patrick.net

F***ed Borrower

Anyone know if Saturn and/or Jupiter are retrograde for the USA atm?

I think Jupiter, Pluto, Neptune, Uranus, Mercury are retrograde.

I have no idea what that means.

http://www.astrologyclub.org/articles/retrogrades/retro.htm

Sorry, I read from the wrong chart. Mercury and Jupiter are not in retrograde.

California Foreclosure Activity Hits Three-Year High

Aside from providing more evidence that the housing market is transitioning from boom to crash, this report was notable for two quotes:

"We hear a lot of talk about rising payments on adjustable-rate loans triggering borrower distress," Prentice continued. "While there's no doubt some of that is going on, as far as we can tell the spike in defaults is mainly the result of slowing price appreciation. It makes it harder for people behind on their mortgage to sell their homes and pay off the lender."

Intriguing. According to all the perma-bulls (incl. DQ spokesmen) over the last few years, the boom was driven mainly by equity-rich buyers and solid economic fundamentals, not reckless speculation fueled by cheap credit. Prentice seems to be implying that people currently in default (a) were counting on perpetual appreciation, and (b) either had no existing equity to begin with or have spent it all.

How can this be?? :lol:
And here's the other "money quote":

"This is an important trend to watch but doesn't strike us as ominous,"

This must be an "important trend" indeed if they feel comfortable dropping the obligatory "indicators of market distress are still largely absent" refrain.

Shaping up to be a loooong brutal summer. And I'm not talkin' about the hot weather.

You are all just JBRs. The prices are not going down, they are going UP. And not just median. Same house prices.

If you don't believe me, see this house. They INCREASED the asking price 2-3 days ago.

http://tinyurl.com/rnp2x

(Go to ZipRealty, search by MLS, and see price change for yourself).

Better buy before they increase the price further. This time it's only 6K increase. Next time, it will be far more.

StuckInBA (formerly 'To BA Or Not To BA')

Stuck - Cupertino, Mountain View, Palo Alto, - when will the insanity end!

Peter P Says:

I think Jupiter, Pluto, Neptune, Uranus, Mercury are retrograde.

Sheesh...even without Jupiter and Mercury, its still enough to put a kink in your day. Thanks - I'd have looked it up myself but my last Ephemeris ran out in 2000.

Doesn't it strike anyone else as a little weird that between MBA's, Money Managers, (CFA in training) and techies OTA NOT ONE of us can define "mortgage fraud"?

Folks, the reason this stuff is allowed to go on is b/c residential RE operates in "gray world". Is leaving the old fridge behind as a concession to the buyer fraud? No, probably not. Is giving back 85K at closing fraud? That's something I aim to answer before C.O.B today! This "bag money" is totally obscuring the picture and making the measurement of the crash all the more difficult. I believe this would be covered under RESPA regs?

SFWoman,

I'm pretty sure any time you are working "off the books" you are setting yourself up for some serious liability. The tax man would have a field day with these guys. They are chumping the county out of 13 mil. in potential tax liability. I don't understand why people like this don't just MOVE "offshore" entirely? I freak out about overdue library books let alone a can of worms like this.

I just read we had a 3.8 quake up in Battleground, WA (about 20 miles N. of Portland). Must have slept right through it.

Things are going to start accelerating when the money tap is turned completely off along with the ARM resets. There is only so many loans going bad before a lender stops lending. Cut off the money supply to these homedebtors and it is going to be rather expensive just to keep their house. Couple that with the recession that we are most certainly heading into and those houses are going to be about as sticky as WD40!

When the fact that prices have significantly dropped in such a short time reaches the front page of all the local papers and people realize that yes, it can happen here, I think there is going to be a panic selloff for those who still have a decent amount of equity in their house. When people realize that their gains can disappear just as rapidly and significantly as they can increase, it is natural human instinct to save as much of their gains as possible. For those that don't, they will be walking away with some serious lumps on their heads.

