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.