Swan Drive or Swan Dive?

There are plenty of people out there in Lake Forest, California who believe housing values will come roaring back to 2005 levels any second now.

Here's another textbook example of devastating value loss in the community suffered mainly due to a complete inability to accept reality:

23952 Swan Drive, Lake Forest, CA
Single family
4 bedroom
2 bath
1,471 sq feet
5,035 sq foot lot
Previous Sale 9/13/2005: $659,000
LISTING PRICE: $389,999

It boggles the mind to consider that only 5 years ago in 2005 some nitwit agreed to pay $659,000 (over 10 times the median income in the county) using what looks to be close to 100% financing - all not just for the pleasure of listening, but of facing 12 lanes of roaring traffic generously provided free of charge by the State of California and the 5 San Diego Freeway.

So what you're saying is I get the fortune of living right next to one of the busiest, smog-choked highways in the nation?

Where do I sign?

As if that were not enough comedy for you to consider, the home was listed for sale just two years later in October 2007. The proprietor has been chasing down the market ever since. The property is now in foreclosure and facing auction later this month at an estimated market value of $342,000 (Realtytrac). And the home is still up for sale (207 days?) listed at $389,999.

So what lending institution did their homework and looked at the appraisal data on this property? Express Capital Lending. Nice.

Just to add more insult to injury, the previous owner purchased this healthy lifestyle winner back in October 2001 for $198,500. Now think about this for a moment. The previous owner managed to successfully sell this carbon monoxide ranch only 4 years later for almost half a million more? With a $659,000 listing price today, one would believe the owner to be chronically high on highway 5 fumes!

It'll be interesting to see how this home fares at auction. $389,000 seems delusional to me. Now I know that "beggars can't be choosers" when it comes to buying homes and I like getting high as much as the next person, but I'd rather be a beggar than give myself and my kids emphysema living right next door to the damn freeway.

California Realtors: 2010 to be "New Normal"

Ms. Leslie Appleton-Young of the California Association of Realtors:

"I think what we're going to be doing in 2010 is building a foundation for what will be called the new normal. The recession is probably over as measured by a decline in growth, negative growth if you will. But the recovery will be contingent upon additionally likely stimulus spending and doing more to facilitate job growth because I really feel that if we don't do more direct policy initiatives aimed at putting people to work, this is going to go on for quite some time."

Not bad. For a realtor.



I'm pinching myself. Did she just say..? I'm pleased to observe a realtor in California finally displaying some measure of honesty about the situation we are all in and the uphill battle that most certainly lies before us in this state and around the nation.

California real estate appreciation, including appreciation of home values Orange County California, was based on a lie. Reckless lending practices, duplicitous sales tactics by realtors all across the state, not to mention financially inept and credulous decisions made by home buyers (homedebtors) all poisoned the water we're now swimming in together. Only now that water has become raw sewage do we understand. Ms. Appleton-Young knows and must now admit that the government is broke and it's probably going to take a very long time indeed for all of the crap to settle to the bottom, and for the stench of lies to be blown away by the ocean breeze.

The one thing I must disagree with Ms. Appleton-Young on is the call for more stimulus spending.

We DO NOT, I repeat, WE DO NOT need more American taxpayer dollars appropriated to prop up an industry that was built on lies and questionable sales practices in the first place. The price crashes all around California and Orange County are a market correction. This is not in dispute. It has been long overdue and repeatedly obstructed by the stimulus spending initiatives and political action committees funded by the CAR and NAR. Americans would benefit significantly more over the long term from a thorough housing market correction, not less of one. Stabilized markets should be our destination of choice, not the cliff hanging of the last 10 years. Of course, realtors would rather have the clocks turned back to the imbalanced market, irrationally high prices, lax lending standards, poorly informed and credulous buyers, and other craziness so that their own felt pockets could be appropriately lined with sales commissions.

I don't know about anyone else, but I don't pay my state and federal income taxes to support the REIC and the financial livelihood of California realtors. As far as I'm concerned that money should be used on something far more productive than rewarding debt slavery among those least capable of ever paying back such debts.

California Association of Realtors Use Outlaw Josey Wales to Sell Homes in 2009

The California Association of Realtors have chosen to dump their advertising dollars this summer into some fairly lame radio spots.

