My husband, Michael cringes when I post things like this - but I never promised to bring you just the Pollyanna good news in the market. The '60 Minutes' piece speculates that we are about halfway through this housing crisis. According to the show, the first wave of this crisis was made up of sub-prime loans. The second wave is predicted to be Alt-A loans and Option ARMs that have adjustments coming.
Sean Egan, considered to be on of 6 Wall Street experts that 'predicted the fall of the financial giants' says that the housing market is incapable of a recovery until we 'clear out the garbage'. I couldn't agree more - and this point always takes me back to the same frustration. If there were real solutions in how banks were processing the glut of short sale inventory, we could expedite the cleanup and expedite the recovery. Unfortunately, that is not happening.
One portion of the '60 Minutes' piece that had me roll my eyes just a bit was the acupuncturist - turned real estate investor that was supposedly clueless about those Option ARM loans she used on her multiple investments. She was putting 20% down, but didn't ask questions about the loans she was using. Why? She was busy. "Busy looking at properties. All day. All the time." Give me a break.
The arguments were a bit one sided and accomplished what the media loves to do - speak to people's fears. Consumer confidence is a facet of recovery and pieces like this don't help.
That being said, there is no denying another wave is coming. If the Alt-A and Option ARMs are with folks like our acupuncturist friend, then clearly there is reason for concern, but I believe that there are a good deal of folks who understood their loans and investments. Maybe I'm wrong. Time will tell.
Mr. Egan cites the NAR stats of record supply. That's a statistic that you must evaluate locally. Steven Thomas, President of Altera Properties, noted recently on his blog that demand in '07 was '51% less than it is today'. Mr. Thomas goes on to state, "Last year the inventory was at 16,128 homes, 3,740 additional homes compared to today, 30% higher. Two years ago the inventory was at 12,661, 273 additional homes compared to today."
As we have mentioned here, in the lower price points we are seeing significant movement and dramatically less inventory. The upper price points are not enjoying those bits of good news.
I'm with you. I think that more people understand their financing that do not. Plus, even if the rates readjust and these people get higher payments, what's to keep them from refinancing into conventional loans at fixed rates? There's a lot that this story didn't consider and it does prey on people's fears.
Because real estate is local as are bad mortgage loans, what matters most to each of us is where these bad loans will fail.
Before 60 minutes had time to run their segment, my research for my area was already complete. But I have 27 years experience in land acquisition, development, marketing and financing of real estate and my job is to make sure a product sells. And to demonstrate that point, my very small office did more transaction sides than any other in 2007 according to our MLS and we did zero short sales and zero bank owned sales.
Many of the firms that have been in business for 25 and 30 years closed in my area. I shifted my builder's products starting almost 2 years ago and we not only survived, I have a builder (who is 3rd generation in construction) who has more in escrow now than even 3 - 5 years ago when we were booming.
Like all things real estate, look locally for your answers (and not to 60 Minutes who has to slant eveything to get ratings.)
well, aren't you a debbie downer! Just kidding, Linsey! Yes, there is another slope to this whole mess - while I agree that 60 mins and many of the others paint their stories in a certain light we have to understand that it is reality. Thanks for bringing up the other side.
Re: CBS 60 Minutes "The Mortgage Meltown" aired on Sunday 12/14/08.
Scott Pelley's piece on the 2nd Wave of Foreclosures overlooked a critical fact. The next wave of Foreclosures in 2009 Will Take Self-Employed and Smaller Businesses who have these TOXIC mortgages. In fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are considered the "Troubled" assets in TARP were marketed to the self-employed who fell prey to them.
An NASE survey,www.nase.org, was the first to provide compelling evidence of small business involvement in the upcoming toxic mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst,NJ,and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008. According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012. These small business owners will be at-risk of payment shock and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify. The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners and small business owners.
I saw this and it did make me worry for a minute. Then I thought back through the past year or so and I still had a good income from real estate. I can ride out this wave too...
I saw the piece on sixty minutes also and it's true so how is it going to effect us and what do we have to do to deal with it? IMO the effect will of course be increased inventory; what we have to do is communicate to our sellers the reality of the marketplace....how motivated are they to be a part of the x percentage in your market who will actually sell their homes, after all we don't list just to list :)
I think this report was extremely one-sided and the problem will continue to be confined mostly to certain states. This is another example of blowing things out of proportion. Hello ! Wachovia already went under and Thornbug Mortgage (king of the alt-A is bascially already out of business). That is old news. Certainly there is more pain to come but this is overblown. Only time will tell.
It means we better plan for the worst and hope for the best. That requires taking a second look at our business plan to make sure it will handle whatever comes.
What 60 minutes also failed to mention is that many of the ARM loans will adjust DOWN as long as the indices they are based on stay low (T-bill, LIBOR, etc.). The media portrays the assumption that all ARM loans adjust up.
