Money Magazine article, mortgage update and more
I know it has been a little while since I last posted, but I have been pretty busy with my ‘plan B’ job. Things are going GREAT with my new line of work, and I can honestly say it is refreshing to be out of the mortgage industry as my primary source of income. I have several great friends that are still ‘in the trenches’ and I still keep abreast of what is going on in the mortgage/real estate industry.
For those of you that are coming here for the first time since you saw the write up in Money magazine (subscribers edition…not the newsstand edition) or from this CNN/Money story, I want to say thank you for stopping by! Since I am no longer posting everyday like I was for many months, the best way to use this site is to check out the archives on this site, as well as my ‘ORIGINAL SITE’, and use the FORUMS. I will be organizing all of my posts so that they are easy for people to access here shortly. Until then, check out some of the ‘Popular Posts’ that I have linked to below, as well as the archives on the right hand side. Some of the ‘popular posts’ will link you to the ‘original site’ or you can get there with the navigation bar. There is also a TON of information and activities going on in the FORUMS. There are almost 350 members, 500 topics, and 3000 posts at this time!
Here are just a few of the posts that have been popular with readers:
These are just a few of the 80+ posts I have made. I have covered all aspects of the mortgage lending business. I have talked about interest only, negative amortization, adjustible rate mortgages (2/28, 3/27, 5/1, etc), fixed rate mortgages, 40 year mortgages, refinancing, appraisals, packaging loans, selling loans, loan standards, loan programs, stated loans, no doc loans, no ratio loans….I think you get the point. Don’t worry, I made it entertaining. I wouldn’t have been featured by CNN/Money magazine if it was dry and boring like your Econ 101 class.
It just shake my head when I see how the media reports information. The media is a great ‘lagging indicator’. We should have been seeing articles like this back in 2002 before everybody tried to become the next ‘genius’ real estate investor. It is amazing to me that nobody thinks about the long term financial repercussions of taking on some of these mortgages.
I still get lots of e-mails with questions about option-ARMs, how they work, and the different indexes they can be linked to (COSI, COFI, MTA, LIBOR, etc). It is simply amazing to me that people will think they will be ‘fine’ making a $1600 payment on a 500k loan. That is about what the minimum payment can be on an option-ARM today. If you could theoretically make that payment for the full 30 years, you would barely cover the original loan amount ($578k). Too bad the ‘real’ payment for 30 years would have to be about double that amount to ‘afford’ a 500k loan. And you wonder how property has doubled or tripled in many areas over the last few years?!?!?
The floodgates have been opened the past 5 years. Pretty much anybody could get a loan for 400-500k with not much problem. If you don’t make enough, go stated. If you want to buy more house, go interest-only or negative amortization (option ARM). If you have no money down…no problem. If you FICO is in the toilet, get it into the 500’s, and you have options. For a while there, a 560-580 FICO score would get you a 100% loan. A month or so before I left my last company, they got rid of bankruptcy seasoning. That means that a borrower with no BK would get pretty much the same loan/rate as somebody who was 1-day out of bankruptcy. Does that sound right to you?!?!?
I could go on and on. It seems that so many of the articles that are coming out now about the ‘dangers’ of interest only ARMs, etc. are a day late and a few trillion dollars short. Amazing that the ‘important’ people didn’t notice that 80% of the loans in CA being interest-only ARMs or option ARMs might cause problems down the road. I saw it from the beginning. Many people were jumping into houses with ARMs, and their plan was to sell when the payments increased. Seems like lots of people had that same great ‘idea’…
If San Diego inventory is any indicator, it could take a l-o-n-g time to look at all the houses on the market. 18,192 per ziprealty.com tonight. Prices skyrocket when buyers are chasing 2800-3000 properties on the market as they were in the spring of 2004. What happens when there are over 18,000 properties on the market?? Do we really need to poll Mensa to get the answer to this one?
