Quote

"What can be added to the happiness of a man
who is in health, out of debt, and has a clear conscience?"

- Adam Smith, 1763

A Chronology for Those with Short Attention Spans

Source: NY Times (original pic here):

(Click on image for larger view)

Somewhere A Crocodile Sheds a Tear

From today's SF Chronicle:

Israel Medina admits he got too gung ho about the idea of getting rich by flipping Bay Area real estate. Medina...has seen not one, but 11, of his Northern California properties move into foreclosure in the past year. "I was a real estate tycoon; I had everything," said Medina. "Now I have nothing."

These real estate gamblers are hardly the struggling home buyers often portrayed as victims of the Bay Area's and nation's foreclosure crisis. Some bought houses as often as other people buy shoes, rarely putting down any money. More than one-fifth of 6,557 Bay Area properties that fell into foreclosure from January through September this year were owned by investors, according to a Chronicle analysis of public records compiled by DataQuick Information Systems. Of properties repossessed by lenders, 1 in 6 had been owned by people who had two or more foreclosures in their names. Eighteen Bay Area investors had five or more foreclosures.

Easy money through no-questions-asked subprime mortgages allowed almost anyone to become a real estate speculator. The flood of investors and first-time home buyers into the market helped to fuel the Bay Area's double-digit price appreciation in recent years.

A Marin resident [Rose Hodges] invested $1 million in four properties that a construction company owner told her he would fix up and flip; she lost all the money, her good credit and her own home. [Hodges] said she attended Marin investment clubs and met many people like herself who wanted to learn how to invest in real estate. "All these Baby Boomers started inheriting money from their parents and looking for ways to invest it. And the real estate market was booming," said Hodges, who learned the hard way that such investments can have a big downside. "It's crazy out there and people ought to know."

It's widely known that get-rich-quick real estate speculators flooded markets such as Las Vegas or Miami over the past few years. The Bay Area was presumed to have been relatively free of speculation because real estate here is so expensive... Why would investors buy multiple properties in a pricey market where their carrying costs - mortgage payments, taxes, insurance - would certainly eclipse the potential rents? Flipping and fraud appear to be the primary motives.

"It was a really, really bad investment," said Medina, who said he lost hundreds of thousands of dollars of his own money that he had invested in the homes. "I should have bought fewer homes. I never should have gone so crazy."

Too bad these speculators didn't lose more of their own money. Too bad the rest of us have to also pay the price of their greed. Too bad Hodges didn't read (or didn't outright dismiss) this and other such blogs. Too bad the real estate industry is a propagandist cartel. Too bad the Bay Area really isn't "special" vis-à-vis real estate; too bad it isn't "different here". Too bad so many people believed the commission-based lies, manipulations, and fear-mongering of local realtors/agents.

IndyMac's Picture of the U.S. Housing Bubble

IndyMac Bancorp has a PDF out with their housing price correction predictions. I am reproducing the following graphic from that PDF below as it provides a nice picture of the U.S. housing bubble and includes Marin as one of the "high risk" areas (click on the image to get a larger view):

I found this PDF first referenced over on the Calculated Risk blog so please go there to get the analysis (in the post itself as well as the informative comment section) and why the very conservative predicted -10% drop in prices is off by a factor of three or so (hey, IndyMac wouldn't want to scare the investors, right?).

A Real Estate "Titan" Comes Clean

Did you see this in the LA Times?

Speaking to a gathering of industry professionals Friday, longtime California real estate titan Fred C. Sands called the housing market "pathetic" and said some agents needed to start looking for other work...

In the short term, the local real estate market "is not going to get better," Sands said...

He added that he could speak with candor because he was no longer in the home-selling business...

Such frank remarks are rare at gatherings of famously upbeat real estate agents, but Sands said those in the business needed to remember the last slump and realize "the last five or six years were not normal."...

The soaring market of a few years ago will be followed by a correspondingly sharp decline, he said: "The longer the up cycle, the more excess there is, and the worse it is for what follows." ...

But wealthy areas won't escape unscathed, Sand said...

"We saw 25-year-old guys buying $3-million houses," he said of the questionable mortgage practices of recent years. "Someone who makes $100,000 a year can't afford a $2-million house, but that's what's been going on," Sands said...

"The idea that everyone is supposed to own a home is baloney," he added...

Sands counseled agents that property prices must be cut drastically to "get in front of the crisis." Otherwise, agents will "follow it down like a dope" and get even less for the properties, if they can sell them at all, he said...

Long [president of the Southern California region of Sotheby's International Realty Inc.] counseled agents to drop sellers who aren't willing to lower prices. "Let go of the fear another agent will take over and sell it -- they won't," he said...

Agents should "go with the flow" by using the downturn to prod buyers, he said. "We are salespeople. We have to be positive."...

That remark prompted Sands to interject: "But if you go too far, you lose credibility. People need to know what's happening."...

Sorry that I have to be the one to break the news to you boys, but you and your industry lost credibility a long time ago.

Why? You said it yourself Mr. Sands: you can now "speak with candor" because you are "no longer in the home-selling business".

Coming clean now is all well and good, but buyers needed that candor a long time ago. So you are still on the tar-and-feathering list.

Is there anybody out there who still believes what a realtor/agent says? Anyone?

More Marin Foreclosures

I thought you might be interested in the attached map showing the foreclosure activity near Marin. The data comes from ForeclosureRadar, a fee based service. There are over 300 foreclosures in all of Marin County, and 200 (the most the service will show at once, they are reporting 212) on the attached map.

Red pins are bank owned homes.
Blue pines are auction homes.
Green pins are in default.

Perplexing IJ Article

So this fool in Mill Valley is like so many other Marinites it seems. He lives in the house he grew up in and no doubt owns it now. Yet he is foreclosing. How can that be? I mean, thanks to Prop. 13 he has certainly inherited a ridiculously low property tax based on when the house was last purchased, probably in the 1950s. So how can this guy be foreclosing? By now you would think he owns his house outright. But no. He must have drunk deeply from the HELOC/equity extraction/refinance teat and now he is whining about its consequences:

Wealthy Marin not immune to foreclosure crisis

Ian Minto isn't exactly homeless, but he sure doesn't have his home.

