You Can’t Get Blood From A Turnip In California
Palo Alto Online reports from California. “Finding a house is hard in Palo Alto. The competition gets tougher for houses under $1 million dollars. Homebuyers might be wondering how much of a bubble could have popped in Palo Alto. ‘Two years ago, or even a year and a half ago, the question buyers would ask me was: ‘Are prices going to go down more?’,’ Tim Foy, a broker and Realtor in Palo Alto, said. ‘Now the question is: ‘How do I get a house before they go up more?’”
“The inventory for townhomes and condominiums is a lot larger than homes, even in Palo Alto. There are currently 80 on the market with two or more bedrooms in Palo Alto, Mountain View and Menlo Park available under $850,000, Foy said. ‘Traditionally they have appreciated and people have made money on them,’ he said. ‘It is a great way to get into the market because you own something.’”
“If you want to know what’s on the market, you need to get out there and look. That’s what I did in March, spending a couple of weekend afternoons cruising through open houses in Mountain View, Palo Alto and Menlo Park. 1097 Karen Way, Mountain View, with an asking price of $998,000. At 2:15 p.m. would-be buyers were swarming the house, which was a short sale with no date set for offers yet. The outstanding loans on this home were $1.1 million, but because both loans were held by the same lender, there was only one negotiator for the short sale.”
“My final stop that Sunday was a home in a planned-unit community in Sharon Heights, in Menlo Park. The large home had one common wall with a neighbor. Priced at $1.09 million, the home would be perfect for a downsizing couple, said Marilynne Pryor, an agent with Coldwell Banker, Menlo Park. But despite the fact that sales have been picking up since after the holidays, she’s not seeing the multiple offers of her colleague who sells in the $400,000 to $800,000 range in Mountain View and Sunnyvale.”
“Pryor’s tips: Despite $1.09 million being a good price point, people living in larger homes nearby are still hesitating to sell. ‘They have their heads on a price point for their house that they heard about five or six years ago. Guess what? Equity in that home has gone down. There’s no nest egg to fall back on,’ she said.”
The Oakland Tribune. “Two new bank failures, involving one bank in Oakland and anther in San Rafael, won’t be the last in the Bay Area and are a reminder that the region’s economy remains wobbly, analysts said. Oakland-based Innovative Bank and San Rafael-based Tamalpais Bank were seized by bank regulators last Friday and turned over to new owners.”
“Bank failures have mounted in recent months in the Bay Area amid a sour economy. Last fall, the FDIC closed two San Francisco-based bank, Pacific National Bank and United Commercial Bank, and turned them over to new owners. ‘We are not out of the woods yet,’ said Hans Schroeder, a principal executive with San Francisco-based Green Street Capital Management. ‘The banking problems are definitely not over. There will be more failures.’”
“About 99.5 percent of Tamalpais Bank’s failed loans were in real estate. About 49 percent of the nonperforming loans were in commercial real estate. Some experts believe the FDIC could close banks with more frequency if it so chose. Christopher Thornberg, an economist and co-owner with Beacon Economics, said the FDIC is simply biding its time before it charges in to close more banks.’Most of the regional banks that are heavily oriented toward commercial real estate are under water,’ Thornberg said. ‘They are a mess, a disaster.’”
The San Francisco Chronicle. “In California during the boom real estate years - 2005 to 2007 - homeowners took out 2.88 million home equity lines of credit and 1.18 million nonpurchase second loans, according to First American CoreLogic, which tracks loan data. The total was 4 million such recourse loans totaling $485.3 billion. In California, a foreclosure generally wipes out the borrowers’ obligation on the main mortgage but not necessarily on other home loans.”
“‘We’ve seen a lot of folks coming to us, saying, ‘I was foreclosed on, now these people say I owe $150,000 for my second loan; I thought everything was going to go away, what do I do now?’ said Noah Zinner, an attorney with Housing & Economic Rights Advocates in Oakland.”
“Shannon Jones, a real estate attorney in Danville who gets several calls a day from people concerned about their liabilities post-foreclosure, said she’s turned down some second-loan clients. For instance, one Bay Area man had borrowed $52,000 on a home equity line of credit for a home that ended up in foreclosure. ‘The lender filed suit against him and he asked me to defend him,’ she said. ‘I said, ‘You don’t have a defense. You borrowed the money, you spent the money. You signed a promissory note and said you would pay it back.’”
“Often, such borrowers end up settling with the lender for pennies on the dollar, Jones said. ‘You can’t get blood from a turnip,’ she said.”
The San Gabriel Valley Tribune. “A record number of U.S. homes were lost to foreclosure during the first quarter of 2010 as banks stepped up their efforts to work through troubled loans.Will this flood the market with low-priced homes, effectively depressing overall housing prices? One local Realtor doesn’t think so. ‘I think lenders are smarter than that,’ said Tom Adams, owner of Century 21 Adams & Barnes. ‘I think they’ve been gauging the absorption rate for some time so they could determine how many to release at a time.’”
“Adams said many markets including the San Gabriel Valley have a shortage of inventory, so bolstering the supply is actually a good thing - even if it’s bank-owned properties. ‘Banks know there’s a shortage and they’re taking advantage of this window to go out into the market as much as they can without hurting things,’ he said.”
“Ahmed Ispahani, a professor of business and economics at the University of La Verne, said banks don’t want to flood the market with too many REOs. ‘If they release a large number of homes, prices will go down and their income will go down,’ he said. ‘They are acting very smart. They want to release as few as possible so demand exceeds supply.’”
“In some cases, buyers are fueling an increase in home prices, Ispahani said. ‘I have some friends who are eager to buy, but they say other buyers are offering more than what the homes are priced for,’ he said. ‘It’s a very controlled market.’”
The Daily Pilot. “The number of homes nearing foreclosure in Orange County spiked during the first quarter, indicating that banks may be finally working through their backlog of homes. RealtyTra’s figures show there were 93% more notices of trustee sale than in the first quarter of 2009. This is one of the last stages in the foreclosure process before a bank repossesses a home.”
“It’s possible that as banks are getting stronger and the economy is looking more solid, they’re more willing to take the potential hit to their balance sheets,’ said Patrick S. Duffy from MetroIntelligence Real Estate Advisors.”
“Also, a variety of moratoriums in California expired at the end of September, and many of these foreclosures may have been delayed a few months. In total, RealtyTrac says there were 12,841 homes in the foreclosure process during the first quarter, including 1,722 that were taken back by the bank. The spike raises concerns of a pending double-dip in the housing market, as some economists have predicted. The news comes days after a positive report on the housing market here — March saw a 12.2% jump in the median-priced home from 2009.”
“‘Would a higher percentage of foreclosures impact housing prices in the county?’ asked Duffy, ‘especially at a time when interest rates are rising? Certainly.’”
“A city councilman has been caught up in a new wave of foreclosures sweeping the country this year, but said a deal has been worked out with the lender to keep him in his home. A Monday notice in this newspaper said the home belonging to Pico Rivera City Councilman Bob Archuleta and his wife will be sold in a public auction April 26 at Pomona Superior Court because they are in default on a $508,238.61 loan from Washington Mutual Bank.”
“Archuleta said Thursday he will not lose his home. ‘It’s been worked out through a loan modification and the payments will be brought current,’ he said.”
