Here is your open thread for the weekend beginning Friday October 30th, 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 30, 2009 at 8:20 am
I’m finding it hard to understand why people in the Real Estate business can not admit property values are declining and will be, now, for years to come.
Alan » Oct 30, 2009 at 8:40 am
RE: David Losh @ 1 –
I’d like to give them the benefit of the doubt and say something like “can`t see the forest for the trees.”
Otherwise they seem to be getting closer to politicians/lawyers/used car salesmen in my view…..Not that any one individual in those groups is ‘evil’ or ‘bad’ but as a whole the group leaves a little something to be desired.
In reviewing my comment I suppose I should put investment bankers in the list as well.
Kary L. Krismer » Oct 30, 2009 at 8:43 am
RE: David Losh @ 1 – Since your ability to predict real estate prices years and years into the future is so good, how about proving it. Let’s have a list of every property you bought (directly or indirectly) prior to 2007. And I’ll assume every such piece of property was sold prior to 2008, and in fact in 2007, because you knew prices would peak then, right?
Matsayswhat » Oct 30, 2009 at 8:50 am
I sure most everyone already knows about this since news broke yesterday, but still, here are the outlines of the expanded/extended home buyer credit: http://www.businessweek.com/the_thread/hotproperty/archives/2009/10/expanded_home_b.html
softwarengineer » Oct 30, 2009 at 9:31 am
RE: Matsayswhat @ 4 –
A Friday Joke
I read this on Roubini’s blog today and smiled:
Now we have both “Cash for Clunkers” and “Domiciles for Dupes”. LOL
BTW, the Roubini economists swear the “Cash for Clunkers” alone made the Q3 GDP artificially 3% higher, so the Q3 GDP is a total joke too, especially with personal incomes collapsing simultaneously with consumer sentiment during this phony Q3 uptick.
softwarengineer » Oct 30, 2009 at 9:36 am
Cash For Clunkers Cost American Tax Payers $24,000 Per Car
We’d of been better off just giving cars away on a lottery.
See the proof:
http://www.autospies.com/news/Final-Report-Card-Cash-For-Clunkers-Cost-American-Taxpayers-A-WHOPPING-24-000-Per-Car-49214/
Kary L. Krismer » Oct 30, 2009 at 9:43 am
RE: softwarengineer @ 6 – Already discussed in the mid-week thread, starting at maybe post 20 or so.
Just a bunch of made up numbers, IMHO:
http://seattlebubble.com/blog/2009/10/28/mid-week-open-thread-2009-10-28/#comment-86090
Matsayswhat » Oct 30, 2009 at 10:02 am
RE: softwarengineer @ 5 –
Was listening to the radio last night as I worked on my own clunker that I refused to give up and they were joking about what they feel should be the new plan, “Cash for Uncles”.
I guess they do have a point about expanding the amount of people that can get the money… those people will probably blow it on “stuff” lol.
One Eyed Man » Oct 30, 2009 at 10:27 am
RE: softwarengineer @ 6 – RE: softwarengineer @ 5 –
I haven’t gone to Roubini’s blog to try and understand the increase in GDP conclusion. Are you sure they didn’t say .3% Softwarengineer? 3% isn’t possible if the link in comment 6 is correct quoting Edmunds analyst that there were only 125,000 incremental sales caused by cash for clunkers.
My common sense arithmatic says the two posts conflict. If we have a 14 trillion dollar economy, 3% of the economy for one quarter is 14 trillion divided by 4, times 3% which equals a little over 100 Billion. If the 125,000 cars caused 100 Billion in GDP then each CFC car sale generated 100 Billion divided by 125,000 in new GDP, which equals $800,000 in new GDP per car sale. If that’s true, CFC was one hell of an economic success and we showed all bow down to the economic wizards in Congress who thought up the program.
Check my math to make sure I didn’t lose a decimal place, but I don’t think the opinions referenced in both comment 5 and comment 6 can be right. It might be a .3% increase in GDP, but that would still be an 80K increase in GDP for each incremental sale Edmunds claims were caused by CFC. I doubt that CFC purchases averaged 80K per car. Perhaps Edmunds is wrong and there were really more like 350,000 incremental purchases as Kary seems to suggest (although some may be borrowed from future quarters.)
deejayoh » Oct 30, 2009 at 10:46 am
By Kary L. Krismer @ 7:
It’s a simple promotion analysis. Actual sales – forecasted baseline = lift. Any bright first year marketing student could come up with a reasonable estimate of the lift produced by a rebate like CFC
there is no black art involved – and edmunds is in the business of tracking car sales so I’m not sure who’d have a better sense of what the sales would have been without the program.
