Nov052013
Did the housing bust change homebuyer attitudes and expectations?
In 2005 a house was an investment you could live in. A house was expected to provide endless rapid appreciation that could be converted to spending money at any time. Debt on the house could always be increased yet refinanced at lower and lower rates and better and better terms so payments wouldn’t go up. Further, the owner would never actually have to repay the debt as the house was expected to cover all debts when it sold. With such blissful and fallacious thinking, a housing bubble was inevitable.
The housing bust revealed nearly every homeowner belief and attitude was a fantasy. House prices did not always increase rapidly. In fact, they could decline rapidly as well. The debt could not always be increased and refinanced, and the payments did go up. The owner is responsible for the debt unless the lender agrees to take less in a short sale or doesn’t bother to pursue a deficiency in a foreclosure. Homeowners learned the hard way there is no free house.
Over the last six and a half years of writing daily posts, I’ve tried to educate everyone I could reach on the danger of these fallacies, but I can only reach so many, and even some of those I do reach would rather believe the fantasy than accept a less appealing reality.
Today’s featured article appealed to me because it postulates something I want to believe. I want to believe people really have learned. I want to believe my writing is not wasted time and that I do impact people’s lives. So perhaps I have lined up for my own reassuring lie that homebuyers have changed their attitudes and beliefs about house. You tell me. Has anything changed?
Buyers today want a house for the long haul
Homeowners see a house as retirement nest egg, not an ATM
Amy Hoak’s Home Economics — Oct. 28, 2013, 6:00 a.m. EDT
When Amy Lewis sits in her Lafayette, Calif., home, she can envision her three young daughters growing up there. She sees them forming lasting friendships with the neighborhood kids, graduating from the local schools, coming home for visits during college breaks.
It doesn’t stop there: The 43-year-old can also imagine grandchildren running around the halls.
Most people who by detached houses believe it is their “forever house.” Of course, it rarely turns out that way, but nearly every buyer approaches their decision with that mindset unless they are buying a property they know is unsuited for their family because they feel the need to “own” something.
It’s a different mentality than in years past, when people would buy a home, stay for several years and move up to something bigger or better.
I hope this is true, but I have my doubts.
First and foremost, Lewis said she and her husband wanted an experience similar to one that they had growing up, one where the neighborhood kids went from preschool to high school together. Her parents still live in the same house they moved to when she was 2 years old (and they’re also flush with home equity in their 80s).
If they are flush with home equity, then they resisted every temptation to blow it. They were undoubtedly offered HELOCs and reverse mortgages, and every other free money goodie a mortgage broker could think of to entice them to their own destruction.
But Lewis adds there is another financial reason to staying put: Mortgage rates are very low, and there is a good chance it will be hard to trade in that monthly payment in several years.
Stop for a moment and think about the implications of that. First, rising interest rates will also make loan balances get smaller with the same payment. Unless incomes rise faster than interest rates, loan balances will not continue to grow, and home prices will stagnate (which is what I believe will happen). Further, the refinancing rage of the last 30 years is over, probably for the rest of our lives — or at least another 30 years depending on how old you are. The last time interest rates bottomed out after World War II, it took 30 years of struggling with increasing interest rates and inflation before Paul Volcker raised rates dramatically and reset the interest rate cycle so Alan Greenspan could enjoy 25 years of falling rates to stimulate the economy. In all likelihood, interest rates will rise slowly for a very long time.
“Definitely, for the next 30 years, we feel confident we want to be there,” Lewis said.
I’ve always made long-term plans, but as I’ve gotten older I’ve also realized it’s very difficult to be sure what you will be doing or where you will be living even three years hence. The idea that you can count on living in the same house for 30 years is a bit fanciful, don’t you think?
More home buyers today are planting deep roots in their communities, according to research from the National Association of Realtors. That’s especially true for buyers younger than 45 years old—those most likely to be move-up buyers, said Paul Bishop, NAR’s vice president of research.
