patrick.net

I assumed the drop would be higher at the upper-middle range (1-2M) than at the lower range (0-1M).

Why? When price compression unwinds the lower range will naturally fall more than the upper-middle range.

Also, get your FICO scores yourself, so you know what's up. Banks HATE letting you get your mitts on the scores they run on you because then you can 'shop around' without massive credit checks popping up. They'll still do a credit check before the final approval, but you should get pre-approved without them having to rerun the FICOs. (Somebody correct me if I'm wrong, here.)

I think some "trophy" properties may even appreciate.

You cannot go wrong betting against the middle class. Lower to middle range may fall hard.

I don't know about credit unions. I have heard great things about them. They do tend to hold onto a lot of their loans, but that doesn't necessarily mean they're in any "better position". Most of the retail banks will hold onto their prime, low risk loans, and places like Wells Fargo will go around paying a premium to buy top tranche from other banks. I'm sure a lot of CA mortgagees have found every loan and refi they've had end up right back at Wells Fargo (or equivalent) after 6 months.

@HelloKitty,

Thanks for sharing your list --very helpful.

And honestly, I’d probably be willing to pay an extra eight of a percent for a loan that I knew wasn’t getting sold downstream.

@SFBB,

I agree, and would further ask: Is it possible to know which lenders are most/least likely to securitize and re-sell your loan downstream as MBS/CMOs? If so, that might significantly change MY list of "HARM-approved" lenders.

True story: I have a friend who had his mortgage re-sold recently and the lender never bothered to inform him of it and --importantly-- where to send the payments. So, he goes on sending his monthly mtg payments to the old address, blissfuly unaware they are no longer his lender/servicer (and them blissfully continuing to cash his checks). Until a few months later, he gets slapped with a NOD. Then the "fun" really starts, as he not only has to make good on all the "missed" payments, he also has to fight the old lender to get HIS money back.

Ahhhh... the many joys of "pass-through risk" mortgage-backed securities. Truly one of the great "inventions" of the 20th century.

In between these two ranges, he expects a solid 30-35% correction in most of the 1.0M-1.5M houses - particularly those which have quarter-acre or smaller lots.

I would think with today's prices, there aren't that many houses between 1 and 1.5M will have a lot bigger than 1/4 acre.

Here's an extreme example: http://tinyurl.com/2lmjgs
For McMansion haters, fire away :)

HARM,

If you've got the time to check with Chase, WaMu, Wells, the CU and a host of other banks (and like aggressive negotiating ala HK), I say go for it. A good mortgage broker, though, does earn their pay -- especially if you've got a second or other interesting circumstances. Like I've said before, I'd go into combat with my mortgage broker (as long as, ya know, he walked in front of me).

As far as I'm concerned, one of the key players in the home buying process is the home inspector. You don't want some dofuss that rubber stamps the deal -- you want the guy your Realtor(TM) doesn't want involved in the transaction (usually nicknamed something like "the deal breaker"). He is the one who will tell you your furnance could go up in a ball of flames -- and if you are not the panicky type, you won't let this bother you as you use the furnance the next couple of years. But it can then get you some dollar$ knocked off the price during the contingency phase. Oh, and by the way, a sweet tongued Realtor may be more effective at writing the letter to get the seller to lower the price a bit than your rent-by-the-hour lawyer. The lawyer ain't going to mince words and will tell the seller their house sucks -- which might lead to the whole deal not going through. Someone more adept and experienced in these negotiations could do better (then again, what do I know as I have not used a RE attorney). I do know that my Realtor(TM) wrote a heck of "we don't mean to nickel and dime you" letter to get the price lowered without pissing off the seller (enough) to cause the deal to go sour.

Then again, having been through the whole process, I would probably go the RE attorney route the next time and do that 6% commission jujitsu that Randy and FAB talk about :-)

HARM

The best advice I can give for finding a lawyer is referrals. Honestly, I've had the fortune of being an entrepreneur and using lawyers extensively for the past 15 years, so I have always been able to get referrals. I have a good one in Palo Alto for anyone in that area I'd be happy to refer. He still helps me with RE even while I'm up here in Marin. He also helped me extensively in a property line and easement/adverse possession issue I had on my last home's property.