“The couple bought the four-bedroom, three-bath home on Orange Terrace in 2005 for $389,000, according to public records, and later took out loans against it. Archuleta, a Realtor, isn’t alone. The country is in for another round of foreclosures, said Tom Adams, owner of Century 21 Adams and Barnes.”
“‘There were a lot of political promises that were made or suggestions that millions of people were going to be helped, but the overwhelming majority of those programs have not panned out as the politicians would have had everyone believe,’ Adams said. ‘Now it’s time for the banks to get on with their business.’”
The Record Searchlight. “Foreclosure activity was back up in Shasta County in March. March capped a first quarter in Shasta County that saw a total of 1,145 foreclosure filings — default notices, scheduled foreclosure auctions and bank repossessions — reported on 1,023 properties, a 14.4 percent increase in filings and an 18.4 percent jump in properties compared with a year ago.”
“With roughly 50 percent of all transactions in Shasta County either bank-owned properties or short sales, these distressed deals continue to put downward pressure on values.”
“Enter Dan Bennett: an extreme example of somebody who’s cashed in on the foreclosure market. In January, the Shasta College nursing student bought his first house off Hilmonte Drive in Redding for $63,000 — an 1,800-square-foot, four-bedroom foreclosure that sold for $250,000 in October 2005. The home listed for $359,900 in September 2006 before it fell into foreclosure.”
“Bennett, 22, said the house had been gutted and was basically a shell when he purchased it. So Bennett basically paid for the property on which the house sits. ‘All the appliances and toilets were missing,’ said Bennett, who’s working to rehabilitate the home and hopes to move in this summer.”
Business
MGIC narrows loss; to sell $1 billion in new shares, debt
By John Schmid of the Journal Sentinel
Posted: April 20, 2010
MGIC Investment Corp., hard hit by the U.S. foreclosure crisis, reported its 11th consecutive quarterly loss Tuesday and announced plans to issue $1 billion in new stock and debt to shore up its financial foundations.
Milwaukee-based MGIC, the largest mortgage insurer in the U.S., previously has disclosed that its insurance portfolio included subprime and other high-risk loans….
“What we have here is failure to communicate — and lots of moral hazards”
http://tinyurl.com/y7uv7yz
only worse name would be Creative Bank.
That was in response to Innovative Bank. Damn Windows menu key..highlights everything and wipes it out with the next keystroke.
“Christopher Thornberg, an economist and co-owner with Beacon Economics, said the FDIC is simply biding its time before it charges in to close more banks.”
Thornberg seems to miss the strong recovery which is underway. If the banks hold on for just a little longer, there may be no need for the FDIC to close many more of them.
Come on, people — if everyone starts using the Think Method, we can get this party started!
==========================================================
The Washington Post
If you believe in economic recovery, it will come
By Dana Milbank
Wednesday, April 21, 2010
It’s morning in America….
The recovery, Biden admitted, “has not yet” reached the middle class.
But he had a suggestion for a nation that still does not think the dark economic night is over: The recovery exists if you just believe in it.
“I think it’s fair to say that most believe we’re generally turning the corner and moving from contraction to expansion,” he announced.
This reminds me of the movie “The Bunker” about the final days of Hitler. Basically, anyone who did not believe that Germany would win the war (even with the Russians just miles from Berlin) was taken out and shot.
It’s probably gone now, but there was a real estate bubble Downfall mashup. “My realtor said real estate only goes up!” “Everybody who warned me about the bubble leave the room!”
Oh no.. It’s not gone.. And it’s still classic!
http://www.youtube.com/watch?v=bNmcf4Y3lGM
“It’s still classic!”
And the “Hitler goes to the Springsteen Show”….
And “Hitler has his car stolen”
And don’t get me going about the “Chad Vader” videos….
Someone should tell “Newsweek” that???
Don’t we click our heels together three times before we believe?
I want to be tall, blonde, beautiful, and rich… click, click, click…. it didn’t work.
You must believe HARDER.
LOL!
Let’s all put on our meditation clothes, sit crosslegged around in a circle, hold hands, close our eyes and hum “oooommmmm.” That should make everything OK.
Biden: “Somebody in the circle isn’t thinking positive thoughts!”
“I’ve had nothing but positive waves about the real estate market!” “BUY!BUY!–That’s my OTHER Realtor impression”
Why waste your time wishing for an economic recovery when you can wish for a Candy Crapping Unicorn?!?!
Definitely an anti-social type……..
Who? Me?
(I receintly had the pleasure of negotiating with my employer. I finally had to pull out a pad of paper, explain the two senarios that were possible outcomes, and show that given I was more than willing to walk away from the deal that accepting my offer on my terms was much cheaper than me walking away from the table.)
Does this mean you got a raise, Chile? That would be a definite green shoot.
Pap. You might as well say “As long as you believe in Jesus/Muhammad/Yahweh/FlyingSpaghettiMonster everything in your life will work out fine.”
The people crying for the shrinking middle class to loosen the purse strings in order to keep momentum in the minuscule recovery are ignoring the fact that loose purse strings caused the whole mess. SUSTAINABLE spending is what you want, not debt fueled spending.
It’s like watching a logging company mow through a forest until they realize there is only 5% of the forest left and they’ll all be out of work. Then they notice some “green shoots” back at the beginning of the forest and demand the workers mow down the remaining 5% this very instant.
It’ll take time for those ‘green shoots’ to grow into anything resembling a forest. And ‘believing’ the forest is going to spring back overnight will have zero effect.
The people crying for the shrinking middle class to loosen the purse strings in order to keep momentum in the minuscule recovery are ignoring the fact that loose purse strings caused the whole mess. SUSTAINABLE spending is what you want, not debt fueled spending.
We have a winner! Way to go, sfbubblebuyer!
Nice analogy, SFBB.
You know a lot of this will get started depending on tolerance for inflation and if the money flows to wages.
Not that I like the answer GS.
“……money flows to wages.”
Of all the things that have happened in the last two years, I’ve seen ZERO evidence of that happening. In fact every speck of evidence indicates the opposite. Unless you work for Wall Street.
“But he had a suggestion for a nation that still does not think the dark economic night is over: The recovery exists if you just believe in it.”
But alas, poor Yorrick, we know fantasy well, and fantasy just doesn’t trump mathematics.
A wishin’ and a hopin’ that a $2000.00 per month strawberry picker income will support a $6000.00 per month mortgage is just NOT going to make it happen.
And all the mealy-mouthed sons of bitches that want to go on record encouraging people who cannot afford it, to go even further into debt they can never repay; can go to hell. Recover THAT, mofo.
And all the mealy-mouthed sons of bitches that want to go on record encouraging people who cannot afford it, to go even further into debt they can never repay; can go to hell. Recover THAT, mofo.
I like your anger!
“But he had a suggestion for a nation that still does not think the dark economic night is over: The recovery exists if you just believe in it.”
The people who are still out of work and have been for years don’t believe it or do those that know them. If the recovery’s only on Wall Street, there is no recovery.
And all the mealy-mouthed sons of bitches that want to go on record encouraging people who cannot afford it, to go even further into debt they can never repay; can go to hell. Recover THAT, mofo.
+ 100
One of the best movie lines I ever heard was uttered by Anthony Hopkins in Hearts In Atlantis (2001)
“Wishing will not make it so.”