The first one is so dumb, I hesitate to post the link here. Man, it royally sucks. Not that one should expect much creativity from the NAR/CAR dudes.

SPECIAL NOTE TO REALTORS, THE CAR AND THE NAR ORGANIZATIONS:

Listen, we radio listeners have had quite enough of ads portraying dumbass married couples making stupid financial choices in your "appeal to action" ads, thank you very much all the same. We don't need to be reminded how emotionally self-centered, irresponsible and carefree people have been when working "side by side" with Realtors on the biggest purchase of their lives! Look, Century21 sort of ruined this theme for everyone with the Suzanne Researched This ad. I mean who doesn't remember the classic bloodsucking Realtor line: "This listing is special John! You guys can do this!!"



The second radio ad from the CAR has a very different theme. It's called "Piece of Me". A little bit of Dirty Harry mixed in with some outlaw Josey Wales and some Pale Rider.

The final message of tha ad is: "The California Association of Realtors. For your piece of California. For your piece of mind".

Christ. How appropriate is it that Realtors can suggest that any of their actions are responsible for home consumer "piece of mind"? I'm trying to figure out for the life of me what they could possibly mean by that. Where were California's Realtors when the notices of default started flowing in from the subprime crisis? Did they hold "Piece of Mind" seminars to former clients? Did they give back a piece of their ill-earned commissions on such garbage sales?

And just where are the California Realtors going to be when the tidal-freaking-wave of Alt-A and Option ARM loans first come up for recast this summer?

Honestly, how does using a 6%er help me or my piece of mind in buying a house in the third most fucked up real estate market in the country, southern California?

Oh, it's going to be a fantastic summer in California real estate, you can tell.

Man if I'm Realtor, I'd sure keep some extra funds available for the dry cleaners:

Housing Ladder To Nowhere

I've posted a number of local, Lake Forest, Calfornia examples where, during the time frame of approximately 2004 to 2007, people really bought in to the irrational exhuberance over "owning a home" and paying top dollar. The housing ladder only went up and the number of rungs was believed to be unlimited.

The examples I've cited have been mainly single family homes, and typically with 4 bedrooms, 2 baths or more. I want to make this important distinction, because none of us should lose sight of the fact that families are involved here. The lives of parents and children are probably being turned royally upside down by these trying financial times.

In my view, people who work today in the real estate profession rarely if ever admit to the social impact of their recent handiwork. Realtors, mortgage lenders and bank CEOs will talk all day about new listings, median home prices, monthly sales numbers and perhaps notices of default, the new tools for their website, and a recent closing experience, etc. But they don't seem to fully appreciate that behind all of these astonishing numbers are people. People just like you and me. People with hopes and dreams. People with worries and loves.

The downturn in the California housing market has quantifiable ramifications to be sure: bankruptcies, business closings, lost state and federal revenues, lost tax dollars, federal and state budget crises, increased taxes, unemployment (housing related and other), budget-related degradation of public services, and reduction in funding to school districts. These are serious, quantifiable issues that we've only begun to come to terms with.

But the other side of the coin is equally blemished. The social price tag of this downturn may not be known for many years. The housing market bubble and crash has affected people personally and psychologically in terms of their daily stress, their overall health, as well as the cohesiveness and well being of families. It may be too that the crises brings people closer together than before, which would be a good thing. My posts on this blog have often been sarcastic and angry. However, I do feel badly for those who made honest mistakes and for those who suffer because of them, especially young kids who may not fully understand what's gone wrong.

Since I started The Rancid Truth Blog about Orange County Real Estate in 2005, I was pissed off. Really pissed off. I've worked very hard, traveled extensively and earned good money. I've paid more than my fair share of state and federal income taxes, yet I have been utterly priced out of the volatile housing market here. I should be paying more for the privalege of renting a single family home, but I'm not. It's cheaper to rent here. And we all know today that Orange County California home prices were fueled by snake oil sales people (liars), irresponsible lending, irresponsible borrowing (lying on mortgage qualification docs), and unabashed greed.

And I'm still pissed off about all of this.

Sure, I was the responsible one. I didn't take massive risks, yet my federal and state taxes are going up, my rent stays the same, yet I'm helping unqualified people stay in homes that they can't afford, and that I might otherwise have been in a position to buy myself (if prices where allowed to adjust) and assume all of the responsibility that this might entail, including paying local property taxes.