The 58-year-old former banker lost his job and, last fall, began falling behind on mortgage payments on the Mill Valley house he grew up in on East Manor Drive.

Desperate, he sold the home - appraised at $1.2 million - for about $300,000 less than it was worth.

"(I felt) like I wanted to kill somebody or jump off the bridge," said Minto, who just took a job at Radio Shack to help cover the cost of a $600-a-month windowless room he is moving into on Fourth Street in San Rafael.

After that fool's story, the next third of the article is all about calming our fears and assuaging our hurt egos... about how special we are, about how we have fewer foreclosures, etc., compared to other counties (never mind that our population is far, far smaller than most and so of course our absolute numbers of foreclosures are smaller, but they are not smaller on a percentage basis (see here and here for recent action); and dang but the IJ is really pushing that message recently, isn't it?), and that if you factor out Novato and San Rafael, then there is not too much of a foreclosure problem in Marin (hear that Novato and San Rafael? The Marin IJ has just kicked you out of Marin).

Yet then, strangely, the article focuses on Marin realtors getting trained to deal with short-sales and foreclosures:

"We started beefing up the agents' education," he said [Steve Dickason, vice president and managing broker at Pacific Union in Greenbrae]. "This year it's more short-sale activity than we've seen in many years. The signs were there that it was coming. There was a lot creative financing with the lenders."

Teaching these classes is Paul Hickman, president of California Land Title Co. of Marin. He said it is vital that realty agents stay active in a foreclosure or short sale, as most clients are not equipped with the skills to close the deal.

Hickman, who started teaching the classes last year, expects to be at it for awhile.

Why would Marin realtors/agents need special training in short-sales and foreclosures?

This IJ article is just plain perplexing. Are we special or not?

Lies, All Lies

We live in a country of lies, deception, and denial. Why? The longer we keep the American consumer believing all is well, the longer Boobus Americanus will continue charging his credit card for stuff. The longer we keep the wool over his head the longer we (the elected officials) will retain power and be allowed to keep playing our games of self-enrichment (and I'm not talking about becoming a better person).

Lies and deception are ingrained in the system and further worsening that greatest of American mass denial -- our own version of "End of Empire" (while looking for a half-way decent link to the definition of "end of empire", I stumbled upon this tasty morsel).

As a poignant and timely example of this deceit, Peter Schiff explains how the Powers that Be come up with the all important (e.g., which drives the calculation of GDP, "justifies" Fed action on interest rates, etc.), yet bogus, inflation statistics:

Yesterday, as the dollar fell to new record lows and oil and gold prices surged to new highs, Wall Street remained fixated on wholly meaningless government data that managed to report the lowest inflation in the last half century. These bizarre numbers were integral in allowing the Commerce Department to report 3.9% annualized GDP growth in the third quarter, which was heralded by the bulls as evidence that a resilient U.S. economy had shrugged off the problems in the housing and mortgage markets. However, the government’s ability to make “economic growth” magically appear is based purely on statistical finesse.

To arrive at this rate, the government had to assume that inflation during the quarter ran at an annualized rate of .8% (that’s less than 1%). That is the lowest rate of inflation used to calculate U.S. GDP since the Eisenhower administration. With oil priced at almost $100 per barrel, gold futures trading over $800 per ounce, the dollar hitting record lows, and the Fed printing money like it is going out of style, the government has the nerve to claim that current inflation is the lowest it has been in half a century. Unbelievable!

The consensus estimate for 3rd quarter GDP growth was 3.4%. The reason we beat that number was that the government adjusted the nominal 4.7% gain by a mere .8%. Had the government assumed a higher rate of inflation, say 2.6% (identical to the rate used to deflate second quarter GDP,) the 3rd quarter gain would have been only 2.1%, well shy of the consensus forecast. My guess is that inflation is actually running at an annualized rate closer to 10%. Therefore using a more honest deflator, the U.S. economy is actually contracting...

A nation of financial lies. Heck, just recently Charles Hugh Smith (whom I admire greatly) wrote:

Alas, parodying these princes of the Empire of Lies [the United States] is impossible; they are self-parodying in the extreme. Where else but the Empire of Lies does a CEO (of Countrywide) pillage his company to the tune of $1 billion as it loses 2/3 of its value, and the shareholders don't run him out of town?

And then there is Merril Lynch's writing off of $8 billion in assets (due to the mortgage mess) and resultant firing of their CEO... all not too terribly controversial except for the fact that the firing was accompanied with a big, fat $161.5 million wet kiss. Hey Merril or any other investment house out there -- I'll take the blame for whatever loss you want and I'll only require $10 million in compensation for it.

This is, of course, only some of the more recent financial lies and deceptions glossed-over in the news today (can we really count anymore on the MSM uncovering the deceptions; actually doing investigative journalism?). There is so very much more which I am sure you are all already aware of and which I hope has not yet been eclipsed by the latest celebrity frivolity or brain-dead must-see TV episode. This has been going on forever but it hasn't really been to such absurd levels until the last ten years or so.

So are you sick of it? Are you ready to do more than just give lip-service? Do you want people who make stupid, greedy, and ultimately financially devastating mistakes to be held accountable for said mistakes and punished accordingly instead of being rewarded for it? As a tax payer, are you sick of bearing the costs of this corruption; after all, you don't get a windfall when you make a financial mistake, why should they?

I mean, if lenders of today had been held accountable for the loans they made (like in the "good 'ol days" of yore), do you think we would have the mortgage mess we have today and the current housing affordability crisis? No way.

Well then, I suggest you sign this petition (also linked to in the right-hand margin of this blog). And then write your representatives (as a personal letter carries a lot more weight).

And give Ron Paul another look.

Boo!

'It's Just a Flesh Wound'

The extraordinary level of housing denial documented here in Marin has attracted the attention of at least one SoCal blogger.


Again, why do I even bother? It's fanaticism, plain and simple.

Third Date

Bond-based funding of what we want now but can't afford, Prop 13, the housing bubble, a debt-based economy, housing prices that are only ever allowed to go up... is this what our children have to look forward to?

