Monday, August 07, 2006

Observations From San Diego

Many condos are being built in downtown San Diego. Many have been built. Last night, many of the condo towers had few lights on, which is an indication of low occupancy. As I entered downtown San Diego, I saw a sign on the side of the road that read DumpingCondos.com. There were a bunch of condo sales office in the GasLamp District.



One brochure that I picked up was for the Metrome condo development which implored:
Renting is so 6 months ago. [Give your landlord the boot] Renters become homeowners with no painful crack of the wallet. For about 1,508.46* a month you could be living it up in your own downtown digs. We're talking slate flooring and granite countertops...
We all know condos won't sell unless they have the obligatory granite. It must be better then sliced bread. Here are the payment details for 1,508.46:
* Based on a purchase price of 425,700.00 . First mortgage loan amount of 340,550.00; 480 month term pay option loan with a minimum payment rate of 1.475%. Minimum monthly of 939.66. APR 5.884% with a lifetime cap of 10.05% Fully indexed interest rate will be based on the 12 Month Treasury Average plus a margin of 2.55%. Second mortgage based on 42,500.00 Line of Credit at 7.75%, interest only payment of 274.80, 7.98 APR%. Scenario reflects 10% down payment HOA fees of 294.00 per month included. Above monthly payment does not
include property taxes of approx. 443.44 per month. .....

Toxic mortgages for everyone! Anyway, its lovely weather here, which is tempting me to buy this very condo. I am sure a few years ago, before the housing bubble, San Diego's weather must have been miserable year round. I will be heading to LA soon and will have a report from there.

120 comments:

  1. I'll be the first to say that you can believe that San Diego is a total bubble getting ready to crash without believing the same of DC.

    San Diego has higher prices, 28% more inventory, and a much smaller population than the DC area. They really do have a real significant probability of a 50% crash.

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  2. Anyone dumb enough to agree to those loan terms will most likely be paying the minimum.

    I could never bring myself to own a condo since you only own air -- no land, but you still have to pay property tax. Now if they could get rid of the property tax, I could see the benefit until you run into those HOA fees.

    The Metrome starts at 650 sqft per unit. A purchase price of $425K might indicate a 750-800 sqft unit, but either way, that's really small.

    Their marketing suggests that you are not "cool" unless you buy a condo. Is targeting 25 year olds all they have left?

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  3. I agree Keith. New England, South Florida, So Cal. Simply got out of control. Shame shame on the inflators.

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  4. Thanks for the report, David.

    I agree with out_at_the_peak. I fail to see how any condo is a good deal unless you get in at a really low price. Even if you believe that land prices are going up, a condo is not land in any real sense of the word.

    A Redskins fan

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  5. "Renting is so 6 months ago. [Give your landlord the boot]"

    And say hello to the foreclosure auction man.

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  6. Next time I get a hard-on about buying a condo, I'll remind myself to read that fine print. It's better than a cold shower!

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  7. My question to the bubbleheads ... Why even read the fine print --- or anything --- about the developer's financing offer? Get your own financing ... go to your credit union, your bank, or to a mortgage broker. I've always had my financing lined up before I found a place to buy. That way I knew how much of a place I could buy and the terms I'd be comfortable with. You can still go with the developer's financing if it is advantageous to you, but you are at that point in the driver's seat. Offers like the one here are really for the unsavy, "want it all handled for them" buyer.

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  8. What a fucking Jackass this kid David must be.

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  9. $443.33 per month in property taxes...is that a joke?

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  10. From the Time magazine article:

    Some sellers figure they’re lucky to be getting out. Hewitt Hymas, a Navy commander reassigned from San Diego to Annapolis, Md., just sold his four-bedroom home for $476,000 (which he bought for $280,000 in 2002). Hymas relandscaped the yard, spent $7,000 on kitchen upgrades and eventually dropped the price by $18,000. ‘People around us still live with a heyday mentality,’ he says. ‘They got used to the boom and were asking ridiculous prices.’ He made a command decision not to be greedy and moved on.

    Experts in market psychology say stubborn sellers have a classic case of denial. Richard Peterson, a San Francisco psychiatrist who specializes in financial decision-making behavior, points out that ‘people would rather gamble and hope prices come back. They ignore information suggesting that prices are dropping.’

    Conversely, when investors see prices rising, they get overconfident, the hot-hand bias that leads folks to think a basketball player will sink his fourth shot after making the prior three, even though probability says the odds are the same for every shot. That explains sellers’ reluctance to cut prices, Peterson says.

    Perhaps most unsettling is that cracks are emerging in the Midwest, a region supposedly insulated from real estate madness. In Glen Ellyn, Ill., a suburb of Chicago, Deb and John Tritt have tried to unload their house for seven months. They’ve spruced up the place, knocked $58,000 off the price, to $739,000, and offered a week at their Hawaii time-share to an agent who delivers an offer.


    The psychology part sounds a lot like some of the housing heads...

    ReplyDelete
  11. Slim pickings for real estate vultures

    There may be a real estate slowdown, but bargain hunters still aren't finding much to feast on.

    By Les Christie, CNNMoney.com staff writer
    August 7 2006: 3:25 PM EDT

    NEW YORK (CNNMoney.com) -- As signs mount of a slowing real estate market, the "vultures" are beginning to circle. But home prices may still have to fall further to create the bargains they crave.

    These savvy home buyers who "save their pennies, wait for bargains and then pounce" are already out and about in Manhattan, according to Leonard Steinberg, an executive vice president with Prudential Douglas Elliman.


    There are so many circling Manhattan this summer that they may be canceling each other out. Any little price weakness attracts them and the competition they provide keeps prices from decreasing.

    Steinberg tells of a listing that hasn't sold for several months at a price in the mid-$6 millions. A buyer finally stepped up and offered just $5 million flat - the offer was rejected.

    Pam Liebman, CEO of the Corcoran Group, a brokerage that specializes in Manhattan, Eastern Long Island and Florida properties, says she has seen no price fall off to date in Florida. "Buyers may be negotiating more, but sellers are mostly holding firm," she says. "There's been a drop in sales volume but not in prices."

    Jonas Lee, a co-founder of Redbrick Partners, makes his living by buying residential properties at the right price. Lee hasn't noticed any wholesale bargain hunting yet, though he says the general slowdown in markets nationally should create buying opportunities for vultures.