patient » Oct 30, 2009 at 11:03 am
By David Losh @ 1:
Since they are cyborgs programmed to self destruct if sub-routines involving any indication that “Real-estate always goes up” is executed. It’s a forbidden zone never to be mentioned or even thought of. I heard though that are rumours of a small group of brave rebels that found a way to disable the self-destruction mechanism and makes inflammatory statements on “illegal” websites to the great annoyances of the community of the pure.
softwarengineer » Oct 30, 2009 at 11:24 am
RE: One Eyed Man @ 9 –
From Roubini’s bloggers:
“…CHART OF THE DAY: Cash-For-Clunkers MASSIVELY Distorted GDP
Vincent Fernando and Kamelia Angelova
If anyone mentions the just-released 3.5% U.S. third quarter GDP growth, just throw this chart in their face. Cash for Clunkers clearly distorted the U.S. economic figures in an unsustainable fashion.
According to the Bureau of Economic Analysis (BEA), motor vehicle output spiked a seasonally-adjusted 157.6% quarter on quarter. This is completely unprecedented. Vehicle output is clearly going off a cliff next quarter. The question will be how low can the blue line below go.
Next quarter, we won’t just be returning to business as usual for auto output. Don’t forget that Cash for Clunkers pulled future auto demand, ie. some of Q4 demand, into Q3. Thus Q4 is likely to be very weak since many people who planned to buy a car in Q4 probably took advantage of Clunkers and bought in Q3.
To put this into GDP terms, according to the BEA the spike you see below added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% – 1.66%) in Q3.
Now imagine if next quarter the blue line below goes down into negative territory as it did just two quarters ago. Next quarter, not only are we unlikely to get Q3’s boost, but motor vehicle output data could subtract from GDP as well. So watch out for the cliff……”
But add in the 3% Q3 impact of the $1T stimulus Obama admits to in writing and walla, Q3 should have been like -2% without any federal grandkid debt added in (CFC or ARRA)….
softwarengineer » Oct 30, 2009 at 11:36 am
RE: Kary L. Krismer @ 7 –
And the Q3 GDP Isn’t Just a Bunch of Made Up Numbers Too? LOL
Kary, one key thing GDP calculations always omit, since Bush’s term too, is infrastructure deterioration…..i.e., our own Viaduct or the Green River dam, Hades, just look at Pike Place Market’s area of cracked sidewalks and deterioration, etc, etc…..add in the costs to make it usable again….LOL, try a -5-10% Q3 GDP then….
Without usable roads, dams, bridges, etc….we have no GDP.
Trigger » Oct 30, 2009 at 12:00 pm
RE: softwarengineer @ 6 – SoftwareEngineer – look at it this way. China has a vested interest in selling things to the US. They will work with US administration to make sure America stays well without too much cough. And this is the way to go.
So the US govt if i does not go overboard – it can simply start programs like cash for clunkers. Maybe they can start a new program – We buy 30% of your new home and the US govt will pay you to own a house. They can start buying new planes from Boeing or give subisdies to airlines.
Finally if unemployment gets nasty – Obama can start public works. This way it can gurantee that unemploymen will be less than 7%.
And Sniglet and others are right that this carries risk of
- Debt will spin out of control. Who will pay for this? The return for debt will get less and less. So it will get harder to sustain this situation with every year.
- Investors might start sniffing this is a mess and start buying more gold, dumping US currency etc. This way the purcahsing power will start going down anyways.
- Investors might not be willing to buy anymore of US debt and as such the interest rate on treasuries could skyrocket?
- China might panic and so sthg unreasonable like dump US dollar to become more diversified
- At some point people may want the US not to default on its debt. And might be angry if the US just prints some bucks to pay off the debt. Wars have been started over similar things. I think Germany had to start WWII because it was heading in for a bankruptcy and Hitler’s popularity was about to take a hit.
So there are risks involved in govt spending are real. But what I am saying that at MINIMUM the govt can conceal for a limited time the mess it is in. If you say earn 30K and take out 2 mill loan – you can party for couple of years until sb finds out that you are just a fish partying on the 2 mills. But when you party on he 2 mills – it feels good. You invite some party girls, buy yachts, tour Hawaii, stay at great hotels etc. You feel rich although you really are not that rich.
Kary L. Krismer » Oct 30, 2009 at 12:18 pm
By deejayoh @ 10:
I’m not saying this is a black box, like Case Shiller. I’m saying that the results are based on projections that are totally made up–a complete fiction. They determined the result by setting the predictions.
Again, they don’t predict car sales until 25 days into the month. Prove me wrong. I gave you their press release page which goes back to 2003.
