The goal seemed simple enough. Provide more opportunities for people to own a home. After all, home ownership helps stabilize neighborhood values and contributes to the growth of the overall economy. Home ownership is the cornerstone of the American capitalistic system; it symbolizes freedom and our right to vote. Its foundation can be traced to our Constitution and Bill of Rights. The freedom of speech, religion, and assembly, the protection against quartering of troops, protection from unreasonable search and seizure, all of these can be associated with the privilege of acquiring property.

If home ownership provides such a tremendous benefit, then wouldn’t it be advantageous if more people could buy houses? Increasing home ownership was a win / win for all concerned. Offering incentives to prospective home buyers became commonplace. Our financial institutions developed new products to meet the needs, (or create the needs) of almost anyone who wanted to apply for a mortgage. Buy now, pay later. Don’t worry about meeting the monthly payment, home prices are going up. Refinance later and defer, allowing your equity to grow. As Bud Fox said in the movie Wall Street, “Everybody is doing it now”….”Nobody gets hurt”.

It became more advantageous to own versus rent. It was easier to obtain a mortgage than it was a department store credit card.. If you cannot qualify based upon your current annual income, then use our special application and state what you think your income is (hint, it needs to be “x” amount). When the money supply is readily available and credit is easy, people didn’t seem to worry about the price they paid for a house. The market spawned many new real estate investors (actually speculators). Buy a house today, add new carpet and repaint, sell it 4-5 months later for a quick 20% gross profit. Fast money and the guaranteed key to riches. Little did we know the American Dream would soon morph into a financial catastrophe of unseen proportions, toppling the most respected institutions including Bear Stearns, Lehman Brothers, and Countrywide along with Fannie Mae and Freddie Mac. Not to mention the thousands of people who will become unemployed as a result.

Many years from now human behaviorists will study the causes of the housing crisis. It will become case studies in our universities. Did government become overzealous in its commitment to increase and encourage home ownership? Did financial institutions turn a blind eye to the realities of mortgage defaults simply because the housing market reached historic highs for several years and the constant wave of refinancing was able to postpone the inevitable wave of foreclosures? And to what degree were prospective home buyers willing to commit mortgage fraud so that they could obtain their piece of Americana.

It seems strange to me that good old fashioned GREED could be the foundation of our financial demise. Bankers after all are some of the most conservative and risk averse people I know. It’s part of the job description. Pricing risk with the appropriate return on investment is how they make decisions and money. How did they make these career ending, company liquidating decisions, based upon not appropriately assessing the degree of risk they were assuming? I have a hard time believing these decisions were soley based upon the fact that everyone was doing it and nobody gets hurt.

Tags: housing crisis, real estate housing crisis, real estate market

There is so much information available in the media regarding the real estate market. Its very difficult to open the paper or turn on the local or network news and not receive some information regarding the housing market. What is so fascinating is how the data is being interpreted. How the information is being digested depends on one thing. Are you a buyer or a seller?

People may tend to view and absorb information from a single perspective. How does it impact them and what does it mean for their current situation. Suffice it to say that if you are not currently in the housing market, meaning you are not looking to buy or sell, you may not be concerned if prices are rising or falling. You are probably more concerned with the price of gasoline since this impacts your budget and you have to deal with it everyday, than you are if home prices are down 10%.

Market Momentum Has Shifted

However, if your intention is to buy or sell property, chances are you have a much different perspective than your counterpart on the other side of the welcome mat at the front door. Home buyers recognize that the momentum has shifted. They can be more patient, more demanding and more selective in their approach to buying a home. If they can’t come to an agreement with a seller who is willing to meet them or their terms, they can go somewhere else. There are plenty of homes for sale and apparently only a few buyers willing to make offers.

Home sellers on the other hand are convinced they are the exception. Despite the negative news being reported it somehow doesn’t apply to them. Convinced that someone looking at their property will see its meticulous care and amenities, they will pay more and will do so quickly.

Market Specifics, Not Generalizations

In an up or down market, one thing is generally consistent, quality properties will usually maintain their value and are less likely to experience wild market swings in value. So the price declines we are reading about in Riverside County are probably not applicable here in Pasadena. Many of the neighborhoods in Pasadena while certainly not gaining in value have experienced very little price deterioration. Sometimes buyers are surprised that sellers do not seem eager to accept an offer that is 5-7% below the asking price. In a market where there seems to be little consensus, it can be hard to find acceptable territory on which folks can agree.

In a slower market it is harder to determine the value of a property. A seller’s motivation becomes a much more tangible ingredient especially if reinforced by financial obligations. Buyers seem to be basing many of their offers on the premise that today’s sellers are much more motivated and are therefore much more likely to accept an offer that may be below what the area may indicate that it is worth. If patience and time are on your side, then finding that special motivation may be worth waiting for.