    Lee says that there could be some bargains soon in some once bubbly markets, such as South Florida. Another market that Lee identifies as ripe for a fall is the condo segment in the District of Columbia and its upscale suburbs. And he's eyeing California's Central Valley cities, including Bakersfield, Stockton and Modesto.

    Lee think prices in San Francisco will also hold up. "Everyone thinks it is overpriced," he says. "But it's a highly constrained market, difficult to build in and very wealthy."

    Jim Gillespie, CEO of Coldwell Banker, says some real estate investors were able to grab bargains in the hurricane-devastated Gulf Coast this year, something he admits to feeling ambivalent about.

    "I'm all for an investor going into a marketplace to fix up homes and put them up to code - something that the government hasn't been able to do," Gillespie says. "But if they're just going to try to steal a property, it's not the right thing to do."

    "Besides," he says, "it's tricky. How do you know if you bought at the bottom? It's timing the market and, short-term, you can get burned."

    As for vulture investing, Gillespie doesn't think that the once bubbly markets on both coasts offer much; prices are still just too high and rents, although strong, don't throw off enough cash to produce cash flow. Investors buying in most of these areas would have to rely on big price rises, something that may not be in the cards for a while.

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  12. Lance, It's never to late to seek professional advice, your in deep denial!

    David, keep up the good work, great Blog.

    From the Time magazine article:

    "Experts in market psychology say stubborn sellers have a classic case of denial. Richard Peterson, a San Francisco psychiatrist who specializes in financial decision-making behavior, points out that ‘people would rather gamble and hope prices come back. They ignore information suggesting that prices are dropping.’"

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  13. Lance, I'm going to give you a chance, here:

    Lay out a scenario in terms of prices or inventories, in which a person who can afford a house, in a region with a healthy economy, and even rising inequality, should not buy a house.

    Is there any set of prices and inventories that would make you say, "don't buy at this time"?

    If you're not a fanatic, you can outline such a situation.

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  14. Today, in WSJ (also reported in Tampa Tribune), "Housing Market May Have Hard Fall". Excerpts and comments:

    http://florida-paradiselost.blogspot.com/

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  15. hello to everyone from germany,

    can someone explain to me what does the apr 5.884 mean. and how they calculate the 936,66 as a minimum payment.

    how long is the teaserphase go?

    this is a neg arms loan, right?

    thanks from germany

    ReplyDelete
  16. David has proven conclusively that the Housing Industrial Complex is organized and active in more than one location in the United States.

    Those dastardly bastards will stop at NOTHING in thier quest to prevent good people from owning cute bungalows surrounded by pickett fences in predominately caucasion neighborhhoods. Oh, the horror

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  17. Keith asked:
    "Lay out a scenario in terms of prices or inventories, in which a person who can afford a house, in a region with a healthy economy, and even rising inequality, should not buy a house."

    two scenarios:
    1) a person on only being in an area a few years.
    2) a parson has good reason to believe that prices will drop over a period of X months and interest rates will hold constant or at least not go up by much in those X months (which I don't believe to be the case at the moment for reasons I've stated previously and supplied economic analysis links to.)

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  18. Lance's scenario number one is enough to provide bubbleheads a lifetime of "reasons" not to buy.

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  19. More Tampa news:

    From my old reator in Tampa, Florida. This is standard boilerplate for reators that are in down markets. My realtor in San Diego has been shoveling the same stuff for the last almost 3 years now.

    "It's a buyers Market"

    Anyway, here is the e-mail spam I just got:

    **insert pic of his new baby** (whatever it takes to 'sell this house today')

    "So, XXXXX, when do you think the bubble will burst?" I am getting a lot of questions from clients about my take on the real estate market. People want to know how to act smartly as the market cools off.

    Driving around Tampa Bay makes the RE news self-explanatory. It's a BUYERS market! According to the MLS, June and July res. sales are down by 40% for Hillsborough and Pinellas in comparison to June/July last year. That's 27,300 residences for sale, which has quadrupled since this time last year.

    Many of my realtor friends have told me that they are carrying more listings than ever, dropping the prices, and still homes are not selling! (imagine that)

    In this buyers market, sellers need MY HELP even more, because I help sellers GET THE MOST for their home (translation: I help facilitate a quick sale so I can get my commission).

    Call me if you are thinking of selling..."

    blah blah blah blah.

    This doesn't surprise anyone I'm sure. What choice does the realtor have? I suppose he is at least directing his marketing efforts at sellers. For sure the smart move in Tampa is a quick sale before the financial hurricane hits.

    Sorry pal, it's only a buyers market when their are few to no buyers OR sellers.

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  20. "I could never bring myself to own a condo since you only own air -- no land, but you still have to pay property tax."

    Thank you, OATP! I've never understood that. I've tried to explain that ot my friends who have bought in downtown Chicago but they brush me off.

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  21. Lance said...
    ”My question to the bubbleheads ... Why even read the fine print --- or anything --- about the developer's financing offer? Get your own financing…”

    “Offers like the one here are really for the unsavy, "want it all handled for them" buyer.”

    In my area, some builders/developers will not allow you to buy unless you go through their “preferred” lender.

    ReplyDelete
  22. http://tinyurl.com/eluvt (thanks to patch for the link)

    -The price declines aren't the ear-shattering pops predicted by housing bubble gloom-and-doomers - the Tampa Bay area's low unemployment and popularity with retirees works against that scenario.-

    -But with an average of nine homes on the market for every buyer - the biggest supply and demand imbalance in years - prices are suffering.-

    -It's no mystery what's pressuring prices: Home listings have exploded as sales have softened. Many listings are from investors who bought during the boom and fueled what builders viewed as a freakish market last year-

    -In his neck of the woods near the Pinellas-Pasco line, Trinity Realtor Bob Memoli said prices have declined roughly 5 percent from last year's peak. In waterfront neighborhoods such as Gulf Harbors in New Port Richey, declines can exceed 10 percent. "The customers are not wanting to accept that, 'My neighbor sold his house last year and got $380,000 for it, and now you're telling me I can only get $350,000.' It's an education process," Memoli said.-

    -"We're getting calls, 'We can't sell them. Please lease them,' " said central Pasco Realtor Pam Koenig, who pulled listings for 130 properties chasing renters in Land O'Lakes alone.-

    -"You don't want to create a panic. We've got enough to deal with what's going on with the property insurance market," Mayo said. "We're not seeing the bubble bursting."-

    -"Every time this year we thought the market might have found its footing, it was a dead-cat bounce and the market fell further," Knetsch said.-

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  23. Well they wouldn't sell to many with conventional financing. (20% down, 30 year fixed, 6.5%) Principle and interest are a steep but possibly swingable $2,149/mo, but the downpayment would be 85k; beyond the affordability of almost all 1st time homebuyers.

