California's Crisis in Waiting: The 2008 Option Arm Implosion

Dr. Housing Bubble takes us all to school for an important lesson on the next phase of the greatest housing crash in American history: $500 billion of option ARM loans waiting to go *POOF* - 60% of which were signed for homes in sunny and delightful California.

True to form, most Americans (and Californians) apparently chose option 1: Minimum monthly payment.

Come on, think about it. How else can one afford the monthly payments to "own" that 7-times-your-annual-salary-home price?

A lot like making that minimum payment on your credit card every time, but not paying down the balance borrowed, so interest charges accrue into a 600 lbs. hungry and angry Silverback gorilla. Oh, nevermind that menacing figure in your rear view mirror. That's just your collossal unpaid loan balance waiting to destroy your future financial livelihood!

Man, I wish they would come out with auto loans structured like this! I would buy a fucking Ferrari!

Oh California! You thought you could have your state budget crisis cake, educational cuts, and housing crash too?

This is goddamned scary.

"The agent's interests come second"

"...the client's interest must always come first".

"Customers are owed the duty of honesty".

If only more had paid attention during their training/licensing program and after to Article 1 of the Realtor Code of Ethics.

It may be too late for some. Obviously Mr. Romero and many of his ilk weren't all too interested in any pathway or posted signage with the word "professionalism" on it.

Well, this seemingly forgotten code is now on Youtube, so Americans everywhere can rest assured that there will be no more lame ass excuses going forward, I suppose.

In my view, if any previous clients of a Realtor are now facing foreclosure, the Realtor should do something about it.

No. Realtors can't fix everything. And consumers of overpriced and overhyped real estate should have known better. Caveat emptor.

But Realtors can do something. I don't know what that something would be. Maybe Realtors could give back a portion of the commission they earned while selling certain clients down a river on the biggest, most important, most emotional - and ultimately most financially stupid and destructive purchase of their lives?

I don't know. With hundreds of thousands of families facing foreclosure right now across the nation, would that even be a fair solution? How much blame should a Realtor really receive? Perhaps none at all. These homedebtors were the ones buying into the "Get in now!", "Now's a great time to buy", and "You can always refinance!" sales pitches. They signed the freaking mortgage, not the Realtor.

So what would be a fair solution? Maybe the homebuilders and mortgage brokers might want to pitch in with the Realtors and send their foreclosing clients an "I'm Sorry." Hallmark card:

I'm really sorry. It won't ever happen again.

In my view, honesty is dead in the real estate profession in America. And Realtors - fancy reserved trademark and all - have helped kill it off.

For what it's worth, some ethics. Enjoy:

Remax: OC First Market to Recover from Housing Crash?

Inland News reports from the C.A.R. that Orange County will likely be the first California locale to exit the housing slump.

Steve Thomas of ReMax in Aliso Viejo, CA is saying the same thing on the John Lansner Blog today. Demand for homes in Orange County is at it's highest level since 2005 as over 3,000 homes have recently been placed in pending escrow. Mr. Thomas also claims that "active" inventory of for sale homes in Orange County has declined below 15,000 for the first time since January 2008.

A sign that the Orange County market is turning around?

Perhaps.

I noticed that the Bubble Markets Inventory Tracking Website, which looks at data from both ZipRealty and DataQuick sources indicates (as of 31 May 2008) approximately 17,000 homes for sales in Orange County, not 15,000.

I checked ZipRealty today (Sunday, June 15, 2008) for all homes available for sales in all Orange County communities and found 16,668 homes for sale.

While I'm as pleased as the next guy to see pent up housing demand in OC(due to 5 years of nose-bleed-home-pricing fueled by cotton candy mortgages) burning through 400 homes of foreclosures, and to see OC sellers asking for more money when selling their homes, please forgive me if I fail to be completely shocked and convinced at this stage of the collossal housing market collapse by the calling of bottom once again by representatives of that hot air balloon company.

Buying a Home in '08? 3 out of 4 Blog Visitors Say "No".

My blogpoll closed today.

Are you going to buy a home in 2008?

36 respondents isn't exactly a scientific sampling, but basically 9 out of 10 Rancid Truth visitors responded as "no" or "are unsure". Not very encouraging news for sellers.

There has been a pick up in single family sales activity in Lake Forest in April and still greater foreclosure activity here than most other OC communities. Realtors I've visited with keep saying it's a good time to buy. Some at open houses I've visited have gone so far as to call bottom this summer!

I'm heading out again tomorrow to visit some open houses. Should be interesting to observe and record the local realtor schtick once again.