I'd say for your area talk to friends who use family attorneys they like, and get referrals from them. Some family attorneys used to be commercial re lawyers too, and know enough for residential standard purchases. You can also ask around for small business attorneys who will know commercial re types also.

CB :

--Edited out rude remark involving lowballing and the listing agent--

I absolutely abhor that kind of development community. Ugh.

For McMansion haters, fire away

5 bedrooms with only 3113 sqft?

There should have more new 3 bedroom condos with 3000+ sqft if they ever want SF to become a true international city.

True story: I have a friend who had his mortgage re-sold recently and the lender never bothered to inform him of it and –importantly– where to send the payments.

Aside from problems like that - it can't be that common - I'm not sure why it would matter to you the borrower what happens to the loan. Right?

Speaking of lenders, I think I asked this the other day: has anyone heard of this ACORN program?

http://www.acornhousing.org/TEXT/services.html

I don't get what they are. They're non profit but they're in the mortgage business?

TOS

Queen of the non sequitur. What exactly does the price-weighted DOW index have to do with residential home-mortgage debt liquidity?

I anxiously await your response.

Oh, I almost forgot the signature TOS giggle:

Ho Ho Ho.

eburbed,

Say your income decreases drasticly (sick child/wife/husband/etc) and you want to proactively work to make sure you don't have mortgage problems and need to talk about some sort of plan for your mortgage. (Who knows what this might be.) If some MBS is holding your paper, the servicer can't really do a damn thing until you're delinquent. They have no "My husband can't work for 8 months, but he'll be back in his job and our income will go back up, can we work something out before hand so we don't have to go deliquent/etc" plan in their guidelines.
If you work with a bank or CU that actually holds the mortgage, they can work with you the moment you let them know there is a problem. Otherwise you have to wait until you fall into a pre-defined category of 'deadbeat' before the servicer starts trying to help you out. It's the difference between a mortgage holder and servicer.
And since CUs tend to be very local, they're more likely to be able to get you into the office of the guy you need to see than a branch bank.

If I were taking out a mortgage on a house I was sure I could virtually buy outright because I had better places to stick my money at the time, I wouldn't care where it originated and who it was sold to. That's easily containable leverage. When it's the kind of leverage that could wipe me out and then some, like a mortgage, I'd rather keep it as local as possible.

I got this recruiting email today. The housing bubble is creating more software jobs - default managment solution for mortgage servicers :)

We currently have an immediate need for an Team Lead – Applications Developer for XXX Inc.. ZZZZ has created the first on-demand default management solution for mortgage servicers, embracing rules-driven application workflow technology and meta-data elements allowing business-user configuration. We are building a world-class engineering organization, using state-of-the art technology and would like to speak with you regarding an opportunity.

I’m not aware of any other field that even comes close to RE that has more mis information, crooks, potholes, con men, lies, spin and potential legal disasters than RE.

Oh that's easy: politics.

I absolutely abhor that kind of development community. Ugh.

We actually live there in the same development, but the Cape Cod with no lot is a little too much even for me. Usually I picture that kind of house sitting on 1 acre.

eburbed Says:

I don’t get what they are. They’re non profit but they’re in the mortgage business?

Here's one I can comment on from firsthand experience:

ACORN Housing (not to be confused with just "ACORN", a political action committee/special interest group) does not make loans nor recommend/refer you to specific lenders. They are a nonprofit consumer education/advocacy group specifically designed to help first time buyers, especially low-income FTBs.

When the wife and I first started seriously looking into buying (mid-late 2003), we signed up and took their FTB education classes. I think it was 3 or 4 two-hour sessions, or close to that. Keep in mind this was long before we had even heard of the term "housing bubble", and well before Patrick.net or TheHousingBubbleBlog. In general, their information was pretty helpful and specifically geared towards steering FTBs away from predatory financing --a very good thing. They even gave us advice on how to improve our FICO scores and how to correct wrong information in our credit reports.