Better Start Stockpiling the Kool Aid

Let's see. Home owners in Marin are getting their property re-assessed at a record rate so as to lower their property taxes (when was the last time you could do that?). Foreclosures and defaults in Marin are "spiking" even in our strongest and most "immune" market of Tib\Bel. Price drops and ridiculously long days-on-market statistics are common. Sales are the lowest they've been in the last 12 years. The housing markets are getting "exponentially worse"; the current down-turn is already worse than it was in the 1990s (oh, but we are only just getting started...and don't forget that the economy is doing just dandy according to the official spinmeisters; my realtor said so!). And did you notice? A real estate agency cannot hide a disturbing fact: the median sales price and the average have diverged, at the very least confirming what we here have known for many, many moons:

What could it all mean?

And what about this:

And here is a glimpse into your housing future and that you have no doubt already seen somewhere else on the net:

Why do I even bother?

"These aren't the droids you're looking for... move along."

Sick

A reader sent me this:

"Roger guesses the house is worth 10 percent less than it cost to build--and he's worried its fall has just begun. "I have personal angst," Elliott says. "Yes, I built this fantastic house. My wife loves it. Everybody in the neighborhood thinks it's great." But it was a house built for appreciation. Now that prices are falling, he wishes he'd built something far more modest."

story: http://www.newsweek.com/id/52608/

And, check out this journalist following her house price like a stock:

This summer New York Times columnist Michelle Slatalla described how she had begun checking the value of her Bay Area home (using sites like Zillow and Cyberhome) every few hours. In a recent two-month period, the Web suggested her home had lost $92,248 in value. "I really, really need every tiny bit of information I can get about managing my biggest investment,"

Sick. Just sick. Houses are places to live and raise a family, not investments, not to be treated like stocks, or at least they shouldn't be. I know I am naive. But I feel terrible for all the people who just wanted a decent place to call home, a place to raise the kids, and yet who have been priced out and/or over-extended with crushing debt due to the aggregate behavior of these sick, greedy specuvestors. This is why investment in houses should be curtailed in my naive point of view.

DOJ vs. the NAR Moving Right Along

I blogged this before. But oh, God! I am beaming from ear to ear. When I saw this mentioned over at Keith's blog I couldn't help myself. The US Department of Justice (DOJ) investigation of the National Association of Realtors (NAR), vis-à-vis their anti-competitive, monopolistic control over the MLS, is moving along quite nicely. Here's the anti-trust complaint (pdf). You can find a list of links with the NAR's asinine rebuttal over at the realtor.org site.

In my opinion, any and all listings should be equally available to every prospective buyer whether they use an agent or not, whether they use the internet to search or not. Ownership of such a listing should not be claimed by anyone. The bulk of the realtor's argument seems to center around the idea that the MLS consists of their (the realtor's/agent's) listings and as such they should have the right to control who has access to their listings. I think it is about time that realtors/agents remind themselves of who it is that they actually work for. If I was a seller I would want to be 100% confident that my listing is fully available to everyone and not just a network of traditional agents.

Like one agent said:

[the] NAR better be careful and change its curmudgeonly ways or it will be thwarted and become even more irrelevant than it already is.

So the lying, manipulating, unethical, lobbying, monopolist, commissioned scum at the NAR are going to get their due. And I hope it trickles down to every agent in America. The closer we get to returning the RE market to an open and free market, the better.

Here's to Your Depreciating Pied-à-Terre

DataQuick's September, 2007 Results

By now those of you who care already know just how bad the sales results were for Marin for September, 2007 according to DataQuick. If not, you can see their chart here.

And in case you don't appreciate just how anemic sales were this past September, I refer you to the following chart of DataQuick sales data for all Septembers in Marin since the go-go, heady days of 1995:

You can see from the above chart that September sales in Marin peaked in 2003, held steady until 2005, and then fell off a cliff. In fact, sales this past September were the lowest they have ever been since DataQuick started reporting data. And we are only just getting started with this bubble blow-off...

What happened in 1998 you might ask? Good question. I have no idea. That data is missing from DataQuick's site and the WayBack machine didn't have it cached either. So I guess September, 1998 never existed although I seem to distinctly remember it.

What Rob Dawg said:

Another thing for potential sellers to consider. This isn't polite and it isn't easy to hear and it isn't good news. It is almost a sure thing that the buying person and their agent are smarter than you and your sales agent. All the stupid people already have houses. Any stupid people left houseless or just not stupid merely newly in the market to buy are not going to be qualified buyers for a long long time.

These are hard truths. If you as a seller today knew then what you know now you would have sold in Spring '06 right? Okay, you accept that you aren't the smartest guy in the room. Now, anybody who can buy today was certainly able to buy in Spring '06 right? See the problem? The only way you can sell to the people who are buying now is to give them a deal that is homage to their skills.

But, But...

This quote from a recent SF Chronicle article is just too good to pass up:

But even in expensive areas like Marin County the crisis is beginning to be felt. One of the Bay Area's highest-priced ZIP codes, 94920, in the tony Belvedere/Tiburon area, was home to nine foreclosures - including a $1.3 million "Bel-Aire tract home" with "floor-to-ceiling windows ... and French doors leading to the pool."

In "tony Belvedere/Tiburon" I count at present:

• 1 bankruptcy
• 7 preforeclosures
• 7 foreclosures
• 55 tax liens

I thought this couldn't happen in Marin, certainly not in south Marin, because, as we are told, everyone here is wealthy and making big bank. You know, because we are so wealthy we don't need to take risky mortgages. But Belvedere/Tiburon? One of the most excusive if not the most exclusive and strongest real estate market in Marin? Say it isn't so! If the local real estate mythology is true, if my realtor/agent says so, if she researched it, how can there be any distress there at all?

Bel/Tib: you are not part of Marin 2.0. So sorry.

A Couple of My Favorite Marin 1.0 Houses

I love watching the "selling" activity of the above San Rafael house. The highest official listing price I have seen for this house was $884,000 in mid-2006 (yes, it's real DOM is that long). So if it were to sell at its current asking price that would be a price reduction of 33%. However, I am fairly confident that at the bubble peak this house could have sold in the low $900Ks and so the true price drop is probably greater than 33%.