Thanks to everyone for contributing to the blogpoll.

Palms of Senators Dodd and Conrad Greased by Mozilo

Senator Christopher Dodd (D-CT) and Senator Kent Conrad (D-N.D.) have been caught with greasy palms thanks to the Great Orange One from Orange County.

So what is it exactly that prevents everyone else from being members of Angelo's VIP club?

And how many more Washington politico dolts will be exposed a la Dodd and Conrad?

Chris, Kent, - Way to go guys! Nice job representing your taxpaying consitutuents.
Look, I don't care how you get your palms greased with easy money in Washington. You have to make a living. Just don't try and screw the rest of us tax paying American with stupid policies like the mortgage prevention act and sure-to-come federal income tax hike.

Who will pick up the Tim Russert baton?

No American journalist in existence today does the same extent of research and preparation for key interviews of representatives in Washington who try to double-talk and double-cross the American taxpayer. No one has the commitment. No one has the tenacity.

Tim Russert had all of that. And now he's gone.

Here is John McCain getting absolutely owned on National Television:



Russert Inteviews Hillary Clinton and makes here look like flip-flopping-for-dollars-and-votes dope:





Russert catching Hillary Clinton flip flopping better than the International House of Pancakes regarding NAFTA:



Russert slamming into Dick Cheney about Iraq:



Unfortunately, we will now never see Tim Russert hammering away at Angelo Mozilo, Barney Frank, Christopher Dodd, Hillary Clinton or Barrack Obama for their assinine support of the mortgage bailout.

Who will pick up Tim Russert's baton going forward?

Who will ask the tough questions?

Who will cut through the lies, expose duplicitousness, and insist that the truth be told?

Unless some or many step up, grow a pair and do their jobs in the American press corps, more muck, deceit, lies and ruin surely await us all.

Mr. Russert, you are already terribly missed. May peace be upon you and your family.

"Correct Pricing Is The Only Answer"

A call from this LA Times article by Lew Sichelman to price homes to market.

In 2008?

Well, OK. Where the hell have these reporters been the last 2 years? Last 5 years?

Welcome back. Had enough of the cool-aid, heh?

Hmmm. This is all good advice for realtors, you know.
Make sure homesellers set the right price to begin with.

Howard Brinton, a sales trainer from Boulder, Colo., says too many agents let the market control them, instead of the other way around. An agent, he says, needs to be a counselor and educator as well as a salesperson.

"Pricing, specifically correct pricing, is the only answer for today's changing market and the most important thing a Realtor can do for his client," Brinton said.

But how ironic is it that only 18 months ago we had realtors and the N.A.R. prodding Americans to buy homes at higher and higher prices and they didn't see anything wrong or false about their counsel or educational acumen then?

But what do you expect when the earnings of a realtor is based up on either the sales value of the selling house or nothing at all?

Consumers must expect to get the shaft on the way up and now on the lovely way down.

If I want to build a new deck on my house, I might do it myself, but I might also decide to pay someone to do the work for me. I'll pay them for all the materials and the labor hours required to complete the construction, and I will review the work so that it meets the agreed specifications.

I could never imagine paying a contractor a percentage of the transaction or total value of the completed deck. No. I pay him directly an hourly rate for the work performed and for the wood, nails, glue, cement and treatment.

So it should be with home realtors.

I would pay a realtor $40 to $50/hr for the work they would do to find me a home to purchase in Lake Forest, California. But the idea that I as a consumer must pay a realtor $12,000 when buying a home purchase at $400,000 in value, but $22,500 for buying a $750,000 house just doesn't make any sense whatsoever. What on earth justifies the $10,500 additional commission? Are realtors using sales flyers made of platinum for the $750K house or something?

No. It doesn't make sense. Nothing does. And that's the problem.

I wouldn't pay the contractor more per hour to build a larger, more expensive deck, would I? No, I'd pay him his labor rate and for materials, but that's it.

I can't begin to imagine the anger that those who bought into the b.s. of realtors when the market was growing (unrealistically) at 15% in 2004 and now when selling have to take it up the tailpipe on "correctly" pricing the home they bought. Those that are foreclosing, wow, they've got to be really pissed off.

The advice above is sage. Want the housing crisis to be over tomorrow?

Buckle your seatbelt and then price your home to market. Then get ready for a wild ride.

So You Drive an SUV?!

If you drive an SUV, ok you do look cool. But you are getting absolutely hosed right now in a big way, aren't you.

Damn!

