Thursday, January 12, 2006

Realtor: "you will make a minimum of 10% every year you live in the house"

I will never forgot when I passed my Series 7 exam with a score of 87 several years ago. For those of you that don't know, that is the 'stockbroker' exam to be an NASD securities dealer. It is a 6 hour test where only 65% of people get the passing score of 70% or higher. Why am I talking about that test you ask?!?!? Simple, the NASD (National Association of Securities Dealers) is adamant that people get ONE point through their thick skulls...and that is that you cannot promise, or guarantee investment returns to clients. That industry is by no means perfect, but at least they try to make a big point about brokers not guaranteeing investors returns on stocks, mutual funds, or other investments. Why do you think every mutual fund ad has some small print that says "past performance is not an indication of future results"?!?!?

I received an e-mail from a reader that I will post below. I want you to read the readers e-mail, and then the realtors reply. Make mental notes of anything that sounds a little "fishy" to you.

---Here is the e-mail that a reader sent to a realtor:

Why would someone pay 319K for this house when in 2002 it sold for 195K.. Haven’t you realtors seen yet that prices are coming down, why should I line the pockets of a greedy seller? You guys are going to have to start lowering prices, soon…MLS 25162980

---Here is the reply from the realtor...pay special attention to the 3rd paragraph:

Great question; agents don’t set the prices. Agents act for buyers and sellers. Agents can make recommendations to sellers, but most sellers think their homes are worth more than the market value. Homes in the Puget Sound area have appreciated at about a 20% annual rate over the past two to three years. That is beginning to slow and most experts predict they will go up about 10% this year.

As for the house that sold for $195k in 2002; the sellers put a lot of time and money into the house remodeling it. It is only worth what a willing buyer will pay. So we have to wait to see what that price is.

If you don’t own real estate, you should. You have to live somewhere and if you own you will make a minimum of 10% on the total purchase price for every year you live in the house. Most people can buy with no money down and in some cases ask the seller to pay their closing costs out of the purchase price. I’d recommend you use my website or any website to search for properties and find something you can afford and have me or another agent help you buy a home. Don’t wait for prices to come down, they will not come down. They will go up more slowly, but they will not come down. That has nothing to do with agents; it is simply based on the growth in population and a fixed amount of land.

If you want to find out how much you can barrow call Dxxxx and ask him. It is painless. Dxxxx – 425-xxx-xxxx.

Thanks for the email. Have a great week,

Mike xxxxxx

xxxxx Realty

425-xxx-xxxx
------------------------------------------------------------------------
Ok, anything jump out at anybody in there?!?!? How about the fact that the realtor says you will make "a minimum of 10% of the purchase price of the house every year that you live there". If this house was a stock, that would be a major no-no and you could be put on probation and possibly lose your license...but hey, it's real estate...it always goes up!

How about the part where he states 2 times in a row that property will NOT go down...just appreciate more slowly. So property will appreciate more slowly...but based on his first sentence...at least 10% a year. How many of you would put your money in a mutual fund that never goes down, and will ALWAYS go up at least 10% a year?!?!? Sign me up!! But wait...there is no such investment that GUARANTEES that kind of return.

And finally...we get this precious jewel of information. The reason prices won't go down is because the population is growing and they aren't making any more land. Sounds good in theory, but we know that there are other factors that drove up prices, not the scarcity of land. Yes, there are areas that are completely built out, but not in the general context that the realtor was speaking.

I xxxxx'd out the names and other contact information of the realtor. I'm not here to out anybody...I'm here to point out the crap that the "experts" will say to make a deal happen. If you are reading this blog, you probably already know that property does not go up 10% a year, every year you live in the house. But, there are many people who have no clue, and will take this "experts" advice as gospel, and go into massive debt because it is a "can't lose" situation.

So there you have it...

Today was a pretty big day for this blog. I went over 100,000 page views and I have had over
66,000 unique visitors and since I really got this thing going less than 2 months ago. Please keep stopping by, and getting the word out to others. I want to thank everybody for the e-mails, comments, and donations that have been made...keep it coming!! We are just getting to the part where things are starting to get interesting. This thing will take years to play out, and I look foward to blogging through it all!

Thank you all!

SoCalMtgGuy


57 Comments:

Blogger Econ_101 said...

Great Post - and I agree - it is totally unrealistic (and historically impossible) that any asset is expected to go up at minimum 10% per year.

Many, many people believe this at this point. I think it was Shiller that pointed out that people's expectations about risk and return are often grossly wrong at the end of a bubble.

That is, conventional wisdom has now become that RE has a high expected return and is safe - which is almost the exact opposite of reality at this (particular) point in time.

I think this is about to change in the next several months. In bubble markets (Sacramento, SD, LV), it is pretty easy to do a breakeven of recent RE "investments". Heck, news stories on RE "investors" furnish you the purchase price, asking price and carrying costs of recent deals.

