[Bugs]

It hasn’t become real apparent yet at the consumer level, but the lenders are increasingly under pressure to conform to the banking rules and guidance that they’ve been ducking for the last few years. Congress is considering closing the loopholes that allow mortgage lenders who aren’t banks to avoid regulatory oversight.

More of the states are stepping up their enforcement programs for appraisers and mortgage brokers, and the FBI is getting more active in investigating mortgage fraud and its components.

Taking all this in context I am reminded of the period from 1986 – 1995, which on a national scale was when we had the S&L bailout (the cost of which we’re still paying for). The lenders had been cut loose in the early-80’s, they ran up some really risky loans, and it all melted down. In response the federal government enacted some additional lending rules, regulations and criteria.

For a while the feds enforced them with some vigor and everyone involved in the process straightened up for fear of getting kicked out. It even involved a certain amount of paranoia – people tended to play it safe. When the economy started coming back the pendulum swung to the other extreme and the feds cut way back on their enforcement. This is what led us to the Wild West environment that we’ve had for the last few years.

I fully anticipate the pendulum will continue to swing towards conservative lending criteria – probably to an extreme equal in severity to the degree of anarchy that fed this last boom.

Sooner or later we’re going to have to start working on the national deficit and the costs of the war. If that comes about in the next couple years and mortgage interest rates go back over 8% this downturn could last for a lot longer than just a couple years.

[Bugs]

If a neighborhood started out at $200k in 1997 the natural inflation to 2007 would result in a price just over $255,000. A $255,000 sale price with 5% down would result in a mortgage of $242,250;

At 7%/30 yr amtz that results in a monthly payment of $1,604 + $238 for the property taxes and another $175 for insurance and HOA; and we end up with a PITI payment of $2,017/month; Divide that by 35% and that ends up with a gross income of about $5,760/mont, or $69,154.

By my count, that $69,000 is right in line with the average household incomes in that area. Coincidentally, The $200k house in 1997 probably peaked out at about $500,000 (maybe a touch higher); and a 50% decline off peak would end up at $250k.

We always talk about the correction coming to the long term trendline; we never seem to but touch on the idea that it could actually overshoot and go negative to the trendline. Logically speaking and considering we just had a massive spike the correction basically has to overshoot in order for that trendline to continue on in the same general direction.

I keep getting that nagging suspicion that maybe a 50% is being too conservative. Maybe our regional wage/population trends don’t economically support the absorbtion of the additional 10% more housing we’ve built in the last 10 years. Maybe now that the specuvestors have left the building we’ll end up facing an oversupply of homes that would lead to a period of below trendline pricing.

Maybe 50% isn’t the number we should be anticipating after all.

[Bugs]

If a neighborhood started out at $200k in 1997 the natural inflation to 2007 would result in a price just over $255,000. A $255,000 sale price with 5% down would result in a mortgage of $242,250;

At 7%/30 yr amtz that results in a monthly payment of $1,604 + $238 for the property taxes and another $175 for insurance and HOA; and we end up with a PITI payment of $2,017/month; Divide that by 35% and that ends up with a gross income of about $5,760/mont, or $69,154.

By my count, that $69,000 is right in line with the average household incomes in that area. Coincidentally, The $200k house in 1997 probably peaked out at about $500,000 (maybe a touch higher); and a 50% decline off peak would end up at $250k.

We always talk about the correction coming to the long term trendline; we never seem to but touch on the idea that it could actually overshoot and go negative to the trendline. Logically speaking and considering we just had a massive spike the correction basically has to overshoot in order for that trendline to continue on in the same general direction.

I keep getting that nagging suspicion that maybe a 50% is being too conservative. Maybe our regional wage/population trends don’t economically support the absorbtion of the additional 10% more housing we’ve built in the last 10 years. Maybe now that the specuvestors have left the building we’ll end up facing an oversupply of homes that would lead to a period of below trendline pricing.

Maybe 50% isn’t the number we should be anticipating after all.

[Bugs]

If you’re in it for the long haul and this price really does represent a $300k discount off the current value then it could work out for you over the long haul.

This type of home probably wouldn’t come up for sale at all during a depression – it’s not the type of flip-bait situation that would lead to an overextended seller. Pt. Loma is a pretty established community, and even during the boom there weren’t that many transactions down there. This type of situation isn’t the same thing as a typical subdivision home that happens to become available at a currently low price – one of those could be replaced at almost any time.

I guess what I’m driving at is that if you don’t get it now there is a chance you won’t get it at all under favorable financing terms.

[Bugs]

If you’re in it for the long haul and this price really does represent a $300k discount off the current value then it could work out for you over the long haul.

This type of home probably wouldn’t come up for sale at all during a depression – it’s not the type of flip-bait situation that would lead to an overextended seller. Pt. Loma is a pretty established community, and even during the boom there weren’t that many transactions down there. This type of situation isn’t the same thing as a typical subdivision home that happens to become available at a currently low price – one of those could be replaced at almost any time.

I guess what I’m driving at is that if you don’t get it now there is a chance you won’t get it at all under favorable financing terms.