* * *

And by the way, this lame 2 br, 1 ba, 699 sq ft, built 1923 POS in Mill Valley has changed listing agents once again and is now listed as "For Sale with Lease Option" (click the link to see the posting history of this house on this blog). This one is a classic Marin flip that flopped -- bought, remodeled, and then put back on the market all within a 5 month span. It is currently listed at $575,000 and it's DOM has been reset to just 4 days. So that is a 23% drop in asking price and a real DOM of about 660 days.

When I first came across this listing on December 18, 2005 the sellers were asking $745,000 or $1066/ft^2. Many price drops later it then languished on the market (seemingly forever) at about $639,000 which is roughly the owner's break-even point (about what they owe; I dug up their loan info). So I wonder what has changed to allow them to drop the price significantly below their debt level? Are they now in the process of capitulation? Or do they think the "lease option" significantly changes the financial situation for them? Would you buy or lease this house at its current wishing price?

This house is in one of the worst locations in south Marin -- it's in Tam Junction, right across the street from a 7-11. Every winter a large pool of water forms in front of the one car garage which can only be accessed by driving around the block on the other side of Shoreline Hwy and then crossing over Shoreline so as to achieve the proper angle to enter the garage. Furthermore, when leaving the garage you then have to back out on to Shoreline and pray you don't get hit by a maniac speeding down the road. Given this, the garage is really nothing more than a storage shed; I guess you can always park at the 7-11.

The sad fact is that during the bubble people really were willing to pay stupid prices for crappy houses like this one. It is somewhat comforting to know that mindset has changed, even in south Marin.

* * *

Many of Marin's housing markets are suffering and houses are in the process of being "marked to market". Since people who like to believe that the real Marin is special and immune to market forces ("marked to myth" as Warren Buffett recently said), I think it is time to divide Marin up into "Marin 1.0" and "Marin 2.0" (obviously, I'm referring to the farcical "Web 2.0/God-let-there-be-another-internet-bubble"). Most of Marin is now or on its way to becoming Marin 1.0. But places like Tiburon/Belvedere, south Sausalito, certain parts of Mill Valley, Ross and Kentfield are still doing pretty well and so are properly classified as Marin 2.0. Or perhaps it is simply sufficient to say that the luxury home market, regardless of its actual location, is Marin 2.0 and everything else is not. What do you think?

Cows to the Slaughter

The SF Chronicle ran this story in today's business section about the tripling of Bay Area foreclosures:

Foreclosure filings across the United States nearly doubled last month compared with September 2006...

Foreclosure filings in the Bay Area tripled in September compared with a year ago.

The data for the following chart came from the Chronicle's graphic for the above mentioned article; I just added some info:

(Click on the image to get a larger view.)

You might think that a tripling of foreclosures is big news. What did the Marin IJ run on the front page of their web site today? Why, an article entitled "Here's the beef: Marin's best hamburgers".

* * *

Update 10-13-2007: I saw this in the Marin IJ today (a day late and a dollar short):

The number of foreclosures is rising in Marin, with defaults almost quadrupling in September over a year ago, but the number of properties in distress remains relatively small. The same isn’t true for counties like Alameda and Contra Costa, where the numbers are significant...

Valerie Castellana, president of the Marin Association of Realtors, said she expects to see increases in defaults and foreclosures in Marin but added, "We are blessed to have the default and foreclosure numbers so low compared to other Bay Area counties."

Uh, Valerie, according to the 2000 census Alameda has a population of about 1.4 million and Contra Costa is at roughly 950K; Marin's population is about 250K. So of course Alameda and Contra Costa's absolute numbers of NODs/foreclosures, etc. are higher than Marin's. That's why you look at rates of change, percentages, etc... to factor out population differences when comparing across counties. When you do that you find that Marin is really no different than any other Bay Area county, which of course is the point. (Also I should mention that what really matters when comparing is not the county population per se but the number of houses that are actually for sale in that county.)

What spinmeisters are Marin real estate agents/realtors and what a tool is the Marin IJ.

Some September, 2007 Data

Insanely busy at work.

I recently received some data from a realtor acquaintance of mine. According to her, for SFRs in September, 2007:

Needless to say (so I'll say it anyway), a year ago and more the percentage of SFRs selling below the asking price was essentially 0%.

Marin Market Heat Index stuck at a pathetic 0.33.

Recall that the Index is interpreted as so:

Home Owner Temper Tantrum

I first saw this Inside Bay Area article over at Ben's blog and was aghast at how spoiled and entitled some home owners are; it reminds me so much of the motivations behind much of Marin's NIMBYist ways -- to protect property values at any and all costs.

Apparently, some Greater Fools who bought houses in a prestigious housing complex are staging protests against the developer and demanding that the developer pay each of the current owners a $20,000 rebate. Why? Because the developer is unable to sell any more of the houses for bubblicious prices and so are auctioning them off for whatever price they can get. As a result of the auction, the current owners expect the values of their houses to drop by "hundreds of thousands of dollars."

So in other words, the people who already bought these overpriced luxury homes expect, no, demand that prices can only go up and if they don't go up, then they were "obviously" misled and so are victims and thus entitled to compensation. Give me a break!

For perhaps the first time ever, I am in agreement with a developer who in this case refuses to pay the rebates and reasons that if the houses had spiked in value before the current owners had finished escrow on their houses, would they be willing to pay the developer an additional fee to compensate the developer for the increase in values? No, of course not.

Look, if you leverage yourself to "buy" a house with any expectations at all on the future price movement of the property, if you even so much as care or make plans based on what the future price movements of the house will be, then you are an investor and/or a speculator. Investments are not guaranteed to appreciate; by investing you are taking on the responsibility of the inherent risk and implicitly acknowledge that risk the instant you sign the contract. Buyers are not obligated to bail you out of your expensive lifestyle choices, your debts, or your poor financial decisions.

Here are some choice quotes from the article:

Despite an initial setback, outraged homeowners in the upscale Paseo West subdivision plan to continue their informal protest against a developer planning to auction off 34 brand-new homes.

Upon learning of the auction, the subdivision's 26 owners became infuriated — upset that the auction would lower property values and turn the neighborhood into a rental community... The consensus from homeowners is that the auction will undercut property values by hundreds of thousands of dollars and that the current tight credit situation will mean only investors will participate in the auction, and would rent out the homes.

Following a meeting last Friday with Barton, homeowners crafted a letter asking Anderson Homes for a $20,000 per owner rebate for their property.

