said that since she bought her home two years ago for $680,000 and homes in the area currently sell for $420,000, she now owes more than the home could be sold for, forcing her to look at a short sale.”
“Noimanivone is in trouble, in part, she said, because of 100 percent financing. ‘(Homeowners) were overencumbered to begin with, with these zero-down loans,’ Baker said. ‘And when the values dropped, not only do you have zero equity, you’re at the very bottom of the totem pole.’”
“It was standing-room only at the San Diego Convention Center as the Real Estate Disposition Corp. auctioned about 200 bank-owned properties. But auction veterans said few of the homes or condominiums sold at significant discounts.”
“‘It’s just a sprinkling of deals,’ said Brian Crisp, a broker in San Diego. ‘The problem is you have no negotiation here. It’s take it or leave it. And unless you visit these properties before, you have no idea what you’re getting.’”
“Sammuel Mireles placed the $170,000 winning bid on a two-bedroom Chestnut Street home in Escondido. The corporation hosting the auction adds a 5 percent premium, so Mireles can buy the 850-square-foot home for $178,500, a savings of 44 percent off the original listing price of $319,900.”
“But the bank that owns the property has the option to refuse bids it considers too low.”
“Mireles, a carpenter, said he plans to fix up the home and possibly add another bedroom to accommodate his wife and three kids. He currently rents an apartment nearby. ‘We’ve been looking to buy a house for two years, but prices were too high,’ Mireles said. ‘Now, I’m satisfied. It’s a house for under $200,000 in Escondido.’”
“He bought the home without his wife present. She was less than thrilled about his decision because of the home’s quality, Mireles said, leaving him hoping she will warm to the idea after he starts renovating.”
“There was little slowdown throughout the day. Vats of coffee placed in the center of the massive warehouselike room and at the corners kept buyers buzzed as auctioneers rattled off home descriptions and started the bidding, averaging about 30 auctions an hour with no breaks.”
“‘You see people bid up to the previously sold amount,’ said Colleen Curtis, a San Diegan who has been to several auctions. ‘But those previous numbers are often from the peak. So they might be moving in and already be upside down.’”
“Rick Komisars, an Arizona resident who is looking to move or invest in San Diego real estate, said he expected the housing market to keep falling so he plans to wait at least six months.”
“‘This is just information and entertainment,’ Komisars said. ‘There’s a Jerry Springer feel to the whole thing.’”
The Union Tribune. “All aboard the REPO Express, a new kind of bus tour that takes riders on a guided search for bargains within San Diego County’s surging home foreclosure market.”
“Maria Bernacett, a teacher’s aide who owns a condo in National City, said she and her neighbors were recently shocked to see a repo-tour bus drive down their street.”
“‘It was scary,’ she said. ‘Our jaws just dropped. I thought, ‘What is this coming to?’”
The Recordnet. “The telephone began ringing at 6 p.m. Thursday and didn’t let up for the next two hours as eight members Financial Planners Association of the San Joaquin Valley offered free financial advice to callers. ‘This is the busiest we’ve been,’ said Teresa Mandella, a financial planner.”
“Christopher J. Olsen, a planner with Olsen and Associates, pointed to the current economic climate. ‘It’s a combination of recession, the stock market and foreclosures, all at the same time,’ he said.”
“Frank Mandella, owner of Meadow Lake Mortage handled many calls from people unable to meet rising mortgage payments or worried about falling home prices. ‘All the problems I dealt with tonight dealt with option ARMs,’ he said.”
“He also spoke to callers worried their home’s value had fallen below the mortgage balance, even though they could still afford the payments. That shouldn’t a concern as long as they want to remain in the home, he said.”
“‘You’ve got to have a roof over your head, don’t you?’ Mandella asked.”
The San Francisco Chronicle. “Early last month, the couple closed escrow on a $775,000 condo in Jackson Square, two blocks from the Embarcadero. A house at that price when they started looking six years ago would have cost them $1.3 million. Instead it cost them $711,000 - a difference of nearly $600,000.”
“‘It’s mind-boggling,’ said Kevin McCullough.”
“Real estate agents and developers report an increasing number of people from Canada, Asia and Europe, where some currencies have lapped the dollar, touring and buying San Francisco homes.”
“To what degree the foreign buying trend is occurring in San Francisco, and to what extent it could help the market, are both unclear. The city doesn’t track home purchases by nationality, and local agents give varying accounts of the frequency. Indeed, some say they haven’t personally seen any increase.”
“‘I know that there are a lot of sellers who want that to be true,’ said Malin Giddings, who specializes in upscale San Francisco real estate for TRI Coldwell Banker. ‘But we see very few foreigners buying.’”
The Sacramento Bee. “When the economy sours and gold soars, there’s one business segment that actually sees more traffic coming in the door. Welcome to the world of pawnbrokers.”
“‘The demand for loans is way up, because the economy stinks,’ said John Appelbaum of Sacramento Loan and Jewelry Inc. ‘We’re the grass-roots economic indicator. We see it right off the street.’”
“‘The myth is that people who come here are down and out, but it’s also the person with money,’ said Appelbaum, who’s been in business 36 years. ‘We get people needing to borrow $15 to (needing) thousands.’”
“Out in suburban pawnshops near the American River, the flood of pawned construction tools bears evidence of the area’s protracted housing slump. ‘You can usually tell (how) the economy (is doing) by how many tools we get in,’ said ‘KC’ Carvalho, of Carvalho’s Loan in Sacramento’s Foothill Farms area. ‘We now have more tools than we’ve ever had. Ever.’”
“Bill Dunbar, owner of Marconi Coin and Jewelry Exchange in Carmichael, is seeing more troubled homeowners coming in to unload their gold jewelry while bullion’s price is skyrocketing.”
“‘They’re trying to cover their houses. They’re trying to cover their kids in college. You’ve got this credit card thing. People are in trouble,’ said Dunbar.”
The Daily News. “Temporarily boosting the conforming loan limit to $729,000 from $417,000, or 125 percent of the median home price in a buyer’s area, is probably not enough to resuscitate our housing market.”
“That’s the trouble with housing markets. What works in one place won’t in others, and Southern California’s market is stressed.” ‘Lots of homes in the Long Beach, South Bay and San Fernando Valley areas remain out of reach for first-time buyers and for those looking to trade up - even with a higher loan limit.”
“‘The problem in the home market today has more to do with prices relative to income than anything else. The idea that this is an interest-rate phenomenon or capital availability (issue) is ridiculous,’ said economist Christopher Thornberg, a principal at Beacon Economics in Los Angeles and a member of State Controller John Chiang’s Council of Economic Advisors.”
“While it might become possible to get a conforming loan for a $729,000 house here, the buyer will have to adhere to the Fannie Mae and Freddie Mac rule that no more than 35 percent of the gross household income can be used for the mortgage.”
“‘What number of people could buy a home in this market, given where prices are and the 35 percent rule? Very few,’ Thornberg said.”
“To buy a $500,000 home in Los Angeles County requires a household income of a little more than $100,000, he said, and the median income here is a little less than $60,000.”
“Prices need to fall further to improve the affordability. But how far?”
“Thornberg says a 35 percent drop from this cycle’s high isn’t out of the question. ‘You say that’s outrageous? We’ve already gone (down) 10 percent. A lot of sellers are going to be underwater, and that’s going to be very painful for the market.’”
“So despite the big jump in the conforming limit, the housing market is going to have to get this poison out of its system. Thornberg thinks prices might not start rising again until 2011.”
The Press Enterprise. “The idea of paying $1 million to own a hotel room for two weeks a year while hoping tourists would rent the room the rest of the time seemed elementary a few years ago.”
“Hotel developers thought so, confidently predicting sell-out dates in front of city councils excited by the potential hotel taxes and cache of a five-star resort that would otherwise need funding help from city coffers.”
“Today, the crashing economy has sent most condo-hotel developments packing. At one time there were at least five large condo-hotel projects proposed in the Coachella Valley. None have been built.”
“The concept gained buzz in the Coachella Valley when Remington, a Dallas-based hotel management company, announced it would build its first $280 million resort in Indian Wells by selling 265 condos starting at $900,000. Owners would be able to stay in the condos no more than two or three weeks each year. That was back in December 2005.”
“Then they left, returning investor down payments and leaving the land just as vacant as when they arrived in Indian Wells.”
“‘It is not economical to build a brand-new luxury hotel from the ground up in conventional financing,’ said Robert Haiman, a senior VP with the Remington Hotel Corp., when he presented the project to the Indian Wells City Council in 2005. ‘Selling the units is critical,’ Haiman said.”
“Remington raised $28 million in the first 60-days of announcing the project in Indian Wells according to the online biography of the former project manager. Haiman’s assistant said by phone that everyone who had paid a deposit on one of Remington’s condos received their money back.”
