Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Wednesday, June 28, 2006

Geeze, I Rode This RE Elevator All The Way Up. If I Jump Reeeally High Before It Crashes I'll Be Ok

Property values bracing for a fall
Home prices across Bay Area are likely to drop, study says

Homeowners across most of the Bay Area stand a 55 percent or greater chance that their property values will slip in the next two years, according to a quarterly study by a mortgage insurer.
That's a headline story in today's SF Gate. Does the public believe it? Afraid not. When polled a little further down in the story about 49% of those asked didn't think anything of the kind would happen.Not here in the Bay Area. Not here in the home of Twinkle Dust and Tinkerbell. Sure.

"Still, many industry insiders remain optimistic that the market will remain in positive territory.

"The reason prices go down is because job markets are hit," said Avram Goldman, president of Coldwell Banker of Northern California. "The market is transitioning -- but we've been in such a frenzied sellers' market for so long, people don't know what a regular market is like."

People don't know what a regular market is. People who just fell off the turnip truck that is...though of course this being Sonoma, maybe I should say the grape wagon. There are a whole group of buyers out there who don't remember the early ninties, or even further back to the early eighties. Either they were too young to be in the housing market, or they were busy working their first jobs, or going to school and renting to pay much attention to those who got their asses caught in the ringer that time. It's their turn in the barrel now. Of course the article goes on to mention how "creative" the loan industry is being, helping folks into 40 and 50 year mortgages trying to make things "affordable". TRhat to me is the same as clothing manufacturers who run the sizes up as high as say 20, then start all over again, at 2,4, 6 etc hoping people won't notice how big their pants are getting. "Hey, I'm just a 2 shoot me some more of that there pie" Maybe 49 and 50 year mortages are just part of the changing American size world. Extra large toilet seats, jumbo coffins, and great big fat mortgages. If you need any of them you might have a problem worth looking into.

Meanwhile crusing around Sonoma keeping my eyes and ears open. We were at dinner last night in one of our more popular watering holes seated near what turned out to be two RE women. One kept chanting to the other, "It's a Buyers market, it's a Buyers market, it's a Buyers market!" I guess those are todays talking points.

One final thing, I'd like to throw out there is the subject of something I've been reading about which is ReConveyance Scams. They seem to be particularly popular here in Northern Ca. As per the California Mortgage Law Blog:

Beware "Mortgage Elimination" Scams

Several of our clients have been harmed by "mortgage elimination" scams being promoted nationwide by two Northern California men, D. Scott Heineman and Kurt F. Johnson. The scheme has been marketed through Internet discussion groups,, e-mail, conference calls, conventions and dozens of web sites which claim that the entire federal banking and monetary systems are illegitimate. For a fee of between $1,000 and $3,000, promoters claim that they can eliminate a mortgage through an elaborate process by which they ultimately prepare and record fraudulent documents that purportedly release the lender's security interest. In some cases, they then obtain new mortgage loans and receive as much as 50% of the loan proceeds. Among the business names associated with scheme are Capital Creation Resource, The Dorean Group, Oxford Trust, Universal Trust and DTE Financial.

Usually, lenders don't discover the fraudulent reconveyance documents until several months later when their borrowers stop making payments and they try to start foreclosure. Litigation is then necessary to cancel the fraudulent reconveyance documents so that lenders can proceed with foreclosure.

State and federal law enforcement investigations led to Heineman's arrest on May 28, 2005 and to Johnson's arrest on July 21, 2005. Both men are facing felony charges in Salt Lake City, UT, and they have also been charged with wire fraud, bank fraud, mail fraud and money laundering in the U.S. District Court for the Northern District of California in San Francisco where U.S. District Court Judge William Alsup has recently issued a preliminary injunction prohibiting the defendants from further violating 18 U.S.C. § 1341 (Mail Fraud), 18 U.S.C. § 1343 (Wire Fraud), and 18 U.S.C. § 1344 (Bank Fraud) through their “mortgage elimination” program, and from alienating or disposing of property obtained as a result of said violations. However, acolytes of Heineman and Johnson are still operating many of the same websites that promote their "mortgage-elimination" scam despite these recent law enforcement actions.

You can obtain more information from the Sacramento Bee which has been following this story since earlier this year and from this story originally published by a reporter for Inman News.

I've been wondering how much of this re-conveyance junk is floating around town here. Sweetheart deals between agents and flippers. How much money is being sucked out of the local market and how much of that is partly responsible for the jacked up prices.

Speaking of jacked, my ex neighbor meanwhile is preparing to move into the new digs, which of course they're planning on flipping in 2 years. They paid over 650k for this dump, they're going to most likely put in another 50 to 100k in fixings I just don't see what's gonna happen in two years. My guess a RE picnic where they're bringing a basket of money to the closing, or the Sheriff at the door. They actually were at our house quoting Donald Trump to us this last week. Telling us how things were going up up up and Mr. Trump says so!! So there. Oh, by the way Donald Trump sent me an invitation to meet a group of actual live millionaires, and have a complimentary lunch, and attend a Trump Strategies for Real Estate seminar!! It was personally addressed to me...Resident. Ya gotta love The Donald.


