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I too was struggling to understand what any of that meant.
The lenders calculate a fair market value for a property they have foreclosed.
They then deduct 20%.
They then sell that property.
That property than mixes with the other sold properties to create a new fair market value.
The lenders than calculate a fair market value for another property they have foreclosed.
They then deduct 20%.
They then sell that property.
The result of these repeated sales at significantly below market result in the market marching downward.
As long as the lenders continue to price 20% below fair market value the downward trend will continue.
If they price the next home to market...or don't have another home to price...the price goes up. It is automatic.
I would expect a somewhat more complex mechanism in what actually happens...for instance the number of REPOs drops lowering the amount that the FMV falls. Or the feds interfere by steps indicating that there will be less foreclosures.
And note that most of these end games are not good for RE Agents. While they may raise price they will also likely lower volume. RE Agents would much rather see a stable trough at around existing levels. We could get rich.
The lenders calculate a fair market value for a property they have foreclosed.
They then deduct 20%.
They then sell that property.
That property than mixes with the other sold properties to create a new fair market value.
The lenders than calculate a fair market value for another property they have foreclosed.
They then deduct 20%.
They then sell that property.
The result of these repeated sales at significantly below market result in the market marching downward.
As long as the lenders continue to price 20% below fair market value the downward trend will continue.
If they price the next home to market...or don't have another home to price...the price goes up. It is automatic.
I would expect a somewhat more complex mechanism in what actually happens...for instance the number of REPOs drops lowering the amount that the FMV falls. Or the feds interfere by steps indicating that there will be less foreclosures.
And note that most of these end games are not good for RE Agents. While they may raise price they will also likely lower volume. RE Agents would much rather see a stable trough at around existing levels. We could get rich.
I understand the downward trend you are talking about, nothing you haven't repeated over and over again. Let's move on to the "artificial markets' concept you brought up. When do you predict the end of this "artificial market"? Are you implying that the end (stock of foreclosures diminishing) will come through some type of government intervention for distressed homeowners? At what point is it no longer an artificial market, but the reality. (Not being sarcastic, but I'd like to understand your logic here.) You generalize saying that this pattern in not sustainable but offer no clear stance on why it's not sustainable or how long it will last. I fully realize that markets are cyclical and declining prices will rebound over X amount of time, but tell me something I don't know.
I understand the downward trend you are talking about, nothing you haven't repeated over and over again. Let's move on to the "artificial markets' concept you brought up. When do you predict the end of this "artificial market"? Are you implying that the end (stock of foreclosures diminishing) will come through some type of government intervention for distressed homeowners? At what point is it no longer an artificial market, but the reality. (Not being sarcastic, but I'd like to understand your logic here.) You generalize saying that this pattern in not sustainable but offer no clear stance on why it's not sustainable or how long it will last. I fully realize that markets are cyclical and declining prices will rebound over X amount of time, but tell me something I don't know.
It is very difficult to get to precision on decisions based on peoples views and feelings..
In Las Vegas we run out of Subprime resets in the next few months. What happens next? There are lots of AltAs and options coming. Are they going to hit Vegas? I suspect not real strong but I really don't know. It may be things start to trend toward less foreclosures...or maybe they are worse.
If normal trends hold we will see heavy demand building in the March and outward time frame...but this is not a normal year. Will it happen with the ongoing cracks in the overall economy? Bet your money.
If the normal runup does happen we may actually over power the supply of REPOs and force the price to at least stabilize.
If the Obama administration hints at a significant loan modification program the supply of REPO likely dries up. Right now I am advising all who ask to stay current to at least April and see what it looks like. Any strong hint of relief will probably cut the flow of REPOs drastically even if it does not work out. So even the suggestion will likely end the downtrend and flatten or increase prices.
Case-Shiller is indicating a bottom approaching.
Prices have dropped below replacement value.
