Creating Gold From Straw: Boston To OC
Fortune magazine reports on a ‘tale of two cities.’ “If you want to know where real estate prices are headed in California’s Orange County, the man to talk to is Gary Watts. The Mission Viejo broker has 35 years of experience and doubles as a spokesman for the O.C.’s Association of Realtors. ‘Fifteen percent is pretty much in the bag for Orange County in 2006,’ he says. ‘It’s impossible for prices to go down this year.’”
“Head 3,000 miles east and talk to almost any broker in Boston, by contrast, and he’ll tell you that business has slowed in the past several months. Consider John Ford.. who employs 30 agents in three Boston area offices. Today he’s averaging 14 property tours before a skittish client is ready to buy.”
“The almost daily drumbeat of national statistics doesn’t help sort things out. Is it more significant that we just had a fifth straight year of record home sales, or a third straight month of decreasing prices? ‘No one really understands how these things behave,’ says Robert Shiller, the Yale economist who presaged the dot-com crash and has lately been spending much of his time studying real estate. ‘Looking for indicators is a little bit futile because we’ve never seen this kind of growth in housing before.’”
“In fact, the best way to get a handle on where the broader housing market is headed is probably to ignore the national numbers and heed the example of Scary Gary: Stay local, and always follow the inventory. Yale’s Shiller surveyed Orange County residents last year on what they expected home prices to do over the next ten years. The average expectation was a 23 percent return, per year!”
“That kind of unbridled optimism has caused buyers to stretch beyond their limits. Southern California has become a hotbed for “exotic” mortgages, such as interest-only loans. ‘One of the reasons we think this market will start to run out of gas at some point is that you’ve essentially created as much gold from straw as you can from this financial alchemy,’ says Scott Simon, mortgage chief at California bond house Pimco.”
“Recently there have been some signs of weakness. The rate of home price growth has decelerated dramatically, from 25 percent in 2004 to 14 percent in 2005, according to DataQuick.”
“Boston isn’t quite so fortunate. In the city’s suburbs, single-family homes have gushed onto the market. Inventory increased to 4,281 by January, 79 percent higher than a year earlier. A company that tracks the downtown market shows an inventory increase of 61 percent in the last year. And 2005 foreclosure filings were up 45 percent in Suffolk County, which includes Boston. Prices are still holding up, but there are no Gary Wattses in Boston guaranteeing another year of gains.”
Thanks to the readers who sent this link in.
WTF — we saw a graph here yesterday documenting that new home sale prices are off by 26% plus since Jan 2, 2006. I guess he really meant “Fifteen percent (DOWN) is pretty much in the bag for Orange County in 2006,…”
Can we sue him on Jan 1, 2007 when the prices don’t go up 15% in 2006?
What if some financial analyst said 15% is in the bag for Cisco stock in 2006?
The idea of suing a licensed professional who dispenses such promises is not so far fetched.
The lack of regulation of realtors is a big problem. Besides the typical comments like “Real Estate only goes up”, “Everyone wants to live here”, etc. I’ve had realtors tell my about the 35% I would get back on my taxes from the Mortage Interest and taxes. That’s pretty amazing since I’m only in the 20% tax bracket. They also never mention the fact that someone that doesn’t even itemize automatically gets the zero bracket deduction (around 9K now I think), so your real tax advantage is what ever you deduct in excess of your zero bracket amount. This is just one example. If my stock broker told me the misinformation (”lies:) that most realtors spew out, he would be in jail. I love the cell phone commercial where the realtor is telling the first customer “It’s a buyers market baby!”…next call, “It’s a seller’s market baby!”. They are simply salesmen and unfortunately not held to much of a legal standard. There will be a huge backlash when tons of recent home purchasers get pissed at their realtors for the bad advice they were given…but then most of those realtors will be back at their regular jobs by then…cutting hair, waiting tables, teaching yoga, etc. (yep I know of “realtors” who were doing all these things prior to their “bubble” career change). To stick up for some of theses folks though, they probably aren’t really dishonest…just ignorant and stupid in the areas of finance and economics. That’s what happens when a “profession” has such a low entry barrier or standard.
