Out at the peak

Thursday, December 31, 2009

Legal Disclaimer

The purpose of this blog is not to provide investment advice or to manage your money – THOSE ARE DECISIONS THAT YOU HAVE TO MAKE. If you do hold investments you should conduct your own research and evaluations taking into account other independent sources of information and commentary.

Tuesday, March 24, 2009

It's been a year for the Yeager Dr, SR listing

This Santa Rosa house just cannot get sold. It's been following the market with price for over a year now and hasn't been able to close escrow. This is either the 3rd or 4th time that it has been in escrow. Will it pull through?

The price reduction has been 25% or nearly $100K since the 2008 listing. The price reduction has been 36.5% or $164K since the last sale in 2004.

Is it time to buy yet? In my opinion, no. Wait for all foreclosures from the Alt-A/Option-ARM resets to follow through. There are many people who haven't paid their mortgage for over 6 months and the bank hasn't filed for foreclosure yet.

Banks are also giving incentives (cash) to people who leave their property without damage. Banks are renting out their foreclosures so they don't have to realize their loss and/or waiting for a good time to sell. They could be renting those properties for awhile.

Won't the government force banks to renegotiate loans with delinquent borrowers? There has been little success with this. A large portion of those renegotiations just default again. Refinancing can only help a few people now. Even though rates are super low now, anyone who bought in California in the last 7 years (estimate; give or take) has no equity for traditional refinancing.

2012 seems to be the magic year of when a bottom might occur (in California). When we do hit the bottom, there is no rush. Housing should start tracking inflation at that time and not repeat the rocketship increases for the rest of our lifetimes.
A great read on why this is.

Wednesday, May 07, 2008

My old house's value has dropped nearly 40%

This is another good day that I'm so glad I sold at the peak.

The house became an REO and sold for 34% below the peak price. I'm sure the buyer thought s/he was getting a great deal.

The same model (one year newer) on the next street that is better (AC, granite countertops) is listed for 8.4% lower than the REO price. (Or a 40% discount from peak price.) It's been on the market for 48 days. We'll see what happens with the purchase price. This listing is a short sale (not REO), and it's $110K less than its last purchase from 2004.

If I held on, I would have a little equity, but not much. It would be a <2% appreciation YoY. That's less than inflation.

My old house was a new construction neighborhood in 2001. If comps get much lower (46.5% total discount from peak), then even original owners will be in negative equity position. I think that could happen by the end of the year. Ouch.

Thursday, November 15, 2007

36 cents a day, that's all it takes

People of the world, we need your help. The USA runs a $811.5 billion annual deficit. We need foreign support to keep it going as is. With 6.6 billion people in the world and 300 million in the USA, we are looking at the other 6.3 billion people to finance this. We just need 36 cents a day ($128.80 a year). For 1/12th of a cup of coffee (at Starbucks), you can flourish the American dream for 300 million living in the good ol' USA.


Wednesday, November 07, 2007

Too easy to find properties in trouble in Santa Rosa, CA

I was just browsing redfin.com and found that more than half of the houses listed in a few areas of Santa Rosa, CA were losing a lot of money. A chunk of them have been listed for over 90 days. Most of the ones that were not in trouble didn't have sales records, so who knows what the case is.

LinkPeak Sale DatePeak Sale PriceCurrent Asking PriceMoney Lost
1347 Peterson Ln08/11/2005$615,000$399,000$216,000
4048 Match Point Ave12/30/2005$610,000$395,000$215,000
4036 Louis Krohn Dr06/07/2005$639,000$435,000$214,000
2955 Sunny Wood Cir01/10/2006$649,000$450,000$199,000
2613 Rosevine Ln05/30/2006$637,000$449,900$187,100
1232 Lombardi Ln08/31/2005$540,000$359,000$181,000
3915 Deuce Dr11/30/2005$625,000$445,000$180,000
4240 Quimby St11/03/2005$560,000$389,000$171,000
2545 Kally Ct05/02/2006$446,000$279,000$167,000
1516 Mayflower Pl09/09/2005$575,000$415,000$160,000
3916 Hogan Ave05/24/2006$650,000$499,000$151,000
3981 Louis Krohn Dr07/26/2006$577,000$429,900$147,100
4044 New Zealand Ave05/31/2006$675,000$529,900$145,100
2526 Edgewater Dr03/23/2006$680,000$545,000$135,000
1305 Lombardi Ln06/30/2006$465,000$365,000$100,000
4046 Louis Krohn Dr11/14/2006$565,000$465,000$100,000
4050 Louis Krohn Dr01/25/2006$585,000$500,000$85,000
1524 Pinebrook Pl05/20/2005$415,000$325,000$90,000
1551 Pinebrook Pl06/30/2004$350,000$284,900$65,100

Friday, September 28, 2007

Money is something most politicians don't understand

$5000 Free Money

This is off topic, but it still addresses one of the root problems today. "Hillary Rodham Clinton said Friday that every child born in the United States should get a $5,000 'baby bond' from the government to help pay for future costs of college or buying a home."

