Worse than it Appears
From the Associated Press:
...[B]uyers are demanding cash payments and other incentives that may be artificially propping up sales prices - suggesting the market downturn could be even more pronounced than has been reported...
Buyers are taking the incentives, and economists say the practice could be inflating reported prices and distorting our view of a market already suffering from higher mortgage rates and a sense that the market is enduring a significant correction...
When sellers use incentives to reduce the actual price without cutting the reported price, "then the reported prices are an overstatement of the true net selling price," said Lawrence White, Deputy Chairman of the economics department at the Stern School of Business at New York University. "So that very likely means that the real drop in home prices is greater than what the standard sources, like the National Association of Realtors, have been reporting..."
In calculating the much-watched home price statistics, cash and non-cash perks are left out, implying that true prices are even lower than the statistics indicate. Non-cash incentives, such as improvements paid by the seller, also have an effect since any add-ons change the quality of the houses but aren't reflected in the prices - or for that matter, the statistics.
"It's simply not reflecting the pace of change in them," Mortgage Bankers Association Chief Economist Doug Duncan said. "If you look at the federal statistics on price, it's not adjusted for the quality change," he said. "So if you take the house and list it for $250,000 and you add a finished basement and granite countertops, is it still the same house? Not really."
In the current slowdown, sellers and builders are moving beyond kitchen remodels to offering just plain cash. "An economist would call that a price cut," Duncan said. "That's not captured in the data."
Home shoppers seeking price cuts have an abundance of options...D.R. Horton offered buyers $120,000 in savings last month at the Tuscan Estates in the Elk Grove area near Sacramento. A Pulte development near there advertises homes valued between $456,000 and $654,000. And Beazer Homes USA Inc. offered no monthly payments for six months at Fieldstone Meadows in Folsom, Calif.
22 comments:
I think I need to forward this to Tom Sullivan. I got into it with him during his financial friday show last week. He continues to look at only median levels and either ignores or honestly overlooks certain areas when giving his outlook.
He called me "emotional" and said I was relying on anecdotal evidence.
Well Tom, it appears my evidence is a bit more than anecdotal and that evidence is piling up on a daily basis. Or so says the AP, the MBA, and the Anderson Report, and every single seller in the greater Sacramento Area that has had to lower their price significantly and envy the former neighbor who sold their stucco box for 100k more not more than 1 year ago....
Anecdotal indeed.
As you've gathered, "anecdotal evidence" is the code for "I don't want to hear what you're saying."
One former neighbor back in California insists to this day that my predicting the current decline based on research, reading material from economists, running spreadsheets, and so on was stupid and neurotic -- that no sophisticated investor would make a decision my way.
He's trying to sell a money-losing rental at a loss. I have money in the bank. How... unsophisticated of me.
"anecdotal" evidence huh?
LOL...
There were also WMDs in Iraq,
Saddam was buddies buddies with Osama,
They'll welcome us with garlands of flowers,
"Mission Accomplished"
"Last Throes"...
LOL...
most of these Realtors, Mortgage Brokers/Bankers, Real Estate "Experts" and Commentators have their heads up their own behinds and most likely Bush Supporters...
LOL..
Here is one for you:
This FB Flipper has been trying to sell his house for 6 months (since he bought it). He finally got it under contract two weeks ago at a loss of $60,000 (plus his carrying costs). I asked him how he did it and he matter of factly stated, "Oh the buyer is using that cash back financing."
"What"? I asked incredulously?
Very matter of factly, he stated the buyer "is paying him $520,000, but getting a $572,000 loan!" The appraisor inspected the property the day after the contract was signed (convenient, yes?) and approved the appraised value.
This is in an area of many new homes and lots and lots of FB's from the bay area. I think this is the third one done on this block.
Amazing. Absolutely true.
Incredulous, is the $60k loss based on the real selling price ($520k) or the appraised price ($572k)?
Inquiring minds really want to know whether the deal is to make an 11% loss look like a 1% loss, or to make a 19% loss look like a 10% loss.
Seems like mortgage contracts should prohibit this kind of thing since the banks are actually loaning money beyond the value of the house.
Good thing all these banks are backed up by the good faith of US taxpayers.