[Bugs]

Actual foreclosures only account for about half of the must-sell figures I posted above. As I said, I’m pretty sure there are some more in there besides the ones that actually say “foreclosure” or other key words that I was looking for, but I’d have no way of knowing exactly how many without running each listing down. Obviously that’s more trouble that it’s worth to us if alls we’re looking for is a snapshot.

[Bugs]

Actual foreclosures only account for about half of the must-sell figures I posted above. As I said, I’m pretty sure there are some more in there besides the ones that actually say “foreclosure” or other key words that I was looking for, but I’d have no way of knowing exactly how many without running each listing down. Obviously that’s more trouble that it’s worth to us if alls we’re looking for is a snapshot.

[Bugs]

I try not to get too wound up by any one piece of data (datum?). We should be looking for trends as demonstrated by a preponderance of data – the rule, not the exception.

Most of the time when I see a really heavy loss it becomes apparent that the conditions of the sale prior to that resale/loss scenario is what supersized the subsequent loss. Usually that preceding sale was really dumb and should have been caught at the lender’s level, if nowhere else.

We’re so busy looking at burning trees that it may not be apparent that the entire forest hasn’t yet caught fire. Some areas are in full retreat, but there are still a couple areas and price ranges where that retreat is not so apparent to the naked eye.

[Bugs]

I try not to get too wound up by any one piece of data (datum?). We should be looking for trends as demonstrated by a preponderance of data – the rule, not the exception.

Most of the time when I see a really heavy loss it becomes apparent that the conditions of the sale prior to that resale/loss scenario is what supersized the subsequent loss. Usually that preceding sale was really dumb and should have been caught at the lender’s level, if nowhere else.

We’re so busy looking at burning trees that it may not be apparent that the entire forest hasn’t yet caught fire. Some areas are in full retreat, but there are still a couple areas and price ranges where that retreat is not so apparent to the naked eye.

[Bugs]

You would normally buy a model home because the total package appeals to you. You want to live the lifestyle they portray in their marketing materials.

Model homes are USUALLY sold with all the furniture, artwork, rugs, fans, shutters, TVs, etc, in place. Once in a while the big pieces of furniture are moved out just because the buyers flat-out don’t want them.

[Bugs]

You would normally buy a model home because the total package appeals to you. You want to live the lifestyle they portray in their marketing materials.

Model homes are USUALLY sold with all the furniture, artwork, rugs, fans, shutters, TVs, etc, in place. Once in a while the big pieces of furniture are moved out just because the buyers flat-out don’t want them.

[Bugs]

You guys need to filter all that stuff out. It’s pretty meaningless anyway. The overuse of superlatives has only one function – to maneuver you into a buying mode by appealing to your emotions.

If you’re going to get emotional about your home purchase – and there’s nothing wrong with that – then you should allow yourself to do it on your own based on what you see and without outside influence.

Having looked at tens of thousands fo MLS listings over the years, I can tell you that you can learn most everything you need to know about a listing within 10 seconds or so. Sometimes less.

[Bugs]

You guys need to filter all that stuff out. It’s pretty meaningless anyway. The overuse of superlatives has only one function – to maneuver you into a buying mode by appealing to your emotions.

If you’re going to get emotional about your home purchase – and there’s nothing wrong with that – then you should allow yourself to do it on your own based on what you see and without outside influence.

Having looked at tens of thousands fo MLS listings over the years, I can tell you that you can learn most everything you need to know about a listing within 10 seconds or so. Sometimes less.

[Bugs]

Apparently it is the in thing to do these days. One thing that selling a model early in a project does for the project is it instantly provides a closed sale. Closed sales are of great value at the outset of a project because they set a price range for the project from the outset. That willing buyer pulling the trigger at that price is considered proof that their list prices are reasonable, and these inside sales comps are always given more weight overall than sales from outside the project. A closed model home sale will get used as a comparable sale in subsequent appraisals until it becomes too dated to use.

Of course, when using a model home an appraiser is supposed to take into consideration the effect on value of the furnishings and other non-realty property included with the sale as well as all the options and upgrades. The point remains that, beside reducing their carrying costs, selling model homes and then leasing them back for a year or two is almost all poisitive for a builder.

Seeing as how they’ve apparently already sold some homes in this particular project I guess the “closed sale” aspect doesn’t apply. But the “reduced standing inventory” argume still does apply.

[Bugs]

Apparently it is the in thing to do these days. One thing that selling a model early in a project does for the project is it instantly provides a closed sale. Closed sales are of great value at the outset of a project because they set a price range for the project from the outset. That willing buyer pulling the trigger at that price is considered proof that their list prices are reasonable, and these inside sales comps are always given more weight overall than sales from outside the project. A closed model home sale will get used as a comparable sale in subsequent appraisals until it becomes too dated to use.

Of course, when using a model home an appraiser is supposed to take into consideration the effect on value of the furnishings and other non-realty property included with the sale as well as all the options and upgrades. The point remains that, beside reducing their carrying costs, selling model homes and then leasing them back for a year or two is almost all poisitive for a builder.

Seeing as how they’ve apparently already sold some homes in this particular project I guess the “closed sale” aspect doesn’t apply. But the “reduced standing inventory” argume still does apply.

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