Tuesday, November 28, 2006

More NONSENSE from the CAR (Ca. Assoc Realtors)

Look at this latest report from the California Association of Realtors (CAR): 3Q 2006 First-time Buyer Housing Affordability Index (HAI).

This is the part I find interesting...and for several reasons to be discussed below:

The minimum household income first-time buyers needed to purchase a home at $478,710 in California in the third quarter of 2006 was $98,890, based on an adjustable interest rate of 6.58 percent and assuming a 10 percent down payment. First-time buyers typically purchase a home equal to 85 percent of the prevailing median price. The monthly payment including taxes and insurance was $3,300 for the third quarter of 2006.

First off, the OLD standard used to be 20% down and a FIXED rate loan. Now, they are using 10% down and an ADJUSTABLE rate loan. Looks like the ole "when things aren't looking as good as we think they should, we will just change the standard". It has been used successfully with SAT scores, so why not housing stats? After all, if we just change the 'standard' every so often, we can show progress with each new 'standard'. Don't believe me...here is the link to a report from December 2005 that uses the 'old' 20% down standard: The 'OLD' affordability index from 2005. Here is the excerpt:

LOS ANGELES (Dec. 8 ) – The percentage of households in California able to afford a median-priced home stood at 15 percent in October, a 4 percentage-point decrease compared with the same period a year ago when the Index was at 19 percent, according to a report released today by the California Association of REALTORS® (C.A.R.). The October Housing Affordability Index (HAI) was unchanged from September, when it stood at 15 percent.

The minimum household income needed to purchase a median-priced home at $538,770 in California in October was $128,480, based on an average effective mortgage interest rate of 6.03 percent and assuming a 20 percent downpayment. The minimum household income needed to purchase a median-priced home was up from $106,490 in October 2004, when the median price of a home was $459,530 and the prevailing interest rate was 5.70 percent.

There you have it...complete with links to actual pages on the CAR site. I wonder why it is so hard for the OC Register, LA Times, San Diego Union Tribune, and others to do such 'investigative journalism'? "Bueller......Bueller......." Did somebody say advertising?

Not only did they change the standard, but they used an interest rate that I don't think is attainable by very many people. I looked at the California rate sheet of a major nationwide lender, and I think it would be rather difficult for most people to get a 90% LTV loan at 6.58%! For the people that could get it, they would need to show full documentation, and that rate would only be 'fixed' for TWO years!! Sorry, no 90% stated loans at that rate! Getting that rate would 'assume' that the broker wasn't charging any points, and bare-bones fees...and we know how much brokers like to work for 'no fee' loans! But lets not forget that unless you were using a 'non-conforming' loan, you would be paying PMI (mortgage insurance) until you had 20% equity in your property...so that would add a few hundred a month to the bill as well...and make that rate even less applicable to this situation. Most people would have to get an 80/10 loan to get to 90%...and the 10% would be in the 8-12% range depending on all of the underwriting factors, but they would avoid paying the PMI by using the 'combo' loan.

From the thousands of credit reports and files that I looked at, very few people had $47,000 to $50,000 sitting in their savings accounts for the 10% down payment...which doesn't include those pesky things called closing costs. I know that most sellers are dying for a chance to pay them for you now, but we can't assume that those will automatically be paid for. So, might as well have another 5-12k set aside for those. But let's do this the bare-bones CAR way...after all, why should they care if you have any money left in your savings account for reserves, emergencies, etc? You 'own' a house now...right?!?!?

So, using their numbers, I crunched the loan of $430,839.00 at 6.58% to have a principal/interest mortgage payment of $2745.90 per month. That doesn't include insurance, which on a $480k piece of property will be about $100 a month. Don't forget property taxes which will run about $450-500 per month (most lenders underwrite CA state property tax at 1.25% of the purchase price...but it can be a bit lower, or much higher depending on things like Mello Roos and other local assessments). Lets just round the property taxes to $444.10 and that makes our total monthly expenditure for this house the $3300 like the CAR says was the average in Q3 2006. At least the CAR can crunch the numbers right! The problem is that their numbers are not completely realistic in my opinion. This situation would put the person at a 40% debt ratio assuming they had NO other debt...no student loans, no car payments, no credit cards bills...nothing. If that was the case, this person would be OK spending 40% of their income on housing with no other debt.