In 2012, 27% of home buyers between the ages of 25 and 44 and 18% of buyers between the ages of 18 and 24 said that they planned to be in their homes for 16 years or longer, according to a NAR survey of 8,501 home buyers. In a comparable survey in 2006, 18% of buyers between the ages of 25 and 44 and 8% of buyers between the ages of 18 and 24 said the same.
That is a significant change in attitude, probably due to witnessing the housing bust. In my opinion, that is a good thing.
Expectations have adjusted, and trading up is no longer the goal for many, Bishop said. People became accustomed to the move-up mentality when they’d see their neighbors move for extra square footage or a more desirable area. Now, your neighbors probably aren’t going anywhere.
“[Buying a home] is a very complex procedure—much, much more than before,” said Sherry Chris, chief executive of Better Homes and Gardens Real Estate, a national real-estate brand. “People are in it for the long haul, and it’s not just ‘I’m going to buy a house and see what happens in a few years.’”
Added Cara Ameer, broker associate with Coldwell Banker Vanguard Realty in Ponte Vedra, Fla.: “A lot of people tend now to think more logically than irrationally. They are really scrutinizing ‘do I need this?’ They’re looking at hard costs, and not throwing caution to the wind.”
I hope people really are carefully considering the costs when looking at home purchases. The main reason I’ve invested in the new website upgrade is to provide this cost of ownership information on every property on the MLS to aid people in making this decision.
Simple math
For many homeowners, it is a matter of simple math, said Jeff Taylor, co-founder of Digital Risk, a mortgage processor. Today’s buyers are capturing mortgage rates near historic lows—and that’s allowing them to get “double the house” today compared with what they could get several years ago.
LOL! It is simple math. It explains why the central bank lowered interest rates and sought to drive mortgage rates down to record lows. In 2006, houses were overvalued by double. Now, with lower interest rates, people can finance the crazy prices of the bubble era peak. Remember the chart below from yesterday’s post? House prices today are nearly back to the peak, yet now they appear fairly valued whereas in 2006 they were grossly overvalued. That’s the simple math behind lower rates.
The monthly payment on a $300,000 mortgage for a home bought in 2005 at a 7% rate is roughly equivalent to a payment on a $600,000 mortgage obtained in 2013 at a 3.5% rate, he said.
As I mentioned above, the $300,000 house in 2005 is not equivalent to a $600,000 house today.
These buyers may never even have the desire to refinance in the years ahead, since doing so would likely increase their rate. The Mortgage Bankers Association predicts rates on the 30-year fixed-rate mortgage will rise to 4.8% in the fourth quarter of 2013, and to 5.1% in the fourth quarter of 2014. A decade from now, a mortgage obtained this year will likely look very reasonable, Taylor said, compared with what’s available in the future market.
More simple math…
What’s more, these days home values don’t appreciate at the same rate they did seven, eight or nine years ago, Ameer said. So people don’t plan on their home appreciating by $100,000 in two years, giving them the equity to move up to a bigger home.
Actually, homes have appreciated quite significantly over the last 18 months, but they shouldn’t appreciate nearly as much going forward. In fact, the long-term rate of appreciation should be far less than the average of the last 25 years due to rising rates and stagnant wages.
Further, the idea that a house appreciating $100,000 does not provide equity for a move up because the move-up house has also appreciated in value by the same amount. The only way people make a true move up is if they make more money and can afford to significantly increase the balance of their mortgage loan.
That said, “as you’re paying that [mortgage] down and home prices appreciate, 10 to 15 years down the road, that equity will build,” Taylor said. “We’re going to see the home being the nest egg.”
This is certainly what I want to believe, but will it really work out that way? Will HELOC abuse be as prevalent this time around? I certainly hope not, and rising interest rates will make HELOC debt much less appealing, but will people really stop raiding their nest egg? Again, I have my doubts.