All you have to do is a little math to see that the expected return for many recent (post mid-2004) investments is already negative. And likely to get a whole lot worse.

Here is a more realistic Real Estate mutual fund offer... Please make a $800K investment in my McMansion investment fund. For that we will charge you a monthly $6000 carrying fee and a $2K depreciation fee. And, oh, by the way, when you sell there will be another 7% transaction fee. Any takers?

1/13/2006 12:30 AM  
Blogger need 2 leave CA said...

I can do mutual funds for people at this point. The test to get the licensing is very strict about not promising future returns, and you always give a client a prospectus that specifically spells that out. RE agents should be held to the same standards. There will be some changes when these guarantees fail to come true.

1/13/2006 12:53 AM  
Blogger need 2 leave CA said...

this site is awesome. Great information. May the bubble blow big and quickly in California.

1/13/2006 12:54 AM  
Blogger grim said...

Please forward me the information and I'll gladly report Mike to the state licensing board as well as their local association.

grim

1/13/2006 4:42 AM  
Blogger Boomin In Boise said...

I love the rational that backs up his "guarantee" - that they aren't making any more land.

I make my living as a pilot, and spend a lot of time aloft over the western United States. Anyone that thinks we're running out of land should take a look from that vantage point.

IIRC, only 3% of the Unites States is considered densely populated.

1/13/2006 5:45 AM  
Blogger Jim A said...

Dumb enough to say it, but to say it in writing.... I smell liability.

1/13/2006 5:46 AM  
Anonymous NYGuy said...

It would be a mistake to blame the bubble on dishonest realtors or "greedy" sellers. Salesmen will always say anything for the next commission and sellers always want the most. Also, everyone wants better housing. These human traits are pretty much constants. They didn't change suddenly and cause the housing bubble, but something did change. Credit. The international liquidity bubble caused the international housing bubble. Greenspan printed money to avoid a serious recession/deflation after the tech bubble burst. Still, I don't blame him entirely since a major recession/depression would have not have been very appealing.

Blaming realtors is like blaming umbrella salesman for the rain. It is more important for each household to figure out how not to be ruined by economic events, rather than to pin the blame on obvious, but irrelevant, market participants.

1/13/2006 5:56 AM  
Blogger Arioch said...

Sounds like a used car salesmans pitch.

It reminds me of the old movie with Kurt Russel called "Used Cars" (anyone else see that classic?).

I just got back from a week of business travel and everywhere I was, the general theme is "For Sale", not "Looking to Buy".

You can see that on the realtor ads. "We can find you a house!" has turned into "We can sell your house!". There is a shift in the advertising semantics which tell you the top level view of an areas RE market, buyer or seller market.

Flying into Vegas yesterday, I always am amazed at the blocks of undeveloped dirt within the city, and expanding burbs. It gives me the same impression that "boomin in boise" said. Saw the same peppered landscape in Dallas/FW yesterday, Huntsville the day before etc...

I'm hoping that we have a lot of folks sitting on huge #'s of properties to minimize the overall economic hit, as opposed to large parts of general population in an area taking a financial bath which would have a much higher drag factor.

Over on Ben's, the lady with 19 new Pulte houses in Vegas which are doing a "Tora Tora Tora" on value is a good read (one of the comment threads).

Reminds me of 1998-1999 stocks so much it is scarey.

The house next to me closed this week ($470k), I feel sorry for the buyer.

1/13/2006 6:35 AM  
Blogger David said...

Great post. Congrats on hitting 100K page views. I know it feels good.

Just curious how many pageviews a day do you get?

David
Bubble Meter

1/13/2006 6:54 AM  
Blogger arizonadude said...

Check out this link about sacramento:
http://www.sacbee.com/content/homes/re_news/story/14068443p-14899146c.html

Same old story with realtors, BUy buy buy. I cannot figure out how people listen to this garbage. This reminds me so much of stock market bubble. You had all those people come on cnbc and promote garbage stocks. I wish people would wake up out of their trance.

1/13/2006 7:26 AM  
Blogger drwende said...

Love this post! Y'know, it's possible that the realtor even believes his own spiel about 10% increases. I've been keeping an eye on the public records, following the transactions of a local realtor -- and it's clear from his own buying that he's expecting huge value increases to staunch his negative cash flow from rents (which has to have reached $10,000 a month).

My favorite transaction from that bunch... Homeowner has refinanced twice, clearly to pump the house for equity. Homeowner is now an FB. Last week, Realtor gave them a loan in exchange for being added to the deed!

1/13/2006 7:27 AM  
Blogger Detachable Cletus said...

"Over on Ben's, the lady with 19 new Pulte houses in Vegas which are doing a "Tora Tora Tora" on value is a good read (one of the comment threads)."