Of course, by the time we were pre-qualified and our FICOs/credit reports clean as a whistle, houses in decent areas of LA County were already going northwards of half a $million, so it didn't much matter.

? Do you think there is a possibility that the housing market will start going gangbusters again once the Fed cuts rates, and the 10-yr yield, which has hovered between 4.5-5% starts dropping below 4.5%?

Definitely. I think the Fed is going to cut rates to 0.5% again - that way, the median home price/median income ratio will finally reach 10x!

Heck, dare I say... 20x!

They are a nonprofit consumer education/advocacy group specifically designed to help first time buyers, especially low-income FTBs.

Do they work with lenders to get you a better rate? Or is it strictly educational?

OMG Harm, those people on the other board were snooty. I was embarrassed for them. It was awkward just reading the exchange.

I wouldn't count on the Fed cutting rates.

At some point, protecting the dollar internationally probably wins out over tweaking the economy. It's not unlikely to see further increases if the dollars keeps dropping. In case the Fed does decide it doesn't care if the dollar becomes worthless, am hedged against this with ETF in foreign currency.

TOS,

I just read your post. While I don't agree with it, I think it is good theory. I can't make the connection until I see upward pressure on interest rates.

After buying and selling real estate for the last 30 years, what seems most important in my estimation, are honest inspections on the property when you are a buyer. That way you know what you are getting into, without needing litigation. Once you have some accurate information on a property, you can choose to buy, or back out, or negotiate. Attorneys complicate the process.

Big Brother,

As I recall, you liked to use the term "gangbusters" a lot when you were posting as ConfusedRenter/MarinaPrime/FaceReality. Nice to know your limited acquisition of American colloquialisms hasn't changed.

HARM,

That Jeff guy is still being a f$cking moron! He's talking about short sales still! He has assets he can sell (at a profit) to cover the losses for selling his negative cashflow properties and yet he STILL whines about what he needs to do in order to make the banks eat the cost. Total asshole.

To continue from my last post. If you are a seller, you want to encourage your buyers to get all the inspections they want. That is a good way to prevent litigation.Attorneys complicate the process.

As long as you fully disclose all known issues with a property you are pretty much free from liability as a seller. This is at least for deals in CA. There is no implied warranty that I'm aware of on a house. In order to recover in court, a buyer would have to demonstrate that the seller withheld known material defects. Inspections are the buyer's responsibility as part of their due dilligence.

Newsflash! Honesty is the best policy!

Phoenix market is slow but prices are not coming down much yet. Some on the perimeter, but not closer in.

I don't think we are even close to emotional panic yet; Those on these boards saying they will buy when price hits X may end up cathing a falling knife. This thing has many many years to work itself out.

I own three properties, and next year the last one will be paid off; I really dont care what happens if prices rebound I will sell one, if they drop like a rock I will buy more.

That is, unless you want to end up in court.

TOS,
Even though it seems far fetched; the surprisingly bipartisan subprime bailout discussions are evidence that 'important' people are losing money. Understanding human nature, it would not surprise me to see crazy schemes come out of our current government. Devaluing the dollar is to me the economic doomsday device a government could use to preserve the status quo. I have to accept the given that uncertainty in the housing market is built in to share price.

My disconnect happens because if the price is built in, the uncertainty, and the likelihood of allowing our currency to slide to encourage foreign price supports should push interest rates up. I am seeing first hand an excess of money available to lend in real estate. This is only getting worse as credit standards tighten and there are yet even fewer viable deals. As someone with a process control understanding, it seems to me that the current money supply is in a robust state.

Danville woman,

I've had so many situations in my dealings that could have deteriorated to a court case but for the fact that I am honest and reasonable. If you are selective about who you deal with, most things can be worked out in good faith. Most people are good, and the few predatory plaintiffs out there quickly get a reputation, or give themselves away through slip ups in things they say. Honesty really is the best policy.