“The almost daily drumbeat of national statistics doesn’t help sort things out. Is it more significant that we just had a fifth straight year of record home sales, or a third straight month of decreasing prices?”
The latter; price dynamics are generally Markovian.
Getstucco, whatcha mean “The latter; price dynamics are generally Markovian.”? I’m taking an econometrics course, and am just beginning to learn about Markov…
(PS It could be worse! What if price dynamics were Malthusian?!?)
Markovian price dynamics only depend on the most recently realized state of the system. Last year’s price levels and movements are ancient history, so far as current price dynamics are concerned.
How can you have 35 years experience in CA and not realize that a decline is not only possible, but in this case likely?
I wonder how much responsibility this Watts guy will take for his words. Maybe he should be required to post a surety bond.
Gotta love the industry cheerleaders!
Even when their team is down by 35 points going in to the 4th quarter…they still smile triumphantly, shake their pom-pom’s wildly, and act oblivious to the beating their team is taking on the field.
Cheerleaders, and fans with money on the game are the only people not convinced their team is going to lose….
SoCalMtgGuy
Another F—-D Borrower
FB FORUMS
Lucky for them, the score board in RE is very hard for most sheeple to read…
RE analysis by the mainstream media still consists of printing realtors unchallenged opinions.
On a thread about the OC register article from yesterday on last 4 weeks numbers, someone said that inventory in OC is 4x what it was (I think from same time last year). I know someone has the stats for the last 12-13 months of inventory levels for OC. It would great to post it again here to prove the Mission V. un-real estate schmuck doesn’t know what he is talking about and the statement by Shiller of “always follow the inventory” should be printed on a banner and hung in from this agents house!
“How can you have 35 years experience in CA and not realize that a decline is not only possible, but in this case likely? ”
He is a proffesional liar. It is plain and simple.
David
Bubble Meter Blog
He won’t get very many people to list with him if he was all Doom and Gloom! I’m sure he knows the truth–but he’s just trying to make a buck!
LA area does have the least inventory that will support it for some time..inventory explosions are big time in Miami/Nova/Boston/Phoenix areas….these would lead the price reduction, i think.
Hmmm, which is more likely: A) this time really is different, or B) Mr. Watts wants to retire in the very near future and needs a few more record years to fund his retirement?
Good piece up at Barrons this morning:
Coming Home To Roost
grim
Over the next two years, monthly payments on an estimated $600 billion of mortgages to borrowers with checkered or no credit histories — the “sub-prime” market — may zoom as much as 50% higher, as the two-year teaser rates on hybrid adjustable-rate loans expire and interest payments hit their fully indexed levels.
correct me if I’m wrong, but didn’t socalmtgguy of Another F’d Borrower fame reported a total of 1.6 trillion of ARM loan volume becoming due for reset in 2006-2007? And now we are hearing nearly 40% of those are sub-prime?
Maybe he meant I’m in the bag right now .I thinl someone should get out a calculator and go do the math on a 23 percent increase each year to see how ridiculous this actually is !!!!
The Rule of 72 says a 23% increase every year means the house price doubles roughly every 3 years. That’s “normalcy”, right?
I’m sure some of you remember the young couple in the LA Times that bought a 500,000+ house with a crazy mortgage and were asked about the risks and they replied that we expect our new house to appreciate 20% every year for the next ten years. When the reporter did the math it revealed that their house would be worth over $3,000,000 in ten years but at current rates the median income in LA would be about $58-62,000.
The mathmatics involved are so remidial that it boggles my mind that it is ignored.
