The Repercussions Of Artificially Inflated Prices
The Los Angeles Daily News reports from California. “Home sales fell across Southern California in November as investor activity continued drying up and buyers struggled with higher prices. Last month, sales of new and previously owned homes and condominiums across the six-county region fell 10 percent, to 17,283 properties from 19,285 a year earlier, said DataQuick. That was a drop of 14 percent from 20,150 in October. But the total was 20 percent under the November average of 21,559 dating back to 1988, when DataQuick started tracking the market.”
“In San Bernardino County, the median price increased 19 percent, to $218,500 from $183,000 a year ago, but was down 5 percent from October. ‘This is the second month in a row we’ve seen sales fall below last year’s levels, and I think were seeing not only an impact from the lean supply, but on top of that prices have increased so much that affordability has taken a plunge,’ said Robert Kleinhenz, chief economist at the Kyser Center for Economic Research in Los Angeles.”
From KPBS. “San Diego’s slump in sales last month mirrored the regional trend, as 10.5 fewer homes sold last month compared to the same time the year before. Some owners are still unwilling to sell because they are ‘upside down.’ ‘The inventory of homes for sale still falls short of demand,’ said DataQuick president John Walsh, who added the high prices will eventually prompt people to sell. ‘This spring could bring a substantial surge in inventory as more homeowner look to cash in on higher values.’”
The Press Enterprise. “Southern California home sales plunged in November, falling with a 10.4 percent thud across Riverside County and by the same percentage in the entire six-county region, the latest report from DataQuick said. Faring the worst was Ventura County, with new and existing home sales plummeting 16.5 percent from November 2012.”
“Gene Wunderlich, government affairs director with the Southwest Riverside County Association of Realtors, said there are still a lot of unresolved variables out there, citing the unknown variables of the Affordable Care Act, rising mortgage rates and consternation over the new maximum Federal Housing Administration loan limits for Riverside and San Bernardino counties homebuyers that take effect on Jan. 1.”
“‘The combination of all that has consumers still a bit rattled,’ Wunderlich said. ‘The two entities that drove our market the hardest — investors and first-time buyers — are backing out of the market right now.’”
The Press Democrat. “Buyers purchased 349 single-family homes last month, according to The Press Democrat’s monthly housing report compiled by Pacific Union International VP Rick Laws. Sales fell 16.9 percent from a year earlier. The median price declined less than 1 percent from October to $453,000. Scott Adams, owner of Adams Realty in Bodega Bay, said the picture is more mixed around his coastal community. ‘We are seeing comparatively lower prices than last year and much fewer million-dollar homes sold,’ he said.”
The Sacramento Bee. “Driven by the roaring economic engine of Silicon Valley, home prices in some Bay Area cities have neared or exceeded the record highs reached in last decade’s housing bubble. Claire Walters bought a high-water bungalow in Sacramento’s leafy Curtis Park neighborhood four months ago for $340,000. Walters, who works in social services, decided to move from her hometown of Palo Alto after realizing she could never afford a home anywhere near Stanford University, where she worked at the time.”
“Walters said she was tired of paying $2,200 a month in rent for a two-bedroom condominium in Palo Alto and wanted to be near her parents and brothers, all of whom had relocated to the Sacramento area. She was stunned at what she was able to afford here, even with home prices going up this spring and summer. ‘To me it was ridiculously cheap coming from the Bay Area,’ she said.”
The Merced Sun Star. “Recent news that Wal-Mart is at least a year away from breaking ground on its distribution center in Merced might be difficult for the city’s unemployed to swallow, but area leaders and experts believe an economic recovery is on the horizon. Terry Ruscoe, owner of Merced Yosemite Realty in Merced, said he continues to see interest by investors from the Bay Area and Southern California. ‘You’ve got some pretty savvy investors that are not looking at short-term profits,’ he said. ‘They’re looking at long-term growth.’”
“Ruscoe said those investors have many options where to put their money, so it’s a good sign they see something in Merced. ‘They kind of set the stage, and then you start getting more money to follow,’ he said.”
The Bakersfield Californian. “Former real estate mogul David Crisp and his wife, Jennifer, admitted in federal court Monday to taking part in a massive mortgage fraud scheme that shocked Bakersfield, forced foreclosures throughout the city and cost banks millions of dollars. The former chief executive of Crisp, Cole & Associates faces up to 30 years in prison and a $1 million fine at his sentencing, set for March 3. Jennifer Crisp, 31, will be sentenced March 3 and faces up to 20 years in prison and a $250,000 fine.”
