Apr012016
Every word she writes is a lie, including “and” and “the.” Mary McCarthy
When a realtor talks, do you believe a word of it? At some level you know that most of what they say is bullshit, statements made without regard to the truth, usually to manipulate customer behavior for self-serving reasons. realtors want only one thing: to generate the largest commission possible with the least amount of time and effort. Bullshit helps reach their goal because bullshit smooths over all objections by telling people what they want to hear.
The credibility of anyone’s opinions relies on the history of factual and truthful statements made by the individual. I’ve been writing about real estate issues daily for over nine years, so I have some credibility on the subject due to the large number of statements and predictions that proved to be accurate and prescient. Nobody is infallible, so achieving 100% credibility is impossible, but with skill and integrity, anyone can gain a great deal of credibility to comment on a subject.
The easiest way to visualize how credibility works is to see it as a continuum as described below. Infallibility (100% credibility) is on the right, and always wrong (-100% credibility) is on the left, and zero credibility is in the middle. Notice that always being wrong is not 0% credibility because if someone were always wrong, anyone could know what the right answer is by believing the opposite. Further, it takes a great deal of skill to be either right or wrong all the time because it would require the person to know the difference.
Zero credibility comes from random guessing; sometimes the person is right and sometimes the person is wrong. This can happen because the person has no skills or knowledge in a subject matter, or as in the case of realtors, the person may simply be making up opinions and guessing what someone wants to hear — bullshitting.
realtors score less than zero on the credibility continuum. Many have minimal skills, but those that do are trained to offer self-serving bullshit answers to any question. Many realtors bullshit out of ignorance which puts them closer to zero, but still in the negative; however, many realtors are smart, and they knowingly lie and manipulate people making their credibility score even more negative.
realtors are not alone on the negative side of zero. Politicians also consistently score less than zero, and since politicians are generally smart people, they generally score even more negative because they know exactly what they’re doing when they offer casual lies to manipulate public opinion. If you look at the current crop of candidates for President, you see that bullshit rules.
Amy Thomas, March 29, 2016
Real estate agents are often accused of telling lies to seal the deal. Here are some of the most common mistruths in the real estate industry — and the disruptive effects they wreak on all involved.
Lies abundant and nebulous
Real estate agents are inherently liars. Whether they are deliberately omitting critical information or misrepresenting the facts, agents are fluent in the language of falsehood.
Yes. That is how most people see it.
At least, that’s what many homebuyers and sellers think. However, these opinions are tainted by the actions of an unethical few — actions which unjustly reflect on the numerous, ethical agents who deal honestly and are straightforward with clients.
Many good Realtors exist (deserving of a capital “R”), and they are as dismayed about the practices in their profession as I am. I have the utmost respect for the character of Shevy Akason, the lead agent working with clients for OC Housing News, and Randy Rector, broker of record for Evergreen Realty. Many other Realtors and brokers have approached me and told me they share many of my frustrations. I characterize bad realtors with a broad brush, and I want to recognize that good Realtors exist, and my exasperation is not a reflection on them.
Although most agents don’t outright lie to their clients, agents on the whole haven’t necessarily proven this assumption wrong. …
A study conducted by researchers at Baylor University indicates real estate agents are highly likely to use neutralizations to justify their lies. Neutralizations are excuses which make a fib seem like a viable business practice since the lie is told to benefit someone or something else, like the agent’s family. For example, a buyer’s agent whose client is wavering may misrepresent a home as faultless in order to secure their fee, which helps the agent provide for their kids. …
So if they lie to their clients, and the lie harms their client, it’s an acceptable business practice?
If you go to a stock broker, and that broker puts you into a high-fee junk mutual fund that makes you little but them a lot, is that okay… wait… they do that all the time.
If you go to a doctor, and the doctor prescribes you an expensive medicine because the pharmaceutical company gives them a kickback, is that okay?
Whatever rationalization realtors come up with to justify their unethical behavior doesn’t make it right. The excuse might be convenient, and it may help them sleep at night, but it’s nothing more than an exercise in self-deception, a deception that hurts their clients.
Common lies among real estate agents
Two types of lies are most common in the real estate industry: misrepresentations and omissions.
Misrepresentations are frequently made regarding the sales agent themselves. For example, agents may:
- advertise as an undefined “neighborhood specialist”;
- pad their production numbers to look better to clients;
- stretch the truth about their past experience in particular transactions;
- inflate their base of buyers when seeking a property listing; and
- take credit for transactions completed by their brokerage, but not by them.
How many have fallen victim to these lies without knowing about it?
Omission of the facts
Lies by omission, on the other hand, tend to be made about the properties with which agents deal. These omissions include:
- disclosures of material facts or property conditions adverse to value or use;
- potentially negative neighborhood or area conditions;
- appropriate demographic information, such as the presence of senior communities; and
- conflicts of interest.