Today, gasoline in Lake Forest, California is now $4.55 per gallon (87 octane)!

In Orange County, the average price is $4.58 per gallon (87 octane)!

A week ago? $.4.40

A month ago? $3.89

A year ago? $3.19

Man, it must really suck. But since SUV drivers really want to look cool, but prefer the Bill Clinton era fuel prices, yet still don't want to crimp their OC lifestyles, why not go electric with your next vehicle?

Being OC-cool and going alternative power with your wheels are no longer mutually exclusive concepts. Check out the 2008 Tesla Roadster from Tesla Motors of California. You can order one today.

100% Electric powered

o to 60 mph in 3.9 (would blow the doors off most SUVs)

13,000 rpm redline

135 mph (It's OK. You can cry.)

220 mile range per charge (requires 3 hours to charge in normal electric socket) ($0.02 per mile).

Price? $100,000

OK, scoff if you want. Our grandchildren will be laughing at our silly asses for driving carbon-fueled SUVs, much like you laughed at your own parents/grandparents for using a typewriter at their 1970s and 1980s office job.

Besides, we need to develop a sense of humor about all this because, $6.00/gallon gas is exactly the two-by-four-across-the-face that we Americans need to wake up, innovate, lead the world, and unlock our economy's full growth potential. If you based your small business or your household budget on the availability of cheap gasoline, you better be ready to embrace change or be Darwinized. The idea that must continue down the same course with our energy policy because that's the way it's always been done is ludicrous and insanity defined. We've followed the innovative spirits of BP and Exxon and GM and Ford long enough. They've given us $5.00/gallon gasoline, the Ford Mustang, and the Chevy Tahoe SUV. GM and Ford will both be bankrupt by 2010 and so will we, if we don't change.

The GDP of the United States has been shackled by poor government policy in Washington, lack of innovation in the hearland, and economic dependency on foreign nations for our energy. These foreign nations want to destroy us due to our infidelic way of life which is unlike there own, and now wish to exploit America's Achilles' heel to the fullest.

And here's the best part.

We let them.

We must become independent of other nations to secure future economicy prosperity.
America should start to retrofit it's vehicles and engines to clean power sources now and not wait.

Will it be painful? Yes.

Will there be numerous job losses? Very likely.

There could be numerous new jobs and professions as well that cannot be outsourced.

The losses might be no different than what happened to all of the coopers, buggy whip salesmen and blacksmiths.

Let the prices of oil climb to $10.00 per gallon. It should. By 2028 the oil for gasoline be gone.

The price of sand and glass is going to eventually plummet.

RealtyTrac: California Foreclosures Up 81% in May 2008

Holy Crap!

According to RealtyTrac, approximately 72,000 Californians foreclosed on their home mortgages in May 2008, up 81% from May 2007. This constitutes an 11% increase in foreclosures between April and May 2008.

And this is just the beginning!

Almost there Orange County! Almost There!

Today a gallon of gasoline in Lake Forest, CA was priced at $4.41!

Man, we are a few nanoliters away from that $5.00 per gallon milestone.

Just remember that once we reach that summit, we'll all have to remember who to thank.

By the way, just who should we thank?

Countrywide CEO Mozilo Greasing the Skids

Reuters news agency cites that apparently Countrywide CEO/Douchebag Angelo Mozilo didn't think there was anything wrong with the idea of providing certain customers, so called "Friends of Angelo", special help with mortgage loans. Some of these customers may very well have been executives of Fannie Mae.

Way to go, Tangelo. Keep it up. You're doing good. A few more hits like these and you'll make the cover of Time Magazine for sure.

Discretionary Sellers? They're On The Fence Too.

John Lansner's blog article today highlights an important point that the inventory of available homes (aside from distressed property sales and foreclosures) has jumped only 2% (326 additional homes) since the beginning of 2008. This is largely due to the fact that, like prospective home buyers, so-called discretionary home sellers are sitting on the fence too. They know that now is not the right time to sell their homes.

Discretionary home sellers intend to to wait it out until all of you fence-sitting, NAR-scarred, prospective buyers play it out.

A Weekend With The Realtors

I visited some open houses (5 single family homes) over the past weekend in Lake Forest, California.

Many of the homes I viewed were completely and utterly outside my realm of affordability - which pretty much sums up all single family homes for sale in Lake Forest today, despite numerous foreclosures and a certain degree of home price corrections as a result. But hey, I thought it would be interesting to view a few of the local homes that were for sale in the nose-bleed pricing stratosphere ($700 - $900K) and also find out what some of the realtors or maybe some homedebtors had to say.