On Wednesday, homeowner Dave Cantrell — the de facto leader of the protest — received a response. In a letter via e-mail, Anderson Homes president andowner Larry W. Anderson said he was "perplexed" by the rebate request.

"In nearly 25 years of building homes, I have not asked a homeowner to pay more for a house when the value increased," he wrote. "Housing is cyclical and values will fluctuate as history tells us. Housing has been hit especially hard this cycle due to the financial market crisis and large number of foreclosures."

Owners Face Selling at a "Loss" Now that the Housing Bubble has Burst

Nothing but boring and utterly predictable news in the world of housing these days. Hence, no posts. So I guess I have to post this, now old, article from the SF Chronicle.

These poor saps buy a house in American Canyon, in south Napa, for $424,000 and find that they cannot sell now for their wishing price of $925,000. So they have to "sell for a loss" at $868,000. Sheesh! I'm sorry, but selling for $444,000 above your original purchase price is hardly selling for a "loss". Now, they did put in "upgrades" but I seriously doubt said upgrades totaled anywhere near the $444K. Of course, like idiots they could have also HELOCed out their phantom equity and so may in fact be SOL.

At least the article mentions the fact that, with the possible exception of during the unusual years of the housing bubble, you don't normally get back in the sale price what you paid out for upgrades... a point that most sellers would do well to remember:

The trouble is, upgrades for one family are renovations waiting to happen for another family..."Upgrades are very difficult to value," Barker said. "So much of what people do to their homes they won't get a return on."

I fully agree with this reader's comments on this ridiculous couple's situation:

What's amazing to me about this article is what it reveals about people's perception of a "loss." If you read the article, you learn the couple paid $424,000 in 2001, and now they're bracing themselves for a "loss" when they sell for $825K-$868K. The couple "declined to say" how much they spent on upgrades.

Either of the two ways they're defining this to be a "loss" is nonsensical. It seems like their perceived loss is the fact that, at best, they will be selling for $100K less than they could have sold a year ago. No loss there. As far as the upgrades, that's silly as well. If you spend money on maintaining a car, the amount of money spent is not simply added to the value of the car. Ditto for granite countertops, or most other expenditures on a home, other than those that add square footage.

It just boggles my mind. If people are whining about "losses" now, think how psychologically ill-prepared people will be when they face real losses, i.e., selling their home for less than they paid. We've got a long way to go.

Look, it's not going to get any better any time soon; only worse. There is no way a significant majority of people are going to pay (let alone be able to pay) the fantasy pricing we've "enjoyed" over the last few years now that easy credit is history. Not now, not when significant down payments, documented income, mortgage payments at 30% or so of income, etc. become the norm again. Hoping for the days of easy credit to return is just wishful thinking. And don't even get me started on the rising interest rates on mortgage loans. So deal with it. The sooner you do, the less your "loss". Or take your over priced POS off the market and give those who are serious about selling a break.

Or, you could be like the following Mill Valley sap who has been trying to sell his house for essentially two years (it's amazing that they never bothered to play the relist game and get that DOM reset; either they are very arrogant or very respectable). My guess, knowing a lot of South Mariners, is that they are arrogant and feel entitled to getting near that bubble peak price. It will be fun watching this house over the years:


Looking at that above house, it seems really nice. The write-up (not shown) certainly sounds wonderful (but don't they all?). You would think that this house would sell in a heartbeat as it's a South Marin wannabe's wet-dream-come-true. So what's wrong with it? Must be the price. But given that the sellers seem to be willing to knock $100K or so off the wishing price each year, it should be marked to market in, oh, about five years.

Clearly, we are still in the denial phase. Sad. So very sad.

Thanks to the reader for sending me the link to the Chronicle article (I had seen it before) and kicking my lazy arse back into blogging.

PS - By the way, I'll share an anecdote with you all. I was up at the Novato Target the other day (because I am too cheap to pay South Marin prices if I don't have to) and guess who I saw working at a cash register? A former Marin real estate agent acquaintance of mine. How sweet it is! I didn't have the heart to ask if she still had the leased Lexus.

What the Future Holds in Store

Check this out over at the Seeking Alpha site.

Earlier this week, the Chicago Mercantile Exchange (CME) extended the futures market on the S&P Case-Shiller Home Prices Indexes from one to five years. Now, futures investors can make bets on where home prices will be as far out as 2011.

For all of you who think a 15-25% pullback in the real estate market can't happen, I suggest you take a look at the CME pricing Web site.

The market is new and illiquid, so price discovery may be imperfect. But futures traders are putting real money on a major pullback in real estate prices. The table below shows the estimated percentage change in real estate prices in 10 cities based on the most recent futures sale on the CME. The data starts with the November 2007 contract and runs annually through November 2011.

NAR Pushes for Increases in FRE and FNM Portfolio Caps

Update: And make sure you read this. If the financial raping and pillaging of the American people doesn't inspire you to revolution, nothing will.

* * *

First the National Association of Realtors (NAR) pushed for exotic loans to keep prices rising. Then they redefined the way affordability is calculated so that housing looks more affordable than it really is. Then they demanded that the Fed lower interest rates. Then they backed the asinine Bush housing bail-out proposal. And now they are pushing for raising Freddie Mac's and Fannie Mae's portfolio caps:

After working overtime to initiate Bush's preposterous mortgage bailout, the NAR (National Association of Realtors) asked themselves what else they could do to artificially prop up overblown home prices. And then it hit them: why not ask the OFHEO (Office of Federal Housing Enterprise Oversight) to increase portfolio caps for Freddie Mac and Fannie Mae.

Under current caps, Freddie and Fannie can only buy mortgages valued at less than $417,000. Proposals are floating around to increase the size of the mortgages the two companies are allowed to buy and sell. Freddie and Fannie each hold more than $700 billion worth of mortgages in their respective investment portfolios already. The new proposals would allow the companies to expand their portfolios to dangerous proportions.

...In our demoralized world, we allow real estate agents to push a personal profit agenda and influence the decisions of policymakers. The NAR is not a trusted authority on banking and risk, yet they are allowed to personally address and pressure Congress and the Director of the OFHEO.

Does anyone else see something wrong with this picture?!

