Here is your open thread for the mid-week on October 14th, 2009. You may post random links and off-topic discussions here. Also, if you have an idea or a topic you’d like to see covered in an article, please make it known.
Be sure to also check out the forums, and get your word in the user-driven discussions there!
David Losh » Oct 14, 2009 at 8:07 am
Even though you posted how much business Real Estate companies are doing I know that individual agents are struggling. Over on the Active Rain site you can read that agents are desperately asking to extend the tax credit. No one has addressed the idea that the tax credit may be responsible for the Spring bump up in pricing, instead they are cheer leading the tax credit as a stabilizing influence.
This kind of desperation, in my opinion, may be worse for the consumer than the exhuberance of the bubble.
How about a post about the impact this declining market is having on Real Estate agents?
TJ_98370 » Oct 14, 2009 at 8:12 am
Dow is knocking on the door of 10000.
Ira Sacharoff » Oct 14, 2009 at 8:38 am
RE: David Losh @ 1 –
Exactly. There was a slight increase in home sales before the tax credit, due to prices being lower. The best way to get people to buy houses is for home prices to drop further so they’re affordable. Looking to extend the tax credit is pretty short sighted. They’re taking tax revenue that would have gone for other things, and using it to encourage large debts, without doing much to actually educate people about living within their means and the importance of saving money.
I know one impact the declining market is having on Real Estate agents: There’s less of them.
AMS » Oct 14, 2009 at 10:43 am
The Tim-
There is the whole attitude of “It won’t happen here, blah, blah, blah.”
“Katrina won’t happen here, blah, blah, blah.”
Take a look at what is happening to the homes around the 410 slide. A half-mile of rock to re-route the river into your home? They probably couldn’t have purchased flood insurance in that area, and I bet every resident would have suggested it wouldn’t happen here. It is yet to be determined why the event took place, and the WSDOT has not published a good solution yet.
http://www.flickr.com/photos/wsdot/4008601585/in/set-72157622438776353/
(I hope it is obvious that being a renter in the area is far better than being an owner when an event like this happens.)
AMS » Oct 14, 2009 at 10:52 am
RE: David Losh @ 1 – “How about a post about the impact this declining market is having on Real Estate agents? ”
I have discussed this extensively with you.
The agents’ pay is based on total gross sales. If the commission percentage remains constant, then declining total gross sales indicates a reduction in agents’ pay. The gross sales have gone down by 50% plus or minus over the last two years. If the average commission was constant, then agent pay has gone down by 50%. I suspect that the average agent commission has gone down, so you have total agent pay going down by more than 50% over the last two years.
Of course sales are finite and discrete, so some agents may be increasing in pay while others are decreasing, but the total pie is much smaller.
Kary L. Krismer » Oct 14, 2009 at 10:53 am
RE: AMS @ 4 – Or as I mentioned elsewhere, earthquake insurance.
AMS » Oct 14, 2009 at 10:56 am
RE: Kary L. Krismer @ 6 – I am going to guess that incident is not an insurable loss. There are all those special rules about floods, and to purchase a standard flood policy, one must live in a known flood area. I am not an insurance agent, so I am no expert. Earthquake insurance can be purchased without a problem in most cases. Oh, there is one problem, and that’s the cost. It may not be worth the cost, but cost-benefit is another issue.
Kary L. Krismer » Oct 14, 2009 at 11:23 am
RE: AMS @ 7 – I’m not sure what you’re saying. I’m virtually certain earthquake insurance would cover the houses that were moved by the slide.
I’m not so sure about flood insurance, but I would guess that many of the homes flooded were within a flood plain, but perhaps not.
AMS » Oct 14, 2009 at 12:07 pm
RE: Kary L. Krismer @ 8 – Earthquake insurance covers flood damage?
Kary L. Krismer » Oct 14, 2009 at 12:15 pm
RE: AMS @ 9 – No, that’s not what I’m saying (although I guess it’s possible if the land movement causes the flood–I don’t know). I’m just saying that for the land movement damage, they needed earthquake. I think more homes were damaged by moving dirt, and remain out of the water.
AMS » Oct 14, 2009 at 12:24 pm
RE: Kary L. Krismer @ 10 – This sounds like Katrina revisited. Remember all that discussion, “That was wind driven rain…” “That was flood damage.”
Then there was the insurance companies pointing fingers at each other: General Policy Company, “You need to get this covered under your flood policy.” Flood Policy Company, “This is, blah, blah, blah, you need to get this covered under your general policy.” I know a guy whose life was turned upside down, and then all he got was insurance companies pointing to technicalities to suggest that it was not their responsibility. In the end, he was left without recovery for years.