Let me just throw this question out there for many of you...what do you think the 'typical' 480k house in California rents for per month??? Do you think the rent is more or less than $3300 a month? Enquiring minds want to know...

The scary thing is what happens in 2, 3, or 5 years when that wonderful ARM adjusts! What does the payment jump to then? What is the underlying index the CAR suggests to use for the ARM? Where will that index be in a few years? What will happen if 'heaven forbid' property values decrease a bit before I need to refinance, and I can't get out of my ARM? Even if they decrease just a little bit, that 10% equity cushion can evaporate pretty quick. Even if the borrower isn't upside down, it will still be hard to get a good rate on a high LTV loan (loan to value). I think you get the point...

Oh well...anything to make the market look better for a little while longer. You know what though...just like a kid wading too far into the deep-end...even the biggest moron knows when he is underwater and drowning...and there is nothing the CAR will be able to say or do to make these people feel any better about their situations when that time comes.

Stay tuned...


Friday, November 17, 2006

Want to get an accurate value on your house? How to find an HONEST appraiser.

Yesterday, we got an inside look at the appraisal side of the business courtesy of a long time appraiser in the Orange County area better know to us as OC Appraiser. That post sparked some good comments and e-mails. One of the most common questions was "how can I find a good appraiser?" that will give me an honest representation of the value of my home at any given time.

There was also quite a bit of discussion as to how internet sites like www.zillow.com were having an impact on things.

Well, OC Appraiser had even more good info for everybody. From how to find and research a good appraiser, to the impact and shortcomings of internet sites such as zillow.com. Instead of having that valuable information buried in the comments, here it is for everybody:

From OC Appraiser:

I’ve been trying to do my part by sending emails and calling local newspapers, to no avail. Several months ago the Wall Street Journal ran an article on appraisal fraud that I found to be very accurate. Unfortunately, it did not gain much traction.

Currently, I have activly been in contact with honest, professional, appraisers throughout the country.
One of these appraisers has contacts with the FBI and Justice Department in Washington, amoung other agencies. A database is being put together listing all suspicious addresses and names of participating appraisers and brokers nationwide. From what I hear it is beginning to yeild results. Point being, (we) are trying to clean things up and rid the industry of the bad players. It just takes time. Wish we had more media help, then things would snowball much faster, and crooks would most likely run to another profession.

One way to find an honest appraiser, or at least one that you know is NOT on the take, is to go out and personally hire him/her yourself. DO NOT call to find an appraiser from a list that the agent gives you. Just search yellow pages, or go to www.asc.gov for the national registry of licensed and certified appraisers. On this registry you can search by city, county and state, and it will give you all the appraisers in that city, as well as if they have active licenses or not.

You can also search www.orea.ca.gov for the California list, and narrow it down to your city. On this site (OREA - Office of Real Estate Appraisers), you can also search to see if appraisers have ever been busted for any wrong doing.

Other tips: Find an appraiser who is Certified, and check their ID, so you can check the websites to make sure they match. In Orange County, most of the appraisers running around arent even licensed. They are trainees who are working for some other licensed appraiser who just signs off on the report, more often than not, that the supervisor also inspected the house, when in fact he did not. There are tons of “skippy mills” in OC, for this is the fastest entry into the profession, and the easiest. The scary part is these trainees learn nothing but how to “pump” value, and their goal is to become newly licensed so they can go out and hire a hand full of trainees themselves. They typically give the trainee 50% of the fee, and the cycle repeats itself. That is why more than half of all appraisers in OC are either trainees or newly licensed, and mostly unqualified to do anything.