Although not unexpected, it still sickens me nonetheless. When will We The People take back America from special interests?

Write to your representatives. Get out on the street and make some noise.

Some Charts

The Bureau of Economic Analysis updated some of their data (and revised some data points) so I decided to update one of my favorite charts in response.

Here is the average price of a Marin single family residence (SFR) divided by average per capita income for the years spanning 1969 to 2005. The data has been normalized to 1969.

Here is the same data as above except expressed as a percentage deviation from the base trend line (not shown).

Here is the average price of a Marin SFR in terms of the number of ounces of gold you could get in exchange for it for the years spanning 1969 to 2007 (the 2007 data point is based on today's spot price whereas all the others are the average for the year).

Truth or Dare?

I keep trying to understand how it can be that Bernanke's lowering of interest rates last week by 50 bps can be the cure when it was too low of interest rates for too long that caused the problem to begin with. How can a course of action be both the cause of a problem and its cure?

Or was it all about saving the banking system (by giving them more time to unload over-leveraged positions in toxic holdings) and ensuring Wall Street's Christmas bonuses this year? That should make some of the Marin elite happy. But the general public, savers, the middle-class be damned. The Bernanke Fed abandoned inflation and the dollar just for a short-term bailout. Shameful.

What I like about the following video is that it suggests that Americans just might be starting to wake up. The video ends with the following quote but it should really start with it:

"It is to be regretted that the rich and powerful too often bend the acts of government to their own selfish purposes." (Andrew Jackson)

If you want to see the full video clip of Rep. Sanders raking Greenspan over the coals, you can see it here.

San Rafael Advocates Moral Hazards

Apparently, the city of San Rafael wants a new fire chief and the income for such a position ($152,000) is too low for him to be able to afford a decent, middle-of-the-road house in Marin. So, the city of San Rafael has approved to offer him a special low-interest mortgage loan of $600,000 so that their new fire chief can purchase a $1.2 million house. They have also boosted his salary in a number of ways so that his total take-home pay is $179,200 per year. And the justification? According to the city, it is important for people to live in the community in which they work and to be close to family who are located in the area.

The San Rafael City Council has offered a $600,000 low-interest home loan to the city's new fire chief, Chris Gray. Gray, who started his $152,000-a-year job this week, is in escrow to buy a $1.2 million, four-bedroom home in East San Rafael's Villa Real neighborhood, just west of Loch Lomond Marina. Escrow is set to close in early October.

"We'd like the fire chief to live in San Rafael - homes are expensive in San Rafael," Mayor Al Boro said [in justification].

The council approved the home loan agreement at its meeting Monday.

The council also awarded Nordhoff a $350-per-month raise and an additional $2,000-per-year contribution to his deferred compensation account. Nordhoff's annual salary is now $179,200 per year, plus benefits.

Gray, 50, who was previously the fire chief in Glendale, said a big draw of the job was to be near family in the Bay Area. He said he says it's important to live in the community he serves.

This is wrong on so many levels. Look, one of the complaints people like me make about the affordability crisis that afflicts Marin, the Bay Area, and much of California is that public servants, like fire chiefs, teachers, etc., cannot afford to buy a decent house in the community they serve. But handing out special mortgages to a few people that we deem as special is not the answer.

I mean, what about the firemen and others who work for this fire chief? Should they all get special loans too? No? Why not? Why don't we insist that this guy make some hellish commute from Sonoma or the East Bay or the central valley like we do with so very many other people who work in Marin? What about you and me? I make about what this guy originally came in making, but I don't see any handouts coming my way? Why aren't we offering a $600,000 mortgage to this poor, blind, sick Marin resident facing foreclosure or to anyone else facing foreclosure for that matter? Oh, and 'it is important to be near family and to live in the community in which we work'? (Haven't I been saying the same thing?) Well then, what about all the people who grew up in Marin but who cannot afford to live here, be near their family and loved-ones? Why don't they get special handouts too? Why aren't we telling this new fire chief the same lame story realtors tell other folks -- go buy "the perfect starter home" which comes in at about 800 sq ft in a crappy part of town as that is about all your income can support?

The hypocrisy of this is almost too much to bear.

Look, despite the fact that we Marinites like to apologize for our ludicrous housing costs and hide behind the belief that we are so very special, the problem is that we are suffering from an affordability crisis -- a crisis no matter how much the real estate industry tries to redefine the calculation of affordability and the median sales price. House prices have become unhitched from certain, basic fundamentals such as income. The only healthy way out of this mess is for house prices to fall and fall a lot; not provide designer handouts. The sooner we as a community engage with this the better -- the less of a mess we have to clean up and the less likely someone will come in and force some unpalatable course of action upon us (like affordable housing which we, for some reason, are so vehemently against). What we should be doing is to do everything we can to make sure house prices are congruent with the income of the people who live here and that credit is given out based on proper assessments of risk (and not given out to "anyone with a pulse"). You Mr. Marin House Owner may not like the idea of your house value dropping, but that is exactly what must occur. And besides, if you bought your house to live in, you shouldn't even care.

The Fed, Congress, bailouts galore, and now Marin... moral hazards define our society it seems.

And why isn't the Marin IJ questioning this, even a little? There are issues here that even they should see.

Common Cents

Now, I thought this (in the IJ no less) just doesn't happen in Marin because we are all so financially savvy and wealthy:

Marc Savoy, a San Francisco mortgage consultant and real estate attorney who also is a former resident of Mill Valley, says for the past five years, the 5-year, interest-only loan was the most popular loan written. In other words, for the past five years, the most popular financing vehicle for property purchase in the North Bay was a loan that remained stable at a low interest rate for the first few years - typically three or five - and on which no principal was paid. At the end of the three or five years, however, the loan is "recast" to include payments that reflect (a) some of the as-yet-unpaid principal, and (b) today's higher interest rates.

When loans are recast, people find their monthly payments are suddenly much higher. These folks cannot refinance because the credit markets have tightened to a stranglehold, and they can't sell because there are few buyers who can obtain the nonconforming loan (or who have the whopping down payment) that's needed for most properties in Marin.

Cry me a friggin' river already. No one forced them to take out a suicide loan for their Marin POSs.