“‘The days of doing an unbranded hotel and using it as a financing mechanism are over,’ said Francis Wong, CEO of the Genesis Hotel Development LLC based in Indian Wells, a hotel consultant and developer. ‘A condo-hotel is successful only if it works as a hotel first.’”
“Relying less on the ‘if you build it, they will come’ slogans and more on ‘if they’re willing to pay $1 million each, build it,’ hotel developers in 2005 and 2006 argued that the only way to pay for a luxury hotel was by selling individual rooms as condos.”
“The ground has hardly been broken for the proposed Hard Rock Hotel in Palm Springs, the city still owns one of the parcels the developers need and now there’s a lawsuit pending that claims the city gave too many concessions when it approved the plan.”
“‘A condo-hotel is not as valuable as a hotel,’ said Palm Springs City Manager David Ready.”
“A condo-hotel also became less economically feasible once the housing market soured, said Rob Eres, development manager for the hotel being built by Santa Ana-based Nexus Cos.”
“‘When the housing market was hot, it was a great way to finance hotels,’ Eres said. ‘All of a sudden, it doesn’t work a whole lot.’”
“Gone are the days when a developer could expect people to pay 10 percent down on a pricey condo they could only use for two weeks out of the year in some circumstances and walk into a bank with cash in hand, he said. ‘The party is kind of over,’ said Jan Freitag, VP with a firm that tracks hotel development, occupancy and rates nationwide.”
‘The idea of paying $1 million to own a hotel room for two weeks a year while hoping tourists would rent the room the rest of the time seemed elementary a few years ago.’
Ah, yes, and another housing bubble by-product falls to the wayside. Main stream media, zero, HBB ?
BTW, there are more FBs than you can shake a stick at in those NCT articles.
One of my sisters owns 3 houses, and in a fit of pique I asked her “Have you never heard of motels and hotels?”
Don’t pick on Condo-Hotels. When I finally sell my previous investments, Pet Rocks, Beanie Babies and Pet.Com stock for a profit I plan on buying all the Condo-Hotels and become the Condo-Hotel King
Awww, that’s just kicking them when they’re down!
Anyone heard how the Rosarito beach, MX Trump condo towers are coming along. I’ve had some clients in who claim that there were problems. The media trumpeted the project and developers did the usual presentation/buffett/multi-level marketing thing but it has dropped off the map. I guess that overwhelmingly-common-and-increasing tourist kidnappings, drug shootouts, torture chambers, and that severed-heads-on-poles-lining-the-highway thing has dampened demand. . . .
‘nuf said.
http://biz.yahoo.com/ap/080120/mexico_housing.html
I’ll just say aiiieeeeee!!!!!!!!!!
Major investors like CalPers!!!!
maybe all the workers that have been building home in the US can find work in Mexico now? I wonder if Yanks will start illegally crossing the border INTO Mexico to look for work now…
Holy $hit. Who has seen 60 Minutes tonight? The lead segment is “The Subprime Lending Crisis”. All of you West Coasters have to watch it. Nothing was sugar coated. It was as if they had turned the segment over to us HBBers. It is going to scare the living $hit out of the sheep. They might say, “well that won’t happen here” but there will be doubt planted in all minds.
This is not a victim piece. It might be the best 60 Minutes segment I have ever seen. Rock on! This is a huge victory for truth and the MSM. Enjoy!
Just pulled it up online and took a look……WOW. If those 2 couples on there are typical, we are surely fooked.
NYCB-
Thx for the heads up. I set my tivo.
Yes, I had the volume up as high as it would go to hear over my two year old! and then we chanted the “housing market has CRashed the housing market has Crashed” nah nah nah nah nah
Today I was told by 2 realtors that “it’s different here”… in Chicago burbs
It was awesome. Wasn’t it? I hope people watching it are asking, “how the hell does this stupid stimulus package do anything to stop this?” Greenspan is mud!
http://www.youtube.com/watch?v=T8__EwAT8VM&feature=related
http://www.cbsnews.com/sections/i_video/main500251.shtml?id=3756665n&channel=/sections/60minutes/videoplayer3415.shtml
Click here for the video & transcript “House of Cards”
I’m disappointed they focused so much on just subprimes and didn’t even mention alt As, I/O or primes.
Bwahahahaha! I couldn’t wait, so I watched it online.
The quote from Jim Grant at the end was priceless:
“Yeah, it’s contained… on Planet Earth!”
And the featured FBs are exactly what I expected.
“Did you understand what you were signing?” “Uh… no not really.” As if he was going to answer any other way.
I do commend the narrator, though, for pinning a good chunk of the blame on the deadbeat borrowers, right where it belongs. Greedy pigs!
No lawyer to review the mortgage documents, walk if it doesn’t keep going up in value, contracts are useless, everyone gaming the system, 1000s of stucco in Stockton, AAA = 0-50 on the dollar with up to a trillion in losses!, a long way to go, repo bus, contained only on planet Earth and it’s just getting attention. Wow. Sounds like what has been recored here for quite sometime.
the only thing I wished they’d added was the judge who was dismissing the default claims because the plaintiffs didn’t have standing - they couldn’t tell who the lender was. That’s the icing on the cake, if that keeps up.
Just watched it online. I like the last comment by, I think, James Grant; that “it’s contained on earth.”
Where did that comment first appear? I wonder if he lurks on this blog.
I just watched it here in San Jose. That was awesome! I didn’t catch the guy’s name they were interviewing (I’m really bad about that), but I swear he’s someone from this blog. Which one of you is it? I’m DYING to know!
Get segment. I am definitely going to send this link out to my family and friends. That do not listen to me, but how can they argue with 60 minutes.
My favorite quote…
Interviewer: This was big decision. You were borrowing hundreds of thousands of dollars.
Day Care Owner: I didn’t really look at it like that.
Really, what more can be said?
The whole piece was terrific. Now if they can just connect a few more dots…we might all reach some kind of understanding!
My favorite quote:
[FB complains about mortgage payment resetting]
“But that’s what you agreed to in the mortgage contract, isn’t it? Don’t you feel obligated to honor that?”
“Only if the value of the house goes up.”
That pretty much sums up where we’re headed over the next few years, and why the foreclosure numbers are going to be a lot worse than one might predict based on ABILITY to pay - that doesn’t capture whether there is a WILLINGNESS to pay.
The Stockton foreclosure map about 2-3 minutes into the video is absolutely incredible! That place is going to be a frickin’ ghost town by the time the dust settles.
http://seekingalpha.com/article/61662-rick-santelli-takes-down-jim-cramer?source=d_email
If you believe in Jim Cramer watch this video.
Think I actually caught that real-time that morning. I remember LMAO.
I still think Bob Pisani is the biggest d!ck on CNBC. He is the biggest tool on that awful network, even bigger than Cramer, Erin Burnett, Carl Quintanilla, Kudlow or any of the other shills on that god awful network.
Don’t know about you but I like to listen to sexy women talk about business.Becky, erin, and maria are not that bad, could be worse.
Apparently, so do others. The comments are amusing.
http://www.bloggingstocks.com/2007/09/15/money-face-off-maria-bartiromo-versus-erin-burnett/#comments
I only watch it when the market is tanking, because I like to see the pain on the faces of the shills.
“If you believe in Jim Cramer watch this video.”
If you believe in Jim Cramer you probably aren’t on this site. “If you want to see Rick Santelli mock bubble-head then watch this video.” That would gain a larger viewing audience.
she now owes more than the home could be sold for, forcing her to look at a short sale.”
“Noimanivone is in trouble, in part, she said, because of 100 percent financing. ‘(Homeowners) were overencumbered to begin with, with these zero-down loans,’ Baker said. ‘And when the values dropped, not only do you have zero equity, you’re at the very bottom of the totem pole.’”
Correction, they’re at the top of the Joshua Tree.
Greedy bastards are getting what they deserve. They wanted to sell these overpriced homes off to young families who would have been in debt for life. I’ve really lost my pity for 98% of the FB’s. The remaining 2% is a bit in debate.
And yea… I’m still in shock over a coworker who owes $550k on his home he bought for $70k. Wow! I thought the coworker who owes $650k for the home bought for ~$250k was bad… but hey. Both took a lot of FUN vacations.
Got popcorn?
Neil
‘He said he is not worried about the pending auction of his home and that he was excited about the possibility of renting a bigger, nicer house.’
See, what’s all the hub-bub about? And for those current FBs?
‘You’ve got to have a roof over your head, don’t you?’ Mandella asked.’
Ben,
They get to join us prestigious renters.
The point that there are *plenty* of roofs and rooms to go around never enters into the REICs thoughts. Oh well… I had to learn to be patient about housing. Now that I am I’ll enjoy the show.