For example, some agents fail to disclose underlying damage on a property. Many new homeowners need to check us out online to ensure that they are aware of the water damage which is hidden from the buyer’s sight. Other disclosures are avoided under the principle of “don’t ask, don’t tell,” or more commonly, “as is.” …
I know nothing! NOTHING! (See: Sergeant Shultz from Hogan’s Heros)The injured buyer has up to two years after the transaction closes to pursue the agent for money losses caused by the agent’s negligence or nondisclosure. [CC §2079.4]Despite the consequences, many agents still try to omit critical information to avoid killing a deal. These agents may figure if the client doesn’t ask the question, they don’t have to answer it — a dangerous gamble against the agent’s duty to disclose known adverse facts. All too frequently, as a matter of improper custom in the industry, agents deliberately wait until after a seller accepts a buyer’s offer before disclosing material facts to the buyer.
Isn’t that shocking to you? And this is standard practice in the industry!
The belief seems to be that as long as the disclosures are made before the buyer takes title it doesn’t matter when they are disclosed. However, agents are required to disclose any condition within their knowledge which might negatively affect the property’s value for a client — before the seller accepts the buyer’s offer. [Holmes v. Summer (2010) 188 CA4th 1510; CC §1102.4(a)]
Still, agents will make omissions and, when called out, claim to be unaware of the adverse property conditions.
In other words, they lie to cover their culpability in a crime.
Why do agents continue to lie?
As previously mentioned, many agents lie — ahem, misrepresent or omit — to close a deal without a hassle. They fail to consider how their conduct affects anyone but themselves.
Clients who trust a dishonest agent are basing their most significant lifetime investment decision on the agent’s false claims or failure to correct or provide missing information. Essentially, the agent leads their client into a trap, representing a property as better than it actually is and letting the client suffer for their silence.
Bad realtors want to have their cake and eat it too; they want to be recognized as experts on real estate and real estate markets, but they want no responsibility when their expertise is confirmed as chicanery, a conundrum with no resolution. realtors are responsible for their representations that buyers rely on. Who is to blame when a realtors representations prove false? Are buyers culpable for relying on the experts, or the experts responsible for making stuff up that people rely on?
Perhaps this analogy is politically incorrect, but… Imagine you are shopping for clothes in a high-end retail outlet. You are trying on an outfit, and you are concerned about its appearance, so you ask the salesperson, “Does this make my butt look fat?” What is the salesperson to do?
If the salesperson responds, “Yes, that is not flattering to your shape,” they fear they will not close the sale, so even if the garment does, in fact, make your butt look fat, the salesperson is probably not going to tell you. As a customer, you asked a question hoping for accurate information to help you make a purchase decision. What you are likely to get is a self-serving answer that makes the salesperson money.
If a buyer walks out of the store with ill-fitting or unflattering clothes, who is to blame? Is the buyer responsible for failing to see the conflict of interest, or is the salesperson at fault for dissembling for dollars?
Being stuck with a bad garments is a minor inconvenience, but losing a home in foreclosure or being trapped in an underwater mortgage for a decade is a catastrophe.
[listing mls=”OC16064522″]
Real Estate: Is the bubble going to burst?
The conversation that is going around the real estate industry water cooler is, “Are we in the bubble in the Bay Area and when is it going to burst?” Are Newark residents now playing poker with their mortgages? Instead of giving my opinion, I have gathered some of the top minds in the real estate world and asked them “is the Bay Area real estate bubble real?”
“This is not a bubble,” says Chris Thornberg, an economist in Los Angeles. “The money flooding the Bay Area isn’t built on speculation like the last boom. These are people with real money, with real incomes. They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”
Fitch Ratings’ Managing Director Grant Bailey has no doubt that homes here are overvalued and pointed to a fairly recent run-up to describe the current market.
“The last time the Bay Area experienced this kind of home price growth was during the dot-com era from 1997-2000,” Bailey said. Prices continue to go up in many markets throughout the country, but home prices in the Bay Area have “risen to a level unsupportable by area income,” according to Fitch Ratings which also found that San Francisco home prices “hit an all-time high in third-quarter 2015 and are now 62 percent above their post-recession low in early 2012.”
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, said, “The high-tech boom we have is unsustainable. Job growth is unsustainable. There will be, in the next three years, a correction. These unicorns (private companies valued at more than $1 billion) will have to cut jobs. That will have by far the most important impact” on the housing market. The only question, he said, “is whether it’s a minor decline or something more substantial.”
Another Housing Bubble Inflating In New York
Reports of the demise of luxury real estate in Manhattan may have been greatly exaggerated — or perhaps just early.
Manhattan real estate prices set a new record during the first quarter, with the average price of an apartment topping $2 million for the first time in history, according to a report from Douglas Elliman and Miller Samuel Real Estate Appraisers & Consultants. The average price per square foot also set a new record, hitting $1,713.
Granted, sales have slowed. Though the total number of sales, 2,877, grew 8 percent compared to the same quarter last year, they slipped 3 percent compared to the fourth quarter of 2015. On a year-over-year basis, the number of sales has fallen for the past seven quarters. Meanwhile, listing inventory increased 5 percent over the year.
Yet housing experts say that Manhattan’s real estate market largely held up given the volatile stock market and slowing overseas growth. While the very top of the market — apartments priced at $5 million or more — has slowed, the core market of apartments priced at $1 million to $5 million remains strong.
“What you have is the super-luxury high-end of the market, which started changing a year ago and is clearly slowing,” said Jonathan Miller, president of Miller Samuel. “But in the rest of the market, demand is still elevated.”