Is there new info on the story? I cannot find this in any of the threads currently on his front page.

1/13/2006 7:33 AM  
Blogger Dukes said...

Hello all, I am the one who sent in this info to AFB. I thought you might be interested in how I replied to old "Mike":

Wow, Mike telling me that I will make 10% of the total purchase price for every year I live in the house is one of the most irresponsible things that I have ever heard from a realtor. I used to have my WA State real estate license and never did I remember that telling clients they will make 10% a year was part of the classes I took. I was also a financial planner and I could get prosecuted for saying something so matter of fact regarding an investment.

You amaze me, this is the reason why bubbles exist, here do a little research for yourself as to what is going on in the world outside of Seattle, it is coming here soon: http://thehousingbubble2.blogspot.com/ Just read some of the posts, they are not opinion, they are actual news articles.

You cannot state that prices will never come down, this is simply incorrect? Also, we have a Fed which is on record that they are targeting “asset prices” – what assets do you think they are talking about? I will give you a hint, it is your home. You also have tightening lending standards, buyers who are priced out and most everyone who was going to buy a house has already done so. Oh yeah, we also have increased inventory and soon the so called “investors” will realize how unprofitable their strategy has become and even more inventory will hit the market.

I just can’t believe how irresponsibly you have represented the real estate market in your email. I may call the WA State Assoc. or Realtors and report this type of action. I am sure it is illegal to practically guarantee that homes will not come down in value and that they will appreciate 10%/year

1/13/2006 7:41 AM  
Anonymous Anonymous said...

love your blog, very original and
fantastic, keep it up!

1/13/2006 8:13 AM  
Anonymous Anonymous said...

I find this article interesting about how major mortgage companies in Orange County are laying people off and saying there is no bubble.



"One 2 watch (in the troubled mortgage industry)"
January 13, 2006


"Layoffs have started near the top at Irvine-based lender ECC Capital. The company said early today that Steven Szpytek has resigned as executive vice president and COO in connection with the 27 percent reduction in staff that ECC announced a week ago. He has moved into the position of production director at the company's wholesale-lending subsidiary, Encore Credit Corp.

Szpytek, 41, was collecting annual pay of $996,000, according to the company's latest filing with the SEC.

With mortgage rates rising and the pace of loans falling, many mortgage companies are under pressure. ECC, for example, said it expects to report a loss on its mortgage operations during the last quarter of 2004. The company said it can't estimate the full expense of its 440 layoffs, but the cost will include about $2 million in one-time termination benefits, including salaries paid through Feb. 3.

On balance, investors concluded that the layoffs would help the company. Since the announcement, ECC shares are up 11 percent, closing Thursday at $2.62. They're still down 55 percent over the past six months."

1/13/2006 8:21 AM  
Anonymous DMC in DC said...

http://realtor.com/Prop/1053171172

Man - What a dump for $319!!! Yeesh

1/13/2006 8:22 AM  
Anonymous Anonymous said...

^ article from Orange County Register today

1/13/2006 8:22 AM  
Blogger SoCalMtgGuy said...

nyguy,

Thank you for the post. I am NOT blaming this 'bubble' on realtors. I don't know how long you have been reading my blog, but I have not blamed any ONE person, thing, or entity. It is a combination of things.

My point is that the 'experts' make statements that have the potential to lead people down the wrong path. The investment industry is VERY careful to not promise/guarantee results. They make a huge deal about it when studying for the Series 7.

Check out some of my "popular posts" if you haven't already, and I think you will get a better picture of where I am coming from.

Thanks for stopping by.

SoCalMtgGuy

1/13/2006 8:47 AM  
Blogger Idaho_Spud said...

Yeah, what 'Mike' is doing is certainly unethical, and possibly illegal.

Say Mike, how do you determine what kind of appreciation a house is going to have this year?

Is there a table that you look it up on like on a savings bond? LOL!

1/13/2006 9:00 AM  
Blogger lunarpark said...

This 10% year belief (or sales pitch) does not surprise me. I hear it from my homeower friends in Silicon Valley all the time. They just cannot fathom that prices can fall. I had a friend tell me last night that she is moving to So Cal and not even selling her place in the Bay Area. She said, "I don't care if I even rent it out. I will just let it sit and appreciate."

1/13/2006 9:13 AM  
Blogger Jim A said...

lunarpark--She'll care if her homeowner's insurance company gets wind of it. It is usually very expensive to insure an unoccupied house.

1/13/2006 9:29 AM  
Blogger grim said...

RCW 18.85.230
Disciplinary action — Grounds.