But no worries. If you can't sell your Marin POS now that your rates are resetting and you're still asking bubblicious pricing that, deep down inside, you just know is your God-given entitlement by virtue of being so damn special, then Christopher Thornberg has the answer for you:

Many home sellers, bogged down in a housing downturn, are now doing the only thing they can to sell, dropping prices. Only this time, the sagging market often means taking a loss if the home was bought in 2005 or 2006. Christopher Thornberg, the former UCLA Anderson Forecast economist who predicted the 'housing bubble' since 2002, said that sellers' only hope is to "price to sell."

"You want to get out of the market," he said. "There’s no point in holding out if you want to get out before the next three years."

'Lower the price'?! Now who would have ever thought of that? What a novel concept!

But I guess someone better explain said concept to this sorry Mill Valley seller as their POS still hasn't sold and has been on the market for nearly two years (despite what the misleading DOM says... 131 days). You have got to wonder how long the listing agent is willing to spend money on advertising this pig before they force the seller to admit that their flip flopped long ago and they ought to just face the fact and drop the price to where it needs to be to sell.

On second thought, I think the seller of the above mentioned POS serves as a valuable warning to our community -- "don't let this be you".

The Latest Out of the Mouth of Greenspan

Alan Greenspan was reported as saying:

US house prices are likely to fall significantly from their present levels, Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market... the decline in house prices “is going to be larger than most people expect”.

It's a good thing we are immune and special and not in a bubble, at least according to the experts. That way we get to continue living in a crushingly unaffordable market while the rest of the state becomes a comfortable place to live.

Poll

Econ 101 -- You're Late, Get In There, Sit Down and Shut Up

Real Estate Bubbles and California's Economic Growth:

Part 1 (9:38)
Part 2 (7:57)
Part 3 (7:29)

Precipitous Drop in Marin Sales; Tightening Lending Standards Just Starting to Bite

Yawn. The IJ is reporting on old news, stuff we figured out long ago.

Marin's median home price hit the $1 million mark again last month [August, 2007], but sales of homes slid more than 32 percent compared with this time last year... homes priced under $1 million were off by 39.8 percent between 2006 and 2007... in Novato, single-family homes sales were half of what they were a year ago...a 23 percent drop-off in Mill Valley...In Tiburon and Belvedere, sales remained flat. Regionally, Bay Area homes sold at the slowest pace in 15 years last month.

The rise in the median... combined with the decline in volume signals a stable luxury market making up for the lagging low end that has been most affected by the mortgage meltdown...

"Until the first-time home buyer can get back in the market in a strong way I think we'll see these trends for a while," said Valerie Castellana, president of the Marin Association of Realtors.

Yet to fully play out is the impact tighter lending practices, including restrictions this summer on jumbo loans over $417,000, have had on markets such as Marin, DataQuick analyst Andrew LePage said. In Marin, 76.9 percent of borrowers took out jumbo loans in August.

Realtor Kira Swaim, co-owner of San Rafael-based Tam Realty, said continued real estate jitters make it a great time to buy.

In summary, reporting of the county median is a joke because of the luxury market which is still able to prop up the county stats; but the rest of the market, the one that the majority of people here care about, is tanking. Furthermore, as explained before, the bubble is collapsing inward, towards our regional employment center. So we currently see the most distress in north Marin and the least distress in south Marin. Lastly, realtors continue to claim that no matter what the market conditions, it's always a good time to buy and pay them a commission (does anyone even take their self-serving talk seriously anymore?). Nothing new to anyone here on this blog. Enjoy the show.

Shame on the IJ

Well, I was going to show some discretion and let this story in the IJ rest and not form the centerpiece of a blog post. But apparently, a passing comment in a different post was too terrible to bear and indicative of me not being sufficiently considerate and sympathetic to this Marinite's plight... Never mind the fact that for the last two+ years this blogger (and, of course, other bloggers) has feared and lamented this very outcome and duly condemned this housing bubble for this very predictable and unnecessary eventuality. But back then, everyone was so busy making money in RE and living it up with RE profits and fantasizing that 20%+ appreciation was "in the bag" for perpetuity that no one cared; we bubble bloggers were loons after all. Back then (even still) the Marin IJ was doing everything in its power to encourage the housing bubble and be the local real estate industry's propaganda whore. But how short is the typical Marinite's attention span...

So without further ado, I give you the Marin IJ's latest tear-jerker sorry sob story du jour.

Here is the summary of "the saga":

1. An individual (whom the IJ is quick to point out on numerous occasions is poor, old, legally-blind, suffers from multiple sclerosis, and female) lives in a terribly small house in Fairfax with kitchen curtains that read "bless this house" (if there is any doubt of this woman's sweetness, the IJ quickly dispels it).
2. The house needs a new roof and other repairs.
3. She is approached by an evil Southern Californian broker (Southern Californians are the sworn enemy of any self-respecting Northern Californian) who offers to refinance her into a loan (presumably with some equity extraction so she can fix her house -- blessed be the housing bubble's guaranteed riches).
   
4. We are told she refused mightily but in the end she yields to the seductive powers of her nemesis and she "reluctantly" signs the loan documents... officially taking her first step into victimhood.
5. Her original lender calls her up and persuades her to refinance with them for a better deal.
6. So she attempts to rescind the Southern Californian deal, believes it is kaput (and the reasons for why it is not are completely ignored and we are led to assume she is being victimized), and signs on the dotted line with her original lender.
   
7. But as it turns out, our poor, blind, sick female now ends up refinancing into not one but two subprime loans!
8. Not realizing this of course, she doesn't know that she needs to pay the Southern Californian loan. And so, after some time has passed, she receives a notice of default.
9. Not knowing who to pay (the evil Southern Californian lender or the angelic Northern Californian lender), she apparently doesn't pay either of them.
   
10. She will now likely lose her home of 30 years to foreclosure unless some heroic Marin attorney, her local knight in shining armor, can come to her rescue.

