What a winter!

I've been really really busy this winter. Holy cow. Two posts since December.

As my readers already know, I am not a real estate professional. I'm not a Realtor. I'm not a lawyer involved in closing. I'm not an appraiser. So when my real job makes demands, there's not always time to research properties. IrvineRenter, on the other hand, is researching properties as part of his job. (Of course, his blog is in absolutely every way superior to my blog, so the comparison is gratuitous.)

So this winter has been interesting. Since the summer, Case-Schiller went flat and even increased in several cities. In the winter, there hasn't been as much of a seasonal downturn as there is in most winters. We just learned that, seasonally adjusted, Case-Schiller increased in December, Of course, that means it fell, but less than in most Decembers. But remember, Case-Schiller is pretty far behind. In late February, we're getting data from December. What will January Case-Schiller look like?

Early indicators are bearish. 1) New home sales have fallen to a record low; they had bounced back ~30% off their bottom that they hit last January, but are now back into their lowest levels since the Census Bureau started collecting data in the 60s. 2) Existing home sales fall sharply in January to right about their volume in September before the New Homebuyer's Tax Credit program threatened to end. October and November sales were up dramatically. People exclaimed "Real estate is alive again. We've hit bottom. Buy now or be priced out forever." Ahem...

Since the stimulus didn't end, people took their time finishing up closing properties in November and closed them in December. Then January rolls around and volume plummets.

This surge in volume will happen again in April. And the drop off in volume will happen again in May. That's what stimulus programs accomplish.

As I've pointed out before, this spring is panic time for today's sellers. If they want to sell their house, they'd better do it before April.

1) In March, the Fed's program to buy $1.3 Trillion in residential mortgage backed securities (RMBS) will conclude. The Fed has already purchased $1.2 Trillion. It's almost done. This will cause interest rates to rise ~0.5%. This will decrease borrower's bidding power, meaning that housing prices will have to drop to meet the prices buyers can bid.

2) The tax credit for new home buyers -- and for existing home buyers, too! -- will disappear. This tax credit increases the price of houses by $8K. Now, it doesn't hurt the buyer to pay an extra $8K for their house -- the government will pay them back that $8K. But it does mean that when the program disappears, all unsold houses will loose $8K overnight.

3) We are not nearing the end of the housing crisis. We haven't even hit the worst of it yet. Fredie Mac reported its delinquency rate for January; a new record high. The flow of distressed properties is not tapering off, it's picking up steam. The more distressed properties, the lower housing prices go. (You have to see the chart.)

So sellers: You better hurry up and get your house sold before April.

How do you do that? By making sure you don't price your house too high.



Today's sellers are listing their house for too much. They live in Southern Village where houses sold last summer at ~$200/sqft. That's more than I would pay, but that's another topic. Today's sellers think that they can get another $33/sqft. They are asking $398K for 1708 square feet of house -- on 4326 square feet of land!. That comes out to $233/sqft. They will not get this price. Their house will not sell before April. Their buyers will not get a 5% interest rate. Their buyers will not be given $8K from Uncle Sam to complete the transaction.

They will chase the market down.

How did they spend their years in their house? By financing greater and greater amounts of debt as often as they could.

05/26/2000 -- DEED OF TRUST --$214,500 First mortgage, an ARM, from Wachovia. Original purchase price: $218K. Downpayment: $2,500. 1% Down.

05/09/2001 -- DEED OF TRUST -- $215,000 Refinanced ( only $500?) Wachovia.

10/21/2002 --DEED OF TRUST -- $25K 2nd Mortgage from Bank of America (BoA)

10/21/2002 -- DEED OF TRUST -- Refinanced to $225,000 with BoA

10/07/2003 -- DEED OF TRUST -- Refinanced to $251,178.88 with BoA

08/25/2004 -- DEED OF TRUST -- $25,000 2nd Mortgage with BoA

11/28/2005 -- DEED OF TRUST -- HELOC $25K with BoA

08/30/2007 -- MODIFICATION AGREEMENT -- Their $25K HELOC becomes a $125K HELOC.

$125K HELOC! What was BoA thinking? The bubble was bursting, why open up another $100K worth of debt to these junkies? They owe $401,178.88 on their house if they fully tapped out their HELOC. No wonder they are asking $398K. In the last 9 years, these owners invested $2,500 and saw a payout of $150K. Unfortunately, they have trapped themselves under a mountain of debt. These owners are headed for foreclosure.