You make some excellent points. And you're so right... I think a lot of times as Realtors, we tend to make sweeping statements about the market but forget that each individual has their own situation that determines whether this is the right time for them to buy or sell...

Shannon.  Thanks.  You're right.  It also appears that some folks are just more suited to renting.

Hello Lenn,

It's so good to see someone post on  this subject in a matter of fact manner.  While it saddens me that, as a country, we have made some really bone-head financial decisions, both for individuals as well as on a nation al level (we all need to own this, lenders, agents and home owners) we have to stop crying about it and work toward solutions.  I love the fact that you pointed out that they were renters 3 or 5 years ago, so they'll rent now.  They went into the purchase with their hands empty and they leave with their hands empty.  Maybe a little financially wiser, maybe not.  some folks make a habit out of blaming everyone else for their state in the world.  Some learn and move forward...Lets hang our hopes on the latter. 

Great post!  Thank You

Lenn, I liked the fact that you stated the buyers went in with no money and they come out with no money.  Basically they are even but they probably had free housing at least part of the time.  They probably were taken somewhat by over-eager lenders and credit-repair services but they still had their opportunity.  As you said, perhaps they were not ready for all the responsibility of home ownership.  In many cases they abused this responsibility and returned the house to "someone" and the house has been totally stripped, abused and they blame someone else for their problems.

The headline was a must read - I wouldn't want to miss this. 

Lenn, you do not disappoint.  Well thought out, interesting and important. 

Thanks for all you do.

I did not get the reference to the broker that was referring business to you. Why was it necessary? Sorry, I just find some of these post to have way to much unrelated info. Your point was to point out WHAT"?

Lenn - I had this epiphany about 2 years ago.  When I kept getting 'buyers' that only asked the price of a home.  Not the address, not the size, not the amenities.  The price.   And then after being told they were pre-approved for XXXX amount they insisted on purchasing a home (any home) that took them within $5 of their max.  No amount of talking/guiding will change that mindset.  Sometimes it's the hard fall that makes them realize.  Unfortunately.

Good post Lenn - absolutely correct that not everyone is cut out to be home owner - or at least the timing is wrong. Sooo many of our buyers in SoCal just jumped on the bandwagon the past 4 years because the market was racing and they figured if they didn't climb aboard they'd never own a home. They had no money to put down or pay closing costs. Most homes have at least 2 or more mortgages that totaled 125% or more of the purchase price - and now they're renters again. If they'd have stayed that way to begin with, we'd have much less of a problem today.

LENN - ain't it the %#*  truth.....buyers will look, look, look, and keep on looking....to see if prices will go down next week....or more short-sales, then look some more.   Your FACT list is great and I love the epiphany  :)

By the way - short-sale agents are the worst. Out here we don't even show SS because 1)the banks aren't cooperating and 2) the agents don't know diddly and 3) in 2 months the bank will own it and it'll be a clean deal again.

Talk about full cycle - a neighbor of mine bought a place as an REO in 1998 for $185. As our market grew, he refi'd and refi'd until last year he got up to $485. The home is back on the market as an REO for $235.

AMEN. And I love the comment about the listing agent without a clue, thinks it as easy as submitting an offer, sad but happening here too. MANY homeowners don't even have an extra week's worth of savings, that's just sad. No way they should have been a home buyer.

Lenn I was worried I thought  an epiphany was  a type of cancer. Seriously another well thought out an right on the money post.

Another great post Lenn. I believe you've summed it up perfectly.

We had one local bank advertising what Gene mentions above: 125% financing
Nothing but trouble could come of it, and that is what we are seeing now.

Lenn, I think you have a very wise friend and it is nice to hear those numbers in perspective. One of our buyers lost their house to forclosure. She had the house a year, we told her not to buy. NONE of our lenders could qualify her, but she found some internet lender with his own appraiser and title company. My title company would not close the loan, it was a scary mess. This was several years ago and I have sense learned so much about mortgage fraud. She should have stayed renting.

Lenn -- I think that there are some senarios as you describe.  However, there was a lot of mortgage fraud, and deceitful lenders/appraisers out there as well. 

