The Knows

Foreclosures Are Rising

2010-04-06T18:40:00.000-07:00

Foreclosures are on the rise, and that is a fact. The question is, what does it mean for you and your family? Economists are starting to claim that we'll see a bottom this year (see the embedded video). I'll write up a full detailed report soon.

Whitney: Consumers Still in Trouble: Worse, not better

2009-12-29T19:50:00.000-08:00

The Coming Collapse of the Middle Class

2009-12-19T14:23:00.000-08:00

We know where the money went...

2009-04-30T09:56:00.000-07:00

As Wall Street and the financial markets continue to suffer there is one segment that is actually doing quite well, and getting better as the housing market continues to contract. To which market segment am I referring? Forensic Accounting.

Forensic accounting is the practice of utilizing accounting, auditing, and investigative skills to assist in legal matters. It encompasses 2 main areas – litigation support, investigation, and dispute resolution. Litigation support represents the factual presentation of economic issues related to existing or pending litigation. In this capacity, the forensic accounting professional quantifies damages sustained by parties involved in legal disputes and can assist in resolving disputes, even before they reach the courtroom. If a dispute reaches the courtroom, the forensic accountant may testify as an expert witness.

Investigation is the act of determining whether criminal matters such as employee theft, securities fraud (including falsification of financial statements), identity theft, and insurance fraud have occurred. As part of the forensic accountant’s work, he or she may recommend actions that can be taken to minimize future risk of loss. Investigation may also occur in civil matters. For example, the forensic accountant may search for hidden assets in divorce cases.

During the Great Housing Boom, many americans were leveraging the equity in their homes for home improvement, buying cars, taking vacations, and in some cases making down payments on investment properties. Here's where it gets interesting, some banks have already begun to use forensic accounting firms to investigate where the money was used for some of the home foreclosures that are hitting the market.

So, for those who used the money to buy tangible items such as cars and homes, listen closely. If you decide to walk away from your home allowing it to go into foreclosure, the bank may be able to make a case that the equity within those tangible items belong to them!

Consider the following scenario:

A homeowner bought their home for $200,000 before the Great Housing Boom. During the boom, they acquire a Home Equity Line Of Credit (HELOC) for an additional $200,000!!! Now, the homeowner uses the money to buy a new BMW for $40,000, and applies the rest toward the down payment of a second home, and moves into it. What this all means is, if the homeowner walks away from there first home, the bank may make a case that the equity in the new home belongs to them!

Currently there is no legal precedence for doing so; however, with banks taking huge losses as a result of the staggering number of foreclosures, it's inevitable that the laws will be massaged to allow them to recover some of that money.

The Economy is Broken

2009-04-27T14:29:00.000-07:00

The embedded video actually has nothing to do with the housing market or the economy. However, the title of this posting will make complete sense after you've watched the video. Enjoy.

Calling the "Bottom"

2009-04-22T21:05:00.000-07:00

Lately, I haven't posted nearly as many articles as I used to, mainly because most of the insights that I've written about in the past have not changed. In this article, I've decided to comment on what analysts commonly refer to as "the bottom" of the housing market.

I've been reading and watching (on television) these analyst struggling to call a bottom for the current economic turmoil we're experiencing. Some of the more optimistic analysts claim we'll see a bottom at the end of 2009, others claim 2010 or 2011. So which of them are right? I say, it doesn't really matter... And here's why:

Once we've hit the bottom, we'll stay there; for a while... There won't be any upward movement in home prices, and there will still be enough distress situations that it will be difficult to estimate the exact value of homes in certain areas. Homeowners will still be walking away from their properties because they'll be so upside down that they see no other way out. Rents will continue to decline, forcing make-shift landlords into foreclosure, and you'll only know we were at the bottom in hindsight once the recovery starts. The ugly truth is there is still a long way to go, and government intervention will only prolong the inevitable, not prevent it.

So what if anything can you do?

Be smart. You'll hear the National Association of Realtors (NAR) claim time and again that the market is turning around, that sales are way up. The truth is, every summer sales will increase (even as home prices continue to dwindle), and every winter there will be huge price declines! So you may be growing weary of the rental you're in, but you may not want to buy yet!!! The time is not right.

If you own a home and you've been thinking about selling, then you've got a more difficult road ahead. For those who are not severely upside down in terms of loan to value ratio, there's no harm in attempting to sell!!! Prices will continue to fall, so if you can cut your losses, you should probably do so.

For those who are seriously upside down, if you can afford your mortgage, hang tight! One of the programs to help "save the homeowners" may be of help to you, but most of them require you to be in good standing with your mortgage! Keep making the payment, light may be at the end of the tunnel for you.

For those who are seriously upside down, and having difficulty affording your mortgage, work with your lender! Believe me, the lender doesn't want to go through the foreclosure process on your home anymore than you do. If you've lost your job, or taken a pay cut call your lender and tell them about your situation. In some cases they can temporarily suspend your mortgage payments (although you may still be responsible for the interest, which will continue to accrue).

Finally, I'll leave you with one thought: No one can absolutely call the bottom as it is happening!!! Watch the signs, and you'll know when the time is right to act.

A profound observation...

2009-04-16T21:15:00.001-07:00

While pondering how the current economic crisis has affected family, friends and co-workers, I've had an epiphany. The people that have faired the worst, have done so because of a genuine lack of humility. I recall certain individuals bragging about the expensive homes, cars, and jewelry that they were planning to buy, or vacations they were planning to take; presumably with their home equity. For many, it just never occurred to them that home prices would stop going up; or heaven forbid, go down. (Even some of the analysts refused to see it!)

In the aftermath, many of these "individuals" have had their homes foreclosed and/or filed for bankruptcy, or are currently struggling to keep from doing so. The question that remains is:

Have we, as a society, learned anything from this?

I would so like to answer that question with yes; however, I'd be lying... The truth is, this has all happened before, and it will happened again.

The Sweet Spot

2009-03-22T13:35:00.001-07:00

Did you sell your home before the housing crash, or are you planning to buy an investment property, and now you're just waiting for the bottom of the market to re-buy? Well, so am I... And I experienced something recently that I think is worthy of consideration...

Recently, Circuit City went out of business; discounting all of their inventory as they got closer to their store closing deadline. While this was happening I visited the store frequently, waiting for the deals to be "just right". What was I interested in? Video games!!! So, toward the end, I happened to stop into the store, and all video games were 50% off!!! Despite this steep discount, there were still many of the titles I was looking for on the shelf; however, there was a well known pattern that every week they increase the discount by 10%. The prices were going to fall to 60% off, and I absolutely considered that the sweet spot. Well, the evening Circuit City reduced the video games to 60% off, I visited a few stores. All of the good games were gone. All of a sudden, that 50% off that I could've gotten didn't seem so bad, and I longed to be able to pick up one of those titles at 50% off... But it was too late.

So, at this point, I'm sure you've guessed where this is going... I believe in similar fashion, at the bottom, the type of property you're looking for may be in short supply as everyone else who was waiting for the bottom will be bidding, perhaps over-bidding, for those same properties. Thus, if you find a property now that has everything you're looking for, you may want to consider making a bid for it for an amount you can live with; because the alternative may be taking what you can get once the good stuff is gone.

L.A.'s Westside succumbs as housing goes south

2009-02-03T18:31:00.000-08:00

Even the elite areas in Los Angeles aren't immune to the worsening housing market. The embedded video illustrates that point.

Are they laughing now?

2008-12-02T06:43:00.000-08:00

The embedded video illustrates how even the analysts refused to see the obvious truth of what was to come (the television program aired in 2006). Some of these analysts even laughed at Peter Schiff as he warned of what was then an impending mortgage crisis.

The Slot Machine

2008-10-26T13:01:00.000-07:00

A guy is walking through the casino, and stops in front of a slot machine because he noticed a silver dollar on the floor. He picks it up, places it in the slot machine, and pulls the lever. The machine goes crazy!!! He hit the $1,000 Jack Pot!!! People start clapping, whistling, and yelling. He feels like a super star. Although he could collect his winnings and move on, he decides to continue playing; reasoning, I won $1,000 in one roll, who knows how much I could win! The man continues playing for a few hours until finally, the money is all gone. He walks away from the machine disappointed, saying "I can't believe I lost $1,000." But did he really lose $1000? Or was it all funny money? Remember, he found a silver dollar on the floor which he simply put into the machine and won cash. Had he not played he'd be no better or worse off.

This analogy has direct applications to the current housing market. How often have you heard statements like: "I've left so much money on the table" or "I've lost so much equity"? But the question is... Did they really lose money? Real money? Or was it funny money?

In many cases, although not all, it was funny money. Consider that most non-first time buyers sold a home and used the equity as a down payment for their new home. So, although the market has fallen substantially, you must take in account that if you sold a home at an inflated price, then bought a new home at an inflated price then all you've really done was exchanged the debt you had in one home toward that of another. And in many cases, if the homeowner did not choose a risky mortgage loan they're no worse off. I realize it's hard coming to grips your home not being worth what homes were listing and selling for during the Great Housing Boom, but hey, it was the casino's money anyway right?

Housing Market Watch #13

2008-10-18T06:00:00.000-07:00

This is the 13th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the uber exclusive city of Malibu... Yes Malibu! (Los Angeles County) .

Description

REO/BANK OWNED FORECLOSURE!!! LET'S SEE THOSE OFFERS! EXCELLENT, PRIVATE LOCATION IN THE HILLS OF MALIBU, JUST MINUTES TO PCH & THE BEACH. NEWER BUILT CONSTRUCTION W/LARGE ROOMS, OPEN FLOOR PLAN & HIGH CEILINGS. SPECTACULAR CANYON, MOUNTAIN, & PEEK-A-BOO OCEAN VIEWS FROM NEARLY ALL ROOMS & BALCONIES. LUXURIOUS MASTER SUITE W/FIREPLACE, PVT. BALCONY, DUAL VANITIES, LARGE WALK-IN CLOSET, & A LIMESTONE BATH W/SEPARATE STALL SHOWER & SPA TUB. ALL BEDROOMS EN-SUITE W/EUROPEAN STYLE BATHS. SPACIOUS COOKS KITCHEN & MUCH MORE.

The Specs:

Type: SFR
Status: Active
MLS#: F1754027

Sq. Ft.: 2,637
Lot Size: 5,990 Sq.Ft.
Year Built: 1999

Beds: 2
Baths: 4
Stories: 2
On Market: 246 days

Sales History

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
10/29/07	$903,795	342.74	N/A	N/A	N/A

Pricing History

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
02/13/08	$1,299,900	492.95	+$396,105	+396,105	43.83%
03/18/08	$1,275,000	483.50	+$371,205	-24,900	1.92%
04/19/08	$1,174,900	445.54	+$271,105	-100,100	7.85%
09/02/08	$1,099,000	416.76	+$195,205	-75,900	6.46%
??/??/08	$975,000	369.74	+$71,205	-124,000	11.28%

This episode's home is currently listed for 17.76% more than it was purchased for in October 2007. However, it is clear that the lender owned property's price will have to be reduced significantly in order to get this property off the bank's books.

UPDATE (date unknown): Price reduced to $975,000.

Do you see what I see?

2008-10-16T06:07:00.000-07:00

Previously, I wrote an article entitled Explosive Opportunities, that discussed my prediction that there would soon be numerous opportunities to buy very affordable homes and perhaps one's dream home over the next few years. I've decided to write a follow up to expand upon what I previously said.

Do you see what I see? Lately, I've been discussing where we may want to purchase a home with my wife. It's actually a tough decision because the housing market has dropped by such a large amount that cities that were previously unaffordable are now becoming within reach. As a result, we've decided to be very calculated in terms of our decision of what to buy.

On the one hand, there may be an opportunity to purchase a home and have a very small mortgage payment which is definitely preferable. This would afford us the opportunity to enjoy higher quality of life, save more money and concentrate on retirement planning. At the same time we're mindful that once the market recovers, not all areas will increase in value by the same rate. Some areas will increase by large percentages compared to neighboring cities that may soon be very close in price. So the challenge ahead is to balance how much to spend versus buying in cities where one will get the largest return on investment (ROI).

If you don't currently own a home than you potentially share in our plight; however, I would caution you not to take the decision lightly. There is no crystal ball that can predict the future, and no way to guarantee that the purchase you make will yield the intended result. That being said, RESEARCH, RESEARCH, RESEARCH!!! Do your homework before running head long into one of the biggest financial decisions one can make.

The domino effect

2008-10-15T08:10:00.000-07:00

Back in April, I wrote an article discussing the property tax problem that the Great Housing Boom created. Yesterday, CNNMoney.com published an article entitled "Home prices may plummet, but taxes won't", where they discuss in detail what this means for home owners.

Consider the quote from the CNNMoney.com article:

"For my first 25 years [as an assessor], nobody ever asked me to lower the assessment based on a home selling for less down the street. There are many such inquiries this year," said Ken Wilkinson, the tax assessor for Lee County Fla., which includes Cape Coral and Ft. Myers.

He estimates that 80% of county residents have seen the value of their homes decline. The median price of existing homes fell more than 25% in the 12 months ending June 30, according to the Housing Opportunity Index compiled by Wells Fargo (WFC, Fortune 500) for the National Association of Home Builders.

The article goes on to say:

But even if local prices are way down, taxpayers may not win a lower assessment, because there can be a big lag time between when the home sales used to calculate them take place and when the assessment is actually issued.

To calculate 2009 assessments, for example, assessors will use home sale prices from 2008 or even earlier, according to Sepp. Usually this works to taxpayers's advantage, since price increases take a while before they are fully reflected in assessments.

This is becoming a very serious issue as many homeowners struggle to just pay their mortgages; thus, relief there would be welcomed. One thing is certain, you won't get any decrease if you don't demand it! So, if you've bought a home in the last three years, when you receive your property tax bill, be ready to site examples of sold homes in your neighborhood to contest the amount. You may be very glad you did.

Times have changed...

2008-10-12T10:36:00.000-07:00

Over the last four years, I have noticed significant changes in the socioeconomic climate of this country. The Great Housing Boom Crash is causing record numbers of foreclosures, which is driving housing prices back to what they were in the late 1990's (see It's all happened before). The Credit Crunch has all but crippled the credit markets, and at this point only those with the best credit scores can even attain mortgages (see The Good, the Bad, and the Ugly). But that's the obvious stuff, what I'd like to discuss today are the changes that have been more subtle.

So what's different?

Recently, it seems that companies have changed their view of what makes a good job candidate. This can be seen in a number of ways:

Having a bachelor's degree are more important than ever, and as the number of candidates for any given position increases, so does the necessity to have what the other guy doesn't.
For management positions, employers are increasingly insistent on managers that can act in a hands-on capacity if the situation calls for it.

For over a decade, I have been employed as an Information Technology professional, and I like to keep a close eye on what's happening in the employment market for my area of concentration. What I've noticed is that there is a growing trend for Software Engineering Managers and Directors of Technology to have recent hands-on experience developing software. Why is this significant? Because traditionally, at the manager level, and especially at the director level, there has not been a requirement for them to participate in the actual coding of an application, even at times when the company is short-staffed.

So what does this mean for you and me?

As the economy worsens, there will be fewer jobs available; meaning more competition for each available position. This means the better your educational background and experiences, the better your chances will be of getting the job. So, For those of you who don't have a Degree of any kind, you may want to consider one of the schools with accelerated degree programs for working adults. For those of you that have finished an Associates Degree, go back to school for two years, and finish your bachelors. Finally, for those of you who've completed a Bachelor's Degree, you may want to consider a Master's Degree if your circumstances allow it.

Just some food for thought...

Congratulations

2008-10-06T09:36:00.000-07:00

Congratulations Corporate America,

You've received the bailout you've been waiting for, and I'm sure it will allow you to continue in the lifestyle you've become accustomed to. Many homeowners will still lose their homes, due to the toxic mortgage products you sold them, but hey, nobody's perfect. Best of all, you don't even have to pay the money back, the U.S. tax payers will gladly pick up the bill for you. Why? Because we understand that you can't be held accountable for your actions.

Why so sarcastic, you ask? It's because once again the American people are burdened with paying off either the Government's or Corporate America's mess.

What would I have proposed?

I would have proposed low interest rate loans to the banks, which they'd have to pay back over let's say 30 years. This way, the banks learn a lesson, and would be far less likely to have something like this happen again. As it stands, what will they take from what just happened? Honestly, the government just indicated that they can go out and do whatever they want, and if they get in trouble, "we're here for you."

Housing Market Watch #12

2008-09-04T07:11:00.001-07:00

This is the 12th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the family friendly community of Simi Valley (Ventura County) and has a private pool.

Description

Remarkable Value! One of the BEST priced homes in ALL of Simi !! Large 6+3 with surprising privacy in front and back yards! Private gated front yard with brick-lined planters and fruit trees! Well landscaped! Brick lined walkway to newer double door entry! 2 master suites! Large balcony overlooking yard! Tile floors and smooth ceilings! One bedroom/bath downstairs! Updated kitchen and baths! Indoor laundry! Private entertainers yard with blue-bottom pool, gazebo, fruit trees and side yards! Home enlarged nearly 1000 permited sqft by pushing out the family room and upstairs master!

