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We don't see a person like her often. She is humble person, is a rare example.
What we can see more often everywhere in these days is the opposites. People who acts like somthing, in fact is nothing. People who admire home price even more than the God, People who blindly rode on investment bandwagon, People who overextended to the max, lived larger than their means, etc. I hate to see people suffer, but when the time is over, they need to learn how to suck it up.
It is not surprising at all when the poll said 77% of people think home prices are on their way back up. It was what they've seen, what made them rich for last 10 years and they're really missing those good old days. Yeah, home price will go back up eventually in the long run, when the madness settled down, sanity come back into play.
http://www.zillow.com/homedetails/2425-Fairoak-Ct-San-Jose-CA-95125/19692443_zpid/
Here's a nice little flip. Pending. Nearly 100K profit in just seven months. Ech. Nothing new.
For the "tons of loaded people on the sidelines with cash" people posting on this thread...I ask you, respectfully, show me some undeniable quantitative data demonstrating that is the case. No attitude meant by that challenge. Where are all the people? Where do they live? Where do they have their money? In cash? In stocks? In bonds? Do they currently live in homes? Or do they rent?
I interact with a few very, very wealthy people on a daily basis...and what you describe sounds nothing like them.
No, the stats on Mr. Mortgage and Dr. Housing Bubble are undeniable and show increasing NODs, NOTs, shadow inventory, etc., plus loads of households sitting on toxic debt. This isn't my opinion; this is reading the data.
B.A.C.A.H.
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2010 Apr 18, 3:48pm
Quant,
It is a little dated now, but to get some insight into your question read the 1990's book by professors Danko and Stanley, "The Millionaire Next Door".
The professors explain how not all of the people with tons of cash are Hip Cool and Beautiful; many, maybe most of them, are what the professors call "dull normal". Over the years I've known many such people, been related to some of them, and call a few of them colleagues in the dull normal tech department that I work in at a dull normal outfit. The last thing they would want to do is call attention to themselves, perhaps especially not to a self-identified "Quant Mgr" (weren't the "quants" some of the ones who got us into such a mess?)
I agree with your conclusion about all of the folks in trouble, no doubt about those facts. But it can also be true, and I believe that it is, that there's tons of folks around here sitting on the sidelines with cash, or perhaps other forms of wealth that are nearly as liquid as cash.
Are there enough such folks to create a rising tide to lift all of the boats in housing around here? I doubt it. Those "dull-normal" wealthy people sitting on tons of cash (or other investments) got to where they are by being value conscious. RIght now paying cash for a place doesn't pencil out compared to some dividend paying stocks, unless you are counting on appreciation. But another way of saying counting on appreciation is saying "speculating". The dull-normal wealthy don't speculate. They invest.
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My wife and I were recently discussing how many people we know who are in way over their heads with real estate, some of them know it, and some of them apparently do not (not that that changes their reality). Here are a handful of quick examples off the top of my head:
1) The "owner" of the home we are leasing in Orange County. A serial Mortgage Equity Withdrawal abuser, he owes $749k on a $450k home. He also bought $2.24M home in 2006 with $100k (!) down in Ladera (Fraudera) Ranch...and he is currently being foreclosed on. He is filing for BK and will lose both homes.
2) Sister-in-law and husband bought a 53 year old POS on peninsula in "Real Bay Area" near peak in 2006 with 10-year interest only. They could not afford a conventional loan, and have since added a new SUV, a baby, a new roof, and now are trying to have a second child. Meanwhile, the sister-in-law is concerned about losing her job. Comps in their neighborhood show they are down about 15-20% currently. They were banking solely on appreciation; they will not be able to afford their recast in 2016. My bet is they will lose this home.
3) Cousin in East Bay. Bought at peak for $1.1M, home now worth approx. $825K. Used money he pulled out of another home he owns in neighboring East Bay town to buy the $1.1M home. Now that money is gone, and he owes $700k on their second home, which is worth about $500k now. Will lose the one home for sure, perhaps not the second, though he'd be better off financially, in the long run, if he did.