Got popcorn?
Neil
Neil,
Can you explain the Joshua Tree Reference? Don’t know it…
Thanks,
Wilson
I think it refers to the fact that FBs will feel like they have been bent over and had a Joshua Tree shoved up their a$$es. I don’t think it has anything to do with the 1987 U2 album of the same name.
The FBs bought a beautiful house In God’s Country Where the Streets Have No Name on a One Tree Hill. Unfortunately Daddy Tripped Through his Wires and went on disability, and the ARM adjusted. He was really ticked and shot a Bullet into The Blue Sky. They then realized that they still haven’t found what they were looking for. Wife decided to leave husband as finances went south, took the kids and now she’s another Mother of the Disappeared. Husband now has alimony as well, and he realizes her really couldn’t live With or Without Her. Exit.
That’s good.
Good one, Steve W.
Oceanside’s Ben Leau is easily the funniest FB posted here so far. (A different kind of funny than the Florida realtor who puts on her Rolex and pearls every day, looks in the mirror and says, “I am somebody!”)
I gotta give it to Mr. Leau. He’s the 1st FB, I’ve ever seen written up that is completely honest about his situation. He sees that he actually came out ahead and he’s ready to move on. He’s going to rent a better place at less money and headache, he got out of debt, had a vacation and doesn’t really gloat too much and doesn’t play victim. I think the things he did, helped contribute to the mess in a bigger picture sort of way, but at least he isn’t another whining victim.
They already “spent” all their equity on fun vacations, time to give up the house
Next time see a totem pole, I will know that the very bottom character was overencumbered.
It’s very difficult to have sympathy for any of these get-rich-quick FBs or their co-dependent broker/banker bozos
L.A. bon temps roulez, not.
Leau said he put no money down on his home, paid no closing costs and estimates he has netted about $50,000 in cash from refinancing. He used the money to pay off $8,000 in debt and fund a vacation to Hawaii.”
My math is a litte rusty to be sure but that looks like a $42,000 vacation to Hawaii- hope he enjoyed it…
For that type of money those better have been some great lays.
I’ve never met anybody that good in bed.
Okay, so that guy netted $ 50K and never really put anything into the house? That’s so f***ing insane. All I have to say is “Dude, have fun with your negative Karma.”
What country do you live in? Here in the good ol’ USA bad Karma can’t get a visa. Crooks, thieves, liars, cheats — all welcome and rewarded for centuries!
$42K Hawaii vacation? Gadzooks, just took my great-nephew to Kenya on safari with all meals and drivers paid for, for way less than half of $42K altogether. Guess I failed “partying” course.
My spelling is a little rusty too it seems
Here in San Diego (one of the storm centers) I am seeing more and more people just walk away, because even if they can afford the mortgage payment on a 600K homes, they realize it is worth only 480K or lower, and can’t see making payments. Craigslist is full of “reduced rent” adds for houses, because there are so many empty ones. If you have 100% financing, you have nothing invested, and credit ratings are pretty easy to repair these days. My nephew wrecked his credit rating in a business bankruptcy, but they bought a house in his wife’s name. . .many ways to get around bad credit.
That is exactly what happened in Anchorage post pipeline in the early 80s. People just started leaving the keys on the kitchen counter and moving - mostly out of state. As more foreclosures became available, the banks started lowering the prices to get rid of them. The the neighboring values plummeted and when people realized they were upside down, even those that could afford their payments, they just bailed. It was a vicious circus that took values down about 50% rather quickly. In those days there were no ARMS and you generally had to put a 20% down payment into the game. Once the high end, lower skilled pipeline jobs ended, most couldn’t afford their mortgage payments as they were. The more people that did it, the more accepted it became socially and so it just toppled quickly.
“Once the high end, lower skilled pipeline jobs ended, most couldn’t afford the mortgage payments as they were.”
These people were nuts! It was well known at the beginning of the Alaskan Oil Pipeline PROJECT that it was a PROJECT and when this PROJECT was completed the PROJECT would come to an end and everyone would be laid off.
So how come so many made financial decisions that were based on the continuation of a once-in-a-lifetime PROJECT?
The banks were the crazy ones, lending people money to build houses in boom towns. They should have known that people would just walk away from their mortgages at project completion, and it was entirely foreseeable that they’d be left holding the bag.
Maybe if this pattern occurs with sufficient frequency, lenders will stop lending money to people unlikely to pay it back. But memories are short, and the machine inevitably reorients itself towards cranking through more volume, risk be damned… especially when the fallout is several quarters away, and the execs want improving q over q results at all costs to fatten their bonuses.
The machine has no memory.
Why would it have any when the minions can make bonuses, and the execs can make bonuses, and the shareholders end up holding the bag?
Everyone with half a brain knows you should be long financials at the beginning of a credit cycle, and short them at the end of one.
It’s like the cycle of life. Shareholders be damn*d!
This time, the “pipeline” has been the construction of the houses themselves, especially here in SD. Now that that’s dried up . . .
Anchorage housing actually stayed reasonable until about 2002, then we got caught up in the bubble as well. Prices in the more desirable neighborhoods here are every bit as ridiculous as they are in parts of California. However, they went up more slowly and are going down more slowly because sellers aren’t really sure how bad a hit the local economy will take. On the plus side commodities, fishing, and tourism will supposedly not take a big hit because of international demand and the price of oil and gold.
Not surprisingly, none of the high end stuff is moving, but some of the more desperate or reasonable sellers who lowered their prices to earth are surprisingly getting mobbed (the so-called ‘pent-up demand’). The REs here are fond of saying that the economy is still booming and that prices are going up (although they ignore that inventories are going up and sales are going down as well), but I haven’t seen a home over the mid 300s sell without at least taking a 100-150K haircut. Some of the smaller builders have already gone bankrupt.
Overall, we are supposedly ‘in stasis’ because the REs are saying that demand will pick up in the Spring, blah blah blah… and it *might a little bit for seasonal reasons…but they are in for a rude shock, in my opinion. It’s become just as hard to qualify for a loan here as it is everywhere else, and for most people on the higher end trading up isn’t as feasible in this market. Rents haven’t budged, as far as I can tell (I am still renting, but watching like a vulture).
Credit rating doesn’t mean much nowdays and I hear with so few people at 700+ they will redesign the whole credit rating system.
I am sure my credit is low since I have never been in debt and never owned a credit card, oh well ill buy a simple house in cash on the cheap up north and wait a few years and save up to buy a very nice house in cash for cheap.
Credit means everything. Insurance rates are now based on FICO scores. I never had much credit because I generally pay for things with money I have or save. I have one bad thing I’m trying to remove, because it shouldn’t be there, and it’s very difficult. It doesn’t take much to have a bad score. People with lots of debt are better for their computer models. It’s very discouraging.
All you have to do is get a few credit cards, use all of them and pay them all off every month. After a few months, your credit score will be much higher.
“Thornberg says a 35 percent drop from this cycle’s high isn’t out of the question. ‘You say that’s outrageous? We’ve already gone (down) 10 percent. A lot of sellers are going to be underwater, and that’s going to be very painful for the market.’”
Thornberg tells it like it is. Add Merrill Lynch’s figures to that, 15% drop in 2008, 10% drop in 2009, and that’s for starters. How many more big names / investment organizations will say the same thing?
And yes, Christopher Thornberg is saying “It’s the price of the average house, Dummy!” The Fox News pundits still don’t get it. They never saw the Case-Shiller index. They don’t understand the concept of market cycles, that what goes way up must come way down and overshoot. And I’ve seen some of those boobs say that these rate cuts are making houses a real buying opportunity!
That Dave Ramsey guy on Fox Business Channel is so idiotic, so trapped into real estate. It’s hilarious. He’s as blind as a bat. I’m one year older than him but look ten years younger than him. Wonder why?
My kids are sucked into watching Ramsey. He’s like a year behind at least. Still says there’s no real housing problem - the majority of homeowners are making their payments. Say’s there’s no recession coming - growth has just slowed a litte. The only thing that matters is paying off your debts and a bunch of religious mumbo jumbo.
The worst thing about Ramsey is that he automatically assumes his callers go to church. For example, he uses the phrase “your church” to his callers. I suppose he somehow screens out jews, atheists, hindus, and Moslems.
Translation: As many as 49% of all mortgage holders have failed to make their payments. Though growth has slowed just a little, we are probably having one of those Wily E. Coyote moments.
Statistics are too easy to manipulate to leave in the hands of shady marketers and PR people.
I used to like listening to Ramsey on my way home from work just to laugh at the FB’s. Over the last six months, his show has really changed, and the FB stories are almost non-existant. All I hear is Dave saying everything is A-OK and people calling with just boring financial questions, or to say they are out of debt. I don’t listen anymore. It seems he has sold out to Faux.