All real estate is local. Some areas and some communities will be impacted far greater than others. In my area, one community has 56% of all properties in short sale. In my community, 16% are short sales.
There is pent up demand. People will always have to sell and buy. As Richard said, plan for the worst and hope for the best. 60 Minutes wants ratings, so we can expect they will sensationalize a story, right?
One of the things that I have noticed is that just as everybody (it seems) reaches agreement on which way everything is heading, the wind changes and makes their predictions useless. Oil was supposed to be $250/bbl now... and now the SAME analysts that blew that one are telling us $20/bbl. Real estate would rise forever (the NAR wasn't the only one saying it) and then it will never rise again. The stock market is the place to be (internet stocks), no it isn't (tech bust), yes it is (last year)... nope (now).
What does it all mean? Who knows. But there are deals out there. Some areas have prices moving up again and inventories shrinking. Other areas... not so much.
It is painful to see agents who put themselves forward as experts in their field taking cues from a news agency. I'm not sure about the other agents in my market or the nation, but full time Realtor who not only sees the news happen, but many times makes the news.
If you're a pro at what you do, you should know what's going on in the market before it gets rolled out to the general public (those naive about the market) on 60 minutes.
Good post. I feel some stats were skewed for drama. That Miami condo example for 2.4 million in 06 now for 900K is an extreme example. Also, in the video they mentioned a stats from NAR supply (houses on market) from 3 years ago until now......obliviously 05 til now the inventory has doubled if not more than doubled. For many 05 was the peak, therefore supply was much lower. In regards to a second wave ....we will have to see how that plays out. Many of my buyers are truly seeing value with combo of rates and prices. I hope that demand keeps the "clean up" process moving along.
In Nevada, Arizona, Florida, California, it is very bad and may take some time to straighten out. Our market in Northern New Jersey just needs a reason, that is financing. Low rates and reasonable ability to get approved with dissent credit and down payment. I have been doing this a long time and have analyzed markets for over 25 years. If we get what I am asking for and I have over a month ago, asked for the Fed to borrow for mid 2 percent right now and lend at 4-4.5% this market is ready. Maybe just a start for the states above but for North Jersey it will set us up for cleaning out our inventory.
Great video! Lots to think about... In any market, we know that it is the true consultant who maintains relationships and walks families through the good and bad. Our advice has never been more valuable!
I've been hearing alot about Alt-a loans from Mr. Mortgage he has a channel on youtube and a blog describing much of what was in this interview. Thanks for posting.
Linsey.... I saw this the other night and I was going to write about it, but you beat me to it... ;o) But I will say this, I semi disagree with what they stated on 60 minutes. They talked about the 2nd wave being Alt-A and toxic mortgages such as the pay option arms. I have personally gotten the chance to review billions of dollars of non-performing loans in the last 10 months. And when I say personally, I have been given spread sheets of loans that are being serviced by 7 different investors.
Overall, it's like 50/50 when it comes to the subprime and Alt-A stuff. I have seen many stated loans and no docs that have foreclosed, even with 20% equity.... yes, it will get worse, but to put the main blame on subprime in the first wave, in my opinion, was very misleading.... thanks for sharing this...
The following is a blog I posted a few weeks ago: It takes these 'Specialists" to first figure this out now. If you don't want to read tmy entire blog, the jist of it is the bank need to "sell' the owners their homes back at the price they are giving them away for after forclosure
I'm about to fight back, want to Join? (edit/delete)
The following problem, that I am experiancing, is going to cause the next big group of real estate holders into default. 3 years ago, I purchased nine condos in a community that has 320 units. While selling the condos, Suntrust bank had a representative, in the sales office, to offer and write mortgages. A large percentage of the buyers used Suntrust as the mortgage holder.To date approximately 75 units have gone into forclosure. Now Suntrust is selling these bank owned units for $115,000. how will a unit owner , that paid more than double ever sell their unit? Even if you were to get a buyer, they will not appraise enough for a sale price above the price the bank is now selling them for.
The problem compounds, because the units in forclosure, can and do, continue to collect rent. But with no outlay of money to pay a mortgage payment , the owners underprice there rental fees and drive down the rental market, forcing owners that are paying their mortage to compete, resulting in a negative cash position for owners that are not defaulting.
Conclusion: Owners that are paying their mortage can not win. They are taking money out of their pocket to supplement the rent to pay a mortgage on a proprerty that is worth less than half of the mortage they owe. They are holding on and will never get back to the original value when 20% of the properties are now able to be sold for more than 50% lower then they can sell theirs.
I believe these owners must confront the bank that helped create this situation and demand a "short buy" also called a princeable forebearance (this is not a short sale) Where the bank lowers the mortage amount owed to be equal to the new appraised value.(That the bank was instrumental in creating} of course the banks position is that if you are not late in your paymenst they have no program to help you. Again , another case of owners that are responsible getting the raw deal. The owners need to take a hard stance and insist that they want some consideration and help.
