March 31, 2014

Investors Begin To Offload Their Portfolios

The Desert Sun reports from California. “Canadians comprise the bulk of foreign buyers in the desert. They typically buy homes during March to May. In 2013 during that period, 375, or 98 percent, of 381 publicly recorded sales had a mailing address from Canada, according to DataQuick. But HK Lane agents Laurie and Tim Briggs have noticed a switch. In the first quarter of 2013, 58 percent of their business came from Canadians, they said. During the same quarter this year, that dropped to 27 percent.”

“Last January, Ed Whinnery and his wife bought a second home in Sun City Palm Desert. The dry desert heat was the perfect escape from the rain of Nanoose Bay, a small town in Canada. Canadian currency was stronger in 2013. Within three weeks that winter, Whinnery and Beckett closed all-cash on a $265,000 home. Whinnery hopes his home will be worth more in a few years. He estimates it’s now worth about $330,000. ‘The exchange is not a big issue,’ Whinnery said. ‘If you can turn around the house, your return on your money here is probably outweighs the exchange you have to pay.’”

The Union Tribune. “Q: Is rising inventory a sign that the housing market is slowing? Murtaza Baxamusa, directs planning and development for the Family Housing Corporation, of the San Diego Building Trades in Mission Valley: ‘No. San Diego has recently experienced the lowest home inventory in three years. Therefore an uptick in inventory is a sign of recovery. Some of the homes appear to be on the market for a longer time because sellers’ expectations for those product types were high. Prices were rising too rapidly last year with cash investors precipitating bidding wars for fewer homes.’”

“Bill Davidson, president of Davidson Communities: ‘Yes. As people begin to feel better about increasing housing prices and overall economy in San Diego County, homeowners have begun to realize the equity in their homes. We see a surge in existing homes coming into the market giving families the opportunity to move up or move down as needed to establish a household affordability equilibrium. In addition, we have seen the residential investor begin to offload some of their portfolios to realize gains.’”

The Los Angeles Times. “This time last year, investment firms raced to buy dozens of single-family homes in neighborhoods from Fontana to South Los Angeles to lease them out. The flood of cash helped spark a steep rise in prices, drawing criticism for pushing families out of the market. But now the firms themselves have all but stopped buying in Southern California. Among the 20 firms buying the most California real estate since January 2012, purchases are down more than 70% compared with last year in each of the last four months, according to DataQuick.”

“‘Prices have gotten to the stage where we cannot buy a house, renovate it, rent it and still make a reasonable return,’ said Peter Rose, a spokesman for Blackstone. ‘There was a moment in time where it made sense. Eventually we’ll exit, whether it’s an IPO or selling them off. But that’s years down the road.’”

The Orange County Register. “Some economists worry that not enough young people are leaving the nest. Whether it’s because of student loans, credit card debt, a foreclosure hangover or a need to save for a mortgage, ‘household formation’ has yet to get anywhere near pre-recession levels. At a time when investors are buying fewer homes, the slow pace of household formation means fewer first-time buyers taking up that slack.”

“Burdened by $85,000 in college debt, attorney Bobby Waltman lives with his mom and grandmother in a three-bedroom house in Huntington Beach, Calif. Now, he’s counting the days until his finances are sound enough to afford a home of his own. ‘I’ve had this plan to move out for a while, and it just keeps getting postponed,’ said Waltman, who works for a Newport Beach, Calif., personal injury firm. ‘I’m working at a really good firm and I’m still living at home, and I figure it’s time I move on. (But) it’s hard to take on a mortgage with law school debt.’”

“A National Association of Home Builders study released last month found that the share of 25- to 34-year-olds living with their parents increased to 19 percent in 2012, from around 12 percent in 1990 through 2005. Those ‘older young adults’ usually account for about half of first-time home buyers, the NAHB said. Waltman said many of his friends still live with their parents, too. ‘When many of your friends are living at home, it’s hard to rationalize moving out,’ he said. ‘I love to travel. I love eating good food. I love to go to concerts and to go out. It’s just easier to do the things I love when I’m not spending money on rent.’ Besides, he added, ‘Mom’s cooking is still the best.’”