The number of closings for new developments nearly doubled, skewing overall prices higher. Many of those closings were for apartments sold more than a year ago for buildings that are just now being completed. Yet Miller said he doesn’t expect a “condo cliff” where sales and prices suddenly drop off as the previous deals pass through the system.
“If we see anything it will be more gradual,” he said.
Despite widespread fears about a flood of new inventory coming into the market, inventory of new development fell 44 percent over the same period last year.
And Miller said overall inventory of resale apartments — which make up the bulk of the market — is about 10 percent below historical norms. About half of all resales are selling for at or above the listing price.
“The resale market is still plagued by limited inventory,” he said.
The most expensive apartment sold during the quarter was a 7,000-square-foot, five-bedroom home at 101 Central Park West, which went for $35.3 million. It was listed by Randall Gianopulos and Serena Boardman at Sotheby’s International Realty.
Aussie homes ‘40 per cent overvalued’ leaving young buyers praying for property crash
AUSTRALIA’S housing market is 40 per cent overvalued based on price to income measures, with one expert warning an entire generation is now praying for a property crash.
In its latest round-up of global housing, The Economist found prices have risen in 20 out of 26 countries it tracks, with San Francisco, Vancouver, Sydney and Shaghai in particular singled out.
In those four cities, prices have increased by 12 per cent a year over the past three years, “twice the average national pace”.
To determine whether homes are fairly valued, The Economist measures the relationship between prices and disposable income, and between prices and rents.
“Thanks largely to their big cities, housing appears to be more than 40 per cent overvalued in Australia, Britain and Canada, according to the average of our two measures,” it says.
AMP Capital chief economist Dr Shane Oliver said the Australian house prices had been overvalued for more than a decade, but the long-predicted crash had never eventuated.
“The Economist magazine has been worried about this since 2002, and likewise the OECD’s measures of property prices relative to incomes and rents show significant overvaluation dating back to 2003 and 2004,” he said.
“The risk is certainly there. I would see the combination of very expensive property combined with very high household debt ratios as Australia’s Achille’s Heel.
“If something is going to go wrong that’s where we’re vulnerable. The counter to all that is it’s still hard to see what will go wrong.”
Dr Oliver puts the risk of a full-blown property crash — where prices fall by 40 to 50 per cent — at about 20 per cent chance.
“To get anything like that you’d have to have either much higher interest rates, a recession in the economy or a massive oversupply problem,” he said.
“The money flooding the Bay Area isn’t built on speculation like the last boom. These are people with real money, with real incomes. They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”
Yes it is built on speculation, the speculation of venture capital into money loosing tech companies.
Exactly. Once the VC welfare checks run out, what will happen to all these jobs and the house prices and rents they support?
I was just going to make this comment. A buddy of mine, just an individual contributor engineer, not a manager, made over $350k at Apple last year.
That can’t last.
As you mentioned below, when someone “makes” $350K, it’s a combination of things, typically. His salary is well above $100K, I’d bet, and he’s at Apple – a much more secure feeling than being at a high-rising start-up burning through venture capital. He probably received a bonus in the tens of thousands, and has Apple stock comp vesting in the tens of thousands; and he might have sold tens of thousands in Apple stock. If he isn’t taking on debt assuming the non-salary comp will continue perpetually, he’ll be just fine.
Getting a bit off topic, but I don’t think Apple is secure at all (from an employee’s perspective). They are hoovering up engineers right now like its going out of style. I would not be surprised at all if they dump whole divisions of R&D at the first sign of trouble.
Do you know how their hardware engineering is set up? It is very similar to Max Max Beyond Thunderdome. They have multiple groups competing (both internal and external) doing the same design. For example (this is not describing an actual design), a new audio chip for the next iPhone could have design teams doing completely independent versions in Cupertino, Austin, and Ireland, and they are also contracting out to Silicon Labs, Maxim, and Cirrus Logic. So they are supporting six separate design teams to fight it out for one hardware function. That means the majority of development work done at Apple is thrown away. I have no specific knowledge but I wouldn’t be surprised if the software side was similar.
I interviewed there a year ago because I was attracted to getting that $350k (you’re right the offered salary was less than half that. Good, but not amazing). The group I interviewed in was tasked to basically be referee in these battle royales and keep the whip cracking.
Is this a sustainable development paradigm? I ran away screaming.
Interesting. I work at a software company too. Our fights between teams solely revolve around prioritizing everyone’s desires on the roadmap and determining how long development takes for each component of every project.
I once was recruited by Apple also around 2012. They were promising a 30% salary raise when housing was 200%+ more expensive than SoCal. Oh yeah and you might get some stock or whatever. That and reading the reviews about how horrible the work environment is…I didn’t even try to interview.
The VC money flow halting plus massive job losses is a big concern. I’d be more worried if tech folks were buying “investment” properties in the Bay Area in addition to their levered primary house. The “house of cards” isn’t very tall, but with a wide base, if tens of thousands of tech employees see dramatic compensation declines; but the house of cards could be wide and tall if tech employees are also speculating with leverage on residential properties.
There is a married couple I know (mostly my wife’s friends) who are both relatively high up at a very well known tech company. They make a lot of money, I’m sure. They also own four houses in the Bay Area. One is a modernist near-mansion in a top area (primary residence), one is a very elegant high-end home nearby, one is a normal middle class 3bd, and the last is a vacation property overlooking the coast.
