WallStreetBear: A Homeseller's Rant

You can see the original post here. The posting comes courtesy of Wall Street Bear, owned and operated by John Leabeater. The poster is a bearish friend we know as "Crash." In 1997, he shrewdly bought a HUD house in Riverside for about $71,500 for his daughter to live in while she attended school. Due to some unfortunate family circumstances, the family is now selling the house. Being the sharp housing bear that he is, he's been pricing his home very competitively, has had tons of looky-loos traipsing through the place, has seen it fall out of escrow twice... I'll let him continue at this point....

Buyer Canceled.  It is becoming abundantly clear that...

A plague of real estate agents (more than 500,000 in California), many with ambitions
to upgrade to brokers (ours just passed her exams), wanting to join the 30% of agents 
who are, does not mean better service to sellers and buyers. It does mean new, 
creative efforts to maximize return with minimal effort.

Brokers formerly required agents to hop in the van to review new listings, visit open 
houses, and generally familiarize themselves with the better portion of the 
inventory. Now, its an internet search, and abstractions expressed as polished 
language substitute for real impressions. Consequently, the agent showing our 
offering is often very surprised at how well it shows. More might show it, if they 
had better prepared to serve their clients.

It is also clear that most clients are shown homes they cannot afford. If they can 
afford $250K, they are shown ours listed at $329K. Buyers will overreach, and their 
agents and lenders are pushing them to do so.

The Inland Empire market accelerated from a more reasonable base about 2001, when 
LA/Orange businesses began expanding here to better access a work force that could 
access affordable housing. The immigration of new business and the overshoot of 
workforce and their families have bid up housing prices by 140% in six years, and 
overwhelmed the infrastructure program, with its daily new detours and freeway access 
interruptions. MetroLink corridor rights purchased years ago cannot be used because 
developer cronies and neighboring home owners don't want spineless politicians to 
plan public transportation in their backyard.

Our listing at $329K likely would have sold for more than $360K earlier in '06, but 
now it is headed on a round trip back to an '01 price of $150K. Can we sell it 
meanwhile, for about $300K, on the way down? That is the question.

Turning back the clock a generation, I recall lender guidelines for affordability 
typically requiring gross income approaching four times housing costs (PITI basis). 
Now, there are "programs", assisted by County and State if income is within criteria, 
or by sellers Frown , which pay buyers' closing costs, and more. There are programs 
for sub 600 FICO scores, some even advertise they do not consider FICO at all. For 
these, the true interest rate may be several percent above prime mortgage rates, but 
"you qualify" is the joy that gets spread. I suppose such mortgages are then bundled 
and resold through Fannie et al, as new threats to investors like us who will park 
funds in the money market. Frown

Many home "buyers" only seek "cheap" housing, mailing in the keys to the lender 
before payments rise above teaser levels. California makes that so convenient with 
nonrecourse loans for original purchase. With a nonrecourse loan, only the property 
is collateral, and not the borrower's income and assets! A foreclosure deficiency 
cannot be claimed by the lender, and the debt cancellation for the deficiency (when 
mortgage balance exceeds fair market value ... ie what the lender realizes when he 
liquidates the foreclosed property) is not even income on the defaulting borrower's 
tax return. Not so if you live in 49 states, but it is so here in California!

I estimated that, by 1965 standards, a family income of $140K would be required to 
qualify for a 100% mortgage to buy the "starter" home we are offering. Of course, no 
more than 80/10 would have been offered then. Today, 80/20 seems the norm, but the 20 
is for reduced term and higher rate, so actually more than $140K income should be 
required to qualify. I have reason to believe that home "buyers" being shown our 
house typically make less than $50K. Sometimes there is obviously more than one 
family "cooperating" to buy. About eight people were led by a realtor through our 
house yesterday. They were disapointed that there were only three bedrooms. You would 
think their realtor would have already informed them!

Well, we do count our blessings, and we can afford to wait for something reasonable 
to happen, having bought this home for our (now disabled) daughter's use when she was 
a college student, paying only a carefully calculated $71,233 in a HUD auction. The 
purchase served it's purpose, and then became a nice "piggy bank" ... so whatever 
happens will be OK.

Well, this posting rambled long, longer than intended ... so back to the markets ...