In
New Book, The Great Housing Bubble, Lawrence Roberts Offers Buyers Advice On
Real Estate Negotiation During A Price Decline.
According to
Lawrence Roberts, the Housing Bubble Cassandra, the dynamics of real estate
negotiation has completely changed over the last two years. In his book, The
Great Housing Bubble, he provides specific recommendations to buyers for taking
advantage of their new power.
Irvine, Calif., Dec.
12, 2008 – Lawrence Roberts, author of “The
Great Housing Bubble,”
observes that “In a buyer’s market, the buyer has the power in a negotiation.
Buyers should take advantage of this power and negotiate the lowest possible
price. Since the price determines the loan amount and often the taxes on the
property, the buyer benefits through lower interest costs and lower taxes by
minimizing the purchase price.”
Roberts advises
buyers to make their first offer their best offer. He says, “This is the most
counter-intuitive part of buying in a buyer’s market. Ordinarily sellers, or
more accurately the seller’s realtor, try to create a sense of urgency to buy
the house.” He goes on to outline the procedure for buyers to pay the lowest
possible price for real estate.
When asked about
his motivation for writing “The
Great Housing Bubble,”
Roberts responded, “Sellers have the marketing machine of the National
Association of Realtorsto help them. Buyers have few sources of
unbiased information to assist their decision. Part of the purpose of this
writing is to educate both buyers and sellers on the realities of the
residential real estate market.”
Roberts has not
been popular with the National Association of Realtorssince he suggested that realtors should be
subject to oversight by the Securities and Exchange Commission regarding the
false statements they routinely make concerning the investment potential of
residential real estate.
About the Author, Publisher and
Book
Lawrence Roberts,
author of “The Great Housing Bubble,” is known as the Housing Bubble Cassandra. He publicly predicted the
housing price crash as the primary writer for the Irvine
Housing Blog (http://www.irvinehousingblog.com/). From his unique vantage point
in Irvine, Calif. – the center of the subprime universe – Roberts carefully
documents in his book the conditions and practices that inflated the largest
real estate bubble in history. He holds a Master of Science in Land Development
from Texas A&M University, and he consultants to the land development
industry.
Monterey Cypress Publishing is a small press specializing in
real estate and personal finance related books, audio books, and video
presentations.
But the hills that we climbed were just seasons out of time.
House prices in our local real estate market, like prices in many others, climbed a mountain of debt to heights they should have never seen. There will be a time when those prices are justified -- perhaps 20 years from now -- but seeing those prices in 2006 was a season out of time.
Friends, Irvinites, countrymen, lend me your ears; I come to decry the housing bubble, not to inflate it. The evil that men do lingers on through a devastated economy; the good is oft interred with their foreclosure. So let it be with the housing bubble. The noble Irvine Renter hath told you that homedebtors were greedy. If it is so, it is a grievous fault, and grievously have homedebtors answered for it.
To everything there is a season. A time to gain, a time to lose. A time to time to laugh, a time to weep. A time to build up, a time to break down. A time to dance, a time to mourn.
The Great Housing Bubble is over. It is time to move on. The Ponzi Scheme has collapsed. The lifestyle of mortgage equity withdrawal has come and gone. The dream of endless appreciation is a fantasy gone awry. Winter is upon us.
We had joy, we had fun, we had seasons in the sun. But the wine and the song, like the seasons, all have gone.
So where do we go from here? It is pretty frightening when you consider all the analogies of our current situation are to the Great Depression. It is clear that what is to come is going to be very bad, and we have not seen the worst of this yet. Our elected officials and the bureaucrats at the Federal Reserve are doing all they can to straighten out this mess. Hopefully, their meddling in the financial markets will not do more harm than good. I have my doubts. What happens is largely out of our hands. Even the people who are supposed to be in control are not. They more they try to reassure us, the more anxious I become. If events were under control, no assurance would be necessary.
It is natural to become reflective in a time like this. It is a good opportunity to reassess what is important and what is not. Most people are being forced to sacrifice possessions and pretenses of wealth. For some people, their attachments to these objects and illusions will cause them a great deal of suffering. For others, being released from these attachments will be a spiritual blessing. Difficult economic conditions create circumstances of loss and mourning. How we deal with these circumstances speaks to our character, and if we learn its lessons, it will reveal the path to true happiness, contentment and feelings of abundance.
Today's featured property is a new condo sporting a significant discount. We have profiled another property in this neighborhood. Whoever owns it now cannot be happy with this new comp.
How can I respect your crime When all you criminals whine They bought and sold you, run on, run on
The conforming loan limit through the GSE's is currently limited to $625,000 in our area. This is down from the $729,750 temporarily allowed under the Economic Stimulus Act of 2008. Any loan larger than this amount is considered a jumbo, and jumbo loans carry a higher interest rate. The current spread on a 5/1 ARM (a method of financing I do not recommend) is only 9 basis points; however, the spread on 30-year fixed rate loans is 130 basis points. Also, jumbo loans generally have higher downpayment requirements than conforming loans. All this means that the jumbo loan market is thinner because fewer buyers have the cash for the downpayment or the income to qualify.