The Specs:

Type: SFR
Status: Active
MLS#: F1779006

Sq. Ft.: 2,616
Lot Size: 7,600 Sq.Ft.
Year Built: 1964

Beds: 5
Baths: 2.5
Stories: 2
On Market: 139 days

Sales History

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
07/09/90	$236,500	90.4	N/A	N/A	N/A
07/25/05	$650,000	248.5	+$413,500	+413,500	174.48

Pricing History

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
05/20/08	$495,000	189	-$155,000	-155,000	23.85%
08/13/08	$459,900	176	-$190,100	-35,100	7.09%
09/05/08	$449,000	172	-$201,000	-10,900	2.37%
09/12/08	$448,900	172	-$201,100	-100	0.002%
09/20/08	$448,500	171	-$201,500	-400	0.009%
10/02/08	$448,200	171	-$201,800	-300	0.007%
12/18/08	$420,000	160	-$230,000	-28,200	6.29%

This episode's home is currently listed for 31.05% less than it was purchased for in July 2005. This home has fallen in price by a whopping $201,800!!! For some the current asking price of $448,200 may look like a deal, but I believe these homes will fall into at least the low $300,000's before we're at the bottom of the market.

UPDATE 09/20: Price dropped to $448,500
UPDATE 10/02: Price dropped to $448,200
UPDATE 12/18: This property was sold for $420,000

An Open Letter to Mortgage Borrowers Waiting for a Bailout

2008-06-27T22:12:00.000-07:00

I found the letter (quoted below) while searching for housing market related news. The statements are so timely and powerful, that I decided to repost it here:

This open letter is addressed to all of the struggling mortgage borrowers (and their lenders) who are sitting on their haunches waiting for the government to come to their rescue.

BY PAT SUMMERS

Dear Mortgage Borrower:

I understand that you have gotten yourself into some trouble. As someone who has made more than a few mistakes, I sympathize with you. I really do.

However, I am more than a little concerned by how eager our government is to intervene on your behalf. They want to bail you out with taxpayer-backed programs and loans. They also want to violate the sanctity of U.S. contracts by allowing courts to alter terms on mortgages. While this may seem like good news to you, it feels terribly unjust to me.

Unlike you, I didn't ride the wave of insanity and buy more house than I could reasonably afford with a loan that I couldn't feasibly pay back. Nor did I sign a legally binding contract to claim responsibility for your questionable real estate transaction. Nevertheless, there is a good chance that I will be forced to resign myself to the risk you wholeheartedly accepted not that long ago.

In fact, I am already paying for your mistakes. The Federal Reserve has made the unethical decision to weaken our dollar so that they could give discounted money to struggling banks, a.k.a. your partners in crime. If something isn't done soon, who knows how far they will take their unethical plan.

Now, you may be asking yourself: why doesn't this nutter just write to the government--the shady folks who are forming and allowing all of these diabolical plans. The truth is that like many people I have already wrote numerous letters to my representatives to let them know how I feel about mortgage bailouts. But until you do the same, I'm afraid that they will continue on with their destructive, election-year plans to intervene on your behalf.

You must know that it is morally irresponsible for you to expect other people to pay for your mistakes. Please do the right thing. It's not too late to take responsibility for your own actions.

Sincerely,

Pat Summers, Frustrated Taxpayer

Who can you trust for investment advice?

2008-06-25T21:03:00.000-07:00

The embedded video demonstrates how successful you would been if you followed Jim Cramer's investment advice to the letter, starting before the current declining economy.

May Foreclosure Numbers

2008-06-25T20:58:00.000-07:00

Below are the ten states that had the highest number of foreclosures for the month of May. Our Foreclosure Report for the month of April can be found here.

State	# of Foreclosures	% +/- Apr '08	% +/- May '07	% of Total
United States	261,225	7.36	48.32	100.00
California	71,930	11.20	81.37	27.54
Florida	37,364	5.96	72.15	14.30
Arizona	12,959	11.52	118.98	4.96
Michigan	12,792	24.57	35.21	4.90
Ohio	12,295	5.27	-6.95	4.71
Georgia	10,241	11.45	23.47	3.92
Texas	10,063	-11.77	4.25	3.85
Illinois	9,670	15.35	41.71	3.70
Nevada	9,009	23.82	72.09	3.45
New Jersy	7,430	44.47	89.15	2.84

Click on the image below to enlarge

For those who have been activity reading the articles on this blog, May's foreclosure numbers should be no surprise. We will follow up shortly with an analysis of the last 3 months of reported foreclosure activity.

See the complete foreclosure report here

REO Safari #2

2008-06-13T06:04:00.000-07:00

This is the second episode of the REO Safari Series (see the previous episode here). The embedded video (2 min 21 sec) takes place in Valley Center (near Escondido). Jim the Realtor mentions the Cash for Keys program (he is offering the previous owners $2500 for their keys). The home previously sold for $927,500 in 2005.

REO Safari #1

2008-06-13T06:03:00.000-07:00

Today's post is the first episode of a planned series of articles which endeavor to showcase the role of lender owned properties (REO) in the current housing crisis.

For months, I've been writing about the fact that REO's have overtaken the market, and are driving prices down. The embedded video follows Jim the Realtor, as he drives around Oceanside to survey the neighborhood where he has a new listing. Watch as he encounters REO after REO within only a two block radius.

Housing Market Watch #11

2008-06-09T08:33:00.000-07:00

This is the 11th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is a newer home located in the city of Harbor City (Los Angeles County) .

The Specs:

Type: SFR
Status: Active
MLS#: Y803183

Sq. Ft.: 2,057
Lot Size: 3,000 sqft
Year Built: 1992

Beds: 4
Baths: 3
Stories: 2
On RedFin: 23 days

Description

THIS IS A *SHORT SALE* SUBJECT TO LENDER'S APPROVAL This is a nice and well-mantained PUD. It does not have HOA! Huge master bathroom with nice jacuzzi tub. Walk in closet in master bedroom *****NO MORE SHOWINGS UNTIL FURTHER NOTICE*****

Sales History

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
03/30/94	$290,000	141	N/A	N/A	N/A
06/22/05	$549,000	267	+$259,000	+$259,000	89.31%
10/20/05	$580,000	282	+$290,000	+$31,000	5.65%

Pricing History

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
04/30/08	$380,000	185	-$200,000	-$200,000	34.48%

This episode's seller decided to be aggressive right out of the gate in listing their home. Unfortunately, given the current slow home sales market, and buyers' fear that they too could end up underwater, additional price cuts will likely be necessary to sell this home.

Housing Market Watch #10

2008-06-06T05:55:00.000-07:00

This is the 10th episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the prestigious community of Coto De Caza (Orange County) on the golf course with a private pool.

Description

A Beautiful home on the Golf Course the South Court #3 even with the Tee-Box located on a Quiet Single Loaded Street. Very bright and open floorplan with Plantation shutters thru-out. Perfect size Loft area for relaxing or entertaining. Office downstairs has custon built-ins. Stone flooring through out the downstairs. Entertaining backyard with Pool and Spa, Built in BBQ Island and Gas Firepit. Child proof pool gate is removable. A Must See and Priced to sell!

The Specs:

Type: SFR
Status: Active
MLS#: S523392

Sq. Ft.: 2,200
Lot Size: N/A
Year Built: 1997

Beds: 4
Baths: 3
Stories: 2
On RedFin: 92 days

Sales History

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
04/03/97	$309,500	141	N/A	N/A	N/A
05/18/98	$399,500	182	+$90,000	+90,000	29.08%
09/21/99	$425,000	193	+$115,500	+25,500	6.38%
04/27/01	$479,000	218	+$169,500	+54,000	12.71%
03/02/07	$810,000	368	+$500,500	+331,000	69.10%
09/18/08	$660,000	300	+$350,500	-150,000	18.52%

Pricing History

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
02/29/08	$839,900	382	+$29,900	+29,900	3.69%
03/18/08	$819,000	372	+$9,000	-20,900	2.49%
04/12/08	$749,000	340	-$61,000	-70,000	8.55%
04/27/08	$709,000	322	-$101,000	-40,000	5.34%

This episode's home is currently listed for 12.47% less than it was purchased for in March 2007. If this home had increased naturally along the mean (4%/year) since it's sale in April 1997, it would be worth approximately $476,000 ($216/sqft), or 32.86% ($233,000) less than its current asking price. If an unwitting buyer were to have purchased this home for the asking price before April 27th, they would have lost $40,000 (5.34%) of real money. To put those savings into perspective, one could purchase a loaded Infiniti FX35! As I've said before, very few areas have remained unaffected by the Great Housing Crisis.

UPDATE 09/18: This property has been sold for $660,000.

California Housing Inventory... the Real Story

2008-06-05T05:25:00.000-07:00

Highlights

The total loss, over the past 9-months, of most ‘affordable/exotic’ loan programs relied upon so heavily over the past five-years.
Out-of-control supply with Foreclosure and Bank REO inventory surging to levels that now make the foreclosure market, ‘the real estate market’. In CA in April, 2008 Total Sales equaled 31,250, banks took back 22,328 homes from foreclosure auctions, and Foreclosure Resale’s were 38% of Total Sales. In April 2007, they were 5% of Total Sales.
The ‘mortgage crisis’ moving up the credit spectrum from subprime to alt-a, and finally to a much larger percentage of the prime market than ever before thought…the latter primarly being due to the ‘negative equity effect’ and what was considered ‘Prime’ over the past five years, being far from it.
A catastrophic 27% fall in CA median housing prices in the past 11-months, pushing a massive amount of home owners into a negative-equity position and increasing their likelihood of loan default across all borrower types.
New home buyers not having a large enough down payment or income/credit level to be able to qualify for new-vintage fixed-rate, fully documented mortgages.
Potential, qualified buyers not being able to sell their present home to raise the down payment; not wanting to rent or yielding enough from renting their present home to buy a new home; or just not wanting to enter the market due to depressed confidence levels. Remember, most home buyers are existing home owners and not first-time home buyers or renters.
A large percentage of home owner who used second mortgages or high-LTV single-lien financing to avoid a down payment and existing home owners who leveraged-up their homes by pulling cash-out to maximum LTV/CLTV levels having no ‘skin in the game’, defaulting and moving to the rental pool.
Homes are still too expensive and it is still cheaper to rent in most cases. Buy vs rent ratios are still closer to peak levels than historic norms in many major metropolitan areas around the nation, especially in the bubble states.

Housing Crisis Over Seas

2008-06-05T05:20:00.000-07:00

Believe it or not, the United States was not alone in the Housing Boom of the new millennium, nor is it alone in its Housing Crisis. Below are two videos (8 minutes in duration each) of news program in Northern Ireland, which is reporting the current housing market conditions there.

Video 1 of 2

Video 2 of 2

Ground Zero

2008-06-04T06:04:00.000-07:00

USA Today has called Las Vegas 'mortgage fraud ground zero', and by briefly examining the percentage of total homes in foreclosure there, it's easy to see how they could come to this conclusion. Please read the following quote taken from their article on the subject:

In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.
Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."

Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.

Prosecutors have charged Eve Mazzarella, 30, and Steven Grimm, 45, with bank fraud, alleging the two caused banks to make more than $107 million in dubious loans and netted a profit of at least $15 million. Both defendants pleaded not guilty to the charges. A trial has been scheduled for October.

To the untrained eye, the size, scope and sophistication of the alleged scheme is noteworthy. But to the FBI in Las Vegas, the problem is the opposite: In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.

Read the full article here.

Homes: Buy One, Get One Free!

2008-06-03T07:32:00.000-07:00

As the housing market continues to worsen we'll see more ads from builders and distressed sellers alike to unload their increasingly devalued properties. The image below is from an actual ad by a builder in Escondido (San Diego County), and is a firm reminder that we are not at the bottom of the market yet.

Below is a direct quote from the advertisement:

Michael Crews Development is offering new, 2000-square foot cityscape row-homes worth $400,000 in Escondido for free -- if you buy one Royal View Estate home in San Pasqual Valley starting at $1.6 million.

March vs. April Foreclosure Comparison

2008-06-02T07:51:00.000-07:00

Below is the comparison of the foreclosure report produced this month versus the previous report produced in April.

Top 10 States for Foreclosures for April 2008 (By Total)


Rank	State	# of Foreclosures	% +/- Mar '08	% +/- Apr '07	% of Total

	United States	243,353	4.40	64.75	100.00
1.	California	64,683	-0.04	112.04	26.58
2.	Florida	35,264	16.56	146.29	14.49
3.	Ohio	11,680	3.61	2.18	4.80
4.	Arizona	11,620	26.32	181.42	4.77
5.	Texas	11,406	6.60	-0.16	4.69
6.	Michigan	10,269	8.16	49.35	4.22
7.	Georgia	9,189	-16.82	28.50	3.78
8.	Illinois	8,383	-2.78	1.02	3.44
9.	Nevada	7,276	-5.00	94.70	2.99
10.	Maryland	6,052	41.57	479.14	2.49

Top 10 States for Foreclosures for March 2008 (By Percentage)


Rank	State	# of Foreclosures	%+/- Feb '08	%+/- Mar '07	% of Total

	United States	234,685	4.93	57.35	100.00
1.	Nevada	7,659	24.19	61.65	3.26
2.	California	64,711	20.66	105.86	27.57
3.	Florida	30,254	-6.76	111.52	12.89
4.	Arizona	9,199	-4.67	105.52	3.92
5.	Colorado	6,180	-8.27	-1.39	2.63
6.	Georgia	11,047	44.76	63.20	4.71
7.	Ohio	11,273	8.54	37.11	4.80
8.	Michigan	9,494	-13.35	10.27	4.05
9.	Massachusetts	5,573	42.68	59.37	2.37
10.	Maryland	4,275	6.45	343.01	1.82

NOTE: The two charts above report the foreclosures using different criteria. The chart for April 2008 examines the states with the highest number of foreclosures nationally; whereas the chart for March 2008 examines the states with the highest percentage for foreclosures relative to the number of existing homes in the state.

April Foreclosure Numbers

2008-06-02T06:32:00.000-07:00

Below are the ten states that had the highest number of foreclosures for the month of April. My Foreclosure Report for the month of March can be found here.

Top 10 States for Foreclosures

State	# Foreclosures	% +/- Mar '08	% +/- Apr '07	% Total
United States	243,353	4.40	64.75	100.00
California	64,683	-0.04	112.04	26.58
Florida	35,264	16.56	146.29	14.49
Ohio	11,680	3.61	2.18	4.80
Arizona	11,620	26.32	181.42	4.77
Texas	11,406	6.60	-0.16	4.69
Michigan	10,269	8.16	49.35	4.22
Georgia	9,189	-16.82	28.50	3.78
Illinois	8,383	-2.78	1.02	3.44
Nevada	7,276	-5.00	94.70	2.99
Maryland	6,052	41.57	479.14	2.49

Click image to enlarge

Additional Details

Notice of Defaults (NOD = pre-foreclosures) were up 2.6% to a record high of 44,100 from 42,700 last month.
Notice of Trustee Sales (NTS = Foreclosure Notices) were up 7.8% to a record high of 28,892.
Foreclosure Sales at Auction jumped 44% for a total of approx $9.5 Billion from $6.87 Billion last month.
Discounts were at a record pace. 84% were discounted by 25% or more off the original note amount. 47% were discounted by a whopping 30% or more.
97.75% of the homes failed to sell at auction so the banks bought the them back.

Because percentages don't always tell the full story, I decided to present the 10 states with the highest number of foreclosures, as opposed to highest percentage based on number of homes in the state. As you can see most of the usual suspects are there; California, Florida, Arizona, and Nevada. However, this time we also see states like Texas and Illinois.

RealtyTrac posted the foreclosure activity for April in mid-May; however, I decided to delay reporting on those numbers as I wanted to include additional relevant news articles in my posting. In retrospect, that decision seems rather foolish as the foreclosure numbers don't require any additional information for their impact to be realized.

Ghost Towns

2008-05-30T05:46:00.000-07:00

The decline of home prices seems set to accelerate as the number of vacant homes across the United States has increased by 1 million over the past year, up to a record setting 18.6 million, according to recently released government data.

Below is a quote from the Market Watch article which reported the news:

The vacancy rate for homes usually occupied by the owners rose to a record 2.3 million homes from 2.2 million in the fourth quarter, and was at about 1 million more than was typical before the housing bubble burst.

Analysts say the housing market won't recover until the glut of vacant homes on the market can be worked down. "There is clearly still substantial excess housing supply that will take time to work off," wrote economists for Goldman Sachs. "We think it unlikely that prices begin to stabilize until vacancy rates start declining."
.
.
For all owner-occupied buildings with two to four housing units, 9.4% were vacant, up from 8.1% last quarter. In all owner-occupied buildings with five to nine housing units, the vacancy rate was 15.2%, up from 12.2% last quarter and double the rate of two years earlier.
Vacancy rates in larger condo buildings have fallen from 8.7% a year ago to 6.3%.

My Thoughts

I've read that entire subdivisions in parts of California (Stockton was among the cities mentioned) are literally ghost towns; where no one lives there. It's funny, I've frequently been called a doom sayer for some of my thoughts on this blog. One friend even went so far as to nick name me Dr. Doom; however, the more news like this that comes out, the less I think those comments will be made.

The Knows knows

2008-05-28T05:54:00.000-07:00

Monday I posted the article “Relief at the pump”, where I discussed the oil market bubble, and the part speculators are playing.