The Press Enterprise. “When Donell and Kimberly Davis applied for a mortgage modification on their Eastvale home with Ocwen Financial Corp., they counted on it being a slam dunk. Never late on a payment, the couple with solid work histories and high credit scores spent 30 hours over a two-month stretch to bring payments down on the $520,000 home that saw its equity fall to about $325,000 in the Great Recession before they were told: Modification, denied.”

“‘We still can’t figure it,’ said Donell Davis. ‘When we started the process, they told us everything looked good. I was told I was a good candidate. Now, I feel like I was led along.’”

“Chris Wyatt, left the mortgage and banking industry in 2010 after 21 years in the business to consult on mortgage-related cases. By Wyatt’s calculations, roughly 122,000 of the 185,000 consumers who went through foreclosure by Ocwen during that time will be deemed eligible by the settlement administrator to receive some of the $125 million allocated for relief. Wyatt said the company would need only to modify 3,600 loans in its portfolio to meet the $268 million threshold set for California. ‘That’s not what I would call widespread help for homeowners,’ Wyatt said. ‘Try to get your money, but don’t hold your breath.’”

The Santa Cruz Sentinel. “After a succession of billion-dollar storms, in 2012 Congress took action to fix the Federal Emergency Management Agency’s deficit-laden National Flood Insurance Program, passing a new law that eventually would charge homeowners based on the true risk of flooding in their neighborhoods. Across the county, 1,139 households were looking at 18 percent annual policy increase, while another 531 policies were set to rise 25 percent annually, according to figures compiled by the Associated Press. Hardest hit are the low-lying areas of Capitola Village, where 71 percent of flood policies are facing increases.”

“Lorraine Stucki lives a good six blocks back from a far bend in Salsipuedes Creek, a swift but small tributary of the Pajaro River that hardly seems threatening but can turn unruly in rainy seasons. Now 82 years old, Stucki and many neighbors are facing the prospect of steep increases in their flood insurance premiums, despite a bill signed into law last week by President Obama to ease the burden facing homeowners.”

“There are several ‘For Sale’ signs up in Stucki’s neighborhood, a fact of life in an area populated by seniors. ‘What will eventually happen is these properties will not be salable. Who can sell a home under that?’ Stucki said. ‘I certainly wouldn’t want to try to buy a house in a floodplain anywhere in Watsonville right now.’”

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Comment by Mr. Banker
2014-03-31 05:25:06

The Press Enterprise. “When Donell and Kimberly Davis applied for a mortgage modification on their Eastvale home with Ocwen Financial Corp., they counted on it being a slam dunk. Never late on a payment, the couple with solid work histories and high credit scores spent 30 hours over a two-month stretch to bring payments down on the $520,000 home that saw its equity fall to about $325,000 in the Great Recession before they were told: Modification, denied.”

“‘We still can’t figure it,’ said Donell Davis. ‘When we started the process, they told us everything looked good. I was told I was a good candidate. Now, I feel like I was led along.’”

Some people just cannot take a joke.

Comment by Mr. Banker
2014-03-31 05:45:18

Let’s take a look at this:

The schmucks were never late on a payment, they had solid work histories and high credit scores, and because of this - or maybe despite this - for some reason or other they felt that they should now be able to pay the bank a lot less money than what they agreed to pay the bank when they signed the dotted line a few years back.

And the bank should agree to do this because …?

Comment by taxpayers
2014-03-31 06:19:00

the bama said
free phone- mort mod- free-er hc

Comment by polly
2014-03-31 08:28:48

There was a legal settlement and they were required to write down a certain amount of money. They would eventually be required to report to the government (and their shareholders) about the “success” of these modifications, so picking people who could pay the higher amount was probably a reasonable strategy to make sure they didn’t have to report that they made modifications and then foreclosed anyway.

However, once they wrote down the amount they were required to write down in the settlement, they stopped. Why would they go beyond what was required? That 30 hours? If they put in their paperwork the first day after an all night marathon, they might have gotten the mod. Otherwise, forget it.

Comment by Blackhawk
2014-03-31 05:25:46

“‘The exchange is not a big issue,’ Whinnery said. ‘If you can turn around the house, your return on your money here is probably outweighs the exchange you have to pay.’”