Lenn- I think buyers are of the same mindset everywhere.  As far as homeownership.. you nailed it.. not everyone can or should own a home.. being a homeowner is hard work and takes some real discipline to stay on top.

Amen!  I totally agree! Great post!  Homeownership  and the responsibility it entails is not for everyone!

I have always said.... some people are not smart enough to have a mortgage!  It is just the reality of life.

Responsibility, then again, many people were duped in 2005 and did not understand the ramifications of a balloon mortage...mortgage fraud, CRAP!!! Dishonest lender's in a frenzie...Look what happened, it's disgracefull!!!!and sad!

Karen.  It is, indeed, sad.  Goodness knows there's enough blame to go around.  But, my point is that, after all the frenzy buying and it was a buying frenzy here, after the foreclosures, we'll be back where we were 6 years ago, except with much tighter lending regs.

James.  Indeed, some folks are not. 

Jim.  Yes, homeownership is an awesome responsibility.

Kaye.  It's true.  Some folks should just rent.

Our office held its quarterly meeting yesterday and one of the speakers was from a well known lender and the rep talking with us has a solid reputation.   He informed us all about the many new guidelines in his industry which which should lead to more "qualified" home buyers.  I felt good about the way that things are heading in this regard after listening to him.  Simple easy to implement guidelines are going to help home buyers be responsible home buyers or stay "renters".

Joan.  There were deceitful lenders and appraisers before the housing boom and there will be in the future.  I recently had a lender approve a buyer for a home owner loan knowing he's an investment buyer.  We'll always have bad actors in this business.

Missy.  There appears to be about a 5% "syndrome".  Those additional 5% home owners may not have meant to be buyers at all and should have remained renters.  They were probably very good tenants. 

Debbie.  I remember the 125% lenders from as far back at the 1970s.  They are always trouble. 

Hugh.  Funny.  "Gotcha"  Made you read.  Thanks for the kind words.

Susan.  Thanks.  I know you see a lot of those listings in Florida.  Florida Rainers have done a great job of helping us get a handle on how bad a market can really be. 

Gene.  California has an abundance of folks who shouldn't have purchased.  I suppose they make up about 50% of the 5% that will bring home ownership back to 65% from the short lived 70%.  Florida has a high number, but the cost is probably much high in CA.

Christine.  It's true.  If every buyer we have "on the fende" today purchased a home tomorrow, we'd have a $21,000,000 month. 

Gene.  Welcome back.  Yep.  Those buyers were a part of the 5% bubble. 

Carol.  What a great point.  Buyers finding out what they CAN buy and then insisting on spending that much money.  Incredible. 

Lorraine and Loretta.  I'm sorry you didn't understand this post.  Was it too many words or words with too many syllables? 

Lenn You said "However, the present buyers are different"-  I completely agree- they are indeed different.  When you said they want to look, and look and look- this is also very true.

In order to achieve more sales, perhaps Realtors need to better screen "buyers" and refine their searches to the best 5-6 properties that meet their needs.  Otherwise the search can go on indefinately with little to no result.

Allison.  I agree completely.  The problem, of course, is that the listings are now all on line and the buyers just zip through them and say, "I want to see this one", "I want to see this one", "I want to see this one".  Sometimes agents don't have good control and just work and work and work.  My procedure is to pick out the best 6 because I have access to more information, history, DOM, agent comments, etc. that buyers don't have.  I show the buyer 6-8 homes and if they don't pick out one to buy, I just turn them over to an agent.  All they are going to see is more of the same. 

We've got agents now who have been working with buyers for 6-8 weeks.  That's insane.  But, it takes a lot of experience to help buyers focus in this sea of listings.

Kris.  Indeed.  I got four GFEs last week and the cost of getting a loan has gotten tougher, even for the 20% down buyer.

Of course, I'm incensed that the cost for "cleaning up the mortgage mess" has fallen on the consumer.  That's another post as soon as I can get it to come together. 