I’m holding back friends and family members who want to buy commercial real estate. If they can just be patient, they’ll make good investments in a couple of years.
“‘There were a lot of political promises that were made or suggestions that millions of people were going to be helped, but the overwhelming majority of those programs have not panned out as the politicians would have had everyone believe,’ Adams said. ‘Now it’s time for the banks to get on with their business.’”
And what a fantastic business model their industry has!
1. Push up home prices through the roof by lending to anyone who can breath.
2. Extract extra high purchase prices, and a commitment to repay the unaffordable mortgage loans with interest, from home buyers of all stripes.
3. Repackage loans that are unlikely to ever be repaid as MBS which can be stamped with a triple-A rating and sold to unsuspecting fools.
4. Later on, foreclose on anyone who cannot keep up the unaffordable payments.
5. Get the Fed to artificially inflate home prices when market conditions dictate they should be dropping much further.
6. Hold on to the REO inventory indefinitely until the market (and higher home prices) return.
These banks must be run by true geniuses. How can I get a piece of the action?
People can be surprisingly resourceful. If not from banks, they will find some other way to borrow themselves into oblivion.
I don’t care, so long as I don’t have to pay for others’ stupidity, whether it be lenders or borrowers doing stupid.
People’s stupidity is a tax we all share.
As I always say, never underestimate the stupidity of the general public.
The key is to whip the stupid into a frenzy with the bankers.
Then the stupid will go Marie Antionete on the bankers.
Solve a lot of problems for the fence sitters.
House available. check.
Stupid competition out of picture. check.
Bankster punished. check.
Remaining banksters living in fear. check.
Stolen banker bonus goes to memorial chairity. check.
Govt too busy to worry about bailout. check.
added bonus for us in the death dealing business… our war machines get put to use so increased market size. check.
Si, me gusto.
“These banks must be run by true geniuses. How can I get a piece of the action?”
Become a small town RE con man or go to Harvard, this is the America Casino and we take all kinds.
“Roll those loaded dice, momma needs a boob job”
I was just thinking this morning that swindling idiots is getting to be the only viable income generating activity. I’ve suffered plenty at their hands… maybe it’s time to turn the tables.
These banks must be run by true geniuses. How can I get a piece of the action?
Go to Harvard, then work at GS and then give big campaign contributions to obama…
Bang bang bang. His drum only makes one sound!
>>1. Push up home prices through the roof by lending to anyone who can breath.<<
Why be so restrictive? I say give loans to the deceased.
At least the deceased can’t walk away (unless, of course, they are zombies!)
As they say in Chicago on election day, “vote early and often”.
As Lyndon Johnson once said,’They also deserve to vote’, as he surveyed the cemetary. He won that election to the US House Of Representative in Texas.
Yes - there are still consequences for just “walking away” and jingle mail. Bankruptcy still is an option. And you may be taxed on any amount of the loan “forgiven”.
The mindset of “Why do I have to pay back money that I borrowed” is still alive and well…
“‘We’ve seen a lot of folks coming to us, saying, ‘I was foreclosed on, now these people say I owe $150,000 for my second loan; I thought everything was going to go away, what do I do now?’ said Noah Zinner, an attorney with Housing & Economic Rights Advocates in Oakland.”
“Shannon Jones, a real estate attorney in Danville who gets several calls a day from people concerned about their liabilities post-foreclosure, said she’s turned down some second-loan clients. For instance, one Bay Area man had borrowed $52,000 on a home equity line of credit for a home that ended up in foreclosure. ‘The lender filed suit against him and he asked me to defend him,’ she said. ‘I said, ‘You don’t have a defense. You borrowed the money, you spent the money. You signed a promissory note and said you would pay it back.’”
Bankruptcy lawyers are going to be getting more business…
I know a couple of bankruptcy lawyers here in Tucson. Like baseball was to that “Saturday Night Live” character, the past few years have been veddy, veddy good to them.
PBS McNeil or Leher whatever it is did a long story about walk-aways in Florida last night. It was hilarious.
Here’s the link:
http://www.pbs.org/newshour/bb/business/jan-june10/mortgage_04-20.html
Totally predictable. All these people signed up for mortgages without running the numbers, or reading them. What makes anyone think they would get some advice from the lawyers or accountants, before they filed bankruptcy?
Hope she sent him a bill too!!
“If you want to know what’s on the market, you need to get out there and look. That’s what I did in March, spending a couple of weekend afternoons cruising through open houses in Mountain View, Palo Alto and Menlo Park. 1097 Karen Way, Mountain View, with an asking price of $998,000. At 2:15 p.m. would-be buyers were swarming the house, which was a short sale with no date set for offers yet. The outstanding loans on this home were $1.1 million, but because both loans were held by the same lender, there was only one negotiator for the short sale.”
For the benefit of the uninitiated, “Mountain View” is a bit of a misnomer. You won’t see very much in the way of mountains there, at least from most parts of town, but you will see plenty of the following: noodle houses, adult bookstores, nail spas, fast food restaurants, strip malls, heavy traffic, and, of course, 3/2 ranchers from the 50’s on .15 acre plots going in the low $1 millions. No wonder everyone apparently wants to live there!
Or you can just rent a nice house for $3500/month. Granted, expensive, but far better value than buying.
http://sfbay.craigslist.org/sby/apa/1701556371.html
Seems the bubble still lives in Silly Valley.
Nah, those prices are down from the peak. But they were late to the ‘fall’ and the dead cat bounce of Q42009/Q12010 have them convinced they bottomed at about 7-10% off peak. (Still, that’s up to 200k or so off peak, so their little brains are traumatized nonetheless.)
They’ll be crying in their ventimochasoyachinos when they realize this was the ‘bear trap’ chance for them to sell and keep some of their phantom equity.
When we bought in Aug 2009, we were the lowest price anything had sold for since 2003. We’re not in the ‘fortress’ area and wound up getting it for 35-40% off peak. A couple of people in the neighborhood were saying what a deal we had gotten. A few months later another house sold for less than we paid. Now we get people saying not to worry, the value will come back.
At least they stopped blaming me for ruining the comps in the neighborhood. I can’t wait for the next house to sell at another 10% down.
Same here in the better parts of San Diego. Other less desirable areas here have fallen significantly (40% or better), whereas some of the nicer areas are clinging by their fingernails to only about a 15% discount at this point.
And nearby jobs with some killer companies.
Of course with the 60-80 hour work weeks that are typical in many of these companies, will you really get your money’s worth for a house where you don’t spend much time?
“and, of course, 3/2 ranchers from the 50’s on .15 acre plots going in the low $1 millions.”
I can’t begin to fathom this. I have an 1872 Victorian farmhouse, 10′ ceilings, original slow-growth(hard!) pine woodwork, 4 acres of land, barn, silo, detached 2-car garage with wood storage below, smoke-house turned garden shed, swimming pool, orchard, soccer field, geothermal heat, within 20 minutes of job centers in Cincinnati and Dayton… for $265k at the height of the bubble.
I agree, Cincy. I don’t see much intrinsic value in those overpriced sh!tshacks in CA. But, I see a lot of it in what you purchased.
You guys just don’t “get it”. In rural Ohio, your neighbors will be farmers, people with large animals, and a few gun nutz sprinkled here and there. You know, regular folks.