I'm convinced that I'm right to be angry about what's happened here (and still happening here), and to demand change. I don't want a medal for being financially prudent the last 4 years. But I do think that the housing market needs to be allowed to shake itself out and correct, fully understanding and appreciating that there will be significant financial and social casualties in the process. The sooner the market heals itself, the sooner it can recover.

On to today's example:

The setting is June of 2005, Lake Forest, California. The single family housing market is white-hot. Home buyers, lenders and Realtors are living the high life. Homes are selling like umbrellas during a rainstorm, and at stratospheric prices.

A lovely 4 bedroom, 3 bath single family home, 2,150 sq. feet and 10,800 sq foot lot (most of it on a useless backyard incline) located in the beautiful Bennett Ranch area, sold to a new owner for $680,500. That's $311/sq foot.

Fast forward 6 months later to January 2006. The home sold again, this time for $795,000! That's $370/sq ft!

It's now April 2009 and the home has shed it's toxic loan glamour and become a short sale offered at $445,000 ($207/sq ft).

25551 Glen Acres, Lake Forest, CA 92630

Glen Acres is the place to be.

Using Fear to Earn Real Estate Commissions: "Housing Prices Going UP in Orange County!"

I am searching for a home to buy in Lake Forest, California and surrounding communities. I wanted to share with you a recent real estate flyer I received via e-mail from a rather well-respected, highly experienced realtor in the area. I've removed the names to protect the shameless (except for those quoted in the flyer).

Read it. What do you think?

Housing Prices Going UP in Orange County! So Consider Buying NOW.
In case you forgot, you first contacted me through my web site at www.xxxxxxxxxxxxx.com and started searching there for homes. You have been getting your requested emailed updates from me since then.

If you are waiting for housing prices to hit rock bottom before you buy a home to live in or rent out, wait no longer.

Orange County home prices last month ACTUALLY ROSE for the first time since June, according to DataQuick.

The median selling price was $375,000 — up $5,000 from January but still down 27.9% from a year ago.

For calendar month February 2009, Orange County saw:

$375,000 median selling price that is 42% below June 2007’s peak of $645,000.
Single family homes sell for 41% less than their peak pricing (June ‘07) while condos sell 46% below their peak in March 2006. Builder prices for new homes are 42% below their February ‘05 top.

Home prices usually rise in February vs. January. Last time they fell in this period? 1999!

January was the 7th straight month of sales gains vs. the year-ago period. That follows 33 consecutive months where sales failed to beat the previous year’s pace

Delores Conway, a real estate economist at the University of Southern California, says home prices have come down 40 % in Los Angeles and Orange County since the mid decade peak.

She notes that those prices, coupled with record low interest rates, mean today’s buyers can secure the same monthly payments home buyers enjoyed six years ago."

This is marketing from a Realtor. This person is trying to earn my trust.

Look, I understand as well as the next person that even Orange County California Realtors have to earn to eat.

What I don't agree with is cherry picking recent 2 month MLS and DataQuick numbers, throwing down a fear hypothesis (prices going up) in an e-mail piece with zero supportive evidence, all in order to cajole people to buy a home and promote a self-serving, commission-paying agenda.

We've all seen this film before. And it sucks.

If I'm of just average intelligence and I read the above Realtor pamphlet with the stated 41% drop in single family home prices, I'd be asking myself "why did that happen?". "What factors could cause such a major drop?", and then determine whether this drop might continue down to 50% or 60% or more?

50%! You're crazy!! NO! NEVER! That can't happen. This is Orange County, California!

No, you've got to BUY NOW or....*yawn* you'll be priced out of the market forever you no-buying-fence-sitting-wastes-of-space!!!!!

I'm just an idiot renter here. But do we really need this? I mean, given all that's happened over the last 2 years in Orange County residential real estate, at what point do we conclude: "Hey, we should really stop ourselves with all the shameless bullshit!"?

Here's a message to Realtors from a prospective buyer: Drop the fear tactics, and do what you can to start instilling some confidence instead.

This Just In: Housing Prices Actually Linked to Income, Jobs and Mortgage Rates

Holy cow! I mean, if you had been listending to a Realtor the last 8 years, you might never have suspected this 2x4 of obviousness across the face. But it's true.

Wait a minute, you mean, income, jobs and mortgage rates determine..... Yep, there's this complicated thing called "fundamentals".

