Another One Bites the Dust

Pro30 Funding of Novato joins the ranks of other Marin mortgage companies that have imploded and have been forced to lay off personnel due to this so-called "subprime meltdown" that is supposedly not affecting Marin:

A Novato mortgage company has laid off nearly all its employees, becoming the third Marin brokerage in just over a month to issue pink slips.

While the mortgage industry has been buffeted by defaults nationwide - particular in the "subprime" sector that caters to borrowers with weaker credit scores - Pro30 founder Bill Coleman said 99 percent of his clients had good credit records.

In many cases, he said, borrowers were defaulting on the loans without making a single payment - perhaps so they could live without housing expenses for six to nine months during the foreclosure process.

"The appreciation started to decline, and people looked at their payments and said they're not going to make money," Coleman speculated. "We ran a great shop. We had great employees. It wasn't a business issue; it was the fact that the industry turned upside down almost overnight."

The closure of Pro30 Funding follows 36 layoffs this month at Paul Financial LLC, a San Rafael-based mortgage company that had 180 full-time workers San Rafael, Santa Rosa and Irvine. Twenty-five of the layoffs were at the San Rafael office.

Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the company's headquarters. GreenPoint employs approximately 2,800 people, including 560 in Marin.

Paul Financial and GreenPoint said they are not subprime lenders, but felt the residual effects of nationwide problems in the subprime mortgage industry.

So "99%" of Pro30's clientele had "good credit" and yet they still had to close shop. I'm shocked, really. I mean, we all know that only les miserables have to resort to shaky loans, lying about their income, etc. to squeeze into a house and that the ever so responsible Alt-A crowd is safe. But what if it's not so?

Apparently:

1. The recent troubles in the world of mortgage finance have not been completely contained to subprime despite what the Powers That Be want you to believe.
2. Marin's economy is also being affected by the mortgage crisis.
   

Things should get really interesting as Alt-A rolls over.

* * *

Update 6-2-2007: I forgot to include this one (emphasis mine):

San Rafael mortgage broker Paul Financial let go of 36 employees this month. Peter Paul, president of Paul Financial, said the company won’t make money this quarter given the drop-off in lending and the decision to set aside reserves for loans that might go bad down the road.

Paul said the layoffs were due in part to his zigging while the industry zagged. Last fall he revved up in anticipation of more growth. That was shortly before the implosion of the subprime mortgage industry, which lends to those with tarnished credit records. Looser lending in the Alt A and other [as in not subprime?] segments of the mortgage market is now taking its toll.

"Some lenders were really making Alt B loans," Paul joked.

Looser lending in Alt-A? I thought that was supposed to be safe and was going to save the housing market.

Some Short Sales

Sometimes I wonder why I even bother...

Anyway, despite the fact that the ad says it was built in 1999, it was first purchased in September, 2003 for $589,000. It was then resold in April, 2006 for $810,000 in an over-bid situation (original asking price was $799,000). Now it's a short sale at $724,900.

Price Reduced: 05/12/07 -- $845,900 to $749,000
Price Reduced: 05/30/07 -- $749,000 to $724,900

If I were in the market for a house I'd offer the original $589,000.

* * *

Here's another one in Novato:

It was last purchased for $610,000 in April, 2005. Before that, in June, 2001, it was purchased for $345,000. I'd say that latter figure is a tad too low as far as a fair price goes.

* * *

And just in case you skeptics think these short sales are specific to Novato, here's one in Fairfax:

Are We Rewarding Slackers?

While looking for some data for a new graph (by the way, does anyone know where I can find the median or average household income per county for each year between, say, 1969 and 2005?), I stumbled upon this US DOJ report -- it ties right in with the previous post regarding that American myth of "idleness and incompetence are sternly punished—but merit gets rewarded":

1.1 million real estate agents in America(1) average only six home sales per year.(2) Each works about forty hours per sale,(3) which amounts to 12% of the work year,(4) or five hours per week. Most of the balance of hours is devoted to getting new business.(5) Brokers receive a median $52,800 income yearly.(6)

The average couple selling the average home will need to work five weeks each — ten weeks total — to pay the commission of the agent who will work only one week on that transaction.(7)

The real estate brokerage profession should be ashamed of its dismal performance.

