Thursday, January 18, 2007

'They wanted to talk "crash" and that's what they got.'

From The Union:

Other Voices: Real estate market downturn the media's fault

Many people in Nevada County have something in common with millions of other Americans across the land. Their financial well-being has been shattered by a careless media. And the results are a housing market in a tailspin, bankruptcies, foreclosures and ruined credit, just to name a few of the consequences.

It's time we understand how this happened: It's not because interest rates climbed a little, nor does it have a lot to do with bad lending policies, which allowed many new buyers to start their mortgage out at just 1 percent, only to have the rate increase a year later. Yes, those things contributed to the downfall, as well as the fact that the real estate market has had a nice run for about ten years.

In those 10 years, home equities increased by obscene amounts. It was certainly time for the market to slow down a bit and let prospective buyers catch up. As we approached 2006, a lot of pundits expected a slight slow down, giving us a "normal market," where neither the buyer nor seller has the advantage.

But that's not what happened. Perhaps the most powerful force in America - the media - became involved in the housing market, and the results weren't pretty. They wanted to talk "crash" and that's what they got.

The media crossed over the line. Their job is to report the news, not make news. They simply scared prospective buyers out of the market, ensuring good stories for the evening news and morning newspapers.
When buyers are scared and confused, they don't buy. It's as simple as that.
I have a degree in journalism and have been selling real estate for 28 years. I truly believe in a free press and their right to cover stories, including happenings in the real estate market. But they shouldn't be crying "fire in a crowded theater." If you or I did that we would go to jail.

The truth has been missing. The truth has little to do with "a crash" and a lot to do with low interest rates, a robust economy and a growing population. If left alone, the real estate market will do just fine.

Dave Glubetich is a Realtor with Network Real Estate.


SolidBob said...

So if the media would have just remained positive about the housing market everything would be up, up and away today?! Talk about having ones head in the sand!

The problem is with fundamentals and not the media. When even an interest only loan isn't enough to get the average person into a house you know something is about to give. No media required... just a little common sense. (Seem to be running short on this these days!)

What a bunch of rubbish... the "Media" my eye!

rocklin renter said...

Look it's Baghdad Bob, of the RE world!

What a steaming pile of the stuff I don't want to step in at the park!

Jimmy57 said...

It's not as if the real estate industry doesn't do their best to spin the media. There always seem to be plenty of lazy newspaper editors available to publish whatever David Lereah is putting out.

I'm not losing any sleep over the plight of Realtors in a slowing market. Who among them was offering to take smaller commissions when the turnover was hot and heavy?

Anonymous said...

rocklin renter, how appropriate. i was thinking that the media brought on this crash just like the media brought on the war in iraq. i vaguely remember one of my first lessons in a high school rhetoric class - association is not causation. i would think reporters understood this concept.

patient renter said...

Wow, what a pathetic attempt for a representative of the RE industry to blame someone else for their own problems. As has been said a million times before, were they complaining when the media endlessly reported for years that real estate was "hot"? No.

Even if this article didn't completely lack factual evidence, the author would still be a hypocrite.

Anonymous said...

Typical Nevada county resident whack job. Must be suffering from too much pot smoking or too much jesus or both....

Perfect Storm said...

Lets see now, the media is causing the real estate market to have a decrease in demand for homes. Ok well so this is a microeconmic issue right, since a purchase of a home is based on the individual. Macroeconomics can be debated later.

Now demand for a product, which in this case is a home would be caused by:

1) Unfavorable change in the tastes and preferences of the consumer towards purchasing a home.

2) A decrease in consumer income as related to be able to purchase a normal good in this case a home.

3) A increase in consumer income as related to the purchase of an inferior item in this case renting a home.

4) A decrease in the price of renting a home if it is a substitute for buying a home.

5) A increase in the price of homes.

6) The expectation of future price decreases.

7) The end of a group boycott.

Now instead of looking at this from an economic view point our realtor friend, with a journalism degree, has decided to blame the media. He is undoubtedly an idiot and failed at journalism, so he now is a realtor.

Anonymous said...

Sounds like this doper from the backwoods of nevada county has been smokeing too much homegrown.

It is silly and very childlike to blame the media for this downturn, give me a break.