Of course, some homeowners will be tempted to tap their equity during their tenure in the home. For that, those who buy today are more likely to turn to home-equity loans instead of cash-out refinancing, so as to keep their low mortgage rates, Taylor added.
Seeing into the future
The tricky part about buying a home to live in for decades is anticipating your needs at different points of your life. Most importantly, make sure you’re buying in a prime location. A good school district might be important to you, or walkability to public transportation or shopping.
Another telltale sign of a neighborhood where you might be able to live for the long term: Blocks of homeowners who also have deeper ties to the community.
“Every area has those little places where no one moves. It can’t be replicated anywhere else,” whether the appeal is a good school district or highly sought after neighborhood amenities, Ameer said. Typically, “these areas are the best for that, for staying for a longer period of time.”
For Amy Lewis and family, their new neighborhood hits many of those points. In addition to good schools, there are many restaurants, mom-and-pop stores and ideal weather (without the kind of fog that nearby San Francisco gets). In fact, Lafayette almost feels like a “mini San Francisco,” she said.
“I grew up about 40 minutes from here, and it has a similar feel,” she said. “This is a perfect location.”
Many people like Irvine for the reasons listed above. There are few if any neighborhoods that people wouldn’t want to live in for the long term. Let’s hope the new breed of homeowners in Irvine won’t spend their homes like the ones who just moved out.
[raw_html_snippet id=”newsletter”]
[idx-listing mlsnumber=”OC13222736″]
9312 ROYAL PALM Blvd Garden Grove, CA 92841
$1,399,900 …….. Asking Price
$620,000 ………. Purchase Price
5/1/2002 ………. Purchase Date
$779,900 ………. Gross Gain (Loss)
($111,992) ………… Commissions and Costs at 8%
============================================
$667,908 ………. Net Gain (Loss)
============================================
125.8% ………. Gross Percent Change
107.7% ………. Net Percent Change
7.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$1,399,900 …….. Asking Price
$279,980 ………… 20% Down Conventional
4.65% …………. Mortgage Interest Rate
30 ……………… Number of Years
$1,119,920 …….. Mortgage
$283,417 ………. Income Requirement
$5,775 ………… Monthly Mortgage Payment
$1,213 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$292 ………… Homeowners Insurance at 0.25%
$0 ………… Private Mortgage Insurance
$42 ………… Homeowners Association Fees
============================================
$7,322 ………. Monthly Cash Outlays
($1,757) ………. Tax Savings
($1,435) ………. Principal Amortization
$490 ………….. Opportunity Cost of Down Payment
$195 ………….. Maintenance and Replacement Reserves
============================================
$4,814 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$15,499 ………… Furnishing and Move-In Costs at 1% + $1,500
$15,499 ………… Closing Costs at 1% + $1,500
$11,199 ………… Interest Points at 1%
$279,980 ………… Down Payment
============================================
$322,177 ………. Total Cash Costs
$73,700 ………. Emergency Cash Reserves
============================================
$395,877 ………. Total Savings Needed
[raw_html_snippet id=”property”]
Analysts Say Double-Digit Appreciation Will Come to an End by 2014
National home prices were up 10.1 percent year-over-year in the second quarter, but price appreciation is expected to fall out of the double-digits, reaching 5.4 percent by the beginning of next year, according to the CoreLogic Case-Shiller Home Price Indexes.
Home price appreciation will continue to occur but will drop off even further moving forward, CoreLogic says. The company’s national index predicts prices will rise 3.4 percent over the next five years.
“Combined with increased housing construction, expected increases in existing inventories should restrain price appreciation even if demand remains strong,” said David Stiff, principal economist for CoreLogic Case-Shiller.
Currently, prices are rising in almost 90 percent of the nation’s metro areas, according to Stiff. He also points out that prices are rising in all of the nation’s metros where population is more than 1 million.
