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A Market Artificially Overvalued

A report from Home Town Station on California. “With housing prices starting to ‘stall,’ interest rates going up and the stock market ‘going crazy,’ Rich Szerman of Alta Realty Group believes now is the time to take action in order to prevent a real estate market crash similar to that of 2008, and to put an end to the unjust ‘zombie’ second mortgage market costing people their homes. ‘I am in the belly of this on a daily basis,’ said Szerman, who provides free foreclosure defense services to the public.”

“‘Every loan in the state of California has what’s called a due-on-sale clause,’ said Szerman. ‘What that means is, if I hold your first mortgage and your second forecloses, or if you change the title to the property in any way, I have the right as the first mortgage holder to call that note due and payable.'”

“This is important because of the many homeowners who were told around the time of the 2008 crash that their second mortgage was ‘charged off’ or something similar, and that no further payments were required. Now about 10 years later, and usually with quite a bit of equity in the home, these ‘zombie’ second mortgages are coming back to life with a decade of accrued interest and the new servicer demanding immediate payment or they will foreclose on the house.”

The Silicon Valley Voice. “The City of Santa Clara’s property values grew at the second highest rate of all county cities — almost 10 percent according to the Santa Clara County Office of the Assessor’s 2018-2019 report.”

“County Assessor Larry Stone sees a ‘mild economic slow down …on the horizon,’ he wrote in his introduction to the report. Stone cites an office space pre-leasing decline — from 80 percent in 2016 to 48 percent in 2017 — ‘an indication of an oversupply in office space.'”

“The single family housing market, too, is likely headed for a slowdown, wrote Stone. That market ‘has been artificially overvalued … driven by too much money, including foreign investments, chasing too few homes.’ Houses bought in the past three to five years are the ‘most vulnerable to a downturn.'”

The San Francisco Chronicle. “Though the East Bay still commands some of the nation’s priciest property, the top three residential sales for 2018 all closed at millions of dollars under list. This trend is also reflected in California as a whole, with 2018 bringing a slump some analysts predict will worsen in 2019.”

“According to Patrick Carlisle of Compass Realty, the most expensive residential sale for 2018 in the East Bay closed in Orinda, where a home that listed in 2016 for $22.5 million and failed to sell came back on the market in 2017 priced at $16.5 million. It finally sold in July, 2018 for $12.250 million.”

“This sale was followed by a transaction in Fremont, where a home that listed in May of 2018 for $16 million closed at $12 million in June of 2018. In third place, a Lafayette property closed at $7.800 million in November of 2018 after listing at $9.975 million in September 2018.”

The Orange County Register. “It seems timely to take a look at the real estate cycles in years past and project what the market is likely to do in 2019. Even though we have about 59 percent more inventory now than this time last year, and there were about 24 percent more pending sales last year, the cycle should follow the same pattern.”

“This increase in inventory and drop in demand has flipped us from the strong seller’s market at the start of 2018 into a slight buyer’s market as we start 2019. This impact can be seen in the average days on the market, which has gone from 65 days on average last year to 127 days as of the beginning of 2019. That’s double from last year.”

“For home buyers, this means you have more choices, more time to kick the tires, run the numbers, and get your loan even partially underwritten before you make an offer. You actually have time to go look at the house more than once, for more than five minutes, before you submit an offer. You’ll also probably be the only offer on the table. Multiple offers on the same home are no longer the norm.”

“For home sellers, this means put your house on the market the Thursday before Super Bowl Sunday, which this year falls on Jan. 31. You’ll have it staged to perfection, take professional photos, and you’ll price it right at market value, and anything else you can think of to stick out for potential buyers.”

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This Post Has 38 Comments

  1. ‘This is important because of the many homeowners who were told around the time of the 2008 crash that their second mortgage was ‘charged off’ or something similar, and that no further payments were required’

    So just who “told” them they didn’t have to pay back money they borrowed? If it wasn’t in writing from someone with authority in the matter, it’s meaningless.

    1. This reminds me very much of those FBs who were “promised” a refinance of their loan. When the bank said no refinance, FBs stamped their little feet that they were “owed” the house.

  2. ‘the top three residential sales for 2018 all closed at millions of dollars under list. This trend is also reflected in California as a whole, with 2018 bringing a slump some analysts predict will worsen in 2019’

    Under asking? All of California in a slump? Why I have many posts from this same ancient time period (2018) where the used house sales people were bubbling with delight at how “crazy” the overpaying was and how they just need more shacks to squeeze desperate buyers on!