= = =

1 Appendix, page 65, bottom of third column.

2 The Statistical Abstract of the United States, published by the U.S. Census Department, states the number of homes sold and realty agents working each year. These figures are stated in the Appendix at page 4 for the years 1972 to present. Dividing number of homes sold by the number of agents gives the number of homes sold per agent.

3 California Association of Realtors member survey, 2002. The reported figure is per "transaction," but since most transactions involve two sides, the correct figure for hours worked per transaction for all agents would be 40 hours.

4 If a work year is 50 weeks (two weeks off for vacation), then 50 hours times 40 hours per week is 2,000 hours.

5 U.S. Government Accountability Office, Report to the Committee on Financial Services, House of Representatives, Real Estate Brokerage — Factors That May Affect Price Competition, August 2005 (referenced as GAO report).

6 2004 NAR member survey. The median income of a salesperson was $37,600.

7 The 2005 Statistical Abstract reports that the median family income in 1999 was $41,994. A two-member head of household would need to work a total of 4,000 hours to earn that sum, at $11 per hour. The commission a home sold currently is about 5.1%. GAO report, page 10. The median price on a home sold in 2003 was $170,000: 2005 Statistical Abstract, Table 937. Thus, the commission on the home would be $8,670, at 5.1%. At $11 per hour, it would take 788 hours to pay the commission. At 40 hours per week, that's about 20 weeks, or ten weeks for a husband and wife.

American Feudalism

This post isn't about housing per se, but given Marin's penchant for elitism, snobbery, deference towards classism, and the more and more feudalistic consequences of housing and debt, this article in The Atlantic (was The Atlantic Monthly) by Clive Crook is spot-on. You need to have a subscription to read the full article. Below I quote substantial pieces for those of you who do not have a subscription or who cannot otherwise find it on the Internet:

Opportunity is the crux of the American idea. Opportunity is what the New World has always represented: struggle, risk, self-determination, and the hope of spiritual and material progress. Even now, to new immigrants, that or something like it is the pull—and for them at least, it is no false promise. If you move to America, you move up, and this is true whether you are rafting across the Rio Grande or negotiating the hazards of the H1B visa program.

The American model has been regarded as proposing a kind of bargain. This is not Europe: Here, idleness and incompetence are sternly punished—but merit gets rewarded. Much more than elsewhere, your class background will neither prop you up nor hold you back. If you deserve to succeed, you will.

It is an inspiring, energizing offer—and still a profoundly influential one. It colors the national debate about taxes, health care, and other aspects of economic policy.

But is America any longer a land of opportunity for the people born here? The evidence, such as it is, points to a surprising and dispiriting answer: no, not especially.

The idea that America is exceptional in its material opportunities is deeply lodged in the culture. For as long as the country had a western frontier with territory beyond, internal migration was just as bold a venture as crossing the ocean had been for the first settlers, and just as promising for the ambitious and self-reliant. The late-19th and early-20th centuries brought extraordinarily rapid industrial development, which nourished the American idea in a new way. Rising incomes made each succeeding generation more prosperous—and they rose so fast that people even felt more prosperous. But that phase, too, has ended. Incomes are now rising more slowly from generation to generation (and for a variety of reasons, the flattening feels worse than it is). Fewer adults today, it seems, expect their children to do better than they did. Pessimism vies with vitality for command of the national consciousness.

...an accumulating body of research suggests that the stiffening of America’s socioeconomic sinews is more advanced than the culture, even now, seems willing to admit; worse than the scholars who monitor it had hitherto understood; and—how shaming is this?—worse than in many older, wearier countries.

Most researchers now give America much lower marks than they used to for intergenerational economic mobility—the ease with which successive generations move up or down relative to their parents.

