Being a realtor means you get to see things beyond the imagination; some good, some not so good.
The worst can be seeing how some people live, particularily those less fortunate. How the previous owner allowed this to happen is beyond me, but she collected the rent from this tenant to the end, even though she didn’t make payments for at least a year (I represented the buyer).
Zach Fox keeps stirring the pot – where did he learn that?
From his SNL blog:
On the crucial question of whether underwater borrowers will continue to pay their mortgages or walk away, Luigi Zingales, a professor of finance at the University of Chicago Booth School of Business, told SNL that much could depend on whether a new business idea gets off the ground.
Zingales’ comments, which did not quite fit into the Block’s rundown on strategic default risks, suggest foreign entrepreneurs could play a large role with a new type of bank: a lender that specializes in giving new mortgages to high-credit quality borrowers who walked away from an underwater property.
Without legacy assets, the bank would have no fear of encouraging strategic default or cannibalizing its customer base.
“That would really be gasoline on the fire. The main reason why people don’t [walk away] is because they think they will have a very hard time getting a house in the future,” Zingales said. “But if somebody comes and says, ‘You know what, you have always had a good credit, you’re in a bad situation today, I’m sort of going to give you that offer,’ then I think [strategic default] might become irresistible.”
Although Zingales declined to offer any detail on who might be considering such a business idea and noted that it remains purely hypothetical, he said the idea has been floated.
“It makes perfect sense,” he said. “If I am a new lender, that’s the way to do business.”
If it does happen, the fallout could verge on pandemic; Zingales’ latest study indicates that 74% of borrowers consider a good credit score “very important.”
Zach’s blog post from Friday also covered more about strategic defaults – click here.
When you see things changing behind the scenes, you can’t help but think that it might be worth waiting a bit longer to see what develops – will there be bigger, better REOs later?
The new Zillow advertising program is out, here’s the description sent by email:
The Zillow Premier Agent program is a powerful set of new features that connect Zillow’s home buyers and sellers to an elite group of agents. You can dominate your ZIP code, get more listings, and sell more homes through Zillow’s Premier Agent program.
They called last week to pitch it, and it sounded more heavy-handed over the phone.
The rep said that they will be featuring the listing agents in bigger photos and descriptions beside their homes for sale, and be directing all inquiries to that agent.
If the listing agent doesn’t pay up, they will sell his spot to another agent.
The listings are owned by the broker – for Zillow to assume ownership and then sell them out to the highest bidder is wrong. But maybe it will be the beginning of the final unraveling of the MLS?
From the U-T:
SACRAMENTO, Calif. — Democratic lawmakers are determined to close tax loopholes they say cost state and local governments hundreds of millions of dollars each year, as they search for ways to trim California’s enormous deficit.
A report by the union-funded California Tax Reform Association found that the share of property tax paid on residential property has increased since two-thirds of voters approved California’s landmark Proposition 13 tax law in 1978, while the share paid on commercial property has decreased.
In Contra Costa County, for example, taxes on residential properties now make up 73 percent of property taxes collected, up from 48 percent in 1978.
Democrats and unions say many corporations are using loopholes when they buy and sell properties to avoid having them reassessed and their property taxes go up.
“The system is an incredible mess,” said the association’s executive director, Lenny Goldberg. “People are constantly changing their share of ownerships, figuring out ways to avoid reassessment.”
Republicans strongly oppose efforts to tinker with the system. They see such moves as an effort to undermine Proposition 13, the initiative that capped property tax increases and remains popular with voters.
We are fortunate that San Diego sellers don’t have “seasons” to blame for why real estate isn’t selling – our market is active for 12 months of the year.
What makes the situation worse in resort areas is that both sellers and agents, when confronted with the prospect of having to come down on price to make a sale today, say “it’s early in the season”, which then squeezes their actual deal-making time down to 1-2 months.
I hope for their sake that all the rich folks come around as scheduled!
How can a buyer, or buyer’s agent, have some pull with the sellers? It’s nearly impossible, with most listing agents thinking that it is their job to protect their sellers at all costs.
The only chance is to write a clean enough offer that it still gets presented, but also has some kickers included that might make the seller think (if they read it):
Maybe the tuna melt could work anytime, anywhere?
The company ‘You Walk Away’ is in the same Carlsbad office building as Klinge Realty. They used to have the prime first-floor office that was probably a few thousand square feet, but they have since vacated for a much smaller space.