Oh brother, they’re in for a shock.

Comment by Blue Skye
2014-03-31 06:10:45

Aside from that, he seems confused about the direction exchange rates have gone. He is in for an exchange rate windfall if he sells today.

Comment by Ben Jones
2014-03-31 06:36:29

‘The luxury end of the market appeared to sell quicker, said Dave Kibbey, a broker who specializes in $1 million-and-up luxury properties in Rancho Mirage, Indian Wells, Palm Desert and La Quinta. “We’ve had three times as many sales than last year, but we have a huge amount of season inventory,” Kibbey said. “Until we see a huge demand that heats up that inventory, it’s going to appear as though the market is sluggish.”

‘The luxury market had a late selling season last year, with a surge of sales from mid-March through June, Kibbey said. “We’re hoping for that late season shot in the arm, but we haven’t got that yet,” he said.’

‘Many sellers of luxury homes have had to reduce their price to lure more buyers. Kibbey said he recently dropped the price of an Indian Wells home from $1.9 million to $1.1 million. Within a week, the house sold.’

“For someone thinking of selling, they need to be realistic as to their expectations, otherwise the likelihood is that it would sit on the market,” Kibbey said.’

Comment by LolaLOL
2014-03-31 07:17:21

This exchange rate thing looks like a realtor trial balloon to explain why demand cratered instead of just admitting it is the price.

These Canadians being sold stuff in the high desert are being taken for a ride. Extremely foolish. No jobs, Ca taxes and welfare state.

Comment by rusty1014
2014-03-31 07:59:32

I wonder how many of these “all cash” deals were funded with a HELOC on the Canadian home?

Comment by Housing Analyst
2014-03-31 08:10:22

That was exactly my thought. The notion of “all cash deals” at those prices is laughable and here’s why…. Anyone that has that kind of cash knows the value of a dollar and knows intuitively that a house represents an expense and loss at any price. They have cash because they understand money.

Comment by Ben Jones
2014-03-31 08:27:59

I think he’s a firefighter, so most likely a HELOC.

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Comment by Can Bubble
2014-04-01 15:58:45

Canadian firefighters earn a very good income.

Comment by Puggs
2014-03-31 10:30:19

Same thing as destructive margin loans.

Comment by Housing Analyst
2014-03-31 05:28:06

“Investors Begin To Offload Their Portfolios”

In other words;

Get what you can get for your depreciating house today because its going to be much less tomorrow for many years to come.

And remember….. A house is a loss that never stops losing.

Comment by Whac-A-Bubble™
2014-03-31 05:29:46

‘There was a moment in time where it made sense. Eventually we’ll exit, whether it’s an IPO or selling them off. But that’s years down the road.’

Would timing of exit potentially accelerate if prices started to decline again, the way they did in the 2007-09 episode?

Comment by Ben Jones
2014-03-31 07:11:13

‘Eventually we’ll exit’

Examine this carefully, because it says a lot about their motivation. Why exit, if it’s such a wonderful investment? The ‘few years’ thing is a distraction from the motivation. Is it because his crystal ball tells him prices will be higher in a few years? It’s important to remember these guys were sometimes paying over asking when no one else was bidding on houses! They were never counting on rents. Call it whatever; pump and dump, greater fool, but these people are speculating.

Comment by Housing Analyst
2014-03-31 07:44:33

“They were never counting on rents.”

Clearly as their cap rates are negative.

Comment by goon squad
2014-03-31 05:52:44

RE: student loan debt, here Associated Press piece in the Denver Post:

What those kidz need are $500,000 starter homes!

Comment by taxpayers
2014-03-31 06:45:12

it’s a crisis= you have to bail them out

Comment by snake charmer
2014-03-31 07:34:39

I can’t think of any instance over the last three decades when ordinary people have been bailed out. High finance, on the other hand, has been bailed out at taxpayer expense at least twice, which makes that industry’s free-market rhetoric an embarrassing lie.

These kids with huge debts are never going to be rescued from the consequences, whether that outcome is deserved or not, because we’ve arranged things so that one person’s debt is another person’s asset.