Before the 1990s, researchers tended to put the correlation between parents’ incomes and their children’s at around 20 percent, implying a high degree of mobility between generations. (Zero would imply no connection at all; a correlation of 100 percent would imply that parents’ incomes entirely determined the incomes of their children.) In the 1990s, using better data and techniques, experts tended to put that figure at about 40 percent. Recent estimates run as high as 60 percent. The finding is not that mobility has fallen since World War II—the studies point to no clear trend. It is that as methods of measuring mobility have improved, the result, across a span of recent decades, has gotten worse. The earlier view that postwar America was an economically mobile society is less and less borne out. Perhaps it was once (before data became available to track such things accurately); but it isn’t now.

More telling, maybe, is the international comparison. America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all of the Scandinavian countries, and possibly even Germany and Britain...

Strikingly, the research suggests that mobility within America’s middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom.

The findings are still tentative, and the causes complicated—hardly a firm basis for prescription. Still, if the government needed another reason to retain the estate tax (aside from the fact that it is one of the most economically efficient taxes), this might serve. In general, a little less tolerance of inherited privilege would not seem amiss. Would it hurt, for instance, if the admissions preferences granted by America’s most prestigious universities to the children of benefactors and alumni aroused more disgust, or maybe just some mild disapproval?

America has no roots in feudalism, no notion of inherited orders of society, no instinct for deference or regard for nobility. And yet the economic mobility that is thought to follow from such freedom, and indeed ought to follow from it, appears to be a myth. Myths that defy the common experience can persist for only so long. Perhaps in the future the country will try harder to foster the opportunity it thinks it already provides. Or perhaps the culture will simply come to accept this un-American reality: a society of rigid economic orders, maintained by inheritance, blessed by its elites, and impotently endured by its underclass.

A Quote on Funding Someone Else's Retirement

I think the stress of watching prices... and looking at all the jerks who want me to fund their lifestyle/retirement by buying their overpriced and undermaintained POS houses just snapped something in my head. If I want to own Real Estate I will just buy REIT shares in a tax deferred account someday.

California to FBs: Foreclose, See If We Care

So sayeth the SF Chronicle:

As other states adopt stricter regulations on subprime lending practices, California has not rushed to restrict an industry that spent $17.9 million in campaign contributions and on lobbying in the state during the past four years.

Why? Because without access to easy credit there is no way that our ludicrous housing prices can be sustained.

April Results for Marin

Well, the Marin IJ really out-did itself today with their making a big hoopla about the Marin median house price crossing the million dollar mark. I hope they didn't break anything or soil themselves. As if rising prices are a good thing. Are rising medicare expenses a good thing? Is the rising cost of education a good thing? Is the rising cost of gas a good thing? Is the rising cost of food a good thing? Is abysmal affordability, the flip side of rising house prices, a good thing; is it something that a community should be proud of? Is having to be forced to build affordable housing a good thing? Is forcing people to drive an ungodly number of miles to commute in to SFO and Marin because of the out-of-control cost of living closer-in a good thing (and don't insult me with that classic Marin denial BS about them making that commute by choice; they have no choice)? And are all those miles driving, many of them through Marin, a good thing for the environment which Marinites claim to care so much about? No, we'd rather complain about whether someone builds a rock labyrinth in open space.

As far as I'm concerned the Marin IJ has lost all respect and any dignity it might have had. They have whored themselves out to the highest bidder, which is our local real estate industry. Yes, whored. As much as that word offends me, I don't know how else to describe them. Any newspaper worth its salt would have at least stopped and asked some basic questions, dug down at least a little below the surface, instead of taking things at face value. But I guess doing their job is too much to ask of the IJ. Short of starting a rival newspaper, I ask anyone who feels like me to cancel your subscriptions and never pay for that lame excuse of a newspaper ever again; I myself have not paid them a subscription in years.

