Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Tuesday, September 11, 2007

Look Out Below!!!!

The idea that things are going to get back to "normal" Real Estate - wise seems to have bitten the big one today with a report issued by my favorite group of fiction writers, The National Association of Realtors.

After thoroughly blowing smoke up everyones collective ass for the last several years, they finally might be getting a handle on reality.
The National Association of Realtors' revised monthly prediction calls for U.S. existing home sales of 5.9 million in 2007, down from 6.5 million last year. The forecast was below last month's prediction of a 6.8 percent drop.

This year's sales would be the lowest since 2002, when sales hit 5.6 million. Home sale prices this year are forecast to drop 1.7 percent to a median of $218,200.

Seems that those suicide loans to risky borrowers have finally come home to roost, that and jumbo loans, that is anything over 400k or so are almost impossible to get. Now given that most houses in these inflated times have been going for prices way above anything that would be considered a Jumbo Loan it doesn't seem that sales are going to go up again any time in the near future unless prices fall substantially.

Next year, the trade group expects existing home sales to climb to 6.3 million. It forecasts new home sales will fall 24 percent to 801,000 this year and 741,000 next year.

The forecast comes as delinquencies among borrowers with weak, or subprime, credit have risen dramatically over the past year, and other loans are showing weakness as well

Seems that the suckers who've been gobbling up this bad paper faster than a bag of lead laced snack foods from China have finally gotten smart and closed the checkbooks. This, just as the fit has hit the shan, as my gramma used to say. Actually she used to say the shit has hit the fan, but I was trying to be polite.

Last week, the NAR said pending sales of existing homes fell in July to the lowest level in nearly six years as borrowers struggled to finalize home purchases, particularly in expensive areas.

Investors around the world have been spooked by the U.S. mortgage market's problems, amid uncertainty about how much they will grow. The Federal Deposit Insurance Corp. estimates that 2.5 million mortgages given to borrowers with weak credit will reset at higher rates and sometimes dramatically higher monthly payments by the end of next year.

Which brings us to the issue of all those mortages that were given away out there during the boom. Seems that one can't put an ad for a "Miracle Product" on TV or Radio anymore that claims it will grow hair, bring world peace, cure cancer, etc. unless it's for real and can deliver on it's promises. The days of the snake -oil salesman have gone, unless that guy on the back of the buckboard is offering you a sub-prime mortgage.

Now that the barn door is swinging wide open and the horse is eating the neighbors petunias are they starting to realize that "Hey! All those sleazy mortgage ads??? Well, they might be like...illegal????!"

What? Really? No shit.

The U.S. Federal Trade Commission said Tuesday that some advertisements for home mortgages might be deceptive and even violate the law.

The FTC said it had warned mortgage brokers and lenders, as well as media outlets carrying the advertisements, that the claims appearing on Web sites and in newspapers, magazines, direct mail, e-mail and faxes might be unlawful.

Warning letters were sent to more than 200 advertisers and media outlets, the FTC said in a statement.

Wow. That's big of them. Just in time too, or like who knows what might have happened? I mean people could really get in trouble with these wonky financial instruments, ya' know??? We wouldn't want that to happen. I mean that could lead to a bailout or something where we'd all have to pay for their mistakes and.......never mind.

The warnings stem from a nationwide review this summer of ads that failed to adequately disclose other important terms of home loans, the FTC said.

Questions of whether lenders inappropriately pushed home mortgages onto subprime borrowers -- those with poor credit histories -- are at the heart of the turmoil in that market.

Lawmakers and regulators are debating whether the federal government should oversee independent mortgage brokers and lenders.

Gee. Do ya' think???

So what're the Powers That Be planning on doing about all this? According to the Detroit Free Press, nothing.

The last thing somebody who couldn't pay the mortgage would expect is a tax document in the mail that proclaims they magically got an extra $20,000 in income they never touched.

But that's exactly the tortured tax picture that faces many troubled homeowners in Michigan and elsewhere.

