Wednesday, December 30, 2009

A Farewell to Equity... and to this Website


Jim Cheney has a featured listing up on a Windsor home located on Equity Court. It caught my eye not only for the ironic name of the street, but because it is listed for $399,000... nearly $100,000 less than what it sold for in 2003.

When I started this website a year ago I viewed it as a way to address what I saw as a major problem: housing prices were still too high and first time buyers were getting bad advice from Realtors.

This post by local agent Dave Roberts was emblematic of what I viewed as the problem (i.e. no presentation of the downside of home ownership, stating that despite the bubble a house was still “a sound basis for financial planning”, telling first time buyers they “are the heroes of our economic recovery”, a misconceived notion of bank capital, etc.).

While I’ve had some cordial conversations with Realtors, for the most part the reaction to this site has been negative. That was to be expected.

What I did not see coming was how first time buyers would generally react. I thought it would be a useful source of some facts/opinions regarding the risks of home ownership. But overall these facts/opinions have NOT been seen as a beneficial point of view to weigh when considering the purchase of a home. They’ve been viewed as an annoyance.

People want to buy a home, they want to have someone tell them it is the smartest decision they are making in their lives, and they don’t want to hear about any downside risk. In hindsight it makes sense. You are about to take on a load of debt that is 4, 5, 6 times or more your income for a 30 year time frame. Buying your first car for a couple thousand dollars is stressful. Buying your first home for a couple hundred thousand dollars is all the more so. You don’t want to hear that all that debt you are taking on could be a huge mistake that could ruin your life.

But this brings me back to the home on Equity Court. It’s an example of how the problem is not high home prices per se. The problem is too much debt.

Let’s take a look. According to the public records on ForeclosureRadar.com:

  • It was purchased in 2003 for $495,000 with a 1st of $396,000 and a 2nd of $49,500 giving them a 10% equity cushion.


  • In 2004 it was refinanced for $522,000 with a 1st of $445,000 and a $77,000 2nd mortgage (i.e. $76,500 pulled out of the home).


  • In 2005 it was refinanced again into a single $580,000 loan, thus taking out another $58,000.

  • In 2006 it was refinanced again into a $564,000 1st mortgage, and a $44,550 2nd mortgage (i.e. another $28,550 pulled out).

The home was put on the market last January for $495,000 and within 2 months it was lowered to $399,000. We’re still waiting for a sale. A Notice of Default was filed in August meaning in a normal foreclosure time frame it would have went to auction a few weeks back, however, a Notice of Trustee’s Sale has still not been filed. This is going to drag on for a while folks.

The total loan balance on the home is $608,500 (not including negative amortization from non-payments). Now, I’m not judging how this money was spent for I have no way of knowing. Tragedies happen in life (divorces, deaths, diseases and medical bills) and possibly the money pulled out went to take care of problems like these.

But $608,500 is a lot of debt. It looks to me as if this Countrywide loan was an adjustable rate mortgage due to reset in the summer of 2011. That’s still a year and a half before they would have to fully service the loan. Again, using ForeclosureRadar you can see that there are a multitude of homes in similar situations. No doubt more will appear in the next 2 years as everyone’s interest rates reset.

All this debt is not going away. Either people will struggle with this burden for a decade or they will default and a government that is already bankrupt will be picking up the bill. How that all ends I don’t know but you can bet that it means higher interest rates compounding the problem for everyone. Expect housing prices to fall for the foreseeable future.

At any rate, I feel it is time to wind down this website. I’ve still got a few posts in the works that I want to put up (one in particular focuses on around 60 homes purchased for over a million dollars that are all severely underwater showing this crisis is far from over) and from time to time I’ll link to interesting news stories. But overall the website has served its purpose. I’m now one of the top rated real-estate websites in Sonoma County so anyone looking for information on the local market can find reasons why buying in Sonoma County in the immediate future might not be a good idea. Sadly, that’s the last bit of news most want to hear.