Here are a couple of observations (since a realtor was present inside each home during the open house). There were no homedebtors present from what I could tell.:


-All 5 homes were single family's in Lake Forest with 4 bedrooms and 2.5 baths or more. All had been on the market for 1 month or more. All had been subjected to price reductions of varying degrees.

-4 of the 5 realtors mentioned "increased local sales activity in Lake Forest" and "all-time low prices for the area" for single family homes. One agent used the phrase "there are some great bargains out there".

- 4 of 5 realtors mentioned that "now is a great time to buy". 2 said that phrase exactly to me. When I asked why they thought it was a good time to buy, they cited the historic high appreciation of home values here, good schools of Saddleback School District, access to local convenience stores, no mello roos in Lake Forest, and the recent price declines.

One realtor told me an interesting story suggesting that in Orange County the trend is that "we always have 5 years of an up market and 3 years of a down market".

- One realtor promised that the home he was selling for $899,000 today (marked down from $900K) would be worth $1.4 million in another 4 years.

- 3 of the 5 realtors expressed their opinion that the "the market has bottomed out" or probably has bottomed out.

- 2 of the 5 realtors said the market would bottom out this summer. One then back-pedaled and said "it'll bottom out by around September 15 at least.....but don't hold me to it."



- At one of the open houses, the realtor mentioned to me that he would cut his sales commission by one-third of a percent (but that he would have to clear it with his partner first). That owuld be 0.33%. Given the sale price of the home ($799K), this would be about $2,600 in potential commission savings for the buyer.

- One realtor acknowledged my entrance into the home but decided to continue a loud and boisterous converation with another client about her failure to convince her lender to "make a deal" about the new rate on her condo ARM loan. He then proceeded to explain to her what a short sale was and that he had a visitor and would need to call her back later.

When the above realtor got off the phone, he introduced himself and then told me about his clients' problem (did not mention her name), an elderly woman who can't afford the "new payments" on her condo. The realtor proceeded to say that he didn't understand why lenders don't work a solution out with their customers on these ARM loans. Then he decided to ridicule his client referring to her by saying "some people are just stupid".

- One beautiful 4 bed single family home I visited was for sale for $899,000 in a lovely Lake Forest cul de sac. Really terrific home. Was previously placed on the market for $915,000. Even though I stated to the realtor that I was just perusing and not serious about buying right now, the realtor said he was very sure he could talk the owners down to $879,000 but that the sellers would not go below $840,000!

I thought to myself, holy shit, the sellers may be screwed as it is with the fucked up housing situation of OC, but the realtor they've decided to hire is feeling footloose and fancy free about leaving plenty of cash on the table. If there is a case to be made for people to pay realtors an hourly wage instead of a flat % off the sales price, this realtor was poster material.

I left the last home really hungry and thinking about stopping by a local Pollo Loco restaurant for some lunch.

I then decided no. What I really needed was to take another shower.

Mortgage Apps Down 20%

Mortgage applications fell in May 2008 by 20% compared to the same period 2007.

Hmmmm. That's a mystery.

I can't believe mortgage lenders now have the audacity to question the veracity of my claims when applying to borrow money! And what's with all this "we need a copy of W-2, copy of 2 months of paystubs and copies of my bank cash holdings and investments"? Look, if I want a financial intervention, I'll ask for it.
What a bunch of jerks!

Lake Forest May Sales in Positive Territory

Despite the 18.3% decline in home sales in Orange County and the 22% year to date decline in home prices in OC, Lake Forest, California (92630) home sales ventured into positive territory in May 2008 by growing 37% over May 2007.

The median home price for Lake Forest in May 2008 was still 19% down over May 2007 - down to $490,000. This includes all home types: condominiums, single family homes, etc.

Is this a just a temporary sales spike, or is this the beginning of the end of the great housing crash in Lake Forest?

Realtors Weep As Consumers Win

The real estate market might finally be taking the long-awaited nanometer long steps toward greater efficiency and increased competition following Friday's agreement between the U.S. Justice Department and the National Association of Realtors that would allow internet and discount real estate brokers full access to the MLS service without discrimination and without the NAR blocking web listings.

One school of thought is that this agreement will create downward pressure on the 3% to 6% sales commission that homesellers and homebuyers have had to pay to realtors.

From the NY Times article from 28 May 2008:

Norman Hawker, a business professor at Western Michigan University who organized a symposium on the Justice Department litigation as a senior fellow for the American Antitrust Institute, predicted that the settlement would ultimately mean a drop in sales commissions of 25 percent to 50 percent as a result of increased competition.

