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  1. SDbear
    April 20, 2006 @ 11:09 AM

    I’m still not

    I’m still not convinced that the real estate industry (realtors and mortgage related professions) is facing decrease in revenues. I agree that the volumes have decreased quite a bit. But the total value of transactions seems to be still up there above the 2002/2003 levels. (I was just looking at the february numbers for all years. May be a moving average will give a better picture). As far as my understanding goes realtors take a % of the value of the transaction. There might be more people working in the industry now and so each of them might be making less. But the industry as a whole might be doing well. I’m sure this will go down dramatically in the coming months (May be after spring) when both Volumes and prices decline (if it does).
    So acccording to me the industry as a profession might not be affected by the inventory rise. SDRealtor might be able to give some insider’s insight into this.

  2. docteur
    April 20, 2006 @ 12:04 PM

    Exactly, the pie is
    Exactly, the pie is shrinking. But those still wanting a piece of it remains constant. And as soon as more people feel those hunger pangs…

    Yesterday, my wife had a phone conversation with one of her good friends, who is a realtor in the coastal north county, and a very good one at that. She’s been in the “business” since 2002, when she was divorced. I asked my wife how her friend was doing and how her business was holding up and my wife said “She’s pretty scared.”

    This particular woman is an intelligent, hard working single Mom who has been making a very good living for the last five years and just recently put her house on the market. I think she senses what’s looming on the horizon and knows that she cannot maintain her current lifestyle.

  3. Bugs
    April 20, 2006 @ 9:15 PM

    That pie is shrinking and
    That pie is shrinking and people in the various areas of the business are getting squeezed. Mortgage brokerages are laying off personel, appraisers are closing up shop or leaving town (same thing) and the number of refinances that are going through is dropping like a rock.

    What the numbers don’t show is that the quality of the deals coming through right now is getting worse by the minute. The various players are all getting so desperate to keep it going that they’re dealing with properties and buyers or borrower they’d never have even considered before. It’s even showing up in the appraisal reports as some of these appraisers are trying to get away with really stupid plays in an effort to keep the work coming in. Just in the last 6 months, the percentage of rejected appraisals has skyrocketed because the lenders are looking at everything now and they aren’t assuming a rising market will cure their problems.

    It’s going to get a lot worse for most everyone involved in real estate, too. The last bust wiped out 30% of the appraisers – I expect this one to be at least as bad, and I think the mortgage brokers and realty agents are going to get hit even worse.

  4. davelj
    April 20, 2006 @ 10:49 PM

    it’s anectdotal, but i was
    it’s anectdotal, but i was up in irvine the other day and a friend’s wife, who’s been selling real estate there for over 10 years, told me that her business had “dropped off a cliff” in the last two months. fortunately, her husband (my friend) makes plenty of money and she doesn’t need to work so she’s planning on just taking it easy until the environment improves… whenever that might be.

  5. sdduuuude
    April 20, 2006 @ 11:52 PM

    I’m not even convinced that
    I’m not even convinced that all recent home buyers will react to a weak housing market with hopes of sticking it out.

    I mean, if you put no money down and you are upside down in the first year and the market is failing, you might as well just hand the house back to the bank and walk away.

    • powayseller
      April 21, 2006 @ 6:47 AM

      People have strong emotional
      People have strong emotional ties to their homes. They won’t walk away unless they are forced into that. In Japan, people held onto their homes for 15 years (?) waiting for prices to recover. People don’t want to blemish their credit records, and they don’t want to lose their homes to the bank either. A coworker in Phoenix held onto her home for several years, despite great financial hardship, waiting for prices to rise to her original purchase price. Only then did she sell and leave town.

      Only those whose loans adjust, and who cannot afford the payments, will be forced into this situation of handing back the house to the bank.

      • sdduuuude
        April 23, 2006 @ 9:18 PM

        Speculators may not hold
        Speculators may not hold this attachment, and I think it has been shown there are alot of those.

      • sdduuuude
        April 23, 2006 @ 10:29 PM

        As an example, look at the
        As an example, look at the number of vacant homes in Phoenix. It is astonishing. These owners can’t have strong emotional attachments to homes in which they don’t live.

      • powayseller
        April 24, 2006 @ 4:30 AM

        Good point. But yet they
        Good point. But yet they refuse to lower their price…For the speculators, it’s still about realizing those paper profits. They don’t want to believe the market has turned on them.