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  24. Robert said:
    "In my area, some builders/developers will not allow you to buy unless you go through their “preferred” lender."

    I believe that is illegal under federal regs ... I may be wrong ... and the illegality may be more nuanced than "not in any case shall ... ", but I think there is a prohibition against tieing the two.

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  25. The Fed pauses!

    Central bank does not raise rates for first time in 2 years, but leaves door open for more increases.


    As housing continues to fall, will the Fed hold steady? Lower prices AND low rates? Yowza!

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  26. anon said:

    "The Fed pauses!

    Central bank does not raise rates for first time in 2 years, but leaves door open for more increases.

    As housing continues to fall, will the Fed hold steady? Lower prices AND low rates? Yowza!"

    Actually this is a good thing for current homeowners with mortgages and a bad thing for prospective homebuyers. This indicates that the Fed has chosen inflation over belt-tightening. (I.e., it is not restricting the money supply as it does with a rate increase, but instead allowing the money supply to grow and thus decrease the value of this money ... while not curbing growth.) People obligated to pay back fixed debts with nominal dollars make out. Those who;ll be looking to buy will pay more for their houses then they would otherwise ... and (if they wait too long) at higher mortgage rates.

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  27. Ahh, the old "it's different here" meme comes out again. The DC area might be slightly less frothy than San Diego or Phoenix, but that ain't sayin' much. The fundamentals are badly out whack here, too.

    ReplyDelete
  28. Hey David, while u r out there
    can you find out which of the two
    (SD & LA) has more cranes.

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  29. Of course it is Lance.

    What the Fed said is "we are scared of an economic slowdown MORE than inflation" i.e., we will probably maintain or lower rates if we think the economy is hurting. Guess what, it is. It will continue to. Meaning, home prices will continue to sink while rates will continue to be low. Sounds pretty darn good to me.

    By the way, rates don't have to shyrocket for the housing boom to end. Housing is done for regardless...

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  30. value of dollar has already fallen (when value of dollar falls, you have inflation because it costs more of these "cheaper" dollars to buy the same amount of anything ... including houses ...)

    www.bloomberg.com/apps/news?pid=20601087&sid=aua.0_S45yp0&refer=home

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  31. anon,

    if you were on a sinking ship, you're first (and last) thought would be "Great! I get to go for a swim!"

    ignorance really IS bliss, isn't it?

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  32. Ignorance is bliss indeed.

    From a November 2005 NAR report:

    "Even in the unlikely event of prices declining by 5%, most homeowners will maintain sizable equity build-up in their homes. The table below shows the home equity gains if prices were to fall by 5% by homebuyers at various years of purchase."

    The report goes on to show a table for 2005 purchasers and lists their home equity increase as -$21,460.

    Source: http://www.realtor.org/Research.nsf/files/Washington.pdf/$FILE/Washington.pdf

    According to more NAR statistics, this "unlikely event" is already a reality. There is a nearly 5% decline since 3Q05 at the close of 1Q06. In only 6 months.

    Source: http://www.realtor.org/Research.nsf/Pages/MetroPrice

    Using highly leveraged methods to purchase assets at high prices is very risky.

    -My $0.02.

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  33. Date: 2006-08-08, 8:55AM EDT


    I used to be like you. I hated DC. I was 20 lbs overweight. My clothes never fit right. Dating? Ha. Sex? HA. My job was a dead-end; I could have worked in a meat-packing plant and had more fun. My parents (who live in another state) nagged me all the time about my career, getting married, losing weight, ANYTHING. I lived in some shitty hole in Arlington. Everyone I met was a superficial asshole.
    My life was going down the drain, and I couldn't stop it.

    So one day, in an effort to make us a little happier, my workplace offered a discount on membership to our local gym. I figured why not - I've got nothing else going on in my life. Starting hitting the gym. Discovered the joy of group exercise, where someone else makes you work so you can't slack off. Go enough times, and the first time you skip a class, the instructor notices and calls you out.
    I met a couple people in my spinning class who were pretty cool. I started liking people again.
    The pounds starting dropping. I decided to experiment a bit - I stopped drinking soda. More pounds fell off. Confidence building, I bought some new clothes, and applied for a new position at work. Got myself in good with some higher-ups, and began to assert myself. Turned into a raging bitch with connections, so I couldn't get fired, but I could finallly stand up for myself and my co-workers. Change started to happen.
    And then one day my roommate offered me a job at his workplace - totally different field, and much more interesting. I called the woman who was hiring - we went to the same college. I was a shoe-in.
    Started a new job, got more new clothes, and started going out in the city. I even picked up a dance class, where I made new friends.

    And then I discovered Craigslist. I found all sorts of fun things going on. I found dates. I found activity partners. I found a forum full of fucked up people whose lives were worse than mine. Life was great!

    Now, I love this city. I have a smokin' hot body from getting my ass outdoors and doing shit. Every week there's something new for me explore. I have some amazing friends who care about the world we live in, and who are just as excited as I am to get out there and make a difference. I have a great little place in the city (now to find someone to help me keep it clean). I have an AMAZING job that is paying for grad school. I'm going to get certified to teach yoga next year, hopefully. And I have a fabulous, down-to-earth boyfriend whom I met on Craiglist (after 50 nos, I found a keeper). And I can owe it all to getting off my lazy ass and trying to make things change. Oh, and to Craigslist.

    * this is in or around DC

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  34. "This indicates that the Fed has chosen inflation over belt-tightening."

    What this translates into is that we are f-cked. Inflation rising, the dollar falling...all the Fed has done is prolong the pain. A quick recession to clean up the excesses of the past few years instead turns into stagflation and possibly worse.

    Either way, doubt this will save the real estate market - as has been said before, inventory is rising and affordability is miserable. How is it at all possible that housing will recover under these circumstances? We can't really think that lifetimes of I/O loans and 50 year mortgages are the right way to go...

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  35. Robert said: "In my area, some builders/developers will not allow you to buy unless you go through their “preferred” lender."