      1. Interesting history…

        12/28/2018 Price change $2,499,000
        11/21/2018 Listed for sale $2,995,000
        8/2/2017 Sold $1,650,000
        6/21/2017 Pending sale $1,650,000
        6/16/2017 Price change $1,650,000
        6/5/2017 Price change $1,750,000
        4/10/2017 Listed for sale $1,900,000
        3/8/2017 Listing removed $1,900,000
        12/2/2016 Price change $1,900,000
        12/2/2015 Listed for sale $2,099,000
        9/17/2015 Listing removed $2,100,000
        5/29/2015 Listed for sale $2,100,000
        4/9/2015 Listing removed $2,750,000
        1/15/2015 Price change $2,750,000
        11/6/2014 Listing removed $8,500
        10/8/2014 Listed for sale $2,850,000
        5/9/2014 Listed for rent $8,500
        5/9/2012 Listing removed $2,500,000
        10/30/2010 Listing removed $3,399,000
        8/8/2007 Sold $1,930,247
        5/20/1998 Sold $1,614,000

  3. ‘County Assessor Larry Stone sees a ‘mild economic slow down …on the horizon,’ he wrote in his introduction to the report. Stone cites an office space pre-leasing decline — from 80 percent in 2016 to 48 percent in 2017 — ‘an indication of an oversupply in office space.’

    Over…supply? But this is California. They haven’t built a dog shed for decades. As a matter of fact, half of their dog sheds burned down and it will take tripling construction for 30 years to catch up!

    ‘Houses bought in the past three to five years are the ‘most vulnerable to a downturn’

    As we saw last night in Sydney, five years of mania can get wiped out pretty fast.

  4. Hong Kong’s weekend Running of the Lemmings saw “investors” flocking en masse to snap up insanely overpriced sky boxes at the peak of speculative mania run amok. Now the stamping of little feet is going to reach a crescendo as the FOMO bag holders behold with horror the accelerating plunge each month in the value of their “investments.”

    https://www.scmp.com/business/article/2180434/2018-hong-kongs-second-best-year-property-sales-us93-billion-ended-whimper

  5. Now about 10 years later, and usually with quite a bit of equity in the home, these ‘zombie’ second mortgages are coming back to life with a decade of accrued interest and the new servicer demanding immediate payment or they will foreclose on the house.”

    Stupid people have been screwed out of their wealth and property by lenders since time immemorial. Caveat Emptor, “victims.”

    2. If there’s “quite a bit of equity” in the home, then why doesn’t the homeowner just take out a HELOC and use it to pay off the second mortgage? It’s not like they’re losing money, since they would have to pay back that second mortgage at some point anyway.

      1. HELOC and use it to pay off the second mortgage

        Seriously? You must be a really good gal and never took out a HELOC. Hell, I took out a HELOC on one house before I bought it to make the downpayment. It’s a “second”.

  6. As Tech Bubble 2.0 craters, the wails and lamentations of the schlonged FBs of Silcon Valley and San Francisco are going to sound like something out of Dante’s “inferno.” And China ain’t coming to save you, West Coast. If anything, they’ll be jettisoning their underwater properties en masse.

  7. ‘Houses bought in the past three to five years are the ‘most vulnerable to a downturn’

    That would mean something like a 30-35 percent price decrease – in the Bay Area. In the outlying areas, it might be either (a) a bigger decline or (b) an equivalent decline that takes a lot longer to get back to where it was or (c) both.

    1. I guesstimate D) a bigger decline that moves faster with the break pads falling off and a decent into the Grand Canyon

      1. E) out of no where the government swoops in and keeps housing prices artificially inflated.

        I’m betting on E

  8. “For home buyers, this means you have more choices, more time to kick the tires, run the numbers, and get your loan even partially underwritten before you make an offer. You actually have time to go look at the house more than once, for more than five minutes, before you submit an offer. You’ll also probably be the only offer on the table. Multiple offers on the same home are no longer the norm.”

    I just heard from a friend of mine who went to an open house a few months back. He said when he entered the open house the used house dealer asked him if he read the sign. He asked what she was referring to and she replied “must have pre approval letter to view”. He told her he could grab his check book and she changed her tone but he decided he wasn’t interested after that. I wouldn’t be surprised if open houses start offering door prizes to attract ANY prospect moving forward.

    “For home sellers, this means put your house on the market the Thursday before Super Bowl Sunday, which this year falls on Jan. 31. You’ll have it staged to perfection, take professional photos, and you’ll price it right at market value, and anything else you can think of to stick out for potential buyers.”

