Friday, September 22, 2006

Eyes Wide Shut

California and Marin house owners are slowly coming back to their senses following a prolonged period of debt-induced intoxication and I seriously doubt that they will like what they see (underlining is mine):
[Says one California seller] “We have to be competitive, and we can’t be greedy,...It seems like people are afraid to buy now. They don’t know where the bottom is." Real estate agents and economists say Sterbens, and thousands of other sellers, may have to consider further reductions.

‘We’ve got sellers out there who have not adjusted to the new reality,’ said (realtor) Carla Giustino.

The only upside is that many California towns have turned from unaffordable hamlets to buyers’ markets.

Fresh data show that California’s market is not immune, and may be on the cusp of a long-feared correction. ‘I could see some continuing declines at least over the next 12 months,’ said economist Stephen Levy,. ‘Typically sellers begin to lower their prices, and that’s when you worry that the bottom could drop out. We still haven’t reached that point, but I don’t see how the economy can continue with these prices.’

The median price last month in San Mateo County was $721,000, down from $773,000 a year ago. The median home price in Marin County last month was $803,000, down from $822,000 in August 2005 [a 2.3% YOY price decline]. San Diego and Alameda counties also saw prices decline.

The median Marin County home is nearly four times the national median [but our median income is not four times the national median income], and agents say that's made some locals oblivious to the downward pressure. Too often, they're pricing their homes higher than comparable homes in their zip code, and they still expect bidding wars and multiple offers.

"We've got sellers out there who have not adjusted to the new reality," said Carla Giustino of Greenbrae-based Frank Howard Allen Realtors. Giustino urges clients with homes worth $1 million or more to drop prices by $50,000 to $100,000.
No, "the only upside" is that many California towns have turned from a grotesquely unaffordable sellers' market to a fence-sitters' market. We here in Marin are still dealing with seller denial and significant hubris and so it will just take a little longer for us is all. A 5-10% drop in price is a very long way from what any California or Marin fence-sitter will enjoy. Why buy now at the inflection point ("the cusp of a long-feared correction")? Why buy if the price is going down? Think of all the money you would save, not just in terms of the down payment, but also in terms of taxes year after year. As prices come down and your savings increase, you could spend that money (that you actually earned yourself) to live instead of paying an overly inflated mortgage. Or you can use the savings to make an even larger down payment in the future, assume an even smaller loan, and actually afford to retire one day without being dependent on housing speculation. Or buy an even bigger, more grand place if that's your thing.

A lot of recent buyers were willing to pay prices that they knew perfectly well were ludicrous only because of their expectation of greater future appreciation. Many extracted equity (borrowed against the assumed future sale price) to live a lifestyle now, today that they couldn't otherwise afford and were not willing to wait for when the day came to actually sell the house. They now want you, the buyer, to pay for that lifestyle. Don't believe me? Check out this poor fellow (found on the Housing Panic blog). He's only 24 years old and our massively screwed up lending system actually lent him millions of dollars to buy seven properties in various states; he is now over two million dollars in debt and facing foreclosure. This may be an extreme and certainly very sad example but I fear not an uncommon one as we will be hearing more and more such stories. Just look at all the "investment" properties suddenly being sold in Sonoma, Napa, Tahoe, etc. As sorry as we may feel about people like this 24-year-old, should we really bail them out by buying their still obscenely price-inflated houses? Should you repeat their mistake of paying too much or does charity play a role in what you are willing to pay for a house? Or should you wait and buy when their asking prices are more appropriate? You buyers are starting to face some tough questions. The choice seems obvious, but that's just me.

So where are we in the Kübler-Ross sequence? Some are at the anger stage, others are still in denial, and still others may now be bargaining.

You buyers are firmly in the driver's seat now. Do you want to bring this market down faster? Here's how.


Anonymous Anonymous said...

Definitely in denial working up to bargaining. The anger on a nationwide level probably won't hit until next summer.

And that 24 yr old kid who thought he could get a little "easy" money was playing a fool's game - and deserves what he gets. I just hope he takes his mortgage broker down with him. Some people will suffer enough from their own hubris, while others deserve to swing.

Sep 22, 2006, 1:17:00 PM  
Blogger Marinite said...

Some people are claiming that 24-year-old is actually a RE agent playing a game. Not sure if I believe that but anything is possible when it comes to greed.

Sep 22, 2006, 1:46:00 PM  
Blogger kpom said...

It is interesting that "Casey Serin" (the alleged 24 year old) only shows up on Google with reference to RE postings - nothing on a personal level.

Sep 22, 2006, 2:16:00 PM  
Anonymous Anonymous said...

I think the anger statement goes for buyers too. particularly people like me who've been waiting for YEARS for this to end, which I knew would eventually happen. Now I'll have to wait who knows?- 2 more years? 3 more years? -For all the ridiculous prices that those before us caused by going ape over a silly house. I kind of feel like the kid with a giant can of hornet spray and now approaching the next of hornets that stung me with a vendetta to claim.