    The Washington Post said: Know When to Say No To Builders' Incentives

    http://www.washingtonpost.com/wp-dyn/content/article/2006/06/23/AR2006062300661.html

    As Brian D. Montgomery, federal housing commissioner, put it: "Often consumers feel compelled to use a builder's hand-picked mortgage company because they feel they've been offered an incentive they can't refuse." But federal real estate settlement rules "require that these incentives be legitimate and not built into the price of the house or the cost of the loan."

    ReplyDelete
  36. This is why I don't like tinyurl:

    http://tinyurl.com/45zwb

    Google needs to fix their blogs, so we can link posts....

    ReplyDelete
  37. Patch Tuesday said...
    This is why I don't like tinyurl:


    WARNING DO NOT GO TO THAT TINYURL ... AT LEAST NOT AT THE OFFICE!!!!

    ReplyDelete
  38. http://tinyurl.com/45zwb


    :lol:

    i didn't know that 13 year olds posted at housing bubble blogs!!!

    ReplyDelete
  39. At the right price, I might be willing to lease a unit in a place like that, with a decent view, for 5-10 years. But I'd want absolutely no possibility of being thrown out before the end of the lease. How possible is that in California?

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  40. http://www.lancehorsley.com/

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  41. "How possible is that in California?"

    Get them to agree to a 10 year lease, and you've got what you want.

    (No landlord is going to agree to a 10 year lease.)

    ReplyDelete
  42. Anonymous -- re the Lance Horsley link, thanks very much, but I was referring just to San Diego / SoCal near the ocean. Should have made that clear.

    Coastal Mexico is a possible Plan B.

    ReplyDelete
  43. If you look at some asking prices and real estate assessment data, you start seeing some interesting cases.

    I've looked at two houses for sale on ZipRealty where the owners bought in late 2003. These houses are inside the beltway in good Northern Virginia inner suburbs.

    These houses have been through some cuts in the asking price.

    If you were to knock 10% off of the current asking price, these houses would sell for about 10% more than the owners bought them for in late 2003. That's an appreciation of 3% a year for 3 years. That's what we would have seen in a normal market for three years.

    In other words, we are now seeing some asking prices that reflect the almost complete undoing of the 2004-2005 mega appreciation runup in DC.

    So this brings up the question: What degree of appreciation during the runup do you think was bubbly and unsustainable? I.e., which years of appreciation do you think were well-grounded in fundamentals and which years reflected unsustainable demand based on unrealistic expectations and dumb financing? Given that, what are the prices you'd offer for places?

    For instance, I generally consider the 1999-2003 part of the runup to be sustainable, and the 2004-2005 part of the runup to be a speculative and unsupportable bubble. Therefore, I'd consider a 2003 plus 10% price to be a decent price.

    Do you think the bubble began earlier? If not, and you still would not buy at 2003 plus 10%, do you think there will be some reversal or mean reversion where houses will go to being underpriced?

    ReplyDelete
  44. Is anyone else catching Nightline ABC news nailing Atlanta for having record foreclosures in progress right now...

    It's exposing the foreclosure industry that's now picking up steam...

    ReplyDelete
  45. Lance, you said: "Actually this is a good thing for current homeowners with mortgages and a bad thing for prospective homebuyers. This indicates that the Fed has chosen inflation over belt-tightening." You don't understand that overnight Fed rates has nothing to do with mortgage rates which are determained by the market forces affecting T-bond yield. You are wrong as usual.

    ReplyDelete
  46. anon said:
    " You don't understand that overnight Fed rates has nothing to do with mortgage rates which are determained by the market forces affecting T-bond yield. You are wrong as usual. "

    That's right, the Fed only exists to change the rate that banks must pay for keeping their money overnight in Federal reserve vaults. It plays absolutely no part in the monetary and economic policy of this country ... including constraining/allowing inflation via expanding or contracting the money supply. Silly me ... how could I think the Fed was created to actually do something which affected the markets and the greater economy. How silly of me! It only exists to set the rate that banks must pay to keep their money with the feds. How silly of me.

    ReplyDelete
  47. you said:

    "in good Northern Virginia inner suburbs."

    and then:

    "appreciation runup in DC."

    explicitly stating that they are one in the same.

    The two geographic/political entities you mention are mutually exclusive.

    ReplyDelete
  48. "nailing Atlanta for having record foreclosures in progress right now..."

    "nailing" Atlanta? As if the city were guilty of something? Or do you meann it in the sexual sense?

    ReplyDelete
  49. I have an honest question for housing heads. Some of you are here a lot.

    Why?

    Seriously. I'm here because I agree with David's basic premise, and I like his articles.

    But if bubbleheads are essentially like flat-earthers, why do you hang out here so much? I don't believe flat-earthers, but I don't hang out on flat earth blogs preaching to the lost either.

    I mean this question in all seriousness, and not aggressively.

    A Redskins fan

    ReplyDelete
  50. Lance -

    Good article by Pearlstein this AM in the Post explaining why the Fed's decisions will not be able to stop the coming recession.

    It cited times when the economy was stagnant but inflation raced ahead (70s) and when the economy was booming but inflation was minimal (90s) as evidence that inflation is coming from different sources that are outside of the Fed's control (currently the Central Bank in China).

    The front of the Business section also showed how little the Fed's rates impact the rates we consumers care about - mortages, cars, etc.

    Besides, since energy is no longer part of the CPI, who knows where inflation really is anyway?

    ReplyDelete
  51. http://msnbc.msn.com/id/14252223/

    Congrats to Ben Jones on his Newsweek article...

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  52. Injun Lover;

    To get under your skin.

    A Slanteyes Fan

    ReplyDelete
  53. "I have an honest question for housing heads. Some of you are here a lot.

    Why?"

    Because we're bitter chumps who bought at the peak of the bubble.

    ReplyDelete
  54. Told ya so:

    "In a statement, company chairman Robert Toll warned there is a glut of supply of homes for sale in the market, as the building boom of recent years seems to be turning into a bust.

    The slowdown "is the first downturn in the forty years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors," Toll said in his statement.

    "Instead, it seems to be the result of an oversupply of inventory and a decline in confidence," he added. "Speculative buyers who spurred demand in 2004 and 2005 are now sellers; builders that built speculative homes must now move their specs; and nervous buyers are canceling contracts for homes already under construction.""

    http://money.cnn.com/2006/08/09/news/companies/toll_brothers/index.htm

    ReplyDelete
  55. "I have an honest question for housing heads. Some of you are here a lot.

