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The Coming Crash In Housing

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Terrel L. Shields

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Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
The Coming Crash in the Housing Market By John R. Talbott

Quotes

“It is common knowledge that the first piece of news an appraiser hears from a mortgage client...is the dollar amount [needed]”

“...appraisers and their incestual relationship to mortgage bankers”

“True independent appraisers are needed...”

“Comparisons [should be made] across cities and historically, over time, so that buyers are not throwing good money into a bubble economy.” (that blows the only comps from the past year notion, right? Think San Jose and Silicon Valley)

The author dismisses appraisals as myopic, a short term snapshot to today’s price without a real basis on long-term value. Appraisals, especially inflated appraisals only reinforce and justify the ever-increasing prices…prices Talbott says cannot be sustained.

The author argues that high loan to value ratios turn home loans into high-risk options more than real purchases. The buyer puts little money down and is betting housing prices will increase.

He compares dwelling per SF prices with apartment prices per SF and apartment rents. High ratios he argues suggests that rentals are not keeping pace with dwelling inflation.

5 PMI providers insure $530 billion of highly leveraged mortgage holdings (70% of all PMI) but have only a total book equity of $11 billion to cover a major loss in a downturn.

Fannie and Freddy guarantee mortgages worth $3 Trillion and are leveraging 116 and 71 times equity, respectively. Only the Government could bail them out since PMI (see above) will fold up quickly.

Grim news? Or, mere hysterics? Time will tell. But the book is worth the $15 or so it costs in paperback, even if he does say some hurtful things about appraisers.
 

Mike Simpson

Senior Member
Joined
Jan 30, 2002
Who was the guy who wrote the book--"The Great Depression of the 90's"? How'd you like to be that author trying to sell his next book to a publisher?

How about Jim Cramer's (somewhat) recent comments regarding the Dow falling below 6000 and NASDAQ diving under 1000? Modest investors have made tens of thousands of dollars by NOT listening to him.

I'm not in the predicting business, and while I'll agree that appraising is somewhat akin to driving down the freeway while looking in the rearview mirror I don't see any signs of a major housing market collapse. Heck, television, radio and printed media's even given up (finally) on their "Housing Bubble" stories.

I remember my father buying a home in the 70's for $35,000--the same home just sold for $350,000. I also remember a Realtor friend of his saying, "you better buy now...or you won't be able to in the future." I still hear that from agents to this day.

Phoooweee! As long as the population continues to grow, as long as that population has money--they will continue to bid up prices on homes--simple example of supply and demand, cause folks...they ain't making anymore land!

By the way...I'd rather do an appraisal with an effective date somewhere in the past than in the future anyday.

-Mike
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
Privacy and the privileges of not having to hear the bedsprings and beer-bottles hitting the adjoining wall, will always appeal to some folks.

They are willing to pay for that privilege.

Avoidance of northeast and mid-west winters and living near your relatives also has a cost benefit ratio.

When perceived costs exceed perceived 'benefits'... folks will alter their behavior.
IF there ain't any jobs, anyplace, things will become VERY interesting.

I therefore vlaue like my land where I can grow a few veggies and draw well water and burn wood to heat the house more than the lifestyle afforded by more temperate climes where I cannot afford to live... having missed the appropriate purchasing time frame :( .


Free market.

We just report the market. The fact that it gets altered by influences beyond OUR control has nothing to do with what folks are willing to pay (no matter how misguided WE might think them to be).

Get over it.
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Things to watch:

1. Unemployment rate is down, but that's because people have stopped looking for work, not because there are more jobs.

2. Tech sector jobs are being shipped overseas. $40K-$80K jobs are being replaced by people in India making $8K-12K (source - Dallas Morning News).

3. People unemployed since January-95% are still unemployed. The ones that have found jobs - the majority are underemployed and overqualified, making significantly less.

4. Smaller towns are not growing as is reflected in the fact that while Texas is growing, the growth is in the major population centers. The rural areas are experiencing a declining population.

5. In Califormia, companies are moving out to Nevada, Arizona and Colorado due to environmental regulations, taxes, and employment rules, etc. that drive up costs.

Roger
 

Farm Gal

Elite Member
Joined
Jan 14, 2002
Professional Status
Licensed Appraiser
State
Nebraska
tech, professional, manufacturing, ummm how bout everything but service industries are going away.... and consumerism still exists: what is wrong with this picture?

Oh and let us not foregt the ever increasing bodybags and $$$ poured into a rat hole that WE disturbed beyond it's already miserable state?

the sky IS falling or at least large chunks...

And we don't have the excuse that soem other nations have of placing our homeless in nice lil apartments with TV's and healthcare.

What will your children do?

How many will inherit even a home?

since mom & dad mortgaged it away...
 