“It’s pretty clear that there was an enormous amount of discrimination against brokers who were trying to use innovative business models,” including discounted fees and virtual offices on the Internet, he said. “There are lots of entrepreneurs who have been looking for a green light in the form of this order to begin offering discounted rates. It has the potential to be a big step forward for consumers.”

Just what the doctor ordered. Higher mortgage rates.

30 year fixed rate mortgage rates from Freddie Mac are now raised to over 6%, which will offer more downward pressure on housing prices as prospective buyers double-check their bank accounts and monthly budgets for enough cash to make the required month-to-month mortgage payments.

Low mortgage rates have been a critical factor fueling OC home affordability and home sales turnover. With OC area housing prices still out of reach for many in relation to real take home incomes, new higher mortgage rates may only accelerate the recent declines in home prices.

Another variable that is certainly not helping homesellers maintain value when selling their homes is inflation. Gasoline is $4.18 per gallon today (June 1) if you have a membership at Costco.

With hurricane season just around the corner oil prices are bound to keep going higher. Fuel and food are taking a bigger bite out of the OC resident's wallet affecting the ability of many to stay in the homes they have or for new buyers to enter the world of homedebtorship.

125 Days Later: Lake Forest Home Still Won't Sell

125 days on the market is really not that much time.

It's only two (correction FOUR) months.

It's now May and homebuying season should be in full swing for families dying to quit renting and start "owning".

And so it is that a 4 bedroom, 3 bath single family home is put up for sale in little old Lake Forest town. Close to the main thoroughfare for which the area was once known (El Toro Road), close to shops, but nestled tightly into a typical OC suburban tract.

22612 Auburn Dale Dr., Lake Forest, CA, 92630

Asking price: $564,900

Asking price/ sq ft: $309

Income requirement: God only knows. Let's divide by 4 and say $140,000 per anum.

Purchase price: $721,000 (holy hell!)

Purchase date: 6/13/06

Size: 4 beds, 3 baths, 1,829 sq ft (built in 1977)

MLS: P619632 (126 days on Redfin)

Zillow Zestimate: $548,500

2007 property tax: $2,187

HOA dues: unknown

Type: Contemporary

Stories: 2 Levels

The Listing: Great price to purchase in 'pride of ownership' Sunwood tract! Priced for a quick sale. Oversized backyard offers room for a pool and possible RV parking too! New roof was installed in 2006. Home has a wonderful flowing floorplan with vaulted ceilings in living & dining room & spacious family room with fireplace. Concrete and covered patio for family fun and weekend entertainment. Large master suite. Free Lawn service for 12 months. Don't be shy.. write it up.

I'm not sure what "pride of ownership" refers to when we're witnessing the current owners vacating the the adobe an entire 9 months after purchase. But OK.

"Don't be shy". I doubt shyness has anything to do with the original $721K price tag or the $156K sales discount in 2008 on this home.

Man, thankfully by now we're all fluent in "Realtor speak" around here.

Love the bit on room for "possible RV parking too!". And with an exclamation mark! These homes on Auburn Dale Drive are situated pretty close together as it is. But, I mean, if you really want to win friends and influence your new neighbors, yeah, go ahead. Park that gas-guzzling vehicular monstrosity of yours in the skinny alleyway right next to your new house (and theirs). The neighbors will just love you for that I'm sure.

And how about "Priced for a quick sale." Well, maybe.

This home was purchased in June 2006 during the sub-prime, no doc hay day for a logic defying $721,000. I will surmise that back in those days nobody in Lake Forest, California even thought twice about a.) leveraging themselves to the freaking hilt, b.) following realtor bullshit lies like "get in now while you still can " and just "refinance later", and c.) paying $394.00 per square foot for a 30 year old single-family home.

But then here we are today, after 2 months on Redfin, and this ideal home for a young family is priced with a $156,100 discount off the original buy price. That's a lot of dough, isn't it? Not if one considers that this home was criminally overvalued in the first place when it was purchased 2 years ago-as were most OC homes.

Still, $565,000 might be a good sale price if one considers comparable homes of similar size and configuration sold over the past 3 months in the area.

But clearly this home is another textbook example of buying at the market peak in Lake Forest, California, well before the certain-to-come market correction. Now prospective homebuyers/fence sitters in Lake forest continue to ponder in amazement as to just when the eerie doppler-effect-effect-distorted, ice-cream-truck-like music might stop.