    Why?

    Seriously. I'm here because I agree with David's basic premise, and I like his articles.

    But if bubbleheads are essentially like flat-earthers, why do you hang out here so much? I don't believe flat-earthers, but I don't hang out on flat earth blogs preaching to the lost either.

    I mean this question in all seriousness, and not aggressively.

    A Redskins fan "

    It's like a trainwreck. Can't look away.

    ReplyDelete
  56. I actively seek out a web site by typing them into my web browser, and then I click a link to allow me to chat in that site's internet forum, and then I copy and paste comments from you, and then I type an insult, and then I send it, and then I claim that it's like a train wreck, to avoid admitting what an obsessive loser I am and how screwed I am that I bought at the peak.

    ReplyDelete
  57. "Well they wouldn't sell to many with conventional financing. (20% down, 30 year fixed, 6.5%) Principle and interest are a steep but possibly swingable $2,149/mo, but the downpayment would be 85k; beyond the affordability of almost all 1st time homebuyers"

    Why do you assume everybody has the same means as you?

    ReplyDelete
  58. Keith,

    I like to use '99 to '01 trend lines rather than go all the way to '03. After '01 you get some serious double digit appreciation which I think is unsustainable over the long term.

    I take '01 prices, add 20% for asset appreciation bonus due to online banking competition, and then 5%/year for normal inflationary appreciation. I see this as a realistic long term trend line. This would require a bit more of a downtrend then the 10% you mention. Probably closer to 25-30% more for the homes you mention.

    My $0.02.

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  59. Anon 7:45,

    I know a lot of working professionals and the number that can afford an 85K down payment is signifcantly smaller than the number that cannot - especially for first time home buyers. Anecdotal? Yes.

    Additionally, home ownership is at all time highs. What is it, like 70% plus or so, up from around 60% just a few years ago? I would argue that those with the means surged into the market to become owners, leaving behind a much smaller population of people with the means yet not the desire to own. Conjecture? Yes.

    So yes, my statements are comprised of both conjecture and anecdotes, but it seems to be a pretty reasonable conclusion to me. Perhaps, if you like, from the perspective of the home builders, they've already managed to sell to all of the low hanging fruit...

    So while there are still people out that can afford an 85K down payment for a first time condo, there are probably not enough to continue to drive the high prices in the ads.

    My $0.02.

    ReplyDelete
  60. mytwocents,

    So your prediction is 40% off peak prices for SFH? I'd be a buyer at that level. Only, I would buy at distress sales (foreclosure) and be another 10 to 20% off.

    Absent some "economic" event, I don't think we will see your numbers. I believe 25% will be the max; maybe more for condo's.

    My plan relies more on the rents than on the sales prices.


    Keith,

    No tears here for Mr. Toll. They should have learned a lesson in the early 90's about over-building. And their cutesy "limited release" games fed the frenzy.

    ReplyDelete
  61. I don't know, 2 cents. I think the 01-03 part of the runup makes sense given how the area has changed. It is much nicer than it was in '99.

    You don't think the 01-03 appreciation period reflected factors like interest rates and some fundamental shifts in the regional economy?

    Any my 10% is off of asking prices which are already well below the peak prices. Basically, my 10% off of asking for those places takes us to a world where there was no 2004-2005 bubble and prices increased 3% a year since late 2003.

    Basically, you are saying that late '03 prices were 15-20% above equilibrium at that time.

    I could see how you'd say prices overshot in 2004-2005 and overshoot downward in 2007-2009, but it seems like a bit of s tretch to say that late 2003 prices were above equilibrium.

    ReplyDelete
  62. "I know a lot of working professionals and the number that can afford an 85K down payment is signifcantly smaller than the number that cannot - especially for first time home buyers. Anecdotal? Yes."

    The number that I know that can afford it is significantly larger than the number that cannot.

    I guess I win the argument.

    ReplyDelete
  63. VA Investor,

    I don't see prices declining that much in nominal dollars either. But in inflation adjusted terms perhaps. If numbers decline a modest 10-15 in nominal terms and then stay flat for 2-3 years, you're quickly near my rough prediction.

    Rents will be going up in the meantime too making the "business case" for owning better at higher prices.

    It's an interesting dynamic. My numbers serve only as a jump off point for approximating the relative expensiveness* of owning.

    My $0.02.

    * Is that a word? :)

    ReplyDelete
  64. Anon 8:03,

    I guess you do. Especially when you don't consider the larger picture.

    My $0.02.

    ReplyDelete
  65. ANON said:
    "I know a lot of working professionals and the number that can afford an 85K down payment is signifcantly smaller than the number that cannot - especially for first time home buyers. Anecdotal? Yes."

    Bothtimes I sold my condos (99 and 05), parents gave large downs to the kids buying. Further proof of rich getting richer and poor getting poorer ... as classes

    ReplyDelete
  66. Yep. My down payment on my first place (at age 27) was inherited money.

    ReplyDelete
  67. I've been thinking along the same lines as Keith. The escalation of 2001-2003 seemed sustainable but 2004-2005 was kind of nutty. In July 2005, I sold the house I'd owned since 1999 at 120% over what I paid...job transfer. That just seemed really crazy. Do any of you think that the data in this report provides any type of good guidelines as to where prices might go in the DC area.

    http://www.globalinsight.com/gcpath/1Q2006report.pdf

    ReplyDelete
  68. Keith,

    According to NVAR, appreciation in '01 wsa 13%, 12% in '02, and 14% in '03.

    This is roughly in line with the 20% premium I am allowing on '99 to '01 trend lines based on banking competition. As a bonus, it's slightly easier to track a return to '03 prices plus inflation.

    For the record, housing that is now tracking close to '03 prices would have given up a 21% '04 gain and a 22% '05 gain.

    Source: source: http://www.nvar.com/market/history.lasso

    -My $0.02.

    ReplyDelete
  69. lance said,

    "Both times I sold my condos (99 and 05), parents gave large downs to the kids buying."

    I'm curious as to whether the lender was informed about this transfer of funds -- meaning, that the borrowers did not have the financial means themselves to become obligated to this debt, i.e. they couldn't have obtained the loan if they didn't have mom and dad bailing them out.

