The Slot Machine

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

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

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Sales History

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

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Pricing History

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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?

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

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...

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

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."