California has all that progressive diversity. Can’t put a price on that.
(Well, actually you can……a million bucks, for a 60 year old rancher on a .15 acre lot).
Man, a million bucks just doesn’t go as far as it used to…….
Farmers make great neighbors !
Let’s see.. I have a golf course bordering me on the back of my property… a residential lot on one side, a horse farm across the street with race horses, and oh yes.. a corn/soybean field on one side of me.
Now if I want to get away from all the quiet of rural living, I can drive 3 miles to a couple of malls, lots of fast food restaurants and big box stores.
You are right, though. I do have to drive some 30 miles to one of several fine museums, performance halls, and other ‘culture’ events. Somehow I manage to make the drive a dozen or more times a year. Can take more than 30 minutes if the traffic is bad.
BTW - for living ‘rural’, I’m right int he middle of the Cincinnati-Dayton metroplex, about 1 mile from the interstate, with some 3.5 million people combined. If I expand my driving distance to 1.5 hours, I pick up Columbus, Indy, Louisville, Lexington. So that brings the population count up to 8 million people. Not quite LA, of course. But more than enough people to ensure we don’t miss out on much of anything .
I wasn’t being critical…..Most of my mom’s side lives near Zanesville. It’s that rural areas 1-2 hours out from big cities are pretty much the same anywhere in Flyover Country.
Now, if I can just convince them to stop assuming that the Republican Party is their friend……
When we moved to San Diego back in ‘74, we took horseback riding lessons at a ranch about a half-hour drive from downtown SD. Real vestiges of the Old West still existed at that point in some areas that weren’t totally out in the sticks. Well, about 10 years ago, they tore the stables down and put up about 40 $1-million homes. A real shame.
Now, if I can just convince them to stop assuming that the Republican Party is their friend……
That would be a lot easier if there were a good alternative.
But who wants to live in Ohio except Moonbeam Kucinich?
I do, I do, and if it wasn’t for a child custody trap, I would too.
California, especially Coastal California, is simply another planet, land of the fruits and nuts.
I moved here from Texas in 1992 and have never really “adjusted” to the huge delta in prices. Back then it was about $200k - $300k for a crapbox squeezed onto a postage stamp lot compared to a literal mansion on an acre for half that in TX. Now, by the magic of the mania that crapbox has a wishing price of $800 to $1+ million.
I think at some point during the madness bullet ridden, bars on the windows, crack houses in South Central were listed at $500k.
WTF?
Never been to Cincinatti.. but was in Cleveland once.
Maaaaaaannnn… that place is depressing. The “downtown” area was kinda nice.. with some cool restaurants & such.. Rock n Roll Hall of Fame was OK… but outside of that… whew!!! A lot of BIG houses.. but seems to be little life around.. for some reason. People were very friendly, though.
Granted.. I was there in the late fall/Nov/early winter… maybe that had something to do w/ it.
but you will see plenty of the following: noodle houses, adult bookstores, nail spas, fast food restaurants, strip malls, heavy traffic, and, of course, 3/2 ranchers from the 50’s on
You had me at adult bookstores.
I have a question for Ben and any other accountants in our blogsphere.
The lenders are obviously sitting on a significant shadow inventory of unsold homes. The decision to manipulate the supply is in their, not our, best interest. My question relates to the new accounting standards regarding “mark to fantasy”. If the lenders were to dump there entire inventory for sale, wouldn’t this effectively mark their assets to market?
I suspect that many lenders are insolvent and are hiding behind the government accounting curtain to conceal this.
So I propose that even though manipulating the inventory is good business for a lender, they are doing so primarily for their own survival.
Now before anybody thinks I’m working for the company store, I believe any insolvent business needs to fail.
Re: the holding back of shadow inventory: I’ve heard hints of collusion on this blog before. Now I think we’re getting closer to actual proof.
Insolvent means you can’t pay the bills as they come due. Thanks to government intervention many larger business institutions remain solvent.
Until the economy is thought to be stable enough to support itself despite massive business/financial failure, I can see no reason government would even entertain the idea of removing it’s support.
People may not like it but that’s how things are.
Lenders “manipulating the inventory” is good for the economy. That it is also good for the lenders is secondary. That it is not good for us prospective home buyers ain’t even on the map..
‘I can see no reason government would even entertain the idea of removing it’s support’
So how does this jive with what you are posting in the bits bucket this morning:
‘Comment by joeyiinCalif yeah.. Business is evil. Remove any influence business has in government. We need a government which has absolute control. Government will save us.’
‘If given the choice between living in a world controlled by politicians or one being controlled by capitalists, I’d choose the latter. In fact, being a firm believer in capitalism, the greater the influence capitalism has over our government, the more I like it.’
So the government has the wisdom to manage it’s way out of the housing bubble, never mind the fact that the government is largely responsible for this mess? Not very consistent stuff there joey.
‘People may not like it but that’s how things are’
Oh, OK, so joey and those wise guys in DC have it all under control, and us little people can just shut up and like it?
Here’s another take; these bungling boobs make a disaster out of almost everything they touch, and this is no different. They are making a bad situation worse, that will cause MORE damage to banks, the economy, knife-catchers, you name it. And in the end, we’ll see millions more foreclosures because of the government/regulator/lender actions, causing prices to overshoot even more to the downside. How do you like them apples?
..So the government has the wisdom to manage it’s way out of the housing bubble, ..
I never accused government of having ANY wisdom.
Govt WILL NOT remove it’s support at this time. For better or worse that’s just the way things are.
My “Business is evil–Government will save us.’” comment to Rio was facetious. From the tone and content of his response I am sure he caught my drift..
—-
..They are making a bad situation worse, that will cause MORE damage to banks..
Will govt intervention make matters worse? Did govt cause the problem in the first place? Those questions are open for debate. I have not addressed them so far today.
—-
..we’ll see millions more foreclosures because of the government/regulator/lender actions, causing prices to overshoot even more to the downside. How do you like them apples?..
While I doubt govt action or inaction will ultimately have any effect at all on the number of foreclosures or on how far prices will fall, being among the prospective buyers I have to say I like them apples a lot.
it’s - contraction for “it is”
its - possessive.
Sorry, just couldn’t help it.
Confusingly, insolvent can mean either that you can’t pay your bill when due cashflow insolvency or that you have a negative net worth balance sheet insolvency. Information lags and reputation being what they are, many people, business, or countries can become balance sheet insolvent well before they become cashflow insolvent if they don’t have a history of default.
Like anybody else, when and how lenders sell should be determined by their judgement of how to maximize price. But because they have low cost FDIC insurance and the ability to borrow from the FED, we as taxpayers have a vested interest in shutting them down when they become balancce sheet insolvent instead of waiting for them to become cashflow insolvent.
And if we want a free market, we don’t want them colluding together to form a secret monopoly.
..we as taxpayers have a vested interest in shutting them down when they become balancce sheet insolvent instead of waiting for them to become cashflow insolvent.
How is it in my best interest for banks to fail?
From the POV of the common taxpayer who has money in a bank, owns stock, has an IRA, it seems the equivalent of me boldly stepping in front of a bus just because I have the right of way, or to try and tackle the maniac with the gun because it’s the heroic thing to do.
Bank failure puts me at risk and is certainly not in my best interest. While it might be intellectually satisfying for some, I don’t see how it is in anyone’s best financial interest.