You don’t need a calculator; the rule of 72 will do for anyone with a decent grade school education. Approximate the 23% rate from Shiller’s survey with 24% for the sake of simplifying the story. Then 72/24 = 3, which is the number of years it takes home prices to double at 24%/year. Run this rate of appreciation for ten years and you get three doublings, after 3, 6, and 9 years, which is a factor of 2^3 = 8 times higher than the current all-time-historical record high price. Sounds like a sure thing to me;-)
I think the rule of sevens approximation starts showing the strain at these levels. But 1.23 x^y 9 gives us ~6.44 times after 10 years. But to extend this abusrdity, lets look at the life of the mortgage; after 30 years we get 404.807 times the initial price. for a 2006=650k house this would be a 263 MILLION dollar home. If we assume interest rates at 5.5% on a 30 year, this would mean the the person you’d sell to would have a monthly nut of ~1.5 million principal and interest.
1.23^10= 7.925946096.
But I would say 8 is a bit more palatable of a figure to work with
(Not sure where the “6.44 after 10 years” came from.)
oops. Of course at the ENDof 10 years the formula is 1.23 x^y 10 = 7.93, not 1.23 x^y 9 which would be the figure for the BEGINNING the 10th year. After 30 years that’s a 323 MILLION dollar home. Not for nothing is Einstein credited with saying that compound interest is the most powerful force in the universe.
“If you want to know where real estate prices are headed in California’s Orange County, the man to talk to is Gary Watts. The Mission Viejo broker has 35 years of experience and doubles as a spokesman for the O.C.’s Association of Realtors. ‘Fifteen percent is pretty much in the bag for Orange County in 2006,’ he says. ‘It’s impossible for prices to go down this year.’”
Sorry Gary, no amount of the ‘ol rah rah is going to keep this bubble from aburstin’. You should be hedging what you say because the sharks, ahem attorneys, are getting awfully hungry these days.
The article goes on to say the reason for the 15% OC price increase-
“His assurance stems from the O.C.’s strong economic underpinnings. Its 3.2 percent unemployment rate is the lowest in the state. And last year the area ranked fifth in job growth nationally.”
OK. It’s different there. The question is what kind of jobs are you creating that pay wages high enough to afford these homes at existing prices let alone drive them 15% higher??
Jobs = Realtors, Mortgage Brokers and RE Investors
Cmon, didnt you know Real Estate never goes down?
Gary Watts is a Big Dick, I live here in S. OC and htis bonehead has bean touting the same ole crap for about 3 months now, and in the last 3 months I personally have seen Inventory grow like there is o tommorrow, and seen lots of price reduced signs. This idiot is just cheerleading what has happened the last 5 - 9 years, he’s hoping history will prove him right, then again history if you go back far enough will knock this guy down on the spot. I ahve a friend who unfortunately listen to this moron 2 months ago and refied his condo based on watts said, so I told him to keep the article so he can sue his ass off later.
Also did anyone see the news this morning in my opinion this just shows how strapped people really are, they were saying the IRS reported that so far this year and remember it is only February, that people paying the taxes they owe are putting it on credit card has increased by 35% only 2 months into the year, so what is it gonna be by April. Does this tell you something?
Interesting. I wonder if you can get away with running up your credit cards paying taxes to maxed out point and then declare BK
and get out of paying most of the CC debt ? Uncle Sam gets paid and the CC companies are left holding the bag ?
Yes, you can do that subject to the means test and other barriers to a chapter 7 discharge. Taxes were non-dischargeable (subject to the SOL) and credit card debt (unsecured) is or was.
Here he is! I just sent off an e-mail asking him if my house is going to appreciate 15% despite the increasing inventory and this months nosedive in median price.
Can we sue him on Jan 1, 2007 when the prices don’t go up 15% in 2006?
What if some financial analyst said 15% is in the bag for Cisco stock in 2006?
When are the lawmakers going to realize that that homes aren’t just places to live anymore, they have become financial investments. While I am generally against bigger government, the housing market needs an “SEC style” market monitor. Market participants should have open access to transparent and publicly available information on market conditions. Many people that don’t know any better are signing their lives away due to statements like this.