Tuesday CNBC spent a good part of the day talking about oil (see their related article here), the speculators, and the bubble that oil appears to be in, as well as the possible correction in the oil market.

If I didn’t know better, I would have thought that CNBC read The Knows on Monday, because they talked about everything that I wrote in that post.

Since CNBC agrees that there is a bubble in the oil market, and they also agree that speculators are pushing up the price of oil, now let's see how soon the correction in the oil market takes place.

The Knows knows!!!

Housing Market Watch #9

2008-05-28T05:29:00.000-07:00

This is the nineth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is located in the city of Camarillo (Ventura County) , and is part 2 of a two part series called Something Old and Something New. Since this home was built in 2006, it should be obvious that it's the Something New. Additionally, if you've been following this series, you'll notice the new layout beginning with this episode.

The Specs:

Type: SFR
Status: Active
MLS#: 80005721

Sq. Ft.: 1,858
Lot Size: 6,621 sqft
Year Built: 2006

Beds: 3
Baths: 3.5
Stories: 2
On RedFin: 69 days

Description

Beautiful Plan II 3 Story townehome in Village at the park. One of the best locations just a few yards from entrance to the new proposed 55 acre park! This is an end unit in a 3-plex, which means lots of light and space around you! Granite countertops, high ceilings, recessed lighting, all bedrooms wired for overhead lights, jacuzzi tub, walk-in closet, fiber optic high speed internet, and lots more!Walking distance to new elementary school and YMCA. Show cold-- It's immaculate.

Sales History

Date	Sold Price	$/SqFt	Gross Gain	Change ($)	Change (%)
02/23/06	$557,000	299.78	N/A	N/A	N/A
05/27/08	$442,000	237.89	-$115,000	-115,000	20.65

Pricing History

Date	List Price	$/SqFt	Gross Gain	Change ($)	Change (%)
03/20/08	$489,000	263	-$68,000	-$68,000	12.21%
04/18/08	$429,900	231	-$127,100	-$59,100	12.09%

Today's home is currently listed for $127,000 (22.82%) lower than it sold for in February of 2005; thus, it seems the seller has been made very aware that the market is a much different place than the one they bought in. Unfortunately, looking at what's available on the MLS, that home is still priced to sit as opposed to priced to sell.

UPDATE 05/27: This property has been sold for $442,000

Relief at the pump

2008-05-26T05:31:00.000-07:00

Brokerage firm Goldman Sachs recently predicted that oil would go to $141.00 per barrel.

Billionaire oil investor T-Bone Pickens priced oil at $150.00 per barrel short term and $200.00 per barrel within 18 months.

Week after week oil prices have been reaching new highs, hitting a new all time high of over $135.00 per barrel last week.

The high cost of oil has resulted in record high gas prices and the sense that everything we buy is effected by the cost to transport it to market; our money is buying less goods and services.

Oil is in a bubble right now and like the dot-com and housing bubbles it will burst, there is a thing called the law of supply and demand, which sets the market price of everything.

The fundamentals of supply and demand are not the only thing moving this market, sure the greedy oil companies, Opec and the president share a lot of the blame for the high price of gas, but the big reason prices have moved up so fast in the last few months is because billions of dollars in speculative money have been poured into the oil sector.

As prices continue to rise, people are starting to use less, resulting in larger inventories of gas. That's where supply and demand comes in to play, the less we use the more inventories will increase resulting in falling prices.

In the end consumer markets always work to bring prices in line with demand.

the Financial times, has already reported that US demand is falling more than expected and the Department of Transportation said figures from March show the steepest decrease in driving ever recorded.

How far will gas prices fall? Who knows, but rest assured of one thing this summer there will be a correction in the oil market.

Will oil eventually go to $200.00 per barrel? Yes it will if we do not get serious about developing alternative energy sources.

However, as I have said before adversity brings opportunity:

Option #1: I think this is a good time to short the oil market, there are some ETF's (exchange traded funds) called proshares ultrashort that short the oil market, when the price of oil goes down these shares go up, I expect to make about a 20% return within the next 6 to 12 weeks, not bad when you consider CD's (certificates of deposit) are only paying about 2% annually.

Option #2: just sit back and enjoy the lower price at the pump while they last.

NOTE: The statements on this blog are my personal opinion, do your own research.

Edge of the cliff...

2008-05-23T05:43:00.000-07:00

According to this article we should be expecting to see an additional 40% decline in San Diego home prices. That's right 40%!!! Consider the following quote from the article below:

We really are a low-wage town, and our house prices are still too high. The median price needs to fall 40%. First, some facts.

Income disparity in San Diego County is growing.

About 20% of families at the bottom earn only 4% of our County's income, while the 20% of families at the top earn 25%.

Only 9% of county residents earn over $75,000 per year.
The poverty level is over 11%, ranging from 6% in Carlsbad to 15% in Vista. That means over 330,000 people in San Diego County live below the federal poverty level.

Adjusted for inflation, average income fell almost 4% last year.

This income disparity explains why the housing market is being kept afloat by the middle and higher tier of San Diego income earners.

[75%] of our wage earners make less than $ 45,000 per year. The median household income is close to $ 60,000, but it is skewed by the higher wage earners. [Added 5/14/08: One sentence refers to wage earners, the other to household income.]

Now, this is where my forecast is basic economics, but will shock many people. A household can get a mortgage for 3.5x its income. San Diego County median household income is $60,000, and 3.5x that would be $ 210,000. Now, let's assume that the buyer puts down 10% ( 210/,.9), then the median house price needs to come down from its current $ 395,000 to $ 233,000, a 40% drop.

My Thoughts

I absolutely believe that the author's prediction will come true, as I think we're still no where near the bottom of The Great Housing Crisis. That being said, I think many other markets in Southern California and around the country will share the same fate. The bottom line is this, if you're currently considering purchasing real estate, think long and hard before you make that move.

Housing Market Watch #8

2008-05-21T06:57:00.000-07:00

This is the eigth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is located in the city of Camarillo (Ventura County) , and is part 1 of a two part series called Something Old and Something New. Since this home was built in 1964, it should be obvious that it's the Something Old. Let's get started ...

Type: SFR
Status: Active
MLS#: 80009684

Sq. Ft.: 1,792
Lot Size: 6,621 sqft
Year Built: 1964

Beds: 4
Baths: 3
Stories: 2
On RedFin: 6 days

Description

Look at all the potential here! Great floor plan, central Camarillo location, nice location in neighborhood, nice size back yard, this home needs a kitchen and some updating. Bring your ideas and see what can be done here! This home already has some tile & laminate wood flooring down stairs. Most windows have been replaced with dual pane windows.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
06/02/94	$189,500	N/A	N/A	N/A
11/11/05	$740,000	+$550,000	+$550,000	290.50%
06/26/08	$427,000	+$237,500	-$313,000	42.30%

I continue to be amazed at the prices will go up forever mentality that people had during the Great Housing Bubble, and today's home is living proof of that flawed logic.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
05/15/08	$424,900	-$315,100	-$315,100	42.58%

Today's home is currently listed for $424,900; a 42.58% decline from what it sold for in November of 2005; thus, it seems the seller has been made very aware that the market is a much different place than the one they bought in. Unfortunately, looking at what's available on the MLS, that home is still priced to sit as opposed to being priced to sell.

UPDATE 06/26: This property has been sold for $427,000.

You can't handle the truth

2008-05-19T06:38:00.000-07:00

"You can't handle the truth!" The words spoken by Colonel Jessup (Jack Nicholson) about the death of Santiago, a marine under his command, in the hit movie 'A Few Good Men' (1992), and the quote seems fitting here. Why have I made such a bold statement? Because I'm surprised at the number of people that continue to refuse to see the market the way it really is. Not just consumers, but some of the analysts too! They believe the spin (from the Wall Street Journal and other news venues) about the market having bottomed and sales are climbing. The embedded video discusses the recently released foreclosure numbers for April (via Foreclosure Radar), as well as the implications these foreclosures will have on the market. Please take some time to view it.

Highlights:

Notice of Defaults (NOD = pre-foreclosures) were up 2.6% to a record high of 44,100 from 42,700 last month.
Notice of Trustee Sales (NTS = Foreclosure Notices) were up 7.8% to a record high of 28,892.
Foreclosure Sales at Auction jumped 44% for a total of approx $9.5 Billion from $6.87 Billion last month.
Discounts were at a record pace. 84% were discounted by 25% or more off the original note amount. 47% were discounted by a whopping 30% or more.
97.75% of the homes failed to sell at auction so the banks bought the rest back.

See his article in its entirety here.

Housing Market Watch #7

2008-05-16T07:54:00.000-07:00

This is the seventh episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in the city of San Diego in a community called Rancho Cerro.

Type: SFR
Status: Active
MLS#: 081004555

Sq. Ft.: 1,710
Lot Size: 5,000 sqft
Year Built: 1970

Beds: 3
Baths: 2
Stories: 2
On RedFin: 120 days

Description

$$$!!!HUGE PRICE REDUCTION!!!$$$ SUBMIT ALL OFFERS!!! LARGE HOME WITH MANY UPGRADES!! GRANITE IN KITCHEN AND BATHROOMS! NEWER CABINETRY!! LARGE BONUS ROOM UPSTAIRS!!! LET OUR TEAM SHOW YOU HOW EASY A SHORT SALE CAN BE!!!GREAT OPPORTUNITY TO OWN, SO BRING ALL OFFERS! ALL BEDROOMS CONVENIENTLY LOCATED DOWNSTAIRS. OPEN FLOORPLAN AND HUGE BONUS ROOM UPSTAIRS WITH BALCONY! MANY UPGRADES THROUGHOUT!

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
11/16/04	$350,000	N/A	N/A	N/A
05/10/05	$510,000	+$160,000	+$160,000	45.71%

This home has appreciated tremendously during the Great Housing Boom. Unfortunately for it's last owner, this is like a game of hot potato, and they got stuck with it.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
01/17/08	$410,000	-$100,000	-$100,000	19.61%
02/19/08	$340,000	-$170,000	-$70,000	17.07%
04/02/08	$180,000	-$330,000	-$160,000	47.06%

The median home price has declined by 19.4% in San Diego County (when comparing the numbers from March 2007 to March 2008); however, this episode's home has declined in value by 64.71%, a mind blowing $330,000, since its last sale in May 2005.

As I've demonstrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home before April 2nd, that buyer would have lost $160,000 of real money. To put those savings into perspective, the savings would almost allow you to buy two of these homes!

My Thoughts

If you're one of those people who think, the property values in my city can't fall by much more because the prices are already down to what I paid for my home... think again!!! Home prices are going to continue to fall, and denial won't change it's affects. The only thing you can do now is to prepare yourself, and make sure your not in a position to become another unfortunate victim of the Great Housing Crisis.

UPDATE 01/08/09: This property was sold for $275,000.

Housing Market Watch #6

2008-05-15T02:15:00.000-07:00

This is the sixth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Santa Ana, California (Orange County). I chose Santa Ana because it was The Biggest Loser in Orange County.

Type: SFR
Status: Active
MLS#: S519235

Sq. Ft.: 1,678
Lot Size: 5,150 sqft
Year Built: 1920

Beds: 3
Baths: 2
Stories: 1
On RedFin: 101 days

Description

THIS IS A SHORT SALE SUBJECT TO LENDERS AUTHORIZATION AND COMMISSIONS, THIS PROPERTY HAS MOLD IN A BEDROOM CLOSET, SELLER HAS NO MONEY TO DO ANY REPAIRS. SOLD AS IS. COULD BE A POSSIBLE DUPLEX OR FOR LARGE FAMILY. ONCE REPAIRS ARE MADE YOUR BUYER WILL HAVE A TERRIFIC HOME AT A VERY LOW PRICE. PLEASE SHOW AND BRING AN OFFER.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
05/24/04	$395,000	N/A	N/A	N/A
01/25/07	$620,000	+$225,000	+$225,000	56.96%

Once again, today's home has appreciated by unsustainable percentages during the Great Housing Boom, increasing by an average of 15.9% per year between May 2004 and January 2007.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
01/25/08	$425,000	-$195,000	-$195,000	31.45%
03/30/08	$275,000	-$345,000	-$150,000	35.29%
04/21/08	$230,000	-$390,000	-$45,000	16.36%
07/22/08	$244,900	-$375,100	+$14,900	6.48%
08/26/08	$220,900	-$399,100	-$24,000	9.80%
09/30/08	$195,500	-$424,500	-$25,400	11.50%

The median home price has declined by 38.1% in Santa Ana (when comparing the numbers from March 2007 to March 2008), and are set to continue falling. This property has declined in value by $390,000 (62.90%) since its last sale in January 2005.

As I've demonstrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home before April 21st, that buyer would have lost $45,000 of real money. To put those savings into perspective, one could purchase a Mercedes-Benz SLK 300 Roadster (albeit not a fully loaded one).

My Thoughts

I was absolutely amazed when I examined the Santa Ana market for this post. I had no idea there were so many homes that have dropped by such large amounts, with some homes as low as $100,000 (asking price). Unfortunately for the seller and the institution that irresponsibly lent the money for this home are both in dire straights, as I believe this home will continue to decline until it reaches a $100,000 price point... or lower.

UPDATE 07/22: The property was re-listed at $244,900.
UPDATE 08/26: Price decreased to $220,900.
UPDATE 90/30: Price decreased to $195,500.

Housing Market Watch #5

2008-05-14T06:50:00.000-07:00

This is the fifth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Laguna Niguel, California (Orange County). I chose Laguna Niguel because it was The Biggest Winner in Orange County; the city whose median home price declined the least between March 2007 and March 2008.

Type: SFR
Status: Active
MLS#: S503764

Sq. Ft.: 1,628
Lot Size: 8,640 sqft
Year Built: 1966

Beds: 4
Baths: 2
Stories: 1
On RedFin: 253 days

Description

this property has been completely remodeled.granite counter top in the kitchen with a serving bar.office area or eating area opens to the backyard.beautiful tile flooring throughout.newly painted,cozy fire place in the family room with french doors opening to the back yard.newly painted interior,crown molding throughout.new cabinetry in the kitchen.both bathrooms have been redone with new flooring and fixtures. move in condition very light and bright.close to the freeway,shops,park and restaurants.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
06/08/95	$123,900	N/A	N/A	N/A
05/22/96	$188,000	+$64,100	+$64,100	51.74%
11/13/06	$750,000	+$626,100	+$562,000	198.94%
07/24/08	$509,900	+$386,000	-$240,100	32.01%

As you can see from the data above, the seller who sold the home in November 2006 made an incredible profit; however this was at the peril of the buyer who made such an aggressively foolish purchase.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
09/02/07	$899,900	+$149,900	+$149,900	19.99%
09/05/07	$849,900	+$99,900	-$50,000	5.56%
09/18/07	$839,900	+$89,900	-$10,000	1.18%
09/25/07	$829,900	+$79,900	-$10,000	1.19%
10/18/07	$799,900	+$49,900	-$30,000	3.61%
11/13/07	$650,000	-$100,000	-$149,900	18.74%
12/21/07	$599,900	-$150,100	-$50,100	7.71%
02/26/08	$575,000	-$175,000	-$24,900	4.15%
03/25/08	$550,000	-$200,000	-$25,000	4.35%

The median home price has increased by 7.0% in Laguna Niguel (when comparing the numbers from March 2007 to March 2008); however, it would prove difficult to convince the seller that owns this house, as their home value has declined by 26.67% (a whopping $200,000) since it's listing in September 2007.

The simple truth is many homeowners overpaid for their homes, and now those who need to sell are finding it difficult to do so, even at steep discounts.

Considering the numbers above, if an uninformed homeowner had bought this home for the full asking price prior to March 25th, they would have lost $25,000 of real money!!! To put those savings into perspective, one could buy a fully loaded Mini Cooper.

My Thoughts

Even the cities that you thought were impervious to the economic high's and low's are succumbing to this turbulent housing market. The truth is, if you buy now in Laguna Niguel, chances are you will have overpaid unless you're able to pick up the home for pennies on the dollar.

UPDATE 07/24: This property has been sold for $509,900.

Housing Market Watch #4

2008-05-13T05:29:00.000-07:00

This is the fourth episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Simi Valley, California (Ventura County). I chose today's home to illustrate that it's not just the lower end of the market that is crumbling, the upper end is also fair game.

Type: SFR
Status: Active
MLS#: S472435

Sq. Ft.: 4,453
Lot Size: 16,340 sqft
Year Built: 2004

Beds: 6
Baths: 5
Stories: 2
On RedFin: 482 days

Description

Entertain in this gorgeous, 180' panoramic view home w/$150K in upgrades too many to mention, gourmet kitchen w/granite countertops, stainless steel appliances, built-in BBQ & tranquil water fountain in backyard, custom drapes, plantation & wood shutters throughout, 2 master suites, 2 balconies off master and den, mother-in-law suite downstairs w/full bath,extra large closets, tile floors in all baths, fireplace! Short sale subject to lender approval.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
02/24/05	$960,000	N/A	N/A	N/A
06/16/08	$781,096	-$178,904	-178,904	18.64

Based on the available information, it looks like the seller is the original owner. Having purchased the home (err.. mansion) in 2005, the seller bought at the height of the housing boom.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
02/03/07	$1,200,000	+$240,000	+$240,000	25.00%
03/17/07	$1,129,000	+$169,000	-$71,000	5.92%
07/10/07	$1,049,000	+$89,000	-$80,000	7.09%
08/13/07	$999,900	+$39,900	-$49,100	4.68%
10/25/07	$949,000	-$11,000	-$50,900	5.09%
01/09/08	$899,000	-$61,000	-$50,000	5.27%
03/20/08	$849,900	-$110,100	-$49,100	5.46%
04/17/08	$799,000	-$161,000	-$50,900	5.99%

The median home price has declined by 11% in Simi Valley (when comparing the numbers from March 2007 to March 2008), and are set to continue falling.