This is the downside of speculation fellow bloggers.Hopefully you are on the right side of this market.In any market you will have winners and losers.The losers are starting to feel the pain.

Jimmy57 said...

Wait, it gets better.

Dave Glubetich is apparently the author of some real-estate how-to books, including "Double Your Money in Real Estate Every Two Years'.

Perfect Storm said...

"Double Your Money in Real Estate Every Two Years'.

This guy is just a freakin idiot. I hope one of his readers that used his book to justify buying real estate and losing their axx, finds this guy and gives him the once over. Of course I mean just a verbal exchange.

Sippn said...

Gotta agree with you'all there.

Media didn't cause this.

Anonymous said...

Dave you are a B%^&#H plain and simple. Be a man and see things for what they really are. The real problem is that for the last few years, people like you got to act like the snobs you "Thought" you were. You now have to eat crow and know what has happened will NEVER happen again. Not to mention the 500,000+ is debt you are about to be in...


Anonymous said...

If the media is to be blamed for the crash, then it has to be equally blamed for the meteoric rise.

The market will stabalize only when entry level housing prices fall to a level affordable, with conventional lending, by first time buyers.

RayW said...

What a load of cr*p. I agree with those points regarding how the media played a big role in the run-up.

White-hot Housing Market
Double Digit Price Gains
Housing Shortage in California
Population to double in next 20 years.

Were just a few of the headlines over the last 5 years. Now they are:

Foreclosure Rate Skyrocketing
Credit Card Debt at All Time High
America at a Zero Savings Rate

Hmmmm...yep the media caused the crash alright. They fed people with delusions of wealth instead of warning them of the perils of participating in a maniacal market.

Garth Farkley said...

Hilarious article. Great comments. Nice find, Lander.

Real said...

Existing homes sales median price fell by 1.7% for Sacramento over the last 12 months. Where is the crash here? The only ones that seem to be struggling are the realtors (make their commission off of turnover not off the price increase of the house), investors that need appreciation to offset their carry costs, and builder that are stuck with inventory that they should not have built in the first place.

Calling this a 'crash' ignore the actual data on home sales and prices. Sorry to burst your bubble, but if you are a renter waiting for a collapse, you aren't going to get it. You are, however, more likely to find an 'affordable' new home without all the trimmings that would not have been built if the market had not softened.

Happy Renter said...^1405466&surround=etf

Anonymous said...

Calling this a 'crash' ignore the actual data on home sales and prices.

So Real,

You agree then the media is not to blame for any falling home prices?

Anonymous said...

well you get John Saca who has a line of BS and Lies and then he stiff everybody...and now the attorneys are lining up to take him and his
"empire" to the cleaners

and now you have this yoyo Realtor
"who has a degree in journalism"....yeah right, he studied at Bob Jones University, and now has a degree in "Bozo Clownitis"....

Where does Sacramento find these "Realtor" nutjobs? They tilt the entire state and all the losers and whackjobs in real estate end up here?

jake said...

More on this Dave Glaubinskiwhackoff,

and his "line" of promotional and get rich quick schemes,

Dave Glubetich The Monopoly Game Declared Chapter 7 bankruptcy on 6/26/87

rayw said...

"all you renters"....hmmm I guess people who rent are somehow less-than people. They don't rate like others who own a home do. That must be the reason why their so angry and resentful of the owning class.

Maybe some renters decided when they were out looking to buy that paying someone a premium price for a piece of sh*t property wasn't in their best interest and left the market until sanity returned.

This isn't a crash it is a return of reality to the realty market. Prices went to high and now they are correcting. How much is the question at this point.

I plan on looking to buy at the end of our lease in August of this year. I'm quite sure I will be able to negotiate a much better price now then in 2004 or 2005. I won't buy someone elses neglect.

Anonymous said...

I certainly do not believe that the media is to blame for the current real estate market. But somewhere along the line prices got why too far ahead of themselves because a lot of the buying market believed that the market would never stop. Now we are correcting. Where it will bottom, nobody really knows, but once it does, it will have likely erred on the lower side of reasonable. Once the bottom if firmly in place, prices will again begin their natural tendency to rise. But for some they will be forever frozen in fear of a cyclical real estate market.

Anonymous said...

