The times are changing…
Whoooopsieee! Looks like the media is starting to catch a ‘whiff’ of this bubble leaking some air. The realtors for the most part are in denial. It is as if they are walking downwind in a cow pasture, but they won’t admit something ’stinks’ until they step in it! Right now, all the realtors are trying to rationalize that things don’t smell at all, and if you put on enough cologne, things smell just great! The thing is, most people are sheep, not pigs. Sheep follow the heard, pigs wallow in crap.
Let’s look a some of the information that is STARTING to come out of the media. It won’t take long for the sheep to take notice…the ‘bubble’ word propping up in more and more headlines. Let’s be honest, most people don’t read the whole article. I forgot the statistics I read a while ago, but most people scan the headlines and the first paragraph, and read on an 8th grade level. I’m not too worried about the ‘average joe’ pondering the inverted yield curve, supply & demand, inflation, “medium” home prices, etc. They will be focusing on words like bubble and bursting.
You have to hate it when the New York Times starts running a story titled: Don’t Fear the Bubble that Bursts. Uh oh…please don’t talk about the past. After all, its different this time….right?
You have to like it when the local ABC news channel runs a story: “Central Valley Housing Bubble Ready to Burst?”. Here is the FIRST sentence that most will read:
“The Valley housing boom is over, with home prices in some neighborhoods dropping $50,000 in just the past two months.”
You can just hear it now. “Aw sh*t Ethel, our house is going down in value!”.
Don’t worry those of you on the East Coast, there is a bit of news for you as well! This little paper called the Boston Herald had an article titled “Roof Collapses on Housing Boom“. No, it is not something you can just take out a HELOC to repair. Here are the first 3 sentences:
Massachusetts house sales plummeted 21 percent last month, stoking fears that the housing bubble may have burst and could send shock waves across the economy. It was the biggest year-over-year sales drop in almost 11 years - as Realtors recorded the slowest January since 1996. What’s more, one of the worst fears of homeowners appears to be coming true: House values have dropped nearly 8 percent since August.
Let’s take a tour down South and see whats going on in West Palm “RE never goes down” Beach. Home sales, prices continue downward slide is what is going on. The first sentence:
Maybe the housing bubble hasn’t burst, but it’s losing air fast.
Imagine you are on a completely full 737 cruising along at altitude when you feel uneasy that something happened. The Captain comes over the speaker and says “We are not going to crash, but we are losing altitude fast”. What do you think most people are going to do??
I know, I know…not the best comparison, but you get the point. Here is more from the story: The median price of an existing home sold in Palm Beach County in January fell to $393,700, well below the November peak of $421,500 and the first time the typical home has sold for less than $400,000 since July.
I do want to pause to let people know that I found an honest RE agent. Check out this quote from the same article: “Palm Beach County has a mini-blood bath going,” said David Dweck, a Boca Raton real estate agent and investor who heads the Boca Real Estate Investment Club.
I’m not a professional PR guy, but I think that the term ‘blood bath’ probably doesn’t have a positive connotation with most people.
Along the same lines a bit further south, we have The Boom is Gone: Home Sales fall 36% In Broward. First sentence: South Florida’s five-year housing boom is over. Need I say more?
I’m sorry (not really) for being a smart-ass. I just can’t believe that with all of the information out there, that people STILL think real estate only goes up!! You would think that after the ‘irrational exuberance’ of the stock market bubble of 5-6 years ago that everybody saw so painfully clear when it was over….that we wouldn’t be running into another bubble so soon.
These articles are just the tip of the iceberg. Since about a third of the houses were bought as ‘investments’, people are counting on appreciation and making easy money. As you can see, once people realize the party is over, watch demand start to ‘dry-up’. Once people realize they can’t make 10k a month on a condo conversion, or by painting a house and cutting the grass, they will stop doing it. The problem is that there is going to be quite a large supply of homes, and not near as much demand for them.
I happened to catch an episode of “Flip that House” this past weekend. The guy bought a house in LA for $360k. Put $75k into the remodel. I’ll admit, the house had a LOT of problems, and the guy did a great job fixing things properly and not cutting corners. There are 2 problems. The first one is that more time should have been spent inspecting the house before purchasing it. If that had been done, the $25k that was budgeted wouldn’t have grown to $75k. That extra $50k was a ’surprise’ that really eats into the profitability. The second is that in the end, the RE agent said the house was ‘worth’ $480,000. If you take the $435,000 invested then you are looking at a ‘profit’ of $45,000. But remember, that is before the transaction costs of purchasing the home, the carrying costs until it sells (mortgage/taxes/etc.), and the costs of selling the home. It took 12 weeks to do the remodel. By the time the transaction costs are figured in, I don’t think there is much of that $45,000 left over, even IF it sold at $480k.
Check out the section of Forums that deals with the Craigslist/Classified-Ad FB’s. Spend a few minutes there. I’m serious…do it. There are waaaaay to many FB’s out there for one blogger to handle. Besides, I think it adds credibility when you see it listed in the ‘real world’. I’m not kidding when I say there is a LOT of good information in the forums.
That is all for now. I have some good stories to share with you next week…stay tuned!
I look forward to the comments and feedback!
SoCalMtgGuy
March 3rd, 2006 05:36
I still think it’s going to be more of a slow leak than a burst, barring aggressive mortgage rate hikes. Sure, more people are waiting on the sidelines expecting prices to drop, but they’re waiting impatiently, and they have realtors whispering, “With prices down, inventory high and interest rates low, it’s a great time to buy!” in their ears. I expect sales to perk up or flatten off at times in what is overall a slow, unspectacular downward trend that will last years.
March 3rd, 2006 05:37
I am on the east coast. Boston proper to be exact. And I can tell you that it is true about prices falling here. A nice 3 bed condo near my house has gone from 379000 to 329000 in less than 8 months! Anybody else from the east coast? This my first time posting. Been lurking for a long while.
March 3rd, 2006 05:46
I noticed people are getting nervous about RE. Occasionally, I like to tell someone I meet (like my daughter’s new voice teacher) that I sold my house because of the bubble. The response is always a knowing, “Yeah, good move. We thought of this.” or “Great move. We worry if we put too much money into our house”. The awareness if setting in.
Eventually realtors will tire of having no sales, and will urge their sellers to lower prices. After all, real estate agents must move inventory to get paid. A typical conversation might be, “Joe Schmoe, you’ve got to come way down in price, old buddy, so we can sell this place and close this deal. I have a mortgage to pay.”
OT: Why is the word “realtor” sometimes written with the TM (trademark) symbol? Is it not a real word?
March 3rd, 2006 06:10
hectore3
I’m on the East Coast outside of Phillly. Things are at a standstill at the moment. I haven’t seen the price drops yet. Houses are on the Market longer and it looks like the spring season has started already. Inventory goes up a little each day however so have the prices from last year. People are still expecting their price appreciation this year. They in for a long spring and summer. I posted my observations on this market in the forums.
March 3rd, 2006 06:14
I don’t think it’s fair to say the mainstream press is only just now waking up to the bubble. There have been bubble articles for more than a year — more than two years in the Economist. Some in the real estate community accused the press of exaggerating the danger, in response to having missed the prior bubble.
What is fair to say is that until now people have been ignoring the mainstream press, and paying attention to pop culture phenomena that indicated that real estate is cool — The Apprentice, Rich Dad Poor Dad, etc., as well as reports that prices were rising.
That said, we now have the press and reports of falling prices talking about the bubble. Pop culture is the last domino. Perhaps there will be a new reality TV show, starring a defrocked mortgage banker. “You’re foreclosed!”
March 3rd, 2006 06:29
mtrunner2
The term Realtor is federally registered and is followed by an encircled “R” (not TM, which is what is used between the time of application and the time registration is granted) because it indicates membership in the National Association of Realtors (NAR). All Realtors are in the real estate business, but not all are salespeople. It’s a common misconception; however, not typically from someone who has a legitimate claim to the title. The NAR drills proper usage into each member’s brain.
BTW, does anyone else find it annoying to hear someone say “Real-a-tor” rather than “Realtor?” Drives me INSANE, and I’m not even in the business.
March 3rd, 2006 06:30
Hectore3,
My first post also, in Queens, NYC. I,ve been lurking here for a few months now, and have learned a lot
. We rent (very cheaply) with a view to buying when the prices are right. A realtor friend sends me listings of SFHs periodically, and an interesting one came in yesterday. Acc to Property Shark, current owners bought it in May 05 for 515k, on market now for 589k, and oddly, the dining room furniture is to stay with the house. Since they’ve hardly been in the house 6 months, another FB i wonder?
Anyone out there familiar with Property Shark? The ownership/title deed segment of the report is pretty helpful but i am not sure i am reading it correctly?