Anyway, the following is a graph showing the percentage of houses for sale in each April since 2005 by price category. The data I used came from Vision RE:

What the above graph shows is what we (you and me) have been saying for a while now. In 2005 and 2006 the percentage of houses that sold in the below $1 million category, in the $1 million to $2 million category, and in the above $2 million category was essentially constant within each category. But in 2007 the bottom began to drop out of the "low end" of Marin's housing market. This is shown by the shorter yellow bar in the below $1 million category. Clearly, tightening lending standards, which have only just begun and have not yet had much of a bite, and the subprime "meltdown" have had an effect contrary to what Marin RE shills would have you believe. Furthermore, the number of houses in the $1 million to $2 million range increased in 2007 relative to 2005-6.

Hence, the reason why the Marin median price crossed the $1 million dollar mark in April, 2007 was not because houses suddenly became more expensive (err, more special). It was because the mix of houses that sold changed due to the deteriorating market conditions...only the higher end still has buyers that can still buy and their numbers are sure to dwindle as time goes by. Marin real estate agents with at least some shred of courage have admitted that this is in fact what is going on at the moment.

And if you are the proud owner of a "lower end" Marin POS you can be fairly confident that your crack-box has lost value and for good reason. Just look at that Mill Valley house that I've been tracking in my previous post; it has been on the market for 1.5 years (despite the fact that it has a DOM reading of five days) and the only reason why it didn't sell after the first few weeks is because the seller refuses to lower the price down to market rate. As it is, they are bleeding cash and will continue to do so until they finally throw in the towel either by choice or by default. And yet they are just one of many making up the "low end" in Marin.

Moving right along... the following data comes from Vision RE again. Look at all those negative "appreciations"! Not exactly indicative of a strong market.


The IJ and Vision RE as well made a big deal about the fact that SFR sales in April did not go negative like many of the previous months. The reason why is that April, 2007 is being compared to April, 2006 which itself was a strongly down sales market at -26%. The fact that April, 2007's sales were only slightly better than that of April, 2006 only means that our market this spring is as pathetic as it was last year.

The following graph is from Vision RE's (and West Bay RE before it became Vision RE) own dataset. Clearly, April's sales activity was nothing to be too excited about and, with the exception of the April, 2006 data point, April, 2007's sales activity was the lowest it has been since April, 2001.

The next graph is from data I've been collecting from ZipRealty.com. It shows the number of SFRs on the market in Marin since September, 2005 that were asking between $100,000 and $10 million. The point of the red lines is to demonstrate to you that Marin's inventory is currently about 16% greater than it was this time last year. Also note that the peak inventory in 2006 was about 45% greater than the peak inventory in 2005 (green line) and which current 2007 inventory has already surpassed... and it's still very early.

The next graph is also from data found on ZipRealty.com. It shows the number of SFRs (asking between $100,000 and $10 million) that are advertising "price reduced". What I find interesting about this graph is that this spring's selling season started out with about 12% more "price reduced" offerings than the same time in the spring of 2006. Again, it is hard to explain this based on your typical Marin RE industry shill's "everything is great, Marin is special" blather.

And finally, below, is the historical view of the Marin Market HEAT Index. The fat orange line is the Index for this year. The blue line is the Index for last year. Clearly, 2007 is turning out to be a lot like 2006; in fact, it's a little worse. (Incidentally, the Index is currently reading 0.63...well into a so-called "buyer's market".)

Now, don't get me wrong. I wouldn't be maintaining this blog if I didn't enjoy it. Heck, I've even survived desperate death threats. But mostly I do it because I have to...because the Marin IJ, as the local RE industry's propaganda outlet, cannot, no, has not been able to act in accordance with it's name... independent. I think it is utterly disgraceful that a nobody blogger, with a budget of exactly $0, can (at the risk of sounding self-congratulatory) perform a better job of portraying the Marin RE scene than a multi-million dollar (at least) industry which is so anxious that it must spend millions of dollars on a "propaganda blitz" to convince people to buy. Again, I ask any of you who are like-minded to cancel your subscriptions to the Marin IJ; they don't deserve your hard-earned money.

More Lipstick on a Pig in Mill Valley

It's baaaaaack! The worst POS in Mill Valley, with its glorious view of the 7-11 (an infamous teenage hang-out and rendezvous, if you know what I mean), constant noise from Shoreline Hwy (this house is literally just a few feet away from Shoreline), insane neighbors, and a "driveway" that floods each and every winter and that requires you to drive around the block on the opposite side of Shoreline just so that you can get you car at the proper angle to enter its very small one car garage without damaging your car.