A front line open house visit to share: My wife and I looked at a couple of homes in Las Flores area (Orange County, CA) and were surprised to see a couple of RE agents (husband & wife) double-teaming the few visitors with stories of “Buy now since prices will be going up in March”. When I asked why prices will go up in March she responded; “They always have!” To this I responded, what about the stories about the bursting bubble? Predictably, she pulled out the “Gary Watts” flyer….
>>>On a thread about the OC register article from yesterday on last 4 weeks numbers, someone said that inventory in OC is 4x what it was (I think from same time last year). I know someone has the stats for the last 12-13 months of inventory levels for OC. It would great to post it again here to prove the Mission V. un-real estate schmuck doesn’t know what he is talking about and the statement by Shiller of “always follow the inventory” should be printed on a banner and hung in from this agents house!
Tracking Orange County (Bubble Markets Inventory Tracking)
I can’t wait for summer, because then, even amongst the hardest core of bulls, the decline will be undeniable. I mean, what are they gonna say, “Pay no attention to the dramatically falling prices, it’s going to turn around…. uh….. next year!”
Watts Link
gary’s not a betting man
I’d put a million against his position any day
off 2% in Bashtin- it’s off agood 8-10 now !
http://money.cnn.com/2006/02/03/real_estate/house_price_predictions_for_2006/index.htm
I don’t yet have OC inventory figures from 1 year ago, but check out the following from The Press-Enterprise re Riverside Inventory:
“Gordon Maddock, treasurer of the Multi-Regional Multiple Listing Service, which covers the Inland Empire and San Gabriel Valley, said its 19,288 listings at the end of January were 71 percent more than a year earlier and the highest inventory of resale homes for the month since 1999.”
“Also, the listing service reported that last month there were 45 percent more new listings and 13 percent fewer sales than a year ago, making it the slowest January since 2001. On average, houses took 46 days to sell, 53 percent longer than a year earlier.”
This article mashes a lot of stuff together. No one has said much about Boston so far, so here goes. Inventory is not that high- selection is really poor. Condo sales are slowing and as more come available that looks to be the first trouble spot. As this article mentioned, prices haven’t come down much (5% or so). It’s true you don’t hear much public rah-rah from the RE crowd, and privately most are glum. I don’t think it helps that there are so many new people in the field.
Gary Watts is right in that prices now in orange county are 15% or higher than they were a year ago. What he doesn’t say in his talks (and i’ve listened to him talk) is that it’s all timing. The following info is from the MLS that covers orange county. Prices shown are average prices (mean) for homes priced at $5,000,000 or below.
11/1/05 to 12/31/05 $703,944 / 5,120 sales
11/1/04 to 12/31/04 $611,293 / 6,397 sales
15.1% increase over same time period 2004. Sales Volume down 20%.
1/13/06 to 2/13/06 $709,213 / 1,424 sales
1/13/05 to 2/12/05 $626,795 / 2,546 sales
Prices up 13.2%. Number of properties sold -44%(this will decrease as more closed sales are reported.
1/13/06 - 2/13/06 $709,213 / 1,424 Sales
5/1/05 - 6/30/05 $700,579 / 7,968 Sales
prices up 1.23% since mid 2005. hope you don’t need to sell. Most of 2005 increase during the first 4 months of the year.
5/1/05 to 6/30/05 $700,579 / 7,968 sales 7.76% increase
5/1/04 to 6/30/04 $650,112 / 7,222 sales
if you bought mid 2004 and sold mid 2005 you barely broke even after commissions, title, escrow, etc.
South Orange County Inventory Levels (all cities south including Irvine and Laguna Beach).
1/1/06 2,488 properties for sale
2/1/06 3,020 properties for sale
2/13/06 3,256 properties for sale
Inventory levels have been increasing during 2006.
1/1/2005 2,610 properties for sale
2/1/2005 2,296 properties for sale
in 2005 inventory levels decreased during the first few months of the year (and prices increased alot).
Agree %100 - RE agents and leaders of RE association nationwide such as Gary Watts need to have thier ass sued!
In OC “RE Agent” and “Speculator” and “Developer” are pratcially one and the same.