I think this family can handle it, because even if the VC money dries up I think they are pretty secure…. but I also think they aren’t the only ones buying Bay Area houses with their bonus + stock windfall…
It depends on their debt load. If they are highly leverage the whole thing could come crashing down in weeks.
Yes. That collection of properties is certainly not cashflow positive based on rent.
Tired of rising rent? Maybe you should consider becoming a landlord
The stock market is looking wobbly. Bonds are paying you about what you’re losing to inflation. And the rest of the investment landscape is about as reliable as the latest presidential candidate poll.
So if you’re wondering how to get ahead, let alone keep up with your rising monthly rent payment, take a look at where some investors are generating decent returns buying up houses and renting them out.
Your rising monthly rent is a big reason that rental housing has become a hot property.
Since the Great Recession ended, the overall rate of inflation has been fairly tame, by historical standards. Since July 2009, when the biggest economic storm in decades had finally lifted, the government’s measure of consumer prices has risen by about 10 percent.
The average rent, on the other hand, is up nearly 14 percent. That’s more than food, clothing, and the cost of many other products and services. (But not all: The cost of airfares, doctors’ fees, college tuition and hot dogs are all rising faster than your rent.)
But rent is a much bigger share of your monthly budget, which means it’s become a big source of profit for investors buying rental properties.
Since the housing collapse forced millions of Americans from their homes, professional investors have plowed more than $25 billion into the purchase of more than 150,000 houses. And they’re still buying.
It’s not hard to see why. With more than 7 million homeowners evicted by lenders since the mortgage bubble burst, most of those families are now renters.
And the next generation of homebuyers are more likely to rent than their parents did when they first left the nest. Thanks to tighter credit, and the reality check of the housing bust, milllenials have become the “Meh Generation” of potential homebuyers, taking a much more cautious approach to the homeownership aspirations of their parents and grandparents.
As a result, rental housing is in demand. As CNBC has reported, single-family rental homes made up about 9 percent of the U.S. housing stock before the housing bust. Now they are about 13 percent and still rising, according to Moody’s. Some 13 million of the 22 million new households that will form between 2010 and 2030 will likely be renters, instead of buyers, according to the Urban Institute.
Rent control isn’t solving California’s housing problems
Rent control won’t solve California’s enormous housing problems. But that’s not stopping Californians from pursuing rent-control policies in their hometowns.
2016 threatens to become the Year of Rent Control, with the topic white-hot in the Bay Area, home to California’s most-expensive housing. Rent control refers to laws that put limits on how much landlords may raise rents.
Last summer, Richmond became the first city in California in 30 years to pass a new control law (though the law was later suspended, and the issue likely will be decided on the ballot). And in recent months, rent control has become a top issue in the state’s biggest cities.
In San Jose, multiple proposals to tighten rent controls, perhaps by tying them to inflation, are being debated in the City Council, and some could go to the ballot. A ballot initiative to cap rent increases was just filed in Oakland. Los Angeles is considering a new registry of all apartment rents. And in San Diego, a tenants’ movement wants to establish new controls.
Such attention to rent control is understandable but unhelpful. Rent control is a policy that, as libraries full of research and California’s own experience demonstrate, doesn’t do much to accomplish its avowed purpose: to make more affordable housing available.
As the state’s nonpartisan Legislative Analyst’s Office made clear in a 2015 report, the heart of California’s housing problem is that we Californians have long failed to build anywhere close to enough housing to accommodate the number of people who live here. The office said we’d need an additional 100,000 units a year to mitigate the problem. The reasons for the lack of building are many and related: community resistance, environmental policies, a lack of fiscal incentives for local governments to approve housing, and the high costs of land and construction.
Given all those barriers, today’s debate over rent control seems beside the point.
If rent control really lowers prices and produces stability for tenants, as its supporters claim, why are cities with rent control — among them Beverly Hills, Los Angeles, Palm Springs, San Francisco, Santa Monica, San Jose, Thousand Oaks and West Hollywood — so expensive? On the other side of the question, opponents of rent control sound ridiculous when they warn that it discourages construction, especially because state law exempts new construction from rent-control laws. The vast majority of California cities have no rent control — and they have housing shortages, too.
The real import of the rent-control debate is as a reminder of California’s civic disease: our long history of embracing complicated formulas as ways to dodge the hard work of democratically solving tough problems. Rent-control laws often include complicated formulas for allowing rents to be raised by different percentages or in different ways depending on different conditions (like whether a landlord made capital improvements).
It’s instructive that rent control’s California history is deeply intertwined with the ultimate dodgy California formula, Proposition 13. That constitutional amendment, approved by voters in 1978, provided the foundation upon which two generations of California fiscal formulas have been built.
One false promise of Prop. 13 was that saving property owners money on their taxes would lead to lower home prices and rents. So when home prices and rents soared after the amendment passed, liberal cities began to install rent-control ordinances that, like Prop. 13, didn’t lower rents or housing prices either.
Rent control is awesome for the lucky few that have it. It certainly in no way lowers rent in general… does anyone actually think that? What it does that is good is that it makes it harder for people to be dumped out of their apartments by raised rents. What is unfair is that I could afford a lot more in rent than I’m paying but because I live in an old building, I have rent control.