If an appraiser comes to your house or calls before coming and asks you what “you” think your house is worth, or what “value” you are looking for, find another appraiser. This guy is just looking for a baseline starting point so he knows what values to look for in the area. Thats because he doesnt really know how to appraise, rather he conducts searches by value, not by property comparability.

This is NOT appraising. Competent, professional appraisers do not need a starting point or target value. They go to your house, analyze the data, and form an opinion, applying various methods and technical analysis. The value may come in high, it may come in low, it may be right on target. But rest assured, what you at least have is an unbiased professional opinion.

Now that you know where to go to find a good appraiser, it is time to look at the other side of sites like zillow.com. The internet is an excellent tool, but nothing is going to replace a trained professional actually spending some time on site to find the actual 'value' of your home.

From OC Appraiser:

Web sites like zillow are currently facing litigation by homeowners who relied on zillow for accurate valuations. The problem with web site valuations, BPO’s and all other desk-top valuations, is that they do not account for subject location. Zillow cannot tell if a property backs a freeway, which in some markets can account for a 15% discount. AVM’s cannot tell a panoramic catalina ocean view, from a peek thin southern coastal view, which can be as much as a 20-30% difference, depending on how close to water the house is. Computer and desk-top valuations cannot tell the difference between higher end Bosch, Viking and SubZero appliances, versus the Sears specials.

Computer valuations cannot determine over-improvements, superadequacies, physical, function or external obsolescense influences, who’s value contribution or discount cant be as high as 40%. Now I dont know about you, but if I am borrowing 100’s of thousands of dollars to buy something, you better believe I want to make damn sure its worth what I paid for it. And I aint gonna trust the appraiser who is hand picked by people who stand to gain a commission when the deal is closed. $350+ dollars, to potentially keep from making the biggest financial mistake of your life seems like a no brainer to me.

I’m not worried about the appraisal profession or my role in it. The cream always rises to the top, and profesional investors (lenders and others who actually loan out their own money and keep the assets in their portfolio) always want an actual qualified professional appraiser doing the inspection and analysis.

Shadash, I can certainly understand how you think appraisers will be replaced because they cant be trusted. But the fact of the matter is that professional money managers and debt holders do understand the importance of a professional valuation. Its just that in recent years they have been more risk tolerant and because they have been shuffling the loans down the line, they did not need accuarate valuations.

I suspect however, that this packaging of loans, and passing the buck down the line will cease, when the end holder does not get paid what he thought he was supposed to make. Look at it this way. If you loan money to someone, even if its not your money, you will stop loaning out the money if you stop getting paid. Because if you dont get paid, how is the guy who loaned you the money going to get paid? And so on and so forth.

The only way to insure coverage is to know that the collateral will cover the debt burden. And the only way to sleep soundly at night as a lender, is to have full faith in the value of the collateral. Computer valuations will be around to do the low loan to value deals, but with people continuing to borrow against their homes, inceasing loan to values, there will always be work for the honest appraiser. Its all about being selective in the clients you have. The clients that I do have all loan out their own money and want real valuations. I quite doing work for brokers 12-18 months ago, because they just stopped caring, and their competition heated up.

So there you have it. More 'real world' info on what you won't hear about the appraisal business. So again, take this information and use it to make the best decision for your particular situation. If you think we are making this stuff up, that is fine. But if you think there 'might' be some truth to what you are hearing here, I would seriously consider spending an additional $350-$500 bucks to get an 'additional' appraisal by an unbiased 3rd party before I was on the hook for hundreds of thousands of dollars. Why take the the chance of overpaying for a property, when for about .1% of the purchase price of the property ($350 on $350,000), you could have some solid information in your hand regarding the 'real' value of the real estate in question. Sounds like a no-brainer to me.


For all the Orange County readers, I have something you might be interested in. If you would like to have your property appraised by OC Appraiser, send an e-mail to me at socalmtgguy@gmail.com and put 'OC APPRAISER' as the subject. I will pass your contact info along, and let OC Appraiser take it from there. I have never met OC Appraiser, but we have traded quite a few e-mails and their posts on this site and Ben's blog speak to their credibility. I was never an appraiser, but I did spend a decent amount of time in the appraisal review department of a major lender, so from what I have seen, I feel confident that OC Appraiser is the real deal and will give you an honest appraisal of your real estate. So, send me an e-mail if you would like me to pass your contact info to OC Appraiser.