“‘The defendants falsely inflated real estate prices knowing that the foreclosures that followed would do harm to local builders, consumers and lenders,’ said U.S. Attorney Benjamin B. Wagner. ‘The conduct of Crisp, Cole & Associates was emblematic of the recklessness and lawlessness in the mortgage industry in the mid-2000s that caused the financial crisis.’”
“Carl Cole pleaded guilty in November and faces a maximum sentence of 30 years in prison and a $1 million fine when he is sentenced Feb. 18. Cole said he hasn’t spoken with Crisp for two to three years. It was a far cry from the high living those two and their business enjoyed following Crisp & Cole’s meteoric rise through Bakersfield real estate circles in 2006. The company and its principals were the picture of real estate excesss, with employees and agents required to drive high-end cars and David Crisp renting a private Gulf Stream jet and using bodyguards.”
“‘The guilty pleas submitted…offer little solace to victims who suffered devastating losses and the community that continues to suffer the repercussions of the artificially inflated home prices generated by this large scale conspiracy,’ said Special Agent in Charge Monica M. Miller, of the FBI’s Sacramento field office.”
Collapsing demand is an interesting phenomenon. Clearly demographics is driving it and exacerbated by massively inflated prices as a result of all the fraud going on.
You can put a $50k price tag on your 15 year old Honda Civic but there are no buyers.
“‘You’ve got some pretty savy investors that are not looking at short term profits’, he said. They’re looking at long-term growth.’”
“Ruscoe said those investors have many options where to put their money, so it’s a good sign they see something in Merced.”
If these investors are anything like most investors then they have FEW options as to where to put their money, not many options.
One of the factors that limits investor options, for investors who are handling large pools of OPM, is the return that is generated by their choices of investment has to at least cover their hefty fees. And in our now current world of low returns on capital such investments are tough to find. And if such investments (real or imaginary) are found then the word quickly gets around and then lots of investment money becomes attracted to these investments and this attracted money pushes up prices up to the point and even past the point of attractiveness.
And the irony is, even though the price rises past the point of attractiveness as determined by fundamentals this same price rise in itself and by itself acts to make the investment (choke) attractive solely because of this price rise.
Values that used to be determined by a market that relys on fundamentals then morphs into a market whereby values are determined by price, which means the higher the price, in such a market, the higher the value.
Which is nuts if one cares to spend a little time thinking about it. ice adn you raise the value?
The party in charge of Blackstone’s housing portfolio says they are in for the long term. The plan is to hold the houses for about 8 years.
‘Institutional landlords building home-rental businesses in the U.S. have yet to figure out the best way to sell their investments as they focus on expansion, said Thomas Barrack Jr., the head of Colony Capital LLC.’
“Nobody is worried about an exit,” Barrack, whose firm has purchased more than 15,000 homes, said today in an interview with Bloomberg Television. “We are proving up the business.”
On this:
‘The plan is to hold the houses for about 8 years’
Blackstone has already started to sell their houses via securities.
Why would they bother holding onto tens of thousands of empty houses?
Of course they’re going to dump them. Bad idea, bad execution.
And why have they almost completely stopped buying houses? If it’s this great 7 year bonanza, and they’re finding bagholders, why stop now?
Here’s something funny. Last night I heard from my friend in Las Vegas, who is renting a house from a LLC foreclosure-turned rental investor. He got an email offering to sell him the house he’s renting.
LOL!! Not holding the cards so close to the vest now are we??
Ben said: offering to sell him the house he’s renting
I know my LL wants to, too. Is it a bargain or wishing price?
Last time I discussed it with my LL he said he set the price by what he owed (way too much at that time - now, about right.) I’m sure he was lying since I found a craigslist ad from a few months before to sell the house for $40K less. He said, not very convincingly, he didn’t know anything about the ad.
Since it seems that everyone and their mother here now feels Vegas is going to take a hit, I am paring down to be ready for anything.
Since when is 8 years long term?
And you’re privy to this party??
Talking out his azz which is typical of Jingleballs.
Puggs, I am only in the party as a stockholder in CLNY, investing for the 7% yield. The Blackstone asset manager is a friend of an associate.
BTW, Blackstone is NOT selling the houses. They ARE selling the rights to the income stream from the rents. I have not seen the offering, but I believe Blackstone will get nuch of their investment back and the securities buyer gets some cash flow. The risk is reduced for Blackstone, but they probably still get some upside in the appreciation. 8 years is a long time and I am willing to guess there will be some.