In SF, rent increases are tied to inflation and since inflation has been near zero, my landlord hasn’t bothered to raise the rent in five years.
You may have heard of the “eviction crisis” here in SF. It is a natural consequence of rent control. If a tenant is evicted the new tenant pays a market rent rate (which is then controlled going forward). Obviously there is a strong, strong incentive for landlords to get long term tenants out, especially in neighborhoods that used to be cheap and are now trendy and gentrifying.
Rent control is a way for politicians to keep their supporters entrenched while bilking the new more affluent population of money.
It certainly does function that way. It also makes the more affluent homeowners feel less guilty about resisting development and driving up everyone’s housing costs.
The Credit Collapse Opened the Door for Trump and Sanders
The pain of deleveraging is “a big part of the political story.”
http://www.bloomberg.com/news/articles/2016-04-01/the-credit-collapse-opened-the-door-for-trump-and-sanders
Americans lost so much in 2008 — jobs and homes, incomes and wealth — that the recession still dominates the public mood three elections later.
They lost something else too, something less talked-about on the campaign trail: a credit lifeline. For households before the crash, borrowing made good times better and hard times bearable. It held out the promise of a step up, even for the millions of working-class Americans whose wages had stalled. Paying down debt after 2008 had the exact opposite effect, amplifying the hurt and anger — and sapping the recovery.
“If you take the credit away, people are going to feel poor,” said Lucia Dunn, an economics professor at Ohio State University who led a study on household debt and the stress it caused.
Retrenchment came in two main varieties: by choice and by force. Some borrowers, seeing the devastation around them, scrounged up the cash to reduce debt. Others went bust and saw their homes go into foreclosure, or lost access to credit as banks clamped down.
In both cases, living standards took a hit. Between 2000 and 2007, borrowed money was adding about $330 billion a year to Americans’ purchasing power, according to the Federal Reserve Bank of New York. By 2009, households were diverting $150 billion to pay back debt — a swing of almost half a trillion dollars, even without counting the impact of lost jobs.
Enter Donald Trump and Bernie Sanders.
Both presidential candidates have rattled the political establishment, in large part by appealing to blue-collar — and highly indebted — Americans with an “I understand your anger” type of message. “Debt is a big part of the political story,” said Sherle Schwenninger, co-author of a study of household borrowing by New America, a policy institute in Washington. “The debt overhang, the debt struggles, the debt traps,” he said, all form part of the “narratives on both the Democratic and Republican side.”
Of course, when viewed from a different angle, the result of all this deleveraging is an American consumer in better financial shape.
Federal Reserve chief Janet Yellen highlighted this point two weeks ago, telling reporters in Washington that “household balance sheets are much improved.” As a share of the country’s economic output, consumer debt is down almost 20 percentage points from its 2008 peak, at 78 percent. And because interest rates have stayed low, Americans can afford to keep current. Debt-service costs as a share of disposable income are near historic lows.
That macro picture doesn’t tell the whole story, though.
Debt —and the ability to repay it — aren’t distributed equally. Especially after the subprime lending boom, the lower-income groups have the heaviest debt burden, according to New America’s study. That’s one reason deleveraging is weighing so much on the recovery. It takes cash away from the people most likely to spend it.
There’s “a day-to-day, week-to-week struggle of ‘How am I going to pay this bill or that bill?”’ Schwenninger said. And that fuels “a sense of desperation and anger.”
For many Americans, the end of the credit cycle was jarring. Lifestyles had been built around that extra cash, and people just hadn’t realized it could disappear, according to Diane Gray, a vice president at Navicore Solutions, a nonprofit financial counseling service in New Jersey. Those who sought help in the immediate aftermath of the crisis were “scared and distraught,” she said.
That desperation faded as the economy recovered, Gray said, and the profile of callers is now shifting: Housing debt is playing a smaller part, student loans a bigger one. She’s noticed another trend that may be more troubling, though. Before the crisis, customers would take out unsecured loans — typically more expensive than mortgages or auto financing — for perks such as vacations. Now, they’re often being used to cover basic living expenses.
Aileen Dooley, a 58-year-old school department head from Chantilly, Virginia, admits she was in the perks camp.
“We were going out for dinner three or four times a week,” she said. “Going to Nordstrom. We took family vacations, we used to go to Disney World once every two or three years. It was things as simple as that, you know? Getting dinner out, getting hair done and buying clothes. Stuff that now seems — well, it was — dangerous.”
Dooley’s balance sheet turned critical after her husband had to take a much lower-paying job in 2007. With credit-card debt peaking around $30,000, she turned to Navicore to help negotiate write-downs. It worked, though she said she still owes money on the loans that financed her daughters’ college education.
Student debt has been the fastest-growing component since the end of 2008, almost doubling to $1.23 trillion. Sanders, who has used his broad support among young voters to challenge Democratic front runner Hillary Clinton, is tapping into the anxiety that student loans create. He’s promising to make public college free, while Clinton has pledged debt relief for students.
Schwenninger said Sanders also won support with a broader argument: that one side of America’s credit equation — the borrowers — shouldered the whole burden while lenders “could rig the system and get bailed out.” He sees traction for that story among Republicans, too, where it has helped propel the outsider Trump to first-place status in the campaign.