In addition to the unprofessional conduct described in RCW 18.235.130, the director may take disciplinary action against any person engaged in the business or acting in the capacity of a real estate broker, associate real estate broker, or real estate salesperson, regardless of whether the transaction was for his or her own account or in his or her capacity as broker, associate real estate broker, or real estate salesperson, and may impose any of the sanctions specified in RCW 18.235.110 for any holder or applicant who is guilty of:

(2) Making, printing, publishing, distributing, or causing, authorizing, or knowingly permitting the making, printing, publication or distribution of false statements, descriptions or promises of such character as to reasonably induce any person to act thereon, if the statements, descriptions, or promises purport to be made or to be performed by either the licensee or his or her principal and the licensee then knew or, by the exercise of reasonable care and inquiry, could have known, of the falsity of the statements, descriptions or promises;

------

Caveat Emptor,
Grim
Northern NJ Real Estate Bubble

1/13/2006 9:41 AM  
Blogger Lou Minatti said...

I make my living as a pilot, and spend a lot of time aloft over the western United States. Anyone that thinks we're running out of land should take a look from that vantage point.

Heck, you don't have to be a pilot. And you don't have to be flying over the empty southwest. Look out the window anytime you're flying up the "developed" east coast and you'll see how much space is available for housing.

The only thing they are running out of is large 1-acre tracts for McMansions, and that's only in certain areas. If you're in the 'burbs of Houston, Dallas, Denver, Atlanta, even Chicago, there is always plenty of empty land for entire swarms of 1-acre McMansions.

1/13/2006 9:43 AM  
Anonymous Anonymous said...

Doesn't Ted Turner own all that empty land?

;)

Great post, SoCal. It made my day.

c.

1/13/2006 10:05 AM  
Anonymous RentingPeasant said...

Im one of the 100K people who read your blog daily, but have not yet posted...

I wonder if the person behind the quote knows what 10% a year *minimum* means in the long run...

Assume 10% appreciation translates to 6% a year adjusting for inflation.

What happens to a 250K home in one generation? I'll tell you what it means! 1.3+ MILLION! In today's dollars!!

Anyone able to get a piece of the pie now will become part of the new upper-class elite. While renting peasants will be priced out, then homeless when rents finally catch up to these values.

Therefore, i should get as much HOME as possible RIGHT NOW!!!

You are right... it is amazing that realtors are able to get away with this now.

1/13/2006 10:10 AM  
Blogger Dukes said...

For anyone interested here is a link to the WA State Board of Realtors Code of Ethics.

http://tinyurl.com/a8jc2

Check out article 12: Realtors shall be careful at all times to present a true picture in their advertising to the public.

1/13/2006 10:25 AM  
Anonymous Anonymous said...

The land argument holds more or less merit depending on location... around the Northeast, it's a tough issue. Not so much because the land isn't there, but because zoning makes it next to impossible to develop high-density housing. Around Boston (where I live) there are sizable tracts of land that sit idle because town planning commissions make it impossible to build anything but multi-million dollar homes on acre+ plots. Thus, young families (like mine) start to look South and West for greener pastures, where $500K buys you more than 1,000 ft2 on the second floor of a dilapidated two-family...

1/13/2006 10:33 AM  
Blogger Cannon Fodder said...

Excellent post!!!

In the weekend wedding band I play in, my lead singer is a real estate agent. She keeps telling me I should buy because "housing is appreciating at least 8% a year" in the Twin cities, MN area. After housing sales slipped in Nov-Dec by 25% in Anoka County (suburban area), I am sure they are all drinking the same kool-aid to keep prices up. Too bad I'm not smart enough to buy in this "great" housing market.
:)

1/13/2006 10:46 AM  
Blogger SoCalMtgGuy said...

Renting peasant..

Glad you enjoy the blog.

I do want to clarify that I have had 100,000 page views from over 67,000 visitors. I WISH that is how many view it a day.

I am getting several thousand readers on a daily basis, and it is growing each week.

Thank you all for reading my blog, and getting the word out.

SoCalMtgGuy

1/13/2006 10:56 AM  
Anonymous Anonymous said...

AP
Toll Brothers Sees Slowdown in Contracts
Friday January 13, 1:31 pm ET
Toll Brothers Says Slowdown in New Home Contracts Continues Into First Quarter


NEW YORK (AP) -- Toll Brothers Inc., one of the nation's top luxury builders, said Friday it is seeing a slowdown in contracts for new homes, as people take more time to make buying decisions.
"Beginning in the fourth quarter of fiscal 2005 and continuing into the first quarter of fiscal 2006, we have experienced a slowdown in new contracts signed," Toll Brothers said in its annual 10-K report for 2005.

1/13/2006 12:49 PM  
Anonymous inseattle said...

DMC in DC-

You don't understand. That property is a steal at $319. In a year it will certainly be worth $340, possibly much more than that! For the following reasons:

A) There IS NO RE BUBBLE in WA.