I think most people know not to buy at this point, but like I say, there are still some sheeple out there that have no idea of what is going on. They just decide they want to buy, call a realtwhore and the realtwhore says "NOW IS THE TIME TO BUY!", "IT'S A BUYERS MARKET!". The poor bastard contracts AEDS and winds up in foreclosure.

I'm just a hibernating bear waiting for the big feast. One mans loss is another mans gain. It's just survival of the financially fittest.

BTW

AEDS = Acquired Equity Deficiency Syndrome

George,

I suspect it's not just greed at work. These people might have some hidden debts and really need all of that $25K!

George,

I definitely agree with the sentiment. I personally have trouble understanding why anyone, in these credit loose times, could have substantial equity in a place but face foreclosure. Like you, I don't understand how these people could give up a certain gain when they have so much to lose. The only thing I can think of is that they're on the brink of bankruptcy.

Or they could be really greedy and shortsighted...sigh...there may come the day when good agents screen sellers so they don't end up with such unsellable listings.

SFWoman,

The top agency that generally handles about 90% of the $5M+ homes -- especially in SF -- recently issued an internal memo warning to its agents about the dramatic rise in just such off-the-books tactics. Usually it's not a difference they are dodging, but a "settlement" they make with the agents in lieu of cutting them out entirely. Basically, they are using the premier agents to introduce the deal, then they go negotiate the real deal in private (probably involving all kinds of tax dodges and foreign accounts). They go back to the agents and say it's 2.5% of $7M or $0, take your choice. This is because they can always walk away from the txn, then do a private "land contract" with one another in a way which makes it excessively hard for the agency to sue over. Anyway, premier agencies aren't in the business of suing their handful of prospective rich clients.

(I have a close contact in this segment of the industry...but on the agent/broker side of things)

***but not on the agent/broker side of things***

Anyone have an explanation for the recent strong runup on homebuilder stocks and related ETFs? I would think rate fears, inflation fears, and recession fears would be stomping these formerly overpriced issues. Oversold?

George,

That is truly beyond belief! Talk about looking a gift horse in the mouth? As much as I hate to say it I DO hope they take it in the shorts. I'm sure the listing agent is "real" pleased too! Just what the area needs, another REPO on the market. Death or Glory.

Randy,

That sounds like ruthless market efficiency at work. 2.5% of 7 million is still $175,000 - no doubt many agents would be happy to grab such a listing for 1% or less. Not too bad for just listing the darn thing and have their assistants show the house as needed.

The deals themselves are probably too elaborate for the agents anyhow, I'd imagine multiple tax and real estate attorneys are involved in such transactions.

Anyone have an explanation for the recent strong runup on homebuilder stocks and related ETFs? I would think rate fears, inflation fears, and recession fears would be stomping these formerly overpriced issues. Oversold?

Oversold is my guess. I bought calls on DHI near the bottom after they announced that earnings would fall far short of their target. It looked like a capitulation sell-off to me. Everyone on wall street is wise to the bubble and these stocks are *hated*.

But, IMO, building houses will still be a profitable business in the future if you look out 5-10 years. These stocks are trading for 4-6 x peak earnings. Even if their earnings drop 75% over the next few years, the HB stocks would be at 16-24x trough earnings. And the earnings should recover as the industry consolidates.

Also, when the bubble bursts, raw materials prices and labor costs should go down, partially offsetting the lower housing prices. DHI is the largest homebuilder, but it only has a $6B market cap. This industry is ripe for consolidation. Eventually, there will be a few industry leaders that emerge. The rest will get bought out or will go bankrupt (sort of like the tech boom).

I picked DHI because it sells entry level homes, for which demand should remain fairly steady. Also, their margins are among the highest in the industry, allowing them to cut prices aggressively, which management has indicated they will do. My guess would be that TOL and other "luxury" brands will get hit hardest.

astrid,

(And I'm really not getting sized up for a "blue blazer" here) but that would be my FIRST question to a prospective seller!

"Obviously we're only too happy to show and sell your lovely home but due to current market conditions our firm requires me to ensure that you are in fact "current" on your payments"?