It is worse then having Wall Street Underwriter, Analyst, and Market Makers all the same person and in collusion.
Gary Watts, my guess, has a 1/2 dozen new homes in OC developments and is trying to unload them ASAP!
Go to any open house currently and a high percentage of them are being sold by real estate agents for themselves or other agents!
It would be another interesting stat to follow in how many current listing on the MLS are listed by an Agent as this info is disclosed on the MLS.
Thanks for the link OC renter.
I guess that Watts doesn’t look at these stats cause his head is in the sand or he is too busy blurting BS trying to convince the final pool of greater fools.
Gary Watts’ claim to fame is that he “predicted” that home prices would decline during the last slowdown in the early 90’s so everyone puts alot of stock in him and he is considered trustworthy. It is hard for me to imagine that he really believes that prices are going to go up by another 15% this year. However, I know MANY MANY people who have taken his word seriously and gambled quite a bit on his predictions. Nearly every realtor(tm) and specuinvestor and honest families are putting everything on the line based on his predictions. If he is wrong, his credibility is done, if he is deliberately lying, than he is a souless man as the number of families that he influenced is huge.
I see he is a “spokesman” for the OC board of realtors. I wonder if he had such a conflict of interest when he predicted the last decline?
… unclosed strong tag?
nope. Unclosed tag?
One more closed b tag?
‘It’s impossible for prices to go down this year.’”
how is this not securities fraud? A licensed professional guaranteeing prices will never go down?
This guy is just opening himself up to lawsuits come 2007.
Are any class action attorneys reading this? What is the potential for a class action lawsuit against Watts for his absurd assurance that prices can only go up?
BTW. Looks like this new site does not validate the html entered by users (fixed it by supplying two closing html tags which were improperly handled in an earlier comment) .
Would be nice to check for unclosed tags, etc prior to adding the comment to the page to avoid formatting problems like this in the future.
Ben, let me know if you need any help on this.
ejamie,
Please email any fixes to me:
thehousingbubble@gmail.com
Most realestate agents are trained to lie, or else.
For some of them this is the only way to make a living.
Although there are many honest RE agents, the lying ones will leave such a bad mark that most future buyers will turn to flat-rate e-brokers. Why pay 6% of the price to realtors who lied?
So using Shiller’s stats, an average homeowner in the OC purchasing a $700k home now, is expecting the home to be worth $5.5 million in ten years (23% CAGR). I don’t really have the stats on aggregate RE values in the OC, but I am suspecting that if we extrapolate that 23% appreciation in values over the entire county, the aggregate value of the OC housing stock in 10 years would exceed the GDP of quite a number of countries.
It is simple math, but the only way the 23% nominal appreciation will come true is if we get rampant inflation, in which case we’ll get $5mm homes, but a Lexus would cost $400k.
I wonder if all these individuals expecting 23% appreciation consider the risk they are taking. The 1st thing that you learn in finance is that higher returns come with higher risk. I am guessing that a large portion of the buyers understand the relation (if not explicitly, at least implicitly - that tiny voice in their heads that wakes you up in the middle of the night) and are willing to roll the dice in the current conditions, especially if they are using exotic mortgage instruments, simply because they don’t have enough skin in the game and the only signifficant downside that they see is that they will damage their credit history. It is not like the banks will get to enslave them when the homeowners default on their mortgages.
It feels like there is a “loss” of risk somewhere between the homeowner and the ultimate providers of capital. Maybe the representatives of the capital providers are not doing their due dilligence or the borrowers and/or their representatives are being fraudulent. Or maybe I am simply very, very wrong.
I have a Gary Watts prediction- not for Orange County- but just for Gary Watts.
I predict that in September, the local villagers will get together, light torches, brandish axes and knives and rope, and run up the hill to Mr. Watts extraordinary home.
But unlike Dr. Frankenstein, Mr. Watts won’t be home.
He’ll be in Tahiti, sipping on a cold drink with an umberella…
…and loads and loads of money in the bank.