At 6/29/2006 10:08:00 AM , Anonymous tom stone said...

IDENTITY THEFT! I'm resident! i was in oakland recently,where 165 major projects are being built,mostly condo's and had a talk with someone i ran into at Genova delicatessen.he had purchased a condo in the rockridge area in late 2000,and had reconverted it to a sfh himself while working fulltime...your old fashioned rehabber...he bought with an libor arm,and was mulling over whether to refi with an i/o loan,or sell...he had an offer that gave him a substantial profit,not obscene ,but substantial.i explained monthly rent multipliers,and other standard valuation methods,and he told me that almost all of his friends had bought in the last 2 or 3 years with stated income loans...and had misrepresented their income.we discussed the effect this kind of fraud on the market,and i gave him some webites to look at.he looked quite thoughtfulwhen i was nice to talk to someone who acknowledges that real estate investments also have a degree of risk.i expect contra costa county to enter the beginning of panic late august this year,oakland to crater next year and san francisco to decine a bit more in sonoma i am seeing the first signs of panic.

At 6/29/2006 10:09:00 AM , Anonymous tom stone said...

sorry,should read duplex,not condo.

At 6/29/2006 10:51:00 AM , Blogger marin_explorer said...

"They paid over 650k for this dump, they're going to most likely put in another 50 to 100k in fixings I just don't see what's gonna happen in two years."

Wow, so that means the first $50-100K in appreciation is effectively gone. I wonder if they considered all short-term costs, because a rough calculation (w/ $100K remodel) indicates they’ll need about 17% appreciation per annum to break even in two years. But it's OK; he should be able to jump just before the train wreck.

These stories of local “investor” sentiment are great; keep us posted.

At 6/29/2006 01:47:00 PM , Anonymous Anonymous said...

just got off the phone with my father in law,he is trying to sell his place in rossmoor,on the market 30 days,no offers,so he will drop the price.he told me inventory went from 15 last may to 166 yesterday in rosmoor,a more than 11 fold increase yoy.this is paticularly interesting because this is a high end retirement community,and many who buy traditionally pay all cash,he also told me that the market was dead.i checked zillow,7 sales this that is one heck of a quick change for a real estate market.

At 7/01/2006 11:15:00 AM , Blogger Marinite said...

they’ll need about 17% appreciation per annum to break even in two years.

It's worse as you didn't factor in closing costs which are significant.

At 7/02/2006 12:28:00 AM , Blogger marin_explorer said...

" didn't factor in closing costs..."

Uh...maybe not, but it doesn't look good by any calculation.

At 7/10/2006 10:19:00 AM , Anonymous tom stone said...

MV,when you get a chance,check out,this is a 10 unit development in sebastopol,bordered on two sides by hwy went on the market in april,one phase on the first,the other on the 8th.the flyer i picked up states that all offers will be reviewed 9 days after the initial offering.none have sold.the hospital emergency entrance is 1 block away,and there is a liquor store across the is almost at a standstill(the units are about 90% finished)construction quality is above average.the extremely bored agent told me there was "flexibility" in the pricing.the best unit is priced at $720k,and might bring in $1500 a month rent.

At 8/30/2006 12:12:00 PM , Anonymous Anonymous said...


The following post appeared in a comment thread over at Shrinkwrapped; there the subject was "Defensive Denial and Terrorism", but it is too good a quote to pass up.

In its entirety:

Arthur Koestler, in his 1950 novel The Age of Longing, provides an interesting and chilling metaphor for this kind of denial.

The action of the book takes place in France, where a massive Soviet invasion is clearly impending--but denial of this obvious reality abounds, especially among the intellectuals. Jules Commanche, a Resistance hero and a senior French security officer, explains this phenomenon to a young American woman:

“No, Mademoiselle, don’t be misled by appearances. France and what else is left of Europe may look like a huge dormitory to you, but I assure you nobody in it is really asleep. Have you ever spent a night in a mental ward? During the Occupation, a doctor who belonged to our group got me into one when the police were after me. It was a ward of more or less hopeless cases, most of whom were marked down for drastic neurosurgical operations. When the male nurse made his round, I thought everybody was asleep. Later I found out that they were only pretending, and that everybody was busy, behind closed eyes, trying to cope after his own fashion with what was coming to him. Some were pursuing their delusions with a happy smile, like our famous Pontieux (a philosopher modelled on Sartre--ed). Others were working on their pathetic plans of escape, naively hoping that with a little dissimulation, or bribery, or self-abasement, they could get around the tough male nurses, the locked doors, the operating table. Others were busy explaining to themselves that it wouldn’t hurt, and that to have holes drilled into one’s skull and parts of one’s brain taken out was the nicest thing that could happen to one. And still, others, the quiet schizos who were the majority, almost succeede in making themselves believe that nothing would happen, that it was all a matter of exaggerated rumours, and that tomorrow would be like yesterday. These looked as if they were really asleep. Only an occasional nervous twitch of their lips or eyes betrayed the strain of disbelieving what they knew to be inevitable...No, Mademoiselle nobody was really asleep.”


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