Don Clark

Elite Member
Joined
Jan 17, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
B) My,My,My aren't we in a glum mood :(

Hey folks, I was around when interest rates were, in some case, above 20%. I heard the mortgage lenders say that the long term fixed rate mortgage was dead. Some even held mock funerals. They told us then that we would only see ARMs, VRM's, and other graduated concotions. Well guess what. They were wron, just like this dummy who wrote a book about a subject he knows little about. Yes, interest rate are going up. They are now above 6% for the first time this year. But what is wrong with that picture is that 6% is lower than the interest rate was when I got in to real estate in 1972. In 1979 I put my real estate company in a box and put it in my garage. I worked for a government contractor for a few years, then back in real estate. While working for a short period of time I was in California. I visited a relative in LA over a weekend. At the time he was in a garden style, 1 bedroom, 1 bath apartment(remember, this was 1982), and his company was paying $1,000. per month. We saw an add for a new home with 3 bedrooms, 2 baths for sale for $66,000.00 with payments of $650.00 per month. We just had to see this. We visited the site, found that the homes were modular, and you had to obtain a long term(50 year) lease on the land for $200.00 per month, and the note balloned in 5 years. But..............you got all this for less than what a 1 bedroom garden apartment was renting for. What did this Real Estate agent and developer know? They knew that interest rates were likely to go down in 5 years or less, and that they loans could be refinanced, and they were selling homes while other real estate agents and developers were bailing out of the business and going to work at Joes hash house.

Come on folks, we are appraisers. We are supposed to know about real estate cycles, trends, and the ebb and flow of the market.

I also am not a predictor of the market. However, I see most appraisers being gainfully employed next year, and the year after that.

I may do less next year. But, I am 67 years old. My sone tho should have a bright future in this business for years to come. And, yes, i look forward to the future as well. I do not see a future as bleak as some of you seem to.

Don
 

Tim The Enchanter

Elite Member
Joined
Jan 24, 2002
Professional Status
Certified Residential Appraiser
State
California
Seems like a little of that irrational exuberance going on here. :huh:
We've had a number of sales that appraised below the contract price lately. :confused: I've done 2 in the last couple weeks.

One at $585 SP, appraised $500!
Other $355 SP, appraised $340!

Very recent comps, next door and 1 block over in the first case, and model match down the street in the second case. Have people gone nuts? :eek:
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
The sky is falling, the sky is falling! What I think is worse is when the Rockies go to the bottom of the 9th with a 5 run lead (11 - 6) and lose the freakin game! Now that is depressing. Three nights in a row...taking a lead into the bottom of the 9th and LOSING!!! Now that is important stuff, not the stock market, not the housing market, not the economy. The sky is falling, the sky is falling! :rofl:
 

Terrel L. Shields

Elite Member
Gold Supporting Member
Joined
May 2, 2002
Professional Status
Certified General Appraiser
State
Arkansas
Its the thin air and high altitude, makes those fast balls fly truer....not to mention they are just not a good team after the stretch.

they ain't making anymore land!
He has some sage remarks on that subject
And I heard it from an old Realtor in 1979 trying to sell me a small acreage and house for $90K..a year later it was unloaded for $60K...

just like this dummy
Pretty impressive academic credentials plus a long stint as Goldman-Sachs expert in Leveraged buy outs.

buying a home in the 70's for $35,000--the same home just sold for $350,000
Again, in the late 70's I was living in a house that sold for $45,000, resold for $38,000 about 3 yr. later. Today, it will bring $80,000 plus minus...just appraised one near it built about the same time..

Let's see, 45 in 79, 24 yr later it has about doubled in price...If I calculate right that is a magnificent increase of 3% annually, or less than the interest on the property paid during the 1980's almost certainly.

I recall a lot of my peers with small kids and a new mortgage forced to stay put or simply walk away from houses in the late 70's, early 80's because they could not pay the high interest rates. Most houses at the time were 1,200 SF or so, selling in the $29,000 - $50,000 range.

I heard a fellow by the name of Grant on Wall Street Week tonight aver that housing prices may go down because interest rates have bottomed out and are rising because 3.5% is unsustainable risk margin. Lower payments are driving prices up....
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Mike G
doncha jus hate that - Boston did the same thing against the Yankees couple of weeks back; as fer the market, it has and it will adjust for different times.

my first house was about $17,000 - back in the early 70's; went thru several others and now live in one we bought in the late 70's for around $66K - wouldn't even want to guess what we could sell it for, but the other end of the spectrum is what we'd have to pay for a new one. So, I guess will just keep on workin and let the cards fall where they may. me, myself and I won't change what the market is doin anytime soon.

have fun and enjoy life, there's plenty of people around that worry bout whats goin on, but it ain't me B)


:ph34r:
 
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