A special thanks goes out to Patrick Killelea of Patrick.net (see a great recent interview with Patrick here). He really helped put this site on the map and has driven tens of thousands of readers to some of my posts. I also take some pride in the fact that the top three economic blogs on the web (Calculated Risk, The Big Picture, and Mish) have all linked to my articles as have news websites like the Wall Street Journal, Orange County Register, Washington Independent, Seeking Alpha, etc. Even real estate firm Redfin put a link to the site on their blog. A year ago I would not have thought all this was possible for a small local website with an anonymous author.

Also the regulars in the comment section have really kept me going (Tom Stone, Lisa, Tyrone, Tom from Healdsburg, and others). Maybe we can keep the discussion going in the comment section of occasional posts.

While the site is not completely dead, it will now begin its ride off into the sunset. Happy New Years and best of luck to everyone in 2010.

20 comments:

  1. I know how you feel.

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  2. Thank you for your work.Although some have thanked me for warning them about the bubble and sending them links,others have cursed me publicly and one realtor actually threatened me physically (he declined to step outside to discuss matters further despite being younger and larger)You have undoubtedly kept an unknowable number of people from making a financially disastrous mistake.it is enough.

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  3. Thank you for your work on this blog. I hadn't realized you would get so much negative reaction. (perhaps because I don't usually read the comments) But I for one have found your site informative and useful. I'm watching the market in Sonoma county and thinking about purchasing in the future. Your site has helped me analyze where I think the market may be heading. I'm sticking on the sidelines for now biding my time (and happy my current home is paid off.)

    Please post from time to time any info you think would be useful for someone watching the Sonoma County housing market.

    Happy, prosperous new year to you. Best regards, Val.

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  4. Thanks for all you're contributions, HHB.

    Looking at those refis, it was typical behavior during this bubble. I'm convinced that many people had no intention of paying it back. The banks were dumb enough to hand the money out and we ended up with rampant price inflation on houses--price inflation, not appreciation. And until all the toxic ARMs are purged from the system, houses in many CA areas will be dicey from a price perspective.

    I still watch a few key neighborhoods in Sonoma county, and my favorite Sonoma realtor, Chris Nunez, just purchased another house for $780K. I'm curious if he's going to try and flip it.

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  5. I have enjoyed reading your blog and think it is one of the best sources of information on the bubble. I am truly sorry to hear you will be stopping -- that's a loss for all of us! I'm also sorry (but not surprised) to hear about the negative reaction from first time homebuyers who don't want to look at reality. I"ve learned a lot through your blog and others and I wish you well in your future endeavors. Thank you for a great ride! I still have all of my money in the bank and no mortgage because of information I've learned from my favorite bloggers. Thank you! Thank you!

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  6. Thanks for the mention and link. I reread my post about first time buyers and think it stands up to the test of time very well. People who bought REO property in December of 2008 have done very well with their property, by and large. Every market is different and there are clearly many segments of the Sonoma County market that have more price corrections in store for them. On the other side of the coin are the entry level homes throughout the County that are being eagerly snapped up by competing buyers and multiple offers.
    I have enjoyed your posts and our dialog (both public and private) has been useful and informative to me, especially when we have disagreed on how to look at the market trends and the long term outlook for housing. I happen to think we are both competent observers and analysts and the full story of housing is yet to be written.
    Congratulations on a successful endeavor. You will be missed.

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  7. Thanks everyone for the kind comments. I'll put up a post every couple months or so with some links on the Sonoma County housing market so we can keep hashing this out in the comment section.

    To Dave, thanks for your note. As you know I don't believe we have seen close to the bottom. Mortgage rates heading up once govt support is withdrawn will make housing more expensive. That along with the flood of foreclosures over the next few years will push housing prices down across the board in Sonoma County (in my opinion of course).

    But again, I view the big problem here as debt. If you are buying a house with cash and it falls another 30% it is not the end of the world. If you are in a 3.5% down FHA loan you're trapped. Buying an asset that is declining in value with leverage is one of the most dangerous financial decisions one can make. But buyers generally don't want to hear that warning.