This is a fantastic article by Susanne Trimbath which restates the critical success factors for prospective homebuyers.

1.) Do I have enough income (take home after expenses and debts) to purchase a home at the market prices?

2.) Will I have a job in 6 months?

3.) How do current and future mortgage rates coincide with local home prices and my monthly take home budget?

This is the part where our hall monitor Realtor friends step in and remind us, in that I-never-sold-anyone-into-foreclosure-ever condescending manner, "real estate is local".

True.

But so too are jobs and incomes.

And last Friday, California and Orange County got some interesting news:

California, the worlds' 9th largest economy according to GDP numbers, has an unemployment rate of 10.1%.

Orange County California's unemployment has reached an all-time high since 1993 of 6.5%

So why is it that a 4 bedroom, 2.5 bath, single family home in Lake Forest, CA is priced at $650,000, or 6 times the median income here of approximately $100,000 per family?

If you were to go to Redfin, Trulia, RealtyTrac, or Zeus forbid, Realtor.com, you'd be surprised as to the homes available for sale in Lake Forest.

And you would be far from impressed.

In a word, almost all single-family homes in Lake Forest, California are over-priced pieces of crap. I'm dead serious here. Most of the homes for sale right now in February 2009 in Lake Forest are foreclosures, or trashed out short sale properties. Nobody who doesn't have to sell is trying to sell their home right now. The availability of quality homes for families with children, for example, to consider purchasing are few and far between. Most fence-sitters must not only cope with still unbelievable home prices (between $450,000 and $750,000), but also the reality that the home they might buy will be riddled with defects and necessary repairs. It's just a fact. And this I'm reporting AFTER the housing crash has supposedly occurred.



Paseo Verdura, Lake Forest, California, 350 days later, still $650,000.
Bank get's an A for stubborness, and an F for creativity.

I submit that parts of Orange County are still living in a dream world in terms of their asking prices.

Why?

Well, because the local real estate market is screwed up. Yes, Orange County is a nice place to live. A beautiful place. Perfect weather, oceans nearby, mountains nearby. I mean OC living has its' merits, and those should be priced at a premium of some measure. But single-family homes remain overpriced.

Earned incomes in OC are higher than the rest of the country. However, I suspect that job market uncertainty combined with ridiculous home prices that bear no relation to incomes will keep many on the sidelines through a difficult 2009.

Get it? Got It? Good.

Mr. Jonathan Jarvis, great job! Excellent work!

I just wished you would have come on the scene and delivered this dumbed-down, 6th-grade-reading-comprehension-leveled, ILM-esque, eye-candied, explanation to the horrifically inept American public 7 years ago. Well, now that I think about it, even then you probably would have never saved 90% of us from ourselves - or from Connie de Groot, or from rockstar and SoulGlo connoisseur Tom Adkins, or from "What-artifical-lending-standards-are-you-talking-about?" Mike Norman.

Awesome explanation. Detailed. And disturbing on so many levels.

My only critique: You forgot to include the vital role played by Realtors(R). They provided a sense of false security and false legitimacy to the run up in home values. This cannot be overstated.

Mr. Jarvis, take us to school:


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo

The very idea that American tax payers dollars - money that should otherwise be used to build schools, improve national infrastructure, educate our next generation of taxpayers, and regulate corporate malfeasance - is being used to bail out these greed-driven Gordon Geckos and commission-paid sales people is a travesty. This is a national disgrace.

There have always been market charlatans. Carpetbaggers. Salespersons of magical elixirs, and today realtors. The greatest irony may very be that millions of Joe Sixpack American homedebtors played out their role in the disgusting performance perfectly.

I will close to say only this: We cannot fathom what these developments are going to mean to this country. You are probably hoping that this will all blow over in 6 to 12 months. But I think it wise to consider the alternative and prepare accordingly. The United States of America is no longer a nation of law and order, nor of justice.

Until you start to witness indictments and arrests on all major networks, we should all be afraid.

I hope realtors, mortgage lenders and brokers are satisfied and proud that they played such a prominent role in the destruction of our country as we knew it.

David Lereah: Only Following Orders

Read Nancy Keates article in the Wall Street Journal about former NAR lead economist, David Lereah, as he comes to Jesus about the housing market crash and the impact of NAR advice on hundreds of thousands of Americans.

