Chuck Ponzi March 25th, 2009

CNN Money provides an insight into just how much our tax dollars are doing to help people avoid foreclosure

If HOPE for Homeowners, the foreclosure-prevention plan passed last summer, was a soft drink, it would be New Coke. If it was an automobile, it would be an Edsel. A movie? Howard the Duck.

In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.

This is no surprise to me or most readers.  We cannot fix the fundamental problem of too much household debt when the reason for foreclosure is simply an upside-down house.

I predict that even if we took the ludicrous action of simply depositing money into the bank accounts of those in foreclosure, they would rather spend that money on consumer products or pay off non-house debt because the asset the loan is secured against is worth less to than what they owe on it for the forseeable future; in SoCal possibly decades absent significant price, income, and asset inflation; something that seems unlikely for a while in the midst of a generational deleveraging and rising taxes at the present time.

• Bubble , Foreclosures
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Chuck Ponzi March 25th, 2009

News has broken that discredited real estate prognosticator Gary Watts has received a notice of default on a house he owns scheduled for short sale in Wagon Wheel.

Information was leaked on the Irvine Housing Blog Forums and verified there.

South OC Real Estate Tracker was unwilling to name the owner of the house, but I share no such sympathy for the man that led thousands or tens of thousands, perhaps hundreds of thousands to the slaughter of the housing bubble. There is likely few in all of Southern California that has done more to destroy personal and household wealth and damage mortgage lending in Southern California than Gary Watts; advising everyone to lever up and purchase as many houses as possible to take advantage of the coming tsunami of rich and privileged who were purported to be settling in SoCal and driving housing prices to the stratosphere.

Gary was using his own supply, it seems.

Ever since Gary Watts admitted he called it all wrong and tried to slink away from the public eye, he has been in his very own Tenth Circle of Hell.

While I have skewered Mr. Watts many times and called him out personally for his blind boosterism right before the bust, it has amazed me how popular he has remained and that he continues to book speaking engagements and sales of his predictions.  If ever there was proof that humans simply do not want to know the truth, here it is.

• Gary Watts
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Chuck Ponzi March 19th, 2009

This is a great lead-in to what the credit bubble is and how it happened. Delves deep and stays on target.

• Credit Bubble , Deflation , Housing Crash , Mean Reversion
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Chuck Ponzi March 17th, 2009

I recommend watching this short video about Naked Short Selling.

• Naked Short Selling
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Chuck Ponzi March 10th, 2009

I remember clearly when I began blogging in 2005 that the general consensus in SoCal was that prices would never fall.  And, if they did, it would probably level off, maybe drop a few percent for a few months, but again resume its upward trajectory at 10%-20% per year which was seen as “normal” appreciation.  It didn’t matter that household balance sheets ex-housing were in terrible shape, or that housing was fueling all kinds of consumption that created an overheated economy, nor did it matter that earnings were at best flat unless you worked in real estate or finance.  The irrational belief of perpetual gains with no effort was practically assumed by 100% of the populace.

So, it seems kind of strange that 4 years later, I am posting about prices that have fallen from the peak more than 70%.  Yes 70% of peak value, 30% of original value or less.  No matter how bad your stock portfolio is, I would find it hard to believe that you could have lost more than buying a home in some places in SoCal.

I have family who live in the Victor Valley area, so from time to time I chatted with them about what was happening in housing there.  I learned long ago to shut up about where I thought things would go… nobody wanted to hear it, so I wouldn’t say it.  Needless to say, I took my examples from that area, in fact, all from Hesperia which is a kind of commuter haven for Inland Empire jobs; many moved out of the smog-choked IE to live a more rural lifestyle and have a house that could be afforded.  When demand temporarily outstripped supply (for about 2 or 3 years), prices skyrocketed.  The Victor Valley had been depressed since the 1990s, so any sign of life was welcome in the locals’ eyes.  Too bad that this has not only petered out, but left the area saddled with several years’ supply of homes.

I’ll have to tear through these pretty quickly otherwise this post would quickly turn into several pages of information:

70% Loss

The first one comes to us from 16570 Chestnut Street in Hesperia.  Sold on December 19, 2005 for 270,000, it is now for sale for $81,900.

71% Loss

The next ones come from 18375 Carob St.  Sold on July 3rd 2006 (Just in time for Independence Day) for $299,000, it is now for sale for $86,900.

also, 16349 Mission St is 1600 sq ft of homey goodness sold on September 13, 2006 for $330,000 and is now for sale for the low price of $94,900.

You can’t forget 17575 Redding St which was sold on May 13th, 2005 for $277,000 and you can snap it right up for $79,000.

72% Loss

The next one is a doozy:  10401 Victor Ave was sold on October 19th, 2006 for $318,500 and is now for sale for $90,000.  An interesting tidbit is that it sold for 119K in 1990 and is now 24% below the sales price 19 years ago.

73% Loss

This is getting crazy!  What about 7871 Maple Ave?  It is now for sale for $89,900 and sold on October 3 2006 for $330,000.

74% Loss

The next 3 all had 74% losses so far: 13351 Sunny Ridge St for $90,000 down from $344,000 in 2006; 8466 Buckthorn Ave for $89,800 down from $347,000 in 2006 and 8288 Madera Ave for $79,000 down from $300,000.

76% Loss

With this next one, I thought I was pushing it (but no, see below for more):  8311 5th Avenue sold at the peak for $334,000 and the bank is now trying to get $93,900, or a 76% loss.

Winner!