B) That home is situated on a tiny hill which keeps the property safer from the major flooding that is happening everywhere around here after 26 straight days of rain.
YOU CANNOT PUT A PRICE ON THAT KIND OF SECURITY!!!

C) Lynwood is a very desirable suburb of Seattle. Especially for those who are inclined to shop til they drop. If I remember correctly, it's basically one huge strip mall.

1/13/2006 12:54 PM  
Anonymous Anonymous said...

Well lets see.

My parents bought a house in Daly City, CA back in 1988 for about $270k. Now its worth about 700k. Not a bad return.

Previous to that, they sold their previous house for about $170k which they bought in 1978 for about $30k.

1/13/2006 12:57 PM  
Anonymous Anonymous said...

Oh, by the way, if anybody remembers, 1988 was a top in RE back then. So they saw the value of their house go down by about 50k.

1/13/2006 1:01 PM  
Blogger 9down said...

Well anon, my parents had a home on the market in 1988 near toronto for almost $300K. The bubble burst almost overnight (as my mother remembers it) and the home was reappraised at $140K; their mortgage was $180K. They barely survived (they had already purchased their new home) and still own that house which is probably valued at about $300K.

1/13/2006 2:35 PM  
Anonymous Anonymous said...

9down-
Thankyou for sharing your parents' story. It is exactly the kind of thing I need to hear to keep my spirits up. I really want to afford a house someday-w/o the loony pay-through-your-teeth-for-the-rest-of-your-life loan.

1/13/2006 3:55 PM  
Blogger Arioch said...

Cletus,

Sorry it was on another blog. I copy/pasted the article here. It's a good read.


(KVVU) -- The real estate boom that sent Las Vegas home prices skyrocketing may be over, but the hangover is only getting worse.

The party for many people ended on October 2, 2004 when Pulte slashed prices at its four Las Vegas Del-Webb communities by 20%.

The second-largest builder in the Las Vegas area said home prices had topped out and called it an appropriate move that will help new homeowners.

But what about the ones who bought before the price cut?

A number of small mom and pop investors bought homes in Sun City Anthem, in the builder's Solera and Pinnacle Village developments.

They claim Pulte burned them by inflating its home prices and steering them to in house lenders who were all too happy to underwrite their dreams.

Were they victims of an overzealous sales force? Or their own expectations? Or a little of both?

Dyan Harmell, a Pulte home buyer, is drowning in a sea of debt. Her living room table is covered with bills and she's not quite sure how to pay them.

"There are bills everywhere. House payments and debt," Harmell told FOX5. She's a long way from those heady days of Las Vegas' real estate boom, when she says Pulte's sales staff pushed and pushed her to buy.

"They call you and say 'you are so lucky .. this just came across.. it's going to be worth 100k before it closes,'"said Dyan Harmell. "We came with the hopes of buying two houses. We left the first day owning four. Within the next week, owning 6 -- all the way up to 19."

But Harmell's story is not unique. Walk around Pulte's Solera neighborhood and it's a ghost town. It seems as if "For Sale" signs are everywhere.

Signs that many people who thought they'd make a killing in Las Vegas' real estate market are now trying to unload homes at deep discounts.

A group of these homeowners claim Pulte Del Webb created artificial demand for it's properties by a sales staff that created a sense of urgency partly through questionable lotteries.

"We were told there were 80 people in the lottery for 15 homes. And lo and behold, every single person we knew got a home in that lottery,"said Pulte home buyer Cathy Wodka.

Some of those "lucky" enough to get a house were then directed into questionable mortgages.

Allegations that are the basis of at least one lawsuit with more expected.

Pulte declined FOX5's request for an on-camera interview, citing the possible lawsuits.

In a written statement, the builder claimed "None of our employees, agents or representatives is authorize to make any representations regarding economic benefits to be derived from ... the sale of our new homes."

The buyers point to sales literature from Pulte Del Webb's Sun City's so-called collection offerings with a prominent red sticker promising price increases.

Another brochure for three other home models lists closing prices next to it's base price. The message homeowners say they got - you'll make money before you close.

Pulte called it a way of showing the "savings a buyer can realize by buying a home that is nearing completion."

Matt Di Orio works for Nevada's Real Estate Division. Di Orio says Pulte home buyers have contacted his office about Pulte's sales techniques. While he won't make any judgements, he says Nevada statutes are clear about what real estate sellers can and can't say.

"In fact, there's a certain disciplinary action that could result in guaranteeing profits in the future," said Matt Di Orio. But what the sales literature didn't mention was a coming 20% price cut.

Buyers like Howard Jos-Berger were left with a home that dropped $100,000 dollars in value a few days after he bought it.

"The sales manager admitted to us that he knew the prices were going to be lowered on the 27th . . . the day we closed," said Jos-Berger.

