patrick.net

irrational exuberance had no color

Really? Irrational exuberance has one color: green.

Civility = Reason. A good thing.

Perhaps fear is a larger driver of the real estate bubble than I had previously thought?

Fear is always the most powerful emotion, much more so than greed. Use fear wisely.

Thanks, Michael.

I'm not a PC guy myself, and generally prefer to allow the discussion to go where people take it, but I think it got out of hand last night. I'll check in from time to time & delete gratuitously racist/inflammatory comments when I see them. Unfortunately, only the thread-starter can moderate comments, so if I can't appoint someone else as proxy (Randy H, Peter P, etc.) nor can they. Perhaps that's something we can bring up with Patrick.

I’m not a PC guy myself

Okay, I know Mac is great and so and so...

@Peter P,

. :mrgreen:

And after 3 months of carrying costs, the seller is probably trying to build back into the price what he has already paid out in mortgage payments & insurance.

Anyone think this strategy will work?

Need-based pricing is unlikely to work in a falling market.

Ray W,
Pretty good point there. I am by no means a particularly religious person, but one of the 10 commandments:" Thou shall not covet thy neighbor's posessions" would probably solve about 90% of the problems that are assciated woth real estate. Whoever it was that wrote that passage was right on.

has anyone else lost contact with a “friend” over this?

No, I can turn into a real estate bull just as easily.

you would be a BULL now?

I have tried cautioning friends about the housing bubble. Trust me, it will never work and it certainly does not worth it. They will see the light when they get there.

But if we discuss what is the best way to invest in properties, and if I exaggerate a bit, they may finally see how ridiculous the whole thing is.

George,

I've seen alot of "desperate tactics" of late and evidently they don't seem to work that well b/c I still see them listed. One thing I have noticed in Portland and other markets is the "direct to rental" mode. It seems to me that this is the same method major studios use when a stinker of a movie goes "direct to video". In this hapless ploy the builder (that has had no luck unloading the property to a "buyer-user" or flipper) attempts to keep the bubble alive by offering it as cash flow neg. property to an investor. Then rent it out. Yeah, I know, sounds crazy to me too but I'm starting to see this more and more often. Here's how it works;

Demoralized wannabe homedebtor w/shabby credit applies to be part of a "program" and by virtue of his/her credit is willing to agree to a 12-24-36 month lease while their credit "heals" and then they can exercise their option to buy the property at TODAY's price! Such a deal! Well that has gone over like a turd in a punch bowl so now I have been able to talk several into using an avg. of 3 appraisers at the end of the lease term. I've gotten them to agree to this over the phone but have yet to get one to put it in writing. I consider this an "option" b/c I feel that even if it means Mr. Specuvestor gets body slammed at least you are his tenant w/good track record and after 1-3 yrs. of neg. cash flow he will be more than agreeable to your terms. I see this as great "point of entry" w/little downside for more than just JBR's. Our credit is just fine thank you so why not just go ahead and buy the damn thing? Well, b/c I talked somebody else into taking all of the risk and expenses and if they are right and homes triple in value AGAIN over the next 3 years then I was wrong. But I don't think so. If you're interested I'll keep you posted.

This whole thing was a great lesson in psycology more than finance.

The market is 99.5% psychology and 0.5% data-entry error.

Not investment advice

Friends don’t like friends making them feel like fools.

It is possible to exaggerate without being apparent. For instance, you can come up investment ideas that will never work. The idea is to program them subconsciously.

George,

In short it looks to me like the RE community is getting very creative in an effort to unload alot of this inventory before it becomes too obvious. Have you seen or looked into any "rent to own" or "lease with option" programs in your area? It seems to me as though the people that run these are often not even realtors and are more trying to cash in on the sellers desperation than the buyers desperation. I'm sure their pitch to Mr. Specuvestor goes something like this; "Look, houses just aren't moving right now". "This ensures that you are going to have a renter paying some or most of your monthly costs without you winding up with a foreclosure on your credit report". "Hopefully by then the bubble will have re-inflated and you'll be able to break even or who knows, maybe even make a profit, but you don't want a foreclosure on your credit or your specuvestor days are over". "We'll handle the credit report and rent collection so sign here".

The "overvaled" blog put it best;

I'm considering two investment opportunities and can't decide which!

1. A 1.6 mil. property that generates about 1/3 of my monthly obligation or;

2. This e-mail I rec'd from a guy in Nigeria that needs me to send him money so he can "unlock" his deposed father's considerable wealth.

Along those lines?

I’m considering two investment opportunities and can’t decide which!

I think donating 1.6M to a great cause would be a better investment. At least you would get good karma.