For those of you who have been checking in less frequently because I was on a posting 'haitus', there were 3 new posts this week including this one. So be sure to scroll down and catch those. Lots of good info in the comments as well. Look for more frequent posts from me in the future. Just remember 2007 is the year when things WILL get interesting.

BE INFORMED... be patient... and stay tuned...


Wednesday, November 15, 2006

Appraisals...an inside look at 'The OC'

There is a shift happening in this country in the ways that people get information. No longer are people held 'captive' by the big 3 network news shows, and a handful of national newspapers. The TV news ratings are slowly dropping, along with newspaper circulation of the 'big name' newspapers. This is due to the internet, and the fact that people can get information from other places. Sure, anybody can start a blog, and say whatever they want. We have also seen that the major media outlets will say what they want as well. My point is that you need to look at all the information available to you, and make an informed decision.

Why am I bringing this up? Because there is a lot of good information on this blog and in the comments posted by readers of this (and other) blogs. Sometimes you have to look beyond the major news headlines to see what is 'really' going on. Like I have said before...the media is a lagging indicator.

I want to share some information from an Appraiser that specializes in the Orange County area. This persons comments were buried way down in the comments on another thread, but I think they deserve to be read by more people.

Sometimes you can get a better picture of what is going on by listening to a few quiet voices that are whispering solid information against the background of an industry that is screaming "EVERYTHING IS FINE!" at the top of their lungs.

Here are the first comments from an OC Appraiser:

As an ethical, professional appraiser in OC, I can tell you all that YES, I have been checking the declining values box when the market warrants such an action. I am doing many more foreclosures now than ever before. I just did one in Trabuco Cyn (Wagon Wheel). There are 4 REO’s alone within the same development, and a couple actives that were purchased in 2005 for more. Kind-of eary driving around. Nice cars in the drive-ways, with “bank-owned” for sale signs in the lawns. How could this happen in South Orange County???

Looking at public data indicates no shortage of “underwater” borrowers in this area (Wagon Wheel Cyn). To make matters worse, the last contract (pending) was signed 3 months ago. This, in a market that usually sees 2-3 contracts (sales) per month.

Yes, the sky appears to be falling in this sub-market. The scary part is that I see the same thing across most of OC.
I have not seen a market with “valid” price increases in over 10 months. I’ve been doing foreclosures from the Santa Ana markets, to the higher end Coto Markets, and all areas in between (Mission Viejo, Laguna Niguel, Dana Point). Not seeing so much REO work in the high end $3M+ markets, as those buyers have appeared to be more well healed. A lot of REO work in the $1-2M range, where I suspect it was move-up buyers biting off way more that they could chew, especially in the way of higher property taxes. Be careful you guys, there is still a lot of fraud and it seems to be picking up. I get several call a week now from local brokers asking me to pump values, as they go down their list of appraisers in a given area. Sad part is, they always find someone willing to commit fraud. No shortage of appraisers in OC that is for sure. And since most are really new, they dont know what they dont know. So they actually think they are giving their clients “good customer service”, when they phish for comps to hit a predetermined value. Just be careful out there.

The OC real estate market is currently in decline and the mommentum appears to be shifting into high gear.

At least from my vantage point.