Yes the RE Journalists drove it up by screaming buy now or you'll be priced out forever in the crowd outside the theater. So everyone bought and ran into the theater. So obviously, now the show is over and there is people leaving cos everyone is in the theater some of whom are in the theater 5-10 times (like Casey Serin), and RE journalists are reporting that ... sell now or be stuck in this theater forever.
The sheeple weren't complaining when the journalists made the thing look more attractive. The realt-hores didn't send them a part of their commissions and the sellers didn't send them fruit baskets. Now they want to vent their frustrations on the media. Nice try dumbass. Its called free market and free media. You dont like it, move to china or Iran or egypt or antartica. of course if its the media id driving it down, the sheeple that can be lead by the media will sell or not buy and be left as the loser when the media effect is shrugged off. So your argument is anyway fallacious.

Anonymous said...

I know this guy, he was working with friend doing a 1031 exchange

My fireind told him he was looking for investement to roll that proceeds into.

So this guys trys selling him a place for 300k. how id that a good investment? 100k down, 200k financed @ 6 % fixed is a $1,200 mortgage payment. Where rents in the area are $1,200

Where is the return on the 100k down?

This guys is shady and only looking out for himself

patient renter said...

"You are, however, more likely to find an 'affordable' new home without all the trimmings that would not have been built if the market had not softened."

Real, I'm curious what your threshold for affordable is? Would it require the average worker to take out anything other than a fixed 30 year mortgage? Because for a lot of average buyers, interest only neg-am and/or adjustable mortgages are all they've been able to afford so far in this housing cycle and generally these mortgages are not good for the buyer.

Real said...

ARM's are many times better for the buyer than a 30 year fixed. You should time your mortgage to how long you expect to be in the house. If I can lock in a 5 year rate a 1% lower than that of a 30 year fixed and I know I will be in the house ~5 years, I will jump on the ARM in a heartbeat.

Now, as to 'affordable' housing....first, you have to realize that with home ownership comes many, many more bills above and beyond what you would have paid if you are renting. Below is a list of all the bills that I found incremental to when I was renting:

1.) HOA
2.) Water
3.) Sewage
4.) Garbage
5.) Alarm
6.) Property Tax
7.) Insurance
8.) Higher electric/gas for heating and cooling
9.) Lawn care
10.) Maintenance

Once you add all this up, you will get a number anywhere from 75% to 100% of your mortgage assuming you have about $300K out. So, having your loan fall from $300K to $200K (33% redux) is only going to lower your total 'out of pocket' per month by 17%-20% - basically, your mortgage is only 1/2 of your concern. As such, affordable is all in the eye of the beholder as a lot of what we consume is a choice - do you cut your own lawn? Do you cook for yourself or go out to eat? A home is an investment, but is also a lifestyle choice and the American people tend to choose the lifestyle even if they are not going to make 2x their money in 2 years buying real estate.

Anonymous said...

Hey Real,

Are you talking about just 30 year fixed or are you talking about 30 year fixed fully amortizing?

patient renter said...

Real: Fair enough response. I'm curious in general if you would be one to say that 'now is a good time to buy', such as I heard from the realtor today sitting next to me at the barber shop while I was getting my hair cut. I'm sure the realtor would have told me the same thing a year ago, but then I'd potentially have little or negative equity in my house at the moment.

So, is not a good time to buy? If prices will drop more in the next 1-2-3 years, is it still a good time to buy? That last question seems like it can be answered with common sense, but I hear many people (who's incomes depend on hosues being sold) say yes.

rayw said...

For me since I'm stupid and getting married again I will be combining my 86k and her 52k into what the federal government thinks is rich. If we don't buy we will be financing a third world country with our taxes. I don't want to do that and I'm tired of being at the receiving end of the jerk that owns the house we rent.

August is going to be a good time for me to buy because:
1. I'm not going to finance GW's war anymore than I have to.
2. If something needs to be done, I don't want to have to ask anybody to get it done.
3. I want my own lawn to mow....

Real said...