Is this the part where Americans are supposed to be "shocked" by such a story?

I guess so.

Wow.

"Mr. Lereah, who says he left NAR voluntarily, says he was pressured by executives to issue optimistic forecasts -- then was left to shoulder the blame when things went sour. "I was there for seven years doing everything they wanted me to," he said, looking out his window to his tree-filled yard in this Washington suburb. Mr. Lereah now works at home, trying to rebuild his career and saddled with a sagging portfolio of real-estate investments."

Really? "Optimistic forecasts?"

Gee, whatever do you mean, David?

Realtors across the country willingly pay dues to this same association, the National Association of Realtors (NAR), which, in exchange for the cash, provides ethics training for its members (*ugh*), housing market statistics and kool-aid flavored commentary to the prospective home-buying American public, usually in the form of bullish messaging, like "Buy now!", "Rates have never been this low!", "Get in now while you still can!", and that all-time real estate agent favorite: "It's a great time to buy a home!".

And that messaging worked.

The WSJ article does not close without first appealing to our sensibilities. Afterall, Mr. Lereah has lost out as well. He's apparently lost hundreds of thousands of dollars on his own personal housing investments too. And more importantly, he may have lost credibility as an renowned economist.

Intentionally painting a rosy picture of a unsustainable housing market situation is not what housing economists are normally paid to do. They're usually paid to be objective, factual and to interpret the incoming data with great care, because Americans consumers often make financial decisions based upon those interpretations and trends. Mr. Lereah had an important responsiblity.

So it must be a steep challenge indeed for one to re-establish credibility in the shadow of intentionally misrepresenting data all in the name of satisfying an employer's crooked business objectives, or for that juicy six figure paycheck.

This is all such a huge joke.

As long as we have Realtor sales commissions directly tied to the value of home sales prices, American consumers will face a conflict of interest. The business relationship is sort of damned from the start.

Even if we choose to assume that Realtors provide a valuable service, and that this service should be paid for by consumers (for all the marketing materials, providing professional consultancy on local real estate conditions, negotiating pricing and terms on behalf of the buyer, etc.), there is no way such Realtor services should be a a function of the home sale price.

This would all go away if Realtor sales commissions were instead tied to a fixed fee not at all linked to the sales price of the house and more a function of the value of the consultancy provided (i.e. a measure of the consumer's risk in choosing the wrong home, or paying the wrong price, among other variables).

Change is needed, because otherwise we will continue to see Realtor-funded organizations like the NAR, and state-based versions thereof, do everything they can to preserve high home prices, preserve low interest rates, etc., and for what?

For their own personal gain.

Consider that right now that the best thing for our anemic American economy (and for a speedier recovery from the housing downturn) might just be the opposite of what American Realtors want:

- stronger enforcement of fundamental mortgage lending standards (documented lending processes) and borrower qualifications.

- strict adherence to realtor code of conduct

- higher bank and mortgage interest rates, increased motives to save money and a strong US dollar currency.

- lower (and more affordable) single family home prices that reflect market fundamentals like real take home earnings of prospective buyers

- 25-30% downpayment requirements

- open access for consumers (prospective home buyers) to all home listings

If Americans wish to know how we got into this financial mess, they may not need look further then their local real estate agents who cheerleaded hundreds of people to buy homes that they could otherwise never really afford, homes that "never go down in value", who tapped the shoulders of local mortgage buddies around the corner who suggestively sold poor quality, adjustable rate mortgage instruments, that the consumer could (in theory) "always refinance".

If college textbooks ever get around to printing a few case studies on the Great Housing Crash of 2006, they might mention that there was an even greater problem than David Lereah, the NAR, the Fed, the SEC, and Realtors themselves. It was the laziness of the American media and complete lack of investigative journalism.

From CBS's "60 Minutes" to CNN to Fox to even the LA Times. Media outlets continue (even today) to turn to discredited NAR and CAR representatives for interpretations of the housing market data, as if they are "trusted advisors" for the real estate industry, when that claim must instead be officially surrendered for all time or until the real estate industry reforms for the better.

In the meantime, fixed rates for realtor services, full and free access to market information for consumers, and then let us allow the market shake itself out. It always does.

And as for Mr. Lereah, if that consultancy gig doesn't work out, I suppose he can always become a Realtor.