March 3rd, 2006 06:52
At first the popular media was cheerleading that there was no bubble. Now, they refer to the bubble as if everyone agrees to its existence. The issue of the day seems to be whether it has “burst”. I’m reminded of the definition of a “recession” vs. a “depression” that goes something like this: a recession is when your neighbor loses their job; a depression is when you lose your job. Exchange the word “house” for “job” and I think people will know when the bubble has truly burst.
March 3rd, 2006 07:03
As a side note to the Realtor trademark thing, only the trademark owner (the NAR) is required to mark it with TM or circle-R. Everyone else can get by with just using a capital R on Realtor. Using a trademark generically in lowercase (”boy, my realtor is a real snake”) is considered dissolution of the trademark, and is technically actionable, but most trademark owners won’t bother harrassing someone unless it’s done in a commercial context (a publication or advertisement).
March 3rd, 2006 07:14
Hectore3 - my husband (a/k/a Moopheus) and I are in Brooklyn for the time being, but we’re planning to move back to the Boston area in about a year, with an eye towards buying a home 2-3 years after that - at the bottom of this cycle, if we’re lucky. I hope you’ll participate in the Massachusetts forum. It’s always good to hear from someone who’s “on the ground” up there.
karen - yes, that pronunciation of “realtor” bugs me, too - almost as much as when people say “nu-cu-lar”. :-p
March 3rd, 2006 07:30
SoCal
You are right! The Craigslist Forum is really good. Very intertaining. I also liked the San Diago Condo pictures. Worth reading.
March 3rd, 2006 07:54
Larry,
I agree with you that these are by far NOT the first articles about the bubble. But from what I have seen, in a general sense these are the first wave of articles that are saying “prices going down”.
There were earlier articles, but the ‘watercooler’ talk was of people making money, and RE going up. That is starting to change as it is more obvious now that things haven’t appreciated the past few months in many areas…and the data is coming out that backs that up. Sure, the YOY numbers are still positive, but the month-to-month data is showing declines in some key areas.
Lets be honest, I don’t think the masses read The Economimst.
It is just NOW that it seems like a consistent flow of data is coming out saying ‘the boom is over’, ‘things are slowing down’.
I’m not saying there is going to be a massive crash, but the psychology/mentality on real estate is just starting to change for many people.
SoCalMtgGuy
March 3rd, 2006 08:00
another point on the flipper shows.
they seem to valuing their time at 0 in the profit calculation.
March 3rd, 2006 08:15
You are right on with your point about investment demand:
“As you can see, once people realize the party is over, watch demand start to ‘dry-up’.”
I have seen the same quote in recent weeks, over and over again, in bubble market after bubble market, stating that the investors have left.
The next step is to ask yourself, what will a sudden drop in demand of 30-40% do to any business or industry?
Also right on about flipping not making money. Sure, there were 2 or 3 years (very abnormal) when people did make money doing this but looking at the numbers, this type of “business model” doesn’t work in the real world. I’ve done a bunch of back of the napkin break evens on recent flips in OC, SD and Sac, and the only conclusion I can draw is that it will ALWAYS lose money.
Keep up the good work.
March 3rd, 2006 08:18
Because real estate is fairly illiquid (especially right now) and has little price transparency, people are going to be shocked when they find out that they are extremely upside down in their homes. I think the market will drop fairly quickly once the panic selling really starts. Of course I’m speaking of extreme areas such as LA, SF, SD, parts of FL, NYC, etc. Other areas may have not been inflated as bad so maybe they won’t be affected to the extent of the hot spots, but they will be affected.
March 3rd, 2006 08:36
Your article and past articles are so correct. I am a commercial mortgage banker in Texas and have over the years been following closely the housing boom or should I say now bust. If you look in the past the same thing happened to commercial real estate in the 80’s. Property prices shot up and credit was easy to get but most of all lenders lowered their standards and loaned over 100% on properties. The same parallel has happened in the housing market with prices going throught the roof and credit, financing being easily and readily available. I think the fault is with first the Feds for lowering rates to 1%, but mostly the R.E. agents and lenders for being greedy, always wanting more, more, more $. Most home buyers whom entered into a mortgage had no idea what they were signing all they focused on was what is my monthly payment and how much is this home going to appreciate. The home buying public quickly got on the band wagon and demand far exceeded supply thus driving up prices . I feel that now the bubble will burst as fast as it inflated because supply will outpace demand thus driving down prices and lendig standards will tighten as rates increase, and defaults rise. More homes will be put on the market as prices fall and people just want to cut their losses before they loose too much money. While all this is going on other people will be fighting their rise in monthly mortgage payments due to their current short term mortgage notes coming due and discover that rates have gone up thus creating for them a higher monthly payment, which will spell disaster, foreclosure and another house on the market for sale. Exotic lending has it’s place in real estate but not with home ownership and as I have told many friends whom are home buyers if you do not have any cash to put down and cannot qualify for a fixed 15 or 30 term loan then dont buy, rent. But we live in America where credit, dept, and livng far beyond our means is a way of life. I truely feel for those FB whom were mislead by supposed professionals in my business of real estate and lending, just wait and see all the law suits that will be filed in the next few years. What about the Fannie Mae and Freddie Mac and their future? So sit back and relax as the beginning episode of a new 2006 season begins to unfold on “From Rags to Riches or is it Riches to Rags”, the Great American Dream, home ownership.
March 3rd, 2006 09:04
A slight aside, I’ll admit. But it goes against the “everybody wants to live in California” argument:
http://www.sacbee.com/content/news/sacramento/story/14225182p-15049584c.html
Stampede to area turns into a stroll
Sacramento County sees smallest rise in population since ‘98.
By Phillip Reese — Bee Staff Writer
Published 2:15 am PST Friday, March 3, 2006
Lately, Sacramento County can hardly replace residents as fast as it loses them.
Last year, the county’s population grew at a slow pace not seen since the late 1990s, according to estimates released Thursday by the Demographic Research Unit of the state Department of Finance.
The trend hit most surrounding counties and the rest of the state, too.
As of July 1, 2005, 1.38 million people lived in Sacramento County, up 1.6 percent from the previous year. That’s the slowest rate of growth since 1998, state figures show.
The biggest drop came in domestic migration: The number of people leaving for other parts of the United States almost matched the number who came here. International migration remained steady and births continued to outpace deaths…
March 3rd, 2006 09:09
(I’m not saying there is going to be a massive crash, but the psychology/mentality on real estate is just starting to change for many people.)
It will be interesting to see if buyers, instead of being in an upside panic — buy now before it goes up or we will never own a home! — will instead be in a downside panic — can’t buy, we could be wiped out! That could freeze the market.
Kind of makes you wish the days of modest, price increases at about the inflation rate came back. These wild swings just allow a few to make a killing, force a few to become FBs, and cause needless anxiety for everyone else.
March 3rd, 2006 09:35
Larry,
That is exactly the point of the first article in the NYT.
Sure, high home prices are great…IF they always continue to go up.
Once more people start to realize the ’sacrifices’ they had to make to ‘own’ a home…I think many are going to feel that deep hurting feeling in their gut.
Unlike a stock, you just can’t ‘cut your losses’ and sell on a moments notice. Well, I guess you could, but most can’t drop their price to a level that would facilitate an ‘immediate’ sell.
Just wait until these articles keep coming during the ’spring season’ when things are known to ‘take off’. That is what I hear from SOOO many people. They are not ‘worried’ yet…because it isn’t the ‘prime season’.
I have said before, I think many will be in for a surprise come spring/summer time.
SoCalMtgGuy
March 3rd, 2006 09:35
Speaking of the show “Flip that House”, I’ve been watching those programs (”Buy Me, House Flippers” etc.) on HGTV and A&E for the last couple years. I’ve noticed a distinct trend the last two months where the show ends and the house didn’t sell. All instances are where the owner/flipper didn’t want to lower the price, despite comps in the area being much lower. In the past the show ALWAYS ended with the seller getting offers over the asking price.
March 3rd, 2006 10:04
OutofSanDiego - I suspect that’s the only way these shows are going to end from now on (for their short remaining air time). Unless the producers go outside the bubble markets or use old footage.
It really doesn’t matter what sellers “think” they can sell for or what an appraiser “values” their house at - what matters is how much (and now when) they can actually sell.
With the paltry appreciation rates (like SD’s latest YOY of something like 2%), it’s impossible not to lose money with this “business model” given the expenses involved.
My belief is that any flip attempted in SD, Sac, etc. since October will have lost money - and a lot of money.
SoCalMtgGuy is also right about the spring. If you’re a flipper that is holding a cash flow negative, depreciating asset and the end of the primary yearly selling season is in sight, what are you going to do - hold until the fall?
March 3rd, 2006 10:06
mtnrunner,
So does it bug you when someone says “kernel” for colonel? Lighten up, some English words are not pronounced how they are spelled. I’ve never heard anyone say “realtor” as opposed to “real-a-tor”.
March 3rd, 2006 10:22
I think the bubble has burst, but the thin bubble covering hasn’t hit the floor yet. I think this summer everyone selling will realize they are f@cked! Just because you can’t see around the corner, doesn’t mean there isn’t anything there.