About Dave Ramsey, I’m surprised people need to go to his “university” to learn how to pay off their bills. It really is so simple. Pay the smallest one first while still paying all your other bills. Once that is paid off go to the next bill and pay off each month what you were paying on the last month plus your original payment. Once that is paid off go to the next bill. and so on and so on. By the time you get to the last bill you might have available to pay 1000.00 or so a month and that bill gets paid off sooner than you ever thought you could. Save 10% of your paycheck for an emergency fund until it equals 6 months living expenses. Next, start a nest egg for family fun, like vacations, Disney passes, weekends away but always pay cash. The best advice, If you can’t pay cash don’t buy it, eat it, or go there. You have just graduated from Shannon University. Tuition Free.
With today’s gas prices…. & the sofness of the market…. that bus will be running out of gas mid-street.
Oh Shannon, stop with the logic already. Don’t you know a good “education” has to cost a lot of money?
“… neighbors were recently shocked to see a repo-tour bus drive down their street.”
This reminds me of the typical local-TV-news-reporter-on-the-street with the witness-neighbor-in-curlers, shaken by the rape-murder-shooting or name-your-crime-here: “Nothing like this has ever happened in our neighborhood (hands to face). It’s always been a nice quiet neigborhood, but now I don’t feel so safe.”
“… neighbors were recently shocked to see a repo-tour bus drive down their street.”
ROTFLMAO.
I just busted a gut laughing so hard. It didn’t strike me what sort of statement the repo-buses are really making until I read your post Fred.
From Ben’s link:
At least one other local entrepreneur besides Coshow has gone into the foreclosure tourism business. For several weeks, the Home Repo Tour in Chula Vista has been conducting excursions to foreclosed homes. It’s a spinoff of another foreclosure tour in Stockton, spokesman Nick Dias said.
Oh my… we have the next bubble industry. Repo-bus tours!
But I couldn’t help but notice no offers were made. Could it be prices aren’t yet down to that 7% ROI on a 15-year mortgage that true investors expect off their rent?
Got popcorn?
Neil
This morning I saw the first foreclosure up for sale on the block that I grew up on. Another neighbor 3 doors down is also trying to sell. They are looking at a dream price. In the past week I’ve also noticed something interesting about my hometown listings.
The foreclosures are having their prices chopped with a machete. The foreclosures were the most ridiculously priced but now they are looking like the most reasonable. They are still overpriced POS but one of them has dropped from $165k to $98k. Another has dropped from $200k to $139k. They are getting much closer to reality. I’m guessing there will be a Magical Misery Tour going through my old neighborhood any day now. Bye bye comps.
“This morning I saw the first foreclosure up for sale on the block that I grew up on…”
One night I was channel surfing and saw the police on “Cops” chasing a perp down the block I grew up on. They chased him past my mother’s house and hooked a quick left into the next-door neighbor’s driveway, then followed him into her backyard, where the perp cowered under a deflated plastic swimming pool while the cops made fun of him. Now, my mother’s ex-house in this poor-white-trash Texas slum is valued at $155K on Zillow. Ha!
As seen on TV!
Holy crap, I think i saw that episode. How many episodes are there with crack heads hiding under pools?
Bicoastal, I didn’t know you were famous!
I was looking in the rags today and noticed the same thing. Prices of houses have just recently (like this week) taking their first real leg down. Look for more legs down to come. Maybe the banks are clearing the first round of foreclosure as the que is filling up fast.
Plus Cramer gave out the word on the next bubble. He is buying foreclosers. “How can you not with interest rates this low” his words. Look for him to pump this all week and come out with an informercial for 3 easy payments of 29.95. Plus the first lucky callers will get access to his mentors hotline. Thats worth a million dollars for only 3×29.95. BUY BUY BUY BOOYASSH
So Cramer’s pimping REO’s now? Good luck with that one. How many of his viewers, who can drive up the price of AAPL with their $2,000, can afford a foreclosure? How many of them that can want to sink their whole nut there? And how many of them want to be landlords?
“Thornberg says a 35 percent drop from this cycle’s high isn’t out of the question. ‘You say that’s outrageous? We’ve already gone (down) 10 percent. A lot of sellers are going to be underwater, and that’s going to be very painful for the market.’”
God bless Thornberg. He was an early ‘bubble touter’ and he put his career on the line trying to get UCLA to print a more honest housing survey. While we can nitpick the extremes, understand he is an optimist at heart, so that 35% should be taken as the minimum downturn.
An increased conforming loan amount won’t help. Bond buyers are spooked at buying jumbo backed bonds. So Fannie and Freddie will have to raise all mortgage rates to compensate.
Got popcorn?
Neil
Agree with you Neil. I think, deep down, Thornburg thinks it is going to be far, far worse. But when you watch a guy like Peter Schiff on Fox News, EVERYONE laughs at him and tears him a new one for being so pessimistic (in spite of his predictions on Gold and most other things being right on). Thornburg is trying to use reasonable gauges to keep people sane–I believe he had said 30 percent as of a few months ago. Now it’s at 35 percent. I think the worse it gets, the more he will pull down that percentage, so he doesn’t look irrational…
“But when you watch a guy like Peter Schiff on Fox News, EVERYONE laughs at him and tears him a new one for being so pessimistic (in spite of his predictions on Gold and most other things being right on).”
I think you have a typo, Wilson. It should have read “realistic” no “pessimistic”. In any crash reality is the enemy. I think we covered this yesterday.
The first casualty of wars and crashes is the truth. And the REIC has definitely declared war.
I wholeheartedly agree with you. But having such a realistic view makes you an extremist, because few people (outside of this blog) have come to grips with the realities of our current economic plight. That’s why they rail on Schiff every single time he’s on TV, although I believe every word he says.
I get the same things when I express my opinion to friends, who want to believe everything is ok (mostly because they work in finance).
Thornberg, IMO, keeps his views a bit more optimistic, although deep down, based on some of his lectures I’ve watched on YouTube, I have to believe he is far more pessimistic…
Thornberg, IMO, keeps his views a bit more optimistic, although deep down, based on some of his lectures I’ve watched on YouTube, I have to believe he is far more pessimistic…
Those lectures are the best part of Thornberg’s notes. He doesn’t put down uber-pessimistic sound bites, but when you listen to the caveats of his presentations/lectures, its very apparent that the numbers he throws out are best case scenarios.
Its easy for us who have no career stake to state the obvious. Thornberg, who has a career ‘at risk,’ has done a great job of getting out the news. If, to get out the news, he has to be a little more optimistic than he believes… so be it. He’s done a good job telling people that ‘real estate does go down.’
Got popcorn?
Neil
I was watching REICs Marshall Yun on Diana Olick’s video, and he reminds me of the awkward Asian, in the movie “Fargo”
The scene where he meets Frances McDormand’s character in a restaurant…
The gorgeous Tracy Byrne on FBC admitted she has an ARM. I think most of those commentators on the Fox business shows are laughing at Schiff because they have real estate interests and need to have the housing bubble continue. Schiff and Jonathan Hoenig are to the investing crowd the way Ron Paul is to the Demopublican mainstream candidates.
Tracy Byrne has psycho b*tch written all over her.
I think Schiff and Hoenig say what the folks on this blog say everytime they are on. It’s actually nice to hear opposing views on Fox Business.
The housing bubble was just that. It wasn’t real economic growth. So the “in the know” money is now pulling out of real estate. Anyone with a pulse could get a loan last year, this year loans are hard to come by even for excellent credit and down payments.
So 35% down is the begining and prices will remain down.
Az real estate/rental price are down as illegals move back home. They built house, FB bought house with funny money, illegal moved into FB’s apt. Repeat over and over. Now no funny money, no home being built, illegal moves back to Mexico, FB swims underwater in his hoouse or moves back to his old apt and house goes to bank. Never was a real economic growth rate. Just funny money going around and around very fast.
It was really a Debt Bubble that was created. Houses were just the chosen mechanism by which the mountains of debt were created. FBs and posing politicians still don’t understand that it really had nothing to do with houses. It could have been kitchen tables or bull whips for all the Wall Street guys cared. It just happened that they picked the asset that would do the most harm to society. The plan was simple but brilliant.
The question, as many have asked, is what’s the next bubble?
greentech/cleantech gets my vote.
Harper’s had an excellent article recently on what they perceive to be the next bubble…..’Green’ energy and that kind of hogwash.
It isn’t enough. There is NOTHING that will generate the debt creation that the housing bubble did.
I agree that 1) “green” is the new bubble and 2) it won’t help.
Housing was something everyone could get in on. But with green stocks we are back to just that stocks, a la dot.bomb part deux. Some people will stay away. Therefore, no really big bubble.