4) Wife's friend from San Diego who bought two "investment properties" in Arizona back in 2005-6, with 40-year Interest Only mortgages. Has no idea what she got into. The one is down 65% by recent comp sales. Will lose both homes.
5) Friend in military who bought condo "investment" in New Jersey with VA no-money down loan. Now way under water, is acting paralyzed and seems unable to act on sound advice to help him out of the situation. He will lose this home.
6) Another wife's friend who bought a condo in downtown San Diego with a toxic, no money down combination mortgage. Here and her boyfriend are way under water, and will lose this home.
These are six examples of former buyers who will *not* be buying homes any time soon. The pool of potential buyers is shriking due to this sort of phenomenon. If my wife and I can quickly come up with six examples of friends and family who are in way over their heads, imagine how many other examples there are out there, that aren't being accurately accounted for in forecasts, estimates, etc. My intution tells me there are a lot of "stealth" timebombs like the ones mentioned above that will be going off the next few years, continuing to add to the downward pressure on real estate prices.
Another example close to home that I completely forgot about: one of my wife's younger employees bought her first home (condo) in Jan 2006 for $440k with a toxic mortgage, and just realized she is in deep trouble when a neighbor's comp. condo is now up for sale asking $335k.
The list goes on and on. I happen to pay close attention to this stuff, and have contacts who run checks for me related to one of the larger positions that I hold. But I bet if more of you actually knew the real numbers for your family, friends, and coworkers, you'd be shocked at how many people are way, way over leveraged, and are going to be in for some tough times ahead.
As Mr. Mortgage has pointed out, all of the people who face similar situations, who were prior buyers (borrowers) before, are and will remain removed from the buyer pool for quite some time. I have not seen this phenomenon accurately measured and/or forecasted, but it will no doubt have a strong, long-lasting negative effect on home prices trying to recover.
My wife's former senior partner bought an $875k place in Laguna with a 5-year Interest Only in 2005, and enjoyed the taste of the Kool-Aid so much that he bought another home, two doors down, in 2006, for $1.35M....again, with a 5-year Interest Only. He's under water on both of the places, and his "pre" and "during" bubble behavior is quickly catching up to him, from what someone told us the other night. What's that I hear? "Tick, tick, tick.....kaboom" goes the bubble areas.
One of my favorite shows is the Dog Whisperer. This person goes to different subjects' homes and helps them with their dog issues. About 20-25% of the time, I can tell that the people Cesar Millan visits are way overleveraged with their mortgages. How can I tell? Call it a hunch; I've got a strong, innate aptitude for situational awareness (pilots call it "S.A."). The other night featured a couple from Castaic, California, and I had a funny feeling they were in way over their heads in real estate. Well, they say their name and location on the show, so I looked up their info and confirmed my suspicions: they bought a place for $460k and local comps are now selling for the low $300s. Check back in six months and those homes will be well under $300k. They've got a toxic mortgage, which is obviously the only way they could "afford" to buy that home. They had that fact written all over them during the show.
Recently I saw on the L.A. news that an Orange County woman was picked up for a murder she allegedly committed 10 years ago. A rather attractive blonde, with a super-racy Facebook photo, lots of jewelry, and an over-priced stucco box in Ladera Ranch. I knew right away where this was headed.....she was one of Fraudera Ranch's posers, and likely had a toxic mortgage. Sure enough, a contact confirmed she paid over $1.2 million for a home with essentially no money down. What a surprise. Ladera is getting hammered.
If you have an aunt in Idaho who owns her $56k home, and an uncle in Modesto who has a $148k home with $100k in equity, great. They sound like very nice people, and probably made wise real estate decisions. But they weren't the same people responsible for the bubble prices, and a vast majority of those who were are in a hurt locker right now, whether they realize it or not.
And if you do live in a bubble area, and you were able to run numbers on a handful of your neighbors, coworkers, and friends, you'd very likely see that a high percentage of them have a lot more debt (over-leveraged, mortgage debt, in this case) than you may be aware. But because you aren't aware of it doesn't mean it isn't rampant; the statistics back up my observations.
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