March 3rd, 2006 10:36
OutofSanDiego - I’ve been watching those shows, too, and what I’m noticing is that while “Buy Me” (a Canadian production) is not afraid to show deals that go south, the programs like “Flip That House” and “Designed to Sell” are still projecting a rosy outlook. I’ve also noticed that the HGTV programming, in particular, is going back to mid-bubble episodes (to try to maintain that rosy glow?) In a topic in one of the forums, Moopheus proposed some titles for post-bubble programming, and posted a link to Pie Town Production’s latest (not making this up, now) called “What’s My House Worth?”
March 3rd, 2006 10:39
By this time next year we’ll be seeing HGTV: “Bottomfeeders, The Series”.
March 3rd, 2006 10:42
“programs like “Flip That House” and “Designed to Sell” are still projecting a rosy outlook.”
check this out… hehe
http://losangeles.craigslist.org/rfs/138394427.html
March 3rd, 2006 10:50
Just watch the upcoming media coverage on the “HOUSING BUBBLE” it will be the the pin that was stuck into the balloon. “BANG / POP” If all you readers will remember just about 8 months ago after Mr. Greenspan announced some “froth” in the housing market the local and national media began segments on housing in the U.S. It will again be the media coverage that yells “FIRE” in the crowded movie theatre of the U.S. housing market. Their will be people running not walking calmly to the exits. The big question is how will this housing bust spider webb throght our U.S. economy ? Proably some what like a rock crack in a winshield small at first then it becomes larger and larger. Remember one thing something is only worth what someone else is willing to pay for it.
March 3rd, 2006 10:54
I went into my local Borders yesterday and browsed the RE section. Last year that section was full of wannaB Trumps snapping up the ‘rich over night- flipper’ books. No one there yesterday. I did notice that the ‘get rich in RE’ and ‘RE CA exam books’ AND the ‘bubble’ book inventory was low. I picked up a copy of SELL NOW: The End of the Housing Bubble. Gonna start reading it today. Taking it to a get together tomorrow where I know several RE agents will be atending. Muahahaha.
March 3rd, 2006 10:56
Blissful Ignoramus,
why is it people think that homes can double (some even tripled in 3 years) and then when the tide turns the opposite won’t happen but will be a long drawn out correction??
this bubble rocketed up and i suspect (thanks to the internet on both counts) it’s gonna suprise everybody on how quik prices correct.
i do believe there will be a quick drop then a bunch of suckers will think that the pain is over only to buy in to early and get handed their hats as well.
i suspect the begining of the bottom is 3 years out.
March 3rd, 2006 11:02
Bubbles are created by the American peoples ability to forget the past.If any of you will remember the old Pyramid Game, bring $2,000 and all your friends, then you will slowly move up the latter and take home $10,000. Well the housing buying frenzy has been allot like that, buy sell higher and keep on moving up, so where is the end, here now “Bubble” and there will be some winners and loosers, but the daily talk is much like that in the days of the Pyramid Game it seems to be all that is on your mind at the time, the only differance is that in housing the losses will be much more larger than just $2,000 and will affect some FB for years and years to come. But mark my word it will come around again in about 10 to 12 years.
March 3rd, 2006 11:12
MsTerra,
Where are you thinking about buying in Mass?
March 3rd, 2006 11:25
I’ve got to agree with privatebanker (#15)… This site used to be called anotherfuckedborrower. Well, fucked borrowers aren’t in a position to cling on for years keeping supply off the market.
If an asset class is inflated with speculation based on appreciation and high margins, expect a swift fall.
So what if the “ordinary” American doesn’t sell. They don’t have to. The market takes no account at what Joe Schmoe thinks his house is worth. It takes every notice at what Joe Speculator is forced to sell his house for this week.
March 3rd, 2006 11:29
Steve (#30), remember what old “pyramid” game? Just pull one from today’s headlines. There’s nothing old about it. None stop, everyday in America. A pyramid sucker is born every minute.
http://www.pcmag.com/article2/0,1895,1932047,00.asp
March 3rd, 2006 11:30
I agree in the “mainstream” bookstores all the get rich quick RE books are going away. Was in Barnes and Noble and Mr. Schiller’s book was prominently displayed. Hmmmm….was that a bubble I hear popping. That’s here in Boston at least.
March 3rd, 2006 11:37
Precisely!!! The assumption to cling on for years until the house value returns to the plus territory only applies to those who can afford to maintain high mortgage payment over an extended period of time.
With a huge percentage of borrowers currently on I/O ARM loans, bankruptcy may be the only option.
March 3rd, 2006 11:41
Ted,
The site is still called “anotherfuckedborrower.com” I just had to make the main URL ‘firewall friendly’. Believe it or not, some people surf the net from work…and lots of workplaces block URL’s like that
I can ‘mask’ the forward from that URL again so that the URL housingbubblecasualty.com doesn’t show up.
What do you think?
SoCalMtgGuy
March 3rd, 2006 11:46
Trust me,most FB homeowners will not go out that easy. They will do whatever they have to do to keep the home. Second jobs, borrow from relatives, sell toys, refinance, helocs, loan sharks, scamming..all to keep from being a renter. For most, its a badge they wear proudly. Many emotions involved. Especially if kids are in the mix. Its not like the stock crash where you called a broker and took a loss. They will drag this thing out. I am a homeowner and if I were in that situation, I would probably do the same. But thank God I found this blog and I am not an FB.
March 3rd, 2006 12:02
I think the PG-13 name is best, I send this site to a lot of people who would question the nature of the site! Including some reporters!
March 3rd, 2006 12:07
People are already doing “whatever they have to do” — in fact, they did that to get their no-doc loan.
They did that because everyday the press told them they were geniuses and the latest real estate story showed they “made” 50K this month in appreciation.
Wait until they “lose” 50K this month. Wait until they are underwater and really “lose” 50K this month. And Suze Orman tells them how to negotiate a “short sale” in her latest show.
Wait until they start hearing the “relief” stories of those who’ve gotten out from under the crushing debt.
March 3rd, 2006 12:16
All I can say I am guilty of doing ‘whatever I had to do’ to buy my home 4 years ago. I admit it, I fell for the ‘buy now or lose forever’ line. And to boot with 100% financing. Although my income does support the debt. Like I said before, it was the best stupid move I have ever made.
March 3rd, 2006 12:26
Ted,
That is exactly why I use housingbubblecasualty.com as the site URL.
In At the Rise,
Unlike many people, you admit you ‘lucked’ into things. Many people act like they are ‘investment geniuses’ because they made money in RE the past few years. Also, you can afford your debt.
Let me ask you this: would you still feel as good if you did the same thing 6-12 months ago?
Congrats on your situation though.
SoCalMtgGuy
March 3rd, 2006 12:36
Steve writes: “Bubbles are created by the American peoples ability to forget the past.”
Why, do bubbles only occur in America?
March 3rd, 2006 13:12
hectore3,
Somerville is top on our list (we lived there for ~10 years). Have you registered on this site? If you have you can shoot me a message and we can take this offline. Don’t want to bore anybody in the “comments” section…
March 3rd, 2006 13:18
MsTerra and Hectore3,
If you need to, send me your e-mail addresses…and I will put you two in touch.
SoCalMtgGuy
March 3rd, 2006 13:19
Hello from Chicago. On the bus home the other day, and couldn’t help but notice a young woman (mid to late 20’s?) talking forcefully on her phone. She was trying to justify to a coworker why she “let a colleague go” (you’re fired!). When I was let off the bus I distinctly hear continue “well, you DO know that housing isn’t hot right now…” The poor guy fired was probably a newbie realtor who couldn’t keep up with the declining sales:D I felt like calling out and telling her to find a new line of work as well but it was too late.
The 1 million dollar three-bedroom rowhouse down the street still hasn’t sold. I still rent.
March 3rd, 2006 13:20
In At the Rise,
sorry bro, you are dead wrong about people sticking it out here in socal. i lived thru the last bubble there were 10 empty homes on my street, my mistake was not buying them all up at that time but the mantality here is if you get underwater just walk away…
i have a customer who’s wife is in realestate (for only the last 5 years so neither has a clue) and he told me “don’t worry if prices decline just buy with 100% financing and if the market tanks you just walk away and you don’t lose any of your own money”
i asked if he’d ever been upside down on a mortgage and if he knew what happens when you walk away, of course he said no. i said they can and prolly will 1099 you for the difference from what you owe from what the bank gets at a fire sale and i’ll never forget his reply:
“whhaaaaatttt”???
March 3rd, 2006 13:31
Econ 101:
You’re definitely right. I lowballed a flipper last week but he declined my offer. He bought the place in August last year and put it on the market again in October after sinking in $100k or so. My offer would have seen him realize a loss. He is holding out for his price, however, and it’s costing him about $5k a month.