Azrob, I've always been in doubt as to whether this was going to be a nice quick dive, or a long horrible dragged out ordeal. Properties are so fundamentaly overvalued, that if we start having declines of 5% per year this really could last a decade. Wait a little longer to see what tightening credit does to prices. That is a very clear milestone in many scenarios.

Malcolm

I totally agree!

Malcom:

I agree. that said, I didn't see the 50% increase coming 05 to 06, so obviously I am not Nostradumus here!! I sold 2 other proberies in 04/early 05 and had i held them 12 more months I would have made a ton more money. But real estate no longer made sense to me; I began buying on the "get rich slowly" idea, and the "get rich quick" plan just didn't compute.

Now I travel the world alot, and to be honest, there are many places where price to rent and income are much worse. The whole country of Spain comes to mind; Also, Bangkok and Shanghai have sky high prices, but very cheap rents. I just don't understand it anymore

SP Says:

> At lunch, I met an old friend who is a real-estate
> investor - the old-fashioned type, he was in the
> business for decades. He is now retired, and
> volunteers at a group where I worked with him.

Do you have any details on when and wear he invested in real estate?

There is a big difference between people like my Dad who really just “got lucky” investing in Real Estate (who would have known that the rental property within 5 miles of where I grew up would appreciate so much in the last 40 years) and people like Sam Zell and Ned Spieker are true students of real estate playing a game like chess masters over the past 40 years…

> I asked him what he thought about me buying a house.
> As expected, his advice was to hold off for now, which
> wasn’t surprising. But he made a couple of points that
> were interesting enough that I figured I would share it
> here. For what it is worth, he lives up on the peninsula,
> west of 280.

I’m guessing Woodside or Portola Valley vs. Westlake, SSF or San Bruno…

> His view is that the credit crunch is going to hit the _
> lower_ end, the tract homes in the working-class and
> middle-class neighborhoods are likely to fall a lot.
> i.e. POS that is currently lists at 700K-900K, could
> drop as much as 50%

I predict just the opposite in that higher priced homes will see a bigger hit. This is not just a wild ass guess on my part but based on a study of every modern real estate bust. I’m not saying that some Redwood City sit boxes selling for $700 to $900K will not drop 50% I’m saying the (just like in the early 90’s) the higher priced property will drop even more (most “average” bay area home s have tripled in value in the past 10 years while prime area homes are up about 5x on average)…

> The upper-end, 2M+ is unpredictable - homes with large
> lots (1+ acre) and in really great old neighborhoods would
> do okay. But 2M+ homes in the newly expensive areas
> would fall up to 20%.

In 1994 you could buy a prime Woodside, Hillsborough, Presidio Heights or Ross home for just under a million since after 4 years of piece drops the rich were not in any hurry to buy. When prices are dropping less sophisticated people are more likely to jump in especially since the own to rent premium is not as big. With a $5mm home the property taxes alone may be more than the rent and with a $4mm fixed rate loan at about $24K a MONTH the rich will be in no hurry to get in to bidding wars until they feel that prices are on the way up again…

> Anyways, that’s just one guy’s opinion.

Every post here is just one guys opinion (but I always like to see some background info to see where the guy is coming from)...

bigbrother: your high as a kite;

Fed is unlikely to make a substantial rate cut this year, while other central banks are raising rates (china/japan) and the us dollar is in serious danger of falling into the toilet.

Furthermore, a rate cut is unlikely to truly stop the downward spiral in prices, as the Fed cuts the short end of the yield curve, and mortgage rates are determined by the long end of the curve. Long term rates are much more sensitive to perceived inflation risks then to the short term rates.

Housing is very unlikely to resume upward price moves in the near term (at least 5 year) future.

BigBrother Says:

> Guess nobody is willing to go against my
> expectation that the Fed will cut rates end of year

Why will the fed need to cut rates with almost everyone in their 30’s making $300K to $1.5mm a year and the C level guys in their 40’s and 50’s making $1mm to $10mm a year?