As for Harmell, she's trying to figure out how to make December's payment of $30,000.

"For the last year I've had my whole family at risk. My mother, who's 83, my daughter. It's a lot of pressure on me. I thought I was being smart but they outsmarted me," Harmell told FOX5.

Did the company create demand and price hikes for its new homes before cutting prices on October 2nd?

That's the basis for one lawsuit and the allegations coming from a group of investors.

They claim Pulte set up a system which seemingly approved anyone and everyone for a mortgage.

Marty and Jan Moss bought two Pulte Del-Webb homes as investments and are now trying to unload one of them before it tanks the couple financially.

"I was surprised we were approved for all these homes and I bet if we were applied for two or three more, they would have approved them," said Jan Moss, a Pulte home buyer.

The Moss' and other Pulte home buyers, who are now out hundreds of thousands of dollars after Pulte slashed its prices, claim they were duped by what they say were artificially high prices.

Prices supported by some apparently questionable loans.

Dyan Harmell bought 19 homes with 4-million dollars in mortgage debt. Pulte's in-house lender continued to sell her homes even as she showed a loss on her rental income . . . her sole income.

"They had me close Monday, Wed, Friday on two houses each so it wouldn't show up on my credit report," said Harmell.

In her sales agreement, Harmell agreed to sue an in-house lender or pay $5,000 more per home - a violation of federal law.

In Pulte's written statement to FOX5, the home builder called the clause in Harmell's contract a mistake "that was corrected" and that home buyers are under no obligation to use its mortgage company.

But buyers Charlie and Cathy Wodka told FOX5 a different story.

"We were told we had to use Pulte Mortgage and Pulte farmed us out," Cathy stated.

Attorney Sean Claggett's office filed suit against Pulte and he's representing a dozen other buyers in what he expects will be legal action against the home builder, its lenders and appraisers.

"Pulte homes gave incentives to use Pulte Mortgage. Pulte Mortgage would receive a one percent fee for transferring the loan to preferred lenders, those preferred lenders would come back with an appraisal that would match the price that Pulte homes was selling," said Sean Claggett.

Scott Bice, commissioner of Nevada's Mortgage Lending Division, says home buyers share some of the blame for getting into questionable mortgages.

"It's tough for me to hear consumers say 'I've been harmed, I've been harmed.' When, in fact, they have some responsibility to say NO," said Bice.

But it appears saying no wasn't a part of the discussion between Pulte, its lenders and buyers looking to get in on a hot market.

So, what's next for the empty developments?

Ironically, some analysts say a next wave of investors may be the ones to profit if and when people like Dyan Harmell are brought to foreclosure.

Nevada's Department of Mortgage Lending Practices say while Pulte's in-house lenders have been the subject of complaints, the number is not out of line with other mortgage companies.

FOX5 asked the FBI if it's conducting any mortgage fraud investigations attached to Pulte Del-Webb financing. The FBI calls Nevada a hot spot for mortgage fraud but as a matter of policy won't comment on any specific investigations.

1/13/2006 6:30 PM  
Blogger Idaho_Spud said...

Anon 3:55

Do keep your spirits up! The end is in sight. I dunno if you are in Canada as the poster you were responding to or not, but if you are in the US, here are a couple of tips for bottom-picking the housing market:

When to buy: When *everyone* is down on RE. You'll know it when you see it. Everyone will be sour, fearful, and you will likely be purchasing in the middle of a recession, where job security is very low. This is the bottom. You will also start seeing articles in the 'Money' section of your local newspaper recommending home reappraisal for tax purposes :) A dead givaway!!! You will probably have a year or two at this psychological point. Take your time, and get the house you want.

HUD repo homes are the best value for $. You submit a sealed bid for the home you are interested in (they will be MLS listed), and if you win the bid, you're in! Get prequalified, and get ready for some work and expense because...

They are usually small starter homes (think 1100-1500 sqft). Unfortunately, the vacating tenants (I can't think of them as 'owners', sorry to say) usually trash the place.

I don't know why, but they always take the electrical outlets, lights, ceiling fans, garbage disposal, dishwasher, garage door opener, etc, etc. Like this used crap is worth something when everyone else is stripping it out too...

Also, repo homes usually have dead lawns from having the water and electricity turned off, and have had poor maintenance. Be prepared to spend $5-10K getting a repo fixable.

If you don't want a repo, and don't mind spending more $/sqft, you can probably pick up a nicer mid-size house (say 1800-2300sqft) for about 1.5 -2.0x what you'd pay for a repo. You lose the headache of fixing up, and get a home that's immediately habitable.

Just thought I'd share some observations from the last shakeout. Hope you find it useful!

1/13/2006 6:46 PM  
Blogger Sensible Lender said...