This property has declined in value by $161,000 (16.77%) since its last sale in February 2005, a whopping 2.38% decline per month since it was listed.

As I've illustrated in previous episodes of the Housing Market Watch, if an uninformed buyer were to have purchased this home at the full asking price before April 17th (less than one month ago), that buyer would have lost $50,900 of real money. To put those savings into perspective, that's enough money to purchase a well equipped BMW X5!

My Thoughts

Thus far, Simi Valley has faired considerably better than most other cities in Ventura County; however, one has to wonder whether the trend will continue, or whether other local issues in the city like the crisis facing Countrywide Home Loans, it's largest employer will cause massive declines in the near future. So, as prices continue to decline, will you be the owner of one of these Ventura County mansions? Good hunting.

UPDATE 06/16: This property has been sold for $781,096.

Housing Market Watch #3

2008-05-12T05:31:00.000-07:00

This is the third episode of Housing Market Watch (see the previous episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Simi Valley, California (Ventura County). In the previous episode, I chose Oxnard, The Biggest Loser in Ventura County. This time I've chosen The Biggest Winner in the county.

Type: SFR
Status: Active
MLS#: F1766460

Sq. Ft.: 1,818
Lot Size: 6,490 sqft
Year Built: 1964

Beds: 4
Baths: 2.5
Stories: 2
On RedFin: 3 days (relisted)

Description

Must see. Please take your investors to this 4 bedroom 2.5 bath home convenitely located.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
03/19/92	$172,000	N/A	N/A	N/A
06/03/04	$101,500	-$70,500	-70,500	40.99
08/15/06	$590,000	+$418,000	+488,500	481.28
07/09/08	$360,000	+$188,000	-230,000	38.98

Once again, it's evident that this home appreciated by unsustainable percentages during the Great Housing Boom, increasing by an average of 222.1% per year between June 2004 and August 2006.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
10/07/07	$499,995	-$90,005	-$90,005	15.26%
11/11/07	$479,995	-$110,005	-$20,000	4.17%
11/20/07	$449,995	-$140,005	-$30,000	6.67%
01/19/08	$417,000	-$173,000	-$32,995	7.91%
02/16/08	$379,000	-$211,000	-$38,000	10.03%
03/17/08	$349,995	-$240,005	-$29,005	8.29%
04/02/08	$329,995	-$260,005	-$20,000	6.06%
04/19/08	$290,995	-$299,005	-$39,000	13.40%
************************ Relisted ************************
05/09/08	$275,995	-$314,005	-$15,000	5.15%

By looking at the numbers, one would never guess that this home is in one of the cities that faired the best in Ventura County. That being said, I'd like to reiterate something I said in The Biggest Loser post, "... not all cities or areas within a city, will be affected the same."

That quote seems almost self-evident here. Had this home increased in value naturally along the mean (4% per year) since it's purchase in 1992, it's current value would be approximately $320,000. It's obvious though that this home won't fetch that price in this market.

Buyer's take notice, if you had purchased this property before April 2nd (just a little over a month ago), you would have lost $74,000 (over 22%) of real money!!! To put those savings into perspective, you could buy two BMW 328i's and still have money left over.

My Thoughts

Even the cities which have faired the best during the current Mortgage Crisis and Foreclosure Epidemic have had some casualties. So, if you're waiting on the sidelines to make a purchase, you may want to wait a little longer, as buying now could cost you a considerable sum of money. That's definitely something to think about...

UPDATE 07/09: This property has been sold for $360,000.

Right Now

2008-05-09T06:01:00.000-07:00

The embedded video talks about what's happening in the economy and the housing market... Right Now.

I decided to post this video because it highlights what the staff of this blog have been reporting over the last couple of months:

The devaluation of our currency - Uncharted Waters (March 6th)

Buyers getting wiser - A smarter kind of buyer (March 13th)

Falling home prices - California home prices free fall (March 28th)

The worsening state of the economy - We're on thin ice (April 6th)

Future buying opportunities - Explosive Opportunities (April 11th)

Identifying the market patterns - It's all happened before (April 14th)

The misguided american dream - The Dream (April 17th)

The explosion in foreclosure activity - The 'F' Word (April 18th)

Warnings of ignored economists - The Roubini Interview (April 19th)

Rising Adjustable Rate Mortgage payments - ARMed and Dangerous (May 6th)

Please have a look at the video and feel free to leave a comment concerning what you thought about it.

The Best of Both Worlds

2008-05-08T05:08:00.001-07:00

Recently, a good friend of mine posted the entry quoted below on his blog, The Elfin Forest. I found the article interesting, and decided to re-post it here, as I figured others may find his assessment of the market of interest as well:

Arguably the single greatest installment of Sci-Fi television in history, The Best of Both Worlds (TBOBW) is the name of the last episode of Star Trek:TNG. If you’ve never seen it, download it or rent it. In fact the writers of Lost have said that this episode was the inspiration for Season 4’s “The Constant”.

How do you have the best of Both Worlds? How can you take advantage of a rising market and at the same time benefit from a falling one? As in the episode TBOBW, time is a factor. It’s a simple adage: sell high buy low, but not so simple in execution.

Some of us sold too soon, not high enough, and left money on the table. Some sold high, bought low, and then didn’t sell a
gain. Some, only bought high, and now are stuck. Some bought low, but took out [money] and didn’t sell in time to cover their rising balance, and now are underwater.

Some have fumbled, some have scored, some have sat on the sidelines, and some are midfield. Unless you are a market genius, most of us will make errors, and have reason to second guess ourselves. Going into the next wealth cycle in Real Estate what have I learned?
Buy Low- ( no brainer)

Do not use your house like an ATM- only take out cash for 3 reasons:

Pay off high interest debt (credit cards)

Remodel- that will actually bring value to property

If the market is on the upswing, and you are toward the bottom of that upward motion, you can use cash for a down payment on another property ( be careful)

Good times do not last forever. Watch for market indicators, [days on the market], inventory, national trends.

The Media tends to lead the market, and has a big psychological influence on buyers, sellers. National politics can affect local markets.

Be conservative- sell while the getting is good, not when we are at the top, it may be too late to get out by then, and you could get stuck.

Pay attention! Watch the headlines, stay involved- The warning signs were there before the fall. Smart people saw the signs and were proactive-

Real life happens, if you can’t move every few years, find a house you love in a down market, and get [a fixed rate mortgage].
As the next wealth cycle comes around again, there is real opportunity for investors, and those looking for a home for life.

The best of both worlds could mean, you made money on the rise of value, sold and now have cash and are waiting for a deal. Or it could simply mean, you now have an opportunity to buy a great home at a reduced price. You have both, a great home, and an affordable mortgage.

Whatever happens, time is a factor, and the time may be soon. ...

My Thoughts

The author of the article above doesn't typically write about the Housing Market and/or Mortgage Crisis. However, it seems that few people can remain oblivious to what's going on. Whether you own a home, are considering buying a home, or planning to sit out on the sidelines while renting, you are affected; as even rents are up significantly since the crash. The important thing now is to try to remain as informed as possible to enable you to take measures to reduce the financial risk and/or impact to yourself and those you care about.

See the full article here

ARMed and Dangerous: Part 2

2008-05-07T06:38:00.001-07:00

In the previous post, ARMed and Dangerous: Part One, I discussed Option ARMs, and their role in the current Mortgage Crisis. This article will discuss another culprit in the debacle..

Market Inversion

In typical market conditions Adjustable Rate Mortgages (ARM) offer lower interest rates than traditional fixed interest rate loans. Thus, long term interest rates are higher than their short term counterparts. The reason for this is simple; lenders expect a higher return when they loan their money for a longer period of time.

There is a condition in the marketplace called an “inversion” where short term interest rates increase faster than long term interest rates. When this happens ARMs can have higher rates than long term fixed interest rate mortgages. According to most of the source material I was able to find, market inversions rarely occur.

However, 2006 marked the beginning of an interest rate market inversion, which drove short term rates to rise above long term interest rates creating an imbalance in the marketplace. The interest rate one pays on an ARM is tied to these short term interest rates.

What triggered it? The bond market in the United States was turned on it's head; resulting in an inverted yield curve. This phenomenon in the bond market follows a rash of interest rate increases by the government. The inversion in the bond market may have been caused by a lack of investors, coupled with inflationary and recessionary concerns which contributed to the condition.

What it all means

The result is substantially higher interest rates (some as high as 12%) for adjustable rate mortgages depending on the index your loan is based on, and/or the contract terms on which it was originated. The effect will not be limited to Option ARMs, and could potentially affect all ARMs that adjust while the inversion continues. Home Equity Lines of Credit (HELOC) loans which tend to be much more volatile, as they can adjust monthly may increase erratically as well during this period, resulting in higher payments for those as well. How long will it last? That's anyone's guess...

My Thoughts

There is no doubt in my mind that the significantly higher interest rates homeowners are seeing when their ARMs adjust are partially due to the inversion of the bond market. The aftermath can be plainly witnessed in the sudden increase in foreclosures we've seen since 2006.

Whether you have a subprime mortgage or not, if you have an ARM that's scheduled to adjust within the next 6 months or so, be prepared to pay a substantially higher mortgage, as your interest rate will likely increase dramatically.

ARMed and Dangerous: Part 1

2008-05-06T06:20:00.001-07:00

I recently had a discussion with my wife about why the current crop of adjustable rate mortgages. She asked "Why are the interest rates so high on the loans that are resetting?", and I thought that was a very good question; one that warranted some research, and an entry on this blog.

The Index

The interest rate for an adjustable rate mortgage (ARM) loan is computed by summing the index and margin rates (interest rate = index rate + margin rate). The margin rate is the profit margin that the lender earns on the principle of the loan. The index rate may be based on a variety of different financial instruments.

Commonly Used ARM Indexes

Cost of Funds Index, 11th District (COFI)
1-Year Treasury Constant Maturity Rate
2-Year Treasury Constant Maturity Rate
3-Year Treasury Constant Maturity Rate
Monthly Treasure Index (MTA), a 12-month moving average of B
1-Month London Interbank Offered Rate (LIBOR)
12-Month Average of the 1-Month LIBOR
6-Month LIBOR
6-Month Certificate of Deposit (CD) Rate
Certificate of Deposit Index (CODI), a 12-month moving average of the 3-month CD rate
Bank Prime Loan Rate
Cost of Savings Index (COSI)

The current value of an index should be readily available from a published source, and it should not be influenced in any way by the lender writing the ARM contract. All of the indexes listed above meet both of these criteria except one, the Cost of Savings Index (COSI).

Understanding Option ARMs

They have been given many names: Option ARM, Pay-Option ARM, Pick-a-Payment ARM, Cash-flow ARM, and the list goes on... What they all have in common is that these products all feature a payment method where the interest you pay is based on an artificially low interest rate that's based on an index that the lender controls (COSI); rather than market conditions.

Option ARMs allow one to choose any of several payment methods monthly:

30-Year Fixed - fully amortizing over 30 years
15-Year Fixed - fully amortizing over 15 years
Interest-only Payments
A payment based on a below-market "payment rate" (usually 1%) which fails to cover even the interest which is due. In such an arrangement, the differential between what you actually owe and what you are paying is added onto the outstanding loan balance each month, a condition known as negative amortization.

Why would anyone pick this type of mortgage? Well, most people wouldn't ask for a negative amortization mortgage by name, instead they're lured in by unbelievably low monthly payments, allowing them to afford more home then they'd be able to without one.

The less you pay the more you pay...

If you pay less than the Principal and Interest (P&I) payment, your minimum payment will rise; even if the actual interest rate you are being charged doesn't. One of the reasons this can happen is compounding; as your principal balance (what you owe) increases, so does your minimum payment. The longer you make that minimum payment, the higher it will become. As a result, even if your actual interest rate should decrease, your actual payment due amount may not decrease; however, it may level out over the life of the loan... maybe.

The Devil is in the Recasting...

Option ARM loans require a recast (recalculation) when one of the following occurs (whichever happens first):

The period specified within your loan documents (typically every five years)
When the loan balance reaches the loan balance limit (typically 11o% to 125% of the original loan amount).

The recast causes a re-calculation of the minimum payment in order that the loan is paid by its maturity date. The new minimum payment becomes the re-calculated full P&I payment based on the fully indexed accrual rate, the remaining loan balance, and the remaining payment term. When this happens the Minimum Payment could increase by more than the payment change cap that's stated in your loan documents; thus, the minimum payment could increase significantly, and the total amount owed at that point could be more than the value of your home.

My Thoughts

For many, the whole point in securing an Option ARM loan was to make a significantly lower payment than what was required with a traditional ARM or fixed-rate mortgage. However, if you make use of that minimum payment it will increase over time, resulting in a payment that is significantly higher than the payments would have been for a traditional or fixed-rate mortgage respectively. Even more troubling is the fact that over time you may owe much more for your home than you initially paid for it.

Looking Forward...

The next article in the series, ARMed and Dangerous: Part Two will delve into the issues facing traditional ARMs.

The Effects may be felt Countrywide: Part 2

2008-05-05T13:42:00.000-07:00

This article is a followup to the post The Effects may be felt Countrywide, which discussed the potential effect that the melt-down of Countrywide Home Loans could have on the local economy of Simi Valley. In the previous article I made mention of Bank of America's (BofA) intentions to buy the failing lender, Countrywide; however, change may be in the air... Below is a quote from the New York Times about what could be changing:

At least two analysts said Bank of America Corp will likely lower its purchase price for Countrywide Financial Corp , with Friedman, Billings Ramsey analyst saying the bank may bring down its deal price to the $0 to $2 level or completely walk away from the deal.

Shares of Countrywide, the largest U.S. mortgage lender, fell nearly 12 percent to $5.29 in morning trade on the New York Stock Exchange, after Friedman downgraded Countrywide to "underperform" from "market perform."

Analysts at S&P Equity Research expect Bank of America to complete the buyout of Countrywide, but at a lower price due to the rapid deterioration of Countrywide's credit portfolio.

Friedman analyst Paul Miller, in a note to clients, said Countrywide's loan portfolio has deteriorated so rapidly that it currently has negative equity and the proposed takeover of the company will be a drag on Bank of America's earnings due to the elevated credit expenses at Countrywide,

Miller cut his target on Countrywide's stock to $2 from $7.

My Thoughts

Even if BofA does renegotiate the deal with Countrywide and pays almost nothing for the company, it will still likely have to make deep cuts, eliminating most of Countrywide's current staff, in order to achieve profitability. Thus, my prediction may be right on track... But for the sake of the residents of Simi Valley, let's hope I'm wrong.

Housing Market Watch #2

2008-05-05T06:10:00.000-07:00

This is the second episode of Housing Market Watch (see the first episode here), where I focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Oxnard, California (Ventura County). I chose Oxnard because, as I reported in my post The Biggest Loser, it's the city that fell by the greatest percentage in Ventura County.

Type: SFR
Status: Active
MLS#: 80000445

Sq. Ft.: 2,249
Lot Size: 2,918 sqft
Year Built: 2002

Beds: 4
Baths: 2.5
Stories: 2
On RedFin: 116 days

Description

Great 4 bedroom, 2.5 bath + loft in the Channel Pointe gated community. This home features beautiful oak plank wood floors, tiled baths, spacious kitchen with center island and family room w/ fireplace & surround sound. Great for large families.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
06/26/03	$380,500	N/A	N/A	N/A
03/01/06	$675,000	+$294,500	+$294,500	77.40%
08/06/08	$400,000	+$19,500	-$275,000	40.74%

Once again, it's evident that this home appreciated by unsustainable percentages during the Great Housing Boom, increasing by an average of 28% per year between June 2003 and March 2006.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
01/10/08	$539,000	-$136,000	-$136,000	20.15%
04/02/08	$419,000	-$256,000	-$120,000	22.26%
* * * * * * * * * PROPERTY SOLD * * * * * * * * * * *
09/26/08	$374,900	-$25,100	-$25,100	0.06%

This episode's seller seemed to understand that the market had changed since they bought their home. Unfortunately, the seller has either not reduced the price of the home as fast as the market is falling in Oxnard, or the more fickle buyer of this market has overlooked this home. Thus far, the seller has reduced the price of the home by roughly 7.4% per month. Since we don't know how much this home was going for before the boom started, there's no easy way to compute what this home may have been if the market had remained at nominal (4% per year); however, it's apparent (at least to me) that we haven't seen the last of the price declines for this home.

UPDATE 08/06/2008: The property has been sold for $400,000.
UPDATE 09/26/2008: The property is back on the market at $374,900.
UPDATE 01/06/2009: The property has been sold (again) for $360,000.

It's not your problem anymore...

2008-05-02T04:38:00.000-07:00

As adjustable rate mortgage loans continue to reset and housing values fall, more and more people are deciding to walk away from their properties. But I wondered, how wide spread could this be?