It’s a case of the “soldier’s dilemma.”* It ISN’T in our best interest for banks to fail. But if they’re GOING to fail, we want them to fail as close to to a zero balance sheet as possible since we’re on the hook for part of their debts through the FDIC. And after a long period of near zero bank failures, the FDIC is having switching from trying to prevent failures, which is in many cases just not possible, to minimizing their losses in bank failures.
*A soldier’s best chance of survival is winning a battle. But if the battle is lost, the best chance of survival is to run away before everybody else. At a fundamental level this is why team building and instilling confidence in those around them is arguably as or more important as technical skills for soldiers.
‘if they’re GOING to fail, we want them to fail as close to to a zero balance sheet as possible’
I agree, if they are done for, it’s due to decisions they made years ago. Any effort to shore them up by delaying the inevitable is a waste of money and will result in more underwater buyers.
‘the best chance of survival is to run away before everybody else’
I’ve been talking about this with some folks lately. If there is no collusion (or even if there is) at some point these companies will start to sell, while the others ‘control’ their inventory. It’s a short term arrangement that eventually has to be dissolved. We’ve got a bunch more defaults coming this summer too.
Bank failure puts me at risk and is certainly not in my best interest. While it might be intellectually satisfying for some, I don’t see how it is in anyone’s best financial interest.
Moral hazard. If institutions that behaved recklessly are propped up and allowed to continue indefinitely (zombie banks) then, the next time around, the same people will behave even more recklessly because they know there is now explicit support from the government for their actions.
While cascading failures or a “crash” could have catastrophic consequences, there is a real risk that all of the bailouts put us at a BIGGER risk for an even bigger crash in the future, with a lot of malinvestment and bad consequences in the meantime.
..we’re on the hook for part of their debts through the FDIC…
umm.. I might be misunderstanding you, but taxpayers don’t pay one thin dime into the FDIC fund. That money comes from member banks.
You could say that a bank’s customers and depositors actually do the paying since the money must originate somewhere, but banks themselves pay the insurance premium.
Banks having FDIC coverage encourages me to trust my money to their safe keeping and promotes economic activity. Without it I wouldn’t risk depositing any money in any bank.
Well my limited understanding is that the FDIC is burning through their reserves pretty quickly. Hey, when banks aren’t in trouble, insuring their deposits is pretty cheap. When failures are more common, like last year or this year, they can burn through money quickly. It’s my impression that they DO have explicit government backing, so the chances that we’ll get through the next few years without taxpayer support of some sort, possibly some sort of loan, is pretty minimal IMHO.
ISTM that the FDIC hasn’t really converted to “mass casualty” mode, and is instead trying save most troubled banks. But in the current crisis, I think that they need to apply “triage” principles. Letting banks go for a bit longer to see whether they can “cure” their problems makes sense when only one or two banks are in serious trouble every year. But under current conditions, this sort of forebearance will usually just result in greater losses that the FDIC can ill afford.
Times are not NORMAL, and while I sympathize with how difficult it is to change one’s mindset to “save who you can, and euthanize the rest,” THAT’S the nature of today’s banking industry. We simply CAN’T afford to allow the degree of forebearance that IS probably a good idea in normal times. Keep your hands inside at all times, it’s going to be a bumpy ride.
Jimmy Jazz…
While avoiding moral hazards from bailouts is a commendable goal, will there ever come a day when the government will not step in and do whatever necessary to support what is, in it’s judgment, a critically failing economy?
—–
Mal-investments are a significant portion of all investments in the normal course of affairs. Nothing much we can do about that..
The question is how to avoid massive speculation on a scale of the housing bubble, and to that end we’ll need to address the causes of nearly universal manic behavior. I’d suggest everybody get lobotomized, but that cure might be worse than the disease.
IMO, instead of bailing out the failures, the government should have sat back and let the chips fall, then make plenty of funds available for the smart/conservative/lucky banks to loan when the dust settled. This would have had the benefit of inflicting most of the punishment on those with the most exposure to the crap paper.
But the Investment Banks are doing business globally (there’s that word again…..). I wonder how much of this was done to keep other countries from going on the warpath, if they had become major bagholders.
Bingo, XGS!
Yep ,you nailed it XGS. All you ever hear is they can’t do this or that reform because we won’t be competitive Globally . In every way we are tied into Global financial markets and in my view
that was all the more reason that the Greed Machine Money Changers created a security problem because now your dealing with other Countries with their own unique rules .This is a bunch of BS that we have to have TBTF or we can’t be competitive or service Americans . There is a dis-connect these days from the USA and the people in the USA verses the Global markets and
Corporation markets .This is why Main Street is hurting because
we have been jilted .
The part that I have always wondered about is that even if
the banks could hold inventory forever, the inescapeable
reality is that such properties have a holding cost
consisting of property taxes, insurance and maintenance.
Here in the O.C (Ca.) I have calcuated that such costs are
about 3%-5% of the property value / year.
Doesn’t is seem reasonable that at some point the banks
would be forced to dump because of these costs?
‘properties have a holding cost’
This is one of the aspects we are chasing down. I know that in Florida, at least, banks have a limit on what they have to pay for condo fees. This leaves the rest to make up the difference. I suspect they ‘hold off’ on foreclosing in part so they aren’t the owner of record and don’t have to pay the taxes. I’m sure the FB isn’t going to pay them.
Preach it on that holding cost concept, Ben!
BTW, speaking of holding costs, the failed flipper behind me has allowed his property’s weeds to grow to the lofty height of almost two feet. Far be it from him or his tenants to do anything about it.
Furthermore, city ordinance says that they’re not to be more than 6 inches high. So, I made a call and reported Mr. Failed Flip to the city.
Reason for my concern: Some of those weeds will dry out like tinder once the weather gets warm. And Mr. Failed Flip has rented to a bunch of smokers. I’m not interested in having this place burn down due to where they tossed a cigarette butt.
Tongue-in-cheek suggestion: on a day when the wind is blowing downwind towards your neighbors, water down your area and then nonchalantly toss a cigarette butt of your own onto the weeds and have an accidental “controlled burn.” (Just a joke of course; I’m not advocating arson!).
Actually, I’ve been thinking of setting a compost bin just south of our common fence. I think they’d enjoy the smell of it.
Wasn’t somebody talking about HOAs that were initiating foreclosure proceedings based on leins for unpaid fees to FORCE lenders to take posession?
…FORCE lenders to take possession?…
I believe there was a thread about that very topic
a few months ago on this blog.
That process [if legally possible] could certainly
become an important arrow in a HOA quiver
of legal tools.
I am wondering out loud if it would be possible
to petition [or sue] against individual properties
not part of a HOA. [Example: a homeowner
who is tired of weeds in his neighors yard
as noted by Arizona Slim]
‘properties have a holding cost’
Hold it long enough and you are looking at the value of the land on which the crumbled remains of what was once a house now resides.
I suspect that a big part of the problem is that it not legally clear who will pay the holding costs on foreclosed homes whose mortgages have been securitized. A large number of the mortgages on homes and condos in Florida are reported in county records as held Barclays and Deutsche Bank. As neither of these banks originated many mortgages, most must be nominee holdings, with these banks collecting fees on behalf of the bondholders. Many of the mortgages reportedly held by large banks like Citi, Chase, B of A or Wells may also be nominee holdings. These banks likely have contracts with the bondholders, written by the investment banks that securitized the loans, which limit their liability as well as set their fees. The bondholders certainly will not put up additional funds for lawn mowing and the banks servicing the loans may not have to.