    Further, gifts are limited by the internal revenue code to $10K/year (I believe it very recently increased to $11K/year.) The transfer of any amount over this someone other than one's spouse constitutes income to that person and must be reported.

    I ask this because it indicates yet again how deep the fraud goes in the mortgage lending industry. Many buyers simply could not buy were it not for fraud engaged in by them or on their behalf.

    ReplyDelete
  70. I don't see why the 1999-03 run-up is any more sustainable than '04-05. Rents over that period have largely been flat in adjusted dollars, apart from a few hip apartment-centric areas in DC and close-in burbs. And rents are the best indicator of a property's "true" value, subtracting all of the specuvesting.

    And by the way, No.Va. and DC might not be the same thing politically, but they are both part of the same metro area and are thus interconnected economically. Meaning what happens in one affects the other. Housing crashes in Va. suburbs will affect demand, and thus price, in DC to some extent.

    ReplyDelete
  71. What fraud? If you have the downpayment and have the means to make the payments, that's the end of the story. the lender should't give a sh*t if the downpayment came from the buyer's parents, mattress, baseball card collection, or prostitution.

    ReplyDelete
  72. Sure guys. The collapse is coming. Any time now. Any ... time ... now ...

    it's amazing how many times you can be wrong and still not STFU.

    Prices in this area are exactly on the trend lines established before the 90's lull, which was an outlier. Get used to it.

    ReplyDelete
  73. whitetower,

    I am not an accountant (sp?) but you are wrong, wrong, wrong. Gifts in excess of 11k per parent are not taxable - just reportable against the lifetime exclusion.

    Gifts - that are not loans - are of no concern to underwriters.

    ReplyDelete
  74. "Sure guys. The collapse is coming. Any time now. Any ... time ... now"



    I own three homes in Mesa, AZ (85204 zip/District 4 schools) 3 bedroom 2 bath, built 1989 1500 sq ft. 7000 plus lot.

    They peaked around $255-265,000 in Oct. 2005 and as of today they appear to be holding in the $240,000 range. A drop of about 10% at best. Imo, location is everything esp. with rising gas prices. It seems those who bought in the newer developments further out (Queen Creek, Surprise etc) will get hurt esp. if they MUST sell.

    Now I assumed along with others (read: Ben Jones blog) that increased inventory would crush the price of my homes in East Mesa. Yet this simply has not happened. Personally I feel as long as prices in Cal don't get hit too hard (I spend a lot of time in San Diego/Hillcrest area and prices of single dwelling homes there haven't dropped much at all from a high of last year) then I should be o.k. Of course the fact that the Phx metro continues to grown by some 100,000 each year doesn't hurt either.

    ReplyDelete
  75. I used to read Ben's Blog often, but no longer can tolerate the rudeness that abounds. I agree with you that prices seem to be holding so far.

    ReplyDelete
  76. I was an avid read of the Ben Jone blog. Yet when the all but guaranteed summer crash of 2006 didn’t materialize in the Phx. Metro areas as planned many bloggers have become defensive. It was supposed to be a no-brainer. Inventory has skyrocketed and prices will crash. Blood on the streets ect. Still prices at least in the Phx Metro havew held strong. A 10% drop at most.

    ReplyDelete
  77. "fraud goes in the mortgage lending industry"

    Ken Lay was a close personal friend of the Bush family. He was instrumental in electing GWB to the TX governor's office.

    Lives have been ruined by Ken Lay and the fraud perpetrated by corporate America and the federal government.

    You're complaining about a little wink and a nudge on a mortgage application?

    ReplyDelete
  78. "For the record, housing that is now tracking close to '03 prices would have given up a 21% '04 gain and a 22% '05 gain."

    I'm looking at asking prices that are 20% more than what the owners paid in late '03. Knock 10% off of those, and you're at late '03 plus 10%.

    So, yeah, asking prices already reflect a giving back of a lot of that 04-05 appreciation.

    1.21*1.22=1.476, so we'll call that 1.48.

    That's 48% gain in 04 and 05. Prices were flat to declining in 06, so 1.48^(1/3) = 1.14.

    Asking prices now reflect a 20-22% gain over '03, so the asking prices alone are giving back well over half (28%) the 48% 04-05 appreciation.

    Knock another 10% off the asking, and you're looking at 10% total appreciation over 3 years (annual 3% rate) instead of 48%. It's as if the bubble of 04-05 never happened and you just had normal 3% appreciation.

    ReplyDelete
  79. For anyone that's interested, Anon 11:16 perhaps, I fit a trend line to the last 25 years of housing data as reported by NVAR using a least squares method.

    The end result is that '04 numbers are 27% over this 25 year trend line, and '05 numbers are 50% above this 25 year trend line.

    So no, prices are not simply back in line with what they were doing before the 90's lull.

    source of data: http://www.nvar.com/market/history.lasso

    Fun with math,
    My $0.02.

    ReplyDelete
  80. Whitewater:
    "I'm curious as to whether the lender was informed about this transfer of funds -- meaning, that the borrowers did not have the financial means themselves to become obligated to this debt, i.e. they couldn't have obtained the loan if they didn't have mom and dad bailing them out."

    Just because the parents gave them equity to put down (something like 25% in the first case and 65% in the second case), doesn't mean they weren't able to handle the financial obligations. As far as I could tell, they were all easily able the handle them. You might be thinking of HUD loans that I think use to have some kind of restriction as to where closing costs came from. I think these were for loans that required minimum down and you had to prove that the down payment hadn't been borrowed from parents but rather given by them.

    ReplyDelete
  81. 2 cents,

    The city is a much more attractive and prosperous place to live now than it was in 1975. Those numbers do not support your theory.

    ReplyDelete
  82. LOL. It's different now, silly.

    ReplyDelete
  83. Anon 12:58,

    I was playing with the trend line from only 1980 to 2000 and when you only consider those middle years current prices are even more above trend.

    I think you have to significantly ignore historical prices, say, no early than 1999, in order for a trend line to not significantly be below current prices.

    There's a reasonable argument for home asset price increases but to the tune of 50-80% above historic prices?

    My $0.02.

    ReplyDelete
  84. "LOL. It's different now, silly. "

    No, you're right. It's the same.

    ReplyDelete
  85. "Anon 12:58,

    I was playing with the trend line from only 1980 to 2000 and when you only consider those middle years current prices are even more above trend.

    I think you have to significantly ignore historical prices, say, no early than 1999, in order for a trend line to not significantly be below current prices.