Also, they grossly did underestimate the effect of CFC when they said it would be tough to get 250,000 sales. If they missed that so badly, what makes you think their projections of monthly sales (if they made them) would be at all accurate?
Kary L. Krismer » Oct 30, 2009 at 12:19 pm
By deejayoh @ 10:
I’d agree with that sentence. What they’re trying to promote is Edmunds.com. If the numbers were less sensational, there wouldn’t get as much promotion. ;-)
Kary L. Krismer » Oct 30, 2009 at 12:24 pm
RE: softwarengineer @ 13 – Well that [GDP] is a whole different area, and you could add in unemployment numbers and lots of other things. But I don’t see why depreciation would be part of GDP. That would be more part of an income statement type analysis, where GDP is more akin to just measuring gross income.
Getting back to CFC, I tend to take the view that it did borrow from future quarters. That the question is how far out. But to the extent it got people to buy new who would ordinarily buy used, maybe it just hurt the used car market (net of the loss of inventory, which would help it), and didn’t hurt new car sales as much as you would think.
One Eyed Man » Oct 30, 2009 at 12:36 pm
RE: deejayoh @ 10 – RE: softwarengineer @ 12 -
The quarter over quarter increase discussed by BEA concerning motor vehicle output was probably caused more by other factors than by CFC. I haven’t checked to see how much the numbers were affected, but weren’t Chrysler’s and GM’s productions shut down and/or cut back substantially in Q2 due to the bankruptcies, etc. I’ll bet if we dig into the motor vehicle output stats the increase from Q2 to Q3 was caused as much or more by Q2 production being down than by Q3 production being up to supply cars to fill CFC demand. In any event they claim only 1.66% change in GDP due to a Q3 spike in auto production. The 3% number was attributed to other stimulus.
As to how many sales CFC stimulated, JD Power is a well recognized forecaster of auto sales and in May they lowered their 2009 US Forecast to 10 million units, and others forecasted as low as 9.1 million. I don’t know if August is normally an “average” volume month, but assuming it is, on an average per month basis that would be less than an 850,000 unit forecast for Aug 2009.
http://www.usatoday.com/money/autos/2009-05-21-auto-sales-dropping_N.htm
AutoData Corp says there were 1.26 million units sold in August 2009. That looks like about 400,000 more than the estimate (although some sales would have been borrowed from future demand as Kary acknowledges.)
http://industry.bnet.com/auto/10002320/after-august-spike-us-auto-sales-return-to-the-new-normal/
The above assumes that all the increase was in the high mileage vehicles which qualified for CFC which may or may not be true. I don’t have a break down showing the JD Powers forecast for just high mileage vehicles but I assume there probably is one and I know you can find sales data by class such as compact and subcompact.
David Losh » Oct 30, 2009 at 7:55 pm
RE: Kary L. Krismer @ 3 –
Mary Avenue bought in 1984 sold in July 2007
97th bought in 1986 sold in 2006
Palatine bought in 1997 sold in 2005
98th bought 2003, still got it
145th bought 2006 sold 2006
Interests in other properties sold in 2006, two in 2008 because of partners who didn’t believe.
It was a no brainer, the same as the next two years.
Trigger » Oct 31, 2009 at 7:28 am
I think it would be nice to run a poll on what debt do people think is unsustainable by the govt?
Will the dollar collapse as a result of the debt burden because people will flee the currency?
How much money can the govt print before the economy starts choking because interest rates shoot up?
I think the camps saying deflation, inflation, this is all not sustainable etc believe for example that certain debt is not sustainable and others think differently. The point when it all collapses can be different.
Same was with the real estate bubble. Did it make sense to buy a shack in 2004 when the bubble started going? Absolutely yes – even though the price seemed to go up not because of fundamentals. But a smart person would flip properties instead of buying them for the long term. Same is with debt. After it breaks some psychological barrier it can bring the economy down. But before this happens – you can party on, go to the mountains, hike and then hike some more and relax in a jacuzzi. So the question what is the psychological barrier? For now the stock market is a bit nervous but there are lots of optimists still and Obamomania is in vogue.
Kary L. Krismer » Oct 31, 2009 at 11:48 am
I’m not sure if this is new or not, but it’s in an article dated yesterday. In Google Maps if you click on the “More” button that is at the top right of the map, and select “Real Estate” you will get real estate listings in the area of the map shown. You can zoom out to the point where it becomes pretty worthless.
scotsman » Oct 31, 2009 at 9:20 pm
Pretty basic, but here’s a chance to test your knowledge of the financial markets and learn a bit more if needed.