I happened to be in the LA area a week or so ago and I was scrolling through the radio stations and I came across 102.7 where Ryan Seacrest has a morning show. Part of his show is this little girl called Ali who calls people up and asks them questions. If you have heard it, you know what I’m talking about, if not…just trust me, it can be hilarious. I happened to tune in to catch little Ali calling a real estate agent and she asked about a ‘housing bubble’. The realtor assured little Ali that the housing bubble is a ‘myth’. Little Ali said “like Bigfoot” and the realtor said exactly.
Sorry, but if that is the case, then Bigfoot IS real…and has been doing more steroids than Barry Bonds.
Stay tuned, stay informed, and I look forward to the comments and feedback.
SoCalMtgGuy
March 30th, 2006 22:53
Glad to see you’re back and that the new position is working out well for you. Congratulations.
I was having a conversation about 0 down vs 20% down today. When we sold our LA condo last summer, we had 5 offers (actually probably one of the last “bidding wars” some remember). All five of the offers used various forms of suicide finance - but what floored me was that the highest amount for a down payment was 5%. Most were 0% and one actually offered to pay more but to have us refund some of the extra as a credit (I assume to cover the closing costs).
Anyhow, I’ve been reading how lendings starting to tighten up as well as get more expensive. But here is the thing that I think will really kill the market - when the lenders begin require 20% down again. I think this probably means when the piggyback goes away since that’s how people seem to be doing the 100% financing (I would think PMI will also become prohibitively expensive). Based on my recent personal experience, removing people who couldn’t scrape together 20% would effectively have removed all five of the offers on our place. What are your thoughts?
March 30th, 2006 23:08
Yup…
Even a 5-10% downpayment would remove a lot of people from the market…especially if the lenders got tough when looking at the source/seasoning of the downpayment.
So many recent borrowers have little to no ’skin’ in the game.
Take pools of potential buyers out of the market, and combine that with huge inventory increases, and it is pretty easy to see which direction property values will probably head.
You would be surprised how many people I saw that barely had 5-10k in savings and they were taking on 3-5k per month mortgage payments.
This thing is going to unwind and it isn’t going to be pretty. Around 2 trillion dollars worth of mortgages will be adjusting between now and the end of 2007. Tightening standards, declining property values, and higher rates are going to make it hard if not impossible for many people to keep their property.
SoCalMtgGuy
March 31st, 2006 04:40
You are completely right about if and when banks start to mandate 20% down again. This would be the stake in the heart of this thing. I live inside the city of Boston,MA proper. And without my GI Bill it would be even tougher to come up with a major down payment and put aside for retirement,savings,IRA etc. Although prices on my street are slowly trending down 3-5 percent. If it stays like this into the spring/summer then the panice will really begin. Just my thoughts from the greater Boston area. Cheers!
March 31st, 2006 06:23
I am in the Cell phone business and you can not get a post pay
plan with a credit score of 560 let alone a house.Are we in for trouble with this lax lending.
March 31st, 2006 07:25
But to be fair, when the median house is $550K, how many average people can come up with $110K cash? That’s kind of nuts in itself.
March 31st, 2006 07:39
LB,
That is why sky-high home prices are not necessairly a good thing in the long run.
How many people have neglected savings, health/disability insurance, emergency fund, etc. because they are spending ‘every penny’ to be able to ‘own’ a house???
How many people are spending money on an I/O mortgage thinking it is the ‘ticket to easy money’…while neglecting other aspects of their life? I don’t know the answer…just throwing it out there.
SoCalMtgGuy
March 31st, 2006 10:46
LB,
that’s why in a lot of areas housing prices will have to come down, especially in socal. the prices have become completely disconnected from the general population’s ability to pay. if mortgage lenders go back to demanding even a 10% down payment, that in and of itself will cause prices to fall, regardless of whether or not interest rates go up.
March 31st, 2006 12:34
Socal,
I work for *WMC Mortgage* and the investors are no longer accepting VOD’s that are not source and seasoned. The info was released this morning. I just got done updating my resume and will be out of here soon. I have 4 solid businesses that do stated 100% loans (appr. $1mil a piece). Thank god I still have my paid off car and am renting for $700/month with $60k in a portfolio.