Except this time, Vision RE has the (dubious) honor of listing this pig:

Great value! Why buy a condo when you could have this single family dwelling. Convenient access to san francisco or take off to stinson beach. 2 beds, 1 bath, large yard, garage. Renovated and ready to live in, then bump out the back and create the kitchen you desire.

It has a new picture, a new write-up... and even a new price -- the sellers have seen fit to raise the price to $649,000 from it's all time, break-even low of $638,995. The owners of this dog house have been trying to sell it for nearly 1.5 years (that must be some sort of a record); and never mind that the listing now has a DOM of just 5 days. But it is still the same lame 2 br, 1 ba, 699 sq ft, built 1923 POS in the worst location in Mill Valley and quite possibly the worst location in all of Marin County (or maybe not as these are still for sale).

[Note to Vision RE: You ill advise your clients on this one. Given the extremely lengthy period during which this house has tried to sell, the owners should be lowering the price, not raising it. The concept is rather simple and easily grasped. Or are you playing that all too familiar game of raising the price only to lower it later in the hopes of fooling potential buyers that there has been a price drop?]

I really want to meet the people who actually bought this thing thinking it was "A Smart Move". We already know if they get their asking price they will break even (not including nearly two years of carrying costs which would surely put them in a loss position). They must be the most desperate and stubborn sellers...ever.

But even more than wanting to meet the sellers, I want to meet the fools who end up buying this "lipstick on a pig".

(For those who are curious, the last post I made on this Marin flip-turned-flop was here; you can click through to all the previous posts through that link if you want to learn its history on this blog).

"Middle Class Needs to Wake Up" Says One Marin Resident

From the Letters-to-the-Editor in today's Marin IJ:

Middle class needs to wake up

Marie Antoinette is reputed to have said, "Let them eat cake" as the people starved. Two hundred years later, the cry from the present indifferent rich is, "Let them eat crumbs."

The latest obscenity is the golden parachute given to the retiring president of AT&T. He will receive$161.6 million and he will make $1 million a year as a consultant plus other benefits.

However, there was some good news for his less fortunate retirees of AT&T. In the spirit of brotherly love, his board granted a 6.2 percent increase in monthly benefits - but only to those oldest and poorest retirees who have a pension of $1,200 or less per month. How can anyone fault such generosity? What a class act! And they say the rich have no heart.

The line between the rich and the poor is rapidly growing wider as the middle class gradually sinks into genteel poverty. Gas prices go up, food prices go up, housing prices go up, but "hosanna" the 6.2 pension increase has delivered the poorest of the poor. In gratitude for the crumbs they receive, they should bow and touch their forelocks as they thank the benevolent rich for their good fortune.

When will the middle class rise up in protest? Illegal immigrants protest, gay/lesbians protest, bikers protest but the middle class goes dumbly down the ladder to poverty. Gas companies report record profits every quarter, food stores modernize and raise the prices, jobs move overseas, legislators are bought and sold, young people die overseas and the middle class goes dumbly down the ladder to poverty.

It is the middle class that built this country, it is the middle class that earns the money for the rich and it is the middle class that can once again assert its strength but only by taking back its government.

Harry Schriebman, Corte Madera

Group Declares War on NIMBYist Marin

And there it was, like a dream come true, top, front, and center of the Marin IJ -- "Group Declares War on NIMBYism" in Marin. Thank God; it's about time; but good luck. People here are quick to talk the talk as if they really care about affordable housing, the pollution it causes, being a responsible denizen of the Bay Area, the social stresses the lack of affordable housing causes, etc. but when it comes down to it, Marinites always hide behind their environmentalism to mask the real issue in their minds -- property values. It's all about property values in Marin.

The Marin Community Foundation has launched a major offensive to rid the county of NIMBYism*.