Sep 22, 2006, 2:54:00 PM  
Anonymous Anonymous said...

My nose, too, tells me that that entire "Casey" thing, posting and person is a fraud.

Don't know what the motivation would be, but I can tell you this much: whoever is doing it is sick in the head.

It just doesn't smell right.

Sep 22, 2006, 2:54:00 PM  
Anonymous Anonymous said...


Could the motivation be to start an inquiry into mortgage brokers? Comments seem to be feeling sorry for him and negative(!) towards the slimeballs.


Maybe we should help him out here.

Sep 22, 2006, 2:58:00 PM  
Anonymous Anonymous said...

you know... at the end of the day, the BIG story for us this week is that there seems to finally be real positive indicators that the price cutting we've been seeing in Sacramento for the past year( and wishing would please come this way) is finally occuring. We've been waiting for this thing to start turning for years now. I'd say it's about time to celebrate the turning of the tide. That said.. it is indeed very wise to keep an eye on the real focus.. getting those prices back to where they should be, which would be an almost 50% haircut. Goal one was for prices to stop going up and come down. Goal 2 is to practice restraint and chase those prices downward.

Sep 22, 2006, 3:06:00 PM  
Anonymous Anonymous said...

I'm very curious what is going to happen to folks who've lived as if their house was a "piggy-bank" for the last few years and taken out all or a big chunk of any equity they've gained. With those loans resetting and appreciation stalling, its going to be a very painful lesson for some of them that you money doesn't grow on trees.

Sep 22, 2006, 4:23:00 PM  
Blogger marine_explorer said...

its going to be a very painful lesson for some of them that you money doesn't grow on trees.

Similarly, do you know what really needs to sink into the average American consumer? That ownership and happiness are not causally linked. It might look that way on TV, but this need to own doesn't really bring a satisfying conclusion. As with real estate, so many people have clawed after a mirage, a ghost of a promise that the "good life," as defined by ownership, is the pinnacle of human existence. Yet predictably, people never "arrive," even as billionaires. I'm sure you can furnish your own examples. Life needs more meaning than the expensive junk we pack into our homes. I hope the crash will provide some freedom for Americans to kick that monkey off their backs.

Sep 22, 2006, 4:59:00 PM  
Blogger yasser said...

interesting article

Sep 22, 2006, 5:00:00 PM  
Anonymous Anonymous said...

if these folks are looking for the bottom ,does it mean they have lost their a$$? as far a casey serin's reality,check the posts on sonoma housing bubble regarding national city mortgage.where i live in west sonoma county it will take at least a 2/3 drop in prices before it makes more sense to buy.the place i lease has lost the equivalent of 4 years rent since 8-05.

Sep 22, 2006, 8:17:00 PM  
Anonymous Anonymous said...

"That ownership and happiness are not causally linked. It might look that way on TV, but this need to own doesn't really bring a satisfying conclusion."

The babez dig it. Sad, but true.

Sep 22, 2006, 8:18:00 PM  
Blogger why_we_are_here said...

I was inspired by the earlier post under this thread to respond to an "infomercial" on pg. 34 of this week's Pacific Sun, by a local "mortgage banker". It is titled "To buy or not to buy, that is the question." I was accordintly moved to submit the following to their editor...

All I can say is, buyer beware! These supposedly unbiased plugs for the virtues of real estate acquisition seem prevalent in the local press. I have come to expect better of the Sun.

While closing with a lament to “be wise”, it is clear the writer is trying to make a case for purchasing a home in this teetering market. He sets up a comparison between renting and buying. First he assumes rent of $2,000 per month versus a purchase price of $750,000. He then goes on to assume that appreciation will continue at an annual 5% rate. To his credit, he tempers this comparison with a range of between 3% (favoring the renter) and 7% (favoring the buyer). Which side of the range do you instinctively lean toward?

I moved this past Spring to a 1,000 SF condo in the best part or Larkspur and am paying under $1,500/month, seemingly at parity with other ads on Craigslist. By tying his analysis to the historic long term appreciation rate I believe he does potential buyers a disservice, even at the low end of the assumption range. Keep in mind we are at the confirmed conclusion of a nearly 10-year national boom which was led by the SF Bay Area, now recognized as one of the most prolonged bubbles in history. Can we count on an average growth rate in positive territory for the next five, or even ten years?

The author spends one brief paragraph describing risk factors and non-traditional “loan products”, which we now know were contributors to the housing bust emerging nationwide. He then concludes more or less in favor of buying, tempered by a call to first consult a realtor or mortgage advisor (his profession by coincidence).