Green stocks? No way. You can’t live in a green stock. They are making more green stocks. A green stock can go down to zero. All the lies that made the housing bubble the sexiest and most devastating bubble ever won’t cut it with green stocks. My bet is on precious metals.
Maybe this is the last bubble. Maybe gold.
Commodities are the last bubble. Food and other prices will sky rocket and cause a final painful disaster. There will be over investment in say corn production and at first prices will sky rocket. The demand for fuel and corn foods will plummet. Then we will have an agricultural disaster on our hands.
Not sure how bad this will go but I’m sure some creative minds are at work on how to work this into a nightmare.
Good luck all.
Agree! Gold and commodities for the next bubble. Inflation will tick up as the Fed unsuccessfully tries to offset housing price deflation and commodities will look like a no-brainer to all the low-brainer get rich quick types out there. You already hear it simmering on this blog.
Tulips. There are some really rare breeds that are extremely valuable. I recommend you buy soon before you get priced out of the market.
–
“The housing bubble was just that. It wasn’t real economic growth.”
It was intentionally created, IMO. Here is why and how.
Crooks from NYC and the Fed sent invitations to mortgage companies to make fraudulent mortgage loans and they all accepted the invitations (by wink wink nod nod). Why? There was urgency to get the economy going full blast at least a year before the 2004 elections.
Fraud begins at the moment someone is allowed to lend OPM without any personal consequences and the risk lies down the road AND the lenders and the intermediaries expect to pass on the risk to unknowns.
Things get really ugly when you have intermediaries, most of whom are concentrated in NYC, who all co-operate in the Ponzi scheme while it lasts. It is greatly aided when various participants go to the same parties, clubs, churches, temples and synagogues! Cramer spilled the beans on the party and club goers last week.
Jas
No need to spin a conspiracy theory when simple greed and stupidity explain everything perfectly.
I vote with you on this one, jbunniii
“Never was a real economic growth rate. Just funny money going around and around very fast.”
And now the funny money is disappearing into thin air from whence it came, making the real stuff that much more precious.
Got cash?
Got Cache?
“‘It was scary,’ she said. ‘Our jaws just dropped. I thought, ‘What is this coming to?’”
National City
No kidding that place is scary !
Expensive luau, Leau…
“Leau said he put no money down on his home, paid no closing costs and estimates he has netted about $50,000 in cash from refinancing. He used the money to pay off $8,000 in debt and fund a vacation to Hawaii.”
Actually seems like this guy came out ahead. Bought with no money, started taking money out with the rising of the bubble, had a grand old time, and now he’s happy to walk away with nothing since he had nothing in. Not too good for the investors holding those loans, but seems pretty ok for him. Plus, with the current volume of foreclosures, odds are he’ll be able to stay there for a while longer rent free…..
Since this is the Cali thread, I present for your amusement some links to the LATimes from today’s edition. Pardon if these have been posted previously.
Where homes go up, lawsuits follow
“The latest building boom, which began in the late ’90s and continued through 2006, spawned a gold rush of single-family-home developments in the Inland Empire and the Antelope Valley. It’s too early to know if that boom will produce the same explosion of lawsuits as condos did in the ’90s, attorneys say, but Ron Hartmann, a Woodland Hills lawyer who specializes in construction-defect cases, says he currently is working on only three condo lawsuits and “several hundred single-family-home” cases.”
and this: Appraiser: Enough’s enough
“A Californian sues, saying WaMu spurned her after she refused to inflate property values.” … “…a Sacramento appraiser has filed suit against Washington Mutual Bank, charging that she was blacklisted for refusing to provide favorable appraised values.”
“Gary T. Crabtree, principal appraiser for Affiliated Appraisers in Bakersfield, said that pressure to inflate values “has been endemic, industry-wide” and is a “significant contributing factor” in many mortgage fraud cases and foreclosures.”
“Every inflated appraisal during the boom years, said Crabtree, became a comparable sale used in other appraisals — and the layers of overvaluations spiraled out of control in some market areas.”
Well, Duh. HBB 99, LATimes maybe 6 after today. Watch out, Ben: the MSM is finally putting some points on the board now that the game is over.
Well, I’ve never been to one of those auctions and I’ve never bought a tv course on, “How To Make Money In Foreclosures.” In fact, I’ve only ever bought one book on trading the stock market because I realized a long while ago that most of the writers make more money out of selling books and selling courses on tv than they do practising what they preach!
Back in the early 80’s, when the last boom went bust, a friend attended a few of these, “Buy Real Estate With Nothing Down,” courses. One of the things he learned, was that you can find foreclosures by cruising a neighborhood and looking for badly maintained lawns, fences, etc. If you found one, knock on the door. If there is no answer and there’s a build up of flyers lying around, you proceed to the utility meters. If they are cut off, proving the property is empty, you then look at the “tag”. Sometimes you can discover who the mortgage owner is. If it’s a Veterans Administration “tag”, you then proceed to the next step and contact the VA.
Get the idea? Easy, huh.
However, being born and bred in London’s east end, I might not be the smartest of God’s creatures but I certainly got a street wise education and I’m a pretty good judge of human nature. Naturally, my suspicions were aroused. Anyway, my friend was determined to pursue his goal of getting rich by buying foreclosed property. He found a few places. A couple were indeed VA owned. He followed the instructions he had been shown but, in the case of the VA for instance, he was told the property was already in escrow. Then the light bulb in my brain switched on. Let’s put it this way. If you work at the VA and a really nice property comes on the market, are you really going to wait for some schmuck who’s attended a suckers “Foreclosure Course,” to come along or are you going to (A) Try and get it yourself. (B) Tell one of your friends about it. (B) Try and get it for one of your kids, sister, brother cousin, etc, etc. (C) Do a deal with someone you know who has money to buy for a finders fee.
There ain’t no bargains out there. Blood isn’t running in the streets. It will - but not yet. We have not even reached the final stage BEFORE blood is on the streets. That’s called capitulation. When all the FB’s and bankruptcies have built into a giant tsunami and come crashing into the shore. When the majority of FB’s have either walked away. When the majority of those who are NOT FB’s but are paying for a property worth $300,000 which they bought for $700,000, wake up and realize they are financially better off walking away because prices are not back to $700,000 for 10 to 15 to possibly 20 years. Blood will be on the streets (forget the realtor “Now is a great time to buy,” crap and the NAR propaganda hype) when FB’s have no more money left on their credit cards to pay for next months mortgage and, if their family has been helping them out, Dad says, “Honey, that place is a money pit. Why don’t you walk away, rent for a few years and I’ll help you get another place later.”
I’m sure some can find bargains but the foreclosure game is like the real estate boom. The odds are stacked against you. Jeez, what kind of foreclosure auction is it when the banks do not have to sell to the winner! I call that a SCAM. If you want to buy property, sit tight for the next 2 years. Forget the “stimulus” package. It isn’t there to help you (Joe Sixpack). It’s there to help the Financial Gangsters of Wall Street and the guy who was a big part of drawing it up is one of Wall Street’s Godfather’s. Think! Do you really beleive Paulson is looking after YOUR interests?
interesting post
Every time I listen to this song, start thinking of the housing crisis.
Artist : John hiatt Song : Native son You finally found the mainstream
In the middle of your life
You tapped into a vein
Of endless gold chains
Now you’re locked up tight
Tearing down the middle of it
Splitting it right in half
Bobbing up and down the waves
Like a runaway slave
On a huck finn raft
Chorus:
Take your wife
Take your family
Take your gun
Running through the woods
And the burned out neighborhoods
Looking for someone
A member of your tribe
A place you can hide
’til the war has begun
’cause in the fields before the flood
You’ll be spilling blood
Like a native son
“Walk On” was one of the best albums of the 1990s, in my book.
I have always thought the same thing about the VA or FHA. And of course the realt-whores who get an offer from you, then add a dollar or two to another “offer” from their “cousin” and they get the foreclosure. You present a legitimate offer and then your supposed realtor pulls the rug out from under you.
great post mike
O/T: Moneynews.com
“China’s bank regulators are busy drawing up new regulations on the heels of $119 billion in unspecified banking “irregularities”, an amount that would make even the most troubled U.S. bank blush and far outstrips the $7.1 billion blown by a French trader this week.
“We must strengthen our regulatory capacity and nip these risks in the bud,” Chinese bank regulator Liu Minkang noted on the agency’s Web site.
The total amount of irregularities found equals almost three times the profits of the country’s top five state-owned banks. However, regulators say they found fewer problems this time than they did a year ago.
Regulators’ findings triggered removals from office of 117 bank managers and fines levied against 12,687 people following investigations.”
