Chuck Ponzi April 17th, 2007

After my last post, one might believe that real estate agents have no other opinion than the mantra of “housing prices only go up”. For those ill-informed and those lacking true experience in a down market (or at least studied one out more than attending a Gary Watts cheerleading session), there is little to convince them outside of the crushing pressure of the future markets.

On the other hand, there are agents who will actually flourish in the coming real estate bubble pop. These hardened souls know the importance of negotiation, and have experience to back it up. Agents like these are well worth their six percent. I came across just one of these recently. I have only had brief contact with his business partner Lina, but after reading his website, I am convinced he’s at least going to maintain his business while many others like our aforementioned Mr. Pannatoni are going to scramble. Embracing change is key to managing it.

Turning to his site, we read:

The Return Of The Short Sale

If you lived in the Shadowridge area or anywhere else in California about fifteen years ago and owned a home, you probably remember short sales – they are back.

A recent report from Sacramento sounds eerily similar to the 1990-1996 California real estate bust, except this time, home prices are multiples of what they were back then, therefore….so will be the drop!

I have been talking about inflated home values and financing foolishness for several years now. In 2000 or so, there were the 125% loans, scary, but home values began marching upwards as real estate looked attractive to the folks who had chased the .coms.
Folks wanted to grow what they had made or rebuild what they had bled in the stock markets.

Greenspan had raised interest rates decimating investments that were already overvalued causing a mass exodus from the equity markets into real estate. Then rates dropped again and property values begin to rise further. Builders who were behind on keeping up with housing demand began to build like mad. In addition, the folks to begin to, once again, speculate in real estate just as they did in the stock market. It was easy because of technology and the web.

Day trade this stock….flip this house!

Now, the folks who can really afford to own a home, are seemingly leaving California in droves. We have lots of people coming but not the type who can afford to buy these homes. These new citizens are more likely to use our social services and put a burden on our resources.

I don’t know if the statistics show it (I haven’t bothered to check), I just know the termite inspector we use told me 18 months ago that 3 out of 5 of the homeowners who he is doing inspections for, are leaving the state. And this continues.

With so many homes at such high prices and so few buyers, what happens?

The 35% property value drop that we saw between 1991 and 1994, that’s what happens.

Thirty Five Percent. That was pretty much the price drop we saw across southern California during that period. There were pockets that did better, there always are. But, pretty much across the board in southern California, the home prices dropped by 35% or more.

I remember, I was selling foreclosures and doing short sales for homeowners in the Shadowridge area during that time. By the way, what was your real estate agent doing back then? This would be a good question to ask them, before you list your home for sale of course!

The possibility of a short sale arises when you need to sell your house, but you owe more than it’s worth - like a fully-financed new car being driven off the dealer’s lot, you are “upside-down” on your loan as soon as your tail lights have crossed the curb.

That is exactly what has happened to thousands of homeowners who, for a variety of reasons, should never have bought homes but did. Most of them putting no money down. Many of these homeowners are also investors who own more than one home. Speculating on real estate just like they did in stocks.

Here’s the rub. If, for one reason or another, these homeowners must sell, then they are faced with a few choices, none of which are very appealing:

-Sell the house, and pay the difference to the lender…right

-Walk away, and give the house back to the lender…the lender doesn’t want it but will foreclose if they must or,

-Make a deal with the lender so they don’t wind up with another foreclosure.

I specialized in this sort of thing in the 1990s; luckily for many, I have dusted off my short sale notebook and am now helping people hand their homes back to their lender with the least amount of hassle.

I am becoming a very busy guy.

I have no doubt he is going to be a very busy guy. San Diego County is encountering its share of short sales now.

Thirty Five Percent was a lot back then, and it’s even more now. He could be spot on with his predictions, even if it is just a “back of the napkin” calculation.

• Mean Reversion , Psychology , San Diego , Short Sale , Speculation