Lenn,  Oh, how true, how true, how true!!  I've been saying this as well.  And yes, I had a buyer who noted a supposed short sale.  So before I wasted time showing the property, I contacted the other agent who was indignant that I would ask if it was a bank-approved short sale or if she was even in contact with the bank.  Mind you, they were offering the home at approx. .50 on the dollar and it wasn't in pre-foreclosure yet.  I personally didn't see the bank accepting such at that point in the game.  But then that's just me - go figure!

Marc.  I would estimate that about 75% of the "Short Sale" listings in my MLS are -- -     NOT!

Lenn:

Thanks for the comment, I find your post to be a lot of overstated and re-stated information, oh, by the way I think that you are probably the one the has used two many syllables. The meat of your post could have been stated in a couple of paragraphs. Instead you elaborated on things that did not matter.

Hallelujah, Lenn.  How many of those buyers on the 2-3 year ARMS were renters in buyers' clothing?  They took whatever program could get them into a home at an initial monthly payment that they could afford.  Or just barely not afford.  Nothing in the kitty for repairs, job difficulties, emergencies, etc.  They just knew that they could own a home, at least initially, for the same payment or less than their current rent.  Plus, all of that tax write-off.  Worst case scenario, they would just sell the place in 2 years when the rate started to adjust and make a boatload of cold, hard cash for the trouble.  Except everybody else did the same thing.  And the house isn't really ship-shape for the market because they couldn't afford repair and staging costs.  And there are far more properties on the market than qualified, unencumbered buyers.  And the value of the home is about $50-$100k lower than when they bought it with zero down.  And the foreclosures and short sales all around them continue to pull values down further, but they can't afford to price theirs competitively.  So they shrug their shoulders, walk away from the house and just wait for the bank to take it back.  Time to go rent an apartment again.  If their credit and money woes don't preclude them from getting their old place back.  They should have remained renters.

Paul's epiphany? 

Not everyone should be a home owner.

I had already forwarded your email to my broker, just as a reminder for him to pass on to other agents in the office that a short sale isn't a short sale til the bank says so.  By the time I got to the end, I realized there was more to your epiphany, and I AGREE!  Thank you, well said.

Paul.  Thanks for stopping by.  Your comment below was motivated a lot of folks around here. 

"Worst case scenario, they would just sell the place in 2 years when the rate started to adjust and make a boatload of cold, hard cash for the trouble."

Margaret.  It was funny.  I was speaking with Jim about a foreclosure buyer that I had referred to him and we were just talking and he commented that some folks were just meant to rent.  It hit me.  The epiphany, "some folks were just meant to rent." 

I said then and there that I would have to blog about that statement.  It seems simple at the time but when you think about it, it's much more complicated, the Kratz duo's critique from the Kratz Kritik's Korner notwithstanding. 

 That 5% increase in home ownership that the government kept touting were simply the 5% of home owners who were eventually going to foreclosure and would become renters again. 

The more things change, the more they stay the same. 

Well, thank you for the great blog. It's true that so people are not ready for homeownership. Those are the ones who are foreclosing.

Lenn,

Amen.  Beautifully written explanation of what has transpired and the difference in buyers from the frenzied sellers market to our current market.  I work primarily with buyers and concur with your opinion that todays buyers a far more cautious and will not hesitate to jump back on the fence unless they feel they are getting the deal of the century.  I have a buyer right now, who does have the deal of the century and still thinks it isn't good enough. 

The last couple of buyers I've had were ready to go. I suppose it 'just depends on the circumstances'. It all seems to balance out ...one way or the other. One thing is for certain. The buyers who are getting approved for loans.....are worthy of buying that wonderful home :)

Zen.  Thanks for commenting.  There does appear to be a certain dynamic involved.  Maybe we cracked the code.

Fran.  Indeed.  I got e-mail from a buyer yesterday who was considering a $435,000 foreclosure.  She wanted to offer $150K because the last owner had paid $145,000 8 years ago.  They just don't understand.

Sally.  So true.  Buyers can't waltz into an easy loan like in the past.