Following what I believe will be a period of extended pain for MANY over-leveraged buyers, I think a “positive” of this bubble burst is that it might demonstrate that home ownership and happiness are not one and the same. The belief that they are is hyper-exemplified in privileged Marin County, where home ownership is prized above nearly everything else. Could this crash help us to reevaluate what is important in life and why we choose to live here in the first place?

Sep 22, 2006, 9:13:00 PM  
Anonymous Anonymous said...

The babez dig it. Sad, but true.

Yeah, we've all met them--someone else can have them.

Sep 22, 2006, 9:29:00 PM  
Anonymous Anonymous said...

This is finally starting to happen.
The heavens open.
Angels sing.
I will buy a Marin home when I really love the home and the price is fair.
Coming soon to a RE office near you.
Repeat after me... I will not buy until I love the home and the price is fair.
No flipping!!!!!

Sep 23, 2006, 2:23:00 AM  
Anonymous Anonymous said...

I'm sorry that this is OT, but Warren Carreiro is really annoying me. He is such a huckster. I can't believe people like him can actually make a living. Here is what I posted in another thread:

Yes, I keep posting the url to this blog on Warren's blog and he keeps deleting my posts. I then posted a question -- basically asking why Warren keeps deleting the posts and asking what he is afraid of (no link or mention of this blog)? Even THAT got deleted by Warren!

Warren Carreiro -- you are a spineless jellyfish of a man. You don't have the courage to directly identify those you accuse and attack. You do not allow your readers to have what they need to make up their own minds. You seem to prefer that your readers only be exposed to your propaganda. No one should trust you.

Sep 23, 2006, 11:59:00 AM  
Anonymous Anonymous said...

"Yeah, we've all met them--someone else can have them."

Maybe, if they are lucky. Many of them wanted to have their "own" place so badly they have gone and bought crappy apartments they call condos way above and beyond fundamentals, and are now FBs. And that is the market that will be the first to go. Who wants someone with a bunch of bad debt once real estate tanks? Maybe for an occasional roll in the hay but that's about it.

But, I reiterate my point: all other things being equal, more wealth arouses feminine desire over less wealth. So long as wealth equates with home ownership, renters are disadvantaged. Though, that may all be changing soon.

Sep 23, 2006, 1:05:00 PM  
Anonymous Anonymous said... last conciliatory point. A couple weeks ago I was bemoaning my renter status to a woman friend who is trying to sell her house that she has owned for years, but is HELOC'd on it I think (I haven't asked about her RE situation in much detail, and she knows nothing of the bubble blogs), and she told me straight up: "I'm here to tell you that home ownership is way overrated." So looks like we may have a convert to the cause, when and if she sells.

Sep 23, 2006, 1:12:00 PM  
Blogger marine_explorer said...

But, I reiterate my point: all other things being equal, more wealth arouses feminine desire over less wealth.

Well, sure. But care should be made to differentiate that kind of desire from a genuine interest in you. Of course, if you want a cold, self-indulgent spouse, go for it. I'm totally through with those games.

(NB: not marital/relational advice)

Sep 23, 2006, 5:10:00 PM  
Blogger fredtobik said...

I bet you had to cut and paste a lot with this...

I gave up worrying about other people and their wealth or lack of it. I found it made no difference to me, and in the grand scheme of things, I could give two poops if my neighbor has HELOC's, arm, no mortgage or whatever. Caring about someones monetary status only supports their need to attain it or atleast create that perception.

Sep 23, 2006, 10:53:00 PM  
Anonymous Anonymous said...

All this grinning because people here love their schadenfreude about FB's, but I am still interested in seeing really how many FB's there really are.

While there was a spurt of foolish flippers out there, I know much more people who simply have a home and are not at risk of loosing it. Not everyone goes for a heloc either. I think the fog of all this is real stats on FB's - I haven't really seen it, and I am sure it is because that is probably hard to stat.

Sep 24, 2006, 12:52:00 AM  
Blogger sercasey said...

I just posted an update with details on what exactly I did that may be considered "SHADY":

Will I Go To Jail For Mortgage Fraud?

After I get feedback on this post and talk to some attorneys I will hopefully know if jail time is a realistic expectation.

I honestly didn’t think the stuff I did was THAT bad. Especially since all the people helping me do it (gurus, wholesalers, investors, mortgage brokers) didn’t seem to think there is much to worry about.

I think taking the blog down is a little too late. I might as well keep going.

My Plan:

1) come clean [done]

2) figure out what I did that was so illegal and HOW illegal is it?

3) appologize

4) EXPOSE shady industry practices
in the process

5) become an example for others facing foreclosure who may have done SHADY loans

I think that would be a good use of free speech and personal journalistm.

Yes I will have to take whatever consequences that come.

Casey Serin

Sep 24, 2006, 4:48:00 AM  
Anonymous Anonymous said...

Casey has pulled his website. Go to the root page and he explains vaguely. He is "laying low" now.

Sep 24, 2006, 5:19:00 PM  

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