SF Dean,

When first introduced these had "premium" payments that as near as I can figure were the amount the "owner" was behind on HIS payments. You can weed those guys out fairly quickly. It didn't work. Now the "premiums" are gone and there are some that offer "zero down, zero deposit" so you would just have to come up with 1 months rent. So, cheaper than renting and w/option and I empasize option to buy. I stumbled on them while checking out Las Vegas for a friend but now I'm seeing them up here in Portland and of course they portray this as a win/win situation. If the "owner" goes belly up then fine, you would deal w/the lender directly without having to compete with all of the bottom feeders.

Friends ? Oh friends. Once they get married, they want you to be married too. Once they buy houses, they want you to buy a house too.

I have been an outcast - non-conformist, who has refused to buy, no matter how much brain-washing is forced on me. I knew long ago, that taking even a slightly negative position would not be productive. So I have been using "I cannot afford it" line for ages now. I have not tried to convert anyone. It's their money.

BTW, psychology is changing. Slowly, and definitely. Now when I say, "I can wait, the prices are unlikely to go up", only half the time I get "What a fool" look.

So I have been using “I cannot afford it” line for ages now. I have not tried to convert anyone. It’s their money.

If you say "I cannot afford it", you friend may be able find a way for you to "afford" it.

I found that the best response is: I do not know what I want. :)

George,

Like I say, when I first started to notice these "programs" sprout up like mushrooms I had to call these guys just so I could laugh in their face! Oh, wait a minute, let me see here? You have a specuvestor that's on the verge of going under so you want ME to come up with 10-12K to cover his arrears and then pay a PREMIUM on top of that? Well, maybe this isn't for you! Fast forward 5-6 months and my how things have changed! The promoters have realized (I believe) that there is no helping the guys that are ALREADY behind on payments so now they have tweaked the business model to appeal to more solvent investors that have the resources to ride out a down turn in the market. The guys that were offering the homes w/downs and premiums probably now represent the lenders.

I went to the IndianMexiArab place last night. The curry-taboulli-burrito was amazing. I was a bit concerned that the server was missing his right hand though.

Peter P said :
If you say “I cannot afford it”, you friend may be able find a way for you to “afford” it.

That does happen from time to time. The bring in "how much a month" formula. Then I say, "I don't know, I am just scared of such a big commitment". And I am not lying ! (I mean for this kind of debt, I was very fast to commit myself to a nice girl long time ago, and very happy about it)

Once, I did slip it through. "It's not how much I pay a month, but what my total liability is". Only once. Well, I am just a human being.

guys, gold on the move again, let's see if it can break the resistance level to advance beyond 580 this time.

If gold breaks 850, the historical high not adjusted for CPI, yet still a very important psychological barrier, the sky is the limit.

SF Dean,

I'm not stumping for the guys that offer these types of programs and like George I probably trust them as far as I could throw them. However, it is they that are driven by desperation, not me! Take the contract to an attorney or realtor that you've known for years. Have them go over it with a fine tooth comb! Do the research in your area as this thing seems to be "morphing" at different rates in different places. When I first noticed them in Las Vegas the promoters (which is what they are) came off as real arrogant but I showed them that their model was defective. Most people that come come up with 10-12K in cash, short notice don't have credit problems. As with everything in life, it's negotiable so talk to these guys and work em' hard.

So now that we want to get back to discuss housing, let me try to raise my question again, which presumably was drowned in racist rants.

Why is the mortgage rate tied - somehow - to US trasury bond ? In terms of risk an MBS is as far away from US Treasury as stock of GE to GOOG. So a buyer would demand completely different risk premiums on both. Just because US Trasury seem more safe on a given day, does not mean that writing a new mortgage is safer.

So even if the yield on 10 year treasure does not move, the mortgage rate can increase substantially.

(This may be a good time for the more informed folks to suggest a free web based primer on bonds)

George,

but that woman is stupid after all, she has to bear the burden of owner financing. You get a good number on paper, but can you collect it?? What if the buyer breaks down financially and cannot keep up the payment going foward? She thinks the buyer is going to keep paying her come hell or high water? Plus USD is a depreciating currency, why do I want to get locked up in a 30-year annuity in USD? I would rather take a smaller amount today, and exchange the USD into something else to diversify. I don't know about 3 years down the road, I know for sure 20 years down the road whatever 1000 USD monthly payment I am going to receive from this buyer is worth nothing.

This woman is what I call too smart by a half, losing sight of the big picture but focusing on irrelevant gains in the ultra-short term.

SF Dean,

I believe that one of the most pivotal aspects of this arrangement is to get them to agree to an average of three appraisals at the END of the lease. NOT today's price. That is ridiculous b/c even the original purchaser and lender had no guarantee as to where the price would be 12-24-36 months down the road. If the are looking for guaranteed prices into the future they need to buy something government backed!

SFWoman,

here is a good website for your debt question
http://mwhodges.home.att.net/debt.htm

Not updated through 2006 yet, so the picture is a lot nicer than it actually is today.