Wonder if this will make for another fascinating week in the stock market. I guess we’ll be getting another 5 or 6 weeks of 500 point daily swings. ‘Market PMS’
But in China sometimes the discrepancies are actually POSITIVE. Meaning the banks have too much unaccounted for cash and or less liability than previously thought.
“He said he is not worried about the pending auction of his home and that he was excited about the possibility of renting a bigger, nicer house.”
And there you have it guys. The herd mentality is changing and foreclosures aren’t such a big deal anymore. What will you lose by getting foreclosed? Nothing much, really and you can rent nicer for cheaper while waiting for prices to bottom out while saving cash.
I guess renting doesn’t seem so embarrassing anymore once you have had your home auctioned out from under you?
I’m not as sure that this new idea of saving cash has penetrated that far into the herd’s consciousness yet.
Cash? What’s that?
““To buy a $500,000 home in Los Angeles County requires a household income of a little more than $100,000, he said, and the median income here is a little less than $60,000.”
“Prices need to fall further to improve the affordability. But how far?”
How many people have $100k downpayment? Also no bank in their right mind would lend more than $300k based on $100k income and 20% down. I know someone who would not purchase a house over $250k and he earns $100k.
How far will prices fall? Try $150k for a starter 2 or 3 bedroom 1000-1200 square feet house. Sorry, that house is not worth $700k, $500k or anything close.
“How far will prices fall? Try $150k for a starter 2 or 3 bedroom 1000-1200 square feet house. Sorry, that house is not worth $700k, $500k or anything close.”
Here in the middle of nowhere (Kings County) the house I rent is 1600 sqr ft. Same size house sold for 97K in 1999. The owners of this house payed 198K in 2003. The house next door (exact same floor model) has been for sale since 2005. The sale price in 2005 was 340k with knowone comming to open houses. Last flyer I saw on the house had it for 250k and still no buyers so the finallt rented it out 2 weeks ago.
I am holding out and hoping for 1999 prices or very close to them. Medium income here is 40k a year. No way people can buy these homes with out the subrime ARM’s. I guess im getting impatient waiting for the prices to drop.
“A house at that price when they started looking six years ago would have cost them $1.3 million. Instead it cost them $711,000 - a difference of nearly $600,000.”
Wow — that’s a 45 percent drop over six years! I guess it’s different in the SF Bay Area, as I thought the drop from the bubble peak was supposed to be 10 percent or so…
The 600K difference has nothing to do with prices falling in the Bay Area; rather, the difference relates entirely to the dollar’s weakness (the couple is Canadian, and the article is about foreigners purchasing property in the states on the cheap because of that weakness). So, 6 years ago, it would’ve cost the couple $1.3M in Canadian $; now, it costs 711K.
“Bill Dunbar, owner of Marconi Coin and Jewelry Exchange in Carmichael, is seeing more troubled homeowners coming in to unload their gold jewelry while bullion’s price is skyrocketing.”
“‘They’re trying to cover their houses. They’re trying to cover their kids in college. You’ve got this credit card thing. People are in trouble,’ said Dunbar.”
I keep in touch with many pawn shops/coin shops, and this story is being repeated over and over again, people are broke.
People are reduced to selling their schlocky Zales jewelry, as there’s nothing left in the well.
On the other side, demand for Gold has never been higher and supply lower.
Seriously, in light of who is the head of the Fed and that the trend of easy money is continuing, gold’s going to pass 4 digits spot price soon.
Actually demand for gold in jewelry is falling with rising price. Check your sources. Sometimes goldbugs are no different than realtors.
99% of scrap Gold jewelery is being melted down and turned into ingots or coins presently, as that’s where the demand is…
Hard to melt down a house, though.
Do a little research, eh?
There is little point in purchasing gold jewelry as an “investment” (goes double for silver), as the bulk of the price is related to fabrication costs, and not the intrinsic value of the metal component.
It takes many years of metal appreciation to overcome the fabrication costs, at which point you have the jewelry melted down for metal recovery.
Demand for “gold in jewelry” is on the increase for melt value - demand for “gold jewelry” is indeed falling. You just got your nomenclature mixed up.
The people are SELLING their jewelry, not buying it.
“They’re trying to cover their houses. They’re trying to cover their kids in college. You’ve got this credit card thing. People are in trouble.”
All these problems are due to a drastic need for cash. Not a need for more debt, or a need for gold, but a need for cash.
Cash will solve their problems. The need for cash is the reason they are in the pawn shop.
Cash.
This is why cash is king.
Yeah, but I still get scared whenever I think about the way kings just get printed these days. “Printing Kings”. Maybe that’s what I’ll call my novel.
“He also spoke to callers worried their home’s value had fallen below the mortgage balance, even though they could still afford the payments. That shouldn’t a concern as long as they want to remain in the home, he said.”
What if they don’t want to keep paying interest forever in excess of the rental rate on comparable properties? Should it be a concern in that case?
“While it might become possible to get a conforming loan for a $729,000 house here, the buyer will have to adhere to the Fannie Mae and Freddie Mac rule that no more than 35 percent of the gross household income can be used for the mortgage.”
“‘What number of people could buy a home in this market, given where prices are and the 35 percent rule? Very few,’ Thornberg said.”
Thornberg is asking the same question I and many other posters on this blog have been asking for some time now. I have taken a close look at this question for San Diego and have reached a similar conclusion. Unless the increase in the conforming loan cap comes with some additional provision to scrap current prudent risk management guidelines for GSE loan purchase, I don’t see how it will bring about the big increase in qualified buyers that Realtors seem to expect.
People want banks to lend them money based on the “value” of their future labor. Now, their “labor” is in doubt. S*cks to be a debtor!
And his numbers on needing 100K income for 500K house are way conservative. They assume the borrower is debt free and don’t take other debt into the total DTI. You take into account the average debt load and the income needed for 500K house becomes at least 150K - 175K.
Got wage increases?
Middle and working-class Americans will get a $300-$1200 one-time handout from the US government. High income Americans, say $200,000 plus per year, will be able to get a $700,000 home loan without paying a 75 to 100 basis point interest premium (FNMA/FHLMC guarantee the mortgage-backed security). That’s a $5,000 to $7,000 per year savings for the high-income mortgagor. What’s the present value of that over a typical 7 or 8 year holding period?
Don’t forget that mortgage interest deduction starts to phase out above 150K. So the most productive Americans are merely achieving parity with the non-taxpaying class.
AMT starts taking a bite long before 150k if you have kids, or live in a high tax state or have other deductions.
Also, let’s not forget all of this is triveal compared to the dividend and capital gains and estate tax relief handed out to the top 0.1%. They are saving hundreds of thousands to millions.
AMT does not touch mortgage interest or charitable contributions. (Except for HELOC interest.) So if you buy a million dollar house with zero down at 10% i-o, you have a $100,000 write off even if you fall into AMT.
HELOC interest, property and income taxes, deductions for self and dependents, and all 2% deductions are phased out or disallowed if you fall into AMT. The Taxpayer Advocate has named AMT as the number one concern facing taxpayers today. And it is, because if they don’t do their annual end of year “fixes” over 70% of us will fall into it.
Just because you make a pile of money doesn’t mean you’re productive. Some wealthy folk are parasites.
When did I say I made a pile of money? I simply want taxes to be FAIR
I meant my “you” comment as third person, not directed personally at you. I just took issue with the generalization that wealthy folks are more productive. Some are, when they actually create something, like Steve Jobs, but others just siphon money from their paper deals.
Steve Jobs? You mean the guy who makes money by backdating stock options and takes a $1/year salary to avoid paying Social Security tax?
And they guy who’s making all our kids deaf with his iPods and is ruining music by selling overcompressed garbage? That Steve Jobs?
Homeowner sues realtor in Carlsbad, CA.
http://www.msnbc.msn.com/id/22848234/
“The problem in the home market today has more to do with prices relative to income than anything else. The idea that this is an interest-rate phenomenon or capital availability (issue) is ridiculous,’ said economist Christopher Thornberg.”
Amen to that. And stated by an Economist with enough integrity to tell it like it is.
DOC
““He also spoke to callers worried their home’s value had fallen below the mortgage balance, even though they could still afford the payments. That shouldn’t a concern as long as they want to remain in the home, he said.””
But it IS A CONCERN! They thought buying this albatross was their gold-paved path to fortune! How dare prices drop instead of increase month after month! THE HUMANITY!!
Sarcasm off.
DOC
“That shouldn’t a concern as long as they want to remain in the home, he said.”
I know, I know, it’s cheap: but somewhere out there the “hang in there” kitty is mewing.
Question about the Bay area… I was wondering if anyone could tell me about Mountain House & Tracy in San Fran? Are these cities similar to the Lancaster-Palmdale area? I’ve seen some really nice houses there and if one is going to “Bart-it” to downtown is it feasible? How are the demographics? I do not know…. Thanks for all your responses!