The foundation's board has invited nonprofit advocates and developers of affordable housing to submit grant proposals for changing the "Not In My Back Yard" mindset that the board says swamps proposals for affordable housing in Marin.

The foundation has also signaled its willingness to turn up the heat on local governments, using legal means, if necessary. State law requires counties and municipalities to foster the creation of a specified amount of affordable housing by identifying appropriate building sites and removing red tape that might block construction.

Giacomini [chairman of the foundation's board and a former Marin County supervisor] said recent decisions by the Marin County Planning Commission to scale back incentives for affordable housing in the draft Marin Countywide Plan were "sad and pitiful - not exactly profiles in courage."

Opposition to affordable housing ranges from those who fear it will hurt their property values to those who are concerned that increased housing densities will cause traffic gridlock and exhaust water supplies. Housing advocates say many of these concerns are misplaced.

"A lot of people believe that the right thing to do for our quality of life and our environment is stop any housing, when in fact data shows the opposite is true," Pagett said. "If we're going to reduce traffic, we need to house more of our workers in sites that are near transit along the Highway 101 corridor."

Pagett said more than 30,000 people commute into Marin every day to work because they can't afford to live here. These people include teachers, police officers, firefighters and retail workers.

Coury said that between 1995 and 2005, Marin's population grew less than 2 percent while vehicle miles traveled in the county increased about 17 percent.

Roger Roberts [president of the Marin Conservation League's board of directors] said some Marin residents are worried that low-income housing in their neighborhood will ruin their property values.

"It may well be that some of those folks use environmental arguments to hide behind. We don't do that," Roberts said.

*NIMBY, an acronym for "Not In My Back Yard," describes an attitude by residents who oppose development, especially public projects, as inappropriate for their area. Though needed for the larger community, the projects are usually considered unsightly, dangerous or likely to lead to decreased property values. Spinoff terms include CAVE People (Citizens Against Virtually Everything), BANANA (Build Absolutely Nothing Anytime Near Anybody) and NOPE (Not On Planet Earth).

I hope they succeed at breaking Marin's NIMBYist ways as I've blogged before (here and here). And I hope they don't stop there. Take on the Marin Agricultural Land Trust (MALT) and Proposition 13 while you're at it.

I know I am a traitor and a heretic in the eyes of most Marinites for saying so, but something has got to be done. Sensible, intermediate solutions exist and, if pursued, would have mitigated the urgency today. Hiding behind pseudo-environmentalism is specious and assuming the worst possible outcome as the most likely one is inane. It's time that self-absorbed Marin gives up its inward-looking stance and embraces change.

Marin RE Market in a "Depressed State" According to One Marin Agent

It seems that at least one Marin agent is willing to concede what we've been predicting here all along (despite the invective of certain bulls), at least for this still quite early stage of the bubble's unwinding (see quote section, below). Basically, very expensive houses, those occupying the upper 20% of the market (in terms of price), are still being sold with gusto as their buyer's are unaffected by the gradually tightening lending standards. The bottom 40% of the market is tanking. The middle 40% hasn't made up its mind yet.

What to expect: Statistics calculated over the entire county should show the median/average going up, even if slightly, because it is primarily the priciest houses that are driving those calculations. If your house is part of the bottom 50% or so of the market, you can be fairly certain your house has lost value.

Furthermore, expect the further tightening of lending standards to push the dividing line between that segment of the market that is selling vs. that segment which is not to continue working its way up the price scale.

On a related note: I spent much of the evening looking at listings on ZipRealty that are currently on the Marin market and that were last sold around the market's peak, mid to late 2005. What I noticed is that of those houses, the asking price (err, "wishing price") of a good three-quarters of them are only slightly above their original 2005 purchase price (too many houses to make for a reasonable post). After taking into consideration commissions and other costs associated with selling, they will be lucky to break even. More than likely they won't sell at all as sellers are loath to bring a check to the table at closing.

Marin RE bulls like to quip, at least when it is in their favor to do so, that a house is only worth what someone is willing to pay for it. In a free-market (which the housing market most certainly is not) that's true. But what I'd like to know is how much is a house worth that doesn't sell? $0?