March 3rd, 2006 13:34
I have noticed, maybe in the past week and a half, that the media is informing the general public that there is a housing slowdown. Two of our local news stations ran segments about this, as well as the local newspaper. Before I found SoCalMtgGuy’s blog, I was one of those renters that was frustrated because of the skyrocketing home prices in my area. My wife and I just got married last year, and we had the mentality that we needed to purchase any kind of property now before we were priced out of the market completely. But it just never made any sense to me to pay 500k for a home that I can only afford with an I/O loan that would adjust in a few years. I’m still a little frustrated at that the housing market is still overpriced, but I definitely have a better understanding of what fueled the rise, and what will start the decline. My mentality has changed in that there’s no sense of urgency to buy a home, and that there’s no harm in being patient to see how the market goes.
March 3rd, 2006 13:41
hector3 ,, what part of philly area are you?
March 3rd, 2006 13:49
“real-a-tor”, “nu-cu-lar”. “joo-la-ree”.
March 3rd, 2006 14:03
I also love the soft-landing discussion that seems to be the biggest keyword since conundrum was made popular by Dr. G last year.
First, how do we know it will be a soft landing? In a theatre fire it’s hoped people will proceed orderly to the doors but we all know that the fat dude (non-f’ed b) will get out first and the old, frail people (fb’s) will be stomped all over in the stampede.
Second, we have never seen a market that was so much overheated with so many idiotic comments about the strength of it. It’s widely known that asset busts have happened before so what makes this time different?
Oh by the way, my coworker just cleaned out her 401k to buy her first investment property. OUCH!
March 3rd, 2006 14:08
Thread
YOu are right some people will walk away. Especially if they got in over their head at the peak with some crazy I/O, Negative Amort loan. Where you are wrong is in thinking all people underwater will walk away. The ones that got in low on a fixed and have the income to support it will ride it out. Especially if they bought it to be a home and not an ATM. If they bought early and have equity, hey will cash it out, rent or move to another state. Pay cash for another home. My next move.
March 3rd, 2006 14:16
IATR, that’s exactly the point. Comps occur when houses are sold, not when they are held. When the FB’s sell, that’s the new comp, that’s the new price, that’s new “value” of all homes in the neighborhood. It doesn’t matter what the holders think their house is worth. It matters what the latest buyers and sellers have done. The bagholders can hold on for decades (as they did in Calif.,Fla. & Texas in 90s) it won’t change the market. They do not determine the market value: Current buyers and sellers do. If you’re not a buyer or seller, you are irrelevant other than your minuscule component of supply.
March 3rd, 2006 14:42
And remember underwater “owners” will in the years to come be competing with people who have since purchased comparable homes for less and are now selling. In other words, those who’ve purchased in the last 3 years are likely to be stranded on either side by “owners” who purchased far below their break even points. They will become as irrelevant as the investment club grandmothers who bought Lucent stock at $200 but refuse to sell until it comes back to $200.
March 3rd, 2006 14:49
Some excellent discussion in this thead, one of the best I’ve seen yet (I’m new here though).
March 3rd, 2006 14:55
Oh, America isn’t the only place to have bubbles. We aren’t even first. UK and Australia are a couple of years ahead. Morgan Stanley economists summarize a recent paper they wrote here:
Global: Housing, Mortgages and Consumption - Comparing Australia, the UK and the US
http://www.morganstanley.com/GEFdata/digests/latest-digest.html#anchor1
In regards to people walking away from drowning properties. Those with “stated income” loans might have a problem. They made a representation to induce the lender to enter a contract. If those representations were false, that could be fraud. Honest default is one thing, a business risk for the lender. Default on a loan entered into with false representations wraps you around the axle with few ways to get free from making full repayment.
I’m not a legal expert but when bubbles burst, people get held to account for actions no one blinks at when the money is flowing. They’ll look for someone big but don’t think lenders won’t exercise this “option” if required.
March 3rd, 2006 14:56
Okay, I have to go off topic for a second here. “real-a-tor”, “nu-cu-lar”, etc., are mispronounced because of a simple linguistic phenomenon. L’s are not really consonants, but “liquid” vowels; and in some languages can mutate into a “w” sound, and sometimes dissapear altogether. This is why salmon is pronounced “samon” and salve in Latin eventually became “save” in english. It’s very easy to pronounce “real-tor” as “real-uh-tor”. Say “real” to yourself. Notice a slight “uh” sound at the end? “Nu-cle-ar” becomes “Nu-c-uh-le-ar” because the word “clear” has a slight “uh” sound between c and l. I’m not saying it’s right, but that you shouldn’t be surprised.
March 3rd, 2006 15:04
I got so tired of people who tried to act like they were big shots and I’m was loser for such a long time. For many years I endured family members stories of swapping bigger and bigger houses while at the same time acting like I’m a low-life loser for living in the same small house for the last fifteen years. Well, I won’t go into the snobby comments I had to put up with over the last decade. Well, maybe one: “Everybody moves up in houses every couple of years…”. Endless agony. I hate to say it but sweet revenge, as they say, is finally served up cold. My brother bought a big custom job a few years ago, the pinacle of his rise to real estate prowess, bought a bunch of toys, once finished that all lasted a little more than a year. Can you imagine custom building your dream home because you thought you were a player only to have to sell it to a buyer who says: “We want you out now!”?? He lives in an apartment now with his two teenage girls. Talk about living beyond your means, sheesh! The other one lived in the same CO community for years, bought a hundred year old house for 250k, wanted to move, and bought another even older house for 350k before selling the first one. Now he can’t sell it. Two mortgages, man what a dolt, he lived in the market for years and didn’t even know how bad it was. I bet the sellers were whistling zipidee do dah all the way to the bank. Well, they aren’t so snobby now. All I wanted was a roof over my head, they had to put on airs, for whom, I don’t know. Be patient people, the worm will turn back to you in good time and will be nice and juicy too.
March 3rd, 2006 15:25
Ferromancer & Virtualsaw
Never said I was surprised, only that it drove me nuts. I’m allowed to find it annoying. It also makes me crazy to see “its” and “it’s” confused, particularly in professional writing.
And, yes, anal-retentive does have a hyphen in it. So there!
March 3rd, 2006 15:44
Hey, I guess I’ll have to fire my editor after rereading that last post. I aren’t a moron.
March 3rd, 2006 15:53
Hi guys! Newbie here, back again. While we’re on the subject the one I hate the most is lose, loose. As in “you will loose money on the deal”. If I see that aberration one more time I think I will claw my eyes out.
March 3rd, 2006 16:16
I tke it U guYz rnt bg txt msgrs
March 3rd, 2006 16:58
The Santa Barbara ass-ociation of realtors is refusing to suply any more housing trend data to the media.I could not find the link but it was reported in the news press.
March 3rd, 2006 18:04
“Because real estate is fairly illiquid (especially right now) and has little price transparency, people are going to be shocked when they find out that they are extremely upside down in their homes. I think the market will drop fairly quickly once the panic selling really starts. Of course I’m speaking of extreme areas such as LA, SF, SD, parts of FL, NYC, etc. Other areas may have not been inflated as bad so maybe they won’t be affected to the extent of the hot spots, but they will be affected.”
Good post. I think most of the country will be affected when the banks start getting burned because of their loose lending standards. Banks will tighten credit nationwide, cutting off the juice.
Mort, stick to your guns. I’ve got relatives that are living large and I’d be very surprised if they get thru this cycle without a bankruptcy filing. $700k mortgage, leased Lexus SUV, payments on the Benz, and of course the credit card debt. I keep reminding myself debt is wealth, payments are savings, black is white, it’s different this time.
March 3rd, 2006 20:26
What is the difference between genuis and bad luck?
Wait for it………
Wait for it………
A rising market
March 3rd, 2006 20:32
Mort,
The trick for retirement is that you must reduce your expenses. Owning your own home, and I mean no mortgage, is the best way to reduce your living costs. Cycling into larger loans every couple of years doesn’t get you to the mortgage burning party. Most elderly, in their waning years, not only eliminate their mortgage but also defer repairs, thus reducing the cost of housing. This is the only way to survive the reduction in cash flow common with most retirements.
If you’re hoping for capital gains to provide your retirement housing, you have to be able to handle the cash flow. You have to service the loan and you must keep up with repairs so maintain salability. Your also betting that “trading down” won’t consume all your capital gains just to remain in your chosen community. Now if you’ve taken out a HELOC, you’ve borrowed from your retirement fund. Kind of like the Social Security Trust Fund, the money exists on paper but the paper is an IOU.
The “brilliant finance geniuses” in a rising market are not inclined to humility. They are eager to advise you of their brillliance. When the market collapses, their brilliance gets a little dull. The best revenge is a financially low stress retirement with your housing assured.