Hi All - Thanks for all the wonderful additions to the conversation. I've thought about this post a good deal today and some people have pointed things that I think are worth noting. If you are looking at that 'second wave' - are there things 60 Minutes is failing to consider?
Some people can and will refinance out of these notes before they adjust.
The big impact can come from rising interest rates which aren't currently an issue as Jeff Trevarthen pointed out.
The first wave had little or no assistance or bail out from the Federal Government. That isn't true of the 2nd wave. How will that second wave be impacted by these 'bailout' efforts?
As many of you reiterated from my post - real estate is local. The same rule does not apply to every state or every city.
We didn't anticipate the magnitude of the first wave so there was a lack of planning and a lack of damage control. That isn't the case this time. I'd like to believe someone will start to steer this ship.
Many of you had great insights. Thanks for reading and taking the time to comment.
Years ago, I stopped getting a local newspaper (that shall remain nameless) because there was so much negative press. Truly, real estate is local. We have decided to make our own real estate market, and keep smiling.
I saw the graph from Credit Suisse a couple of weeks ago. For Las Vegas, I think Egan's predictions are pretty good. It's going to be mid-2010 or even 2011 before we really start to pull out of this market. In the meantime there are still plenty of good buying opportunities for people who are prepared to hold for at least 3-5 years.
Great post Linsey thank you! Excellent video too. It may have been a bit negative, but I'd rather expect the worst and be pleasantly surprised than vice versa. ~DJ
Linsey good post- A fear driven economy will freeze forward movement. Instead of reporting the news as we often do here, 60 minutes creates news. Florida was amoung the first of the melt down regions affected by sub prime. It's transitional population contributed to the frenzy. Naturally we will amoung the first to fall when the market capped.
If what we are seeing here now is an indication of what will come on a National level, you can expect a 25% INCREASE in sales over this time last year (As supported by September, October and Novemeber stats from the Orlando Association.)
Prices on many foreclosed properties have dropped to 2002 levels making housing affordable to virtually anyone. Investors are taking advantage of the huge discounts and offering low cost rental units via these liquidated properties.
The Stock market is no longer a "safe" investment. So the shift to housing so far has flown under the radar.
As I tell me clients- by the time you hear it on the news...you will have paying more than you could have had you bought before they said it was OK to do so.
Besides.... who wants to hear what a great deal someone got anyway? That is NOT the kind of news 60 minutes specializes in.
I saw the segment Sunday night on 60 minutes. The news does sensationalize things because bad news does generally sell more but you can't ignore all of these mortages. When they start adjusting there will be more foreclosure. I spoke with a Realtor I know who handles the Freddie Mac and Fannie Mae foreclosures for Sarasota, Florida. They told him that they are expecting increases in foreclosures for years to come. It is not rocket science - more supply with skiddish demand usually leads to lower prices. Perhaps pent up demand and lower prices will make investors and other get off the fence. However, I don't think we will be getting out of this mess any time soon.
I saw the show and it was startling. If it's only half as bad as predicted we will be in this mess longer than we think. The only thing that was not mentioned is that all of these folks losing homes will still need a place to live. In addition there was no mention of the millions of people who (when prices drop accordingly) will finally be able to afford a home. It's already happening in parts of the country like Sacramento and others. Yes it's going to get worse before it gets better and I just hope that we start looking at solutions soon!
Linsey, I think we would be foolish to bury our heads in the sand and ignore the fact that we are in a tough market. On the other hand, there are sales to be made and service to be provided and if we allow ourselves to be negative and pessimistic then "the sky IS falling." I for one, will make myself some lemonade and continue to work hard and smart. Life is good and real estate is my job. Oh, my gosh, that means I have to WORK? Great blog, thanks.
You hear talk about being a responsible politician, citizen, realtor, banker....but the media has a major roll in presentation. If sensationalism happens, if making a cartoon out of a much more serious topic with a few headlines and catchy teaser sound bites happens day in and day out, the public that is herded like cattle become misinformed. As real estate professional post blogs on the reality of the job we work in day in and day out, that we see clearly the trends and if you like predictions, make your own that work for your market. Every market is different. Good post!
Hi Linsey, I saw the same report and agree with a portion of it. I do agree that we are only part way through this mess. I do believe that we have to hit rock bottom before we can do a complete cleansing to start fresh. And, that could take some time. Thanks for telling it like it is.
Hi Linsey,
Thanks for having the courage to make this post.
One of the reasons that REALTORS are mocked and discredited is because we refuse to acknowledge bad news. We dismiss the bad news by saying, "all real estate is local." Or that real estate always goes up in the long term (what asset doesn't?). Or that there is going to be a soft landing.