At this point if FB lies or in any way misrepresents his financial situation the firm can walk away from the listing, the "client" and the agreement without any further obligation. Dirtbags.

astrid,

That's exactly how it usually goes down. From my exposure, people buying $20M+ homes rarely handle much of that themselves. They have a wealth-manager who coordinates and executes the entire txn, taxes, contracts, financing, etc. The owners just cruise through, decide if they like it, and point out where to have the interior designers and contractors make changes.

The issue agencies are facing is that when you're talking about $20M or more, the tax consequences overshadow pretty much everything else. Often the financial engineering of the deal structure involves exchanges of cash and assets outside of the US jurisdiction...sometimes just exchanges of interest in various offshore funds. Of course this is explicitly illegal tax fraud, but as Homer Simpson says: "it's not illegal if I don't see it". (The problem is that it's very hard to catch such cheats).

Glen,

I can't disagree with your logic (I see it totally) but one would have to weigh the opportunity cost in the interim. As much as I LOVE to see RE having it's turn in the barrel I just don't have time to stand around and wait for the whole sector to do it's turn around. There are other issues/sectors with more compelling (and less risky) upsides.

DinOR,

I think the agent made a good bet and he/she simply didn't count on alarming thick-headedness of the FBs. Usually, the risk of foreclosure assured motivated sellers and the agent made sure there was a substantial cushion.

However, maybe good agents will start to demand credit reports for prospective sellers, so they don't commit to people who are in fact underwater.

Glen,

But, IMO, building houses will still be a profitable business in the future if you look out 5-10 years. These stocks are trading for 4-6 x peak earnings. Even if their earnings drop 75% over the next few years, the HB stocks would be at 16-24x trough earnings. And the earnings should recover as the industry consolidates.

Time to bail on the deep in puts downward strategy then, I take it. Luckily I closed most of that strategy in June; just playing with the newer ETFs now for volatility.

June Phillips,

I guess I'm lost here. You either did/did not buy/thought about buying (for reasons you don't seem to want to fully explain). I don't live in the BA so I can't speak to "signs that things were heating up" but I do go every spring for a tax seminar and in 2002 things could not have been more dead (in the Mission District anyway) still reeling from the wake of the dot bomb implosion. Any specifics at all might help.

DinOR said,

There are other issues/sectors with more compelling (and less risky) upsides.

Don't get me wrong, I am not putting 100% of my investable assets into HB stocks. Just a small allocation to try to take advantage of some bargain prices. Wall street leads main street and these stocks have already taken it in the pants. But have they overcompensated for the coming downturn? My guess is that they have, but time will tell.

I haven't found a lot of industries with compelling upsides and safe downsides. So I try to take a "bottom up" approach and focus on a few stocks which the market currently hates. I'm a contrarian by nature (eg: I bought MRK shortly after the VIOXX news), so right now I am looking for bargains in the housing industrial complex (I bought Home Depot shares recently too). But I won't buy Fannie Mae (even though it is now at 6x earnings) because I think it could be the Worldcom/Enron of the crash.

astrid,

I don't know that they need to go to the expense of pulling credit (wow, that would be hoot though) but just a one pager saying I am not in arrears and I don't lie. If I am fibbing then "the firm" has the perfect right to protect "the firm's" interest by recovering any advertising expenses incurred yada yada.

Randy and SFWoman,

Thanks for the info. That's really interesting indeed and it sounds awfully logical to me. (One irony of the current housing bubble is the democratization of tax driven financial expenditures. The 2 yr 250K per head exemption, the 1031 tax free exchange, the mortgage tax deduction and Prop 13 are all tax considerations -- but average homeowners who lack the proper advice of responsible attorneys and wealth managers tend to get in way over their head)

Incidentally, DinOR and I had speculated about financial managers taking the lead in buying/selling homes and working with RE lawyers on transactions. It's nice to get some affirmation on that idea from the actions of the very wealthy.

astrid,

Btw, making an FB sign said document is like getting blood from a turnip but at least they'll think a little bit before they agree to exploiting the selling firm (while discreetly attempting to sell "back door" on C/L)?

My Vegas bud told me he saw some "Take Over Payments" on yards with cardboard stapled to a stick! Classy huh?