Since our real estate market is collapsing from the bottom up, the slice of the market starting to show stress now is the bottom of the jumbo market -- $685,000 to $900,000. Homes priced to sell in this range are having a hard time finding buyers, and prices are starting to drop. Today's featured property is a short sale priced at $775,000. It recently dropped its price $80,000 in an effort to chase the market.
My home is kind, man it pays to be blind
I want to share with you a couple of recent experiences I had that demonstrate to me the power of conformity and denial.
I have been arranging to speak at various groups active in my industry. There are a great many even in my industry that do not fully understand what is happening and why. One of these groups told me they would like to have me as a speaker, but only if I am planning to give a Pollyanna message of hope. Well, there is always hope, but the reality is not particularly positive, so I will not be speaking there any time soon. The reason is simple. They are in denial, and they want to maintain that even at the expense of seeing reality. I can not and do not live my life this way, so it is difficult for me to relate to this mentality, but I do understand their desire for denial and the reason for their enforced conformity.
I subscribe to a reporter lead service to try to generate free publicity. Yesterday, I had a phone interview with a reporter doing a story on people who cannot sell who are renting out their houses. I explained to her that those homeowners with a positive cashflow do not have a problem, but many bubble buyers cannot cover their cost of ownership with rents, and they do not have any good options. They can either sell the property today for a loss, or lose money each month until prices come back (which is going to take years). Many, if not most, of the people who try to rent it out will end up in foreclosure anyway. This reporter got upset with me because my message was not positive, and she had to spin this story in a positive light. I didn't know what to say. All I can do it report reality. What she needed was someone from the NAR to tell her that prices will be back at the peak in two years and those who rent out their losing venture will be made whole soon. I couldn't say that because it is not reality. Even the media is under pressure to conform to the culture of denial.
I have often wondered why our government sets up its method of reporting recessions so that it isn't announced until it is almost over. Now that I see the powerful need for denial among the populace, I think I understand.
It's time we stop, hey, what's that sound Everybody look what's going down
House prices: house prices are going down. That sound is the weeping and gnashing of teeth of speculators and homedebtors everywhere.
A thousand people in the street Singing songs and carrying signs
"Bail me out" printed on every sign. Banks, automakers, insurance companies, and of course, overextended homeowners.
Paranoia strikes deep Into your life it will creep It starts when you're always afraid
Is market psychology starting to change? The next stage after denial is fear. Has the severity of the recession changed people's opinions?
The Psychology of the Bubble
Actually, from what I have observed, the market psychology is different at different stratas of the market. The low end is already approaching capitulation. There is no more hope for people holding on at the low end. The middle of the market is starting to feel fear. Prices are starting to significantly weaken, and those priced near the median are starting to show larger discounts. The high end of the market is still in denial.
The high end has the least reason to hope. Their denial is rooted in the continuing activity of knife catchers, but jumbo rates are rising, and the knife catchers are nearing exhaustion. The collapse in both pricing and market psychology is working its way up the food chain.
Today's featured property is a low-end condo approaching its 2003 purchase price. I featured a similar property over a year ago. 93 Tarocco was asking $389,000, and it was being touted as an "investment property". The investor must not be very happy right now...
Pearl Harbor Day was Sunday, December 7. One of the enduring images of "A date which will live in infamy" is the wreckage of the USS Arizona. One thousand one hundred and seventy-seven crewmen died aboard the USS Arizona that day. The sunken hull sits quietly submerged beneath the waves.
Americans were not prepared for World War II. Peacetime isolationism and lingering problems from the Great Depression left us ill prepared for the challenges our nation faced. We ultimately prevailed, and the peacetime that followed ushered in a new era of prosperity in the United States. We are only now getting a taste of the economic upheaval of the Great Depression, and as a society, we are equally unprepared for the consequences. We will survive, and hopefully we will begin a new era of prosperity. However, some of the images of The Great Housing Bubble will also endure (I hope).
Some historians have argued that the military made a critical error
having so many ships in port at Pearl Harbor. We did not anticipate the
attack, and we were not prepared for it. Like the USS Arizona, many homedebtors today are underwater. Their lack of preparation for this catastrophe has left them deeply in debt with little hope of recovery. For those who became dependent upon a lifestyle of mortgage equity withdrawal, this is the end of times. Many are hoping our new President will be a messiah. They cling to false hopes for a bailout that will allow them to go back to living the good life of Ponzi Scheme financing. That isn't going to happen.
Today's featured property is another HELOC abuser who lives on Arizona and is just as underwater as the ship.
My car got repossessed this morning
Harder times I haven't seen in years
Able to throw me a life preserver
'Cos I'm about to drown in my own tears
The Federal Government is contemplating rebuilding the housing market on shaky ground by attempting to lower mortgage interest rates to 4.5%. Now that they control the GSEs, they might be able to do it -- at least temporarily. The Federal government's current borrowing costs are very low. Current yields on 30-day treasury Notes are essentially zero, and the yield on 10-year Treasury Bills is at its lowest level since... I don't know if they have every been this low.