Over the past two years, all four regions that the NAR tracks for home values have declined by at least 10%. Case-Shiller shows even greater losses. Additionally, home sales are at their lowest point in nearly a decade for all 4 regions. This housing recession, possibly depression, is not isolated to just CA, AZ, FL, and NV.
There is no sensationalizing with this 60 minutes piece. Million of people are losing their homes and Credit Suisse is preciting another 8.1 will lose their homes over the next four years. This is a crisis.
I'm not suggesting you don't go out and do your job as people still need a place to live, but for REALTORS to continue to blame the media for bad news is disingenuous.
Linsey: As much as we'd like to believe that a recovery is just around the corner, I think it may take a little longer. Will it take as long as 60 minutes predicts? I don't think so. I believe our toughest year was 2008 and 2009 will be a little bit better. And I expect by 2010 that the real estate recovery will be well under way.
Congrats on the activerain feature and great post. I personally believe we are in the 2nd inning of a 9 inning game. Hopefully it will not go into extra innings!
Thanks for sharing this. It's important that as real estate professionals that we look at all sides of the issues. While watching pieces like this one on 60 Minutes can be excruciatingly painful, it's vital that we see and understand what these experts are saying so that we work on a LOCAL level to elevate the fear.
The media is not in favor of a good economy, something they all have displayed with all the negative news for the last year and a half. Purely political garbage to lead America in the wrong direction. I think 2009 will be a great recovery year, and an awesome year for the agents that want to work to make it possible.
I saw the segment, also. And for our area, it is depressing. We are a small town, but growing. In the 15 years we have lived here population has doubled. So our market is primarily people moving here, often from larger, urban areas. If those people can't sell THERE, then they can't buy HERE. Yes, there are some sales, but not many, and it may be awhile before it gets better.
"speak to people's fears. Consumer confidence is a facet of recovery and pieces like this don't help." Argh, this is so true! Speaking to people's fears is what gets ratings, but it sure doesn't help the country.
First of all, You can't believe anything on 60 minutes. They have a history of turning a true story into fiction. Second is the fact that even though parts of the country have been overbuilt, others have not.
The inventory levels in Nashville are lower than they were at this time last year, and the builders and not really doing much. When the buyers show up, we will have a shortage of homes in this area.
These folks are paid to do just this...create water cooler talk and get buzz going. If you talk to the lending companies, the people they are being proactive on currently are the one's who have ARM's coming due in the next 2 years. Hold tight...focus on the customer in front of you and not things that you can't control....like what the TV says.
PS.....I stopped watching the news a year ago. Watch Seinfield instead :)
This just shows how much the media plays a role in selling fear. While I do agree that there was a lot of irresponsible lending, I can also see that the accupuncturist was an irresponsible borrower. "I didn't have time to read the paperwork!" Then you didn't have time to become an investor, honey.
It is really shocking reading the posts on here that are only concerned with their own localation. Isn't the idea to all help eachother !! If you do not help with the solution to the problem, where will you be when it affects you and your state ?
Good discussion from this post. I have seen a few statements regarding the local nature of real estate. I agree, but there are limitations to that statement. It appears that the struggles in our real estate market are at this point national with a few markets that are exceptions.
I also disagree with those that are writing off our current economic situation as the creation of an overly negative media. The media was pretty slow to speak of some of the fundamental economic problems that generated the problems over the last year.
I am not sure that I have seen the data either to indicate that 2009 will bring a big recovery.We have lost a lot of wealth as a country and that will make it tough to absorb inventory necessary to bring about a true recovery.
That being said, I think there are opportunities for buyers and agents in 2009. It is going to take hard work and tweaking of current business models, but there will be a lot of people who will make a good income from Real Estate in 2009. I hope that includes those that have posted in response to Linsey's blog.
We are seeing the high end markets at a slower pace but the under $400,000 markets are strong. Don't forget the news from most of the media is very short on facts and they are talking from their own crystal balls or reading a story that has been fed to them by rating seeking executives. Local facts are the king and local markets are what going to help to improve the national picture. Banks and News Media are part of the problem but as of now they are not part of the solution.
I am posting this reply for anyone who is involved with real estate in California because if you are you have got to at least check out Bruce Norris and The Norris Group. They have a local radio show that is also podcast via iTunes. I am not affiliated with The Norris Group but anyone who is serious about California real estate should check them out. www.thenorrisgroup.com.
The one thing that I have learned over the years is that forecasters are always wrong. So how will be it be wrong this coming year? As it is impossible to forecast human behavior that question is impossible to answer. It is fun to sit back and watch the market...... Let captalism do its thing and let human behavior roll on. In time we all can safely forecast, things will get better. When, we can not answer.......
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2009 is going to be a good year (IF YOU HAVE CLIENTS WITH GOOD CREDIT). Don't listen to all of this foolishness...