JingleWatchOvertaxed,
Blackstone is bleeding cash on this deal…. just like the rapidly depreciating out of style mcmansion you signed up for.
The plan is to Section 8 all they own, then start on the rest of the world. Life is good when you own the government.
The plan is to Section 8 all they own, then start on the rest of the world. Life is good when you own the government.
+1 The public pension systems will end up owning these cheesy assets while HUD provides the intermediate cash-flow. The average Joe taxpayers will be made the bag-holders.
“Some owners are still unwilling to sell because they are ‘upside down.’”
Upside down with a dwindling buyer pool is a terrible position in which to find one’s self. You just might end up getting stucco forever.
Upside down and underwater makes me think of Houdini…in a strait jacket.
“But the total was 20 percent under the November average of 21,559 dating back to 1988, when DataQuick started tracking the market.”
That there is the important statistic, as it shows the November sales decline goes well beyond the normal seasonal slowdown.
Seems like old times:
‘November 2013 home sales and price report’
California Prices up 22% YoY. Sales down 12% YoY. That makes perfect sense.
Look at the month over month prices. If recent buyers only put 5% down in some of those markets, like LA, they may be underwater.
Only if you believe CAR.
Housing demand statewide has collapsed 15% by the most conservative estimates.
I forgot to add; if you look at the Dataquick and CAR reports, they both point out that lower priced house sales have plummeted, while higher priced houses went up quite a bit. The median is certainly not reflecting how much prices have fallen. This exact same scenario played out in 2005-06.
Also,
Foreclosure rates at the higher end of the price structure are skyrocketing in California.
I’ll find the link and post it.
“I’ll find the link and post it.”
I look forward to that.
Me too.
Aww… how cute. Two California fraudsters in unison.
Can’t let HA keep us waiting forever now, can we?
High-End Foreclosures Up 61 Percent Year-to-Date in 2013
December 3, 2013
By Daren Blomquist, RealtyTrac Vice President
Overall U.S. foreclosure activity is down 23 percent year-to-date through October 2013, but foreclosure activity on properties in the $5 million-plus value range is up 61 percent from the same time period in 2012.
The number of these ultra high-end properties with a foreclosure notice in 2013 is relatively miniscule — fewer than 200 compared to 1.2 million total properties in all value ranges with foreclosure notices this year — but each of these high-value properties represents a much bigger potential loss for the foreclosing lender compared to a median priced property.
This trend may indicate lenders are now financially stable enough to more comfortably weather the big-ticket losses that these properties potentially represent. In addition, an improving housing market means more prospective buyers, even for these ultra high-end properties — which includes both homes and commercial properties. A bigger buyer pool translates into higher sales prices on these properties, allowing lenders to recoup more of their losses on these jumbo loans gone bad.
…
‘I look forward to that’
‘Can’t let HA keep us waiting forever now’
Do try to keep up. This is almost 2 weeks old. If you want to hang with the HBB, you have to move faster than that.
If you’re addressing me, I must admit I am having trouble keeping up. I am getting very busy with my real job these days. Economic recovery means paying attention to my clients now!
“High-End Foreclosures Up 61 Percent Year-to-Date in 2013″
Touched with the Nicolas Cage syndrome?
You’re so FOS you can’t keep it all straight.
“The Repurcussions of Artificially Inflated Prices”
Dec. 18, 2013, 9:04 a.m. EST
Home construction hits fastest pace since 2008
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By Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) — Construction on new U.S. homes soared in November to hit the fastest pace since early 2008, signaling that the housing market’s recovery is shaking off rising mortgage rates.
Housing starts leaped 22.7% in November to reach a seasonally adjusted annual rate of 1.09 million, with surges for single-family homes and apartments, according to the U.S. Department of Commerce. Economists polled by MarketWatch had expected overall housing starts in November to hit a rate of 963,000.
…
And we’re going to keep adding inventory until resale housing prices are competitive.
This is the mundane aspect of higher prices I’ve mentioned often. It tells producers to keep producing above and beyond real demand. And it provides incentives to create a product that doesn’t have real demand, like condos and mcmansions. After all, if you pay $250,000 for a tiny lot, you can’t put a $40,000 house on it.