We were looking at houses with a client today in the relative stratosphere...and we were seeing brand new places of high quality at 50 cents on the dollar of what they were asking a year ago. That is well below the cost of building such a place.
Can we continue doing business in such a manner? Of course not...so we are off into the areas that are unstable and where we cannot remain.
As I have said a number of times...this will be a rather interesting year.
It is very difficult to get to precision on decisions based on peoples views and feelings..
In Las Vegas we run out of Subprime resets in the next few months. What happens next? There are lots of AltAs and options coming. Are they going to hit Vegas? I suspect not real strong but I really don't know. It may be things start to trend toward less foreclosures...or maybe they are worse.
If normal trends hold we will see heavy demand building in the March and outward time frame...but this is not a normal year. Will it happen with the ongoing cracks in the overall economy? Bet your money.
This is what is confusing about your argument: On the one hand you cite “normal” trends as the basis of your argument that the current “artificial market cannot sustain itself”, but then you mention this is not a normal year. On the one hand you mention a possible trend towards less foreclosures and on the other you say it may be worse. Maybe it isn’t an argument or position but a statement of all the different market scenarios – just not sure what your point is... Possibly that we are entering the great unknown???).
Quote:
Originally Posted by olecapt
If the normal runup does happen we may actually over power the supply of REPOs and force the price to at least stabilize.
Big IF…
Quote:
Originally Posted by olecapt
If the Obama administration hints at a significant loan modification program the supply of REPO likely dries up. Right now I am advising all who ask to stay current to at least April and see what it looks like. Any strong hint of relief will probably cut the flow of REPOs drastically even if it does not work out. So even the suggestion will likely end the downtrend and flatten or increase prices.
Ignoring the the lack of any empirical evidence to support this claim, what has Obama committed to thus far to indicate any kind of “significant loan modification program” will be implemented in the near term? Another big IF…
We were looking at houses with a client today in the relative stratosphere...and we were seeing brand new places of high quality at 50 cents on the dollar of what they were asking a year ago. That is well below the cost of building such a place.
Can we continue doing business in such a manner? Of course not...so we are off into the areas that are unstable and where we cannot remain.
Finally! I think we're almost committing to something here. Correct me if I'm wrong, the basis for this argument is that we've hit close to bottom and the current instability along with the "artificial market" cannot last much longer. This is where I disagree - IMHO we're not near that market bottom until late 2009 or even 2010. Unless we have a crystal ball we can't prove each other wrong, but we can, at the very least, state an argument supporting either side of the trends.
The lenders calculate a fair market value for a property they have foreclosed.
They then deduct 20%.
They then sell that property.
That property than mixes with the other sold properties to create a new fair market value.
The lenders than calculate a fair market value for another property they have foreclosed.
They then deduct 20%.
They then sell that property.
Sounds like a great opportunity for you to buy up properties from the bank and flip them for an immediate 10-20% profit. After all, if the true market value is higher than the sale price of all foreclosures, there's by definition enough willing and able buyers waiting to grab properties at the higher price.
Sure, the REOs are killing comps, but coming in somewhere below the "true" market value and the value where banks are dumping the properties should still give you room for profit.
That's assuming there actually is a market at the higher price, though. If there aren't, the banks are being smarter than you think.
Do you mean fair market value for you or for your RE agent? Because these are two completely different things!
You see many people are under the mistaken assumption that their RE agent is somehow obligated to look after the buyer's interests. Nothing could be further from the truth! Your RE agent is only out to get you to pay the highest price possible because his/her commission depends on it. Regardless if the RE agent was hired as a "buyers agent". There reallly is no such thing. The RE agent represents him/herself only.
That is blatantly false.. the statement that there is NO SUCH thing as a Buyer's Agent. PERIOD..