“The strongest growth continues to be recorded in cities that were at the center of the housing bubble, but investor demand in those markets appears to be waning, meaning rapid rates of price appreciation are likely unsustainable,” Stiff said.
When observing metros with populations exceeding 950,000, CoreLogic Case-Shiller found four of the fivemetros with the greatest annual price appreciation in the second quarter were in California.
Sacramento, California, experienced the greatest price growth—25.9 percent.
Clearly the job of the banks used to be to tell you how much house you could afford. That is what underwriting is. Throw out the underwriters, have a housing bubble and then blame the borrowers is not correct logic.
Housing affordability is not what is driving the current bubble. Cash buying is driving the current bubble. Affordability indexes are flawed because of the fact that they don’t factor in the difficulty of getting a sound loan with a big down payment.
All cash buyers are keeping this market afloat
Investors may be reaping the rewards of the housing recovery, but regular buyers, especially single and first-time buyers, are still on the outside looking in.
Tight credit has kept some financially qualified buyers from getting the loans they need, according to a new survey from the National Association of Realtors. The overall market share of single buyers fell from 32 percent in 2010 to just 25 percent today, according to the report.
“Single home buyers have been suppressed for the past three years by restrictive mortgage lending standards, which favor dual-income households who are more likely to have higher credit scores,” noted Lawrence Yun, chief economist for the Realtors.
First-time buyers, who usually represent 40 percent of the market, have been falling steadily out of the market, especially lately, with the surge in mortgage rates. While this annual report puts them at a 38 percent share, the Realtors’ September home sales report shows they bought just 28 percent of the homes sold in the month.
First-time buyers are also considered instrumental to a recovery historically, because they create the move-up market, but investors, largely using cash, have replaced them.
Negative equity has also kept many potential buyers and sellers on the sidelines, but 2.5 million borrowers came out from underwater in the second quarter of this year, according to CoreLogic, which could put more supply on the market in the coming months.
Unfortunately, sellers are finding waning interest. Forty-three percent of sellers surveyed by Redfin, a real estate sales and data company, said they were disappointed in the buyer interest in their homes. The percentage of those who think it is a “good” time to sell fell sharply, from 48 percent in the third quarter of 2013 to 34 percent now. Their top concern about listing their home: “general economic conditions.”
10 Year US Treasury Note continues it’s two week climb.
Here
If rates don’t remain low, buyer activity will wane again. Redfin’s analysis is wrong. The increase had nothing to do with the government shutdown ending.
Buyer Demand Rebounds as Mortgage Rates Decline
Homebuyers shook off their fears and returned to the market in force following the re-opening of the government in October, according to data presented by Redfin’s Research Center.
The online brokerage reported a 58 percent annual increase in the number of interested buyers reaching out to its agents in the week immediately following the resolution of the partial federal government shutdown, up from a 41 percent year-over-year increase recorded the prior week.
“In the aftermath of the shutdown and debt ceiling debacle, a storm of news media and economists tallied the damage done to consumer confidence and predicted that anxious Americans would spend less through the New Year. In the housing market, however, these predictions aren’t panning out,” said Redfin analyst Ellen Haberle.
Meanwhile, year-over-year growth in the number of clients touring homes increased from an average of 21 percent to 33 percent, with growth in clients making offers increasing from 15 percent to 24 percent.
Despite reports of consumer confidence waning, Redfin customers seemed relatively unfazed by Washington’s affairs.
“My clients think the ugly showdown we saw in October is unlikely to happen again,” reported Philip Gvinter, a Redfin agent based in Washington, D.C. “After putting their home search on hold during the shutdown, they are ready to get back out there.”
Of course, with the government funded only through mid-January and the debt ceiling lifted until the first week of February, it remains to be seen whether the nation will have to sit through a rerun of October’s political drama.
Things are starting to reverse course again. 30 Yr FRM rates are up about 1/4 point since last week.