Given time, high prices result in all sorts of distortions. Bay Areans driving out to speculate in Merced. People from Palo Alto relocating to leafy Sacramento thinking they’ve found a steal. It is duplicated millions and millions of times until it the imbalance grows large enough to damage the entire economy.
That’s not a headline. That’s an OMEN.
‘As he heads into the New Year, Mario Gonzales is concerned about new federal rules that could make it harder for buyers to purchase homes at his mid-priced communities.’
‘The average home price is about $450,000 at Encore in Palm Desert, said Gonzales, CEO and president of the private home-builder GHA Companies. But starting in January, fewer buyers will qualify for a loan in that price range.’
‘It’s going to stop appreciation,” said Bret Cohn, a senior loan officer at Stearns Lending in Palm Desert. “People won’t be able to qualify for higher loan amounts, but it can be argued that that’s great, and that we don’t want to see skyrocketing appreciation.’
This “appreciation” thing as it relates to depreciating assets like houses doesn’t compute.
Are people not thinking?
‘The guilty pleas submitted…offer little solace to victims who suffered devastating losses and the community that continues to suffer the repercussions of the artificially inflated home prices generated by this large scale conspiracy’
Yeah, send them to jail, while Bernanke and the federal government does the exact same thing and they are cheered for “saving” the economy.
When the Ben Bernank hurts savings and purchasing power the losses are diluted out in the economy like salt in the ocean.
The direct losses are one thing, but the incentives are another. If people could get a reasonable return on savings, would Twitter be able to raise billions with no income? Would the junk bond market be able to raise hundreds of billions with rates under 6%? Would states and cities be able to borrow billions with no ability to pay it back?
I wonder what the default rate is at payday loan stores and the so called “lending clubs”?
Can’t send the link since it’s some kind of paid thing but here’s a snippet from the WSJ:
I imagine payday loan stores charge even more.
“Employer-loan programs often include online tools aimed at improving borrowers’ budgeting abilities. Arizona Restaurant Systems, which operates Sonic Drive-In restaurants, allows workers to take out loans ranging from $150 to $500 that typically last two weeks. The fees, ranging from $8 to $25 plus interest, go to a lender called Think Finance, which makes the loans. Based on the fees, the loans carry an effective annual percentage rate of 100% to 165%. “Our employees are typically living paycheck to paycheck,” said Arizona Restaurant CFO Spencer Manke.”
After reading articles like these I find myself starting to agree with raising the minimum wage to $15 per hour or so. The greed and wage arbitrage have gotten so out of hand that we have essentially abandoned all the advances and good principles which Henry Ford was so instrumental in propagating. The wealth is shooting to the top in stunning fashion at the expense of the masses. When you go so far one way, you get extreme reactions in the opposite direction. Seattle actually elected a Socialist council member and she is pushing for $15 per hour and it looks like she’ll get it. If you don’t like extreme mandatory minimum wage increases, then you shouldn’t have been feeding at the trough of illegal alien labor. You should have let the real market dictate prices, but instead you cheated. F**k you, fast food corporations.
After reading articles like these I find myself starting to agree with raising the minimum wage to $15 per hour or so.
IMHO this won’t change anything as far as pay day loans. People making $15/hour are living paycheck to paycheck - or worse - just as often as people making the current, lower minimum wage. I’m willing to bet that plenty of “rich” people making $60/hour are one paycheck away from starting to going under.
I suspect that if the minimum wage went up like that, rent would go up to match.
“I suspect that if the minimum wage went up like that, rent would go up to match.”
+1 And the price of a Big Mac too.
The greed and wage arbitrage have gotten so out of hand that we have essentially abandoned all the advances and good principles which Henry Ford was so instrumental in propagating.
+1 Case in point, the one person who was profiled said that she took the loan to pay off another payday loan that she took with another employer. You just can’t make up this chit.
“…and consternation over the new maximum Federal Housing Administration loan limits for Riverside and San Bernardino counties homebuyers that take effect on Jan. 1.”
Like antifreeze in the engine block..KAAAA-BLOOOOOEEY!!!!!!!!!!!
There is always antifreeze/coolant in the block. That’s what it is for, cooling the block/antifreeze the block.
I see this as no different than a realtor repeating stuff THEY don’t understand…wrongly.
OK, hairline fissures resulting from a cracked engine block and coolant from the water jackets leaking into the combustion chamber resulting in KAAAA-BLOOOOOOEY. Better?
I’ll dig a little deeper as apposed to a realtor just spouting false information bought at a $99.00 seminar.