Well, celebrity Jose Canseco has walked away from his $2.5 million, 7300-square foot home in Southern California!!! Consider the quote from the article from AJC.com on the subject:

Jose Canseco, the former AL MVP who made millions during his baseball career, has had his home foreclosed.

Canseco told the syndicated TV show “Inside Edition” that he walked away from his $2.5 million, 7,300-square foot home in suburban Encino because it didn’t make sense to continue making payments.

“I do have a judgment on my home and it to me is very strange because it didn’t make financial sense for me to keep paying a mortgage on a home that was basically owned by someone else,” he said in an interview that aired Thursday

All I could say was wow!!!! I also recently came across the discussion below and decided it was worth posting on this blog (the complete thread can be found here).

What do I do now?
By twist
The "Ideas" thread has gotten pretty long, [Sometime I’ll get around to starting a new one.] so when I get a good comment like this on it, I think it’s worth a post. hpylori2 asks:
I would love ideas from the group…I (my wife included)made a huge mistake and moved to Miami December of 2006 and bought a house. We hated it and moved back to Denver (I would prvide more sordid details about the whole process but it would serve no purpose)…Given the housing slump, I cannot sell the house and I cannot afford to continue paying my mortgage…what would you do in my situation?
I thought is was a great question, worth of discussion. Please be kind here- it sounds like hpylori2 wants to do the right thing, so let’s work off of that assumption.
So Doomers, what do you think?

NVmike says:
April 26th, 2008 at 8:14 pm
Get someone to secure the property, call the mortgage holder and tell them you’re voluntarily surrendering the property and ask where to send the keys.
You should also send registered mail attesting to the surrender.
You must protect your family’s finances first and foremost. Don’t pay another penny of mortgage, insurance, taxes, maintenance fees, HOA fees, etc.
Just walk away. It’s not your problem anymore.

From what I can tell from my research thus far, the general consensus for people who are extremely under water in their homes seems to be walk away; whether they can afford to continue making the mortgage payments or not... Given this the next few years should be very interesting for the Banking Industry.

Are you breaking up with me?

2008-05-01T06:24:00.000-07:00

Is your lender breaking up with you? I mean... terminating the relationship between you and the equity in your home? This may come as a surprise to some of you, but if you have an open Home Equity Line of Credit (HELOC), don't assume that it's still open.

It may have been closed by your lender. Yes, that's right... Lenders are closing HELOC accounts, especially in areas deemed as distressed markets; areas where the home prices have fallen in value 10% or more.

So, if you have a HELOC that you were planning to use for financial emergencies or rainy days, you may want to rethink your contingency plan.

Consider this experience from Mortgage Rates Reports (full report here):

I don't quite know how to write this because I've never had to do it before. In 14 years of mortgage lending, I have never seen banks treat their good San Diego customers this way. As you probably know, many big banks and mortgage companies have

TERMINATED THE RELATIONSHIP

and closed the home equity lines of credit to San Diego County homeowners. Apparently, Countrywide did just that last week. They spun the whole thing as the "Preserving American Home Ownership" initiative but you and I know that the only homeownership they were saving was their employees'. I must admit, those banks and mortgage lenders did some pretty stupid stuff these past few years. They made loans to anyone who could fog a mirror based on the idea that home prices would skyrocket faster than a thermometer in the Arizona sun. Well, we all know that what goes up... comes down (and goes back up again) so you're probably in as much in shock as I was. Let's face it, the banks ....

If your HELOC has been closed, CNN Money wants you to know you can fight back. Consider the excerpt from their article When a HELOC freezes over:

If your HELOC is on ice

Fight for a defrost. The letter from your lender should explain why the line was suspended and how to appeal. Some banks use automated processes to identify troubled markets.

To prove that your house hasn't been affected, ask a realtor to pull prices for houses sold within three miles in the past six months, ask your mortgage originator to intervene, or have your house reappraised. The latter can run $400, but if you were counting on the line, it may be worth it. ....

My Thoughts

This kind of behavior from banks will no doubt contribute further to the foreclosure epidemic we've seen as of late; because for some, their HELOC was the last line of defense against the unexpected surprises that life tends to throw at us. The government will try to intervene, but as I've said before, this crash was inevitable, and there's no stopping it until we reach the bottom.

The Fisherman

2008-04-30T06:14:00.001-07:00

A fisherman stands in a shallows of the lake. The water is still, and on such a beautiful day, it reflects its surroundings like a mirror. He examines his tackle box for the perfect lure... Ah, but this time he decides to use live bait! He baits the hook then slowly reaches back, and with a whipping motion he casts it into the water.

Meanwhile, fish beneath the surface take notice of the tender morsel on the hook. They know it could be dangerous to act, but curiosity gets the best of them; and they reason "We don't know when will see another opportunity like this one!" Unable to hold himself back, one fish makes his move. Two onlookers realize that the first fish has gone for it, and they go after it as well. After a furious struggle, the fish who was the strongest swimmer, snapped up the bait. For a moment he gloated because three of them darted after it, but he got it...

Well, it's easy to imagine what happens next... The fish is pulled from the water, and ensnared in the fisherman's net. There's nothing the fish can do... It's over for him.

The story above describes what's happening right now to some buyers. They see what they believe is a once in a life time deal in the current market, perhaps a lender owned home, and make an offer. Other buyers catch wind of the deal and make offers as well. In the end, the most qualified buyer, the one with the highest credit score and the most cash, gets the home. But here's the rub, after a few months the buyer discovers that their good deal is not so good anymore, and it may only be a matter of time before homes are selling for less then they paid.

Here's an example:

A REO is listed for $439K in an area where some homes have sold for as high as $499K. Buyers pounce on it because it's an additional $60K under market. The lender receives 5 offers, with the highest offer being $479K. The buyer reasons, he got a steal because it's still under the $499K that some have sold for. And this is true, today he did get a deal. However, 6 months roll by, and homes in the same neighborhood are regularly being listed for $439K. Do you still think the buyer got a good deal?

The fact is in most areas across the nation home prices are continuing to decline, and most experts seem to agree that this is set to continue for perhaps the next couple of years. No one can tell you exactly what will happen, thus it's up to you to research and determine when it may be in your best interest to buy.

Just some food for thought...

Housing Market Watch #1

2008-04-29T06:20:00.000-07:00

This entry is the first of many installments to come, where I'll focus on what's happening with home prices in Southern California using specific examples from the Multi-Listing Service (MLS).

Today's property is in Escondido, California (San Diego County). I chose Escondido because, as I reported in my post The Biggest Loser, it's the city that fell by the greatest percentage in San Diego County.

Type: SFR
Status: Active
MLS #: 076063664

Square Feet: 1,829
Lot Size: 6,500 sqft
Year Built: 2003

Bedrooms: 5
Full Baths: 2
Partial Baths: 0

Listing Date: 08/06/07
On Market: 266 days

Description

Sllr. will entertain offers btwn. $339,999-$369,999.Can park 6 cars in drive way. Panoramic views, BUILT in 2003.Close to shopping ctrs, hwy 15 & 78 and major st. basically in the harth of Esc. convinient location. Make offers!!!. Motiveted seller most sell QUICKLY!!!Buyer and selling agent to verify all this information before the close of escrow. Sale and commission subject to bank approval. Commission to be split 50% & 50% of the total authorized by the bank.

Sales History

Date	Sold Price	Gross Gain	Change ($)	Change (%)
07/11/02	$165,000	N/A	N/A	N/A
02/25/03	$362,000	+$197,000	+$197,000	119.39%
09/19/05	$546,000	+$381,000	+$184,000	50.83%

It's easy to see that this home appreciated by unsustainable percentages during the Housing Boom, increasing by an average of 72.9% per year.

Pricing History

Date	Asking Price	Gross Gain	Change ($)	Change (%)
08/10/07	$555,999	+$9,999	+$9,999	1.81%
08/25/07	$599,999	+$53,999	+$44,000	7.91%
12/03/07	$479,999	-$66,001	-$120,000	20.00%
12/28/07	$449,999	-$96,001	-$30,000	6.05%
01/14/08	$399,999	-$146,001	-$50,000	11.11%
01/22/08	$358,999	-$187,001	-$41,000	10.25%
04/01/08	$339,999	-$206,001	-$19,000	5.29%
04/24/08	$309,999	-$236,001	-$30,000	8.82%
04/25/08	$299,000	-$247,000	-$10,999	3.55%

The sales price continues to plummet, falling by an average of 5.14% per month, as the seller desperately seeks a buyer. At this point the current asking price of $299,000 is $247,000 (45%) lower than the last sales price. The only question remaining is how low will it go?

My Thoughts

As prices continue to fall in Southern California, the most prudent course of action is to wait it out. As you can see from the pricing history above, if a buyer had purchased this home before April 1st, that buyer would have lost out on an additional savings of $59,999 (16.71%)!!!

How low will it go? No one knows for sure. However, I recently read that home prices tend to increase at about the same rate as inflation (4%). So, if this home had increased 4% per year since it was purchased in the summer of 2002, the current value would be approximately $208,000, an additional 30% decline from the current asking price.

That's definitely worth considering.

UPDATE 11/04/2008: This property has been sold for $251,636

Some good advice...

2008-04-28T02:10:00.000-07:00

Most people don't trust used car salesmen. Why? Because used car salesmen are notorious for saying or doing anything necessary to get you to buy a car.

In fact, the salesman may know that the vehicle you're eyeing is a lemon; however, if they believe that they have a chance of selling you that vehicle, then they're not going to bother mentioning that tidbit of information. The salesman is there for one reason... to make money. You'll have their attention just long enough for them to sell you that car. Afterwards, they may not even remember your name.

I find it interesting that real estate agents aren't viewed the same way. Think about it, an agent is not going to tell you, we're in a downward market perhaps you shouldn't buy right now. They are there for one reason... to make money, and you'll have their attention just long enough to buy or for them to provision the sell of your home.

For that reason, I decided to use some of the information I gathered in researching the post "It's all happened before...", and cross-referenced it with the statements that were made by the National Association of Realtors (NAR) during the corresponding time period to determine how accurate (good) their advice has been.

Year	Analysts/Media	National Association of Realtors

2005	Overheated housing market is cooling. Median prices declined 5.7% in September, one sign that housing is cooling.	[08/2005] After four consecutive record years, home sales should ease but remain close to record levels in 2005, according to the National Association of Realtors. Sales should decline about 2.5% to a total of 6.48 million in 2005.
2006	Continued market slowdown. Prices are flat, home sales fall, resulting in inventory buildup. U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.	[09/2006] Home sales are likely to level out at a lower pace in the months ahead, according to NAR's latest Pending Home Sales Index. The index, which is based on contracts signed in July, is down 7.0% to 105.6 from a downwardly revised reading of 113.5 in June, and is 16.0% lower than July 2005.
2007	California housing: still unaffordable. Year-over-year decreases. Home sales and home prices accelerates [downward] rather than bottoming out, with U.S. Treasury Secretary Paulson calling the "the housing decline ... the most significant risk to our economy."	[01/2007] “2007 will be the fifth best year for housing on record. Places like Houston, the Kansas City area, Indianapolis, and the vast middle section of the United States offer affordable prices and continued job growth."
2008	California home prices freefall. Home prices down 26% in February. Southern California home sales drop to a 20-year low. Ex-Fed Chairman Greenspan admits recession. Doom and gloom.	[01/2008] "Over the next few months, existing-home sales are expected to hold fairly steady as indicated by pending sales activity, then rise later in the year and continue to improve in 2009."

As you can see from the examples above, the National Association of Realtors (NAR) seems to have little credibility when it comes to making market predictions or accurately assessing the current market conditions. So if the NAR can't give you an accurate reading of the market, why would you expect your realtor to be able to do so?

Realtors, buyers and sellers alike look to you for direction and advice. So when you tell them "Buy now or be forever priced out of the market!" or "We're either at the bottom or very close to it", they tend to trust you... Often times to their detriment. Don't you have an ethical, legal and professional obligation to give your clients accurate information to the best of your ability? I think it's even worse when the National Association of Realtors, an organization that has the social responsibility to accurately report housing market conditions, is taking the lead in misleading.

Here's some good advice:

The next time your realtor advises you, research the market yourself, because the typical realtor has no vested interest in telling you anything that doesn't convince you to buy or sell...

Moving Day...

2008-04-25T20:27:00.000-07:00

I know it's late... But I wanted to catch you all before you went to bed... At least those of you who live in the West...

Today we finally moved into our new townhome in Irvine...

No... We didn't do the unthinkable; we're still holding off on any purchases until around 2010!!! But I digress, back to the townhome we're leasing...

It's larger, nicer, cheaper, and has more conveniences than our previous townhome in Newport Beach... But we're no longer a mile from the ocean :-(

I know what you're thinking... Why would you leave a place so close to the pacific blue... Well, we decided the more money we have saved once the market bottoms, the more house we'll be able to afford (sniff sniff sigh...)

Normally, I would've posted something in during the wee hours this morning; however, because as I had no internet connection this wasn't possible.

Worry not though!!!! Starting Monday, things will be business as usual.

Stay tuned updates soon!!!

How Safe Is Your Money?

2008-04-24T04:34:00.001-07:00

There are 76 banks on the troubled bank list. No big deal, after all we are FDIC insured right?

Well, I just discovered something about FDIC insured bank accounts that literally scared me! For years I have heard and read that bank deposits are FDIC insured up to $100,000.

Many people thought (including myself) that if they had multiple accounts at the same bank, such as the following:

$100,000 in a Checking account
$100,000 in a Savings account
$100,000 in a Certificate of Deposit (CD)

They would have $300,000 worth of FDIC protection.

WRONG!

You are only protected up to $100,000 per bank per person!

What could you do? Well, you could move the money in excess of $100,000 to another bank since the limit is per bank.

Another option would be to add another person to the account, if you have someone you could trust.

A better solution is to find a bank that uses the Certificate of Deposit Account Registry Service. Members of the registry distribute large accounts across multiple institutions in a way that is seamless to you, but spreads out the insurance risks.

You could have up to $30 million on deposit, with a single statement and interest rate, but be spread wide enough to be fully covered by the FDIC; in a fashion that is legal and approved by the FDIC.

Remember, it is not the policy of the Federal Reserve or the Federal Government to warn you ahead of time that a bank is about to fail. So please take measures to protect yourself.

Rolling the dice...

2008-04-23T05:51:00.000-07:00

Some of you are in a position where you may have decided that it is strategically beneficial to buy a home now, as opposed to waiting for the bottom of the market.

No one can say for certain what's going to happen in the housing market. Conventional wisdom says that housing prices may continue to decline for some time. However, that may be irrelevant to you if you've decided, for whatever reason, to purchase a home now. That being said, here are some tips and tricks that may help you to get the best deal possible in today's market.

Buy a short sale

It generally costs a lender around $40,000 to convert a pre-foreclosure to a real estate owned (REO) property. Thus, if you find a short sale on the MLS, and you offer the lender $40,000 less than the appraised value of the home, they'll generally accept it, because the numbers make sense. The downside to buying a short sale are:

The more expensive the home is, the smaller the discount (in terms of percentages) because the discount is a fixed amount.
It may take some time (weeks perhaps months) to get a response from the lender(s) once you've made an offer.

So, provided you don't need to get into a home right away this could be an option for you.

Buy a lender-owned property

Real estate owned (REO) properties may sell for 10-15% less than their appraised value (which in some areas my be 5-10% less than some asking prices), and thus offer significant savings over conventional home re-sales. Lenders typically use real estate companies to sell their properties, and thus offer an added benefit over short sales, as they do not exhibit the long wait times for a response to your offer. The disadvantage of a lender-owned property is the condition you may find the home is in. You may find that the appliances, furnace, hot-water heater, or even the A/C unit have been removed; sold by the previous owner before the lender was able to take possession of the home.

End of the quarter

If you've decided to buy a lender-owned property or short sale, try to buy at the end of the quarter (at least 30 days before the end). Why? This is when lenders generally have the greatest incentive to sell a property for less than they would have otherwise; to make their numbers for the quarter look better.

Days on the market

Once a home has been on the market 180 days or longer, the sellers may become anxious, and may be more likely to accept an offer that they would have previously rejected.

Thus, if you find a home that has been on the market for 6 months or more, you may be able to pickup that home at a discount. The longer the home has been on the market, the more anxious the sellers may become. So if it's been on the market a year or more, you may be able to purchase it at a steep discount.

Deal directly with the listing agent

Listing agents would much rather deal directly with buyers; as it accelerates the process, cuts down on miscommunication, and the agent would receive both sides of the commission (3% instead of 1.5%). At times, depending on the agent, when price negotiations are breaking down over a small amount (1.5% or less of the sales price), the listing agent may even give up as much as 1.5% to close the deal!

Offer less than the list price

Don't pay the full price!!! Given the continuing decline of home prices, it would be foolish to offer 100% of the purchase price; unless the price is so much lower than the rest of the market that you feel completely confident it's the right thing to do. Generally, one can offer up to 10% less than the asking price and feel reasonably comfortable that the seller will accept it. That's not to say you can't offer less than that, it's just the likelihood of acceptance gets lower as the price does.

Plan to stay put for a while...

If you're purchasing a home now to live in, then you should plan on living in it for at least five years, in the hope that by then you'll be in a positive equity situation. However, if you find that you need to sell it for any reason over the next couple of years, you may lose considerably.