I have been doing a little back research on sales prices of the homes which are currently in pre-foreclosure.  Quite a few of these have situations in which the house over appraised at the time.  Now, I am not an expert, but I bet many of these had the seller paying cash out of closing for a "new roof" ...or other repairs.  Heck, the real estate gurus on the television were telling the "smart investor" how to get the money back.  A lot of it did not go for repairs.  I know of one situation that a man conned a lady into getting the loan for him (what he paid her, I do not know)....When I looked at the stats on the property it sold for 200K above the rest in the neighborhood.....and of course the man who was suppose to buy it from her in a year has stopped making the payments.  Nice work if you can get it.......course the overtime is a bear.  The onus of the foreclosure will be on her.  He is not recorded as owner anywhere.  The kicker is that he homesteaded the property in her name, too.....so...technically, she has broken the law there too.  I really wonder how many of these properties people are losing involved lender kick backs or seller contributions under the table?   Ruth....also in Broward County Florida....where the sun shines all year around. 

Ruth.  Thanks for commenting.  Home owners who fall for or at least co-operate with scams like this one will almost always be burned.  There are no short cuts to good credit or home ownership. 

Cash at closing to the buyer to pay for roof, carpet, etc. is not the way to go. 

"conned a lady into getting the loan for him" doesn't compute.  That has scam written all over it.

Lenn - True. Not everyone should be a homeowner. We can only wrestle with the aftermath. I find it simply amazing that despite the 40-50 page contract of sale we must prepare, we are left unaccountable for our actions that are implied through our behavior. Greed is quite a nasty emotion. Our over regulated, under policed housing industry offered all the cake and icing to all participants along the way. Want a bigger commission, just show them a more expensive house. Want a bigger fee, just qualify them for a larger loan or increase the yield spread. Want a better rate, just play with the way the package is presented. Everybody stood to gain.

And they did....for a bit. Now, it is spiraling out of control. So my epiphany....some should not be homeowners, some should not be home sellers, some should not be lenders. Opps, my epiphany is that if the fox is dead as a door nail, don't expect the chickens to bother with the roost.

Lenn, Home ownership is a very good thing. BUT....as you stated it is certainly not for everyone. I think one of the problems these days is folks move to often. You just can't buy a house if you are not planning on living there for at least 5 years. In fact you never could..except..during the boom. However that period was truly the exception. I get calls from sellers everyday that are wanting to move. The only problem is they just bought their house a year ago!!! To even think they can move that quickly is just foolishness. Then of course when I tell them their house is worth 40% than what they paid they have heart failure!! Hey it is what it is.. 

Great article, hopefully the economy picks up along with the market.

As always, I love to read your posts!  So true!   It's like everyone is doing it, why don't we?  We don't need any money to buy a home.  Let's go for it. 

If only the banks would wise up, actually look at the offers they're getting, hire a competant realtor, put some intelligent people on their telephones, (make them go to real estate school so they actually know what they're talking about) there wouldn't be so many homes on the market.   And for the love of GOD, walk in the home they are trying to sell and look at the condition it's in.   We are representing people not objects, why do the banks get away with this????  Sorry, ranting about the banks again.    

If that headline doesn't get your attention, nothing will. 

Great point, Lenn.  Buying a home and owning a home are two vastly different things.  The first requires you to shuffle paperwork and perhaps have a little money, perhaps not, and sign your name a few (hundred) times. Owning a home is having to deal with a never ending honey-do list.  Homes don't take care of themselves.  Many folks who bought were in no way prepared for the real job of homeownership once escrow closed.  Heck, we live in a new house and I deal with things on a regular basis.

Lenn,

You hit the nail right on the head!  Many people were not ready to be home owners.  Some of them never will be.

Jesse.  You are so right.  I moved into a new home February of 2006 and it's been a work in progress since.  I love my house, but goodness it's a lot of work.  My previous homes were much smaller. 

Ida.  We often rant about banks.  Bank folks rant about us.  We should all rant about the regulators and legislators that, I believe, got us into this mess. 

When is Franklin Raines going to jail?  That's all I want to know.

John.  I get so many calls from folks who want to buy.  They don't even know what or how or when.  They just know that they are first time home buyers and they're starting off with "what kind of programs are there for first time home buyers. 