“S.B. Realtor Richard Box Arrested for Sex Crimes”
http://www.independent.com/news/2013/dec/17/sb-realtor-richard-box-arrested-sex-crimes/
With a name like Dick Box….what do you think he would be doing..???
Awesome.
Not gonna lay claim to this “associate” Jingleballs?
Is his middl name Inna?
The former head of CAR and NAR was Dick Gaylord from Long Beach CA
‘Mortgage costs for borrowers without big down payments and with less-than-perfect credit scores are set to rise next spring.’
‘Fannie Mae and Freddie Mac, the mortgage-finance companies that currently dominate the mortgage market, are boosting the fees that they charge lenders. Lenders, in turn, tend to pass those higher costs onto borrowers in the form of higher mortgage rates.’
http://blogs.wsj.com/developments/2013/12/17/why-mortgage-costs-could-rise-in-2014/
When my parents bought their first house, not only were interest rates sky high (12%, IIRC), but the qualifications also would seem draconian by today’s standards. 20% down, low DTI, etc.
IMHO, if private lenders want to roll the dice and take on loans with low/no downpayment, I’m all for it (as long as we don’t have to bail them out). But Freddie/Fannie? No way; they should only have the safest of the safe. Frankly, if you don’t have good credit and 20% to put down, in many cases, you should wait to buy a house. Only in the 2000s was that a real problem (because prices were going up faster than most people could save). In a normal market, buying next year instead of this year has no financial consequence. Why is everyone in such a hurry?
We have to go faster if we’re going to price ourselves out forever!
Guess what newspaper is running this story?
“Fed has created an artificial world”
You guessed it! It’s an article in The Financial Times of London.
December 18, 2013 7:02 pm
Reality dawns for artificial world created by Fed activism
By FT Reporters in New York
In the five years since the US Federal Reserve instituted emergency borrowing rates and began buying huge amounts of bonds, Wall Street has boomed, but the broader economy has recovered far more slowly.
The question now is whether the rally in equities to record highs and a solid recovery in home prices thanks to the Fed’s various renditions of quantitative easing will provide the foundations for a stronger economy in 2014.
“QE got rid of the headache, but we are hooked on the painkiller now,” says Jack Ablin, chief investment officer at Harris Private Bank. “It’s time the Fed moved away from having created an artificial world and allowed the economy to stand on its own.”
Half a decade of activist central banking has made an artificial world seem normal, however. The process of getting back to more traditional definitions of “normal” interest rates and economic activity will pose new challenges for investors, businesses, consumers and policy makers alike.
Low interest rates have helped companies and some homeowners refinance their debts at cheaper borrowing levels, a boon for the long-term health of the economy. Cheap finance has also fuelled an impressive recovery in car sales, housing and, in conjunction with a soaring stock market, helped private equity firms turn around some companies and exit their investments through initial public offerings.
But low interest rates also penalise the ranks of savers, at a time when the baby boomer generation is retiring and relies heavily on fixed incomes. Before the financial crisis, a retiree could lock in a 5 per cent savings rate by owning a five-year certificate of deposit from a bank. That rate now hovers around 1.3 per cent with little sign of it rising back to a level that will boost income.
The ready availability of cheap credit also delays the natural cycle of corporate bankruptcies, which results in a more efficient use of resources across the economy
…
“…helped private equity firms turn around some companies and exit their investments through initial public offerings.”
Oh yeah, gotta guarantee those hedge funds profits selling their chit to public and utility pension systems.
From the Sacramento Bee piece: “The school district is what drives the prices,” said Coldwell Banker real estate agent Romar De Claro. Families who want a detached home and a backyard within commuting distance of high-tech jobs in San Jose were willing to pay the price for Fremont, he said. Similar homes in San Jose, with less of a commute, might cost $100,000 more, he said.
It’s the weather too. The Sacramento valley from Davis (west) to Folsom (east) really only has six months of pleasant weather because the winter has about three months of fog, and the summer sees highs over 90-degrees for three months. Heck, you might as well live a thousand miles north where $155k buys a new 2,200-sqft spec home.
San Jose on the other hand is rather pleasant, 60 to 80-degrees, most of the year save for an intermittent rainy season lasting two months.
From the Bakersfield piece: “The company and its principals were the picture of real estate excesss, with employees and agents required to drive high-end cars and David Crisp renting a private Gulf Stream jet and using bodyguards.”
My favorite of the cardinal sins, Pride.