The volatility in mortgage rates is incredible these days.
If rates keep going up, the buyer demand for the off season will vanish.
We are 1/3 percent of an increase in the yield away to expanded bond purchases. We are at 2.66%
For housing market bulls that want to believe the recovery is built on fundamentals rather than policy manipulations, how do they explain Detroit?
Despite Bankruptcy, Detroit’s Housing Market Thrives
The city that previously made national headlines for its failing economy and bankruptcy filing is now in the spotlight for its rapidly rebounding housing market. Detroit topped two lists of highest-performing housing markets in the past week—one from Realtor.com and one from Clear Capital.
Last week, Realtor.com named the city the top turnaround town in its quarterly “Turnaround Towns Report” based on median list price, inventory, and median age of inventory.
Monday, Clear Capital ranked Detroit at the top of its Home Data Index Market Report for October, based on its quarterly price growth.
“Once the poster child for America’s ailing auto industry, Detroit has turned around its housing markets,” Realtor.com stated. “Instead of sinking when the city of Detroit had just filed for bankruptcy, its housing markets took on a quiet resurgence.”
Home prices in the Motor City fell 4.8 percent over the third quarter but leapt 44.3 percent for the 12 months ending in September, according to Realtor.com’s report.
Clear Capital observes home prices on a rolling quarter and revealed a 7.8 percent home price increase in Detroit over the three-month period ending in October, accompanied by a 31.6 percent annual increase.
Realtor.com also revealed falling inventory and inventory age in the bankrupt city. Detroit’s housing inventory in the third quarter of this year was 24.5 percent below inventory levels in the third quarter of last year.
The median age of inventory in Detroit’s housing market declined 22.9 percent over the same period, according to Realtor.com.
Clear Capital analysts are quick to point out that “[r]elatively small price gains will more heavily influence
percentage gains in Detroit than in higher priced markets.”
Detroit’s median home price is currently $120,000, a little more than half the national median home price, which stands at $210,000, according to Clear Capital.
Looking to the root of Detroit’s sudden housing market turnaround, Clear Capital points to declining REO saturation, while Realtor.com emphasizes investor activity.
While Detroit continues to rank No. 1 in the nation for REO saturation with a current rate of 29.9 percent, Clear Capital says this ratio is down significantly from 64.6 percent in 2009—a 34.7 percentage point decline.
When asked what is driving Detroit’s strong housing recovery, Realtor.com President Errol Samuelson responded, however, that investors have “made a notable play in Detroit.”
“We’ve seen reports of significant international investment in Detroit over the past several months, and before the bankruptcy, so these are sophisticated investors—willing to take bigger risks and move quickly in markets that have not yet stabilized,” Samuelson said.
Rapid price gains often lead to bubble fears, but both Samuelson and Alex Villacorta, VP of research and analytics at Clear Capital, concur Detroit is not headed for a bubble.
“While it has seen more than 30 percent growth over the year, the market would need to see another 262 percent growth to hit peak prices,” Villacorta explained.
Villacorta says Detroit home prices have fallen in line with its pre-2006 historical trends. “Following 2006, prices fell nearly 77 percent, so what we’re seeing is a response to a severe price correction,” he said.
Both economists also point to Detroit’s still-struggling economy, which may tamper improvement in the housing market moving forward.
Las Vegas is no Detroit.
I am really interested to see what happens out in Las Vegas as the next phase of this housing collapse starts. Rents out there are very low and home prices in Henderson and NW Las Vegas (including Summerlin) are very low.
I can understand how people hate LV due to the extreme weather, Sin City tag, etc … however the fact that a business can move there and escape CA taxes, extreme regulation and then reduce the cost of doing business .. it’s all very luring.
I think LV may actually see some benefit (outside of gaming) as more in CA give up. It’s going to get interesting.