Safe to say I’ll be squeezed out in no time…loved your blog over the months. Good luck on your Plan B.
March 31st, 2006 12:36
The flood of 100% financing over the last 3-4 years is the single biggest factor in the run-up in prices. The second is the option-ARM below interest-only payments. Lowering of credit standards combined with the above two have combined to make home financing the easiest in history. It has also created the riskiest real estate market in history. I have seen more leveraging and people stretching to an extent that would not have been allowed and people would not have even considered in the past.
This is continuing. I talked to someone last week that is getting a an option ARM because he needs to, on a property 500,000 more than he should buy based on sensible affordabilty standards (my bank does not do Option/neg am-ARMs so he is going to another lender) His loan will have a $2,000 per month negative amortization. And he is leveraging his existing house to the max to get the down payment on the new house. Renting the old house will result in a true negative cash flow of $1,500+ per month. The insanity continues….
.
March 31st, 2006 15:56
I work for a direct lender (HOME123) in SOCAL, let me tell you, it is slowing, I’m the only one seasoned for over 2 years here and everyone is new, because of the great money talk potential, they are already in the rude awakening stages now after 1 month. This is from short term rates that all these problems are starting to slow things down, the last of the leggs on this refinancing mortgage industry in itself is the long term which are generally great, but now they are starting to catch up. Keep watch on the Ten year bond, when that # goes down, the yield gets higher which means higher long term rates which are due at any time and I feel we all agree that thats the problem with predicting this bust. The fed has been pretty predictable to this point.
March 31st, 2006 20:26
I think “Bigfoot” has just taken a huge dump on a lot of peoples’ lawns.
March 31st, 2006 20:26
I enjoy all the bubble talk and have been waiting to see “rationality” return to the housing market for about 6 years.
However, I don’t think we’ll see universal 20% down requirements again. Risk management is more sophisticated than it was decades ago, and politically popular FHA and VA loans will continue to be available.
My grandmother’s boyfriend said that in the post WWII era, you needed 33%. Imagine what THAT would do to the market.
March 31st, 2006 21:11
i got a flyer from indymac this week,100% to 1 million,560 score,stated non owner occupied ok.it is an i/o arm.enough said.
April 1st, 2006 08:25
So glad to see you posting again. I was having a serious case of withdrawal.
Come back and post again soon. We miss you. For the fellow commenters inthe mortgage business, thanks for your invaluabe insights. It’s so wonderful to get an insider’s view.
Simmsays…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
April 1st, 2006 15:47
Newbie here. Love your blog, very informative, looking forward to more postings when you have time.
Thanks!
April 3rd, 2006 16:28
socal,
good to see you’re still around. had the opportunity to spend a week in lovely socal (from ontario down to san diego). got to see how silly the market was. from the four sign guys (with the arrows) on every corner to the luxury condos directly under the flight path in san diego, silliness abounds. you got out just in time, the mortgage industry continues to deteriorate, quotemearate.com in massachusetts (with 40 retail offices) just got a cease and desist over the weekend, wholesalers are busy consolidating by the hour, and the sales/refi volume has dried up substantially. hope all is well with the new job and i’ll be in touch.
April 3rd, 2006 19:24
Glad you’re doing well SoCal, thanks for giving us an update!
April 3rd, 2006 22:22
Thanks for the kind words!
I will keep everybody updated. In my new job people ask “what were you doing before?” so that easily opens the door to talk mortgages and real estate.
I’m finding that a lot of very smart people have no idea what is/has been going on in the mortgage business. I feel extremely confident that every person I am dealing with makes solid 6-figures. Many of them were ‘curious’ as to how ‘everybody’ could afford many of the homes in Ca. Then again, the people I am dealing with are 20% down, 30yr fixed type of people. Some were floored when I told them about option-ARMs, stated income, and some of the other ‘loans’ going on out there.
I’ll write more about it later…
SoCalMtgGuy
April 4th, 2006 08:44
Hi SoCalMtgGuy!
I was reading the Money magazine and your blog definitely lured me in to your web site. Terrific Web Site!