Comment by CA renter
2014-04-02 02:17:25

So true, snake charmer. :(

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Comment by Whac-A-Bubble™
2014-03-31 06:09:46

‘I love to travel. I love eating good food. I love to go to concerts and to go out. It’s just easier to do the things I love when I’m not spending money on rent.’ Besides, he added, ‘Mom’s cooking is still the best.’

Why throw away money on rent when you can live at home and enjoy Mom’s cooking forever?

Comment by Lemming with an innertube
2014-03-31 06:18:18

Why throw away money on rent when you can live at home and enjoy Mom’s cooking forever?

Uh, because mom likes to travel, eat food, go to concerts and such herself!

Comment by Housing Analyst
2014-03-31 06:20:32

I like bushel baskets full of twenty dollar bills too.

Comment by taxpayers
2014-03-31 06:20:11

27 is the new 18
she voted for it !

Comment by MacBeth
2014-03-31 07:24:47

Good question. Why should he?

Kinda makes up for everything taken from his paycheck to support today’s wealthiest cohort: the elderly.

What he needs to do is to never get married.

Comment by Lemming with an innertube
2014-03-31 07:45:49

oh boy, don’t get me started. I do believe it’s necessary to have some social programs, to help people in a short term crisis. however, (and maybe I’m just naïve) but I have run into more than a few young (early 50’s) people that are on disability, and absolutely shouldn’t be. one couple (both on ss disability) are working feverishly to get their 50ish brother on disability now. the kicker is how these 2 are crowing about how affordable obamacare is (for the brother). he makes 10k or less each year (for now). is this the new retirement “solution”? I’m sorry, but it just sickens me. I guess personal responsibility is not fashionable anymore. What ever happened to shame?

Comment by Whac-A-Bubble™
2014-03-31 18:51:25

“on disability”

Yeah, right.

EDITORIAL: The Social Security disability con
Feds must pay closer attention to crooks and schemers
Monday, March 31, 2014

Sen. Tom Coburn, Oklahoma Republican, called for the review of Stanley Thornton Jr.’s Social Security disability payments after Mr. Thornton, who lives part of his life as an “adult baby,” demonstrated woodworking skills on the National Geographic channel television show “Taboo.” (Associated Press)

Swindlers are drawn to big government like flies on watermelon, honey and other sweets. Bureaucrats hold a bottomless purse, and they’re not particular about what happens to the cash within. It is, after all, someone else’s money.

James W. Smith of Hermantown, Minn., was until recently one of America’s most eloquent voices for awareness of Alzheimer’s disease. In his mid-40s, he claimed to be battling early onset of the debilitating and feared disease. He organized candlelight vigils and spoke with lawmakers to generate contributions and support for those suffering with the disease. He was hailed a hero.

Eventually, his symptoms appeared to worsen, and his activism waned. Mr. Smith struggled to answer simple questions, and he couldn’t maintain personal hygiene or drive himself. Or so he said.

The facts were that Mr. Smith, an information technology supervisor for the state of Minnesota, never had dementia. He was lying, putting on a good show to pocket $6,773 a month in Social Security disability payments.

He left his wife and began living large on the money he had accumulated. By the time Social Security workers caught onto the con, he had managed to dupe taxpayers of $144,293 between 2006 and 2010.

Last year, Mr. Smith pleaded guilty to stealing government funds and awaits sentencing.

For every person like James W. Smith, caught ripping off the Social Security disability program, hundreds get away. The National Bureau of Economic Research finds that disability payments and services are worth more than $300,000 over a recipient’s lifetime.

According to Our Generation, a good-government group leading the charge for reform of the Social Security Disability Insurance system, more than half of the new Social Security disability claims are based on mental or musculoskeletal disorders.

Such claims are easy to fake, difficult to diagnose and hard to disprove, creating an easy opening for shysters, schemers and other evildoers.

The Social Security Administration’s disability scheme rewards applicants with disabilities for not working. In 1989, 29 percent of Americans reporting disabilities worked. Today, that number has dropped to just 16 percent.