Now, I ask you, if you start off a home search looking for a program, where do we go from there?

Bryant.  Indeed.  Folks absolutely move too often.  Moving is VERY expensive. 

Lenn, you really nailed it on this one!  It is just impossible to convince renters of that.  Renting is just not the "American Dream!"

Lenn, I had that same epiphany several months ago when writing on my outside blog that not everyone should be homeowner. It's not the end of the world but for some it just isn't in the cards.  Totally agree.

Lenn - good points, as you typically have. You should do a post on what buying a home means - it's a home, not a stock investment and not a cash ATM machine.

Kristi.  Thanks.  I suppose home ownership will remain the American Dream, but it can surely turn in to a nightmare.

Gena.  Indeed.  I talk to so many folks whom I know are not cut out for home ownership.  Budget?  What's a budget?

Sharon.  Thanks.  Home is that magic word, but it takes sacrifice, time and hard work. 

Lenn, So true not everyone should be a homeowner.  There are reasons for wanting to see savings and some money put down into the loan.  It is not only paying the mortgage on time, the cost of care and maintenance is part of homeownership as well.   

Audrey.  You reminded me of something.  When we get a prospective buyer with "lates" for car payments, I ask when they know what day of the month the payment is due.  Inveriably, they will say something like,

"The grace period is 16 days.  I know that they don't know how to pay a bill on time.

Homeownership while a great thing can be quite financially burdensome. You really do have to be ready for things that may happen to your home. 

Christy.  Tell me about it.  I have a 2 year old home and have already had to sink a new well at a cost of $25,000.  Oh, I forgot the new disposer, sump pump, landscaping, lighting . . . . . . . .

Lenn- And part of that problem is that many people we go and talk to have 2 Escalades in their driveway and developed the habit of using their homes as ATM machines. They are paying $800 car payments and live in instant gratification way beyond their means and then want us to bail them out. 

Katerina.  Indeed.  I dropped a buyer a few months ago because they didn't know how to pay a bill.  They lived on their credit cards.  I knew they were in trouble when they charged breakfast at McDonalds.

Lenn,

 This is one of your best posts in a long time.  I have to say the smarter savy buyer is out there. 

Great Post

Gary.  Thanks for the very kind words  I appreciate folks reading my posts and I love the comments. 

your posts never disappoint me

And the article from the Wall Street Journal

"Buyers' Revenge:
Trash the House
After Foreclosure"

Is a perfect example of your epiphany!

Lenn, you're absolutely right!  Now, can you get that message to the drive by media?  I am truly tired of Realtors and Lenders receiving most of the blame for the state of the market.  Truth be told, a person can be qualified for a house, move in, and then make some pretty bad financial decisions which lead them to foreclosure/short sale...I think the word is accountability.  Yes, accountability must triumph over entitlement!

Hi Lenn - I had that same epiphany a year or so ago, and you are so right that not all are meant to own homes.  Some really are much better at being great tenants, and some of those people are the very ones that have been, are being, will be foreclosed on.   There are plenty who just have no clue about what's involved in owning a home. 

Ann

Very thoughtfully devine manifestation. Market volatility has reformed the landscape of the real estate industry, and it may have been devine intervention that leveled the playing field. Could it be twelve years before the market stabilizes ? An epiphany is the twelfth day after Christmas, January 6th.  However if the market corrects in twelve years it will be 2020, or the year of perfect vision for the real estate business. I believe that it will take about the same time to correct as it does for a bankruptcy or foreclosure to be discharged from a debtors credit history. The drawback is that it's on a national scale, and, alas, not everyone can be a homeowner. Maybe that'll change one day in America.

I also agree with you that not everyone should be a homeowner.  Not everyone should!

You are right. Not everyone is cut out to be a home owner. There are people who simply are better off renting. They do not want the responsibility of owning a home.

Bob and Carolin.  I accept that.  I've known many of them.  We don't handle rental properties, but I've done many in the past and, while I probably never understood their reluctance to buy, it may have been a good thing.

Ryan.  It appears that about 65% of us should and about 35% of us shouldn't.