March 3rd, 2006 21:12
virtualsaw - I’m light, I’m light, it wasn’t I who made the comment about the pronounciation of realtor. (Why am I defending myself to a group of people I don’t even know??)
threadkilla - The bottom can take 5 - 10 years to reach. In San Diego, the last RE runup started in 1999, so that would be 6 years. Previous runups took 3 and 5 years up, and 6 and 8 years down, respectively, at 10 year intervals. Projecting out this pattern where a bust takes 1.5 - 2 times as long as the increase (due to sticky pricing on the way down), the SD bust could take 9 - 12 years. However, the easy financing this time around will exacerbate the blowout, so all bets are off. I have noticed though that despite a major dropoff in sales, a huge rise in inventory, prices have dropped only about 5 - 10%, and median price is actually up (due to lower-end borrowers squeezed out as rates rose). People reduce their home prices in 5K increments. Check out www.piggington.com, Evidence of a California Housing Bubble, page 5, for the graph of median house price/per capita income, going back to 1976. We are on our 3rd bubble cycle. But this shows you how long it takes to reach bottom.
Just because we know the bubble will burst, and want it to do it fast, doesn’t mean that it will.
InAttheRise - when is your ARM adjusting? Or do you have a conventional mortgage?
Ted - yes, the FB has to sell, but as prices come down slowly, he’ll get a little less for his house each year. And there are plenty of FBs who cannot face reality and avoid selling and will let the bank take their house. Check RealtyTrac.com, and be surprised how few of the preforeclosure homes are actually listed for sale. The Auction homes actually are selling at market price. A banker wrote on another forum that auctions have a psychology of getting a bargain, where the investor ends up bidding up the property to pay market value, but without the benefit of having gone through the regular process (and missing the inspections and disclosures).
I hope prices come down fast, but does anyone have a good economic reason why prices should fall faster this time than during previous busts?
Ferromancer - Are you sure the mispronounciation is due to liquid Ls? The break in the word would prevent any errors. We say ree-la-tor, jewl-ry, new-clee-ere. Many people mix up “principal” and “principle”, the former referring to debt, a school administrator ir a leader, and the latter to a rule or value. The most common error I hear is the mixup between “me” and “I”. People say “Shari and me are FBs”, instead of “Shari and I are FBs”. “I” is a subject, “me” an object of a sentence. An easier way is to strip the sentence of as many words as you can, and then say it. Then it’s easy to tell if it’s I or me. Simply add the other words back in. So you would say “I went to dinner”. Adding a bunch of other people in doesn’t change the I to me. Thus, “I, my sisters, and the neighbors are FBs”.
March 4th, 2006 03:13
mtnrunner2,
“I hope prices come down fast, but does anyone have a good economic reason why prices should fall faster this time than during previous busts”?
this time (at least in socal) the RE bubble was industry sustained (most new jobs are the result of the RE bubble) so the down turn could feed on itself.
this time we can’t blame defense cuts as the culprit….
p.s. i do agree with all your points however.
March 4th, 2006 05:21
Did anyone see the housing piece on NBC News last night? They’re slowly coming around to our point of view. The NAR had some spear catcher on there saying the market is becoming more “healthy.” Funny, I thought healthy markets rose in value. Black is white, good is bad, debt = wealth…
http://video.msn.com/v/us/v.htm?g=7742ca44-5ab0-4cf5-8b43-5b6de4f9543e&f=00
March 4th, 2006 05:22
Sheesh! One little comment about pronunciation and all this uproar. I stand in awe of my powers and promise to use them only for good in the future!
March 4th, 2006 07:06
invest3, Nikolai, Thanks for the words of encouragement. I like my place. When I think how I live compared to so many in the third world I feel very fortunate. I just hate it when someone tries to rain on my parade. Another thing I really hate, I get offers of credit almost every day. They are going through all the credit reports. This is an invasion of my privacy. This should be illegal and they should not be able to get my information without my say so. Alas, a sign of the times I guess. invest3 thanks again! I will stick to my guns. I bet I sleep better than an extreme debtor, ha! I really hope if you guys are on the coast you can find a place you like too.
March 4th, 2006 07:17
threadkilla - how will the loss of jobs in real estate, construction, retail, fast food, feed on itself? Last time, the job downturn was in the aerospace and defense industries. This time, it will be real estate. How does that change the fundamental way in which prices decline? In both cases, people lose their jobs, get behind on payments, face foreclosure. Whether a foreclosed house belongs to a laid-off defense engineer or an out-of-work contractor, wouldn’t change the dynamics.
I think the use of exotic financing can hasten the decline, because you have many borrowers on the verge of collapse over the next 2 years, sprinkled throughout the entire county. So there are perhaps many more people who will face foreclosure than during the last bust, and they will compete against each other for buyers. Inventory will be much higher than ever before, and this puts downward pressure on prices.
I really think it’s the FB status that will shorten the decline. It will be slow at first, pick up speed, and then level off for a couple years. Just my prediction. NOT Investment Advice
March 4th, 2006 07:47
Mort, I have found that since I paid off all the credit cards and cars 6 years ago the offers for credit have come to a trickle. I do like the coast but if I lived there now I would probably rent. Currently, I live in flyover country as my business is here but for retirement I will probably end up in Colorado, as I love downhill skiing and the mountains. My family has places in Florida and along Lake Michigan but for me nothing compares to the majesty of the Rockies.
March 4th, 2006 08:53
mtnrunner2,
cause i think the RE industry in socal employees way more people than the areospace industry ever could.
back then i knew 3 people in the areospace industry (and i’m IN engineering) and today EVERYBODY I KNOW WITH A JOB OR WHO IS MAKING MONEY IS DOIN IT IN THE RE INDUSTRY.
i know people who can’t even spell mortgage who were/are doing loans.
but we will all see what happens.
:-)
March 4th, 2006 08:57
Someone asked: why will prices fall faster this time? Ans; no buyers at any price. The very last unqualified buyer had his loan approved in October. With tighter lending practices a good 10-20% of exisiting mortgage holders are retroactively deemed unqualifed, they cannot even trade down.
Look at exploding inventory and falling sales. Every house on market for more than 6 months can be thought of as a sale at $0 until it actually sells for some other price.
March 4th, 2006 09:31
Centex Homes had a one-day clearance sale recently, marking off 10K to 60K off new home sale prices that are currently 230K to 430K, here in the Central Valley in California. The need to sell is evident.
March 4th, 2006 10:12
threadkilla–you got that right bud! One of the boys in my son’s scout troop was….writing mortgages. Just turned 17, still in high school (’04). Pullin down more than engineering drafters that work for me.
Wasn’t arrogant, though. He was payin on the folks house note. Family problems.
Fortunately, kid had some brains–finished high school & went off to a very good college.
March 4th, 2006 15:12
Robert, congratulations - that is the most profoundly ignorant statement you have ever made, which means it is also the most profoundly ignorant statement ever made by anyone in recorded history. Now, go collect your prize. Your family must be so proud.
March 4th, 2006 15:33
ok fess up, which one of you is this > http://bitterrenter.blogspot.com/
March 4th, 2006 18:34
JohnH in a fit of pique in #78 thusly opened his mouth and removed all doubt by opining;
Robert, congratulations - that is the most profoundly ignorant statement you have ever made, which means it is also the most profoundly ignorant statement ever made by anyone in recorded history. Now, go collect your prize. Your family must be so proud.
[This presumably in resonse to; “Every house on market for more than 6 months can be thought of as a sale at $0 until it actually sells for some other price.”]
Considering the source, accompanying reasoned arguement and tone I accept the compliment and take this opportunity to expand. For some it could be a case of woth less than $0 when burn rates, taxes, short sale consequences and such are included. I take some personal consolation in knowing my parentage, quite the comfort by comparison.
March 5th, 2006 03:27
John and Robert - if you can’t get along, you can go play in your rooms. I don’t want to hear it.
March 5th, 2006 07:02
mtnrunner2
“The only thing necessary for the triumph of evil is for good men to do nothing.” - Edmund Burke (1729-1797)
When you let people get away with accusations of “profound ignorance” and the like you only encouarge them to greater depravity. I used this instance to expand on the reasoning behind my claim and will use your admonishment to expand further. The retail lending practices of the last few years has resulted in cases of people purchasing housing assets on zero or negative margin. Margins in stocks were introduced as a partial remedy for the stock bubble of the late 1920s. The theory of OPM is well estabished and the results this time are just as predictable. We are learning about the wonders of short sales and contract prices where indeed the assets become worth less than nothing because the “owner” is forced to continue to pay long after losing control/use of the property. Sounds like a reasonable definition of worth less than zero to me but what are my views worth to someone who presumes I neet to or even could be sent to my room like a child?
March 5th, 2006 07:13
from the frontline - this guy looks to be trying to save his shirt:
http://washingtondc.craigslist.org/rfs/139141666.html
March 5th, 2006 07:28
“no buyers at any price. The very last unqualified buyer had his loan approved in October.”
““The only thing necessary for the triumph of evil is for good men to do nothing.” - Edmund Burke (1729-1797)”
Robert, that’s what makes you a cut above the ordinary, off-the-rack, slobbering, blog mongoloid - the honest belief that your profound ignorance is actual historic valor.