It’s not that disabilities are getting worse, it’s that benefits are more generous and the federal government encourages people who could work to stay idle at home. That not only harms taxpayers, but it robs many disabled Americans of enriched and happier lives.

Disability benefits represent Social Security’s fastest-rising costs, increasing from 10 percent of all Social Security costs in 1990 to more than 18 percent today. Americans shell out $135 billion every year to fund the federal disability system for 8.7 million participants. Both numbers are rising because new rules make it easier to qualify for disability benefits.

The Social Security disability system is projected to go broke in 2017. There’s scant time to fix the system.

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Comment by VinceInWaukesha
2014-03-31 11:44:12

The “he” part is interesting. Presumably 50% of those stay at homes are “she” and by 34 her biological clock must be ringing something fierce. Imagine spending your entire breeding life at home with mom and dad. Thats why I did a double take at referencing them as “young adults”. So whats an adult, 65?

Comment by snake charmer
2014-03-31 13:00:44

The irony is that, at some of these retirement communities, people who are 65 behave like they’re in college, hooking up and drinking copious amounts of alcohol.

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Comment by Housing Analyst
2014-03-31 07:57:20

Herndon, VA Housing Prices Dive 13% YoY; Inventory Up 65%

Comment by Housing Analyst
2014-03-31 08:01:11

Fairfax, VA Housing Prices Crater 17% YoY On Billowing Inventory

Comment by taxpayers
2014-03-31 09:11:46

weird, mines up 8-10%
lucky I guess

Comment by Housing Analyst
2014-03-31 09:14:42

And you couldn’t find a buyer for a small fraction of the amount you’ve got in it.

Your point is what?

Comment by Housing Analyst
2014-03-31 08:02:54

Alexandria, VA Housing Prices Lose 13% YoY

Comment by Housing Analyst
2014-03-31 10:37:59

Alameda CA Housing Prices Sink 21% YoY As Housing Demand Collapses

Comment by Housing Analyst
2014-03-31 10:44:41

Torrance CA Housing Prices Slide 7% YoY As Inventory Rises 78%

Comment by Housing Analyst
2014-03-31 10:47:03

Seal Beach, CA Housing Prices Dive 22% YoY; Inventory Doubles

Comment by Housing Analyst
2014-03-31 10:52:52

Camarillo, CA Housing Prices Collapse 41% As Inventory Skyrockets 75%

Comment by Ben Jones
2014-03-31 18:01:54

This just in:

‘For their roles in a mortgage fraud case that rocked Bakersfield, David Crisp was sentenced Monday to 17 1/2 years in prison while his wife, Jennifer, received what the federal judge in the case called “the break of a lifetime”: five years probation.’

‘David, 34, was immediately remanded to custody to begin serving what amounts to the same sentence given in February to his former business partner, Carl Cole, who like Crisp had pleaded guilty to conspiracy to commit mail, wire and bank fraud. Both former principals of Crisp & Cole Real Estate and Tower Lending were ordered to pay restitution of more than $28 million.’

‘In a news release, federal prosecutors said David had finally “crashed hard” after flaunting his “ill-gotten wealth” and going around in exotic cars, Armani suits and a private jet.’

‘His Fresno lawyer, Eric Kersten, portrayed Crisp as an inexperienced “kid” caught up in a booming market. Kersten tried to shift some of the blame to Cole and the bankers anxious to give out loans during the real estate boom.’

“Everybody was making money. It was like the wild West,” Kersten said.’

Comment by Whac-A-Bubble™
2014-03-31 18:58:17

A Crisp-and-Cole post makes it feel like old times around the HBB!

Comment by Muggy
2014-03-31 19:07:25


Comment by CA renter
2014-04-02 02:24:16

That took a long time! Now, we need to see more higher-up scoundrels go to jail. How about Angelo Mozilo…or Alan Greenspan?

Comment by Whac-A-Bubble™
2014-03-31 19:03:59

What comes out in the NPR version of this story is how instrumental fraud was in driving U.S. home prices through the roof.

And now they are back through the roof again!

David Crisp To Be Sentenced In Massive Mortgage Fraud Case
March 31, 2014 5:00 AM

Steve Inskeep talks to Gary Silverman of the Financial Times about a real estate fraud scheme that helped make Bakersfield, Calif., one of the home foreclosure capitals of the country.