When the villagers who have formed an angry mob get close to Mr. Watts front door, they’ll notice a sign in the window they never saw before. A sign that says…
“Sold!”
And when they check the MLS, they’ll find out Mr. Watts dropped his price by 40% to unload that McMansion-
-so he could spend a whole lot of time…
…in Tahiti.
>Why pay 6% of the price to realtors who lied?
Answer: Why pay %6 to a realtor, period? You are crazy if you do.
%23 percent increase each year is possible and you simple math example is just that, simple.
The massive US deficit created by Bush along with hidden inflation and massive printing of money may very well prove some of the Gary Watts correct in that relative real estate prices may stay flat or even increase as the US Dollar gets devalued to pennies on the dollar.
Simple math = $100,000 in 2005 buys you %1,000,000 in 2010 so that a $500K house today in OC could be worth $5 mill in 2010.
Hey guys, I haven’t seen Deb in awhile. Have you?
Good posts everyone.
Melody,
She was posting this weekend. Good to hear from you!
Last weekend I gave a friend a ride home and during that ride he said, “home prices in OC will never go down. Everyone who owns believes prices will never go down and everyone who rents believes prices will go down.” I bet him $100 that prices will go down. No time limit (as his “never” qualifier negated a time limit) and we agreed it would be based on the OC Register median price change for 92627. I anticipate being a tad wealthier in between 2 to 6 months. Or would that be just a smidge rather than a tad?
I agree with those posters who are calling for SEC type regulations for real estate. If it is being sold as investment then regulate it as investment.
As far as Gary Watts goes, if he is wrong (which I venture to guess a lot of us bloggers here believe he is) then he probably should be penalized financially as well as professionally. My guess is that he will suffer both penalties without any litigation or gov’t action simply because his personal investments will show losses and his professional standing will vaporize. BUT if he is selling his holdings now while making statements to pump up sales, then he is in the same legue as Ken Lay (Enron) and should be prosecuted to the full extent of the law for fraudulent reporting as an expert on a specific investment.
IMHO.
First thought was, “An honest realtor. stating OC would be down 15 %”. Then I read the second sentence and realized he meant ‘UP’.
LMAO
Is this actionable??? (in court)
You’re going to get your $100 in less than two months, my friend.
If we’re only $37,000 away from an overall YOY median price decline, and builders are still reducing prices to undercut used homes and move units…
…you’re friend better start saving now.
It could happen in the next three weeeks.
All the CA major markets are headfake central. Every dollar it goes down will be ten dollars it gets bidded up before the year is over once the specuvestors see published 10% drops (summer?). They can prop up their economy endlessly by selling houses to each other with crazier and crazier loans. There is no way the Californians are going to give up even one inch of ground — they’ve pushed the middle class into Riverside Co., Reno, LV, Antelope Valley, Phoenix, etc. and they’ve been too successful in getting the undesireables out to give in now without a really bloody fight. Young couples and the middle class are leaving in droves which was the whole purpose of this bubble. I can’t wait until their loans start resetting en masse — I hope they get slaughtered.
Speculators aren’t totally dumb. The smart ones sold already, and put their money in gold. The dumb ones still have 20 houses on the market, waiting to be sold.
There are no more buyers.
The people who bought the bad loans from Ameriquest and Countrywide and New Century are now looking into how many bad loans they have.
They have a lot of bad loans.
What are they going to do once they get all the bad loans counted?
Why, they’re going to sue the people who sold them to them, of course.
Then, the subprime dopes who sold their bad loans will once again have them back on their werehouse lines. This will mean they have to sell them, at market price or lower, to get rid of them.
What will that mean?
It will mean millions- not thousands- of new listings on an already out of control inventory. Homes galore, at rock bottom prices.
No one- not speculators- not Californians- not regulators- not even God…
…can stop this market from collapse.
Of course, God probably wouldn’t want to stop, since most of the greed and pride that generated it came from somewhere far, far below Him.
As for the middle class being ‘pushed out’…I completely disagree.