    There's a reasonable argument for home asset price increases but to the tune of 50-80% above historic prices?

    My $0.02.

    "

    Well, if you're right, then prices might go down. But so far, you're always wrong.

    ReplyDelete
  86. Anon 1:38,

    I am not currently wrong. Prices have been down quarter over quarter for 2 quarters now to the tune of about ~5%. Q106 numbers are already dead even with Q205 numbers.

    Any other baseless claims you want to make? The hand waiving argument you have is compelling for only so long.

    Source on declining numbers: http://www.realtor.org/Research.nsf/Pages/MetroPrice

    My $0.02.

    ReplyDelete
  87. Looks like prices are up 11% in Washington over year. Thanks for playing.

    ReplyDelete
  88. Also, are you seriously relying on data from West Virginia to make a point about real estate in Washington, DC?

    ReplyDelete
  89. Anon,

    the whole point of being mytwocents is to cherrypick whatever misleading data makes your point and to ignore all data that contradicts it. That's why she's on this earth.

    ReplyDelete
  90. my 0.02 -- have you seen the chart at jparsons.net?

    Anon at 1:52, 1:53, etc., posting the conversations in your head is really only interesting to your multiple personalities.

    ReplyDelete
  91. Anon 1:52, if you were to actually understand what I wrote and then look at the numbers you would see that that the market is trending down. That 11% YOY number will be dead flat YOY if there is no price movement Q106 to Q206 and seeing as how the numbers have been trending down I find this unlikely. So, you're 11% YOY number is likely to swing to a 0 to -2% YOY number. Pretty steep for a 3 month period no?

    As for the numbers, the metropolitan region is defined by NAR for what they think is appropriate to describing this area. If you don't believe that WV is considered a suburb of DC then you really haven't been paying attention to the mania. Personally, I would like to see more detailed information but, as much as I enjoy researching the RE markets, I don't care to spend that much more time.

    As for misleading and cherry picking Anon 1:56, at least I'm taking the time to look at the numbers, analyze the data, state an informed opinion, and present my sources.

    But I guess this methodoly pales in comparison to your ability to simply KNOW what's going on.

    -My $0.02.

    ReplyDelete
  92. My .02,

    The housing heads NEVER provide reference for counter argument. I believe they look out their doors in the morning, see no signs of impending doom, and chuckle at the absurd thought of a housing bubble. These naysayers refuse to use statistical information to their advantage like those caught up in the dot com crash in 2001.

    I also think they come to this blog to try to convince those in the 'know' to buy a piece of real estate to help prop up the values of their sagging, overpriced homes.


    Not a redskins fan.

    ReplyDelete
  93. anon,

    "I also think they come to this blog to try to convince those in the 'know' to buy a piece of real estate to help prop up the values of their sagging, overpriced homes."

    LOL ... that's right, and next week I'm going to start a Stocks and Bonds blog and get them rallying!

    In all honesty though, did you really listen to what you are saying? Do you really think a handful of folks debating both sides of an issue can have any effect on the millions of buyers out there?

    ReplyDelete
  94. Of course not. But don't tell that to the bloggers here.

    ReplyDelete
  95. " If you don't believe that WV is considered a suburb of DC then you really haven't been paying attention to the mania."

    LOL. case closed.

    ReplyDelete
  96. Lance, I'm worried. Your post count over the past 14 hours you've spent on this thread is dangerously low. Are you OK?

    ReplyDelete
  97. Anonymous said...
    "Lance, I'm worried. Your post count over the past 14 hours you've spent on this thread is dangerously low. Are you OK?"


    LOL ... Didn't David tell you he was taking me with him to California? ... something about wanting to know how to get a killer deal on a beachfront condo ...

    ;)

    ReplyDelete
  98. anonymous 11:14 said,

    "What fraud? If you have the downpayment and have the means to make the payments, that's the end of the story. the lender should't give a sh*t if the downpayment came from the buyer's parents, mattress, baseball card collection, or prostitution."

    No, it isn't the end of the story.

    First, when obtaining a mortgage loan (and, for that matter, virtually any other sort of loan) lenders almost uniformly ask to see the last 30- or 60-day bank statements. Why? They are probing for fund transfers -- if a borrower claims he has the down payment, but in reality doesn't but is obtaining it through other people, he can't afford the loan. Worse, for the lender, the transfer of funds could be a a loan that the family member, friend, employer, etc. could attempt to recover from the borrower by placing a lien on the property, thereby putting the lender at financial risk.

    Second, lenders ask borrowers (when you sign your "borrower's certification" form) whether closing/down payments funds are the borrower's or are gifts. A false statement in regard to this question would constitute fraud.

    Anonymous' response typifies the "so-what" attitude towards fraud in the real estate industry

    ReplyDelete
  99. whitetower:
    "Anonymous' response typifies the "so-what" attitude towards fraud in the real estate industry."

    I think you are jumping to unwarranted conclusions. There is absolutely nothing counter to any lenders policies of a parent or other person giving assistance. When they check the bank accounts what they are looking for are loans that might make the applicant appear more solvent than they are ... not gifts that do make them more solvent. And because of all the new tools out there, not everyone is subject to the 3 months account statement. I know I wasn't the last couple times I used a lender for a loan. We live in a world where just about anything about you can be found out online by those with a need to know. As long as you sign on the dotted line allowing them to act based on what they find, they can do the rest. Haven't you opened an account recently at a Home Depot or elsewhere? Did you not wonder how they could give you a personalized credit line is less than 10 mins?

    ReplyDelete
  100. "Well, if you're right, then prices might go down. But so far, you're always wrong."

    That ball you threw in the air is still going up, so it can't possibly come down. Oh wait, it is.

    ReplyDelete
  101. Round and round....

    "That ball you threw in the air is still going up, so it can't possibly come down. Oh wait, it is."

    The conversation is back to equating local housing markets with newtonian physics.

    Who here remembers the "what goes up, must come down" mantra recited on this blog?

    Yep, the housing market (singular) is global in nature and has many of the same attributes as both the NASDAQ *and* flying objects.

    ReplyDelete
  102. While it is painful to admit, Lance's comment at 7:16 is correct. Lender's will, however (or at least they used to) require persons making gifts to prospective borrowers to verify by affidavit that the amount given is a bona fide gift and not a loan.

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  103. "The conversation is back to equating local housing markets with newtonian physics."