Detroit has no future. Their biggest industry self destructed, and no businesses came back to take their place. They do have cheap infrastructure, so perhaps someone will want to plant their business there to take advantage, but with no big employers, the housing market will languish there for decades. Many of the cheap houses investors are buying are better off bulldozed.
Las Vegas will continue to do well as long as gaming revenues continue to grow. Plus, they do get people who leave California. If not for the quality of the local schools, I would move to Las Vegas and spend the summers somewhere else where it’s cooler, perhaps Northern Michigan.
There is one business that has stepped into Detroit to attempt to turn things around: Quicken Loans. It’s not enough to replace the auto industry mind you, but I think they’re hoping to start a renaissance in downtown Detroit.
Remember the 65% homeowner rate does not include delinquencies
To answer the title of your post, NO. Attitudes and expectations don’t change based on a short bout of bad luck.
“Bad luck” is how I have heard it described on the few occasions where people were sore regarding their experience. There was nothing to learn from it, it was just bad luck. Those people, in many cases, would not change what happened even if they could. It was a hell of a party when they spent their house(s), and they would do it again! Others are living mortgage free for years, what did they learn? Others just accepted their payment or modified, and don’t look to the future. So they are indifferent.
The young are looking to make their quick buck. The old are looking to get their old age free ride because they earned it!
In short, until the education that sites like this provide become the mainstream education that gets pummeled into the brains of the average Joe day in and day out, we will stay put psychologically. We could also get “Texased” and experience an economic downturn that is so harsh that it brings people back to their senses. However, that is very unlikely in California because no matter what people say (and I’ve said the worst and still do) the only thing bad about this place is the cost to live here, and if you have what it takes you stay and if you don’t you go. I really wonder what the population turnover rate is in this state, because many leave but we still seem to have a steady influx.
“I really wonder what the population turnover rate is in this state, because many leave but we still seem to have a steady influx.”
Many leave only to return after a few years. This is particularly true of native born Californians. They dream of what it would be like to own such a huge house for so little money in another part of the country, but after awhile realize how much they are giving up by leaving. I’ve known so many people that have tried to leave and failed, including myself. They’re usually back within 2 years tops.
The few that end up succeeding are those that were born in another state to begin with and already have roots established in that part of the country. It’s easier for them to leave because their time in California was like an extended vacation, but they never intended to pay the price to live here long term.
The California is grew up in is dying right in front on my eyes.
I agree to an extent. The Huntington Beach I grew up in was a sleepy beach town that no longer exists. Most of OC was nicer 30 years ago than it is now, but the problem is it’s still better than most parts of the country. I think once you get out of LA, OC, and the IE, most of California is still pretty idyllic.
California as a pretty good catch and release “non-violent” offender system.
Bad luck? People will come up with anything to continue believing what they want to believe. My other favorite cop out is “I don’t understand.” Most people won’t grasp the obvious if there is a more likeable lie they can embrace. When confronted with facts they can’t explain otherwise, they become willfully ignorant.
I agree that the bust should have gone on longer and been more painful. Unfortunately, the banks couldn’t endure the pain either, so now everyone gets a healthy dose of moral hazard for the next bubble.
I don’t think attitudes have changed at all. The stupid people that I know who were irresponsible prior to the housing bust, are still stupid and irresponsible people. Perhaps if the Great Recession were allowed to descend into a full blown Great Depression 2.0 we would have a generational attitude shift. I just don’t think enough pain was experienced by most people to shift attitudes, en masse.
There were also plenty of responsible people during the housing bubble, probably the majority, but you just didn’t hear about them. These people will continue to be responsible, and by virtue of the fact that only they can qualify for loans right now, it makes it seem like a shift in attitude has occurred.
Well, as least as long as the banks remain responsible, we shouldn’t get a bubble to inflated. Lenders are supposed to be the adults in the room. Hopefully, they will live up to that responsibility next time around.