I just like to share the phone call I received yesterday. The borrower is looking for a 300K mortgage in Florida, 100% Financing No money down, no money on reserve and a med student and unemployed. He will be graduating this June 2006 and he has an employer set up after he graduate. His offer was accepted yesterday and he wants to close on the home this month. I told him that with his current situation it is just not in his advantage to purchase a home at this time. I asked him to think about his finances now and how is he going to afford this home if he is not working…He replied,,”but I have will start working in June”.
Do you think I did the right thing, here?
April 4th, 2006 13:47
SoCAl
Good to hear your new venture is working out. Best of luck. I have a question. AS someone that was in the trenches before maybe you can make snese of this to us. We know someone in our family (LO) in the industry. Benn doing it for about 1.5 years. Just traded up to a McMansion while renting his older houise. His latest display of new found wealth (fancy SUVS, exotic cars, vacations) leaves us baffled as HOW is this all possible so quickly?? ALmost makes you question wether there is some illegal activity going on?? He is in the ‘inside’ and I would expect him to be more cautious about overextending himself seeing all the stuff you saw. I mean, I am not in the RE industry and I eve see the downward trend coming and he lives like there is no tommorrow. In fact he said his motto was ‘you only live once’. Is this a common behavior of people employed in the RE industry? Ignoring the facts?? I did however uncover one fact about his financial situation when he called a mutual friend to sell his Option ARM to, his new McMansion is riding a 10 year IO loan.
April 4th, 2006 22:47
Third or fourth “glad you’re back”. Got your site from Ben’s blog, which I visit daily. Your forums, thankfully, continue.
Keep it up, if you can! It has offered real examples I can share with those I care about to convince them not to be the last at the party, the greater fool, or the ultimate FB.
Congrats on the new gig. I need one, too. Suggestions?
April 5th, 2006 06:53
Just as others are wondering, where does this bubble burst leave us, the workforce behind it all? I seem to have entered the game in the nineth inning as I started with a small broker company without any prior experience on 11/04 while business was still strong with primarily refinances with the liberty of being selective in regards to working with purchase deals. Now… I pray for purchase deals and hardly bring in any refinance business at all. My employer is small with two L.O.’s and 1 processor… The competition is extremely fierce and since 12/05 productivity has been next to none… My employer has given no indication of closing the company down but I don’t like the idea of waiting for just that… Please advise a young loan officer with minimal experience in the industry and little knowledge of market patterns past and present what to do in this case….. I appreciate any and all replies…..
April 5th, 2006 07:06
WetBehindtheEars…
I have seen it many times out here already. Your employer is NOT going to give any indication that things are going ’south’. They will remain upbeat and positive (or try to) and tell everybody that everything is fine. “Just work hard and work the phones, and you will be fine”.
Here is the thing, I assume you are 100% commission or something close to that (maybe a small base/draw). If you aren’t making much/any money, how long are you going to keep working?
I think the writing is on the wall. Don’t listen to my words…look at my actions. Unless you plan on making the mortgage industry your job for the long haul, I would look elsewhere at this time. There are NO barriers to entry to the mortgage business, and you can do it part time. I would try to find something more solid, and keep ties with the mortgage industry if that is what you wish to do.
Many people in the industry have ‘drank the cool-aid’ and think that RE will never go down and that the party will always go on. Go ask Bay area dot-commers if they ever thought the ‘new economy’ “it’s different this time” party was going to end.
Read the popular posts and archives on this blog. Read the news articles on Ben’s blog. Look at the data, and make a decision for yourself. I don’t have to tell you that it ain’t 2003/2004 anymore…
I hope this helps you some.
SoCalMtgGuy
April 5th, 2006 22:53
SoCal:
I saw you posting on Ben’s blog today.
Get back over here and blog something. This site is too good to become one of those fossil blogs.
April 6th, 2006 06:58
I agree. I am sorely missing your postings and suffering withdrawal.
Simmsays…
http://www.AmericanInventorSpot.com
AmericanInventorSpot.com
April 6th, 2006 22:42
With a limited time to read blogs, yours had become first in line.