So that this second comment by the same OC Appraiser makes sense, another poster asked for more specifics regarding some of the areas talked about. The Appraiser could not give specifics because of confidentiality reasons. But here is some more information:

Thats correct, enforcement is lacking, and its just too damn easy to make money as a crook in the real estate business. The thing I dont understand is why someone would be willing to commit a federal offense for a measly $350.00 I guess it goes to show you that the many appraisers in California and namely OC arent very bright, and are just looking for the easiest way to make money, with the least amount of effort. How hard is it really to find a slimmy broker in OC? They are practically on every corner. All the appraiser has to do is knock on the door with a smile and a wink to be assured a steady stream of business. I’ll be interested to see how long these relationships last with the fraud investigations starting to gain traction. In Colorado and N. Carolina, appraisers are going to Federal Prison, just for being stupid. One trainee even tried to plead ignorance. Sorry, up the river you go. Now we just need the wave to hit California and they should be running scared. Hopefully they will go back to working at Del Taco, or whatever else these sorry bunch of characters did before they got their appraisers license.

On the REO side: In WW, they are located on Charokee, Raindance, and Longhorn. For confidentiality purposes, I did not include the street name of the appraisal I did as a pre-foreclosure. Some of these are already bank owned, and others are just active for less than original sales price.

I would not offer list price in this environment. A prudent buyer will attempt to take advantage of a sellers desperation. Afterall, like I said, not one buyer has been willing to sign on the dotted line in the area in 3 months. If that is not a RED flag, I dont know what is. Do your research!! Oh yea, Coto REO’s: Look in the “Tanglewood” tract, streets: Charleston Ln, Raleigh Ct, and Westchester Ct. There are some folks underwater in there, as well as many other area of Coto. I could list these all day long, they are all over OC.

Maybe later I’ll come back and give you guys some from some coastal communites. Hot tip: if you have access to public data or the local mls, you can see when someone bought something, for how much, and best of all, how many times have they refied and for how much and when. This is the key. Find someone who is totally underwater, and there is a good chance it will be an REO at some point. Find multiples in certain neighborhood, and you will be well served to hold out for the firesale that will soon follow, as the banks will all dump these at the same time. In my opinion, right now is too soon to get anything at a “percieved” discount, for more will follow.

Good luck, and watch you backs. Dont trust anyone you dont go out and hire yourself. And even then, be careful.

Here is some more information that OC Appraiser shared with me via e-mail:

I think it is important to at least inform the public about the shadiness of the business. I think about how much business I have lost over the years due to my integrity and how my good name has been tarnished amoung people I thought were my friends, who work as mortgage brokers, and its real sad. The public needs to know that when mortgage brokers refer to an appraiser as a "good" appraiser, its because the appraiser has a reputation for making the deals work, all the time, without regard to a property's true market value. This is fraud.

"Deal killers" are appraisers who go out and do their job, which is to collect data, analyze, and form an opinion without bias. The appraisal is to help protect the lender against losses. Problem is, brokers arent lenders, and many lenders today sell their loans, so they really dont care about the quality of the appraisal either. They all get paid when they sell the loan down the chain. Its like a big pyramid scheme, with the debt holder (borrower) as the stooge holding the bag. Not a problem when your house is going up 20% per year, but take that away, and you are in serious trouble. I think the overall mentality of a person having debt needs to change, and it typically does throughout market cycles.

In my opinion there are 2 kinds of debt: Bad debt, and worse debt. Lets take a typical senerio I run into all the time: Home is purchased by local area agent. Its fixed up, listed way above market value. The same agent brings in a buyer, uses the "in-house", or "favorite" lender/broker shop, who has a list of "good" appraisers. Agent pushes the house on a buyer as a "great deal", and claims to have "access to lenders", funding will be "no problem". Take away the shady appraiser and this deal is dead in the water. But there is too much money at steak to let this deal die. Its much easier to find a "skippy" appraiser, pay him $400 bucks to sign the appraisal report with the predetermined number and collect the commission check. If you refi your house, the broker will usually ask you what you think your house in worth. They draw up the papers using this number, and find an appraiser who will "get" this number. 9 times out of 10, the appraisal will come back at exactly that number. Its a miracle!!

The public needs to not be fooled. These people are not your friends. Sure they may appear to be getting you out of a jam, but in reality are digging you in deeper, and screwing you because now the asset that you "own" is worth less than what you owe the bank. Try selling your house now. It wont happen. You will eventually be in foreclosure and probably bankrupt, while your so called "friends" are off closing more deals. Folks need to take control and do their own research first before allowing these "snakes" in the door. I know its difficult for most folks, but I think for the sake of your future, and that of your family, you need to get educated. Do your own research! And if it sounds to good to be true, it most certainly is.