The Biggest Winner

2008-04-22T06:38:00.001-07:00

In a previous post, The Biggest Loser, I presented statistics taken from DataQuick on the cities within each county in Southern California that had the largest price declines (for single family residences). This time, I will present the cities in Southern California that have had the smallest price declines or in some cases price increases.

The Biggest Winner (per county)


County	City	Median Mar-07	Median Mar-08	Median % +/-	Sales

Los Angeles	Diamond Bar	$594,000	$568,000	-4.6%	28
Orange	Laguna Niguel	883,500	$950,000	+7.0%	25
Riverside	La Quinta	554,800	$545,000	-1.8%	84
San Bernardino	Lake Arrowhead	$410,000	$410,000	-0.0%	23
San Diego	Rancho Bernardo	580,650	$553,000	-5.0%	29
Ventura	Simi Valley	593,850	$535,000	-11.0%	39

Disclaimer: Cities with less than 23 sells within the period measured were omitted. The percentages for larger cities are for specific postal codes and may not be reflective of the entire city.

Conclusion

No matter how bad the market seems, there will always be those who manage to make money, and the current Housing Crisis is no exception. As you may have noticed above, that at least one city had a price increase when comparing the median price from March 2007 to March 2008.

Now is the time to pay close attention to the cities that are fairing well in the current economy, because these may be the cities that do extremely well when the market rebounds.

The Biggest Loser

2008-04-21T06:05:00.000-07:00

As notices of default and foreclosures continue to skyrocket unrelentingly, it's natural to wonder how low prices are actually going to go. I think this is something both buyers and sellers alike want to know, yet obviously for different reasons.

Potential buyers have a vested interest in seeing prices continue to decline as it will mean better buys in the future. While sellers would prefer to see the prices either flatten or start an upward trend, because as prices decline, so does their personal wealth.

Below is a comparison of the median prices (per county) from March 2007 to March 2008 across Southern California (for single family residences).


County	Median Mar-07	Median Mar-08	Median %+/-

Los Angeles	$540,000	$440,000	-18.5%
Orange	$629,000	$506,000	-19.6%
Riverside	$420,000	$306,250	-27.1%
San Bernardino	$369,000	$265,000	-28.2%
San Diego	$490,000	$395,000	-19.4%
Ventura	$566,750	$430,000	-24.1%

The numbers above are probably not a surprise to most of you. But the obvious question is, "Are prices stabilizing or will they dip any lower?" The truth is no one knows for certain... However we can make educated guesses. In a previous post, The 'F' Word, I presented the foreclosure numbers from RealtyTrac, as well as what the media and analysts are saying. Given the information provided by that report, I created the comparison below as my educated guess as to where I think the market will be in one year from now in Southern California.


County	Median Mar-08	Median Mar-09	Median %+/-

Los Angeles	$440,000	$341,000	-22.5%
Orange	$506,000	$384,500	-24.0%
Riverside	$306,250	$214,375	-30.0%
San Bernardino	$265,000	$186,825	-29.5%
San Diego	$395,000	$292,300	-26.0%
Ventura	$430,000	$318,200	-26.0%

My educated guess (prediction) is that price declines will accelerate, falling by the indicated percentages across Southern California by March 2009. The percentages of decline are based on the factors below (NOTE: the percentages below are based on information provided by DataQuick for the month of March 2008):

Notices of default (which may eventually become new foreclosures) are on the rise.
Analysts expect a peak in adjustable rate mortgages (ARM) will reset in May and June.
Sales were down 38.3% compared to the previous year
Almost 40% (38.4%) of the homes that actually did sell were foreclosures.
The median price paid for a home last month was $358,000, a 4.0% decline from $373,000 in February, and down 26.0% from $484,000 compared to a year ago.
The typical mortgage payment that home buyers committed themselves to paying last month was $1,606 (down from $1,665 in February), down from $2,230 a year ago.

I also believe that the additional time it will take to move new foreclosures and short sales (at the current rate of sales) out of the market will drive further price decreases.

That's all fine and good, but some of you are still skeptical. You're likely saying to yourself, "Prices have only fallen an average of 26% in California within the past year, and could be starting to pickup..." If you are one of these individuals, please reserve judgment until you've read the entire post.

The Biggest Loser (per county)


County	City	Median Mar-07	Median Mar-08	Median %+/-

Los Angeles	Palmdale	$325,000	$185,000	-43.0%
Orange	Santa Ana	$611,000	$378,000	-38.1%
Riverside	Riverside	$457,000	$225,000	-50.8%
San Bernardino	Twentynine Palms	$151,000	$73,000	-51.5%
San Diego	Escondido	$803,000	$339,000	-57.8%
Ventura	Oxnard	$538,000	$300,000	-44.2%

Above are the areas that have fallen most on average in each county, based on data gathered from DataQuick News. As you can see, once you start examining specific areas, the numbers are far more interesting. It's easy, when looking at averages across the county, to miss the fact that some cities or areas within a city may have greater price declines than that of the whole.

Disclaimer: Cities with less than 25 sells within the period measured were omitted. The percentages for larger cities are for specific postal codes and may not be reflective of the entire city.

Conclusion

We haven't seen the last of the price decreases yet; however, not all cities or areas within a city, will be affected the same. The most affluent and highly sought after neighborhoods, usually those along the coast and/or in close proximity to employment opportunities, will fair the best. Thus, if you've been waiting patiently to buy, you will be handsomely rewarded if you stay the course. If you've been waiting to sell, and your circumstances allow you to do so, you may want to act now as your equity will only dwindle further if you continue to wait.

Housing Bubble vs. Great Depression

2008-04-20T15:57:00.000-07:00

The embedded video contrasts the crash of the recent Housing Bubble vs. The Great Depression. I must admit the video's author did a fantastic job of contrasting the two, and thus it's really worth a watch...

The video is similar in concept to an article posted on this blog last week called 'It's all happened before...', which contrasts the Housing Boom of the 1980's and 1990's to the most recent Housing Boom. Please read it if you haven't already.

The Roubini interview

2008-04-19T08:02:00.000-07:00

I've been saying for sometime that the current administration has been downplaying the severity of the economic issues we're facing. Embedded within this post is an interview conducted by Steve Paikin of The Agenda, a Canadian public affairs television show, featuring Nouriel Roubini, a professor at NYU. In the interview, Roubini discusses the U.S. economic recession and is very candid about the economic outlook.

Roubini argues that the current recession will not be short and shallow, as some economists have claimed, but it will be the worst recession we've seen since the Great Depression. He goes on to talk about the financial sector and that we'll see the collapse of more financial institutions (e.g. Bear Stearns), and further price declines in the housing market. Unfortunately, Roubini's proclamations of the impending financial crisis to come have earned him the name of Dr. Doom among some of his peers.

The full interview is about 30 minutes long (broken into 3 separate videos), but I encourage you to have a look.

Part 1 of 3

Part 2 of 3

Part 3 of 3

The 'F' Word

2008-04-18T05:18:00.001-07:00

It's difficult to read the news these days, and not see that dreaded F word, foreclosure. But the fact is, there's no escaping it. Unfortunately, the housing market may continue in it's downward spiral for some time as a result of all of the foreclosures.

The Statistics

For the third month in a row U.S. foreclosure activity registered at more than 50% above the level it was at a year ago.

For the month of March:

Foreclosure activity was up 57% to 234,685 , compared with 149,150 properties a year ago.
Bank repossessions were up 129%.
March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

RealtyTrac, a company who provides mortgage default information to subscribers, released their foreclosure activity report for March 2008, which provides foreclosure statistics across all 50 states. Nevada, California, Florida, and Arizona make up the top 4 foreclosure states for March. These were highly speculative markets, thus declines in home prices are likely to be most severe in these areas.

Nevada has been hit hard in March with 3.9 times the national average of foreclosures, and the highest foreclosure rate for the 15th consecutive month.

California holds the highest number of foreclosure filings in March, and has had the most of any state for the 15th consecutive month. California's foreclosure filings more than doubled (compared to a year ago) increasing by 21% in February, and 20% in March.

Although Arizona has had a 5% drop in it's foreclosure filings this month, it has posted the nation’s fourth highest state foreclosure rate for the 3rd consecutive month.

Top Ten States For Foreclosures - March, 2008


Rank	State	Total #	%+/- Feb 08	%+/- Mar 07	Ratio

1.	Nevada	7,659	24.19%	61.65%	1 in 139 homes
2.	California	64,711	20.66%	105.86%	1 in 204 homes
3.	Florida	30,254	-6.76%	111.52%	1 in 282 homes
4.	Arizona	9,199	-4.67%	105.52%	1 in 283 homes
5.	Colorado	6,180	-8.27%	-1.39%	1 in 339 homes
6.	Georgia	11,047	44.76%	63.20%	1 in 351 homes
7.	Ohio	11,273	8.54%	37.11%	1 in 448 homes
8.	Michigan	9,494	-13.35%	10.27%	1 in 475 homes
9.	Massachusetts	5,573	42.68%	59.37%	1 in 486 homes
10.	Maryland	4,275	6.45%	343.01%	1 in 538 homes
	United States	234,685	4.93%	57.35%	1 in 538 homes
Click image below to enlarge

The Media's Reaction

On Tuesday, April 15th, Bloomberg, seeking to expand upon the RealtyTrac report, posted their own report U.S. Foreclosures Jump 57% as Homeowners Walk Away. To illustrate how truly dire the current situation is, I have quoted the most relevant portions of the article below:

About $460 billion of adjustable-rate loans are scheduled to reset this year, according to New York-based analysts at Citigroup Inc. Auction notices rose 32 percent from a year ago, a sign that more defaulting homeowners are "simply walking away and deeding their properties back to the foreclosing lender'' rather than letting the home be auctioned, RealtyTrac Chief Executive Officer James Saccacio said in the statement.

"We're not near the bottom of this at all,'' said Kenneth Rosen, chairman of Rosen Real Estate Securities LLC, a hedge fund in Berkeley, California and chairman of the Fisher Center for Real Estate at the University of California at Berkeley. "The foreclosure process will accelerate throughout the year.''
.
.
About 2.5 million foreclosed properties will be on the market this year and in 2009, Lehman Brothers Holdings Inc. analysts led by Michelle Meyer said in an April 10 report. U.S. home price declines will probably double to a national average of 20 percent by next year, with lower values most likely in metropolitan areas in California, Florida, Arizona and Nevada, mortgage insurer PMI Group Inc. said last week in a report.
.
.
The percentage of homes currently in foreclosure is similar to that of the early 1980s and early 1990s, Rosen said. [Sound familiar? See It's all happened before...]

"It's comparable to the peak levels of those periods, but my guess it will be the worst since the 1930s when it's all over,'' he said.
.
.
"I've had people sitting in my office in tears because there are no loans available,'' said Goldman. "There are no loans for someone who's upside down on their house.''

On the same day, MSN produced it's own report Foreclosures continue to soar, worst is not over; expanding on the RealtyTrac data. Below is a quote from that article:

And the worst isn’t over: The wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that’s expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.

On the following day, Wednesday, April 16th, the LA Times posted Foreclosure glut further depresses housing prices; their thoughts and findings on the foreclosure epidemic. Again, I have quoted the most relevant portions of the article below:

The traditional spring home-buying season is off to its worst start in 20 years, data released Tuesday show, with sales so weak that foreclosures now account for more than one-third of all market activity.

Nearly 38% of Southern California homes sold in March had been foreclosed at some point in the prior year, up from 8% in March 2007, DataQuick Information Systems said.
.
.
The median price for a Southern California home fell below $400,000, to $385,000. Homes are now typically selling for what they fetched in April 2004, with the median price 20% below the market peak of $505,000 last year.
.
.
Homeowners who aren't facing foreclosure, meanwhile, often cling to outdated notions of what their properties are worth, real estate agents say.

The Federal Government's Reaction

There are many stimulus initiatives currently being proposed. Some bipartisan and others are not. However, the one constant is that everyone in the Federal Government has ideas about what is needed to fix the economy.

The Senate has recently passed a bill which would offer a $7,000 tax credit to buyers for purchasing a home in foreclosure.

The benefits, as they see it, are two fold:

It helps to resolve the issue with the glut of foreclosed homes that have entered or are preparing to enter the market.
The tax credit may act as additional stimulus money, that may be spent to upgrade, repair, or perhaps decorate the newly purchased home.

The Consequences for Walkaways

The two largest U.S. sources of mortgage money have reacted to the growing issue with walkaways, where homeowners stop making payments and months later give the house keys back to the lender. The result... You will feel the pain.

On March 31, Fannie Mae sent out new guidelines to lenders targeting walkaways, and other foreclosure situations. Borrowers who have filed for foreclosure will be prohibited from obtaining a new mortgage through Fannie Mae for 5 years, unless there are "documented extenuating circumstances." In those cases, the mortgage prohibition will be limited to 3 years.

However, even after 5 years, borrowers with foreclosures on their records will be required to come up with at least a 10% down payment, and have at minimum a 680 FICO score.

Freddie Mac (the alternative to Fannie Mae) counts foreclosures against borrowers for 7 years, and a senior official stated the company is now aggressively pursuing some walkaway borrowers "to preserve our deficiency rights" where permitted under state law.

Conclusion

Foreclosures have hit this country hard, and are at the core of the Housing Crisis. So it should be no surprise that both Fannie Mae and Freddie Mac are seeking to ease the pain of lenders by reducing what they deem as non-hardship (or walkaway) foreclosures. There is a possible unintended consequence here though... If a significant number of borrowers don't have enough cash, high enough credit scores, or are prohibited (as a result of walkaway, foreclosure, or bankruptcy) from obtaining mortgages for 5 to 7 years, who will buy all of these bank-owned homes?

It's clear that the Federal Government is trying to do all they can to repair our fragile and damaged economy. However, The Senate's recent bill has two potential downsides I see... One for buyers and one for sellers. The problem for buyers is that this bill also asks them to take the inherent risk of buying in a market where prices are continuing to free fall. The problem for sellers is that it puts them at a further disadvantage in terms of selling their homes, because now not only will they compete with foreclosures on price, there's the extra $7,000 tax credit a buyer gets for buying a foreclosure instead of a normal resale.

The good news is, eventually this will pass. The bad news is, it may get worse, before it gets any better...

The Dream

2008-04-17T05:35:00.000-07:00

Once upon a time, we were young, and our parents were in control of our lives. They told us what to do, and how to do it. We thought a lot about what our lives would be like once we grew up, and looked forward to the day when we would become masters of our own destinies; allowing us to make the important decisions that would shape our lives.

Collectively, we dreamt about becoming doctors, lawyers, secret agents, superheroes, football, baseball, and basketball stars.

Girls dreamt about the perfect guy, her prince charming, the beautiful engagement ring he would give her, and the fairytale wedding that would follow. She would be the envy of all of her girl friends.

Boys dreamt about growing up and making a lot of money; enabling them to buy expensive cars, travel to exotic places, and own fabulous homes. They also thought of meeting their dream girl. One so beautiful that nothing would need to be added or taken away from her. She wouldn’t need to be altered in any way. She is perfect.

The years came and went; we found ourselves adults. We got jobs, married, and bought homes… We were living the American Dream.

One day, we noticed all of the new subdivisions being built around the country; large beautiful homes that we simply could not afford. But our friendly financial institution saw an opportunity to make ungodly amounts of money. With interest rates being amongst the lowest in history, the banks and mortgage companies devised ways to make sure anyone could buy a home.

They used the following products:

Adjustable rate mortgages (ARM) are loans in which the interest rate on the note is periodically adjusted via a variety of indexes.
Interest-only mortgages are loans in which for a set term the borrower pays only the interest on the principal balance, yet the principal balance remains unchanged.
Sub-prime mortgages, which use the borrower’s Fico score and loan to value ratio (LTV) to determine the type of loan that a borrower would qualify for.
Liar loans, when all else failed, the banks would simply accept undocumented earnings to allow you to qualify for the mortgage.

We soon found that we could buy more home than we could have otherwise afforded. Yes, we were truly living the dream.

The dream became a nightmare…

With all this money available housing prices began to reach unsustainable levels, interest rates began to rise, loans began to reset, people began to default by the thousands.

But not to worry, we will dream again. However, this time we will be smarter.

The benefits of this nightmare

Remember, any time there is adversity, there is also opportunity. Have you thought about contacting lenders about cleaning up their foreclosed properties; perhaps keeping the grass cut and the property free of litter. The more affluent the area is, the more important this point is, and the more potential money one could make providing this service. Sometimes these homes may need painting. How about offering to keep a daily or weekly watch on these homes to make sure vandals do not strip them.

As more and more people fall victim to foreclosure, they begin to strip their own homes before deeding them to the bank; selling light fixtures, ceiling fans, hot water heaters, and even the A/C unit! If you're skilled in this area, you could offer to reinstall these things.

If you sit down and really think, I'm sure you will come up with many more ways to profit from the housing crisis.

The Verdict is in...

2008-04-16T06:37:00.000-07:00

This post is a follow-up to 'The Price is Right?' from last week, where a couple from North San Diego County were suing their real estate broker for his role in that fact that they paid too much for their home (to the tune of about $150,000!).