I’m middle class. And I’m about to ‘inherit the earth’ from the rich.
The paper rich, that is.
Where is PV Tom and others to give you a lecture about the perils of schadenfreude?
I agree 100% but the fellowship of humanity morality police seem to have gone away from this blog.
In my best Anthony Hopkins impersonation from Legends of the Fall.
Screw ‘em
Read about The Morning Eye.
Hey my OC bloggers…. please leave comments on the OC Register. They actually posted my comments. Maybe the ocregister can’t publish bad comments from their employees but they are accepting comments from the public.
I have posted a couple of times.
I prefer to point out that no one reads their blog.
The blogger is kind of a clown with back handed comments about this blog.
The only entries of his that get any response are housing posts that get cross posting from this blog.
I will pass on sending traffic to those clowns.
“Then, the subprime dopes who sold their bad loans will once again have them back on their werehouse lines. This will mean they have to sell them, at market price or lower, to get rid of them.
What will that mean?
It will mean millions- not thousands- of new listings on an already out of control inventory. Homes galore, at rock bottom prices.”
Because no one will buy subprime mortgage-backed securities, that means the homes purchased with those mortgages will automatically go up for sale? This is a new phenomenon — how does this happen?
And actually, what you’re about to inherit is a $700,000 starter home for $600,000. Not sure that qualifies as “inheriting the earth”. But if that makes you feel better about sitting on the 405 or living in a 1200 sq. ft. tract home in Garden Grove, then God bless you for being such an optimist.
Nah. I’ll be taking over that $700,000 for around $475,000.
Give me until October.
I could have it right now for $599,000.
Pass.
Okay, you might be right about getting your half million dollar starter home in Stanton in October. It’s not outside the realm of possibility — but remember, that house was $225,000 five years ago. Still, I’m curious how this works:
“Then, the subprime dopes who sold their bad loans will once again have them back on their werehouse lines. This will mean they have to sell them, at market price or lower, to get rid of them.
What will that mean?
It will mean millions- not thousands- of new listings on an already out of control inventory. Homes galore, at rock bottom prices.”
IMHO if the subprime mortgage banks have to assume their originated loans - they do not have to call the note “due” even when in default. In fact GMAC along with USA Today has formed a joint venture to counsel individuals in mortgage default and help redo the terms of the note. This type of counseling and rewriting the terms of the note may delay the rapid collapse (akin to a band aid on a severed artery) and as a result prolong the national misery of which we will all partake. Our friends, families and coworkers will all be affected. I find no joy in this. These unfolding events will be best viewed in fifty years after most participants are history and future economic historians will ponder the gross malfeasance of the realtor-banking industry.
92627–Costa Mesa, CA — Average (Mean) Prices
5/1/04 - 6/30/04 $611,225 Avg / 76 Sales
11/1/04 - 12/31/04 $601,255 Avg / 84 Sales
It’s not brain surgery.
If I buy something from you that was purchased fraudulently, let’s say with uh, stated income that was not investigated, I have the right to sue you, make you pay me for my time, and you get the loan back on your line.
Since it’s been proven that the loan was fraudulent, and the borrower can’t pay the mortgage, I as the bank that had to take the loan back, has only one recourse to recoup my costs- at a loss.
I have to sell the home at or below market price to get a bit of money back.
HUD encounters this baloney all the time, and they do exactly what I’ve outlined. They fine the mortgage company, and send the loan back to them. Then the fraudulent mortgage company has to sell the house.
See, on the way UP, no one really cared about fraudulent appraisals, or fraudulent state income loans.
On the way down, things will be a bit different.
And I won’t need to live in Stanton to buy a wonderful home for $400,000 next year, or in ‘07, as my name states.
I’ll be buying right here in Huntington Beach, next to the ocean, where I currently RENT.
Auction Heaven in ‘07.
That’s my name, and I got a BIG, BIG MOUTH.
“If I buy something from you that was purchased fraudulently, let’s say with uh, stated income that was not investigated, I have the right to sue you, make you pay me for my time, and you get the loan back on your line.”