        A house for sale in my neighborhood is being sold by the deceased owner’s family. They have no emotional ties, right? They just want the money. The house is priced too high, and has been on the market about 6 weeks. Yesterday the realtor had another Open House. By the time I stopped by to chat with the realtor, he’d already left. This is another example of a seller trying to get top dollar.

        I’m amazed how long it takes for people to accept the market has turned…Maybe by summer they’ll get it?

      • Bugs
        April 24, 2006 @ 8:07 AM

        You’re assuming those
        You’re assuming those sellers (and buyers) are operating off the same level and sources of information that you are. I liken this to a political campaign. Both sides of the discussion are putting information out, but the side that gets the most media exposure and orients their message to the least informed voters is the one that wins. The more informed voters recognize that much of the material is hype but condone it under the doctrine that the ends justify the means. They recognize that everything is a compromise and they choose the compromise that they think best suits their individual interests.

        The permabulls have their extremists and we uberbears have ours’. A lot of people have a hard time taking seriously the boy who cried wolf for 4 years.

        ‘Everybody’ knows the chances of winning the lottery are astronomical, but people still line up in droves to gamble the price of a ticket. A lot of people want to believe in the dream. Pyramid schemes, chain letters, Blackjack systems to beat Vegas, Carlton Sheets seminars; what’s the difference? At least with RE the table is fair. More or less.


        I think we should all be glad that people aren’t reacting too quickly. The manner and pace in which this thing unwinds is going to have far ranging effects on virtually everyone to at least some degree. Even if a renter is hoping for a quick and drastic price correction so they can get another shot at home ownership at a reasonable price, there are still the wider consequences on the economy as a whole to consider. Besides the real estate jobs, what other jobs will be lost as a result of a dot.bomb paced real estate market meltdown? Do you know anyone who works at a restaurant or a car dealership or a movie theater or furniture store or a golf club manufacturer? Even the defense contractors can be hurt by a slowdown in government spending brought about by a reallocation of resources.

        If you’re a follower of the return-to-trend line of thinking that is exemplified by applying the past performance trends and extrapolating them into the future, then a correction that takes 1.5 – 2 times as long as the runup will be orderly enough to benefit the have-nots while doing the least damage to the haves. Not only would it be unseemly to wish financial ruin on other people – even while they’re being foolish – it also wouldn’t be in most people’s long term interests for too many of the fools to get burned all at once. We need some of them to come around slowly.

        In my opinion and (in the interests of disclosure) from the vantage point of someone who’s involved in real estate.

    • Anonymous
      April 21, 2006 @ 4:49 PM

      I agree. What will be the
      I agree. What will be the position of people who took out their home equity over the last few years via refi’s and HELOC’s? Won’t they also find themselves over their heads especially if the loan was of the exotic or ARM variety? However, it is my understanding that in these situations one cannot simply “hand back the keys” the bank or whoever holds the mortgage can go after personal property to make up the difference…at least in California this is the case.

      • Gone to Colorado
        April 21, 2006 @ 5:14 PM

        Regarding refi’s and HELOCs,
        Regarding refi’s and HELOCs, I know these products have been around for a while. When I was a kid growing up in the 70’s, it was my perception that people obtained money through these means only when they really needed the cash, perhaps for college tuition for a child, a room addition for an elderly parent coming to live at home or a family emergency. Today, such products are used (almost as a rule) to obtain things that one wants now and isn’t willing to wait for, such as a new car, vacation, desert toys, etc. I think something has changed culturally as memories (and reminders from our grandparents) of the Great Depression have faded away.

        If home “owners” are so willing to take out the entire home’s appraised value to buy something they must have to gratify themselves, why would they choose to stick it out through a down market, rather than just walk away from the problem? I believe there is a behavioral link here.

      • powayseller
        April 21, 2006 @ 5:22 PM

        You have to pay capital
        You have to pay capital gains taxes on the “forgiven” amount. In Texas, they can come after you for the difference, regardless of which state you’re in.

        I wonder how many % of people are upside down because they refied their equity away. When I snooped around RealtyTrac’s NOD list last month, I found 3 pre-foreclosures in Poway, where the NOD was due to the homeowner, who had purchased in the 1980’s, racking up new loans.

      • LookoutBelow
        April 22, 2006 @ 7:47 AM

        I had a “dream” last night,
        I had a “dream” last night, or maybe it was a nightmare, but I “dreamed” 75% of the HELOC’s and refi’s have put their owners “over the top” and upside down in their house/ATM machine.