David, David, David.  Please don't blame America.  This is a worldwide phenomenon.  When interest rates get unsustainably low, folks are going to buy.  But, when their rates go up, they change their mind as their finances change.  Interesting comments.  Folks with a foreclosure on their record will suffer with impaired credit for more years than they now understand.

Ann.  Agreed and it's O.K. because the 35% that will rent will provide profits for the investor owners of rental properties.  There's some balance in that.

Natalie.  I like that, "Accountability must triumph over entitlement".  Good thought.

Janelle.  That's sad.  Sadder too is the fact that there is no security deposit with which to pay for repairs. 

Michael.  How thoughtful.  Thanks.  I think. 

Lenn,

Here is where some consumers just don't get it. Some people think that if it's a short sale then they re getting that deal they so much want...but they fail to understand that although these deals look good they may never go through and they might have to wait 30-180 days before the bank even gets to the file and gives them the answer. People are frustrated that when they do put in the offer...their money is tied up and their time is put on hold.

 Then you have the consumer who knows what a short is and how it works and simply won't even look at them. Then you have the Realtors(R) who won't show or sell them because they aren't even guaranteed how much they are getting whether or not it shows a number in the MLS read out. Investors are probably the best option because most of them aren't looking to live in the property so they have more time to kill. I just wish the banks would consider changing their procedures because they are going to be stuck with even more if they have to litigate in foreclosure and it will also cost them more in the end.

I'm getting more calls on my listings from the agents asking me if it is a dhort sale and won't touch them. I just a regular deal in 3 days because the buyers couldn't wait any longer for the answer on the short they put in. It's very fustrating to buyers really looking to take advantage of a good thing.

This is a banking problem and not a Real Estate problem. People who couldn't even afford a $50 cell phone bill were able to purchase property but now they will lose because they are drowning in their own demise.

It is entirely too early here for epiphanies but this is a good one Lenn!  I have a lady with all cash who wants to put an offer on a short sale but I don't think she gets the process.  She understands paying her bills, cash flow, property management but not a darn clue about short sales. Scary

Lenn,

I think this is one of the first posts that gets the current situation.  Today's buyers know what they are doing (or they wouldn't have the credit and cash still, they've been waiting for this).  Today's sellers (many) do not.   I've owned before, when the math made sense.  When I moved to DC in 2006 buying was not a rational decesion, so I rented.  Today I'm buying again (price to rent to income lines up).

The sellers are in denial.  I can take a very well defined neighborhood of homes that are all 9-12 years old (no big differences in condition or remodels) and show every sale and contract in 2008 supports a vaulation range of $260-$300.  There are some shorts and REOs listed for $260-$300, but about 15 homes for sale at $330-$350!!!  I know, the sellers are greedy or in denial but what's wrong with the listing agents?  There is no way any appraiser who fears jail time will let any of these houses appraise for anything close to list!  If your house is on the smaller end and lacks any distinguishable characteristics, then why listed it for $330?  Because it's painful to know your neighbor sold for $400 in 2006?  Too bad.

Brokers and Realtor Associations ought to fine or atleast publicly shame agents who list properties for 20% more than the maximum apprasial price and then refuse to counter offers that reflect current market value (honest offers, not low-balls).

Neal.  Thanks very much for you comment.  I do believe that the short sale situation has become a Realtor problem when so many have decided that it's the growth industry and are capitalizing on listing them.  They are, definately, a banking problem.  Too many buyers believe that, since the homes were so easy to buy, that they would be so easy to sell, or at least rid themselves of once it was no longer fun.

Renee.  My epiphany was limited to the 5% solution.  I still have a feeling that will hold.  The short sales?  most of them will go to foreclosure.  They're too complicated to be a viable market segment.

NOVABuyer.  Thanks for dropping by.  You described one of the most insidious forces in the real estate industry, agents who take overpriced listings.  I've ranted and raved about that for years.  Many of us have.  Actually, many home owners really cannot sell for market because the owners paid top price in 2005-2006 and now the owner owes far more than the amount for which the property will sell.  The present market conditions have revealed some serious limitations in the skill level of many agents.