The U.S. mortgage market has shrunk markedly since the bubble burst. Total home loans stood at $8.25 trillion at the end of last year, down from $9.29 trillion back in 2008. Americans have also trimmed their credit-card liabilities: Outstanding balances were $733 billion in the fourth quarter, compared with a 2008 high of $866 billion. Like student debt, auto loans are on the rise, and a growing share of them are going to subprime borrowers.
As borrowing rocketed to record highs before the crash, most policy makers and economists played down the risks.
Steve Keen was one of the few who didn’t. A professor at Kingston University in London, he warned of a brewing private-debt crisis as early as 2005. The problem for the U.S. economy now, he said, is that it’s unrealistic to expect much credit growth “in the aftermath of the biggest debt bubble in history. So a major source of demand is removed.”
Richard Koo, chief economist at Nomura Research, says the U.S. is going through something similar to the “balance-sheet recession” that hit Japan in the 1990s. After a credit boom-and-bust, Koo argues, it doesn’t matter how low interest rates go: Households and businesses want to repay debt, not spend or invest. So monetary policy can’t dig the economy out of its hole.
Policy makers wouldn’t want a repeat of the borrowing binge anyway. The question is: What fills the gap? Fiscal spending isn’t doing it. The government has scaled back its post-crisis stimulus; business investment is slowing; and wage increases during this recovery are only barely outpacing inflation.
Carol Oursler, 59, said she hasn’t had a raise in two years and still earns less than she earned in the sales position she lost in 2009. What’s more, the salary from her new job had to cover the cost of deleveraging: Oursler had run up almost $20,000 of credit-card debt after leaving her husband and moving to a home in Baltimore that she then had to fix up.
It took her five years to clear the balance. Looking back now on her debt odyssey, Oursler takes responsibility — “I regret that I used it for things I probably shouldn’t have; I did a lot of Christmas shopping a couple times” — but also wonders whether government officials and bankers should have done more to prevent the crisis.
“It was too easy for people to get into debt and get in way over their heads,” she said. “And that bothers me.”
This is e classic example of the fallacy of debt equals wealth and credit is savings. The fact that people didn’t “feel poor” while they were actually making themselves poor speaks more to their delusions and the success of credit card marketing than it does to any objective reality about income and wealth.
I guess it’s hard to feel poor while you are basking in luxury but then you suddenly feel enslaved when the bill comes due.
That’s the trap of consumer debt.
Ditto.
Former Renters: 38 Percent of Homebuyers in February 2016
Home buyers who were renting immediately prior to their recent home purchase accounted for 38 percent of sales in February 2016 (40 percent in January 2016; 38 percent in February 2015), according to the February 2016 REALTORS® Confidence Index Survey Report.
http://economistsoutlook.blogs.realtor.org/files/2016/03/living-status.png
Renters are facing challenges transitioning into homeownership. According to NAR’s March 2016 Housing Opportunities and Market Experience (HOME) Survey of U.S. households, 63 percent of respondents who currently do not own a home believe it would be difficult to qualify for a mortgage given their current financial situation.[1] Steep house price increases amid modest income gains have increasingly made homes less affordable, especially for first-time homebuyers (Chart 2).
http://economistsoutlook.blogs.realtor.org/files/2016/03/change.png
Access to credit remains tight compared to conditions prior to 2008, although conditions are slowly easing, using FICO scores as one indicator (see Chart 3).
http://economistsoutlook.blogs.realtor.org/files/2016/03/weighted.png
You forgot:
“If you go to a lawyer, and s/he recommends bankruptcy even though most of your debt is student loans and you really want to keep the car with its loan, is it okay that the lawyer is pushing this because otherwise s/he loses a potential client?”
Yep. What’s the point in going through bankruptcy if the borrower is keeping most of their debt? Of course, the unethical attorney who takes this case knows they aren’t in much danger of being sued–their client is bankrupt.
At Last, Brokers Must Put Your Retirement Needs First
How much investing jargon do you need to master while saving for retirement?
The word “fiduciary” is a good example. A Financial Engines survey released Thursday finds that only 18 percent of Americans are sure what the word means. That kind of ignorance can be expensive: U.S. financial advisers are divided between “fiduciaries” required to put your interests first (like a doctor or lawyer), and others like brokers, more akin to salespeople, required only to push “suitable” products that may profit them more than you.
Judy McChester-Nedd, a 59-year-old retired executive in Helena, Ala., didn’t know the difference when she hired an adviser unconstrained by fiduciary duty. She says she asked for a conservative strategy and ended up losing 14 percent last year in actively managed mutual funds. Ian MacGregor, 38, is a consultant in Dublin, Ohio, who also didn’t know the difference. His adviser kept steering him into mutual funds with upfront load fees of as much as 5 percent. (There’s another nugget of jargon you should know: A load is a one-time charge to invest in a fund. In other words, front-end load funds are investments where you lose money the moment you buy them.)
Nonfiduciary advisers are free to recommend only the products that earn them the highest commissions, which can come from both load fees and annual fees. Because they get paid in so many complicated ways, it can be hard to tell how much they’re making off you and what their incentives are. Fiduciary advisers tend to get paid in more transparent ways, often by charging an annual fee based on the assets they manage.