Um, no. You signed the application, stating that all information was correct.
Auction -
A borrowers signs the loan application, stating that all the info is accurate.
I think all who post in OC ought to chip in and fly a plane with a banner along the OC beaches when prices drop 20%. What a great sight….. OC RE Values drop 20% Mr. Watts
When that happens and by that time I will have collected my bet, I will gladly donate the entire bet ($100) to help fly that banner.
Well, Auction Heaven in ‘07, I think your predictions will fall short of fruition. I think “it’s different here” for some the same reasons the RE bulls do, so I’m predicting a fall of 15% followed by a year or so of stagnation or gains at less than the rate of inflation. I also hope I’m wrong about. Keep running your BIG, BIG MOUTH in OC because they all need to hear it. I hope you get your Huntington Beach dream home, but I think SoCal is the new Paris — once a certain amount of money infects a city, it’s a poltergeist you cannot exorcise.
But this is the same logic being used in EVERY market IN THE WORLD!
Paris? As in The Islamic Nation of France?
I’d never want to live there.
The problem we’re having, Mr. OC Max, is that you’re using LOGIC.
Hold still- I promise I’m not attacking.
See, LOGIC would tell us that a hamburger flipper, and his wife, the cashier at 7-Eleven, would not be able to PURCHASE (I don’t mean ‘keep’) a $700,000 house in Huntington Beach, CA.
Your logic, and mine, would tell you this is completely impossible.
Unfortunately, this isn’t the logic of this market.
That really happened.
It’s what made me quit.
When that happened, I went back into my real estate office, three years ago- and quit.
I showed them the house, I told them they might want to consider something more within their means-
-but they already had the loan.
We’re both really on the same side here.
It’s just that you haven’t seen the insanity from the front lines, and you’re attempting to use human logic to predict what will happen.
Logic does not apply to this market.
It didn’t apply going up, and it won’t apply going down.
That’s why it may very well fall much faster than any of us, including myself, can predict.
In a sane market, you have sane laws of conduct.
Not this one.
Therefore, using the ILLOGIC of this market, I really don’t think 50% price cuts within two years is CRAZY.
It just might be ’sane’.
I see your point, and I know you have a brain…
But this market…
This market had no brain.
This market was Crazytown.
P.S…
Case in point of ILLOGIC being used on the way down…
The median price of a USED home in Orange County, according to Dataquick’s numbers, published in the Orange County Register on Sunday, February 12th…$665,000.
The median price of a NEW home, same numbers, same day…
$495,000.
Does that make sense?
Keep in mind, those are numbers for the week ending January 27th.
Today is February 13th.
I’ve rented this house for 12 years. I looked it up today on Zillow.com, and I’m floored. What happened to make a house that was worth $147k in 1997 suddenly worth $600k 9 years later? Same neighborhood, same weather, same beach. Why is it “different this time”?
http://www.zillow.com/Charts.z?chartDuration=10years&zpid=25304294
It’s a fantasy. That’s the only term I can use to describe this market.
Auction Heaven –
I saw the $665,000 new home vs. $495,000 used home discrepancy too, and I think it’s one of two scenarios:
1) Homebuilders lowering prices before the private sellers have the good sense to. After all, not only can homebuilders better afford to cut prices, they’re not emtionally invested in believing they’re entitled to the last price, or a premium above the last price, that was fetched in their neighborhood.
or
2) A sh*tload of those crappy condos in Irvine came online all at once and dragged down the NEW home numbers. You know, like you said, the ones that all the Starbucks baristas are buying for $660k.
It’s condos. Even the big Laguna Niguel median price drop- it’s just because of a new condo conversion project that skewed the numbers.
I’m not convinced that people are lowering their prices. I think there are more lower end properties available at astronomical prices, yet they are still cheaper than a sfr, so people pick them up.
I’d love to see a 700,000 house for 475. I just don’t know if it will happen this year. Maybe next…