A relatively rare event occurs today. Someone will be sentenced for crimes linked to the real estate collapse of several years ago. David Marshall Crisp is his name. He ran a real estate agency in Bakersfield, California at the height of the housing boom; you know, back when you could buy a house with no money down and prices were soaring.

Crisp entered a guilty plea to arranging property deals with fake buyers. They would flip the real estate back-and-forth at ever-greater prices - all the money borrowed - and they were defrauding banks and investors of about $30 million in the process.

Gary Silverman has covered the Bakersfield fraud for the Financial Times. And the characters in this story include Bakersfield itself.

GARY SILVERMAN: We all know it from “The Grapes of Wrath” and books like that where, you know, people from Oklahoma and the Dust Bowl all came out West and wound up in Bakersfield.

INSKEEP: Mm-hmm.

SILVERMAN: And it gave the town a kind of unusual character. It’s a country music capital. It’s were Merle Haggard is from and Buck Owens is from.


SILVERMAN: But then Bakersfield evolved and became a big boom town. And what happened in the last decade was really like a lot of boom towns in the Sun Belt where there were a lot of people moving in, created a lot of property activity, created a lot of interest and lenders to lend to that activity, and then there were people who took advantage of that all along the supply chain, if you will.

INSKEEP: And the underlying thing happening here was that it was easy to get a bank loan. So if you could find some way to fake a bank loan, you’d get that money for yourself.

SILVERMAN: It was easy not only to get a bank loan, but it also goes back to the way mortgage financing became done over the last few years, which is that money from mortgages comes from global investors. And investors all around the world in the last decade wanted to buy bonds backed by American mortgages. Then there were people in the country in places like Bakersfield and other towns, and what they could do is create, you know, essentially fake mortgages, fake buyers, get the financing for the mortgage, hold the house for a few months - a year or two years - flip it for incredible profits; all this being financed by essentially investors who were hundreds or thousands of miles away who had no idea what was going on in Bakersfield.

INSKEEP: And I’m thinking about what this means for a neighborhood. If there is a straw buyer buying a house for too much in my neighborhood as part of a fake transaction, the increased sale price of their house makes me think my house is worth more - and in fact, I could go get a home loan for more and it’s all a delusion. But I’m getting actual cash and now I owe money on a loan based on this delusion.

SILVERMAN: Well, this is the mechanics of a bubble, you know, one thing leads to another, leads to another. And what happened in the last decade is that everything conspired to keep pushing property prices up, which created more people taking an interest in this and that’s where you do wind up with a collapse. In a place like Bakersfield, prices went up sharply during the middle part of the last decade and then they came down just as hard.

Comment by taxpayers
2014-03-31 18:37:24

do we have proof the smart money-Blackrock etc are now selling re ?

Comment by Housing Analyst
2014-03-31 18:53:01

we do now.

Comment by Doom
2014-04-01 08:55:28

303 freeway Phoenix to be completed in fall linking direct access to I10 to LA.

Thousands of homes to be built in West Valley of Phoenix, guess these developers are stupid people who have nothing better to do but build homes, shopping distric, new high school etc.

Yes sir, we are in a housing depression???

Comment by doom
2014-04-01 09:33:41

For you folks who read these blogs, think about negative people, they most likely are folks who always miss the boat in life, they play the lottery, they put a dollar bill in Big Bertha in Vegas, they hope to get rear ended by some rich person so they can sue them.

The way to riches is not reading the headlines by then it is to late, looks at trends, 2008 was bad so what, cycles are 7 to 10 years, now is the time to buy that house because during this lull underwater homeowners want a offer. The negative is your positive in buying anything!

This do nothing anti business administration is lame duck so take advantage, in 2015 and 2016 when they are history business will come booming back so will interest rates etc. Now is the time early 2014 to make your move and get a house, it is your best shot.

Comment by Housing Analyst
2014-04-01 09:45:53

Cheer up… don’t be so apathetic. Falling housing prices to dramatically lower and more affordable levels is bullish optimism.

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