Keep the faith, brother.
March 5th, 2006 09:28
I love this thread, especially the references to the $2,000 pyramid schemes a few years back. I just has a silimr experience in the R/E Market here just outside Sacramento. I think it says all about buyer psychology and what has been happening here.
In August 2004, I bought two sets of duplexes for $870k. All four units were rented at about $1,200 per month, so total gross of about $4,800 per month. When I bought, vacancy rates were at less than 1% on our sub-market, and had been for a number of years. I rationalized the purchase with a ten year look forward for minor annual rent increases, and (like an idiot) built in no reserve for vacancy. My monthly mortgages burn was about $5,000, incuding taxes. I had a property manager at 9% of gross, so net net I was out about ($1,000) a month on average, AND I had almost $200k in cash invested because I financed at 20% down. As I look back, I try to ask my self what was I thinking? I invested close to $200k in something with negative cash flow every month! Now the mortgages were paying off principal, so that is sort of a savings, but cash is cash and these were negative. Why did I buy? Because I had built ongoing price appreciation into my anticipate returns! Also I felt I had to “get in on the game”. Lots of dumb people were making money in R/E, so why couldn’t I? Talk about betting on the come…
So it ended good for me, but emblematic of the greater fool theory. After prices in our area continued to grow to crazy levels, I hit my value target in 18 months, versus 10 years. My brain forced myself to sell, even though my heart told me that this was a great ride and let’s keep the money on the table..My rents had not increased a dime, and vacancy rates in the market had increased to over 5% and rising. the brain won the argument. I sold both this past Summer and Fall summer to the same buyer in 2 transactions for a total of $1.2 million. I can’t believe how lucky I was to get out.
So, the buyer that took me out financed the units with a first mortgage of total about $960k, with the balance rolled forward from a tax free exchange from some no doubt overvalued property they sold. I figure that their monthly carry is between ($2,000) to ($3,000) per month, and now one of the units is vacant and has been for 6 months. I would be suprised if they come out of the deal with any kind of decent return, especially after considering inflation and real returns.
I made a lot of money but only because I was stupid and lucky. To my benefit, someone stupider than me came along and took me out of the deal. This whole thing is going to end ugly. How many people are out there that just swallowed a fish like my buyer did last year?
March 5th, 2006 10:16
The hits just keep on comin’.
http://anotherfuckedrenter.blogspot.com/
Funny shit.
March 5th, 2006 10:48
Dear Playa,
Nice blogs. Why do renters threaten you? What are you scared of?
March 5th, 2006 11:01
David, I saw that. Gotta love this quote: “Asking $270k, Value — $300k”. That’s like saying: “My boat is worth $5000, but I’ll sell it to you for $4000″.
March 5th, 2006 11:04
I appreciate Robert’s insight and understand where he’s coming from as many FB’s are currently under water. From the recent inventory levels these speculators look like rats jumping off a sinking ship. One doesn’t have to be a renter to be predicting a bubble burst. I own my house with little debt and could really care less if the value drops in half. It is what it is and I’m not in any hurry to move. A lot of these debt zombies are just renting from the bank anyway with their I/O and negative amortization loans. I would also question the accuracy of the chart showing housing climbing every year nationwide, especially considering the source: the NAR.
March 5th, 2006 12:39
SoCal,
Have you seen these. I can’t seem to post them over at Ben’s site.
http://bitterrenter.blogspot.com/
http://anotherfuckedrenter.blogspot.com/
You should be flattered.
Whomever made these blogs is an idiot. He/she actually thinks the typical 4% housing appreciation amounts to a 20% return on the typical 10% down on a $500,000 dollar house.
The idiot is ignoring monetary inflation and interest paid on the remaining $450,000.
Tear him/her a new one guys.
March 5th, 2006 12:51
Does anyone have any information on Reno?
It is being heavily supplied with new buyers from the sacto area. With the market being down in Sacto, Reno will soon experience buyer shortages, because everyone from there seems to move to Reno.
My inlaws live in Reno, they bought a large custom home in 01 for 300,000, now they believe it to be worth 845,000, it’s a very nice home with awesome views, but I think they’re dreaming. Needless to say they don’t want to believe anything about the real estate bubble, even though she is a loan officer at a credit union, she’s clueless. They have taken out a HELOC bought us a 28,000 truck for Christmas in 04, she bought a brand new Lexus in 04, he bought a brand new Ford supercap 4×4, and they also bought an ford explorer in 04!!!!!! THen he decided he wanted an 05 Ford Supercap and still has the O4 Supercab, trying to sell it at a car lot, some kid coming off the free way lost control and rolled into the truck smashing it, causing 12,000 in damage, but insurance is hopefully covering that and they will try to sell it and the Ford Explorer. TAlk about massive consumer spending caused by house appreciation!!!!!
No they want to move up to a different house because they also bought a 28,000 travel trailor and their home association won’t let them park it in their driveway! So they are lookin at new home developments where they can build.
It’s terrible to watch people you care about, make such terrible financial decisions. WE are very greatful for the truck they bought us, but we did not ask for it,
We have been married 3years, we rent, we don’t want to buy an overpriced house in Las Vegas, we are just waiting.
March 5th, 2006 15:08
stuck in Vegas
Keep renting. things are going to come around here for you soon. Reno is ok but only go there to gamble once in awhile. Yes, a lot of people form california went to reno and it seems everywhere else in the country. I am renting too at the moment. I’m from the sacramento area and just waiting for things to cool off up there. You are doing the right thing.
March 5th, 2006 16:25
stuck in Vegas,
Sounds like your in-laws have found the “free” money in their house. If they won’t give you a general power of attorney there’s not much you can do about it. As for you and the Mrs., live on one salary and bank the other. Stick with the safe stuff and wait for the bubble to unwind. With a little luck you may be able to pick something up for cash by then.
March 5th, 2006 16:43
Here’s one for the all da playas out dar makin coin on da bubble:
There’s a new house here. Was on the block for $3.8 Million. Didn’t sell. The rent has just been lowered again.
Now the rent is $6950.
That will get you a 30yr $1.2 Million mortgage.
Can you say NEGATIVE cash flow?
Good thing playas don’t need no math. But that’s more than 3x rent vs. own. Even for dose who can’t do math, that’s got to add up.
March 6th, 2006 08:11
Stuck in Vegas,
Vegas prices went up 42% in ‘04 and an additional 19% in ‘05. What were you thinking? I suggest you go here:
http://anotherfuckedrenter.blogspot.com/
March 6th, 2006 08:41
Went to a bunch of open houses this weekend in the DC (Northern Virginia) area. *Lots* of single family homes, townhouses, and condos on the market and we noticed a number of properties where the price had been reduced by $10,000 to $15,000, and also several “Make an offer” signs. Yet the realty agent at one open house said that this one new development was “completely sold out.” Guess he was in denial as we noted several “For Sale” signs in that neighborhood. Sellers are getting nervous; the market is definitely sliding.
March 6th, 2006 08:53
First let me say we all have our price drop predictions for each market and while some markets might be large and others small in percentages FB will be nationwide. It will only take a little drop to put some people totally underwater. Those wanting to keep their houses whom did not finance with a traditional loan on a fixed 15 or 30 year term and amortization will be subject to rate adjustments and look at treasuries, especialy the 10 year up,up,up = higher rates. A mortgage jump of say only $100 a month will destroy some FB’ers budjets because as I say here in Texas “some people are just one blown transmission away from bankrupsy” no savings. Texas has been tagged as the best pace to buy a home today in the USA, great we have had little price appreciation like some markets but take a look at the national foreclosure list, Texas ranks in the top 5, then why is Texas even on the list so high with such little price appreciation? Answer: People do not have any money saved, because we are forced to spend it all on our house and all of our necessities and especially luxuries. Lenders lowered their standards and have let borrowers buy too much haouse by letting a much greater part of their income go towards their mortgage. Why so the home buyer could A. buy the bigger house they wanted and B.make the realtor and mortgage broker more money on their fees. Who care about the borrower get them closed and on to the next FBorrower and mostly do whatever it takes to get them qualified. And while I am on a role the lender might just keep the loans on the books that are good and safe but sell the loans that are a bit more risky,the ones they do not want, and who is buying these risky notes, you ask well Fannie Mae & Freddie Mac and then sold again as mortgage back securities to whom ever will buy them, US and foreign investors. The big question is when these mortgages go bad then whom will be the buyers and who will take the losses. Do we really know if the Federal Government really stands behind loans purchased by Fannie & Freddy, I do not know and there is some debate as to the correct answer. Oh well all we can do is sit back and see how it al plays out over the next few years and how our predictions either come true or not. Oh one last comment as for those books and TV adds on getting rich in real estate why are the experts selling the books and tapes ond not out doing real estate? When the feeding frenzy public wants something give it to them, it is much like the wacky new and ever changing diet industry. Let me tell you I finance commercial real estate and I do not know any borrower whom got a loan with no credit and no money down, meaning cash equity, so what do the commercials mean by make it rich in R.E. with no money?