Regarding Anonymous' post:
About the Daly City house. Using 18 years in my calculator, the annual compounded rate of increase is 5.43% per year. Taking the 700,000 and subtracting 8%, which covers selling expenses and fix up costs that may not have been done for the 18 years, and you get 4.95% annual compounded rate of increase.

Regarding the last price cycle here in SoCalif, prices peaked in 1990, reached their bottom at the end of 1995 (houses dropped 35%, condos 50%) and hit the 1990 price again in 2001, 11 years later.

Doing a similar calculation on my own house in SoCalif, 1990 to present, gives a 4.20% annual compounded increase (I subtracted likely seling expenses and maintenance costs since 1990.)

Doing this calculation on a house my grandfather built in 1949, using his costs for the land and building it, comparing it to now (coastal SoCalif), I get about 6.5% compounded.

What this tells you is not to buy near a peak in prices like 1990 or 2006.

1/13/2006 7:05 PM  
Blogger Sammy Schadenfreude said...

Don’t wait for prices to come down, they will not come down. They will go up more slowly, but they will not come down. That has nothing to do with agents; it is simply based on the growth in population and a fixed amount of land.

So riddle me this, Mr. Realtor: How is it that Japan, with a far greater population density on a much smaller "fixed amount of land" than the U.S., has seen its property values slump for 15 consecutive years?

1/13/2006 8:04 PM  
Blogger Subsonic22 said...

Arioch,

Great article.

"They call you and say 'you are so lucky .. this just came across.. it's going to be worth 100k before it closes,'"said Dyan Harmell. "We came with the hopes of buying two houses. We left the first day owning four. Within the next week, owning 6 -- all the way up to 19."

19 homes? Are you freaking kidding me? No sympathy for her, the mortgage company that gave her the money, nor the sales people that got that fat commission checks for these phantom deals. Here's hoping the true investors swoop in and buy this mess for pennies on the dollar.

To paraphrase a line from the movie Troy, when Achilles' mom warned him prior to the Trojan war that his impending everlasting glory walked hand in hand with his doom. These parties' greed, walks hand in hand with their stupidity.

1/13/2006 8:21 PM  
Blogger need 2 leave CA said...

Those Las Vegas FBers deserve to file bankruptcy and be in debt servitude for the rest of their lives. They wouldn't be complaining if they had made a killing, so they should suffer the results of their greed. Buying 19 homes in one thing of stupidity is unbelievable. Multiply these idiots by many across the country, and wishing them all the same.

All I want is one reasonably priced house in a nice, safe area to raise my family. People like this has robbed many people like me of this for the time being. We'll wait for the ultimate fall.

1/13/2006 9:53 PM  
Blogger cereal said...

19? i never cease to be amazed. most fb's with just 1 home are sweating it out.

stupid earthlings......

1/13/2006 10:55 PM  
Blogger bitter_renter said...

Interesting. So after 30 years the 35 year old couple buying that $500K stucco "median priced" sh*tbox can expect it will be worth $8.7 million.

Meanwhile, if wage inflation stays at around 3%, the median household income will go from $60,000 to $146,000. So instead of paying 8x their income for a house, people will need to pay 60x their income. 200 year mortgage anyone?

1/13/2006 11:33 PM  
Anonymous Anonymous said...

Idaho Spud-
Thankyou very much for your tips and encouragement- I'm gonna print it out and tape it to the wall and watch for signs!!

1/14/2006 12:17 AM  
Anonymous M. Davis said...

My point is that the 'experts' make statements that have the potential to lead people down the wrong path.

But in the end, it is up to each individual to decide what path to take. I agree that the statement made by the realtor in this case is wrong, but it his right to say what he believes, and I don't think he should be held liable for giving bad advice, especially if he isn't being paid for the advice.

1/14/2006 9:21 AM  
Blogger SoCalMtgGuy said...

m davis,

you said ----But in the end, it is up to each individual to decide what path to take. I agree that the statement made by the realtor in this case is wrong, but it his right to say what he believes, and I don't think he should be held liable for giving bad advice, especially if he isn't being paid for the advice.----

Yes, it is the individuals ultimate decision. They need factual information to make that decision...and NOBODY can guarantee anything with any investment. The NASD is very clear in educating it's licensed reps on that fact.

What he was giving wasn't advice. Advice is, "I'd look for a house with newer plumbing...on higher ground...with a bigger garage...I think the house on 7th is niceer".

He IS giving his 'advice' so that he WILL make money from it. He 'promises' appreciation as a can't lose investment in hopes of having people buy through him.

If he said, you are right, property has gone up a lot lately. You should probably crunch the numbers to see if it makes sense for you. Property doesn't always go up, even though it has for the past several years. Over the long term, it has been shown to be a steady investment, but it has it's ups and downs along the way.

