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.