You have a knack for funny and insightful writing. It would be a great loss to have you disappear into the “crass” world of commercialism. But with any new venture, your time will be taxed. I hope you find the time to continue this tread.
( So don’t drink, chase women, have kids, or play golf) You will have more time to write.
April 7th, 2006 10:38
Hi SoCalMtg!
I just like to let you know how much we love your blog. Everytime someone is asking me about how the market doing..I always tell them to check out your web site and they will have a better understanding on what is going TODAY!
Thank you so much!
April 7th, 2006 10:58
I learn so much over here. I love this blog. Best of luck on the “Plan B” job thing and congrats on getting out of the mortgage biz…
Keep those posts coming!
Cole @ The Boy in the Big Housing Bubble
April 7th, 2006 13:54
I just discovered this blog through a link and it’s already become an indispensable resource. My wife and are were considering buying our first home in SoCal but bubble prices are playing havoc with our projections. Luckily we have no debt but $550k for 900sqft and a bad commute is insane. Our fear is rising interest rates - we know too much to accept an ARM or I/O but at what point do fed rate hikes offset falling RE prices? Can you get screwed on the “other end” buying after prices crash in another year or so and wind up paying MORE because of fed rate hikes?
April 7th, 2006 14:27
Patrick,
With inventories swelling, rates slowly rising, and lending standards slowly tightening…there is only one direction I see prices headed.
Sure, the interest rate might be a bit higher, but if the property is 50-100k+ less, you will more than make up for the increase in interest rates. Not to mention that your tax base will be lower as well.
My advice is to just chill for now. I believe the upside to waiting FAR outweighs the potential downside of buying right now.
Just scan the headlines on Ben’s blog. I have yet to see one recently where prices are going up by any measurable amount. If prices go up 1-2% a year…big deal. The difference between renting and buying will you allow to more than save the difference that appreciated.
500k condo appreciates 2%. Big deal…if you are renting a 500k place (as I am) you will be able to save way more than 10k in the year that the property ‘appreciated’.
Stay tuned…
SoCalMtgGuy
April 8th, 2006 05:11
SoCalMtgGuy, I think your advice to Patrick is excellent, but did not go far enough. Real estate may crater so far that even if he waited until prices came down $50,000 on a ridiculously priced 900 sq foot house, then bought it for $500,000, it is still overpriced. Even if it came down to $450,000, it is still overpriced. You know, $300,000 to $400,000 in the bank at 4% is safely in the bank, but if it is stuck into some little crackerbox because everyone is bidding up old stock in an overcrowded area on a faultline, then you are stuck with the crackerbox. I would rent until my hair fell out and my waistline expanded. But then, my husband got rid of two rental properties ( nice ones - one because the neighborhood was slowly going bad, and the other one because the condo association was making ridiculous demands for special assessments ), and we’re glad we did. He started pharmacy school in his 50’s, and we needed the money. We have one rental left, which is a beautiful home (it would be a million plus in CA ) and is paid for, and our own residence, which has a 7 year fixed rate mtg at 6 1/4 percent, then starts to adjust. By that time, we will either have it paid for, or use it as a rental. We only owe $134,000 on our residence, and have about $45,000 in equity in it. We have enough cash saved to live on for 5 years (yes, 5 ), so we could pay it off today if we wanted to. We are the opposite of most of these unfortunate people you write about. But, we both have had hard lessons in the past about finance, me with an ex that forged my name to a large business loan, and him with an attorney that defrauded him of thousands of dollars when he was sick, so we are very careful. ( The ex paid me back for the large loan, and the attorney’s license has been suspended for 3 years by our state bar association until she makes restitution, so both stories have happy endings, but took thousands of dollars in legal fees and years of time to remedy ). Once people get seriously burned, they become more financially risk-adverse, but it’s better to learn on $35,000 or $90,000 than half a million….
April 9th, 2006 21:09
I will try to get a post up this week. I have some good stories and insight to share…but I’m going to be a ‘road-warrior’ most of this week.