Below is the jury's ruling [from Friday, April 11, 2008] :

A jury sided Thursday with Carlsbad real estate broker Mike Little in a closely watched lawsuit that pitted a local couple against the agent that helped them buy a home. The couple, Vern and Marty Ummel, claimed that Little neglected to mention recent sales in their neighborhood, leading them to overpay by about $150,000 for their home in July 2005.

The case attracted national attention as it posed a hot question: What are the responsibilities of a real estate agent? The real estate camp was concerned that if the plaintiffs won Thursday, it would catalyze and focus a growing urge around the country to find someone to blame — and to hold financially responsible — when houses aren’t worth as much as their buyers once paid. Those who sided with the Ummels worried their case would be chalked up to rich people problems, a matter of a measly $150,000 in the scope of a million-dollar tract home near a golf course in North County.

With an enthusiastic and unanimous response, the jury found that Little had executed a reasonable standard of care when he showed his clients, Vern and Marty Ummel, more than 80 homes in a house hunt that began in May 2005, ultimately leaving them to their decision to pay $1.2 million for their house two months later.

Why did the jury decide to find in favor of the defendant (the real estate broker)?

At least in this specific case, the Realtor was found to have exercised sufficient care in helping the Ummels find their house, including helping them negotiate other offers they made on houses before they settled on this one. That made an important part of the case Vern Ummel’s admission on the stand that after looking at so many homes, he had a good sense of value in the neighborhood.

Conclusion

I was watching this case closely, because of the implications it could have had given the current state of the housing market. I have no doubt if this case had been found in favor of the plaintiffs, a slew of new lawsuits would ensue, where buyers alleged they were duped by their respective agents/broker.

In the end, let this be a lesson to all... As I've said many times, do your own research so that you can make the most informed decisions possible.

Difficult choices are ahead...

2008-04-15T06:33:00.001-07:00

As oil prices continue to rise, it's easy to look around and take note of the effect. Most obvious, is the pain you feel at the pump. However, the cost of oil-based fuels touch almost every good we buy. Food costs increase because the trucks that deliver foods (and other goods) run on diesel fuel. Air fares increase because jet fuel becomes more expensive. Potentially all petroleum-based products (e.g. asphalt, kerosene, plastics, and even tar) may rise in cost.

Gasoline

It's not difficult to imagine that soon the cascading effect of rising oil prices (and by extension gasoline) will cause us to make other difficult choices. Perhaps you'll reconsider the purchase of that SUV you've been eying. Or maybe you already own an SUV, and you're thinking about trading it for a sub-compact. Hybrid vehicles are growing in popularity because of their improved fuel economy, and the high cost of gasoline; however, there seems to be a premium for those types of vehicles as well. Some Analysts predict that gasoline will exceed four dollars per gallon before the end of summer. Something has to be done...

So what, if anything, can we do as a nation? Well, there are alternatives to gasoline...

Biodiesel

Biodiesel refers to a non-petroleum-based diesel fuel consisting of short chain alkyl (methyl or ethyl) esters, typically made by transesterification of vegetable oils or animal fats, which can be used (alone, or blended with conventional petrodiesel) in unmodified diesel-engine vehicles.

Ethanol

Ethanol fuel is ethanol (ethyl alcohol), the same type of alcohol found in alcoholic beverages. It can be used as a fuel, mainly as a biofuel alternative to gasoline, and is widely used in cars in Brazil. Because it is easy to manufacture and process, and can be made from very common materials, such as sugar cane, it is steadily becoming a promising alternative to gasoline throughout much of the world.

Conclusion

We could start building vehicles that burn fuel that is totally independent of oil production. So why don't we? Good question... The answer is... Greed. Oil companies, who seem to report record profits when oil prices are up, are making too much money from oil to allow any alternative fuel to be used. Oil companies are notorious for buying patents for vehicles that could free us of our dependence on oil, and burrying them.

The sad truth is, that until we reach a critical point, where the world's oil supply is so diminished that there is no choice but to pursue alternatives, we'll be paying those high fuel prices.

It's all happened before...

2008-04-14T05:23:00.001-07:00

It's truly amazing to me to see how many people ignored (or didn't recognize) the patterns in the housing market. Even analysts seem to sway back and forth as to whether we we're in a housing bubble; a type of economic bubble that is characterized by rapid increases in valuations of real property, such as housing, until they reach unsustainable levels relative to incomes and other economic elements.

I recognized the bubble early on, and took steps to profit from it, while watching carefully so as not to end up upside down. I warned friends and family about the impending danger. Unfortunately, most believed that the market was going to continue to climb indefinitely.

Click image below to enlarge.
Interestingly, the current Mortgage Crisis is not much different from the collapse of the Housing Bubble of the 1980's. The timeline below details the boom, collapse, and recovery of the last housing bubble, as well as the boom and decline of the current bubble. (NOTE: This article focuses mostly on the impact of the bubble on Southern California. Most of the headings are the titles of news articles from the So-Cal Metro within the corresponding time period.)


1985-1986	Housing is booming, inventory is low. Housing starts surge 14.9% during January, best gain in 20 months. Inventory of housing dips in Southland, unsold new homes declined by 3.2% from end of l984.
1987	Housing still booming, prices increasing, inventories low. High-end home sales push up the median price. California June Housing Starts Up 12.5%.
1988	People start to question the boom. Realtors assure us the boom will continue. Houses aren't like stocks afterall.
1989	Prices are very expensive; affordability an issue. Sales slow and prices drop. Mention of risky loan types.
1990	Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word "recession" is mentioned. Doom and gloom.
1991	A "dead cat bounce"? Some folks wondering if the bust has bottomed out or not. Sales are abysmal (e.g., -42%). Other parts of the country showing some signs of recovery.
1992	No one is buying; housing is an investment that no one will touch. Desperate political efforts being made to encourage house buying. Rock bottom prices and lower mortgage rates encourage some purchasing. The year ends with some buying. Another "dead cat bounce"? It's not clear.
1993	It's definitely a buyer's market. Some people are saddened by the fact that current prices are 50% of what they were in the 1980's. The housing bust in Southern California is clearly negatively impacting the California economy and the national economy at large. Sellers are desperate to sell (and some people taking extreme measures like putting huge "for sale" signs on their lawns for passing planes to see). Folks who waited out the boom to buy at the bottom are being handsomely rewarded for their patience. Proof-positive of the contrarian investing style -- be greedy when everyone is fearful and fearful when everyone is greedy. The "slump" may be ending.
1994	Housing begins its comeback. Home Sales Up 24% From Last Year (June). Lenders scramble to keep housing comeback alive. People who had the intelligence to wait for the bottom are buying now at great values. Even rising mortgage rates are not shaking the recovery.
1995	Some parts of the Southland are recovering others are not. Home Sales Rise 10.5% in State, Hit 5-Year High in Feb. County Home Sales Slide 20.4% in May. People with "negative equity" are in despair. Study of Homeowners Finds `Negative Equity' a Problem. Real estate: Nearly 5% owe more than homes are worth. Impact hinders the state's economy, experts say.
1996	A tentative recovery is still in the making. Ready to fly? Region's housing prices on rise, moderately. State's housing market finally in turnaround. O.C. homeowners more confident.
1997	Finally, housing has recovered. Southland Home Sales Are Unseasonably Hot Real estate: In O.C., October sales were 46.5% higher than last year. Median price of $208,000 was highest since 1994.

2001	Home Is Where the Market Stability Is; Housing: Aging baby boomers, immigrants, limited supply--and even the stock market--are fueling the buying trend.
2002-2003	Mortgage denial rate of 14% for conventional home purchase loans, half of 1997. Annual home price appreciation of 10% or more in California, Florida, and most Northeastern states.
2004	Housing Market To Remain Economic Cornerstone. U.S. home-ownership rate peaked with an all time high of 69.2%.
2005	Overheated housing market is cooling. Median prices declined 5.7% in September, one sign that housing is cooling.
2006	Continued market slowdown. Prices are flat, home sales fall, resulting in inventory buildup. U.S. Home Construction Index is down over 40% as of mid-August 2006 compared to a year earlier.
2007	California housing: still unaffordable. Year-over-year decreases. Home sales and home prices accelerates [downward] rather than bottoming out, with U.S. Treasury Secretary Paulson stated "the housing decline ... the most significant risk to our economy."
2008	California freefall. Home prices down 26% in February. Southern California home sales drop to a 20-year low. Ex-Fed Chairman Greenspan admits recession. Doom and gloom.

Most would agree the market bottomed sometime in 1993, during the collapse of the bubble in the 1990's; however, even in 1994 or 1995 prices hadn't moved much. That being said, don't overly concern yourself about buying at the absolute bottom. So where are we in the cycle? Are we where we were in 1990, 1991, or 1992? The truth is, no one knows exactly. The best one can do is be prepared financially for what may come.

Conclusion

At this point, it should be abundantly clear that the current housing crisis looks more than suspiciously similar to what happened almost two decades ago. You may have also noticed that once the market did collapse, there was a lasting impact on housing prices. I believe history will repeat itself here, albeit on perhaps a much larger scale.

Yet, If you managed to identify the signs and profited from the bubble, then you're in a very good place, congratulations. However, if you didn't, don't beat yourself up about it. Instead, learn from this experience, so that you don't make the same mistakes in the future. Start to prepare yourself for the next cycle.

Remember, it's all happened before, and it will happen again!

The sources for this article are here and here.

WaMu: When Prayer is Not Enough...

2008-04-13T18:32:00.000-07:00

This post is a follow-up to two other recently posted articles about Washington Mutual Bank. Please read WaMu: Hoping and Praying and WaMu'd, if you haven't read those already.

The rarest of investment ratings was issued recently by Goldman Sachs on the shares of Washington Mutual Bank... Sell. That's right, sell... Goldman expects that WaMu will lose between $17 billion and $23 billion on its mortgage portfolio.

My Take

Washington Mutual Bank is likely to be swallowed by another larger, more stable bank. I guess we can count WaMu as yet another casualty among the financial institutions that will go bust as a result of the Mortgage Crisis.

WaMu, join your fallen brethren, R.I.P. baby, R.I.P...

Everything must go...

2008-04-12T15:23:00.000-07:00

In a market where record numbers of foreclosures are occurring nationwide, expect to see some truly saddening sights. This entry is about a distressed home owner, in the Phoenix Metro Area (Maricopa, AZ), who is selling everything inside his home... including all of the appliances, the hot water heater, the sink in the garage, the garage door opener, and even the blinds on the windows... before the bank takes possession of the home. As more and more of these foreclosures wash out, this kind of activity may become common place; putting evermore financial pressure on the banks who own them.

Below is an excerpt from the posting for this sale from Craigslist:

**You must professionally uninstall all fixtures, and or items. I will not have anyone putting holes in the walls or damaging the existing structure to remove these items. **

Our house is in the foreclosure process, and we won’t be leaving until April 19, 2008. So anything that is of everyday use i.e. the appliances or A/C or the hot water heater will not be removed until after that date. The bank has rejected 6 solid offers that have been made by potential buyers for our home. I have well over $60,000 in upgrades thru out my house; house is less than 1 year old, as is all the appliances and fixtures. Please read the whole Ad.
....

My Take

As surprising as this may be to some, I can't help but feel we've seen some of this before. What's different now is the Internet. What used to amount to nothing more than a last minute garage sale is now potentially a regional auction. Also, because of the power of the Internet, it is impossible for the media to deprive the public of awareness of these kinds of activities as a result of pressure by the current administration to suppress panic before the impending election. Be assured that these types of things will continue to happen for the next few years...

Take a look at the entire Craigslist posting for yourself, here.

Explosive Opportunities

2008-04-11T05:34:00.000-07:00

By now, most of you realize that home values are falling at an alarming rate because of the Mortgage Crisis. But with any crisis, there are always opportunities. Some of you will have the opportunity to buy a home which you wouldn't have otherwise been able to afford. Perhaps your dream home...

If you have no interest in buying a home; or you own an affordable home, and you're happy where you are, then don't overly concern yourself with the housing market. The housing market is cyclical, and although this time around it has been compounded by other factors, it will bounce back. Please feel free to continue reading, but this article was not written with you in mind.

If you have cash, and are leasing an apartment or a home while waiting for the market to stabilize (or bottom) before you buy, then I believe you're well on your way to making your dream home a reality. Please continue reading, as many of the points below relate to you.

If you own a home, but have decided you want to take advantage of the declining market to buy your dream home, then please continue reading, this article was written with you in mind.

Lenders have drastically changed their lending standards, so be aware of the following:

You may no longer qualify for as much money as you thought. You should approach a lender, and get pre-approved for a mortgage, so that you're ready to buy when the time is right.

If you have filed for bankruptcy in the last five years, then you are not eligible for a traditional mortgage. Fanny Mae just increased this limit from four to five years as a direct result of the Mortgage Crisis.

The minimum FICO score to buy a home is now 580. If your FICO score is currently lower than this, then you are not eligible for a traditional mortgage.

For a conventional mortgage, you'll need enough cash to either put 10% (of the purchase price) down (with a 720 FICO score) or 20% down (with a 660 FICO score). The days of zero down financing and/or using home equity (or second mortgage) to supplement the cash you don't have are over.

If you're planning to lease your current home and buy a new home, your income should be high enough to pay the mortgage on both homes should you have difficulty keeping it rented. There's no point in stretching yourself to buy your dream home, and ruining your credit in the process.

The conforming loan limits have been increased for many metropolitan areas; however, be advised that you will pay a significantly higher interest rate for these new jumbo loans.

Pay off that pesky credit card debt now, while you're waiting for the market to bottom. Many lenders have made adjustments to their loan programs that may render you ineligible, if your debt service ratio is too high.

Finally, don't be anxious!!! It's better to allow the market to bottom, and buy on the way up, then to buy as prices are still falling.

Conclusion

If you're fortunate enough to be in a position to buy right now, then you're definitely in the driver's seat as property values are set to continue to plummet. If you happen to live in California, Florida, Georgia, Michigan, or Nevada, then you're doubly fortunate as these states were hit hardest by foreclosures. California and Florida combined currently represent 50% of all foreclosures in the country! The opportunity to purchase your dream home is nearing fruition.

However, If you are ineligible for a traditional mortgage for any reason, take heart. As I said before, the housing market is cyclical. It's all happened before, and it will happen again.

Vulture Capitalist?

2008-04-10T07:27:00.000-07:00

The Mortgage Crisis has hit everyone hard; not only consumers, but lenders and real estate agents. However, where some see doom and gloom, others see opportunities... Cesar Dias, a California real estate agent has been making headlines with his new business: Repo Tours. Every Saturday, from 11:30 am to 1:30 pm, Dias takes out three sold-out full-sized buses of prospective homeowners on a tour of all of the repossessed homes in Stockton, California.

Since starting his predominantly Internet-based business, RepoHomeTours.com has grown and spread throughout California, and now even includes tours in foreclosure hotspots like Las Vegas, Dallas, and Palm Beach.

Dias, the industrious capitalist, didn't stop there... He also consults, charging real estate agents a $5000 fee for his help in setting up tours of their own.

The article (linked below) goes on to say this about Dias, referring to him as the Grim Repo Man:

But is the Grim Repo Man, described by several news organizations as a “vulture,” simply preying upon the weak? With oil at an all-time high and the U.S. job market at its lowest point in years, the working class seems to be at the forefront of an allout economic war. Considering airline bankruptcies and the threat of trucker strikes, the question is no longer whether or not we are entering a recession but how bad it will be and how long it will last.

My Take

This is not at all surprising, and we'll see more of these types of things as the Mortgage Crisis rages on. Is Dias a vulture? Perhaps... But it's undeniable that he's also providing a highly sought after service. One that continues to sell out weekly, as home buyers look to score ever increasingly lucrative deals.

Read the full article here.

The Good, the bad, and the ugly...

2008-04-09T06:23:00.000-07:00

This article is an account of where we've been, and a prediction (based on my own personal research) of where we're heading. Please take it for face value, and feel free to offer up evidence that I'm wrong. I'll welcome any comments you have.

In the beginning ...

During the Housing Boom, prices climbed with unsustainable percentages of year over year growth. Interest rates were low, demand for housing was high, and (in some areas) demand completely outstripped supply. Lenders greedily originated mortgages, lending money to those who would not have traditionally qualified for the loans they received. Not just people with poor credit, but people whose incomes were insufficient for the mortgage should their interest rate reset. Then the lenders bundled up these mortgages and sold them in securitized pools to investors, and repeated the cycle ad infinitum.

The Crash

Due to inflation the interest rates needed to rise to prevent more devaluation of the US Dollar. Concurrently, housing prices reached a point where they were severely disproportionate to incomes. Large numbers of the mortgages that were originated started to fall into foreclosure due to loan rates resetting, job loss, insufficient incomes, etc. Finally, investors started losing confidence in Mortgage Backed Securities (MBS).

Prevention will be as bad as the cure...

The Federal Government will create and offer stimulus package after stimulus package, but none will be successful in pulling the housing market out of it's slump. It's likely that the Fed will move interest rates down to zero percent (not a typo) in an effort to stop the bleed, which will further drive inflation, and further devalue the US Dollar. It is also likely that the banks will continue not to pass on the savings as they try to recover from losses due to the sub-prime bust. The fact is that housing prices have become completely disproportionate with incomes. A deep correction was not only necessary, but inevitable.

The Downward spiral

It generally costs a lender around $40,000 to convert a foreclosure to a bank owned property (REO). Thus, if you find a short sale on the MLS, and you offer the lender $40,000 less than the appraised value of the home, they'll generally accept it, because the numbers make sense.