Clearly for these cases it’s much better to rent.
Kary L. Krismer » Oct 14, 2009 at 12:29 pm
That’s why I was trying to leave the flooding out of it. If your house was first hit by a wall of dirt, and water never touched it, then clearly you needed earthquake insurance. I would guess that if it was hit by a wall of dirt and then flooded, earthquake would probably cover that too, but I think most of the flooded homes were presumably either upstream of the dirt, or just beyond the push of the dirt. Whether earthquake would cover that when the only damage was due to water, I don’t know.
AMS » Oct 14, 2009 at 12:35 pm
RE: Kary L. Krismer @ 12 – I know a guy who spent his a good portion of his life fighting with an insurance company. He had the coverage, and in the end he was paid. Took three, yes three, trips to the state supreme court (actually heard by the state supreme court three times for various reasons). We are talking about millions, but at the same time, fighting with the insurance company essentially cost him his life.
What do you do when you suffer massive losses and the insurance company doesn’t pay?
Kary L. Krismer » Oct 14, 2009 at 12:59 pm
RE: AMS @ 13 – Believe me, I know insurance companies don’t pay, but there’s also an inclination of the public to think the insurance company should pay whenever there’s a loss.
One of my favorite attorney moments was working with another attorney to win a summary judgment against a local insurance company. The insured was a business that rented a space. There was a fire, that was arson, but no proof the owner did it (nor reason since it was their best location). Being suspicious, the insurance company tried to screw him.
I might have this backwards because it’s been years, but what they tried to do was claim that all the tenant fixtures were personalty. That meant he had way too little coverage on personal property items, and the “co-insurance” clause kicked in, meaning that the company only had to pay some fraction of the personal property limit. They then paid the realty coverage pro-rata to the landlord with his insurance. So on both coverages they only paid a fraction of the total policy amount.
The thing was, there was already a Washington Supreme Court decision saying that tenant fixture were personalty. And that decision involved the same insurance company! A copy of that case was sent to them, and when it came back in discovery someone had written on it: “What’s this mean?”
Anyway, we’d worked pretty hard to get that summary judgment and we were very ecstatic coming across the bridge back to the office. But not nearly as ecstatic as we were after we garnished the insurance company to recover. They had appealed the judgment, but not sought a stay pending appeal! :-D
Then to make matters worse, a few days later I get a call from the claims department regarding the judgment, and they said they were going to pay it. I told them they ‘d better call their attorney first.
Finally, that and another case involving insurance convinced me that it wasn’t an area I wanted to practice in. The insurance companies too often simply worked on delaying payment as long as possible, meaning you’d have to do way too much work to get to a successful result.
SeattleJo » Oct 14, 2009 at 1:19 pm
I was browsing the TV last night and happened to land on Bravo’s “Flipping Out”. I found it interesting that a real estate agent was advising the flipper that he could get a deal if he could hold a property for 7-10 years. The realestate agent also predicted another financial collapse in the next couple years. Besides on this site, I haven’t heard many agents talking like this.
AMS » Oct 14, 2009 at 1:23 pm
RE: Kary L. Krismer @ 14 – This is all risk that any individual should consider when buying. Too often this is simply swept under the rug, “It won’t happen to me.”
Reminds me of an Owner-Operator in the trucking industry who received a notice that the IRS was going to audit him… These guys often end up paying in more ways than one, yet these costs were never were factored into the cost of transportation. It’s the classic economic trap were short-term variable costs are covered at the expense of long-term results.
AMS » Oct 14, 2009 at 1:24 pm
RE: SeattleJo @ 15 – Wonder what the cost of holding for 7-10 years is? In other words, let’s discount the cash payout 10 years from now to a present value.
S. Marty Pantz » Oct 14, 2009 at 1:53 pm
By SeattleJo @ 15:
Check out that “Million Dollar Listings” TV series. What a difference in tone from last year’s episodes. (In a couple of this year’s episodes, there’s this one 50-ish blonde client who bought a Malibu property in 2007 or 2008 for a mega-price, and is now being advised to reduce her asking price by $600,000 and she’s all freaked out. I thought she had bought the property as a home, but it’s obvious she was hoping to make a “quick buck” by selling after one or two years of buying the place.) Fun viewing these days.
David Losh » Oct 14, 2009 at 3:06 pm
RE: AMS @ 5 –
We’ve never discussed anything.
David Losh » Oct 14, 2009 at 3:09 pm
RE: SeattleJo @ 15 –
The agent is expressing what many agents are now saying.