Furthermore, many of the POSs that I've made fun of in the past, those that I am very confident didn't sell, are not on the market at present. Why? Maybe the seller gave up? Maybe the seller is trying to rent them? Who knows?

Some choice quotes:

We all have been seeing and hearing in the media about the depressed state of the housing market. Our Heat Index numbers in most categories definitely support this...

BUT--it's fascinating that the two highest-priced tiers of the Marin MHI ($4 million+ and $2 million--$4 million) are as hot or hotter than they were on the same date two and three years ago during our record setting sellers' market. In fact, the MHI reading for homes above $4 million is 25% higher now than three years ago at a most intense phase of the boom market...

On the other end of the spectrum, our Indexes of homes priced Less than $1 million make a dramatically different showing, with current intensity levels down rather shockingly--from 60% to 86% lower than their readings on the same date two and three years ago...

Put another way, current market intensity in the highest 20% of Marin's market (those listings Above $2 million) is at or above the readings during boom years of 2005 and 2004, while Condos and most of the lowest 40% of the market ($1 million and below) are experiencing a sharp drop in intensity levels making those market segments significantly cooler than during the boom years...

By the way, just to follow-up, our first-of-the-year predictions forecast a balanced market by April. While the market in Marin did indeed warm through the early spring, it only approached, but never reached the threshold for balanced market readings [it didn't even come close]. Then the market cooled slightly again...

And for what it's worth: I'd like to say that Nate Sumner (the agent who maintains the Marin Market Heat Index) has earned a "gold star turd" in my book. Any agent who can admit that their predictions for this year were way off and who can (at length) write up a market discussion that does not try to put an obviously bogus positive spin on a down market is worthy of mention if for no other reason than its rarity. Assuming I am correct in my judgment, I wish more Marin agents would follow his lead.

Charting the Real Future

I found this chart over at the Bubble Buster site. I added the green, red, and orange lines to the chart. The red line interpolates the inflation-adjusted (real) property price minima, the green line projects the expected decline in the real inflation-adjusted price, and the orange line projects their intersection to the price ordinate.

I'll save you the effort of doing the math... it's a 35% drop in real prices over about seven to eight years.

What I find interesting about this chart is that it looks like the normal cyclical peak was trying to form back in 2003-04. But it got forestalled thanks to Greenspan, the flooding of the money supply, practically nonexistent short-term interest rates, relaxed (comatose?) lending standards, and paid liars like David Lereah.

And I don't blame you if you don't want to wait seven years to buy. But if you do buy now, plan to hold on to that property for at least 15 years before expecting to see a real profit. That's not even taking into consideration the costs of "ownership" (maintenance, taxes, insurance, etc.) all of which will add years before you can sell for a real profit. And if it's your primary residence that you are thinking of buying? Well, don't plan on moving or having to sell due to sickness, divorce, job transfer, etc., etc. for the next decade and a half. Frankly, I can think of better things to put my money into for the next 15 years. But that's just me. Of course, this housing bust is unlike any other and it may be over much more quickly if there are job losses, a big increase in interest rates, etc.

And this chart is worth thinking about with respect to the one above:

Marin Brokers Getting the Pink Slip

Just as flies are drawn to a poop, people flocked to selling real estate and mortgages when times were good. But now brokerages are shutting down and brokers are being laid off. Even here in immune Marin:

Layoffs have hit two prominent Marin mortgage brokerages this spring, signaling a shift in the local real estate market and a trickle-down effect credited to the subprime lending fallout.

San Rafael-based Paul Financial LLC gave 36 employees walking papers Wednesday, company officials said. Of those, 25 were based in San Rafael. The company employs about 180 full-time workers in offices in San Rafael, Santa Rosa and Irvine.

Late last month, Novato-based GreenPoint Mortgage laid off 70 employees, nine of whom worked out of the company's Novato headquarters, officials said. GreenPoint employs approximately 2,800 people, about 570 of whom work in Marin.

The real estate market has experienced a slowdown, said Don Maxon, mortgage loan officer and assistant vice president of Bank of America Mortgage in Larkspur.