Given that these securitization contracts were so badly written that the foreclosures are being thrown out of courts in states like Ohio and Pennsylvania, I suspect that their validity is suspect enough elsewhere to make the legal assignment of additional holding costs very difficult even after a foreclosure takes place.
I really don’t know that this is the answer, but find it a more likely reason for a shadow inventory than some sort of collusion among the thousands of lenders and multitude of regulatory agencies involved.
We have, what eight or ten federal regulatory agencies (don’t forget the SEC, Farm Credit Agency, FHA, and Fanny and Freddy), 50 state (some with multiple regulators for credit unions, savings banks, and mortgage loan companies). On top of this aren’t foreclosures are often managed by county court systems, although state laws may differ greatly here as well?
Do you really need to bring all these parties into a massive conspiracy led by the Fed, Goldman, or the NAR to explain houses not yet in the market? Anybody wanting to get (re)elected as state attorney general or county DA would blow the whistle at once if he got wind of such a conspiracy.
Note that this legal limbo also explains how some borrowers are able to live in their house for years after defaulting on their loans.
I was just thinking this morning that swindling idiots is getting to be the only viable income generating activity. I’ve suffered plenty at their hands… maybe it’s time to turn the tables.
If they’re paying taxes on the inflated values, I could see the government encouraging them to hold the houses off the market.
Meanwhile, I enter my 7th year of wanting to buy, and not being able to because of the stupidity and greed of my countrymen.
Same here. Entering our seventh year of waiting this June.
Doesn’t is seem reasonable that at some point the banks
would be forced to dump because of these costs?
The answer is….it depends. In certain areas of SoCal (Thousand Oaks, where I live) the values on a per square foot basis are increasing at rates well above the costs you mentioned.
So it makes sense to hold on and not swamp the market with inventory when your REO is appreciating faster than your annual costs. For every house you sell, it covers the costs of that house, plus the costs of at least one other house you don’t have to sell. In some areas the appreciation is so strong it covers your costs on at least a portion of yet another REO house in your inventory.
It also helps when you don’t have any regulatory pressure (in the case of banks and Fannie/Freddie/Ginnie held paper) to dump stuff.
‘manipulating the inventory is good business…they are doing so primarily for their own survival’
As I said in the FDIC thread, it isn’t hard to see why they would do this. But it does get down to the idea about if a market this large can be controlled. IMO, it can’t be, in the long run. What we are witnessing is the short run route being chosen. Coming from a biz background, I can say that it is almost always a mistake when the ST wins out over the LT.
One thing in all this; these corporations aren’t in this business. This is just one reason they shouldn’t be ‘manipulating’ anything; they don’t know what they’re doing.
…IMO, it can’t be, in the long run.
Ben…..what’s your definition of “in the long run”.
I have a feeling it is many, many years….maybe a decade. The alternative to “extend and pretend” is apparently too horrible for the government to contemplate, or allow.
I’m not saying what they are doing is right, but of you had told me 2 years ago that:
- the Federal reserve would create 2 trillion dollars out of thin air to buy overpriced MBS
- the Congress would threaten the FASB into allowing financial institutions to “pretend” that their assets are worth well above market value
- that the FHA would be financing almost 40% of the loans in SoCal with 3.5% downpayments and 41% back-end (sometimes much higher) DTI’s
- that the Treasury would offer an unlimited backstop to Fannie and Freddie
….and probably another half-dozen things that are ridiculous, I would never have believed you.
But we all know it happened.
So I am at the point that I don’t think there is any action, however stupid and shortsighted, that our government won’t take to “control the housing market”. And the problem is, they have a lot more money and power than you or I do.
What, if anything, is the “tipping point” when government intrusion no longer has the desired effect?
- the Congress would threaten the FASB into allowing financial institutions to “pretend” that their assets are worth well above market value
That’s a good example of one of the things that I learned here years ago. One of the knowledgeable commenters stepped up and explained how mark-to-market would prevent the shenanigans from getting too out-of-hand, and THEN we’d see who was swimming naked and justice would be served. I was comforted by the explanation and knowledge that our system had checks in place to keep things honest.
The government’s willingness to do anything to prevent the guilty from paying the price has been the big shock to me in all of this. People wish we weren’t so cynical here, but how can you not be?
“And the problem is, they have a lot more money and power than you or I do.”
It goes far beyond that. The Fed can use the virtual printing press to create money from thin air and reallocate wealth wherever it chooses.
Please offer me a shard of evidence if you disagree.
I don’t agree that ‘they’ have a lot of money. An organization that has to borrow over a billion $ every day doesn’t have any money. If the govt could control something this big, why wouldn’t it just make us all rich, and eliminate poverty? If this was in their power, some politician would run on that platform and be elected overwhelmingly.
A long time ago, in this blogs comments we talked about what would trigger price declines. My position was and still is, market forces. When some market of any size in the economy is not in equilibrium, the forces of supply and demand will restore this natural state. An external action can change that in the short term, but not the LT. Economists have definitions of short and long, but it’s really subjective. If you believe in market forces, you only need to wait.
Let’s look at what is really happening; record foreclosures were just announced. Even in the Palo Alto articles above, they are dealing with short sales, people who are underwater and foreclosures. All that has happened is the rate of decline has been slowed in a few markets. This decline puts more people underwater, who will likely walk away. IMO, the inevitable is happening as we speak, more broadly and faster than any RE decline in history.
A long time ago, I had a title from an article on the tulip mania that went ‘taking comfort from the triumph of reason.’ This was a mania, and it can’t stand up to the historic powers of affordability. Unless, of course, it’s different this time.
If the govt could control something this big, why wouldn’t it just make us all rich……..?
Because we don’t contribute enough to their campaigns.
Now the banks, mortgage banks, investment banks, homebuilders, NAR, Freddie/Fannie…..all do contribute. So they get the benefit - the government intervention that keeps asset prices (and their direct and indirect investments in those assets) high.
As long as they can convince enough people to borrow money to pay for those overpriced assets, then they (the contributors) get rich…..and they have.
You are right, current government borrowing cannot make us all rich. But it can make enough people rich, that have influence on government actions, so that the stupidity is perpetuated.
“As long as they
cancould convince enough people to borrow money to pay for those overpriced assets, then they (the contributors) could get rich…..and theyhavedid so up until the GSEs and The Street blew up in Fall 2008.”Please forgive my unsolicited revisions of your outdated post.
“Unless, of course, it’s different this time.”
There’s the potential rub; is it fair to say the Fed, Treasury and other government entities are engaged in historically unprecedented levels of intervention whose consequences are hence unpredictable?
Please forgive my unsolicited revisions of your outdated post.
I intentionally wrote it in the present tense, because the current actions are helping to perpetuate current high asset prices.
Current government policies are allowing people to borrow money to maintain (and increase) the value of the assets held by the powers that be.
Agree with you, John.
It’s still going on, and the “very rich” are still very rich, for the most part. The same clowns who were making lots of money in the 2001-2006 period are back at it again.