March 6th, 2006 09:25
“Do we really know if the Federal Government really stands behind loans purchased by Fannie & Freddy, I do not know and there is some debate as to the correct answer.”
The answer is that by law the two mortgage companies DO NOT have government backing.
March 6th, 2006 09:37
A Short Story:
It was December 2005 and atop a very high and snow covered mountain someone kicked a small rock off the edge of the mountain and as the small rock rolled down the mountain it became covered with snow and began to grow and grow. As the small rock, now transformed into a snowball rolled down the mountain the on lookers turned and asked each other these questions, how big will the snowball become?, what will it hit on its way to the bottom?, how long will it take before the snowball reaches the bottom or will it even reach the bottom?, and fineally will the snowball stay intact or blow apart when and if it fineally reaches the bottom?
Now ask yourself what is the mountain, who kicked the rock that became a snowball, what is the snowball, what is the snowball eating up as it becomes bigger and bigger rolling down the mountain and fineally what will it hit on its way to the bottom and when and if it fineally reaches the bottom will it stay intact or blow apart? “Housing Bubble”
March 6th, 2006 09:42
“Do we really know if the Federal Government really stands behind loans purchased by Fannie & Freddy, I do not know and there is some debate as to the correct answer.”
The answer is that by law the two mortgage companies DO NOT have government backing.
Correct answer but I think the American public has been lead to believe that the mortgage back securities are in fact “Guaranteed and or backed by the Federal Government”
March 6th, 2006 09:46
There may indeed be an implicit guarantee despite the explicit denial and since the guarantee is political in nature, subject to revision.
March 6th, 2006 09:51
Correct Mr. Cole and with the recent accounting scandals of these two private institutions do they in fact have enough money set aside to protect themselves from a melt down in the housing market and or intrest rate bumps which now appear to be taking place with both short and long term rates?
March 6th, 2006 11:26
In theory Fanny and Freddie have only conforming paper. If true they will be the last to fall. If false as many here suspect then they’ll be in an interesting pickle. They’ve only got $50b of market cap covering $1,000b of outstanding loans and they pay 2% or less. Even if FNM hasn’t participated in any way in the bubble 2% ain’t gonna keep the stockholders happy. If the properties backing the loans fall 20% then in theory their stock is wiped out. Don’t get excitied. They’ve got 29 year old loans on the books. The concern is their exposure from the last few years worth of loans. That’s a whole lot less.
Me? Wouldn’t touch the stuff. All HB instruments are IMO toxic. Even if they are good, like TOL, they are contaminated. I don’t even want my name anywhere near asking about FNM. They haven’t settled the books from Q3 ‘04! [The accounting ’scandals’ you menttion.] I don’t care if the dividend is more than the purchase price with that hanging over the company. So what? Bubbles are not broth. Lean too close you get burned. Caveat emptor.
March 6th, 2006 11:35
Playa,
Do you also drive your car looking in the rearview mirror?
March 6th, 2006 12:47
Reagan, the snowball is already headed down the mountain in Arizona (and elsewhere). Check out the Phoenix Metro Inventory — rocketing to 37,217 in the last few months. Nothing to see here, move along:
7/20/2005 10,748
7/21/2005 10,968
7/22/2005 11,122
7/23/2005 11,424
7/24/2005 11,338
7/25/2005 11,112
7/26/2005 11,315
7/27/2005 11,353
7/28/2005 11,390
7/29/2005 11,471
7/30/2005 11,656
7/31/2005 11,609
8/1/2005 11,599
8/2/2005 11,590
8/3/2005 11,635
8/4/2005 11,714
8/5/2005 11,710
8/6/2005 12,196
8/7/2005 12,658
8/8/2005 12,919
8/9/2005 13,244
8/10/2005 13,099
8/11/2005 13,245
8/12/2005 13,389
8/13/2005 13,846
8/14/2005 13,801
8/15/2005 13,607
8/16/2005 13,779
8/17/2005 13,992
8/18/2005 14,087
8/19/2005 14,279
8/20/2005 14,321
8/21/2005 14,457
8/22/2005 14,336
8/23/2005 14,391
8/24/2005 14,529
8/25/2005 14,617
8/26/2005 14,792
8/27/2005 15,011
8/28/2005 14,984
8/29/2005 14,803
8/30/2005 15,042
8/31/2005 15,099
9/1/2005 15,063
9/2/2005 15,159
9/3/2005 15,404
9/4/2005 15,699
9/5/2005 15,621
9/6/2005 15,513
9/7/2005 15,913
9/8/2005 16,106
9/9/2005 16,489
9/10/2005 16,716
9/11/2005 16,609
9/12/2005 16,697
9/13/2005 16,538
9/14/2005 16,900
9/15/2005 16,952
9/16/2005 17,419
9/17/2005 17,583
9/18/2005 17,577
9/19/2005 17,636
9/20/2005 17,516
9/21/2005 17,664
9/22/2005 17,883
9/23/2005 18,226
9/24/2005 18,204
9/25/2005 18,196
9/26/2005 18,435
9/27/2005 18,483
9/28/2005 18,605
9/29/2005 18,604
9/30/2005 19,192
10/1/2005 19,333
10/2/2005 19,316
10/3/2005 19,362
10/4/2005 19,463
10/5/2005 19,562
10/6/2005 19,670
10/7/2005 20,052
10/8/2005 20,219
10/9/2005 20,153
10/10/2005 20,324
10/11/2005 20,470
10/12/2005 20,668
10/13/2005 20,850
10/14/2005 21,238
10/15/2005 21,446
10/16/2005 21,463
10/17/2005 21,527
10/18/2005 21,588
10/19/2005 21,795
10/20/2005 21,806
10/21/2005 22,302
10/22/2005 22,719
10/23/2005 22,769
10/24/2005 22,806
10/25/2005 22,976
10/26/2005 23,132
10/27/2005 23,293
10/28/2005 23,681
10/29/2005 23,805
10/30/2005 23,816
10/31/2005 23,790
11/1/2005 23,601
11/2/2005 23,665
11/3/2005 24,193
11/4/2005 24,579
11/5/2005 24,786
11/6/2005 24,717
11/7/2005 24,937
11/8/2005 25,244
11/9/2005 25,333
11/10/2005 25,387
11/11/2005 25,700
11/12/2005 25,685
11/13/2005 25,773
11/14/2005 25,945
11/15/2005 25,913
11/16/2005 25,884
11/17/2005 26,261
11/18/2005 26,098
11/19/2005 26,662
11/20/2005 26,688
11/21/2005 26,684
11/22/2005 26,488
11/23/2005 26,776
11/24/2005 26,819
11/25/2005 26,855
11/26/2005 26,871
11/27/2005 26,890
11/28/2005 26,979
11/29/2005 26,811
11/30/2005 26,797
12/1/2005 26,792
12/2/2005 26,915
12/3/2005 27,238
12/4/2005 27,295
12/5/2005 27,356
12/6/2005 27,387
12/7/2005 27,403
12/8/2005 27,367
12/9/2005 27,649
12/10/2005 27,706
12/11/2005 27,664
12/12/2005 27,512
12/13/2005 27,411
12/14/2005 27,566
12/15/2005 27,517
12/16/2005 27,603
12/17/2005 27,791
12/18/2005 27,776
12/19/2005 27,722
12/20/2005 27,604
12/21/2005 27,554
12/22/2005 27,516
12/23/2005 27,486
12/24/2005 27,311
12/25/2005 27,014
12/26/2005 26,810
12/27/2005 26,822
12/28/2005 26,687
12/29/2005 26,649
12/30/2005 26,547
12/31/2005 26,497
1/1/2006 26,462
1/2/2006 26,401
1/3/2006 26,751
1/4/2006 27,403
1/5/2006 27,564
1/6/2006 28,224
1/7/2006 28,337
1/8/2006 28,542
1/9/2006 28,595
1/10/2006 28,786
1/11/2006 29,222
1/12/2006 29,507
1/13/2006 29,689
1/14/2006 29,899
1/15/2006 30,415
1/16/2006 30,391
1/17/2006 30,707
1/18/2006 30,817
1/19/2006 31,085
1/20/2006 31,457
1/21/2006 31,463
1/22/2006 31,497
1/23/2006 31,607
1/24/2006 31,766
1/25/2006 31,830
1/26/2006 32,142
1/27/2006 32,002
1/28/2006 32,477
1/29/2006 32,458
1/30/2006 32,512
1/31/2006 32,563
2/1/2006 32,684
2/2/2006 33,087
2/3/2006 33,145
2/4/2006 32,953
2/5/2006 33,368
2/6/2006 33,576
2/7/2006 33,550
2/8/2006 33,684
2/9/2006 33,844
2/10/2006 34,234
2/11/2006 34,588
2/12/2006 34,753
2/13/2006 34,815
2/14/2006 34,815
2/15/2006 34,816
2/16/2006 34,816
2/17/2006 35,144
2/18/2006 35,427
2/19/2006 36,260
2/20/2006 35,443
2/21/2006 35,642
2/22/2006 35,503
2/23/2006 35,324
2/24/2006 35,178
2/25/2006 36,388
2/26/2006 36,524
2/27/2006 36,639
2/28/2006 36,174
3/1/2006 36,389
3/2/2006 36,283
3/3/2006 36,811
3/4/2006 36,900
3/5/2006 37,064
3/6/2006 37,217
March 6th, 2006 13:13
First time buyer
I think the markets that saw extreme price appreciation like California, Colorado, Nevada, and Florida have all been the first to go down the hill. My prediction is that many others will follow even those cities with no double didget appreciation. Here in Texas we have had appreciation in the single and double digets and even drops from there will hurt many FBorrowers as they have no cash to use as negative equity if they want to sell or refinance, this is assuming their particular properties went down in value. Texas is in the top 5 U.S. states under the heading “foreclosures”. Please note I do not finance homes only commercial properties and I can tell you even with commercial real estate in Texas it has seen extreme price appreciation due mainly to California money coming in and over paying for properties. Even that will come to a end as it did in the 80’s.