Hi Larenter:
Sorry for the late reply. Mountain House and Tracy aren’t in San Fran, they’re outside of San Fran. They aren’t technically considered “Bay Area”. The BART doesn’t even go near them. City leaders in those areas try to sell them as, like, “the future” of the Bay Area, but they’re really just gutted-out ghost towns waiting to happen.
Sorry.
Question about the Bay area… I was wondering if anyone could tell me about Mountain House & Tracy in San Fran? Are these cities similar to the Lancaster-Palmdale area? I’ve seen some really nice houses there and if one is going to “Bart-it” to downtown is it feasible? How are the demographics? I do not know…. We are looking to move to the area due to job relocation from LA and the prices are insane! Thanks for all your responses!
BART doesn’t run out to Tracy. It’s about a 1 hour drive if traffic is good.
I would not consider these places part of the Bay Area. You’re 1 hr away from the East Bay, and that’s with little traffic. Most of the time, the 580 corridor is completely clogged. Oh, and the climate is different from the Bay Area as well. Gets very hot in the summer.
I drive through Tracy from Elk Grove down to San Jose (to visit family) and my recommendation is NO. It’s an obvious boom town with nothing to recommend it aside from prices, which are not worth the trade-off. 580, despite years of improvements, is still years away from handling the level of traffic is needs to.
Mountain House is further in but not directly adjacent to the highway, so it’s not like Tracy, which you can see has the appearance of one of those scary suburbs that is densely packed with open space just beyond it. It may be that way, but I haven’t seen it with my own eyes.
Recommendation? Rent, of course. Try out several areas. You might find one cross-commute to your job.
Speaking of timely— here’s a story out of Tracy, mentioning 60% foreclosure rates.
Run.
Tracy and Mountain House have extremely high foreclosure rates. They’re also too far out of the Bay Area to BART to SF (horrid drive over Altamont Pass to the nearest BART station). They’re veritable “catch a falling knife” territory for the moment.
I live in Dublin which is East of Livermore…Livermore is East and over the Altamonte from Tracy. Dublin is the closest BART station.
Where is your job relocating to? You may get additional responses that will help you relative to where you will be working. I agree with the others…if you don’t have to commute over the Altamonte Pass, don’t sign up for it. You will NOT be a happy camper.
BayQT~
I think sfbayqt meant to say West instead of East.
If job is in SF -then you’ll be looking at a 46min BART ride into the Embarcadero (1st SF stop) from Dublin even after your driving commute over the Altamonte. 580 back east in the evening from Dublin is a parking lot. It’s going to get old fast.
Any way to verify this wishful thinking?
“Real estate agents and developers report an increasing number of people from Canada, Asia and Europe, where some currencies have lapped the dollar, touring and buying San Francisco homes.”
Schools of Hard Rocks, Palm Springs…
“The ground has hardly been broken for the proposed Hard Rock Hotel in Palm Springs, the city still owns one of the parcels the developers need and now there’s a lawsuit pending that claims the city gave too many concessions when it approved the plan.”
You know what is more insane???
Cathedral City is still under the delusion of a demand for housing.
The city still plans on spending $19,000,000 to construct the public utilities for a new subdivision.
WOW…..House of cards……..60 minutes
http://www.cbsnews.com/sections/i_video/main500251.shtml?id=3756665n&channel=/sections/60minutes/videoplayer3415.shtml
Anybody for Tarot readings?
“In the Rider-Waite Tarot deck and almost all other mainstream decks, the Fool is shown as a young man, standing at the brink of a precipice. In the Rider-waite, he has with him a small dog. The Fool holds a rose in one hand and in the other a small bundle of possessions.” Wikipedia
Interesting segment from 60 Minutes. Not one of the ‘homeowners’ came off looking good.
What I’d be interested in finding out from the last couple, the ones that could afford the payments, are going to do if one of them gets sick. After all they signed up for a healthy person, not someone with a long term illness. Think the other will show the same lack of responsibility to their marriage vows?
A very keen observation Maus. It would be interesting to see their faces if your question were put out for them to consider.
Or, what would happen if that lady let her natural eyebrows grow in?
I still find it amazing that people can say with a straight face that it doesn’t make since to keep paying on a house that’s not appreciating in value. Several things are wrong here. Aside from the obvious, these idiots are (1) willing to state this on national TV that’s being viewed by millions (including family, friends, employers), (2) have no qualms about defaulting on a legal contract (and they were fully aware of what they signed), (3) could really afford to fulfill their obligations..but they, uh, just don’t feel like it now, and (4) they feel they are right in doing so. What they are doing is simply saying that this is not convenient for them now. (Isn’t that too bad?) Oops! We made a joint decision to do this, but we were supposed to sell, make money and go on to the next thing. …and look good while we did it!
Yeah! THAT’S the ticket! But it didn’t go the way we planned, so we’re done with this. Honey, what’s the next project?
(Biff to McFly: HELLO? Hello? Anybody home????)
BayQT~
It was interesting when the lady said, ” it doesn’t make sense to continue to pay $3200 on a depreciating house” (paraphrasing). She added that it does make sense ONLY if it is appreciating.
Very interesting……This is the reason why lending standards will go back to strict guidelines and to b&^ch slap anyone looking for “free” money.
It was also interesting to see the people on the Repo bus. They didn’t seem like they could qualify for a loan under strict standards. If I was looking, I wouldn;t hop on a repo bus with 30 people looking at the same freakin house.
Does anyone know if delinquent property taxes must be paid before a house can be refinanced (this is a FB trying to escape from a Deed in Lieu of Foreclosure, which I hear is being done with the help of a co-signer)?
Or can the refinancer include the cost of delinquent taxes in the refi?
I don’t think so, but the IRS will sieze the house if the debtor does not pay taxes.
What Housing Crisis? Realtors’ Ads Defy Reality
Despite a Nationwide Meltdown, Industry Says Now Is the Time to Buy
By Alice Z. Cuneo
Published: January 28, 2008
SAN FRANCISCO (AdAge.com) — The housing bubble has burst. Almost three-quarters of a million Americans are in foreclosure. The median price of a single-family home recently fell for the first time in at least 40 years, and many are predicting it’ll drop further in 2008.
But none of that stopped the National Association of Realtors promulgating a $40 million ad campaign urging Americans to think of buying a house as a get-rich opportunity.
Ads include claims that, on average, the value of a home nearly doubles every 10 years, and 60% of the average homeowner’s wealth comes from home equity.
The campaign features two spots, “Open House” and “Moving In.” In one, a woman who appears to be a real-estate agent walks through a well-appointed home declaring that home-buying “opportunities have never been better.” For those “on the fence” about buying a house, the National Association of Realtors “wants you to know that a home isn’t just a great place to raise a family; it’s also the key to building long-term wealth,” she says.
Selling homes
In the second spot, which shows a family carrying boxes from a van into a house, the agent says that those who have bought a home are “making a good move for your family and toward building long-term wealth.” Ads include claims that, on average, the value of a home nearly doubles every 10 years, and 60% of the average homeowner’s wealth comes from home equity. The ads drive viewers to the website, HousingMarketFacts.com.
On the site, an “equity estimator calculator” suggests a $20,000 home down payment turns into $124,600 in 10 years for a 623% return. The website includes the same claims as the two spots and adds a few more noting, for example, that that prices have risen an average of 6% every year. Like each of the spots, the site does come with a small warning — that local market conditions can vary and consumers should seek counsel from a local real-estate agent.
However, in the light of the current market the “housing-market facts” could also be read as a historical look at an overheated market rather than a good predictor of what’s to come. Gary S. Becker, a Nobel Laureate, author and economic professor at the University of Chicago, said the ads leave out important information that consumers need about home ownership. “It’s a risky investment — unless borrowers recognize that, they could be misled,” he said.
Mory Brenner, a veteran consumer-debtor attorney who now writes on debt issues from a consumer point of view, put it this way: “Were the ads trying to lead you down a road with blinders on? I thought so. I found it objectionable and a little offensive,” he said. While without patently false statements or data, Mr. Brenner said the ads “are misleading and not especially forthright and, in a way, the way we got into this situation [the subprime-mortgage crisis] in the first place.” He chided the association for not producing a campaign more befitting its station. “They’re not some [real-estate agent] on the corner,” he said.
Betting the farm
Others were concerned about the premise the Realtors put forth in the ads that housing values are going up. Patrick Newport, an economist with Global Insight, an economic-forecasting firm, said: “In a lot of markets, housing prices are dropping, and in some markets — such as Florida and California — they are dropping a lot. If you buy a home, you take on a big risk,” especially if national housing prices drop 10%, as some predict, or if you lose your job and are unable to make mortgage payments, he said. He added that in many cases, “renting may be a much better deal than buying a house.”