TJ_98370 » Oct 14, 2009 at 3:42 pm
The Dow broke 10,000 today. All is good!!!
buystocks » Oct 15, 2009 at 12:17 am
By S. Marty Pantz @ 18:
I just saw that episode. It was awesome. When he suggested the $600,000 price drop, she just dropped to the ground on her knees and began whimpering.
buystocks » Oct 15, 2009 at 12:26 am
here’s the aforementioned scene; it will be a classic:
http://www.hulu.com/watch/100691/million-dollar-listing-price-reduction-shock
Scotsman » Oct 15, 2009 at 1:03 am
Court re-affirms- banks must be able to prove ownership of the loan in foreclosure. Guess this isn’t going to be as simple as originally thought.
http://www.necn.com/Boston/Business/2009/10/14/Ruling-may-allow-homeowners-to/1255562400.html
Bes2wait » Oct 15, 2009 at 7:09 am
Another bottom caller today
“We’re down 30 or 40 percent, but I think we’re at or near the bottom,” said Hurme, whose firm marketed Ashworth Cottages previously.
http://seattletimes.nwsource.com/html/businesstechnology/2010066396_ashworth15.html
buystocks that was a great video, nice music to go with it.
David Losh » Oct 15, 2009 at 8:11 am
RE: Bes2wait @ 25 –
Read the story and get a feel for how people are going to work through this market. A failed developer is finishing the project of another failed developer. The one failed marketing company is saying the new company is right to have lowered the price as far as they did.
The bank is conspicuously absent from the article. Had the bank simply gone ahead and approved any sale at market price to begin with and actually done something, rather than nothing, to help, it would be business. The way it is now it’s news.
The agent is saying these sales prices are the new low for the area. How does that impact the surrounding properties? Are those properties listed at bottom prices, or do the residential sellers take the hit for a foreclosure project?
How will other agents break the news to their listed property owners that the new construction down the street has lowered property values rather than raise them?
Masaba » Oct 15, 2009 at 8:13 am
By Bes2wait @ 25:
I was wondering what would happen to this development. When I moved to Seattle, in Spring 2006, they were just breaking ground on this project across the street from the 800 sq. ft. apartment I was renting for less than $700 a month.
At first, I thought that these row houses looked really nice and that I might like to buy one, but when I saw the $700K-$800K price tag my jaw dropped. Not really surprising that they are now in foreclosure. Even with the reductions, though, I’m still not sure if I would pay over $450K.
Man, I wonder how those people who bought the first three feel, they must be in the hole at least $250K at this point.
AMS » Oct 15, 2009 at 8:31 am
RE: David Losh @ 19 – We don’t even discuss the things we don’t discuss!
Sniglet » Oct 15, 2009 at 10:24 am
I had sposted this comment on the rent/buy thread, but thought it was worth mentioning in our broader discussion.
One key point to make on these rent/buy calculations is that the historical data used to determine what is “normal†may itself be flawed. As Tim pointed out, Forbes only went back 15 years to determine what the normal rent to buy ratio should be.
This reminds me so much of the way investment bankers and ratings agencies assed mortgage securities during the boom years. Moody’s would look at housing data over the last 40 years and assume that default rates would never exceed a certain average. As well all know, this was a wildly optimistic assumption, and the decades of “data†proved to be worthless in evaluating risk.
To a huge extent I believe that most of the data we have in the post world-war II era is anomalous, and largely the result of government manipulation of the economy (e.g. Fed with interest rates, mortgage tax deductions, GSEs, etc). On top of that, we were in a multi-generational cycle of bullishness (look at Kondratieff theory to see what I mean).
Thus, the very data, and life experiences of most Americans, are not relevant in helping us assess future trends, and what the risk of owning real-estate might be. If we are entering a long-term deflationary depression (as I believe), then there is a new reality altogether, and we will see things happen to prices/earnings/unemployment, that few alive have any experience with.
http://bit.ly/YlmXD
softwarengineer » Oct 15, 2009 at 10:37 am
Lots of Different Thoughts and Opinions Today: Good for You Bloggers :-)
1. DOW 10,000. Your DOW is going down below 10,000 today, besides, who cares? The more important thing to watch is oil at $75/bbl and gold at $1070/OZ; the commodity increases hit you at Safeway and the gold lure drives investors away from treasury auctions, potentially driving interest rates way up or at least scaring us to death. Stocks are psychologically driven by a media too, assuring us the Q3 GDP modest increase means the recession is over, with depression level unemployment/underemployment and a dead American consumer. LOL
2. Dave’s desparate realitors. I’m a great potential salesperson and believe me; I could talk a skin-flint out of his/her money to buy a worthless investment in a lot of cases…that’s why I’m not in sales….I have a conscious, like Dave., albeit the temptation to bring in personal wealth might bite me, that’s why I’m a scientist/manager type instead. Dave [Ira too] is doing well in ethics areas it appears. I applaud them.