Of course it did. Many people have learned a valuable lesson. Housing performance is highly dependent upon zip code. People that picked the premium zip codes at the peak are break even, and the rally is young. People that picked less desirable zip codes are deeply underwater. I figured this pattern out in the early 90 housing crash. Before I made my first purchase in my 20s, I studied ask prices in old newspaper clippings, and realized high end beach zip codes were bulletproof. I suspect many people have drawn this same conclusion, and that is why we see bidding wars in some zip codes. Manhattan Beach, Hermosa Beach, Redondo Beach, Santa Monica, Pacific Pallisades, WLA, and so many others are still roaring during a slow time of the year. And, I have noticed the OC beach cities are seeing a lot of new pendings the last few weeks.
Moral of the story … you must treat housing as an investment, not as a roof over your head.
Totally disagree! Less than 1% are able or ever will b able to buy at the beach and prices are not bullet proof. A home for most is an expense, not an investment, unless they can time the market, (very few), or are able to buy positive cash flow. I have seen prices get whacked more than once in MB.
I think this is probably his most revealing statement:
“People that picked the premium zip codes at the peak are break even, and the rally is young”
He used to say that CDM properties south of PCH never sustained price losses, but that tune seems to have changed.
But, the damage to MB prices was on the order of 10% in this last drop … minor considering the size of the runup. The average price looked worse because sales skewed to lower end properties during the crisis. But, if you study areas like East Manhattan or the Tree Section, you will find well located fixers lost a little more than 10%. Not bad.
And, you do not need to be wealthy … while I do not know the Irvine market as well as others, it appears to be that well located single family Irvine residences also did far better than the blowups in the Inland Empire or the SFV.
You need to treat RE as an investment and do your homework on historical price patterns before putting your money down.
Also, it appears to me that the well located fixers in East Manhattan, the Tree Section, as well as CdM and Newport Heights are hitting new highs.
Mellow Ruse, one particular property I picked up in the low 400s in 94 briefly hit 2M in 2006, dropped down to about 1.7M, and now sits around 2.4M. But, the 2M was just a brief flash … only a few went out at that price in 2006. That is what I consider no loss …
I know someone in Woodland Hills who is deeply underwater by 30% … purchased in around 2005. That is a real loss.
Jimmy, call it investment if you like, but smart money will treat housing an illiquid, deteriorating asset being propped-up by massive subsidies, uber-high levels of debt, subsidized demand, and pervasive accounting fraud, that has a strong negative carry in purchasing power for what it actually has become……
a speculation.
When you’re at the craps table, and you keep pressing your bets, as long as your number keeps coming up, you believe you’re a winner. When the seven is finally rolled, you hope you got your chips off the table while you had them.
I can’t help believing the coastal zips Jimmy is so fond of will get whacked. The housing wealth of a generation just went up in smoke, and the reflation of the housing bubble benefits the banks more than equity owners in the market. The only way these zip codes can remain this inflated and get even worse is if the 1% keep earning more than everyone else. Perhaps that will happen, but perhaps we will see a populist revolt reverse the fortunes of the top 1%.
It seems to me that if someone has the ability to pay 1 million+ for a teardown and rebuild a with a 5000+ foot house, it would be reasonable that they will wait out any downturn in the market. This is common in all of the areas that Jimmy is fond of. Although he repeats his same message(over and over again), I happen to agree with him. I am seeing 800-1200 square foot shacks sell left and right in Newport Heights for 1.2m+. At the same time, homes in the 2000 square foot range(1.5 million+) tend to sit longer as 80% of the buyers in this area are looking to rebuild. In my opinion, if the top coastal areas get whacked, it will drop more in inland/less desired areas. At that point, coastal city owners will be picking up some low price rental property.
A 37th Investor Admits to California Bid Rigging
The Department of Justice’s ongoing antitrust investigations into bid rigging and fraud at public real estate foreclosure auctions has led to yet another guilty plea.