June Phillips,

I don't know. I have a hard time justifying owning in the BA if (a) I knew with relatively great certainty that prices will fall in the near future and (b) the interest on the profit from the sale is likely to cover rent .

The majority of the BA isn't some tiny, exclusive neighborhood that rarely come to market (unlike certain exclusive co-ops in NYC and maybe SF). If there's a high likelihood that you can sell for a sufficiently high price to cover the transaction cost + purchase price of the house when the market troughs, I really don't see why the hypothetical you won't sell when you are able to do so.

DinOR,

Perhaps... That would be a cheaper option. However, such credit report pulls are de rigour for prospective apartment tenants (who pay for it out of pocket) so I don't think it would be particularly difficult.

Right now, the problem is that there are too many realtors and not enough buyers or sellers to sustain them all, so the practices are targeted at getting any listing. If the realtor market thins out a lot, then the remaining realtors may have the leverage to screen only the most desireable clients and pick out the ones that waste their time. (ie, just about every other profession)

Glen and Conor,

I'm pretty naive on homebuilders but my impression has been:

(1) they have bought a lot of inflated priced lots, which may be unbuildable for at least a couple years
(2) they have built a lot of houses at inflated costs for lots, labor and materials - which they may not be able to sell for a profit
(3) they have built and sold a lot of new housing inventory to flippers and find themselves in a scenario similar to Detroit's big 3 (excess inventory depress demand for future production)

It seems to me that these builders may have to take some losses and suffer through years of underproductive markets before they can start to take off again.

Glen,

I've picked through your post with a fine toothed comb and....... I can't find ONE thing to refute!

June Phillips,

O.K now we're getting somewhere! Welcome aboard. We get a lot of folks that visit the blog pretending to be sincere in their quest for knowledge only to boast, tout and flaunt their "big fat stacks".

The BA has been the most difficult to call (however there are some real "bargains" to be had in Sacramento and San Diego!)

If you don’t believe me, see this house. They INCREASED the asking price 2-3 days ago.

Anyone can ask any price. Many properties have their prices raised while they are sitting. The sellers want to ensure that the houses are priced-to-sit.

tannenbaum Says:

No prob - I just LOVE calling on people’s BS!

You obviously missed the humor :-(

I did not put in any smiley. I thought the idea that someone "increasing" their asking price is so hilarious in current market that the sarcasm would be obvious.

I recently changed my handle from "To BA Or Not To BA" to "StuckInBA". You can trace my previous postings to confirm the sarcasm.

Nevertheless, thanks for the additional info. It really makes the listing even funnier. I will now bookmark it and see what happens with it in future.

Sheesh…even without Jupiter and Mercury, its still enough to put a kink in your day. Thanks - I’d have looked it up myself but my last Ephemeris ran out in 2000.

SpeedingPullet, you may want to download a free astrology program like Astro123.

http://www.astrowin.org/astro_sw.htm

June Phillips,

The point I was trying to make in the previous thread about why you were thinking of buying in 2001/2003 had a whole lot less to do with jumping on your back about being an "evil speculator" (hence my "not trying to be a jerk here" comment), and had a whole lot more to do with the following:

--Decent housing in California is now very expensive for what you get vs. almost everywhere else, regardless of whether you're buying or renting. It's also all but impossible for most ordinary middle and working-class people to buy here most of the time, without committing financial suicide in order to do so.

--People here have become conditioned to the sadly true "new paradigm" that, in order to buy a decent place for you family, you HAVE to time the market very precisely to grab your Golden Wonka Housing Ticket when it comes by once every 15-20 years. If you don't, then you're stuck renting, probably in an amenity-challenged substandard apartment. Which is probably more along the lines of what you were (correctly) thinking in 2001/2003.

These secular developments in CA have little to do with the current cheap-credit bubble, and a whole lot to do with lax immigration policies, entrenched NIMBY anti-housing politics, and forced Boomer wealth redistribution (Prop. 13, etc.).

What really bugs me is that Californians have become so inured to this situation that they now regard it as "normal".