SoCalMtgGuy

1/14/2006 12:14 PM  
Blogger betamax said...

A) There IS NO RE BUBBLE in WA.

LOL. No one ever thinks there's a bubble in their area, it's always somewhere else. Wake up and smell the toast, it's burning.

http://seattlebubble.blogspot.com/

1/14/2006 1:42 PM  
Blogger betamax said...

There's no bubble here because...

A) everyone wants to live here
B) the weather is great
C) there may be a bubble in ______,
but not here
D) population is growing
E) economy (based on RE market and
equity-fueled consumer spending)is
strong

1/14/2006 1:47 PM  
Blogger WArenter said...

"A group of these homeowners claim Pulte Del Webb created artificial demand for it's properties by a sales staff that created a sense of urgency"
-------------
These speculators were the ones creating the sense of urgency and a false sense of a housing shortage.

1/14/2006 9:43 PM  
Blogger Wes D said...

There is no bubble in Florida because:

A)We are completely out of buildable land
B)The weather is nice and the whole states of Michican and Ohio are preparing a mass migration
C)The economy is growing strong - 1,000 maids are being hired in hotels each day

Yip - people are looking desperate and coming up with stupid reasons why there isn't a bubble. I replied to a comment on the Business Week blog that said A) above in regards to FL. Guess that idiot slept until he was over Miami, didn't leave Miami the whole time he was here, and slept before the plane took off until he was home.

1/14/2006 9:45 PM  
Blogger Larry Walker said...

An interesting phenomenon happening right now in my market (Cocoa Beach, FL) is that exuberant investors have flocked to pre-construction condos in hopes of fat gains flipping their contracts while completely overlooking existing condos. On one stretch of river shoreline we have new condos going for $402 per sq. ft. while practically next door existing nice-but-older units with the exact same view and better grounds are offered for $188 per sq.ft. There are deals out there but generally they are not new construction. We are already seeing "investors" who put 10% down pre-construction in hopes of flipping the contracts before closing being forced to close on $500,000 to $1 million condos that will be difficult to rent at any price. I predict a catastrophe in high-end new construction here this year as hundreds of these investors make the decision to
(a) close and begin paying huge mortgage payments, condo fees and property taxes on their investment while praying for an eventual sale or resumption of appreciation OR
(b) walk away from their 10% deposit OR
(c) drop the price, in effect toppling the first domino

It will interesting to see how this plays out.

1/15/2006 5:28 AM  
Anonymous Anonymous said...

Well, you know what they say...

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

1/15/2006 8:21 PM  
Anonymous Ferromancer said...

Looked at a rowhouse development this weekend a block from where I live. It overlooks Graceland Cemetery on Clark Street in Chicago. 4 Storeys, 4 bedrooms, granite kitchen, 3.5 baths (two of them granite), 2 family rooms, dining room, garage, patio overlooking the cemetery. The cops hang out at the White Hen all the time nearby, so it's pretty safe. The kind of place to raise 3 kids.

One million dollars.
That's 18 times my salary. The rowhouse two doors down is next to the gas station and it is 100 sq ft smaller, so it's 100K less. Still, 16 times my salary. If my live-in girlfriend can find a decent job, the cheaper one is still 10.5 times our combined salary.

I pay 1250 a month in a spacious 2+ bedroom apartment, in an ancient cozy two-storey greystone. That's 36% of my monthly income AFTER TAXES.

Pure insanity.

1/16/2006 9:57 AM  
Anonymous Anonymous said...

just got back from a week in orlando at Disney World. All of the Disney hotels were sold out so we looked outside the park. 5 miles from the west gate, we rented a 3 br 2ba 1500ft2 condo for 80/night. This is in a <5yr old community and it was so empty that the clubhouse pool was our private pool. Lots of empty timeshares in orlando.

1/17/2006 11:47 AM  
Anonymous Anonymous said...

anon above...
What was the name of the condo place you rented? i am headed to Orlando next week. Scheduled to stay at a friends but a condo for $80? Cant beat that with a baseball bat!

1/17/2006 12:38 PM  
Anonymous Anonymous said...

So, let me ask you guys a question:

Thanks to the stock market and my employee stock options, I've got about half a million bucks. I need a place to live, of course, and I do know how to calculate present value. My credit rating is for shit, because of the nasty bout of underemployment I had before joining the company I just left.

I'm single, no dependents, and planning to buy for cash. The question is, is it worthwhile to borrow against the property to free up the capital? What do you think?

1/19/2006 5:20 PM  
Blogger Seattle Eric said...

FTY...I looked up the listing referred to in this blog. It was listed in October of last year for $349k. After two months, it was lowered to $319K. A 112 days it was lowered to $315K, and finally, on 3/31/06, it was sold for $305K

6/22/2006 11:13 PM  

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