So, you have heard me mention appraisal fraud along with some of the other types of fraud that are being committed in the mortgage industry. Here is an actual appraiser that has been in the business for a while telling you their side of the story and what they see on a daily basis. Now is where you have to ask yourself, should I belive this information even though it is not being told by the major media outlets or the real estate experts? ...yet

Use this site as one of the tools to help you make an informed decision. Remember...2007 is the year when things will really start to get interesting. It takes time for all of the creative financing, fraud, and people living maxxxed out beyond their means to take its toll on things and work its way through the system in a way that is finally reflected by decreasing home prices.

Stay tuned...


Sunday, November 12, 2006


I know, it has been a month or so since my last post. With the amount of 'housing bubble' news that is hitting all aspects of the media, I started to figure that the blogs weren't needed as much as they were when 'nobody' was talking about a housing bubble. Well, I ended up having a good conversation with one of my long time readers. They said that a new post was needed from me now, more than ever, since things were starting to happen. After our hour long conversation, I agreed. It was also suggested that not every post has to be a long one...that even shorter posts would be fine. I agreed that it was getting tough to write long posts, so I think making shorter posts more frequently will be on the order. How does that sound? Now lets get going...

What I am about to say probably won't come as a surprise to many of the long time readers, but after talking to my friend, he believes that many people could benefit from much of what we talked about in our conversation.

As much as many people are seeing inventories increase, prices decrease, and the sales pace drop dramatically...I am here to tell you that YOU AIN'T SEEN NOTHING YET!!!

I know the pundits and experts like our favorite econoMISSED Leslie Appleton-Young, are saying that yes, things are slowing, but that is all that is going to happen. Things will turn around in 12-18 months. The market is just finding a balance between buyers and sellers.

BLA BLA BLA... Read this 'gem' from a nice Desert Sun 'fluff piece' titled "Real Estate Upswing Predicted for Valley - Expert says market will bounce back": Leslie Appleton-Young, chief economist for the California Association of Realtors, told more than 500 real estate agents, mortgage brokers and other business people at a real estate forecast symposium Thursday in Palm Desert that home sales and median prices statewide are likely to decline slightly from the once ‘red-hot market,’ then level off over the next 18 months.

“‘The housing market is going through an adjustment after a four-year boom that was not sustainable, but the (economic) fundamentals are still very positive for this region,’ Appleton-Young said. ‘But there’s no area of California that is immune to the adjustments,’ she said.”

I am here to tell you BULLSH!T regarding 'positive fundamentals' or that things are just going to 'level-off'. What part of doubling inventories, and a 40-50% slower sales pace makes the fundamentals so 'positive'? Not to mention that incomes in the desert communities do not afford most of these 400k+ 'starter homes'. I also find it pretty funny that 500 RE agents show up to a meeting in an area that has barely sold 700+ homes so far this year. I'm not so good at math, but it doesn't seem like that is enough houses to 'employ' 500 agents.

All you have to do is read the articles on Ben Jones fabulous blog to see what is going on. I scan his blog daily...the difference is that I am not surprised one bit at anything I read there. Heck, I tried to tell people what was coming....and I STILL AM!!

I tried telling people for the past few years that this was going to happen, but nobody wanted to hear it. I was told that I was just bitter because I 'didn't own a home' or missed the boat. This blog gave me a place to share my thoughts to whomever wanted to read them. I guess some people wanted to hear what was really going on in the industry as well over a million unique visitors have hit my blog. As for some of the people who told me I was crazy a year or so ago, some of those same people have actually contacted me for advice because all that 'equity' they had, is evaporating, and the mortgage payments are starting to take their toll. Again, lets use Orange County as an example...what REALLY happened the past 5 years to take the median home price from about $220k to about $620k??? Think about it...