Thousands of families could face an unexpected tax hit if they went through foreclosure, worked out some unusual deals with the bank to refinance or sold homes for less than the outstanding debt.
"This really adds insult to injury where someone is in a situation where they get hit with a tax bill on top of having to lose their house or refinance at a lower value," said U.S. Sen. Debbie Stabenow.

So they're just figuring this out now?

So Senator Stabenow wants to cut these guys some slack, and change this tax rule temporarily...that is untill the next bubble

It's one of those tax rules that not many people know about because home values have typically gone up, not down. Yet, it's a tax issue that now could have great impact on families throughout the country.

Yes, houses have always gone up ...that is when they haven't gone down.


At 9/11/2007 06:12:00 PM , Anonymous tom stone said...

My favorite is "Getting a home loan shouldn't be any harder than ordering a pizza" the subtext being "you are going to eat it".Folks are getting all het up about HR1427,which will raise the conforming limit to $600k in california.I was talking to "PP" a mortgage broker of my acquaintance sunday evening,and he told me it was a "sure thing" and would "save the market".When I told him they could raise the limit to $10 MM and we would still see at least a 50% drop over the next 3 years,he got quiet,and asked me why."BECAUSE NO ONE CAN AFFORD THE FREAKING PRICES!THEY HAVE TO QUALIFY TO GSE STANDARDS AND THEY DO NOT HAVE THE INCOME!!" so if some tells you this bill will "save the market" ask them if they are willing to put their money where their mouth is."PP" wouldn't,and I offered him 2-1 odds.

At 9/11/2007 06:45:00 PM , Blogger moonvalley said...

Excellent Tom, not only does it explain all the foreclosures, but also the rise in obesity.

At 9/11/2007 08:00:00 PM , Blogger Lisa said...

Tom Stone....can you post something on the GSE they require downpayments, full doc, decent FICO, limit the purchase vs. income ratio, that sort of thing??

If in fact GSE standards are strict, you are absolutely right, most Bay Area buyers wouldn't qualify for those loan programs.

At 9/11/2007 09:01:00 PM , Blogger Tyrone said...

ZipRealty Santa Rosa homes:
Aug 09: 1600
Aug 21: 1643
Aug 24: 1655
Aug 26: 1659
Aug 27: 1670
Aug 31: 1642
Sep 01: 1624
Sep 10: 1679
Sep 11: 1692 New High!!!!

Lets hit 1700 on Wednesday!!

At 9/11/2007 09:26:00 PM , Anonymous tom stone said...

Lisa I have not done a conforming loan in the entire period I have been in the business,however I have some familiarity with them due to having obtained a variety of licenses.Va and FHA loan Standards are available online.they will finance 97% of the loan balance,however appraisals are required (not "drive by's"),and you do have to document you are SOL if you are underwater or can not document your want to refi $600k at 7%,fully amortized for 30 years at 50% DTI? sure,no problem AS LONG AS YOU HAVE THE INCOME.median household income is somewhere around $54k for sonoma county,and it is skewed upward because we have an hourglass economy.Look at the PITI.Interest alone is $42k the first go ahead,raise the limit,and help out 50 people county wide.I am a licensed real estate broker BTW.

At 9/11/2007 09:34:00 PM , Blogger Lisa said...

Thanks Tom!

So, for all the bailout talk and now the chatter about raising the GSE limits...just wait 'til the reality sets in that nothing can save the FB's. Nothing. They're FB's for a reason, after all.

Then I think we'll start seeing some serious price cuts.

At 9/12/2007 08:04:00 AM , Anonymous tom stone said...

lisa,we are moving from the denial to the anger stage in west county.A lot of inventory hit the market in august here in sebastopol,and there is little movement...yet.but having one of the most prominent brokerages close their flagship office on hwy 12 has an effect psychologicallyc),and what is happening to the big financial institutions worldwide is really worrisome(Barclay's,citigroup,WaMu,the hedgies)it is going to be raining shoes for a while,and the impact will be substantial,and perhaps,expect more inventory,much slower sales,lots of REO's,and sudden,jagged declines in price for several years.hard times ahead.


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