Never mind that bloggers were yelling and screaming (in a vacuum it seems) that sad stories such as these were all too likely. The real question is not so much why these bad-things-happening-to-good-people stories appear in papers but where in the hell was the IJ and other local news papers during the run-up in the housing bubble? They were out pimping for the local real estate industry of course; falling all over themselves cheering on this housing bubble (and all that it entailed) as high as it could possibly go when what they should have been doing was acting like independent journalists, examining where the housing madness would ultimately likely lead and prudently cautioning the poor, old, blind, men and women of the county. This piece by the IJ is nothing more than emotional button-pushing; the dark side of the "better buy now before you are priced out forever" fearmongering.

If accurate in its stated (and presumed) details, this is truly a sad tale... there can be no doubt of that; I hope it has a happy ending. If it's not true, then I am, unfortunately, certain that there are true stories around which rhyme with this one. But it was utterly predictable and a natural consequence of capitalistic greed run amok. Whether they suffered or not, everyone who participated in this mass greed is partly to blame. But instead of facing our shame, the IJ presents us with this red herring to distract our attention away from our own complicity. As the wave of foreclosures and forced sellings hits Marin and elsewhere, will the wail of shock and dismay yield to ready excuses or will we admit to our own place in this sad melodrama that didn't have to be and that should never be allowed to repeat?

Update 9-12-07: Thanks to a reader and frequent contributor for the graphic for this post. I'm not sure if I am supposed to be Dudley and the IJ Snidely or the Marin attorney is Dudley and the lenders are Snidely. No matter. It works both ways. But there can be no doubt who plays the part of Nell (although that's not Nell in the pic, oh well). And if I may quote the contributor:

I was entertained [by] the way you skewered the melodrama to the IJ story. All it needs is a "Snidely Whiplash" character, hence that cartoon. After hiding behind a façade of a friendly "community newspaper", while serving local realtors, the[y] deserve all the scorn we can muster. Their pitiful little story makes me nauseous.

I couldn't agree more.

Foreign Regulation of American Markets?

Wow! Talk of foreigners actually regulating American markets because our massive indebtedness, silly house prices, bogus government statistics are so out of control? Descriptions of America as "the world’s largest debtor nation"? Questioning of America's status as the world's "financial safe haven"? Talk of foreigners greatly reducing their financing of our debt and the resultant massive increase in interest rates? America the has-been -- "Indebtedness is eroding more than America’s economic independence — it’s eroding its status as a superpower"? How could it be? What about all that "wealth-creation" technology? What about that financial "dark matter"? Were we all just sold a bill of goods? You mean we can't lie, cheat, and steal from other countries without consequences? But we're special! All you loser countries should be kissing our arses!

But it's all worth it, right? You got yours, right?

International bankers and investors from China to France and Germany have lost billions of dollars because U.S. investments, sold as safe, turned out to be far riskier and worth much less than what American investment-rating agencies and banks led them to believe. They don’t want to be deceived again.

The international worry is that American regulators are not properly monitoring the products or alerting investors to the risks.

Now international investors are asking not only why American banks were allowed to originate hundreds of thousands of mortgages to home buyers whom they knew would likely be unable to repay them, but also why these risky investments were pawned off with top ratings to unsuspecting investors.

If and how long Washington will be able to resist international pressure is unclear, but America will probably fight hard to limit foreign regulation, especially since financial products and services are one of America’s most dynamic and most important export industries.

However, while regulators in the U.S. have been unreceptive to international monitoring, Europe and Asia, unlike in years past, now have growing financial leverage up their sleeves. “America depends on the rest of the world to finance its debt,” reminded Bofinger. “If our institutions stopped buying their financial products, it would hurt.”

Foreign willingness to purchase U.S. debt has kept interest rates low in America—thereby creating millions of jobs in real estate, home construction, remodeling and other associated industries. If foreigners stop lending to America because of difficulty assessing borrower credit-worthiness, the cost of borrowing could go way up.

But a potentially bigger concern is the effect the subprime disaster could have on America’s reputation as a financial safe haven. As the world’s largest debtor nation, America borrows hundreds of billions of dollars per year from the rest of the world. America needs foreign money, and its ability to attract it depends on its perception as a stable and trustworthy borrower.

The exposed corruption associated with America’s housing bubble, which includes mortgage originators, banks and rating agencies, may be irrevocably damaging the nation’s economic reputation and its ability to finance its debt.

America’s economic recklessness seems to be coming home to roost. Politicians, regulators and financial specialists outside the United States are seeking a role in oversight of American financial institutions and rating agencies in the wake of recent mortgage and banking problems. Indebtedness is eroding more than America’s economic independence—it’s eroding its status as a superpower.

Bay Areans Invest in "Arm Pit" Locations

Many Bay Areans like to describe CA areas outside of the Bay Area as "arm pits" and so very beneath us that they serve as "obvious" justification for our lofty prices and ingrained snobbery. (That and other such derogatory terms can be found in the comment sections of earlier posts to this blog when the housing bubble was still hotly disputed by local housing bulls.)

It is rather odd, then, that so many Bay Area RE "geniuses" saw fit to buy investment properties in "arm pit central", aka Sacramento, and contrary to our claimed opposition to the loss of prime agricultural land to development:

Many real estate agents estimate that about 40 percent of the 10,000 single-family houses for sale in Sacramento County are empty...

"There are so many new homes here and so many investors from the Bay Area," McDonald says. "When we pull up the owner's names, nine times out of 10 they live in the Bay Area."

So these investments aren't selling. They sit vacant and their lawns are brown and choked with weeds, the pools clogged with algae and breeding pits for West Nile virus. Because no one lives there, when and if the investment sells, there is no move-up buyer, so that move-up chain breaks. If it doesn't sell but the Bay Area "genius" has to sell it, they walk away (since it was probably a no-money-down sort of thing anyway). Their credit is now crap and they might have to sell their primary residence as that investment loan might be a non-owner occupied recourse loan.

Speaking of which, remember this post and this article?

But in California, refinanced loans, second trust deeds and home equity lines of credit are generally considered recourse loans. In these cases, a lender can file suit and go after almost any of the borrower's assets once they obtain a court judgment.

"They can literally go after everything you have," Hall says.

There are a few limited exceptions. Retirement accounts are excluded, and declaring bankruptcy could protect some homeowners.

In the past, lenders have been reluctant to go after borrowers personally because it takes time and can involve costly litigation, but Hall says things might be different this time, especially if a borrower has substantial assets.

Too bad it is so much harder now to get bankruptcy protection.