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HAPPY MOTHER’S DAY!
When it is so competitive for the good buys, how does a buyer compete when he’s out of town?
Do you jump on a plane for every new listing?
There were multiple offers on this 3,454sf house, and according to the seller/agent, they were all very similar. Typically when a buyer hasn’t seen the house they get eliminated immediately. But in this case, I showed this video to the sellers too, and convinced them that it was close enough to a personal visit that my buyer was very comfortable proceeding. They agreed!
He came in for the physical inspection and had the same impressions of the house as he did from the video. He still liked it! We did the final walk-through by video too, and it closed escrow Friday for $685,000, with the buyer having to come to town just once.
“They’re all spoken for”, in spite of the odds:
A reader sent in this question:
I have seen a house I am really interested in, but my husband is concerned about getting back in the market right now. He feels prices are going to go down more and that there is going to be a big increase in REO houses coming on the market. Do you have any advice for us? I follow your site and you are very knowledgeable about the market, especially in the area where we are looking. I don’t want to miss out on a great opportunity, but I definitely would not like to buy and see the market slide even more. We can rent longer if that would be the best thing to do at this point. Any information and advice you can share with us will be greatly appreciated.
The decision when to buy will be different for everyone. Do like Ben F. did, and draw a line down the middle of a sheet of paper and list all the reasons to buy on the left, and reasons not to buy on the right. I don’t have an algorithm to use, sometimes it just helps to see all of your reasons in writing.
Will there be more trouble ahead? Consider what we know:
1. There are thousands of people in San Diego County that either can’t afford, or don’t want to afford their house. Those properties will show up the for-sale inventory in a variety of ways over the next 3-5 years.
2. Baby-boomers will be downsizing over the next 10-20 years, keeping the supply channels full.
3. The government has a history of throwing trillions at the housing/banking problems, and it’s doubtful that they’ll stop now.
4. Mortgage rates are very low, around 5% today, and buyers with big money keep stepping up.
To answer your husband’s question – yes, we should see more REOs making their way to market. But if the government provides enough cheese to stretch out the pain over several years, and there are enough buyers, we’ll have an artificially-low sales volume for years to come, and no big price dumps because of foreclosures.
The wild cards are the baby-boomers; that’s where we could see floods of new, unbridled inventory. The areas are predictable too, they’ll be the neighborhoods with houses more than 10 years old, and they’ll be the ones that need work. These owners are the empty-nesters with higher equity positions and a lower desire to spend money on upgrading, so most will be considered fixers – the list prices will need to be attractive to find a buyer.
I have more concerns about the baby-boomer inventory than REOs. The banks/government will manipulate the timing of the REOs nicely, but the baby-boomers will sell when they feel like it, and several could hit a local market at once. The fixers will be tough sales too, and with more equity, pricing could be volatile – some sellers will hold out, others will need to dump.
You need to assess your own willingness to risk. If you can comfortably afford today’s prices, and can find the right house to buy at the right price, then your concern is whether you could buy a better house, later for less than you could today.
If you like 1970’s-style fixers, stay tuned – you should see plenty for sale.
The government and lenders are conspiring to keep foreclosure activity manageable. The REOs should trickle out, and those in newer communities will be in higher demand, which might keep prices reasonably afloat.
There are no sure bets. For some, the thought will be either too much to consider, or the negatives keep winning, and they’ll always rent – for them it’s a good choice.
If you’re going to buy sometime, it looks like there will always be a complex set of variables that’ll make the decision very tough – you’ll never feel totally comfortable.
Once you make the decision to forge ahead, there’s more.
Trying to secure the right house at the right price is very elusive, and the hunt will test your resolve daily. Try it on for size by making some offers, and see how close you come to buying a house. You’ll be surprised by how hard it is to get what you want. Will it get easier later? I don’t think so – if prices keep trending downward, I think it’ll bring more buyers in, making it tougher.
If you wait, the ideal scenario for you is a flood of supply, combined with higher mortgage rates – that would cast doubt in all buyers, and bounce a few out of the game. But don’t be surprised if sellers are slow to lower their price. You can judge for yourself how likely that is to occur, and how it would impact your target areas.
You can also hold out for more items on our list of desired features – the more of these you have, the better chances of your house holding value:
Best of luck to all, and hopefully we’ll have a few commenters chime in with their thoughts!
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
CA DRE #01527365, CA DRE #00873197