Let's look at the stupidest commentary. "I think it's a wonderful idea," said Rep. Stephanie Stubbs Jones, an Ohio Democrat who attended the event and has already endorsed Clinton. "Every child born in the United States today owes $27,000 on the national debt, why not let them come get $5,000 to grow until their 18?"

Where the hell will this magical $5000 come from? That's right, the national debt. We don't have a surplus $20 billion (4 million babies * $5000) to hand out to babies. The USD's value will continue to suffer as our debt grows more and more out of control.

The money is suppose to help the child get started on life when they become an adult. Guess what happens when you give everyone $14,271 ($5000 with a modest 6% compound interest over 18 years)? It levels the playing field. This will be priced into the educational system and houses relatively quickly. In about fives years after this program is paying out, the money will be a necessary evil. It will become "priced in."

The same phenomenon happened with real estate tax breaks. Real estate prices went up partly because the tax breaks allow the consumer to spend more. The tax breaks no longer make owning advantageous, but that was the initial intent.

When you "price in" "free money", this adds to the inflation problem. It helps no one. (Social Security is different since individuals/employers pay into the program.)

All the presidential candidates except for Ron Paul want to keep spending money we don't have and make situations worse in the long run. Ron Paul will be my choice.

Wednesday, August 08, 2007

Mortgage resets: the level will remain above $30 billion a month between October 2007-September 2008


"The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008. In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month."

I don't think we will see market effects starting in October 2007 and ending September 2008. There is going to be a 6-12 month lag per month. Some people will burn through savings to try to pay the new rate before defaulting (many refinance scenarios are impossible because of new LTV requirements and higher rates which doesn't lower the monthly payments). A lot of people won't be able to sell at market value because they will be overencumbered. Short sells will still be rejected because mortgage companies believe they can still do better with a foreclosure (they may realize this fault sometime in 2008). Foreclosures take a long time to become REOs. That's why 2009 is the absolute earliest time to buy if you can find a great deal. The bottom might not be seen until after.

Thursday, January 25, 2007

David Lereah is crossing his fingers and toes

Let's not rely on indicative data for the direction of the housing market. Let's just hope for a scenario and pray.

"David Lereah, chief economist for the Realtors, said that even with the December setback, he still believes that sales of existing homes have hit bottom and will start to gradually improve.


'With fingers and toes crossed, it appears that we have hit bottom in the existing home market,' he said."

How can we trust an "expert" if their prediction relies on hope?

Wednesday, September 06, 2006

Homebuilders promoting toxic loans

Homebuilders are accumulating inventory. In order to move this inventory, they are willing to promote non-conforming loans to people who could not afford a conforming loan.

Centex Homes: Affordability Days
Ryland Homes: 40% off mortgage payments
(Thanks Bubble Meter)

Home buyers: my suggestion is if you cannot afford to make payments on a 30 year fixed mortgage, then you simply cannot afford that house. Actual affordability is virtually gone, and once buyers stop risking their financial credibility with non-conforming loans, house prices will have to realign with reality.

Please link to other similar promotions you come across.

Thursday, August 17, 2006

California Association of Realtors change the rules of affordability

Actual housing affordability in some parts of California are in the single digit percentage range (such as about 7% of house holds in Sonoma County can afford a median priced house).

These numbers were not acceptable to California Association of Realtors (C.A.R.), so they redefined the Housing Affordability Index. Instead of taking the median price of a California house, they decide to take only 85% of that price because clearly, more people can afford that. And they believe first time home buyers will buy a house worth less than median.

They also use to assume people had 20% down payment to buy with a house. They are realistically throwing aside that possibility because the money that should be enough for 20% is now only 10% of today's purchase price.

They no longer use a fixed rate mortgage in their assumptions. Everybody loves adjustables!

Here is the kicker: They do not mention that they changed how much they assume a household will spend towards mortgage, property tax, and insurance. They have a spreadsheet with raw numbers, but if you do the math, you will see that they allow the household to spend 40% of their gross earnings (53.3% after taxes -- given a 25% tax bracket)! The old methodology only allowed 30% of gross earnings to go toward the housing expense. (1320 x 12 / 39600 = 40%)

This is their reasoning:
"The range of mortgage products available to buyers as well as underwriting criteria has changed. C.A.R. developed the new index measuring affordability for first-time home buyers to better reflect the realities of today’s real estate market."

Maybe we will have hit bottom when C.A.R. goes back to their original HAI.