Here’s a doozy:  81% off peak pricing!  It’s crazy at this point.

8862 Glendale Ave which sold at the peak in June 2007 for $390,000 and is now for sale for $69,900… I don’t know if fraud was involved with this one or any of the above.

Notable mentions:

In addition, there are some additional honorable mentions that are currently on the market:

Lower than 92 pricing:

and a gimme:  almost back to 88 pricing!  I’m sure the bank will take it if you ask!

Can’t forget! Below 1988 pricing:  The lost double decade.  7484 Glider Ave was sold for 91,500 in 1988 and is now for sale for $70,900.  That’s 21 years with negative 1.2% return compounding!

Also, one could have lost more with 10370 Redwood Ave which sold for 250,500 on June 28, 2005 and is for sale for a paltry $70,000.  and is unbelievably 44% below the 1990 sales price of $126,000!  That’s gotta be one of the worst.  It’s a compounding 3% negative return for 19 years.

Still think California real estate is a good long-term investment?

• Housing Crash , predictions
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Chuck Ponzi March 8th, 2009

With the myriad of federal government interventions, speculators have once again infested the housing market with quick flips.

Flip 1:

31991 Via Gallo Coto De Caza

Last purchased:  Jan 5 2009.

Last purchased for: $380,000

Flippers Gross Markuptm: $269,000

Days from purchase to market: 56

Flip 2:

28472 Charreadas Laguna Niguel

Last purchased: January 23rd 2009

Last purchased for: $495,000

Gross Flippers Markuptm: $154,000

Days from Purchase to Market: 41

This is just 2 of many currently on the market.  It’ll be interesting to see just how much demand there is for houses with several hundred thousands tacked on where buyers would have paid before.  More interesting to me is how long these will take to sell.  While both are in superficially desirable areas, both have fundamentally flawed locational problems.  (Charreadas is the most obvious, just look at where the 73 is in relationship)  I did a drive by of when it was on the market just to see just how much noise there was.  It was quite loud at rush hour.

Guess the final sales date and sales prices!

• Flipping
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Chuck Ponzi March 6th, 2009

Finally, I agree with Jim Rogers on something:

We need the insanity to stop.  Stop rewarding bad behavior, let the country be fixed.

• Denial
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Brad_Davidson March 5th, 2009

I’ve thought for months about writing a post about short sales and why they are such a huge waste of time.  Well, just yesterday another of the many short sales I’ve worked on went in the toilet.  I decided it was time to write something to warn potential victims that they are likely wasting their time trying to buy a short sale.

This time I thought it might be different.  It was a short sale approved by the bank at the asking price.  My client made a full price offer and I was told it was just a matter of the bank approving our specific offer.  Then the trouble started.

The selling agent called and said that there wasn’t enough money at the asking price to cover all the liens and expenses and that she was going to send me a counter offer.  The bank had already approved the deal and it’s basic math to figure out how much you need to close so I was suspect of this agent’s competence.

A few days later she called to tell me that everything was worked out and that we could go into escrow at the agreed upon price.  Escrow opened the next day.

Escrow instructions came out two days later and the deal was changed again.  My commission had been cut by one half point (Before you say who cares, I give back all commissions over one point and that half point would come out of my client’s pocket), they were not going to pay for a home warranty policy for my client, there was no money for a termite inspection and they were short by $2,000 for funds to cover liens and expenses.

I told my client that this wouldn’t be the end of the problems and that he was going to end up getting screwed.  He agreed and I got the pleasure of telling the listings agent to stuff the deal where the sun rarely shines.

EVERY short sale I have ever worked on has been a waste of time.  The listing agents are lazy or incompetent and they’re just going for volume listings hoping that a few will go through.  The bank owned deals are priced just as well and you’ll have far fewer headaches.

I’ll publish my primer on short sales shortly.

Brad Davidson
We Help-U-Buy Realty

• Uncategorized
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Chuck Ponzi March 5th, 2009

While our government is busy running around wondering how much money should be given to whom, and how we can change the rules of engagement in business, Bill Poole, (yes, shameful, shameful) makes a very straightforward argument that all of this intervention is actually a bad thing in a NY Times Op-ed piece.

THE fundamental causes of this recession, unique in the experience of the United States, were mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially fear of them, damaged normal credit mechanisms.

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

Federal policy is damaging the economy’s prospects. It fails to provide the needed tax incentives for investment in factories and equipment, incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. But government spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

I, of course, agree with this assessment (although I believe the recession could linger quite a bit longer due to the current political response). There are 2 fundamental problems with the current administration’s approach:

1. Changing the rules of the game only makes sure players will wait until they are clear on what the new rules are before they begin playing again.

2. History has told us (even though we have deflation now) that a strong increase in the money supply is inflationary. The lag time between the money creation and the effects to rising prices is measured in years, not months.

In the end, a more moderate monetary approach, with the INCREASE in foreclosures, and expedition of foreclosures and bankruptcy will speed the recovery that much faster. It’s the difference between ripping the bandaid off (which is what free markets do to minimize pain) and slowly pulling it off.

We can’t forget that FORECLOSURE AND BANKRUPTCY ARE THE SOLUTIONS, NOT THE PROBLEM.  The problem is too much debt, and the only way it can be resolved is the legal resolution as quickly as possible.  All attempts to forestall the solution are forestalling the recovery in our economy.  Once people are no longer held captive to bad bets, their discretionary income can once again be released and well-run businesses can capitalize on the demand.

• Debt , Deflation , Foreclosures
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