Secondly.. a Realtor is NOT interested in selling the home for MORE than the fair market value.. because NEWSFLASH.. if the home is sold for OVER what the market will bear than you can almost guarantee that the deal will NEVER CLOSE! That's because almost ALL offers and contracts signed are MORTGAGE contingent, which means that if the person fails to get a mortgage than the deposit can be returned and the house doesn't sell. The bank would be wise to turn down the mortgage if the person buying it is overpaying.. because then the equity stake in the house is lowered and that may all together change the qualification for the mortgage.
YEs.. when a person is a sellers agent they want to get the owner AS MUCH For the house as possible.. which means they want to get the higher end of the spectrum of what the house should sell for. As for a buyer's agent.. well. .. they job of the BA is NOT to get the house for you as CHEAP as possible.. but to get it for you at the LOWER end of the fair market value range with tough negotiations.
Look at home prices today: most of them are at least 300% overvalued. Even if they came down to half price (as many already have) they'd still be overvalued! The TRUE measure of fair market value is affordability based on salary range. We're FAR from true affordability yet.
Affordability has NOTHING to do with Fair Market Value in the sense you are putting it forth. Fair market value is simply waht the public is ready, willing and able to purchase a home for and pay for that home. That is determined by taking homes of similar that sold and comparing them to the one that is currently on the market. That does tend to be in LINE with what the general public can afford, but a person can not determine what to offer on a house based onwhat THEY can afford THAT house for..otherwise we'd all be buying homes for 1 million and offering $300K for them.. if you catch my drift. So simply saying FAIR MARKET is what people can afford is not entirely a true statement.
Go to ziprealty and look at home price histories. You'll see how many 500K homes have dropped their prices by $100K and still aren't selling! Imagine the poor fool who did buy at the overvalued top only to find their downpayment completely wiped-out in just a single month of dropping prices!.
Look at the NAR spokepeople, who have falsely been calling a 'bottom' to the RE market for over a year now, despite continually sliding home values!
Home buyers need to shake off the herd mentality: their is no longer any need to 'rush' into buying anymore. The House/ATM's have been closed down & the *** is up. Take your time, sit back and save yourself a bundle by just relaxing and watching home prices slowly come back into REAL salary ranges THEN BUY.
You should determine when to buy a home when it is right for you. . financially, and otherwise. It may not have hit rock bottom..it may have.. no one could truly tell for sure. A home is more than an investment and if you are buying it to live in itfor the longer duration and you are ready and can find something you are comfortable buying.. then buy when you find the home you l ike. Those waiting for hte "bottom" may end up missing the bottom and just like those waiting to sell at the "top" missed the boat and waited too long. what goes up comes down and what is down will eventually go back up, albeit more gradually than it had in the past.
Sounds like a great opportunity for you to buy up properties from the bank and flip them for an immediate 10-20% profit. After all, if the true market value is higher than the sale price of all foreclosures, there's by definition enough willing and able buyers waiting to grab properties at the higher price.
Sure, the REOs are killing comps, but coming in somewhere below the "true" market value and the value where banks are dumping the properties should still give you room for profit.
That's assuming there actually is a market at the higher price, though. If there aren't, the banks are being smarter than you think.
There is a real market at the higher value. But it has a year of inventory. There are places where the inventory is less...but they don't have any REPOs. There are places with lots of REPOs but there the non distressed inventory is probably three years. It is two different isolated markets. And you cannot easily move a property from one to the other. The sensible thing to do is not flip. It is buy and rent. And that is what I am doing and suggest to others that they do.
The lenders calculate a fair market value for a property they have foreclosed.
They then deduct 20%.
They then sell that property.
That property than mixes with the other sold properties to create a new fair market value.
The lenders than calculate a fair market value for another property they have foreclosed.
They then deduct 20%.
They then sell that property.
The result of these repeated sales at significantly below market result in the market marching downward.
As long as the lenders continue to price 20% below fair market value the downward trend will continue.
If they price the next home to market...or don't have another home to price...the price goes up. It is automatic.
I would expect a somewhat more complex mechanism in what actually happens...for instance the number of REPOs drops lowering the amount that the FMV falls. Or the feds interfere by steps indicating that there will be less foreclosures.