3. Kary’s Insurance Scams. Good advice, listen to him. I’d add too, your car insurance is worthless too. One accident and/or a ticket; and/or higher rates to pay for acident forgiveness means why do we have it? LOL If you get in a small fender dender I’d settle it without the CARFAX Report, Accident Reporting and Insurance rate increases….use a cash machine….LOL…BTW, car insurance companies in Canada are recommending exactly what I just recommended. I have a contract background, so if its your fault, you should get a contract signed before you hand over the cash….I’m sure guys like Kary can help you with the wording…LOL
TJ_98370 » Oct 15, 2009 at 1:24 pm
.
It appears that San Diego and Las Vegas properties are selling briskly. With that and the stock market continuing it’s upward trek, is it almost time to do the irrational exuberance boogie thing again?
.
House Buying Frenzy
Scotsman » Oct 15, 2009 at 1:50 pm
Here’s a fun read on Las Vegas housing market:
http://www.cnbc.com/id/33310096
Scotsman » Oct 15, 2009 at 4:37 pm
Supply of homes is reducing in Detroit…
http://www.businessinsider.com/detroits-mortgage-mod-plan-well-just-burn-down-our-homes-2009-10
AMS » Oct 15, 2009 at 4:55 pm
RE: Scotsman @ 33 – OMG! This reminds me of a guy whose home burned down to the ground. The home and contents was fully insured. He didn’t want to move. It was not for sale. He had no financial problems prior to the fire. There was no evidence of any arson or other foul play.
What happened to after his home burned to the ground?
The insurance company paid the value, including contents, to partially pay off the mortgage. He was left with nothing out of what was once an $800k home, plus contents.
I can hear it now, “There is nothing for you, only cash for your lender. Oh, you still owe $XXX,XXX!”
So now he has nothing–no clothes, no other possessions.
Oh, he has something-the leftover debt and scorched land. I guess he could pitch a tent on the ground for a few days, maybe? He better not get too cozy, as the lender will probably foreclose on what’s left.
It sucks when you have a loss and the value is below the debt.
TJ_98370 » Oct 15, 2009 at 8:20 pm
.
The following is a post I lifted from Calculated Risk. I do not know whether to laugh, cry, be very scared or all of the above. Maybe this is the new trend for financing an underwater / foreclosed upon house.
.
The comment is from someone who supposedly is a lawyer ?
lawyerliz (profile) wrote on Wed, 10/14/2009 – 3:30 pmReply – Quote
•
I think the market is totally insane, I know everyone has already discussed
this ad nausean, but still. . .
My latest client is buying back his house. It sounds too good to be true. He
owed the lender about 170k, and a 3rd party bid hardly anything, about 15%
of the amount owed. He’s buying it back from the 3rd party lender for about
30% of what he formerly owed (there was a 2nd, too)
He can’t put it back in his own name, cause the mtg liens would hop back
on.
I find this totally bizarre. Does that lender know something ish I
don’t know? I mean, at that price, I would have advised the lender to
keep on bidding. You are talking about a 1973-4 price and he is buying
it back for a 1985 price. from last thread, but relevant to this
post.
My client eliminated, ummm, about 150k worth of debt.
.
.
AMS » Oct 15, 2009 at 8:42 pm
RE: TJ_98370 @ 35 – That’s Liz, and if I remember right she’s in Florida, and she has said that she is a lawyer.
TJ_98370 » Oct 15, 2009 at 9:00 pm
By AMS @ 36:
.
Wow! There has got to be fraud involved somewhere in that situation she described.
AMS » Oct 15, 2009 at 9:39 pm
RE: TJ_98370 @ 37 – There are so many horror stories in Florida. It’s almost like Vegas, in more ways than one!
Rack » Oct 15, 2009 at 10:03 pm
A house I had an offer in on, that was a short sale got pulled out from under me with an offer 20% more than what I thought was reasonable for that specific house, in the condition it was in, and dealing with all the short sale BS.
The price I offered on the house would, in my mind hedged me against another reasonable drop..
Being a short sale I wasn’t even sure I was going to get the bank to approve the offer, but it’s crazy that someone would offer 20% more than me.