Greg Daugherty, executive editor, Consumer Reports, said he understood that the Realtors are trying to make their case to stimulate business for their members. But “generally speaking, we don’t think people should look on their house as an investment,” he said. “Even if you double your money over 10 years, it’s not a huge return compared to the stock market,” he said, citing Consumer Reports studies that back up that point. “If you need a home, it’s always a reasonable time to buy one. But consumers should not look at buying a home as a get-rich-quick, or a get-rich-ever, scheme,” Mr. Daugherty said.
Jeff Lancaster, a wealth-management adviser in San Francisco and Silicon Valley, said the ads are sweeping some important facts under the rug. “I don’t think, in general, advising people today to buy homes for financial reasons is good advice. There’s very good reason to believe the price of residential housing in most communities in this country will be lower a year from now than it is today,” he said. “You could lose money.”
Next pitch
Mr. Lancaster, a principal in Bingham, Osborn & Scarborough, also noted some practical problems with the wealth-growth claim: As soon as a home appreciates in value, the bank holding the mortgage starts an ad blitz for a home-equity line of credit, oftentimes leading consumers to spend that money. “We know a lot of homeowners are not responsible because they’ve been encouraged [to be less than fiscally responsible] by their bank,” he said.
Mr. Lancaster, Mr. Becker and other critics of the commercials thought the association should give some thought to placing a warning in the ads similar to those for pharmaceuticals or financial-investment companies, or a responsibility message similar to those from beer and alcoholic-beverage companies.
But a National Association of Realtors spokeswoman said the ads don’t need any disclaimers. They emphasize the growth will come “over time” and advise consumers to consider local markets and seek advice from a real-estate agent. “They’re there to help,” she said, adding the organization also can find houses to rent.
http://adage.com/article?article_id=123374
“‘In one word: terrible,’ said Barbara Baker, a real estate agent in Murrieta. ‘It makes it impossible for someone with a job offer elsewhere to get fair market value.
What the hell do you know about “fair”.
I am waiting to make a Fair Market Offer on your fair market value and I will be blushing with embarrassment when I make this offer.
I have time and money what do you have?
Quite the contrary, it’s always possible by get fair market value for a house.
Be definition.
“While it might become possible to get a conforming loan for a $729,000 house here, the buyer will have to adhere to the Fannie Mae and Freddie Mac rule that no more than 35 percent of the gross household income can be used for the mortgage.”
“‘What number of people could buy a home in this market, given where prices are and the 35 percent rule? Very few,’ Thornberg said.”
…
“Prices need to fall further to improve the affordability. But how far?”
“Thornberg says a 35 percent drop from this cycle’s high isn’t out of the question. ‘You say that’s outrageous? We’ve already gone (down) 10 percent. A lot of sellers are going to be underwater, and that’s going to be very painful for the market.’”
“So despite the big jump in the conforming limit, the housing market is going to have to get this poison out of its system. Thornberg thinks prices might not start rising again until 2011.”
Wow, I like this Thornburg guy. I like seeing the same thing I’ve been saying for over three years (about ratio of house prices to incomes being too high), though in MD not CA (same problem though). But just to clarify, I thought the rule was the 28/36 percent rule. That is, a mortgage payment can’t be more than 28% of your gross monthly income, and not more than 36% when considering your other monthly payments on other debts. I learned the 28/36 rule about 20 years ago, and I know it was still the case when I bought my house 5 years ago.
Overall, I’m very happy for such an issue being brought up in the mainstream media. Lawrence Yun, senior “economist” of the NAR, needs a reality check from this other economist, Thornburg. Notice how no one associated with the NAR ever brings up issues of relationships between house prices and incomes.
‘It’s a combination of recession, the stock market and foreclosures, all at the same time,’
Don’t remind me.
Dear St. francis;
Please protect the house pets during this housing collapse.
amen.
St. Joseph:
cram it clownie.
Right Ouro Verde. It’s the house pets who I care most about. For instance, we have to move because our LL is selling the house. We currently live in a 2/1 with an attached neighbor out back in the mother-in-law unit. Our rent is only $1735/mo. Unfortunately, although we’ve been looking for months, we haven’t been able to find anything decent for our cats, so we signed a lease on a sweet 4/2.5 lakeside house in Newark. We did it because we don’t want our little cats to have to live in an apartment or near a busy street. Our new rent will be $2400/mo. How many pet owners do you think would do that for their cats?
We would.
George Lopez would not.
PS
(before you flame, watch his last HBO special)
Leau said he put no money down on his home, paid no closing costs and estimates he has netted about $50,000 in cash from refinancing. He used the money to pay off $8,000 in debt and fund a vacation to Hawaii.”
A $42,000 vacation to Hawaii? What 5 star at $5000K a night did he stay at? Or did a few dollars get wasted somewhere else, like some fancy car?
And a house is only worth what someone is willing and ABLE to pay? I would love to pay a $1M+ for the swankiest house in town. But I don’t have the $1M to pay, so it isn’t worth that to me.
The Japanese market isn’t starting off on a positive note today:
Nikkei 225 13,312.03 -317.13 -2.33%
Bernanke: What’s that, Lassie? Stock traders are losing money? Warm up the helicopter!
“Leau said he put no money down on his home, paid no closing costs and estimates he has netted about $50,000 in cash from refinancing. He used the money to pay off $8,000 in debt and fund a vacation to Hawaii.”
Holy cr@p! A $42K trip to Hawaii? When did Hawaii legalize Las Vegas-style gambling?
Some ground-level reporting from open houses today in West L.A.: The bowl of punch is still strictly Jim Jones-style Kool-Aid. The wife and I visited a condo in Santa Monica that was 3 bedroom, 2 bath, asking price: $750K. BUT, no laundry! Here’s the kicker: the cheerful realtor chirped up about how much privacy the place had, and then immediately had to retract it when she bashfully said “Well, except for that shirtless man outside the window [5 feet away from the living room].”
Just 100 yards down the street from here a VERY garden-variety 3+2 SFR was going for 1.25 million. The realtor helpfully asked if I wanted to know why it had been on the market since May. I looked her in the eye and said “No. I can already guess.” I think I was the first person she had met who responded that way. All the other properties we saw were the same. Absurd asking prices that only doctor-lawyer DINKs would even consider (and really, couples like that would not be interested in the cr*p we saw being peddled today).
The Westside of L.A. is like Rome. The IE (i.e., the Levant, Gaul, and Hibernia) is already burning. I keep telling everyone who will listen that Alaric is on his way. It’s late-409 A.D. here.
Ask yourself. Why would you commit 30 years of your rather precious life to a thing, a 3+2 in LA? or NYC? or London? Rome? Paris?
Why? Why? Why?
It’s just a crappy object.
I think you will find that Jones and his acolytes drank grape Flavor Aid, rather than Kool-Aid.
Just wanted to correct the record here…..
“The more people that did it, the more accepted it became socially and so it just toppled quickly.”
Jingle mail — the suburban domestic version of an inner city riot.
BEN. BOOK. WRITE.
I figure you have about a 1 year window to get it out if you want to ride this puppy down.
“The idea of paying $1 million to own a hotel room for two weeks a year while hoping tourists would rent the room the rest of the time seemed elementary a few years ago.”
Ha, I never understood the attraction to this idea. Even if you could make money doing it (doubtful), it’s bad enough having to vacation in the same hotel room every year, surrounded by an ever-growing residue of other people’s bodily fluids, but who the heck wants to OWN that residue?
Barbara Baker, a real estate agent in Murrieta: ‘It makes it impossible for someone with a job offer elsewhere to get fair market value. It’s awful. I’ve been here since 1980 and I haven’t seen it this bad.’
It’s frustrating to hear folks who have no idea what “fair market value” is. It’s just the number at which the property freely sells. It’s defined in the IRS’ regulations:
Fair Market Value: “The price at which property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”
The easiest example is an auction. If a house is auctioned off for $200,000, its fair market value is $200,000. Don’t even need a calculator to figure it out.
But still there are folks observing that a house did or did not sell for fair market value. That’s like asking if the weather today reached a correct or incorrect temperature.
Good analogy, Scotty.
I like it!
Especially since the weather did not reach the correct temp as the ice was still on my driveway.
Quote of the day
This guy advocates for a Japanese Sovereign wealth fund
The good news is that Japan is speaking more seriously about creating a sovereign wealth fund. The bad news is there’s a risk that such a fund will be used more for socialism than capitalism.
OK - Isn’t the fund itself a form of socialism/communism??
http://www.bloomberg.com/apps/news?pid=20601039&sid=aAODASRjKLA8&refer=home