Kuo Hsuan “Chuck” Chang, of San Francisco, is a real estate investor who admitted to violating the Sherman Act, which prohibits anticompetitive activities. Chang becomes the 37th individual to plead guilty to this kind of violation.
Chang was involved in a conspiracy to not bid against his conspirators during a real estate foreclosure auction, but designate one winning bidder to obtain selected properties in San Francisco County, court documents revealed.
When real estate properties are sold at foreclosure auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining funds, if any, paid to the homeowner. Chang was also charged with conspiring to use the mail to carry out schemes to fraudulently acquire title to selected properties sold at public auctions, to make and receive payoffs, and to divert co-conspirators’ money that would have gone to mortgage holders.
These conspiracies started in October 2009 and continued until November 2010, the Justice Department says.
“Collusion at foreclosure auctions harmed both lenders and distressed homeowners in an already struggling real estate market, and the conspirators must be held accountable,” says Bill Baer, assistant attorney general in charge of the Department of Justice’s Antitrust Division.
A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine. A count of conspiracy to commit mail fraud could result in 30 years in prison and a $1 million fine.
I think people’s minds are changing. At least now that credit is not so easy to get. I remember in 2006 a 23 year old coworker who was single bought a condo near UCI for $500k which was a deal back then since the bubble was just about to pop. He was making less than $60k a year and took on a mortgage and hoa that basically left him broke. He tried to survive by renting the bedrooms out. Everyone else were also looking to buy and real estate was always talked about during lunch outings. I remember one conversation about how the mobile homes were asking close to $200k. Hell, even the girls I dated would ask to go house visiting as part of our date.
Now I’m in an office of fifteen engineers. Noone talks about real estate. Three engineers who are married have a mortgage. Three other engineers that are also married are looking or about to close. The other nine engineers that are single are happy either renting or living with parents.
The fact that house prices are up so much so fast and nobody is talking about real estate is a very good sign. I don’t hear the casual conversations in Starbucks like I did in 2005 either.
I guess since much of the inflated values is going back to the bank on underwater mortgages, the benefits of the bubble are not being felt by near as many people.
Eminent Domain Battle Shifts to Another California City
The City of Pomona is currently considering several proposals to address perceived issues in the city’s real estate market–all of which would use the city’s powers of eminent domain. As with other municipalities in California, one proposal, from San Francisco-based Mortgage Resolution Partners, would have the city acquire underwater, but performing, mortgage loans held by private-label mortgage-backed securities.
In a letter this week to Pomona City Council members and City Manager Linda Lowry, the Mortgage Bankers Association and the California Mortgage Bankers Association, Sacramento, expressed “serious concerns” with the MRP proposal and urged them to reject it in favor of supporting programs that are already working to assist underwater borrowers in California.
“We believe that MRP’s proposal in particular raises very serious legal and constitutional issues, in addition to the threat it poses to the City’s housing market and economy,” the letter said. “No jurisdiction has ever used eminent domain to acquire underwater mortgages from securitized pools. Such a novel use of the eminent domain powers is unprecedented and would, in our view, not survive the multiple legal challenges that would ensue.”
Proposals to employ eminent domain to seize underwater mortgages have proliferated over the past year, with California a hotbed of such plans. Over the summer, Richmond, Calif. became one of the largest cities in the U.S. to embrace the private-sector program offered by MRP to seize underwater mortgages through eminent domain–in some instances for as little as 25 cents on the dollar. In letters it sent to more than 30 servicers this summer, the city offered to purchase more than 600 mortgages. The city said if the servicers do not agree to sell, it would seize the mortgages.
Other municipalities, such as Fontana and Ontario, Calif., North Las Vegas, Nev., and towns in Colorado, Illinois and Massachusetts have also considered eminent domain as a strategy to seize underwater mortgages. Most of these have backed off the strategy following discussion with MBA, local mortgage bankers’ groups and other industry group about drawbacks, including potential restriction of future lending.
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