And note that most of these end games are not good for RE Agents. While they may raise price they will also likely lower volume. RE Agents would much rather see a stable trough at around existing levels. We could get rich.
There's an immediate flaw in the entire equation up above: "The lenders calculate a fair market value for a property they have foreclosed."
The lender doesn't know how to calculate 'fair market value' correctly any more than the lender was able to correctly calculate the CREDIT RISK posed by the original defaulting deadbeat buyer. Therefore all calculations after that first sentence are as bogus as the lender's estimate of FMV.
This is what is confusing about your argument: On the one hand you cite “normal” trends as the basis of your argument that the current “artificial market cannot sustain itself”, but then you mention this is not a normal year. On the one hand you mention a possible trend towards less foreclosures and on the other you say it may be worse. Maybe it isn’t an argument or position but a statement of all the different market scenarios – just not sure what your point is... Possibly that we are entering the great unknown???).
If the trend of the last six months on REPO pricing continues another 30 months the selling price of REPOs will be zero. Continued only another 12 months it will be around $50 per SF which is well below half of replacement costs.
Either could happen I suppose. But at that point we have gone deep enough that we can talk about it on the bread lines.
I have no good source of the geographical distribution and performance of AltAs. I am reasonably sure that the option loans had a relatively low penetration into NV. I also believe the temporal distrubition of AltAs is spread over a long period. So I know the subprimes have about run their course. I suspect that what is coming is less toxic. But I think we need real experience to know.
Given the present trend and no Obama initiative I think we will hit all time records by April. That is we will run right by the 2004 and 2005 bulge. The deal has become too good. We will have a feeding frenzy.
And a feeding frenzy will likely end the REPO down trend.
Quote:
Ignoring the the lack of any empirical evidence to support this claim, what has Obama committed to thus far to indicate any kind of “significant loan modification program” will be implemented in the near term? Another big IF…
There is considerable discussion in Demo circles. I would think it close to a certainty actually. Whether it really happens or not is a different question. But there is going to be a run at it.
Quote:
Possibly, but I’m interpreting Shiller’s views very differently: Moneynews - Shiller: Housing to Fall 15 Percent More (http://moneynews.newsmax.com/streettalk/shiller_housing_decline/2009/01/06/168368.html - broken link)
Not interpretating Shiller at all. Only the data. I know how this stuff works and think there is no question CS is at a negative peak. Nature of the data. And Shiller may well be correct but does not necessarily read on the NV situation. Vegas and Phoenix are pretty much unique...probably a good indication though of where other places are headed. Though none will be as extreme except perhaps CA.
Quote:
Finally! I think we're almost committing to something here. Correct me if I'm wrong, the basis for this argument is that we've hit close to bottom and the current instability along with the "artificial market" cannot last much longer. This is where I disagree - IMHO we're not near that market bottom until late 2009 or even 2010. Unless we have a crystal ball we can't prove each other wrong, but we can, at the very least, state an argument supporting either side of the trends.
[/quote]
Again I follow only Las Vegas closely. There I have the data. If left alone we are headed for a smashing spring. Huge sales numbers. Likely big enough to stabilize price in and of themselves. However I don't think we will be left alone. Too much going on. So I think it will all hinge on events that are not yet happening. From my professioal role I would wish they leave it alone. Gonna make a killing. But I don't think so.
There's an immediate flaw in the entire equation up above: "The lenders calculate a fair market value for a property they have foreclosed."
The lender doesn't know how to calculate 'fair market value' correctly any more than the lender was able to correctly calculate the CREDIT RISK posed by the original defaulting deadbeat buyer. Therefore all calculations after that first sentence are as bogus as the lender's estimate of FMV.
In the abstract statistical sense FMV is simple and straghforward to calculate. And any reasonable approximation is sufficient.
The lenders know how to do that just fine.
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