Patient Renter - is now a good time to buy? I would say that the positives to home ownership are only partially financial. I am mch happier with my living conditions - I enjoy home projects (remodeling, etc) and I would never take on these projects if I were renting. Like I said, it is a lifestyle choice. There are also a lot of downsides - repairs, routine maintenance, getting a pest guy, cleaning your pool, etc that I would rather not deal with but my wife and I could not be happier. Now, is it a good time financially to buy? I would say that prices are likely to fall slightly on existing homes over the next year, but I would not expect that last beyond 1 or 2 years at most and then home prices will start to go up at the rate of inflation*population increase *wage*job growth metrics which should govern any rational market. If you have a $500K home with 20% down, even a 3.5% increase is effectively good if you enjoy the aspects I stated above for home ownership.

Perfect Storm said...

Nah, were still on track for a 50% decline by 2009. Were looking at Japan type meltdown if not worse. Anybody who buys now is a fool.

jeff said...

The media is not responsible for this market crash. Why would they bash the gift horse? They make tons of money on all those hundreds of housing ads. Just saw an article that the builders in Orlando spent $1M this week alone on a blitz ad scheme, so why bash it? Doesn't make sense.

Cmyst said...

What you are saying about home ownership costs being higher than rental costs is true, as anyone who has owned can attest. And there are also tax breaks to owning your own home, as rayw mentions. Now, in a more normal market, renters pay a premium because they can't afford or are unwilling to purchase a home. Their rent covers their landlord's expenses, so for a comparable home they should be paying in rent a little more than the landlord pays to cover the mortgage and associated costs, yes?
The downside to renting, of course, is that one does not accrue equity in the home. In this market, equity is not building up, so there goes one argument against renting for the next year or so.
Tax breaks cover the owner for the interest on the loan and the property taxes. Of course they don't magically return more money than is paid on these things, but they do add an incentive to purchasing in normal markets.
The problem, the way I see it, having been an owner and a renter, is that this is not a normal market any longer. Cali has always been more expensive, and those of us who choose to live here accept that. There comes a point at which the advantages of living in Cali begin to pale in comparison to the price one must pay to live here, and when a person such as myself can make 100k a year and be considered "rich" by the government, yet not be able to afford to buy (on a conventional mortgage) the average home, that is when the tipping point is being reached.
I would NEVER buy on an ARM. I have known two friends who did this way before the recent hot market, and they both lost their homes when the ARM reset. These were people who did not intend to move, and wanted to live in those homes and raise families and even retire there. And in this kind of market, do you really have any confidence that if you do intend to move in less than 3 to 5 years, you will be able to sell the house for what you owe on it? If ARMs are such a great idea right now, why are so many people upside down on their mortgages and short selling?
I'm not trying to "hold out" for the market to "bottom out". I'm giving it one last shot to continue to live in California, a place I love. If prices come down to what I can afford, it will still be more expensive to buy here than in most other areas of the US, but I'll buy because I want to live here. But I'm not going to put everything that I earn into a house, and eat cat food and bankrupt my future retirement just so I can say I "own" a home that in reality is "owned" by the bank.

Real said...

"If ARMs are such a great idea right now, why are so many people upside down on their mortgages and short selling?"

#1, the data on home prices shows that over the last 12 months, home prices in Sacramento have decreased 1.7%. This would imply that if the buyer had bought 12 months ago, and would have put down more than 1.7%, their mortgage would not be upside down. Second, what you choose to use for financing has no difference on whether your mortgage is upside down or not, that is driven by the market price of the home - not whether you used a 30 year fixed or an ARM. For me personally, I came from the midwest and I found the realtors here to be completely unscrupulous in telling people what they can afford in terms of mortgage/income ratio. I am sure a lot of unsophisticated buyers were talked into buying a lot more house than they can afford. In my opinion, housing affordability should be down assuming a 30 year mortgage - if you can afford 400K on a 40 year mortgage, than that is what is all the house you should buy - however, you should use the financing that saves you the most money (by matching to your planned ownership horizon) and many, many times that is an ARM. The issue is when the buyer can afford 400K on a 30 year fixed, but buys a $600K using interest only.

I am pretty conservative and from the midwest when I was younger, the max a bank would lend is 2.5x your annual income. This would imply that a $100K can get you $250K in mortgage without a high risk of default. If you put down $100K on your own, you can get into a $350K property and have close to zero risk. A lot of the current problems are due to instant gratification which implies not time to save for a down payment.

Real said...

I would NEVER buy on an ARM. I have known two friends who did this way before the recent hot market, and they both lost their homes when the ARM reset.