I don’t think anyone would argue that the pendulum has swung and it is now a buyer’s market. Although sellers had the ball for 5-6 years, some of them are just very reluctant to give it up.

Tags: buyers market, home buyers and sellers, real estate market

When a property owner becomes delinquent in their house payments they can attempt what is known as a short sale. A short sale indicates that the proceeds of the sale will not cover the debt on the house, indicating the lender will be taking a loss. The question then becomes how much loss is a lender willing to accept? Or is the lender likely to make more money by allowing the house to be foreclosed on and take it to auction?

Negative Equity

If a home was purchased in the last couple of years, there may be a chance that the house is worth less today than it was at the time of purchase. Or if someone has refinanced several times and removed the equity, they may find that they now owe more than the house could sell for. Before a lender will consider a short sale, they need some evidence that the borrower cannot meet the financial obligation previously agreed to. This usually means that their must be some indication of a “hardship”. Some people mistakenly see a short sale as a panacea to get them out from a financial burden. A lender may be less likely to consider a short sale if you own multiple properties, have sizable assets or indicated that you were going to occupy the property you now want to sell when you never lived there. A hardship may be due to a divorce, job loss, death or disability of a spouse or some other loss of income. At this point the lender is going to decide if they will accept the offer, not the home owner. The prospective offer has been submitted to the lender. The ball is in their court.

The lender has sent out the appraiser who has submitted the report. A decision is anxiously awaited. The lender has the required information to either approve or disapprove the offer.

Tell Us Something, Anything, A Simple Yes or No

With all the talk and press lately about the declining real estate market and pending foreclosure’s, wouldn’t you think that banks would be eager to get rid of a property and reduce their rising inventories? I would think so too, but apparently not.

The typical foreclosure timeline starts when a “Notice of Default” is filed, usually after a homeowner misses about three payments. In this specific instance the bank was aware of the situation. They were even communicating in advance which seemed to be a positive sign. I used to have a friend who worked for a consumer products company and the inside motto among the salespeople was that things were just fine until a customer placed a purchase order, then the company had to deliver it which created all kinds of internal problems. Isn’t this what they are in business for in the first place? Nothing happens until someone sells something!

Week 5, Still No Word

An offer on the property was submitted which seemed to be in the guidelines for approval. Uh oh, trouble ahead. Now someone with some authority will have to make a decision and approve a sale along with a loss of $130,000. Hello, is anyone home?

In case your wondering the time from presenting the offer until today has been six weeks. The buyer who was very qualified and able to close the transaction within two weeks of approval has bailed out. The buyer’s frustration and impatience was communicated to the lender regarding their inability to make a decision. They were quick to call what they perceived as a bluff and reply “if the buyer decides to walk away then we will just have to cancel”.

Game Over

The buyer canceled. Seems that there are just too many opportunities out there with prices coming down daily. And why wait for the never ending supply of Vice President’s to add their initials of approval? A classic case of Texas California hold em. Now everyone has folded and the cards are being reshuffled. Nobody won, in fact everyone lost.

If curiosity killed the cat, I am convinced that procrastination kills real estate.

Tags: Foreclosure, real estate market, short sale

Items in the news these days and close to the hearts of Southern Californian’s are the status of the real estate market and what is going on in Hollywood with the writers strike.

How could these two seemingly different issues be linked together? How could they possibly have anything in common? Well as you will see they do share many similarities, probably some you would never have thought of.

1. No End In Sight- seems as if the studios and writers can’t agree on anything and the forecast for the housing market is more of the same through 2008. Could it be that we just have to accept the new status quo, like it or not?
2. Solidifying of Positions - home buyers think homes are worth less, sellers are holding tight to their prices and reluctant to admit that values have declined. Writers and Studios don’t seem inclined to “give & take” either. In negotiating you learn to try and achieve agreement on the small issues and table the large issues for later. Very difficult when the only issue is the large issue…money.
3. Selective Help - we may see a return of the late night shows (Leno & O’Brien) while other shows remain dark. We are also seeing a federal government bailout for selective homeowners in the foreclosure process. The same rules don’t seem to apply to everyone no matter what industry you are in. I would have to be asking myself “What is so special about my neighbor”?
4. The Ripple Effect - many people in supporting roles begin to feel the effects of a work stoppage such as production people, caterers, nearby businesses and restaurants. Also new household formations drive a tremendous amount of retail business. Also banking and construction workers will begin to feel the squeeze as construction related spending comes to a halt.
5. All Over the News - newspaper reports, the internet and the evening newscast report on the latest information concerning these two issues. Most of us have now been exposed to these two events that we have some appreciation of the facts although we might not understand the underlying causes.

Here’s to 2008 and hoping it brings better news for both!

Tags: Hollywood writers strike, real estate market, writers strike