George,

I have to agree for the most part, but we don't know the "landlords" resolve until we test it! If the terms aren't to your liking keep looking, but we won't know their level of desperation until we test it. How many times over the last several months have we read stories where sellers were insulted by offers and after months of getting NO offers asked the realtor to contact the very people that placed those oh so insulting offers!

For example, are women buying because they want to prove they can do it themselves, or are they more susceptible to the emotional pressure to buy? I think it’s a bit of both.

Are they buying one or multiple homes?

George,

I can appreciate that you may not have the same liberties that non-licensed people enjoy. I guess the way I would spin that is to just say, "Look, I'm just abiding by the terms of the contract and at the end of X number of months into the lease we do an appraisal and this is the numbers that THEY came up with". Beyond that I can't see how they can pin the crash on you! Unless that is if they already have your number!

I know a guy here who is half Indian ( father ) mother was white gal from Iowa. He is a really cool guy. He is an American, like me. He’s not here to scam my people and bring back a boatload of money to his home country. I don’t fucking care what his skin color is or how slanty his eyes are.

Shmend, I don't really want to get into another debate about this --that's kind of the point here. Regardless of what you may have originally meant (possibly in jest), some of your comments (and most of Sunnyvale_renter's) could easily be construed as anti-ethnic vs. anti-nationalist. If you didn't mean that, then fine, it's noted and let's move on.

I think it's also important to recognize that none of our ancestors started out as Americans (unless you're Native American), so everyone had to come from somewhere. I'm ok with immigration as long as new immigrants:

(a) abide by our laws / get in line with everyone else,
(b) work for a living & pay taxes (vs. gaming our welfare system), and
(c) show a willingness to respect and assimilate into American culture (vs. expecting Americans to adapt to their old culture)

show a willingness to respect and assimilate into American culture (vs. expecting Americans to adapt to their old culture)

Except food.

Peter P Said

show a willingness to respect and assimilate into American culture (vs. expecting Americans to adapt to their old culture)

Except food.

Both American Culture and Food is widely accepted by the neuvo-rich Indians in India. "Use and throw" sexual partnerships are increasing - shocking the conservative society, and McDonald's and Pizza Hut is popular beyond belief.

(Guys, I am being sarcastic in pointing this out, although what I say is true. Couldn't resist this cheap shot after the previous thread).

Fewlesh,

I'm pretty sure the lease will be honored (not tampered with) by the court, even in a bankruptcy judgement. What the court will do is change the Assignee. Residential leases come under contract law with some special treatments. These can vary widely by state and even county and city. Some cities will give lease holders quite a bit of protection.

What a court wouldn't be inclined to do is force a valid lease holder into a situation whereby they are facing eviction due to no fault of their own. Especially since evictions are a criminal thing, and stay on your record as such.

(in original legalese):

--

LANDLORD/TENANT; ASSIGNMENTS AND SUBLEASES; ASSUMING ASSIGNEE: Assignee that unequivocally assumes obligations of lease that is subject to leasehold mortgage remains liable on theory of privity of contract even when leasehold mortgage forecloses and transfers leasehold to others. Vallely Investments, L.P. v.

BancAmcerica Commercial Corporation, 106 Cal.Rptr.2d 689 (Cal. App. 2001)

I’m pretty sure the lease will be honored (not tampered with) by the court, even in a bankruptcy judgement.

Randy, are you sure this is true even if the mortgage agreement predates the lease agreement?

George,

Thanks, and I have thought about it. I'm no expert but my lay understanding of RE Law is that the contract is everything. What do I care if Mr. Specuvestor is up to his eyeballs and over leveraged? That is between him and his lender. Since you would be going through a 3rd. party to arrange the agreement I shouldn't be concerned about his having to write a check for 40K or 200K for that matter. The short sale would wind up on his credit report not mine.

I have a question regarding real estate listings. A unit in my building was on the market for quite a while. They pulled the listing yesterday and relisted it as a "hot new listing." There were no changes (price is the same, same agent). Are agents allowed to do this? Isn't it misleading to list a unit as new when in fact it has been on the market for over a month or so? I saw this sort of thing a lot last year as well. What's the deal?

Randy, are you sure this is true even if the mortgage agreement predates the lease agreement?

IANAL, so I can't be sure. But putting on my legal-channeling helmet (this thing sure hurts):

I would be extremely surprised if courts moved to shift a hardship to a party which could not have reasonably taken action to prevent their position in the situation. Courts are all about creating equity of justice. There would pretty clearly be no justice in punishing renters for the sins of speculative owners. I imagine this would be true so long as the renter did not in any way participate in or encourage the speculation. Perhaps leases with a purchase option would change the outcome.

I'd love to hear an actual lawyer's opinion. (Did I just say that? But seriously, this is exactly why we have lawyers). My direct advice to anyone caught in this situation would be DO NOT BE CHEAP, HIRE A GOOD LAWYER. I am pretty sure a decent lawyer would keep you from ending up on the street.

What’s the deal?

DEniAL.