Of course, not all nonfiduciary advisers charge high fees or push lousy bets, and fiduciary advisers aren’t all perfect. But it’s hard to invest when you’re not sure whom to trust.
“I’ve lost confidence,” McChester-Nedd says. “The government needs greater oversight over this because regular people are getting hurt.”
MacGregor agrees: “There’s got to be some way to protect the less-savvy investor from being taken for a ride.”
Well, they may get their wish. Despite years of resistance from Wall Street, the U.S. Department of Labor is expected to announce soon the final version of a rule that may force financial advisers to abandon the way they’ve done business for decades. For the first time, all advisers may need to act as fiduciaries, putting their clients’ interests first when handling retirement accounts.
(applause)
Ramsey went crazy on this again recently. His argument has two prongs: 1) small $1K investors will be turned away, and 2) the socialists think extremely low-fee no-load index funds are better for you than actively-managed 5%+ load funds.
Both arguments are BS of course. Fidelity, Vanguard, etc. will accept very low initial amounts to open accounts. If you know nothing about investing, and don’t like to read, you can hire a fee-only adviser to walk you through some things for ~$100-$500.
Low-fee no-load index funds are the best option for the vast majority of investors. Once you have a decent amount saved ($100K?), you can start exploring actively-managed options. I don’t think the rule prohibits actively-managed high fee funds any how. It just requires better disclosure.
Tidbit – If your argument is terrible, just throw “socialist” or “communist” in it, and maybe scapegoat “those people,” and you can prevent a large percentage of the population from actually thinking.
Also can be supplemented with George W. Bush and more recently Donald Trump…great tidbit!
So much of Ramsey’s advice is good (especially the self-disciple and avoidance of debt).
I wonder why he is against index funds? They are so clearly the best solution for 99%+ of people out there.
Is he a paid spokesperson for the mutual fund industry? He must have an incentive to be on the wrong side of that question.
He gets a cut of the fee. He has enough followers that his commission is probably pretty sizable.
It’s about time!!! Wall Street is complaining about having to put the interests of its clients first…Doctors take an oath to do just that – put the patient’s interests first. Not saying they always do that, but they have to swear to do that. Can you imagine a world in which doctors could sell quack vitamins and “therapies” that did nothing but fatten their wallets? There’s already a ton of quack medicine out there, but it would be much worse if doctors could prescribe whatever they wanted to without any consideration for the patient.
Right, if/when doctors and lawyers fail to put clients’ interest first, their licenses are in jeopardy.
The fact that Wall Street got away with this for so long is testament to how corrupt the whole system is.
Pending Sales Recover but Annual Gain Shrinks
Downward revisions create gain where none existed
Countering an earlier disappointing report on existing home sales in February, pending home sales reached their highest levels in seven monthsCountering an earlier disappointing report on existing home sales in February, pending home sales reached their highest levels in seven months. The National Association of Realtors® said that its Pending Home Sales Index (PHSI), a measure based on signed home purchase contracts, rose 3.5 percent in February. This followed both a January PHSI that dropped by 2.5 percent (and was revised down further today) and last week’s report on February existing home sales that fell 7.1 percent. The PHSI is a forward-looking indicator that is generally expected to predict future home sales. Contract signings generally result in closed transactions in about two months.
The February PHSI was 109.1, compared to the revised 105.4 in January and was 0.7 percent higher than in February 2015. NAR said that although the index has now increased year-over-year for 18 consecutive months, last month’s annual gain was the smallest.
Despite last month’s dive in pending sales, analysts polled by Econoday had expected an increase in February with predictions ranging from 0.5 percent to 2.0 percent. The consensus was an increase of 1.5 percent, easily outpaced by the actual number.
Lawrence Yun, NAR chief economist, says pending sales made promising strides in February, rising above the reading last July of 109.8. “After some volatility this winter, the latest data is encouraging in that a decent number of buyers signed contracts last month, lured by mortgage rates dipping to their lowest levels in nearly a year and a modest, seasonal uptick in inventory. Looking ahead, the key for sustained momentum and more sales than last spring is a continuous stream of new listings quickly replacing what’s being scooped up by a growing pool of buyers. Without adequate supply, sales will likely plateau,” he said.
According to Yun, the one silver lining from the significant slump in existing home sales in February was that price appreciation lessened to 4.4 percent, which he noted is still above wage growth but certainly more favorable than the 8.1 percent annual increase in January.
“Any further moderation in prices would be a welcome development this spring,” adds Yun. “Particularly in the West, where it appears a segment of would-be buyers are becoming wary of high asking prices and stiff competition.”
How Your Home Stacks Up as an Investment
“The real estate bust showed it was a myth that homes are always a safe investment,” he says.
Everyone needs a home, so some of the ownership cost is like paying rent. The question, then, is whether the home produces a return on top of its value as shelter.
As investments, homes certainly have some benefits. For most homeowners, gains on a primary residence are tax-free, and the homeowner with a mortgage can benefit from leverage. Put $30,000 down on a $300,000 home and you’d double your initial investment if the value rose by 10 percent, which could happen in just a few years if you were lucky. At least, that’s the pitch from those who see homes as good investments.
A home can also be a stable holding.
“Home prices are much less volatile than stock prices, especially on the downside,” says Andrew Armata, co-owner of LAER Realty Partners, a real estate firm in Massachusetts. “The housing market has historically been much less prone to bubbles and crashes.”