Me? 14\14, but I was lucky on the last question.
http://www.cnbc.com/id/33537477
Vu N. » Nov 1, 2009 at 9:56 am
Hi everybody,
I have been reading this blog for a little while, but never had enough courage to post a comment ;) But here I am in the market for a house and I am in need for guidance.
My wife and I recently made an offer for a house in the Sammamish area. After a few back and forth and an inspection we agreed on a price. Everything was great until the bank ordered an appraisal and we noticed a few inconsistencies with the listing. The listing said the house is 2220 SF, but the appraiser came back with 1890 SF. I looked online and found out that it is a common practice for a listing agent to inflate the size of the house. But when the difference is that big, I wonder if we should continue the deal.
We already gave our agent the 1% good faith money, so if we chose not to go ahead with the deal, can we get that money back?
Is there any legal implication in this? Can we hold them accountable?
I know that many of you will probably say that I shouldn’t even consider buying in the first place, but we have our own reasons, so please let’s not go over that.
Any help on this will be greatly appreciated. I am really thankful that you have created such an amazing community with so many experts. I hope you could help me out with some insights.
Thanks!
scotsman » Nov 1, 2009 at 9:57 am
Did you like the house, or the square footage number? What has really changed?
Buy it if you love it, but be prepared to lose more than 300 square feet. Cheers!
David Losh » Nov 1, 2009 at 10:33 am
RE: Vu N. @ 23 –
It depends on the “lost” square footage, is that the garage? Appraisers only count living space and some agents just add all square footage together. It’s very low brow of the listing agent, but it can work to your advantage.
Ask about the discrepancy. Ask your agent to ask. Ask to talk to the seller to see if there is anything else that has been puffed up in this deal. In other words make some saber rattling in a very finicky market when not many deals are going to be closing.
Be nice, but just ask the questions. See if there is something else you should be looking at. Go back to the house, measure. I’m not saying renegotiate; unless it’s just a lie. If the listing agent lied, and the seller signed the listing agreement, it’s a can of worms. You may want to discount your offer by the price per square foot times the discrepancy.
More importantly, be nice. If it’s a good deal for you don’t blow that. More than likely this is a mistake caused by an inexperienced agent.
Kary L. Krismer » Nov 1, 2009 at 10:54 am
RE: Vu N. @ 23 – You’re really asking a legal question to the extent you’re asking about getting out. Knowing whether you can would require an attorney to look at your contract, the situation, AND to actually verify that the appraisal is correct.
It’s hardly a common practice though to overstate the size of a listing. There are some agents that do things like that, but it’s usually counterproductive in that having buyers look for something and see something less isn’t generally a good thing.
As to your situation have your agent pull the “Realist” information on the property. If Realist says it’s the larger size, then in King County it’s likely correct, but in addition it would mean that if it is the smaller neither the seller or agent were likely trying to pull a fast one, but instead made a mistake.
Finally, do realize that if it is smaller, the value isn’t the smaller size times the price per square foot you agreed to pay at the size you thought it was. All things being equal (which the same house would be), smaller houses sell for more per square foot.
Gerald » Nov 1, 2009 at 7:47 pm
Interesting discussion of taxes in CA vs TX. The favorable tax environment for individuals was a big factor in helping me decide to move from LA to Seattle last year.
http://www.latimes.com/news/opinion/la-oe-voegli1-2009nov01,0,825554.story
David Losh » Nov 1, 2009 at 8:09 pm
RE: Vu N. @ 23 – RE: Kary L. Krismer @ 26 –
When people talk about what is legal in a real estate transaction it’s best to think of how it will be arbitrated.
How are you damaged? Did you lose money, can you prove that?
Getting your Earnest Money back can be a challenge. Again you have to prove you were damaged in some way. An arbitrator can ask you if the bedroom, bath room, and kitchen are what you are buying rather than the square footage. I mean you walked through the property, you made decisions based on your own inspection of the property.
If the seller loses a deal in today’s market place they for sure would be damaged.
It’s just best to communicate and be nice.
scotsman » Nov 1, 2009 at 9:50 pm
RE: Gerald @ 27 –
Interesting analysis- thanks. It’s all about the value received, a test Ca is failing.
” The details of the Census Bureau data show that Texas not only spends its citizens’ dollars more effectively than California but emphasizes priorities that are more broadly beneficial. “
mukoh » Nov 1, 2009 at 10:13 pm
RE: David Losh @ 28 – ? Isn’t it appropriate to have at least advice of legal counsel? Getting your earnest money can be a challenge, however you still have your financing contingency, which is burdened upon your LO to complete underwriting of your loan.