    No, it's back to the silliness of the housingheads. First, the housingheads say "housing markets aren't like stock markets," which is true. Then the housing ehads are like "where's your crash, HUH, HUH?" whilst ignoring the leading indicators like rapidly stacking inventories and rapidly dropping asking prices that indicate falling prices. It's silly. I've already shown asking prices, that come closer and closer to wiping out the 04-05 bubble. If people aren't buying at these asking prices, shouldn't that tell you something? It would if you weren't so emotionally bound up in the issue.

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  104. How long will the leading indicators continue to lead? When will the actual crash happen?

    "It would if you weren't so emotionally bound up in the issue."

    Methinks 'tis thou with the emotional attachment.

    ReplyDelete
  105. "How long will the leading indicators continue to lead? When will the actual crash happen?"

    If we haven't seen sharp drops in price by January 2008, I'll certainly have to update my beliefs.

    ReplyDelete
  106. If you want, choose you zipcode(s), and say what you think prices will do over 2007. I'll offer my assessment, and we'll have a testable hypothesis.

    ReplyDelete
  107. By the way, for the less numerate:

    If something goes up in price by 50%, it only needs to fall in price by 33% to wipe out the entire 50% gain.

    Price=100

    +50%

    Price=150

    -33%

    Price=100

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  108. Three posts in response to a simple question:

    The first response contains a 16 month timeline. Apparently the leading indicators, which first appeared years ago, are FAR ahead of the event which they indicate.

    The second response was essentially a challenge with another 16 month timeline that must elapse before any hypothesis may be tested. This blog is not a scientific instrument, nor do I plan to read or contribute to this blog consistently for the next 16 months. Apparently "Keith" plans to do just that.

    The third response is basically a pre-emptive, pro-active insult. (and it ignores multiple years of compound double-digit YoY price increases)

    Whom is emotionally attached to this issue again? Certainly not thou.

    ReplyDelete
  109. "The first response contains a 16 month timeline. Apparently the leading indicators, which first appeared years ago, are FAR ahead of the event which they indicate."

    Welcome to housing markets, which aren't very liquid. Since prices have started to decline within the timeframe David said they would, you wouldn't go around declaring bubbleheads wrong wrong wrong unless you were emotionally really tied up.

    "The second response was essentially a challenge with another 16 month timeline that must elapse before any hypothesis may be tested. This blog is not a scientific instrument, nor do I plan to read or contribute to this blog consistently for the next 16 months. Apparently "Keith" plans to do just that."

    When do you plan on leaving? When you turn out to be so obviously wrong that you actually manage to become an even bigger laughingstock than you are now? When you run out of porn links? Everybody will really miss you.

    "The third response is basically a pre-emptive, pro-active insult. (and it ignores multiple years of compound double-digit YoY price increases)"

    I only said "for the less numerate." You chose to assume I meant you. I guess you then believe you're less numerate? We agree on that, then.
    And I'm using the compounded 04-05 price increases as my rough 50%.

    "Whom is emotionally attached to this issue again? Certainly not thou."

    Hey, good job. You said something correct. I'll flatter you and assume you weren't being sarcastic. I'll give you the benefit of the doubt. You seem to need a little kindness.

    ReplyDelete
  110. keith, are you aware that you have emotional problems? Why is a housing blog your outlet for your issues?

    ReplyDelete
  111. Not anonymous,

    Are you aware that hand waving, obfuscation, sarcasm, and pot shots do not make a compelling argument?

    My $0.02.

    ReplyDelete
  112. anonymous 5:38 said,

    "Lender's will, however (or at least they used to) require persons making gifts to prospective borrowers to verify by affidavit that the amount given is a bona fide gift and not a loan."

    Lenders already require borrowers to verify that their down payment isn't a gift. Lenders don't want to see loans or gifts used as down payments.

    ReplyDelete
  113. "Are you aware that hand waving, obfuscation, sarcasm, and pot shots do not make a compelling argument?"

    Obviously not.

    ReplyDelete
  114. whitewater said:
    "Lenders already require borrowers to verify that their down payment isn't a gift. Lenders don't want to see loans or gifts used as down payments."

    I don't think this is true ... It would make no sense if it was. If one is qualified after receiving a gift and wasn't before, one is still qualified aren't they?

    ReplyDelete
  115. Good answer not anon. :)

    My $0.02.

    ReplyDelete
  116. That wasn't my answer, .02. I suspect that it was keith.

    I also suspect that keith will jump back in here spewing more bile, especially when he has someone like you to cheer for him.

    ReplyDelete
  117. Whitetower said:

    "'Lender's will, however (or at least they used to) require persons making gifts to prospective borrowers to verify by affidavit that the amount given is a bona fide gift and not a loan."

    Lenders already require borrowers to verify that their down payment isn't a gift. Lenders don't want to see loans or gifts used as down payments.'"

    I'm the anon you quoted. In this particular case, Lance is correct. On a full doc loan the lender could care less if there is a gift. It would be an issue in a stated income/verify asset loan (though, strangely, it probably wouldn't in a stated asset/stated income loan).

    Whether or not these policies are wise is a different question.

    ReplyDelete
  118. "Welcome to housing markets, which aren't very liquid. Since prices have started to decline within the timeframe David said they would, you wouldn't go around declaring bubbleheads wrong wrong wrong unless you were emotionally really tied up."

    In what markets (plural) have "prices started to decline"? There is no national housing market. You cannot point to condos in Fauquier County and say they represent the SFH market in Columbia Heights. (not MD)

    I imagine that simple fact will drive you into another foamy-mouthed festival of pseudo-superior insults...

    Come on, we're waiting...

    ReplyDelete
  119. I'm angry because Two Cents, Keith, and especially reality itself are showing me for the angry, small, fraud that I am. Waaaaaaahhhhhh.

    ReplyDelete
  120. "In what markets (plural) have "prices started to decline. You cannot point to condos in Fauquier County and say they represent the SFH market in Columbia Heights."

    MRIS data for July:

    Washington, DC (just the District of Columbia, no suburbs)

    * Median Sales Price YoY: - 3.45 %
    * Average Sales Price YoY: - 2.31 %
    * Total Units Sold YoY: - 21.11 %
    * Average Days on Market YoY: 82.14 %
    * Active Listings YoY: 146%

    Game, set, match. Ovah.

    ReplyDelete