    I've enjoyed our correspondence as well and commend you for being one of the few real estate agents to engage us in the comments (the one agent I've learned the most from has basically retired due to not wanting to put people in overpriced homes, yet doesn't want to be associated with the site publically).

    That said, I still have some issues. At times I'm still trying to figure out if it is you or I who is suffering from cognitive dissonance. For example, in a recent post your wrote:

    “A lot of Windsor's homes were built just in time to take part in the housing boom. As a consequence, whole neighborhoods paid top prices for their new homes. By now, most of those Windsor neighborhoods have changed hands completely as the original owners lost the homes through foreclosure and default.”

    Most have changed hands completely? This just doesn't match up with what I’m seeing (look at the map above around the golf course) and in my opinion is the wrong message to potential buyers. They should be wary of all the homes that are still due to come to market. We’ll see how it turns out.

    Ironically, you were the focus of many of my posts simply because you are one of the few local agents that is active on the web and posting data. Probably makes it look like we disagree more than is actually the case.

    Again, thanks to everyone for your support.

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  8. 99.9 % of realtors can tell and convince you NOW... ( No matter if it is 2003 or yesterday) is the best time to buy. I just use them to process some paper works, I never listen to them.

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  9. Thanks for your work. You have been a good link to Sonoma real estate for me. Best wishes!

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  10. Sad to see another bubble site retire. Thanks for all your local information.

    The next crisis foreclosure wave will start to hit this year and pricing pressure will continue to push lower until 2013. The best bargains should be available in late 2012.

    2009 was a valley year. It was in between the subprime and alt-a crisis. It almost felt like we reached "normal" in Q4.

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  11. I am stunned that you decided to shut down the great work based on a few negative opinions. But I do understand your position. I have been telling my co-workers about the housing market in Sonoma since I sold my house in 2005. None of them appreciate the data and the time I put in to provide it to them. People are ignorant. They just follow the herd to oblivion, thus disregard the data, the warning and the significant impact on future event.
    Thank you for your time and hard-work to provide information on Sonoma housing market. I wish you would change your mind and ignore the negative feedback. If they don’t want to know the truth, they don’t have to visit your website. For the rest of us, you provide a great deal of information that I truly appreciate.

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  12. I'm also sad to see this site go. I don't remember commenting much if at all, but I have definitely been following this site for quite a while (at least a year) as a potential first time homebuyer, and I have loved the information and insights you have provided! Needless to say I have not yet purchased my first home. (And at this point, it will be at least a few years before I do- not just because of prices but also because of my life situation...)

    You have had this information well before it showed up into the mainstream media, which I applaud. I recommend your blog to all of my first time homebuyer friends (some who buy, some who don't).

    Thanks! You will be missed by more than you realize!

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  13. I'm a bit late on the draw here, but thanks for running this site. Although I don't live in Sonoma County, this site has had more intelligent analysis than many housing blogs and has given a lot of local color.

    You're right that it's hard to convince people to be realistic when they're so emotionally invested. I'm still not sure why so many people see housing as an investment, but it probably has something to do with people's general inability to calculate real costs including all consequential costs and inflation.

    Good luck to you!

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    ReplyDelete
  16. Hello HBB,
    I've never posted here before, but visited at least every couple of weeks, and often several times a week.

    When even Forbes magazine talks about Santa Rosa being poised for some sort of rebound, it may look as if you are talking to the air and the trees. Believe me, you are not.

    I hope you will at least post periodically. I think if more people like me post, you will be pleasantly surprised how many people enjoy your site and appreciate your perspectives. I fear that you underrate your work here.

    Best regards,

    Tom

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  17. Thanks for the note Tom. At some point I'll put up a thorough update on the site. I'm thinking of featuring each incorporated community in separate posts showing we are still in the early innings of the housing downturn. I'm still a ways off from completing the project, but it will be worth the wait.

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  18. Love to have a house like on the pictures too.

    Paula M

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