Consider this example. You find a short sale for $500k (assuming the asking price is also the appraised value), you offer the bank $460K ($40K less than $500K) for the home, the lender accepts. Once a few deals of this sort happens in the area, the new appraised value for comparable homes is no longer $500K, it's now $460K, because that's what the comps will be. Let's face it, once buyers find out that a comparable home sold for $460K, they're not going to offer anymore than that. As the cycle repeats itself, home prices (and appraisals) continue to fall.

The Conclusion

If you bought a home between 2002 and 2007, it may be unreasonable on your part to believe that you haven't overpaid (unless you've bought for pennies on the dollar). Chances are your home is either worth less than what you paid for it, or it will be soon. Prices will continue to fall until about the middle of 2010 or the beginning of 2011. It took about five years for us to get here, and it may take about that long it get back (NOTE: the market started to turn in 2006). If you were thinking about moving anyway, and you have an opportunity to sell, you may want to do so, as any loss you sustain now, you'll likely make up for (and then some) at the bottom of the market; provided you're currently less than 10% under your purchase price. If the difference is greater than that, you'll have to consider whether you're in a position financially to make a transition.

If you are sitting on the side lines right now and you have cash, be patient. Given this country's uncertain financial outlook, the credit crunch, and the housing crisis, the housing market won't see upward movement for sometime. Even once we've hit the bottom, we'll sit there... for a while. And if you feel there are good deals now, they will be really good two years from now. Thus, If you buy now, you stand the chance of having overpaid by the time the market reaches the bottom.

Disclaimer

The statements above are based on a combination of my research, speculation, and educated guesses. You should conduct your own research in order to determine whether action is required on your part, before making any financial decisions.

On the bandwagon

2008-04-09T06:06:00.000-07:00

More and more people in the know are now saying that the country is in a recession, today we can add Alan Greenspan to that list... yes he is on the bandwagon.

There are still a lot of people who still will not admit we are in a recession, but we can no longer count Mr. Greenspan among them. In this morning's business news he said "the country is in the throes of recession".

What does Greenspan know that Bush and company don't?

Read the full AOL article here.

Sign of the Times...

2008-04-08T15:15:00.000-07:00

This is a truly sad tale of a land lord who is losing his property in the Phoenix Metro Area (Glendale, AZ) due to a clever renter who has managed to live in the property rent free for a year. The description below (pulled directly from the MLS) says it all...

The MLS description reads:

Short sale opportunity - tenant hasn't paid rent in a year - eviction unsuccessful. Hired an attorney and made false claims about who owned the property and got the eviction quashed. No time or money to fight it - giving property back to bank. Perfect for investor who wishes to make an offer and kick tenant out after closing. If not sold by march 30 - giving deed in lieu of foreclosure.

My Take

If you own a property that you either have rented or are planning to rent beware!!! There are people out there that know how to manipulate the system, and your fate could be the same as the poor soul who owns the home above. Bare in mind, this isn't a sub-prime foreclosure where the land lord was just in over his head. This is a guy, like you or me, who just rented to the wrong person...

It's robbery!!!

2008-04-08T13:52:00.000-07:00

With all of the doom and gloom being reported right now as a result of the Sub-Prime Mortgage fallout, I hate having to bring up yet another issue plaguing home owners... But homeowners are being robbed yet again!!!

How so? I'll explain...

If you bought a home for $500,000, that's now valued at $350,000, then why should your property tax bill still reflect $500,000!!! In Los Angeles County, where the property tax rate is 1.25% of the home purchase price, you'd be paying $6,250 per year (at $500K) instead of $4370 per year (at $350K), a difference of $1880 per year.

I'm not aware of any county within the state of California that is currently reducing property taxes automatically... Why not? Because it directly affects there bottom line, as property taxes are used in many counties for their operational budgets.

This brings to mind the following questions:

What are the local authorities are doing about lower property taxes for homes that are no longer valued at their respective purchase prices?
What incentive do the local authorities have to lower the property taxes at all, as it decreases their operational budgets.
How will the local authorities determine the new property values for devalued homes?

The Price is Right?

2008-04-08T08:33:00.001-07:00

Vernon and Marty Ummel, a couple in North San Diego County, are suing the real estate agent that represented them in the purchase of their home in Carlsbad, three years ago. They allege that their real estate agent duped them into over-paying for their home. The Ummels paid $1.2 million for their home, at a time where comparable homes were selling for around $150,000 less in the same area.

My Take

Ouch!!! Anyone who has bought a home in California in the last few years is no doubt feeling at least some discomfort as home prices continue to fall. And there's no doubt that many feel that real estate agents are at least partly to blame for what has happened.

As a result, I think buyers (and perhaps sellers too) are going to increasingly expect real estate agents to be accountable for their actions. Real estate agents are licensed professionals who have certain ethical and legal obligations to their clients. To ignore these obligations is tantamount to malpractice. It seems though, during the Housing Boom, many agents ignored these obligations, and were just looking to score as much cash as they could... That could all change if things go well for this couple in court.

Read the full article here.

WaMu: Hoping and Praying

2008-04-07T11:40:00.000-07:00

CNBC is reporting today that Washington Mutual Bank (WaMu) is nearing finalization of a deal where $5 Billion USD will be infused into the financially troubled bank by investors. Last week I talked about my own turbulent experiences with WaMu, and hinted at it's financial distress here.

I think that we will continue to see large financial institutions either acquired or bailed out, like we've seen with Bear Stearns, Countrywide, and others to come (*cough* UBS and Lehman Brothers *cough*).

Keep praying to the Fed WaMu, and perhaps they will save you...

Read the full CNBC article here.

We're on thin ice...

2008-04-06T19:10:00.000-07:00

On December 17,2007 President Bush made the statement that the economy is fine, despite the credit crunch. After trying to reassure Americans that things will be all right he said "there's definitely some storm clouds and concerns but the underpinning is good".

Well, let's look at the facts:

The economy lost 232,000 jobs in Q1 2008 (80,000 jobs in March alone).
The unemployment rate is up to 5.1%, the highest since 2005.
The federal debt is $9.1 trillion.
Three airlines: Sky bus, ATA and Aloha, all shut down within the last 7 days.
The financial sector is in serious trouble. How many more will the Feds have to rescue?
The cost of gasoline will continue to impact the price of everything we buy.
Inflation is on the rise.
People are losing homes in record numbers (as mortgages reset).

Politicians are going to tell you things are not so bad to hold their office. Real estate agents are going to tell you the housing market has hit bottom to sell you a house.

Don't be fooled, things are bad and they are going to get a lot worse; so be smart, if you have credit card debt, pay it off. Learn to live a simpler less costly life, and save at least 6 months of living expenses. We will be going through some very challenging times. Many more people will lose jobs as more companies try to reduce costs... You may be one of them.

This is the last call, get your financial house in order...

Disclaimer

The statements above are my personal opinions. Do your own research, and above all don't just listen to what other people tell you, think for yourself.

Sex, Lies, and Real Estate?

2008-04-06T15:23:00.000-07:00

There's a new apartment complex in Downtown Los Angeles (off the 110 Freeway) that is using rather unconventional means (*wink*wink*) to increase interest in their property. See the video for yourself!!!

Unemployment is on the rise...

2008-04-04T10:18:00.000-07:00

The Labor Department reports the U.S. Economy lost 80,000 (non-farm) jobs in March, and the Unemployment Rate rose to 5.1% (the worst since 2005). The trend is likely to continue as Dell has stated it will reduce it's workforce by more than 9000 jobs over the next 3 years.

March 2008 Unemployment Rates

Africian American 9.0%
Hispanic/Latino 6.9%
White 4.5%
All Workers 5.1%

Read the full article from CNN Money here.

Stay ahead of it...

2008-04-04T09:49:00.000-07:00

Lawrence, I agree with your recent entry about the R word (recession).

According to the definition of a recession (recession is defined to be a period of two quarters of negative GDP growth), and I think the average person realizes that we are in one.

The Bush administration seems to think if they do not admit the nation is in a recession that the rest of us will believe the same way, which would be good for the Republican Party in the coming election.

While a recession is bad for someone losing his or her job, if you are an investor, the Bush administration has handed you a nice gift for the next eight months.

How so? Let me explain. The Federal Government and the Federal Reserve will do anything to keep the economy afloat until the November election, that means you can invest right now with little downside risk.

Caution

After the November election no matter who wins the economy will get a lot worse for everyone, so take the next eight months to raise cash during the upward movements in the market you will then be able to reinvest that cash next year buying equities at much lower prices.

Disclaimer

The statements above are my personal opinions, and are not to used as a guide for your individual investment goals. Please do your own research, and determine for yourself whether or not action is required to protect your respective investments.

WaMu'd

2008-04-03T08:13:00.000-07:00

After over six months of being "accidentally" charged service fees ($20 per statement, every statement, and on multiple accounts!!!), I have moved my accounts (checking and savings) away from Washington Mutual Bank (WaMu) to Wells Fargo Bank.

WaMu seems to have recently adopted a very convoluted system for preventing being charged service fees. Furthermore, there are no warnings on their web site (for online banking) when you're about to make a change that will result in an additional fees.

It is absolutely exhausting having to police my accounts to make sure service fees were not being assessed. After the latest set of fees were charged (without any warnings) for transferring money between my checking and savings too often (more than 6 times per statement period; $10 per transfer!!!), I decided it was time to move on.

Here's where it got really interesting... When I went to WaMu, and inquired about closing my accounts, the teller was trying to give me a hard time about it, stating he had to get his manager's approval. Are you kidding? Do I need permission to withdraw my own money too?

After this surprising experience closing my accounts, I did some research on the Internet, and found a couple of interesting articles... Please take a look at the following links, and draw your own conclusions.

Washington Mutual - One of the Nations Largest Banks Having Trouble
Navigating a Path Through a Turbulent Housing Market

Disclaimer

The statements above are based on my personal experiences with WaMu and are completely my opinion. I am not making any professional judgements about the soundness of WaMu as a financial institution, and I encourage you to do your own research to determine whether a relationship with WaMu (either current or future) is in line with your financial goals.

Finally, we all agree...

2008-04-02T12:08:00.000-07:00

Today in a Congressional Meeting to discuss what happened with Bear Stearns, Federal Reserve Chairman Ben Bernanke expressed concern about the economy "contracting" during the first half of 2008.

The following is a direct quote from a Yahoo! News article about this topic (read the full report here):

Housing, credit and financial woes are threatening to push the country into a deep recession. The situation has emerged as a top concern for presidential contenders and a hot-button issue for Congress. It has thrust the White House and the Fed into crisis-management mode.

Faced with mounting home foreclosures and job losses, Bernanke has been under immense political and public pressure to provide relief and help turn around a faltering economy.

My Take

The Federal Reserve is always very careful to never say the "R" word (recession); however today, it was undeniable that Bernanke was expressing concern about a recession. It took them a while to admit it, but I think now it's official... We all agree that we're in a recession.

Deflating the Bubble...

2008-03-31T20:30:00.000-07:00

In an effort to subvert the current Housing Crisis the Bush Administration is planning a bail out of home owners whose mortgage balances are greater than the value of their homes. Details are sketchy, but essentially the bank would reduce the principle balance of the mortgage, so that the home owner would no longer be in a negative equity situation.

It's unclear at this point whether this deal would extend to those who are negative as a result of using home equity to live the american dream, which for many has become a personal nightmare. It's also unclear whether only sub-prime mortgages will be targeted, or whether the bail out will extend to home owners who are negative as a result of short-sales and foreclosures in their neighborhoods.

One thing is clear, a consumer bail out of this magnitude is unprecedented, and we'll all be eager to see what happens.

Read the article here.

Buy in bulk and save...

2008-03-31T19:13:00.000-07:00

Banks are holding so many foreclosures in Detroit, that instead of selling homes individually, they've begun to offer them to investors in bulk.

The following is a quote from the Detroit Free Press:

Sales were up dramatically in Detroit in February, rising 49% from a year before, and realty watchers say foreclosure properties played a key role in the increase.

Some see significant risk to investors who could get low-end properties without being familiar with pitfalls of the market. “Real estate is not a commodity. You have to know what you are buying,” said Mark Nagy, a broker and consultant for RE Investments Inc. in Southfield. “What typically ends up in bulk sales is stuff that has sat on the market for more than six months.”

Banks see Detroit as a sore spot, Nagy said, because they cannot move the properties and there are so many. “Bulk buying will become more commonplace by the end of the summer,” Nagy said. “Right now, so many properties in Detroit are like a hot potato. Whoever ends up with it will be crushed.”

My Take

This is a tremendous opportunity for the savvy to pickup homes for a song and a dance. And eventually when the market swings back, these homes could be worth a lot of money. The problem is, you'll have to actively guard those properties to keep them from being either vandalized or stripped to the bone.

Another revolution is brewing in Philly...

2008-03-30T23:18:00.000-07:00

I found the information below extremely interesting, and thought I'd share it with all of you:

PHILADELPHIA (Reuters) - Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments — potential relief for tens of thousands of struggling debtors.

Sheriff John Green said on Friday he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period.

Wish you were here...

2008-03-30T22:35:00.000-07:00

With all the negative press about the housing market, it's nice to hear some good news for a change. Below are CNN's Top 10 Fastest Growing Metropolitan Areas. It's interesting that 4 out of 10 of the fastest growing areas are in Texas.

Dallas: Fort Worth, Arlington – Texas 162,250

Atlanta: Sandy Springs, Marietta – Georgia 151,063

Phoenix: Mesa, Scottsdale – Arizona 132,513

Houston: Sugar Land, Baytown – Texas 120,544

Riverside: San Bernardino, Ontario – California 86,660

Charlotte: Gastonia, Concord – North Carolina 66,724

Chicago: Naperville, Joliet – Illinois 66,231

Austin: Round Rock – Texas 65,880

Las Vegas: Paradise – Nevada 59,165

San Antonio – Texas 53,925

My Take

Good news is always welcomed... However, I am curious to know why CNN used data from July 1, 2006 to July 1, 2007 for an article that was published just a few days ago. I also wonder what the results would have been had they chosen more recent dates, for example Feb 1, 2007 to Feb 1, 2008.

Read the full article here.

Homes prices free fall in California

2008-03-28T14:43:00.000-07:00

According to the California Association of Realtors (CAR) home sales decreased by 28.5% and the median home price fell by 26.2% in February (compared to one year ago).

Below is a quote from CAR President William E. Brown:

Although sales rose for the fourth straight month in February by 9.5 percent compared to the previous month, they continue to be dragged down by the ongoing effects of both the credit/liquidity crunch and tighter underwriting standards that have reduced the pool of qualified buyers who can obtain a loan ...

My Take

If you were thinking about taking the plunge and buying a home in California, read the article (linked below) and reconsider...

Read the full report here.

Bitten by the Bear (Part 2)

2008-03-26T07:10:00.000-07:00

Following up on the "Bitten by the Bear" entry that I posted last week, I decided to post the video below which describes what happened to Bear Stearns.

Please watch the video below before reading "My Take".

My Take

I think Jim Cramer is a great investor, and he has a great sense of the financial markets. So what I'm attempting to illustrate here is this: if Jim Cramer can't see these things coming, then how can any of us mere mortals feel confident about the markets or the economy?

Staying put... for now...

2008-03-25T08:49:00.000-07:00

After careful re-examination of the real estate market, my wife and I have decided to renew our lease for another twelve months.

Why?

In looking at the market, we've made a few key observations:

Prices are still falling

This is really the most critical point of waiting. Buyers still do not feel secure about purchasing at the current "reduced" market prices. The fear is, you buy today, and the same house is available a year from now, at a substantial discount (See "A Good deal, today...").

Interest rates aren't favorable

Although the FED has lowered the FED Funds Rate and the FED Discount Rate, banks are still not passing on the savings to consumers; opting instead to replace some of the money they lost in the Credit Crunch. So although the rates aren't what most would consider high, they are likely not as low as they eventually will be.

We're in a recession

Although most politicians aren't willing to admit it, we're in a recession. And the severity of the recession still has yet to be seen. I believe the picture may be clearer within the next six to twelve months, and see no urgency to reconsider buying before then.

Conclusion

For all of the reasons above, we're staying put... for now...

Disclaimer

The statements above are based on my personal observations. You must do your own research to determine whether you agree with these observations, and whether or not they may affect you.

Sales up... Prices down...

2008-03-24T08:37:00.000-07:00

CNBC reports today that home sales were up 2.9% for the month of February (compared to last month), breaking a six month streak of falling sales; while home prices had a record fall. The inventory of unsold homes fell by 3% to 4.03 million; which would require 9.6 months to deplete, assuming no additional homes were placed on the market.

My Take

Since it generally takes 30 days to close, these numbers actually represent sales activity from January not February itself. It's not surprising that during that period the numbers are higher because interest rates were lower at the time. I believe that the numbers for February and March will be considerably lower.

Read the full CNBC article for yourself here.

The Housing Bubble Song

2008-03-21T14:09:00.001-07:00

I found the video below, while perusing the Internet for housing bubble-related news. I decided to post it here because I think it does a great job describing the events that led up to the housing bubble and it's subsequent collapse in a concise manner, with an entertaining song to boot.

Click here to watch the video directly from the YouTube website.