Inside of calling it doomsday, why not be silent about it and figure out a way to profit from it. Short builders stock? Short REIT ETFs? Any other ideas? Then we can have the last laugh!!!!!
dr wende, my understanding is that the actual sale price is 10% under the "appraised" value. The FB Flipper is taking a actual $60,000 hit on their purchase price from 6 months ago of $580,000. The buyer is getting a $572,000 mortgage, yet paying $520,000 and putting $52,000 in his pocket. Again, I think this is the 3rd house on this block to have this scheme worked. Two more houses closed in late August for $765,000 & $769,000, when the comps did not support $625,000. Both the homes had 100% financing, one arranged by First Franklin, and one by Long Beach Mortgage Company. The homes are both vacant today, and in MLS as pending sales again.
Thanks, Incredulous! It's heinous either way. I was trying to figure out how/whether to update my Spreadsheet of Doooooom on the W Sacto housing market.
Rocklin Renter: a lot of otherwise saavy financial types are actually ignorant about what sort of crazy offerings have been on the table in recent years. Before you call back to the show, make sure you have your point-by-point information written down in front of you; keep it short and to the point, such as "[recent investigation] has shown that up to 85% of recent mortgage applications are stated income, where no research is done into the financial lives of the applicants; [mortgage broker] states that up to 90% of them are fraudulent, as he can compare earlier, non-stated loans to later applications" or perhaps compare median income levels with median house prices, and only then bring in the anecdotal evidence.
Or try the 1.7 trillion (or whatever it is) in adjustable-rate loans due to reset next year in California.
Tom Sullivan is probably not understanding the high levels of fraud currently being pushed, as he is a financial planner, and good financial planners look at sound investing strategies, not borrowing beyond their means. Were I to call (which I can't do, as I listen while driving), I would end with a discussion of the right time to buy— which is always personal. Buy when you can afford, and not sooner.
Despite an 5.9% decrease in the median YOY, the stockton record reporter says "he most striking news from the new report was that the number of houses on the market dropped countywide (even though it was only by five houses).
WOW that is journalism at it's greatest!
most lenders will allow as much as 6% cash back as a credit for repairs or improvements,what you describe sounds like mortgage and appraisal fraud.appraisal fraud is very hard to prove,since an appraisal is a "reasonably supported opinion of value". a large percentage of real estate brokers,and loan brokers actually do believe that the market will recover within a matter of months,and are acting on that assumption.i work with a broker who took a $100k plus haircut on a flip,and who is ecstatic at all the bargains he can now choose from,since he stopped bleeding $5k a month in carrying costs.....he is very emphatic that the market is "rebalancing" quickly.he has been a broker for 15 years...
This is exactly what just happened on my condo sale in RSM, California (OC) in Sept. I feel so lucky to have gotten out and joined the renting ranks. This may be the first time in my life that I have actually properly "timed a market".
Bought for $305K in July '03. Just sold for "$465" but that included a hidden $10K credit toward buyer in closing costs. Last comp in late '05 sold for $480K but I'm totally fine with that. This GF (first time buyer) bought with a 40 year fixed at 7.741% APR. Who buys with a 40 year mortgage? - well at least they didn't do an I/O ARM. I make over $100K a year and couldn't afford my own 2bd/2ba 1200sft condo if I "bought in" again now. Am I the only one asking "who can afford this stuff???" Just started renting a 4bd/3ba 3000 sft house in OC with huge yard and pool for $2500/mo. What a joke.
tom stone said he is he is very emphatic that the market is "rebalancing" quickly.he has been a broker for 15 years...
Of course he said that, he is broker. What else are they going to say the market is dead and I will be selling cars in few months. No they will lie to the end and next time you see him he will be at the car lot, when you buy a new car. You will say hey weren't you in real estate and he will say no I got out of that dead market, new cars is where it is at. He is qualified, because he knows how to say let me put you behind the wheel of this baby. In real estate he would have said you better buy now or you will be priced out. So he probably will have go to training in order to get the new lingo down, but the same lie's are always there.
