Flutterby™! : real estate doublespeak 2007-08-27 17:34:58.008044+00

real estate doublespeak

2007-08-27 17:34:58.008044+00 by Dan Lyke 6 comments

How long can we keep this silliness up? SFGate article about trouble selling a house in Oakland:

The house is now worth $425,000, $100,000 more than they owe on the mortgage.

And yet:

Even cutting the price wouldn't help, Dresser said, unless it were a "fire-sale" slashing of $100,000. "Then they'd have no house and no money," she said.

I mean, how the hell can you type that with a straight face? The house is worth what you can get for it, not $425k, and if what you can get for it is $325k, then it's not worth $100k more than they owe on the mortgage.

See my earlier comments about bailing out the homeowners and establishing home value...

The problem here is that these guys bought with an interest-only ARM. Any "equity" in the house has been appreciation and not money paid on the mortgage. Since the market has turned, that appreciation has turned into depreciation. Pretty simple...

I was once told that buying a house only makes sense if you plan to live in it for a long time. That strikes me similar to advice I've heard about investing in the stock market - you should buy for long holds. Of course, this advice goes against the fundamental desire for "get rich quick".

#Comment Re: made: 2007-08-27 19:09:20.068373+00 by: jeff [edit history]

Eric--I totally agree. There are exceptions, but only buy a home if you're going to be in one for the long haul.

#Comment Re: made: 2007-08-27 23:11:51.322054+00 by: mvandewettering

I'm actually beginning to have a teeny bit of sympathy for homeowners who find themselves in this situation. They are faced with the following realities in the Bay Area housing market: housing prices are (well, traditionally have) gone up faster than wages. Thus, not only are they less likely to be able to afford a house now than in the future, but if they don't buy now, they are giving up a seriously good investment. Of course this really only works if housing prices actually do continue to go up: if they do not, then refinancing doesn't really help them at all. And, of course, if they can't refinance at all, they are REALLY screwed by the suddenly ballooning payments. But the fact is simply this: lenders shouldn't have given them the money in the first place. I suspect the reason that they did was simple: it drove inflation in the housing market.

We'd all like to buy into something whose value appreciates at greater than inflation. But it's a pyramid scheme, and has to come to an end sometime. Welcome to the end of this pyramid. See you at the next one. Get in early, and get out just as early.

Have rents really gone up faster than wages? The price of purchasing a building has gone up, but "housing prices", as in what it costs to live under a roof, seem to have been curiously stable in the Bay Area. Or at least in Marin.

#Comment Re: Enough blame to go around made: 2007-08-28 12:21:00.419415+00 by: m

Real estate salespersons selling houses to people who they know can't afford them, with fantasy mortgages that would make Adam Smith vomit. Banks create these bizarre mortgages, approve people they know can't pay, and then package them up to people who do more strange things with the financial paper.

The "buyers" can't save any realistic down payment nor a cash cushion. Yet they are seduced by greed to "buy" a property in the expectation of being able to milk an unending series of new mortgages at an ever inflating evaluation and reduced interest. Sort of like the market of the 1920's where even the shoe shine boy was reputed (probably apocryphally) to own stock. Con men and greedy suckers provide the expected result.

The banks and the investment houses are the ones who provided the environment and the bait for the scam. But it is clear that the Fed is not going to let them suffer very much for their unethical and ill advised behavior.