        I hope im wrong, but I dont think so. What is the general consensus on how 75 bucks per barrel will play into this looming disaster ?

        How many people will be able to “ride it out” when this happens ?

      • Bugs
        April 22, 2006 @ 12:01 PM

        A decline in real estate
        A decline in real estate jobs here will have a compounding effect on other employment sectors. Most of the success stories in RE would be unable to come anywhere close in income if working in other occupations. I think just the number of RE professionals going down and the indirect impact on the other occupations could be sufficient to seriously undermine the price structure for the region.

  6. davelj
    April 22, 2006 @ 3:58 PM

    most people either forget,
    most people either forget, or don’t understand, that everything important in economics and finance happens “at the margin.” if just a fraction of those borrowers with ARMs/no down payments, etc. have trouble over the next few years paying their mortgages and are forced to sell or into foreclosure, it will have an enormous impact on single-family real estate values. people tend to dramatically underestimate how fickle a region “the margin” really is.

    • JJGittes
      April 22, 2006 @ 5:47 PM

      I agree. Seems to me that if
      I agree. Seems to me that if you have a development with 100 homes, if things get ugly and just 5 or 6% (ie 5 or 6 homes/homeowners) decide/need to dump them for 15% less than last year’s comps, the new comps will be what they will be and the other 94 people will have to deal with it. Thus, the ‘margin’ set the new rules of the game, no?

      • powayseller
        April 22, 2006 @ 5:53 PM

        Yes, that’s what he meant.
        Yes, that’s what he meant. And as Rich stated in the his article, how many homeowners have the luxury of waiting out a downturn? Due to stagnant wages, and rising mortgage rates for those who chose adjustable rate mortgages, they’ll be forced to liquidate their savings, and then sell. I noticed that in Poway, the majority of pre-foreclosures are in lower-income neighborhoods. These people have less savings to fall back on, and are probably the marginal borrowers who were the target of the “let’s increase homeownership for Americans” campaign.

        Another interesting factoid: I checked a realtor’s website in Omaha, NE, and y-o-y SFR sales are down 30%, pendings are down 15%, and DOM are up. I e-mailed the realtor about the market, and will post the info when I get it. Homeowners nationwide will be selling at the margin.

  7. privatebanker
    April 23, 2006 @ 8:50 AM

    Here’s my thoughts to this.
    Here’s my thoughts to this. What happens if housing prices drop 10%+ for the next few years, then stay down for another 5 – 10 years? The ARM holders, how will they refinance a property with negative equity? They would have to pay down their loan. People with job changes, family changes, life style changes, etc. How will they live in the same home for 15 years? Sure, a lot can but there will definitely be people needing to sell while they’re upside down.

    Bottom line is I think when a lot of people say they’ll just wait to sell when the market picks back up are in for a painful realization. We may not hit peak price levels again for a very long, long time.

    • powayseller
      April 23, 2006 @ 8:59 AM

      Privatebanker, do you have
      Privatebanker, do you have any feel about what’s going on in other parts of the country? I grew up in Omaha (after moving to the US at age 9, and learning English), and our folks still live there. I contacted a realtor yesterday, about the market there. He wrote that foreclosures and DOM are up, as are prices (ever so slightly). I’ve asked for more info on the market there. When I asked if exotic loans were causing problems, he only answered Yes, without clarifying. Do you have any ideas of how extended this problem is?

      • privatebanker
        April 23, 2006 @ 9:34 AM

        I’d say the credit bubble is
        I’d say the credit bubble is nationwide. The problem here is that regardless of the value of your home, if you have a loan that’s killing you every month, there’s going to be major problems ahead, period. This will affect comps ultimately and bring down median prices in areas of high attrition. I couldn’t say for certain how dramatic that will be but everywhere should feel some sort of pinch.

        I think the lending situation that is and has taken place has two sides of the table. We have property prices shooting through the roof and becoming more and more unaffordable for the average joe. So what do lenders do? They find ways for people to continue borrowing i.e. – 30 yr fixed with first 10 or 15 yrs I/O (10/15 or 15/15). What the lenders didn’t consider is the effects down the road. If a borrower got a 15/15 and made no additional payments to principal, on year 16, their payments would jump by nearly 60%! At the same time, the government is breathing down the lenders necks to make sure that they’re providing every borrower with an equal opportunity to obtain a loan.

        I have to say that we are in a very strange situation that will have horrible consequences for many homeowners.

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