    Why again are we hearing about super bowl Sunday as the day homes will start selling as though the foreign investors have that date marked on there calendars?? Are these the same buyers that all decided to take the whole summer off?

  9. Another day, another multihundred point drop on the Dow at the open. Good thing the Plunge Protection Team has been reinstated, or else this could be worrisome for shareHODLers.

    1. This pig gets uglier by the day. I’m wondering whether there’s enough mendacity on Wall Street to keep her painted in lipstick?

    3. Is it possible that we are at the mere beginning of the end of the 2009-2018 bull market in stocks? My recollection of previous bear markets was that the successive waves of pain washed over the market for month after month until all the weak hand bulls were cowed. Of course this time is different.

      2. Short answer: probably yes; definitely a bear market coming up. We are coming to the end of easy money. People are starting to realize that China’s consumerism was built on weak fundamentals. Governments are starting to disallow large amount of money to buy foreign real estate. People can no longer “hang on” paying college loans. Baby boomers are getting old and medically expensive, and so on. We haven’t even felt the effects of automation yet. So yeah, the PPT can’t keep this up forever. My guess is the DOW will stagger-step down about 30%, total, but it will take a while.

    4. What happened to the Plunge Protection Team today? Perhaps the Treasury Department is closed by the government shutdown, as there wasn’t much evidence of any support for share prices today.

  11. “Mortgage applications in the United States fell 8.5 percent in the week ended December 28th 2018, following a 5.8 percent decline in the previous week, data from the Mortgage Bankers Association showed. It was the biggest decrease in mortgage applications since the week ended in September 15th 2017. Refinance applications went down 10.6 percent and applications to purchase a home dropped 7.6 percent. The average fixed 30-year mortgage rate edged down by 2bps to 4.84 percent…”

    Cause Xmas and NYE, right?

  12. Talking to a spec builders wife she said many of the burned homes in Malibu won’t be re built because they were old and now have to be re built to new costler standards which insurance won’t cover.

    Like the cement piers that that hold up the house ( built on a slope) have to be replaced. Many couldn’t get insrance so have a CA state insurance which doesn’t cover enough. Fire zone hard to insure. My parents insurance has been canceled also in Thousand Oaks, fire zone. My house same thing but that was 7 years ago liberty mutual wouldn’t insure it- fire zone.

  13. “This is important because of the many homeowners who were told around the time of the 2008 crash that their second mortgage was ‘charged off’ or something similar, and that no further payments were required.”

    😁

    “Now about 10 years later, and usually with quite a bit of equity in the home, these ‘zombie’ second mortgages are coming back to life with a decade of accrued interest and the new servicer demanding immediate payment or they will foreclose on the house.”

    😁

    1. Homebuying pukes need to understand that the are BUYING a home when they are making monthly payments to a lender and they need to understand that they are NOT yet homeowners.

      Not that I sincerely want to clarify this fact in their feeble minds BECAUSE as long as they THINK and BELIEVE that they are the true homeowners they will spend their own time, money and effort in maintaining the home up to the exact moment I decide to yank it away from them.

      As I said many times before: Pukes work, bankers reap.

      Bahahahahahahahahahahahahahahahahahahahaha.

      1. they will spend their own time, money and effort in maintaining the home up to the exact moment I decide to yank it away from them.”

        That’s what Countrywide used to do but only when there is equity.

  14. Why am I not sympethetic? Gee, you don’t pay on your mortgage obligation and the lender decides to foreclose. That obligation is stayed pretty clearly on the promissory note. Not sure what “zombie” means. If the lender was not enforcing for long periods, then the borrower got off easy for a long time.

    Not sure what the angle was in the guy’s comments. Is he supporting the borrower’s “right” to not be foreclosed when the holder of the second postion demands payment?

    Check the loan docs and see what was agreed on.

    2. “Gee, you don’t pay on your mortgage obligation and the lender decides to foreclose.”

      Maybe this time is different, but in past housing busts, job losses due to economic recession were a primary cause of mortgage defaults. Sadly, as Mr. Banker has kindly explained, many “homeowners” whose primary if not sole form of “savings” is the monthly mortgage payment are at risk of losing everything they thought they owned to the foreclosing lender if job loss leads to mortgage default.

      1. Not if they have “quite a bit of equity.” If they are smart, they will sell the house before things get too bad.

        That’s what I plan to do. If I ever lose my job, I will likely give it 4-5 months to find another job. If I can’t, I will sell the house and “go Oil City.”

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