"...i work with a broker who took a $100k plus haircut on a flip,and who is ecstatic at all the bargains he can now choose from,since he stopped bleeding $5k a month in carrying costs.....he is very emphatic that the market is "rebalancing" quickly.he has been a broker for 15 years... "
His 15yr experience obviously didn't help him in NOT losing $100K. What's to say it's gonna help him get it back? It's like the psychic who got struck by lightning.
b. durbin: " . . . I would end with a discussion of the right time to buy— which is always personal. Buy when you can afford, and not sooner."
That may have been good advice 10 or 20 years ago, before speculators were such a huge part of the market. I think buyers have to be much more careful these days. Even if a person can comfortably afford a 30-y conventional mortgage with a 20% down payment, I would not recommend buying in this market. If you have to sell before the market stabilizes again, you could lose a lot of money.
Granted, some people will not be able to wait. Many homes are sold to couples with growing families, and women cannot put their reproductive system on hold until speculators move out of real estate and on to the "next big thing".
Anon 8:05, the current market gives even growing families no reason to rush into buying. There are tons of 3 BR-2 BA houses in the Central Valley available for rent at half the cost of buying the same house. The same neighborhoods often have larger, more deluxe houses available for rent, still at a fraction of the cost of buying.
There will still be buyers who are right to buy because of what they want and their other options... but not many. Look for the press and realtors to start pushing how Ownership Is Morally Redeeming In Itself.
Oh my! From http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/10/17/BUGQCLQHCO1.DTL , but probably true in Sacto as well:
In a new twist on staging, Centex Homes is hiring actors to portray model families living in its housing developments in Southern California. On certain weekends, the actors hang out in a model home, baking cakes, playing Scrabble and interacting with potential buyers. The action is part scripted, part improvisational.
Here's a good example in Roseville:
(Maybe someone with real MLS access could get “official” numbers and dates)
1853 Magenta Dr, Roseville, 95747
MLS #60091050
Initial Listing in Early Spring: $525,000+
Adjusted Listing Price Two Weeks Ago: $460,000
Currently Pending Sale at $510,000
This house has been for sale since at least April, initially listed for somewhere north of $525,000 (if memory serves), by the end of summer it had been reduced to $460,000 and still not sold.
NOW, out of the blue, it is relisted, and pending sale at $50,000 above the last offered price.
THIS MARKET IS SMOKIN' HOT...for mortgage fraud.
"THIS MARKET IS SMOKIN' HOT...for mortgage fraud."
Wow, that is an amazing find. How did you identify that listing?
It's times like these that I can sleep soundly knowing that my tax dollars will be hard at work... bailing out banks who couldn't cover the cost of fraudulent mortgage loans that went bad.
I noticed in the Oct. 15 Sunday Sacramento Bee that there have been a lot of homes sold in the last week in the Elk Grove 95757 zip code where I live. Then I began to wonder: Are these regular sales, short sales, or foreclosures? My evidence is only anecdotal (won't be calling Tom Sullivan anytime soon!), but it looks like an awfully large blip of sales in a short amount of time. I have a hard time thinking that the market has bottomed out here and is rebounding. It smells of foreclosures and short sales, but I can't prove it.
Speaking of SMOKIN' HOT MORTGAGE FRAUD, this could be a DOUBLE DOSE with two houses in one deal. Originally, they were purchased by a Flipper for $659,000 & and $665,000 in May. She listed them for sale herself and they languished for months. JTS, the builder is dumping inventory at $200,000 under these prices and is having trouble selling out on this street. SUDDENLY these two homes sold for $785,000 and $$789,000. They closed with 80%/20% financing to the SAME BUYER. (How will he occuppy BOTH, and can he get 80/20 investor loans?)
It appears these are fraud, as the comps won't support the sales in this market. Are there kickbacks to the seller and buyer from the loan proceeds? Are the lenders (Long Beach Mortgage, and First Franklin) that deeply in the dark, or do they look the other way.
Addresses: 1329 & 1323 Hillwood Loop. They are still vacant 50 days later, and until a few days ago were relisted for sale on MLS and were "Pending"! Who has access to MLS stats and lender info and can see the real story here? The same Flipper owns 2 or 3 more houses on the same street with friends and relatives. Anyone want to do a cash out purchase? You get a house and $100,000. How does that sound?
Post a Comment