I was just in NYC for a quick business trip. I happened to get lucky and was asked to share a limo with 4-5 other people instead of waiting in the taxi line that was easily 60 people long. As traffic from JFK was terrible, we had plenty of time to talk. The topic of real estate came up when they found out I was from SoCal (the other people were from Utah). Needless to say, these people were surprised by much of what I said, but they all agreed that mathematically things didn't make sense. After we dropped the group off at their hotel, it was just the limo driver and myself. I guess he was listening pretty intently to our conversation, because he asked me what I knew about filing BK. He said that his mortgage alone was over $2700 a month, and that didn't include the taxes. He said he had talked to some friends about the BK process, and that he wasn't considering it now, but in a few months. He was amazed at how fast things turned, and that he couldn't even sell his house for what he paid for it. I didn't get into too much detail with the guy, I just hope he and his wife figure things out.

Lets take a look at some of the things we have seen in the news lately. We have seen homebuilders reporting large amounts of cancellations, a decrease in profits, and some smaller homebuilders are even losing money now. We are seeing inventories increasing, and the sales pace in many major areas is 35-55% slower than it was just a year ago. We are seeing stories start to pop up about appraisal fraud, people being upside down on their homes, and people trying to find ways out of their housing contracts. We are seeing that the builders are cutting prices in many areas, and this is 'screwing' the individual homeowners that can't match the builders with incentives and/or price decreases. We are seeing rather large layoffs in the mortgage industry as loan production is down from previous years. ALL of this is happening...AND WE ARE NOT EVEN IN 2007 YET!!!!!!!

You think things are getting interesting now? Just check back in 12 months and see how things are. I will tell you that the spokespeople for the NAR and CAR are doing nothing but blowing hot air. Their logic of a 'soft-landing' is filled with more holes than all the golf courses in Florida. I'm sorry, but the fundamentals do NOT support property values where they currently are in the 'bubble areas'. There is NO way to rationalize or explain it. Over the next 12-24 months, many of the flippers, 'investors', and interest-only-ARM-home'owners' will be flushed from the market. There will be even MORE properties coming on the market, with less people that will be in the market for them.

That also brings me to another point. Just as many 'novice' investors and flippers hit the market, there were also a lot of 'novice' developers that entered the fray. Many of these developers (along with established homebuilders/developers) started housing projects when things were good, but won't be completing things until 2007/2008 time frame. You have already heard stories of some developments being canned because it was early enough in the project. But many more were too far along and have to complete their projects. These builders/developers are facing cancellations and will be forced to sell their units in a market that already has a larger than normal inventory. It will be interesting to see how well these 'new homes' are absorbed into the already bloated housing inventory.

So, my advice to you BE INFORMED before you make any financial decisions. Do NOT blindly follow the advice of the industry 'experts' or any other person that has a financial interest in the industry. Look at the stock market bubble. All of the analysts, MBAs, and financial 'gurus' said "it was different this time". They had 'strong buy' on stocks that were trading at 100+ times future earnings. As we can look back and see, they were all WRONG. The same things are being said today about property values. If the numbers don't make sense...then it is NOT a good deal, no matter what the realtor says! Notice how people call property 'investment property' and not 'income property' anymore?? Maybe that is because most of the 'investments' of the past few years are NOT throwing off 'positive income'. Check back to this post in 1, 2, 3 years from now and see where things are. I feel confident that 2007 is going to be the 'year' that REALLY shakes things up a bit. It is going to be interesting to see what happens when 18-25% of the 9 trillion dollars of outstanding mortgages adjusts in 1 year.

Well, I hope this helps people some. I am working on a few posts right now. There was a 'Flip that House' marathon on TV this past weekend, and I managed to catch quite a few shows. I will give the shorter posts a shot, as that will help me be able to post more frequently and get ideas on 'paper' when I have them, and not have to incorporate them into a larger post. I look forward to the comments and feedback.

Stay tuned...the next 12 months will be VERY interesting!

Web www.anotherf@ckedborrower.com