March 6th, 2006 13:25
No offense and not trying to start a regional war but TX vs. CA or MA or WA for that matter are cases of children wanting to trade their $10,000 puppy for two $5,000 kittens.
March 6th, 2006 13:37
California money paying property taxes in Texas, now that’s funny! And they think the Texans are rubes. Man this thing keeps getting better every day!
March 6th, 2006 13:42
Reagan, we flew to Texas to look at homes (couldn’t resist the value for the money).
One of the few negatives of moving there, we observed, was the lack of home appreciation. While 20% appreciation is not good in bubble land, neither is 1% (or -1%).
But me may end up there yet! Loved the people, loved the food, loved the neighborhoods, and loved the houses.
March 6th, 2006 13:43
Robert,
I refer to this as “The Sax Fifth Avenue Syndrome” California buyers are used to shopping at Sax Fifth Avenue and when they get to Texas it appears to them that they just stepped into a Wal-Mart. Who cares what it costs it looks cheap to them, I guess that is why my local real estate investors have opted to sell high and then sit the sidelines until real estate prices come back down to earth.
FYI, read all all the new news poop out quoting R.E. brokers and lenders, they are refering to this price drop / housing slowdown as a “temporary blip in the market” the home industry is much like the commercial R.E. industry brokers are forever not telling “The rest of the story”. Once the snowball begin’s to roll there is no stopping it until it crashes.
March 6th, 2006 13:55
First Time Buyer,
If it were me I would be patient with my money and sit the side lines till prices slide even more. I have had 3 good friends whom I financed their commercial properties long term 20 years and they both were going to hold forever, well until a California buyer came along and made them an offer they could not refuse. They are very savy R.E. people and ended up paying their taxes to uncle sam after the sale rather than buying back into this totally inflated commercial real estate game here in San Antonio. Be paitent and do not let yourmoney burn a hole in your pocket. I live on a ranch south of San Antonio and have seen all real estate here in Texas become inflated, especially Texas ranches. Just my opinion. Real Estate is a great long term hold for appreciation but the amounts of over night appreciation here in the past few years is scary. Remember it is all supply and demand. But that appears to be turning in favor of the buyer, Treasuries are rising meaning long term rates are going up which equates to demand slowing.
March 6th, 2006 13:58
“California buyers are used to shopping at Sax Fifth Avenue and when they get to Texas it appears to them that they just stepped into a Wal-Mart”
Forgive me for being slow, but what exactly is that supposed to mean?
March 6th, 2006 14:02
Karen,
It was not meant to offend anyone from California but it means simply that they are used to paying higher prices for things such as in this case of discussion real estate. Prices for property in California per square foot are much higher than the same type property here in Texas. That is all that my little statement meant.
March 6th, 2006 14:07
I wasn’t offended, I just didn’t understand your point. Never having lived in Texas, I’m unfamiliar with its housing market, and wanted clarification. I get it now.
March 6th, 2006 14:19
“Prices for property in California per square foot are much higher than the same type property here in Texas. That is all that my little statement meant.”
Wow, I sure see your point. I never thought about QoL issues in price per square foot. Especially using the same type property basis. My annual HVAC bill has been less than $400/year for the last decade. My property taxes have averaged less athan $2400/year. I paid only $80/sq ft. No wonder Texas is so desireable and inexpensive.
March 6th, 2006 14:22
Check out the latest statement I read on Bloomberg, home sales fell in January and this slowing may curb economic growth thus causing consumers to spend less because they cannot use their rising home values to finance spending. What? well I guess everything in this country that we own carries debt, what happened to saving money and only being able to purchase something you wanted with cash money. Lax credit standards and easy financing is what has gotten the American consumer into so much dept problems to begin with. Is there truely a differance between WANT and NEED anymore?
March 6th, 2006 14:36
Living beyond your means is what makes America great. You borrow money you don’t have to pay back, and, they’ll always loan you more. What a sweet deal! All the rich Calis are so smart and rich on real estate and they are going to spread their sage ways across the heartland. I can’t wait until all the rich Cali’s get to my neighborhood so they can show me what real estate in my area is really worth.
March 6th, 2006 14:44
What? Are you telling me that people won’t be able to use that house ATM under the kitchen sink anymore to buy their Hummers, vacations, boats, pools, granite counter-tops, etc? What about those that plan on selling their inflated homes for retirement. I guess, that maybe the greater fool issue has come to an end. Hi Ho to all of the underwater FBers. No more serial refinancing. You will owe much more than it is worth, and won’t be able to sell at all. We all cry for you. Boo Hoo.
March 6th, 2006 14:53
I saw a hummer once. Out here we summer vacation on the back porch and winter vacation in the front. Got a plastic pool, a rubber ducky, what more could a person ask for? Formica is still king, the way the man upstairs intended. Come one, come all, buy some real estate for $2000 an acre, all you want. It’s such a good investment and real estate always goes up, don’t you know?
March 6th, 2006 15:17
“All the rich Calis are so smart and rich on real estate and they are going to spread their sage ways across the heartland.”
Oh, come on. As a former Californian who came east for a job opportunity, I’m offended. California is a huge state with people from all walks of life, and I’m tired of being demonized. Yes, a few of my former neighbors were taking money out of their houses for luxuries, but many more of them lived modest lives in modest homes, just like the midwesterners with whom I grew up. Not everyone on the west coast is living the high life.
March 6th, 2006 15:27
I know, I was just havin’ some fun. I’m sorry.
March 6th, 2006 16:04
Mort
“I know, I was just havin’ some fun. I’m sorry.”
Okay, I’ll give you a break.
Truth be told, I did have one set of neighbors who were seriously on their way to the poorhouse. In one year, they re-financed twice, bought a new SUV to tow the new boat, renovated the house, and took several big vacations. Then, they decided that their house was too small (might have been because they bought everything available at the local toy store for their two very cute, very spoiled kids), so they sold the modest digs and bought a $750k house on the fancy side of the neighborhood. He had a job as a public servant, so I’m pretty sure I know how much he was earning (and it wasn’t enough to finance that type of lifestyle even with overtime). She stayed at home. I still don’t know how they managed without some major help from family.
Our next door neighbors, who were far more typical of the neighborhood, could have been a model for “The Millionaire Next Door.” They were wonderful, down-to-earth people who drove older cars, mowed other people’s lawns just to be nice, ate at home, spent their evenings chatting on the front porch, and entertained by pulling a fire pit out into the driveway for roasting marshmallows while the kids played flashlight tag in the front yards. And, many of our other neighbors were just like them. It could have been Mayberry.
My point is, don’t believe all the hype about Californians living the high life. Our neighborhood conversations about housing often noted that we were living on gold-mines, but they ended with the frustration of recognizing that even if we sold the gold-mine, we’d just have to buy another one. It was a no win situation.
March 6th, 2006 16:52
Karen,
Thanks for cutting me some slack. When I hear some of the stereotypical stories of excessive debt-driven consumption like the first one you described I have to admit it bothers me a little. When Greenspan dropped the rates to 0% he didn’t do us any favors. With the lax lending practices I just feel that all those trillions loaned will never be repaid with interest. The lenders will fail, the government will bail out the lenders by printing money, thereby further devaluing the currency. Thusly we all get to pay for those Hummers and we never even got to drive them around the block. Now people are getting run out of town because of high property costs which were caused by funny money which doesn’t even really exist. Very few will profit, but many will get hurt. To add to that we have wasted time that could have been used to build a real economy. There is no free ride and I fear the worst for the entire US economy, banking system, and citizens in general. I guess that’s why I get cynical sometimes. I hope things are going good for you where you’re at now though. All the best.
- Mort -
March 6th, 2006