In the meantime, we bubble-heads wait (and wait, and wait) just to buy a family home…
“What, if anything, is the “tipping point” when government intrusion no longer has the desired effect?”
Even if they can somewhat control the supply side, they can’t manipulate the demand side too much; that is, if housing remains unaffordable because of government intervention, the market will freeze up anyway.
…they can’t manipulate the demand side too much…
Sure they can:
- tax credits for purchasing
- artificially low interest rates for financing mortgages
- dangerously low downpayment requirements for borrowers
- subsidies (or preferential tax treatment) for homebuilders
- allowing borrowers that default on mortgages to (when they buy a home again in the future) get Fannie/Freddie-approved financing sooner than before
…the list is endless and government’s creativity is also endless. If home prices start declining again, there will be higher tax credits, even lower downpayment requirements, the introduction of teaser rates, etc, etc, etc…
That may sound crazy, but has any of the government actions to date seemed sane?
OK, poor choice of words on my part; they certainly CAN manipulate the demand side vis-a-vis all of the alchemy you just listed, but at the end of the day, all they’ve really accomplished is kicking the can down the road in respect to affordability; getting people to borrow money for houses they can’t afford can only work for so long.
We all want it to happen faster. There have been times when the HBB has speculated about when we’d reach the bottom. The most optimistic among us thought late 2009; the most pessimistic thought 2014, as I recall. Looks like the pessimists win, thanks to the government.
How about the stock market? I took our retirement money out of stocks when Dow was 13,500, and didn’t put it back in last year because I thought we were headed for a worse dip. That hasn’t materialized. Any guesses as to where it’s headed? I am still in cash, but sometimes wonder if I should have put some back in last year.
The banks are manipulating inventory to make themselves look solvent but this issue does not directly relate to the mark to market/fantasy rule.
Banks stall the foreclosure process and hold inventory to mark to reduce the level of hits it takes to its loan loss provision. Ex. Loan on the books for $ 500k backed up by RE worth $ 200k, until the foreclosure process is complete, an estimate of the ultimate loss is computed into LLR but when transaction occurs, assets are reduces to fv and loss hits LLR and ultimately bottom line.
Mark to market deals mainly with the investments in securities and some loan portfolios (afs). when crap goes bad (it always does)nobody wants to buy toxic assets and the price is further brought down. The change was made to give them an alternative to market pricing (cash flow analysis, etc.). Which again deals with estimates.
Banks love numbers that are backed up by estimates as they are the most easily adjusted.
We have accountants in here ?
Great… and I’ve been struggling with 10 fingers and no backup plan.
..“Shannon Jones, a real estate attorney in Danville who gets several calls a day from people concerned about their liabilities post-foreclosure…
Post-foreclosure?
Why don’t FBs spend maybe a hundred bucks for advice from an attorney BEFORE the fact? Might it be for the same reasons they got into the mess in the first place?
Right, file chapter 7, THEN walk away.
“Why don’t FBs spend maybe a hundred bucks for advice from an attorney BEFORE the fact?”
Because they haven’t been schooled with a 2×4 upside the head until after the fact.
Housing defaults trending downward
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Wednesday, April 21, 2010 at 1:33 a.m.
If a much-feared “second wave” of foreclosure sales is coming, it’s not in sight, data released Tuesday show.
MDA DataQuick, a La Jolla research firm, said notices of default in the first quarter, ended March 31, were down 40.2 percent from year-ago levels to 81,203 statewide and off 39 percent to 6,170 in San Diego County. Foreclosures were down slightly to 42,857 statewide and up slightly to 3,096 locally year-over-year.
“People have been looking for a shred of evidence of that ‘big scary thing’ coming,” said DataQuick analyst Andrew LePage of a new foreclosure wave, “but there’s nothing we can latch onto right now that conclusively shows that.”
http://www.signonsandiego.com/news/2010/apr/21/housing-defaults-trending-downward/
Some gloomsters live under the delusion that California home prices have not bottomed out yet. I pity the priced out renters who listen and act on this nonsense.
=============================================================
Housing defaults trending downward
By Roger Showley, UNION-TRIBUNE STAFF WRITER
Wednesday, April 21, 2010 at 1:33 a.m.
…
A contrary view came from Michael Carney, executive director of the Real Estate Research Council of Southern California, based at CalPoly Pomona.
“There’s no question that you have some data suggesting home prices are going back up,” Carney said.
But because lending underwriting standards have been tightened and mortgage money is less available, he said normal patterns of home buying are changing. People with large down payments can buy, but those who can only afford minimal down payments will be hard-pressed.
“I think we’re going to see home prices declining all through 2010 and through 2011, maybe into 2012,” he said. “I don’t see a recovery in home prices across the board.”
There is that feel in the air with people here, that the ‘worst is behind us’. I’ve had people congratulate me for buying at the bottom. I laugh and say the bottom won’t be until 2012 at best and tell them to keep renting.
Same mindset in Maryland.
First, there was no Housing Bubble. It made perfect sense for housing prices to double or triple in a few years while incomes didn’t go up much at all.
Now, there was a Bubble, but everything is okay now (down about 10% maybe a bit more from peak) and housing will now “only go up” - nevermind the horrible economy and long-term issues facing the nation - get out there and buy a house today?!
I’m helping some people buy a house. They are adamant that they don’t want to rent, so we identified a bunch of houses and started making low offers on those that weren’t ridiculously overpriced. Yes, prices are definitely higher this spring. So far several rejected outright, a couple have counteroffered. There is one really good deal in a very good neighborhood, an older house that is very dated inside, that has been on the market for a long time. It’s at the bottom of their list, but I’m hoping that they buy it.
I’m also seeing a very prompt response from banks - within hours. Last year it took days to weeks.
Dated but functional = RE gold. After 10 years of “House Hunters” and “Property Ladder” people expect steel plated granite showstoppers.
We bought our house with a 70’s kitchen that was so well cared for you would have imagined it was put in in the late 90’s. It had the original cabinets from the kitchen from the building in 1949, and they still looked perfectly good.
People walked into the house and it felt old.
It languished, the heirs ran out of time before having to insure it as vacant or rent it, and we stuck the knife in as deep as we could.
If you have decided you’re gonna buy ‘no matter what’, make sure the seller catches as much of the knife as possible. Un-updated but cared for houses are the best chance at value.
I say give me a hell-hole with potential and a little land in an older, stable decent community, over a cookie-cutter McMansion on a postage stamp lot any day.
That’s where we bought. One of the largest usable lots (It’s a double) in an area where the houses were built from 1950-1980. There’s a wide range of housing styles. Some look similar, but none have the same floor plans.
Ooh, a double-wide! Now that is an extra prize. Good find.
I couldn’t agree more, sf. We have bought dated houses, and don’t care about having the “latest thing.” Ironically, “mid-century” has become hot, so we’re in style! I bought a bunch of vintage Danish mid-century furniture to match the house about five years ago. Now people are selling the same stuff for a lot of money. Maybe we should sell everything at inflated prices and buy something from the 70’s or 80’s that nobody wants. Chances are that it will be in style in 10 years.
That’s exactly this situation. The house is dated and dusty, and they originally priced it high. They’ve dropped the price $80,000 and it just sits there without an offer. I talked to the agent and the sellers (heirs) are willing to pay for any pest work and I know they’ll take a low offer. The trick is convincing young people that they can live in an old house, or that they can easily put in their own granite with the money they’ll save on the price, not to mention property taxes. Oh well.