Loving the new job…but makes blogging tough. Just bear with me and check back as I WILL keep content going here as this whole ‘bubble thing’ transpires.
Things are going great with the new job. Thanks for the e-mails and comments of support. The blogging will be more frequent as I get the handle things with my new job. Lots to learn and very exciting.
Stay tuned…
SoCalMtgGuy
April 10th, 2006 08:07
Hi SoCalMtg!
Quick question, let’s just say I know someone who placed an offer on a home in MA for $700K and he is putting down 10%. He wants an interest only 30 year fixed and I was able to offer him 6.5% a month ago. The house will be finished by October this year..What if the value of the home decreases and the value is 50K less at the closing? Does this mean he has to put an additional 50K with his down payment or should he put that in his purchase and sales as a clause “if property value decrease the seller should lower the price to the appraised value”?
Thank you..Love your site!
April 10th, 2006 15:09
Is the bwr buying new construction from a builder? If so, I would doubt the price dropping unless the builder lowers the price. He could try and add a clause, but I don’t know how well the builder would respond to that. These are all the things I knew would start showing up.
If this house is not from a builder, I don’t understand why he would be making an offer in April when the house won’t be ready for 7 months. A LOT can happen in that amount of time.
An interest-only 30-year fixed? Doesn’t make sense. I used to have a 30yr fixed with the first 5 years interest only. The rate is fixed, but since you aren’t paying any principle the first 5 years, the payment jumps as the loan is amortized over 25 years…but the rate is the same. I haven’t seen a 30-yr interest only loan….which doesn’t mean some ‘genius’ is offering one out there.
If the price if higher than the appraisal, then yes, the bwr would be required to come in with the difference in cash to make the deal work.
I hope this helps…
SoCalMtgGuy
April 10th, 2006 15:52
Glad to see another post. Of all the bubble sites, this was my favorite, and I miss it as part of my daily reads.
April 11th, 2006 06:05
HI SoCalMtgguy!
Thank you for your reply. The 30 year fixed interest only is 10 years interest only and after the interest only period, the interest rate will stay the same but the payments will be amortized for the remainder of 20 years..
Regarding the home, yes it is a new construction home. The builder does not want to build the property until they have a buyer for the property and until they see the 10% down payment. I agree a Lot of things can happen in seven months.
Thank you so much!
April 14th, 2006 20:56
Yo Socal:
Have you heard anything new about lenders tightening?
You planning on doing another posting this week??
Regards,
BB
April 15th, 2006 11:50
BB,
Yes, lenders are tightening. They are trying not to admit it, but they have no choice.
I’m working on another post…but I’m out of town for a few days.
I have some good info, stories, and analysis coming.
- I’ll talk about a ‘million dollar’ sales conference held last week for the sales force of a major lender.
- I’ll talk about an encounter with an old loan officer who was now running a cell-phone kiosk.
- plus market insights and more…even a little bit about the new job.
I have just been very busy…and the blogging has suffered (a lot of times I check the blog from my mobile phone).
Stay tuned…I promise I’m not going anywhere!
SoCalMtgGuy
April 15th, 2006 22:24
There was an article in the Los Angeles Times business section on April 14th entitled, “Lenders Oppose Rule Changes”, subtitled, “Stricter standards on nontraditional home loans would hurt buyers, they say.”
Okay, here’s a conspiracy theory. What if lenders are opposing rule changes because by selling these nontraditional home loans, they have millions of owners who will be forced to refinance once their loans start adjusting. Thereby, producing a never-ending cycle of taking out new loans on the same home over and over again. Instead of tempting homeowers with lower rates, higher rates will force homeowners to refinance their nontraditional loans. Thus, the mortgage industry makes money whether interest rates go up or down.
Mary Jane Seebach of Countrywide said in the aforementioned article, “In the absence of such data, we are concerned that cetain aspects of the proposal could unnecessarily have the effect of inhibiting innovation in the mortgage industry and reducing the affordability of housing.”