"I just see the market as being very changed," she [Donna Barron, principal of the San Rafael-based investment mortgage strategy firm the Barron Group] said. "It's not the market it was. I have reps that have the territory from Healdsburg on down who say most of the brokerages have closed down. Clearly the ranks of the brokerage industry have been hit significantly."

A spokeswoman for GreenPoint said the lender was feeling the effects of tighter credit restrictions imposed by investors buying its loans - restrictions prompted by trouble in the subprime lending market.

What Is Due Diligence When Buying a House?

"Tom Stone", a reader and frequent commenter on this and other housing bubble blogs and someone who is extremely knowledgeable about buying property, shared with me what he considers due diligence when buying a house. As it would benefit readers, here's what he had to say (gently edited):

Hello Marinite,

Here are my thoughts, please feel free to edit in any way you see fit.

I would like to emphasize that I do not think it is a good idea to buy a home at this time, and probably won't be for a year, or more.

"Due Diligence" is defined as the kind and amount of research a "Prudent Person" would undertake when borrowing hundreds of thousands of dollars to buy a home.

First, determine your price range by considering the amount of your down payment, and a reasonable percentage of your income for debt service. I will assume 25% of your gross income is available to cover principle, interest, taxes and insurance. (Yes I can get you a loan at 55% DTI to 95% cltv, if that sounds good, call 1-800-273-TALK.)*

I go online to OFHEO and check the information for the Metropolitan Statistical Area (MSA) I am interested in. I go to the Census Bureau to see how the Demographics look, I Google "Economic studies, Oz MSA" and read them, I Google "Demographic Studies, Narnia MSA" and read them, I check school ratings, crime statistics, and the "megan's law" site on line. I check online for Geological hazards such as flood zones or earthquake faults, unstable hillsides or the presence of Levees. USGS has a helpful site for much of this, state and county information may also be available online. I Google "superfund sites". These basic steps should give you a neighborhood or two to look at closely. GET OUT OF YOUR CAR AND WALK THE NEIGHBORHOOD! Preferably on a Saturday afternoon or evening around dinner time...drive through the neighborhood with your windows open, on a weeknight, on Friday, and on Saturday, about 10 PM. If you can, drive through late morning on a weekday as well. Go to Open houses in the area. If there is a property that looks right, check Trulia, Domania and Zillow, and print out the information you get. Look at recent comparable sales, ring the doorbells, tell the folks you are thinking about buying on "x" St, and ask their advice. "Can you tell me anything about the neighborhood, I'm afraid of making an expensive mistake".

So far, it is looking good, and I'm in love with the big redwood and rhododendrons in the yard. So, off to the county recorder's office to see what there is to see. I check the address, and I check the owner's name as well for other properties in the county. I look at the date purchased the type of note, any refi's, notices of default, different mailing addresses, etc. If there is a different mailing address, I check to see who owns it. I do the same for any other properties owned by the same person(s). I check by name as well for such things as a DBA, a divorce, etc. I then either do a lexis/nexis search, or go to an online info broker such as "detective search" and buy a report on the seller. If the seller is self-employed I would buy a dun&bradstreet report on the business. I would look for any signs of distress, particularly if the seller is in a housing related business, and would tailor my offer accordingly. My offer would be contingent upon a THOROUGH inspection of the property, and modified by any problems encountered by the inspectors.

Some may quibble with my assumption that 25% is an appropriate percentage of gross income to spend on your home. It is conservative. Others may feel that using an information broker to gain insight into the sellers financial situation is invasive. Fair enough, don't do it. My position is that ANY and ALL publicly available information on the property and the seller(s) should be part of my due diligence, whether buying for myself, or acting as an agent.

Tom Stone

*PS the 800#, above, is the national suicide prevention hotline...

The great thing is that all of those excellent recommendations by Tom do not require a real estate agent. You can do them all on your own for very little money compared to what you would pay a commission-based agent. But if you still insist on using an agent, then make sure that when you settle on a commission you aren't paying the agent for the work you did yourself.