With all due respect to the “Unfrozen caveman lawyer” skits by Phil Hartman on SNL, the housing prices in Palo Alto “scare me” and “make me nervous”. Now give me another scotch!
I wish I were a macro-economist so I could better understand more about the total picture and how it all works. What I do know is that if you only look at numbers you forget that life continues to happen. After reading most reports these days you would question buying a home but it turns out that people still need a place to live and may need to move tomorrow.
So, I’m renting in Mountain View and have been for 7 years. I have seen the prices in the neighborhood go from $600,000’s to now $1m +/-$50,000 for a 3/2. My rent btw has only gone up once in 7 years.
I don’t know how people afford these houses or why they would want to pay such a price for them. I would like to buy one, but not for a $1m. The house next door - turns out they only had an interest only loan (bought 2000ish) - can’t refinace it now - so they have to sell. How many more will we see like this?
I really want the prices to drop here, so I will have to wait and see what happens (I’m thinking 2012 -2014), and you know, if they don’t go down, then I will just have to take the hard decision of moving somewhere else where the houses are less expensive.
The people here really are very happy to drink the coolaid and declare that it really is different here! At the moment we still seem to have a lot of GF’s to clear out of the market.
Don’t worry. The bay area will always be overpriced. Even when the majority of the employers move out and the east bay becomes abandoned and the median wage drops to 35k, people will still think that houses in Palo Alto are worth 500k.
Wait until the houses get back down to ‘overpriced’ instead of ‘ridiculously overpriced.’
‘The bay area will always be overpriced’
I hear that from people in San Diego, coastal CA, etc, all the time. Yesterday, in the international thread I mentioned that manias last so long that irrational behavior begins to look normal, and that’s why the resulting declines seem ‘unimaginable.’ I’m thinking the bubble in these markets has lasted far longer than you think.
Who’d have believed a decade ago that Detroit area single family homes could be had in 2010 on the $10K-$20K price range?
Well, hopefully San Diego will always be “overpriced” relative to Detroit, or we’re in deep trouble!
I’m just saying we’ll get to detroit style collapse in the Bay Area eventually, and even then people living in Palo Alto will think their houses are worth 500k. These are the people who think they’re worth 2.2-3 mill right now.
Note I said the East Bay would be virtually abandoned by that point. That’s what I meant by ‘the bay area will always be overpriced’. The neighborhood snobbery will be always be there.
If you really want to live in the bay area, there will be plenty of perfectly nice neighborhoods with much more reasonable rent/price ratios by 2012-2014. They just won’t be ‘the REAL bay area’ to people living in Palo Alto.
Wow, I can’t believe that I actually disagree with you, Ben. But San Francisco will always cost more than other parts of California. I remember when I was a resident in the late 80’s, when a friend bought a fixer house for $340,000 in the Sunset area. We were renting a rowhouse for $1250. I thought it was a terrible idea. He sold that house in about 1996 for $600,000. I think that house prices will continue to go down in places like San Francisco and La Jolla, but they will always cost more than rest of California.
‘San Francisco will always cost more than other parts of California’
One of my good friends from Santa Barbara used to say the same thing about his town…
‘a friend bought a fixer house for $340,000 in the Sunset area…he sold that house in about 1996 for $600,000′
‘We were renting a rowhouse for $1250′
This is what I mean about the bubble being evident a lot longer than most think.
Hate to say it, but I have to agree with REhobbyist (though I really, really, really would like for you to be right, Ben!).
Mr. CAR and I were both born in Southern California, and we’ve seen the changes over the decades. There IS a LOT of money out here, and we are absolutely gaining new residents by the bucketload every single day.
As for Santa Barbara…even in the 80s, that place was off-the-charts expensive, and it’s only gotten worse. IMHO, even though California has always been expensive, I think the actual “bubble” from this past cycle really just began in 2001 (as far as the credit bubble is concerned). Real estate was pretty reasonable in the mid-90s.
P.S. We sold a condo in the overpriced Bay Area in late 2004 for $400K+. I just searched Redfin dot com and found a direct comparable (same model, down to square footage, beds and baths) in our old condo park listed at $179.9K. It looks like affordability has already improved there by over 50 percent in the past five years.
And that condo is still overpriced. Eventually the bay area will go Detroit and then REAL affordability will be back.
Don’t get me wrong–I’m not one of those “but this place is different” people.
And certainly, large numbers of homes selling for $1M or more is difficult to sustain. For one thing, you start of with $20K/year property tax! Unless you have cash to pay for it, you’re looking at a hefty monthly load. You need a couple that pulls in $400K/year to think about doing this.
Let’s see…$150K down, financing $850K. If you can get a 5.5% mortgage, that’s $4800/year for the mortgage. Let’s say $5000/month with PMI. Then there’s the $1800/month property tax with makes it $6800.
This is problematic for several reasons. You’d need a couple who can bring in $250K/year AFTER TAX to be comfortable doing this. That’s where I got the $400K/year figure.
Then you’d have to find a supply of people who are smart/talented enough to earn a salary like that and who won’t do the math and rent instead, probably for less money!
That being said, I do think there’s a a reason that “true” Bay Area communities like Palo Alto, Los Altos, Atherton aren’t like Detroit. At some price, there are people who will buy a Palo Alto house. Maybe that price will be $500K or $300K, but the area is nice enough that there will be buyers. (The reason why I qualify “Bay Area” is that many East Bay communities, or areas like Gilroy are called “Bay Area” even though they’re high-crime and not near any jobs.)
I’m in Orlando this week, and I can tell you that there are houses here that are worth $0. There are no buyers at any price.
I live in 94087 and houses sell. Nowhere near for what they sold for at the peak, when some 3/2s were sold for $1.4 Million, but there are buyers at $800K. Prices may well fall further, but unless crime starts to skyrocket and/or jobs disappear, I think houses will find buyers once the prices fall enough. This isn’t true in Detroit, Sacramento, Vegas, Orlando, etc. (And no, this isn’t a “I live here so my area’s better argument! I also own property in Orlando, where I believe houses could go down to $0 value.)
Don’t ever believe the real estate industry. They have a strong foothold and for the most part they are not to be look upon without suspicion.
Who says the going rate on a home is 6% they have you believe that it is gospel. They also have you believe that the house you want to offer on can’t be had for that price.
If Obama would also go after the Real Estate cartel as hard as he should over Wall Street they we can make headway in this country.
Has anyone posted this yet? I didn’t even realize Karatz of KB Home had been indicted, silly me. Now he’s been convicted. Sucks to be you, Karatz!
http://www.latimes.com/business/la-fi-karatz-20100422,0,4460787.story?track=rss
Wow, I missed that one as well. Nice job!
Now if they could only get him for being a lousy builder .
On the local NPR station KPBS, they reported that the San Diego defaults are finally clearing. Down 39% since last year.
Don’t expect much more declines in home prices around here.
If SD prices remain stagnant on an absolute basis… then in real terms… prices will decline as inflation kicks in.
Remember… interest rates rise during inflationary times… surpressing the hard-asset apreciation of RE… question is… which force is going to be stronger… inflation?? or interest rate hike??