If your friends bought 12 months ago, the 30-year fixed loan price is probably equal to what you can get on an ARM right now. So, this sounds more like people bought more home than they could afford. If you need to use an ARM for your initial loan because that is the max payment you can afford, you should make a larger downpayment or buy a cheaper house. An ARM is not the problem in this case, it was a buyer misusing a loan and not practicing sound financial judgment.

Cmyst said...

"If you need to use an ARM for your initial loan because that is the max payment you can afford, you should make a larger downpayment or buy a cheaper house."

Ok, once again I am failing to see the point to your original assertation given the context above:
"ARM's are many times better for the buyer than a 30 year fixed. You should time your mortgage to how long you expect to be in the house. If I can lock in a 5 year rate a 1% lower than that of a 30 year fixed and I know I will be in the house ~5 years, I will jump on the ARM in a heartbeat."

The people I knew who lost their "equity" due to ARMs were both divorced females. One bought a home at the high end of the market before I moved here from the Midwest in 1990, and we had a local downturn about the time she and her husband divorced and she decided to move back to the South to raise her kids with assistance from her parents. She ended up owing money even after she sold the home.
The other figured that she and her husband would make more money each year, so they got an ARM to get into their home at the tail-end of that same upswing before the market turned down in the early 90's. She figured it was pretty safe, because it was going to adjust gradually over a period of years. It was the worst possible timing for her. It adjusted "gradually", slowly strangling her out of the house and somewhere along the way the husband took off as well. She ended up in foreclosure, and losing the house about 3 years before the market started up again and she probably could have sold it for what she owed and made enough for a down payment on a more reasonable home.

Of course people are using ARMs to buy more house than they can afford! What else would they be using them for???? People believe that the value of real estate will always increase, never decrease. They believe that they will be earning a lot more money in 5 years than they are now. They believe that interest rates will stay low, and that they can refinance into a reasonable rate.
What happens when reality does not jive with your 5 year plan? When you lose a spouse, a job, or have major financial crisis?
It's really kind of ridiculous to say "you should make a bigger downpayment or buy a cheaper house". Well, DOH! That's the whole point. People should be making down payments, and buying cheaper homes.
If the average buyer had 100k to put down on the "average" home in Sacto, we wouldn't be having this discussion about ARMs and this blog wouldn't exist, would it?
As for "a cheaper house" well, yeah. In about a year or two, there will be a lot of cheaper houses.
Unfortunately, that means that for many homeowners the wealth they think they have is not "real".

Real said...

Of course people are using ARMs to buy more house than they can afford! What else would they be using them for????

I will use simple math so you can follow along. I can afford a $1,800/month payment - I can get a $300K loan for $1,800 a month on a 30 year fixed or I can get the same $300K loan for $1,650 on a ARM. I will save $150/month in interest and if I plan to be in the house ~5 years, this is clearly the better path unless you truly want to pay the bank extra interet over the course of the year.

Now, if I said I can afford $1,800 and that means $300K on a 30 year fixed or $350K on an ARM and I take out the ARM, they you are not being fiscally responsible and you have no one to blame but yourself. In the case of your friends, blaming the ARM for their foreclosure is like the blaming the priest that married them for their divorce. It is up to the individual to make wise financial decisions and if you are not up to it, you may end up learning a very expensive lesson. This is not the fault of the loan - but a buyer overextending themselves.

drwende said...

Real -- One obvious sign of people over-extending themselves would have been if mortgage lenders had refused to approve their loans. Instead, lenders trumpeted low payments as a reason to buy more house.

Banks used to be reluctant to hand out money. I can see where, if your realtor is telling you to take out a hefty ARM and your mortgage lender is smiling and applauding, and the news is full of stories about how great the housing boom is and how the fundamentals have changed, most people are going to go ahead and get the loan.

While I believe strongly in personal responsibility, there's a point at which you're demanding that people ignore every trusted source and go do research that was, in 2004 or even early 2005, quite challenging to do. Even reputable economists were talking up the new wealth of America in housing equity.

I knew not to buy -- but in early 2005, I could find very little credible evidence to support my position, despite being a professional researcher. Predictions of the top of the market in 2002 -- which would have happened, had lending standards not been loosened and interest rates dropped -- made most of us housing bears look like crackpots.