Vu N » Nov 2, 2009 at 10:05 am
RE: Kary L. Krismer @ 26 – RE: David Losh @ 28 – RE: mukoh @ 30 –
Thank you so much for all the suggestions. We went to the house yesterday and measured the house. It is definitely short of what the listing says. They must have included part of the garage or something like that. The interesting part is that when the original owners bought the house 4 years ago, the listing back then had it as 2220SF and the title says it is 2220SF.
We do like the house a lot, so I think we will continue the deal. Feel free to jump at me if you think that I am doing something dumb.
Again, thank you for all your help.
Cheers,
Markor » Nov 2, 2009 at 10:49 am
RE: Vu N @ 31 -
If you sold this place you’d be advertising 1890 square feet or whatever, not 2220. If you sold the day after buying you might have to list at a 10% or so lower price than you paid just to attract a buyer, due to the lower square feet. I probably wouldn’t go through with the deal without a further price reduction.
mukoh » Nov 2, 2009 at 8:10 pm
RE: Vu N @ 31 – Markor is correct though, is that fact now you will have to disclose later when you do sell, that it is lesser in square footage. :)
David Losh » Nov 2, 2009 at 8:52 pm
RE: Vu N @ 31 –
So was it the garage that they included?
That is kind of a common mistake that, as you pointed out, even the title company can make. It sounds pretty benign, but you will from now on be calling the place 1890 sq ft.
It depends on the price compared to location and condition if it’s a good deal.
David Losh » Nov 2, 2009 at 8:55 pm
RE: mukoh @ 30 –
If you have a concern it needs to be expressed at the time. He can go back to the lender and point it out, but the lender also wants to make the loan. The appraiser has already found the value, so it’s hard to rely on the financing contingency.
b » Nov 2, 2009 at 9:15 pm
RE: Vu N. @ 23 – Counter offer with 86% of your original agreed price since that is the proportion for the square footage they tried to rip you off for.
Kary L. Krismer » Nov 2, 2009 at 11:06 pm
By b @ 36:
Again, smaller houses sell for more per square foot, all other things being equal, so that would not be the measure of damages.
David Losh » Nov 3, 2009 at 7:21 am
RE: b @ 36 –
There is no offer/counter offer at this point. The appraisal came back. Obviously the appraiser found the value for the property even with the lower square footage. The owner and agent also relied on documentation that was supplied by the title company at the time of the owners purchase four years ago.
In other words everything here is on the up and up so the only bargaining Vu has is to make noise, nicely, because there is nothing here, it’s a nonevent. The house still has the living space that attracted the purchaser to the property.
So the Earnst Money may be tied up for a while, but if the proper concern is expressed now it’s hard to get some one, any one, to sign closing documents. There may be some concession or inducement the seller has that can have a deal close today, rather than have the buyer unhappy and uncooperative.
The listing agent should be the one making these types of suggestions, but if these people bought only four years ago there is probably nothing in the deal to negotiate.
Kary L. Krismer » Nov 3, 2009 at 7:59 am
RE: David Losh @ 38 – I wouldn’t be so quick to give that advice. First, if not legal advice, it’s "golly" close. Second, I don’t seem to recall anything being said about Form 22D, box 1 being checked, or even that NWMLS forms are being used. If they want to pursue this further, the choice would be to see an attorney prior to closing. But it doesn’t sound like that is wanted. It sounds like they want the house and want to proceed.
That may be for very good reason. As I noted in #37, the measure of damages isn’t necessarily the cost per square foot of the offer times 230 square feet (the size differential). The house is worth what the house is worth, and the appraiser found the house is worth what was offered. Assuming the house is 100 feet long, we’re talking 2.3 feet of missing width if it’s a one story or 1.15 feet of missing width if it’s a two story. If you were to walk into two otherwise identical brand new houses, where the only difference was that width because of some lot size restriction, I would think many people would have a difficult time noticing. So if it’s not noticeable, is there any value difference? By way of analogy, I once looked at sales in an area where I couldn’t attribute any price difference to the lots of some properties being 2x as large as the other lots, where even the largest lots could not be subdivided.
Finally, I would add that situations like this are exactly why Form 22D, box 1 exists. An honest mistake can lead to a dispute down the road, with the buyer trying to recover damages that might be questionable at best.
Vu N » Nov 4, 2009 at 1:08 pm
Thank you all again for the suggestions. As David mentioned, there is not much we can do at this point. We are happy with the house the way it is. We just didn’t like the idea of somebody lying to us. It seems like a honest mistake, so we will continue with the deal.
We are closing in less than two weeks :)