In part, that’s because a home can’t be sold on a moment’s notice. And homeowners stick with their homes, shoring up prices, even in shaky markets, because they need a place to live.
Ask your grandparents what they paid for the home they’ve owned for 50 years and it may look like a gold mine. And, of course, plenty of people make quick killings in red-hot markets. But those who buy at the peak can get hammered when the bubble bursts. Just ask the tens of millions of homeowners who were underwater for years after the housing bubble of the past decade collapsed, leaving them owing more than their homes were worth.
Homeowners also do not keep track of their holding costs (property tax, maintenance, insurance, and inflation) and then assume the check they get at sale is all profit.
Yep. I use a category in Quicken to track every upgrade (that can’t be removed upon sale) and another category to track maintenance. I want to know exactly how much “ownership” is costing me. Also, in the event the gain at sale is greater than $500K, all of those upgrades can be used to adjust your cost basis upward.
So how much *is* ownership costing you, if I may ask? Are your maintenance costs in line with your expectations? Something on the order of 1% of home value per year?
My family is starting to outgrow my apartment so I’m looking to get a house in the next few years and the maintenance thing is scaring me.
We just moved into a new house in Irvine in January. So we’ll have zero maintenance costs for at least a year. After that, they should be tiny relative to the price of the house, for many years. Of course, we paid a premium to buy a new house – effectively prepaying maintenance.
The big expenses nobody tracks when throwing their “profit” at you upon sale, are the upgrades. They do simple math: current sale price less price paid at closing originally. They forget how they spent $35K after buying replacing flooring and adding cabinets. They forget the $30K spent on landscaping. Nobody keeps track of the little things like $1K spent in light fixtures over the years.
Delusional Optimism is Back
Freddie Mac: 2016 will be housing’s best year in a decade
Freddie Mac predicts total home sales, housing starts and house prices will continue to rise this year, reaching their highest point since 2006, according to its March Outlook that was released today.
Freddie Mac does not expect inventory and affordability challenges keep the market from reaching its highest level. It also expects the 30-year mortgage to remain below 4% throughout the home buying season, until the second half of the year.
“Housing markets are poised for their best year in a decade,” Freddie Mac Chief Economist Sean Becketti said. “Low mortgage rates, robust job growth and a gradual increase in housing supply will help drive housing markets forward.”
The forecast shows that multifamily and single-family housing starts will increase by 200,000 units to 1.3 million in 2016. Whereas home prices increased by 6% in 2015, the forecast shows that 2016 will increase at a slower rate of 4.8%.
Mortgage originations will also increase, according to the forecast, by $70 billion, bringing the total to $1,650 trillion die to higher expected house prices.
“Low levels of inventory for-sale and for-rent and declining housing affordability will be major challenges, but on balance the nation’s housing markets should sustain their momentum from 2015 into 2016 and 2017,” Becketti said.
Housing Market Could Soar in 2016, But Concerns Linger: Freddie
The housing market is poised to post its best year in a decade, although employers’ resistance to giving workers a raise is a major concern, Freddie Mac said on Thursday.
Freddie Mac predicted that home sales, housing starts and house prices will increase, driven by low mortgage rates, as rates on the 30-year fixed have remained below 4% this year.
Even so, wage growth has remained “anemic, barely keeping pace with inflation,” Freddie Mac said. Of further concern is that labor force participation has “fallen substantially.”
“If wages and incomes do not start rising, then rising interest rates, home prices and rents will squeeze households and ultimately slow housing markets,” Freddie Mac said.
Good riddance, gig economy: Uber, Ayn Rand and the awesome collapse of Silicon Valley’s dream of destroying your job
[…] Five most common lies realtors tell http://ochousingnews.g.corvida.com/five-most-common-lies-realtors-tell/ […]
[California is first state to approve $15 minimum wage](money.cnn.com/2016/03/31/pf/california-minimum-wage/)
Expect much of that increased income to be spent on housing rent increases
Both the State Assembly and State Senate passed the measure on Thursday afternoon. Governor Jerry Brown said he would sign it on Monday.
“No one who is working full time in California should live in poverty due to a low wage,” said Democratic State Senator Mark Leno, who cosponsored the bill.
The measure will raise the state’s minimum wage to $10.50 in January and to $11 in January 2018. It will then increase by an additional $1 per hour every year until it reaches $15 in 2022. If, however, the state goes through an economic downturn or budget crisis, the governor may choose to slow the implementation.
Here’s the Map That Shows Why the GOP Is Freaking Out About Trump
http://finance.yahoo.com/news/map-shows-why-gop-freaking-170600956.html
http://www.centerforpolitics.org/crystalball/articles/the-only-thing-that-matters/
Trump supporters will see all the red on that map and scream about conspiracies, the liberal media, etc., without understanding math.
That map illustrates why I believe Trump would pick Marco Rubio as a running mate. If Trump picks up Florida, that changes the balance by 58 electoral votes. He then needs to pick up two of the three other swing states: Ohio, Virginia, North Carolina. If he does that, he wins.
I also believe polls like these underestimate the true voter appeal of a populist. A Trump/Clinton election is a populist against an establishment insider, and I don’t think that works for the establishment this year.