Okay, Mary Jane, since you appear to need a clue. It’s the nontraditional loans that have reduced the affordability of housing. If, as someone said earlier, we were again required to put 20% down, the pool of potential buyers would shrink to the point that prices would be forced to come down. Thereby making housing far more affordable.
So the reality is, stricter standards on nontraditional home loans would actually hurt the mortgage industry.
April 16th, 2006 08:29
Hi Everyone:
I just found this blog and have enjoyed reading it. I like to share with you a couple of fallacies about home equity loans.
People think that home equity is synonymous with “cash at hand”. Home equity is not cash, to translating home equity to cash costs money (it is called interest payment). Even at that, it is bank’s money that you have to pay it back.
Home equity is liquid, you may loose your equity easily by 20% in one year.
I have observed a phenomenon in recent years that I do not know what to call. People commit rubbery and spend the money lavilshly. Well, they do not go and rub banks, no there is a more convenient place to rub, it is called HOME. Some people use their home as a huge ATM card.
Most people have fiscal problems because they do not know nor have discipline to manage money. They just know how to spend money recklessly and thoughtlessly.
I think we are going to see a lot of people to suffer financially in near future. Time for reality check has arrived.
April 16th, 2006 20:21
Quick excerpt from globaleconomicanalysis.blogspot.com related to Real estate in Florida.
Sunday, April 16, 2006
Customers For Life
For several months now I have been talking with Mike Morgan / Morgan Florida, a real estate broker serving the treasure coast area of Florida. In our most recent conversation Morgan tells me “prices have already fallen 10%, regardless of what median prices show. In addition transaction volumes have fallen off the cliff”.
Unlike other brokers I have talked to, Morgan is expecting “further declines in the neighborhood of 20% or so, more on condos”. He is advising his clients that “The market has changed and that sellers must accept that reality if they want to get their house sold”. Realtors openly telling their clients to expect substantial further declines simply is not the norm.
Back in January and February Morgan said that “Centex was so desperate to close deals before their March 31 fiscal year end they were offering $60,000 select home sites that were not selling well. But that is just the start of it. Centex was also offering 6% commissions to the agency booking the sale plus an additional $10,000 selling bonus to top it off.”
Obviously Centex was under extreme pressure to unload some properties ahead of their fiscal year end. A year or so ago builders were offering 1-2% at most to outside agents. Some homebuilders would not work with outside agents at all. On a $400,000 home that is an extra $24,000 in lost profit as compared to six months or a year ago. Factor in the $60,000 off then add in a $10,000 bonus and Centex made a whopping $94,000 less on those home sales than expected.
Those deals are now gone, but I suspect Centex and others will be forced to put them back on. The reason median prices have not come down that much is that builders are booking the full value of the sale, before these discounts were granted and calling that the sale. Discounts are attributed to advertising. Prices are now biased on the high side just as they were biased on the low side on the way up. Morgan assures me that “comparable prices have fallen 10% or so” regardless of stats that show otherwise.
Rising inventories are going to continue to add downward pressure on prices. Sentiment was steadily falling from August through December, but a sudden steep falloff in January and February (peak season in Florida), seems to have caught nearly everyone by surprise. Morgan was ahead of the curve by advising his clients to “take a little less” in November and December to “get the deal done”. It seems that was sound advice…..
May 2nd, 2006 17:04
Did you see the Ameriquest news???
June 1st, 2006 10:47
Hi Ed. Your tax returns are documents for a loan. If you are declaring your income and paying taxes on it you should be fine. (If you don’t pay your taxes? Well, I am definitely not the person to talk to since I do and I think others should.
)
As a self-employed person if you don’t do your own taxes make sure you understand what they are saying and that you have a mortgage lender who understands them. Some of your self employment expenses should be brough back into net income for determining what loan/amount you qualify for. For example, deductions for the home office can be put back into income because you paid those expenses, such as rent and utilities under the business banner same as you will when you own the property.
I am facing the same problem. Credit score over 800, great down payment but self-employed in a business that grows slowly. I think we’ll be ok - in a few years a good credit score may actually mean something as will cash!
January 2nd, 2007 07:49
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