All this means that the government can act like a bank and loan profitably even at 4.5%. So why do they want to do this? It is one way of temporarily supporting prices giving them the ability to control the implosion.
Interest rates went down during the price decline in the early 90s. That softened the impact and made the decline take somewhat longer. When interest rates are declining, bubbles take longer to deflate, and the bottom is at a somewhat higher price point. When interest rates are increasing, bubbles deflate faster, and the bottom is at a lower price point. Mortgage Interest rates during the Great Housing Bubble were at historic lows so a repeat of the steady decline in rates witnessed during the 90s is not very likely. Higher interest rates translate into diminished borrowing, lower prices and a lower bottom. A lower bottom means large bank losses and a weaker economy. Therefore, the government wants to control and limit the drop in house prices as much as they can.
During the early 90s while prices were declining, interest rates were also declining from 10.6% in 1989 to 7.2% in 1996. These 30% declines in interest rates made housing more affordable and helped limit the price declines in the early 90s. If interest rates had not declined, house prices certainly would have dropped further than they did. If the Federal Government were to engineer a mortgage interest rate decline of 30% from the 5.8% they were during the bubble down to an unprecedented 4.1% to match the debt relief of the early 90s, it would help control the implosion, but it will only temporarily arrest the decline of prices. As with any government attempt to manipulate prices, it will probably have unintended consequences.
Of course, also like a bank, the government would be borrowing short to loan long, and if the government's cost of capital were to increase, they would lose a lot of money. In short, any attempt by the government to lower interest rates would be temporary. They would not hold to 4.5% interest rates forever as a permanent housing market subsidy. Therefore, anyone foolish enough to buy when interest rates are 4.5% would know that their future buyer (remember Your Buyer's Loan Terms) would be paying a higher interest rate. So what does that mean for future home values?
I don't know if I can state this emphatically enough, so I will type it in realtorese:
ANYONE WHO BUYS AT 4.5% INTEREST RATES IS A FOOL WHO WILL LOSE MONEY!!!
The table above should be very handy to anyone contemplating buying at 4.5% interest rates. You can calculate the loss of home value based solely on increasing interest rates in the future. It is possible we will see 10% interest rates again? You only have to look back to the late 80s/early 90s to see interest rates that high, and that is half of what it was in the early 80s. In my opinion, 8% interest rates are likely during the next several years. When the FED starts raising interest rates after the current crisis is over, 8% interest rates may come faster than you think.
Today's featured property is another speculative venture funded by easy money that is turning out badly. These are not too difficult to find.
All
Housing Bailout Proposals Are Doomed to Fail, Fraught with Moral Hazard, and
Intended Merely to Encourage Homeowner Denial Says Housing Bubble Cassandra,
Lawrence Roberts, in New Book.
Lawrence
Roberts, considered the Housing Bubble Cassandra, in his new book, The Great
Housing Bubble, asserts that all housing bailout proposals will fail. He contends
these programs have a built-in moral hazard guaranteed to promote foolish
borrower behavior, and that the real purpose of these proposals is to promote
homeowner denial to keep them enslaved to their lenders.
Irvine, Calif., Dec.
6, 2008 – Lawrence Roberts, author of “The
Great Housing Bubble,”
claims the main problem with all bailout plans is the moral hazard they create.
He contends, “Those who did not participate in the bubble and instead behaved
in a prudent manner would be penalized at the expense of those who were
cavalier about risk. In one form or another either through free market impacts
or direct subsidies from the government paid by tax dollars, these bailout
plans all ask the cautious to support the reckless.”
Roberts observes
that many homeowners held out hope that if they could just keep current on
their mortgage long enough, the government would come to their rescue in the
form of a mandated bailout program. According to Roberts, part of this fantasy
was not just that people could keep their homes, but that they could keep living
their lifestyle as they did during the bubble. He notes that few borrowers seem
to realize was any government bailout program would be designed to benefit the
lenders by keeping borrowers in a perpetual state of indentured servitude, and
with all their money going toward debt service payments, little was going to be
left over for living a life.
Housing bailout
proposals are part of the myriad of issues surrounding the housing bubble.
Roberts discusses each of these issues in detail in the book, “The
Great Housing Bubble.”
About the Author, Publisher and
Book
Lawrence Roberts,
author of “The Great Housing Bubble,” is known as the Housing Bubble Cassandra. He publicly predicted the
housing price crash as the primary writer for the Irvine
Housing Blog (http://www.irvinehousingblog.com/). From his unique vantage point
in Irvine, Calif. – the center of the subprime universe – Roberts carefully
documents in his book the conditions and practices that inflated the largest
real estate bubble in history. He holds a Master of Science in Land Development
from Texas A&M University, and he consultants to the land development
industry.
Monterey Cypress Publishing is a small press specializing in
real estate and personal finance related books, audio books, and video
presentations.
Pearl Harbor Day was Sunday, December 7. One of the enduring images of "
