Whenever I read Calculated Risk’s blog, besides being impressed with a man who is much smarter than I am, I am always struck by the fact I am getting his opinion at all. Everyone has an opinion, but some opinions are better than others. The opinions at Calculated Risk should be paid for as consultancy, but he offers them up free-of-charge as a public service.
Aren’t blogs great?
One of the great things about blogs is that it gives an outlet for ideas which would never have seen the light of day years ago. There are many people who saw this crash coming (see letter below), just like there were probably many people who saw the last one coming as well. In the past, there was no forum to get this information into the public realm. The National Association of Realtors through their advertising clout used to controlled the flow of information regarding the housing market: Not anymore.
I receive email from many people asking me about my opinions on the market or whatever. I thought this one was interesting, so I thought I would share it will all of you.
To keep everyone anonymous, I have edited the letter wherever you see parenthesis.
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Hi,
My wife and I really love your blog. She accurately accuses me of being a dung-sniffer with my sometimes negative views, but the housing market collapse was something we both saw coming.
We bailed out of Woodbridge in April 2004. I cant tell you how many of my Irvine friends told me then, and still tell me, that I was crazy to think that house prices could drop–level off possibly–but NEVER drop. I have even been bad-mouthed by someone that took my advice to sell a condo that they were moving up from in 2005 rather that keep it. I would have never imagined the lunacy of lenders and buyers to begin signing up for caustic loans beginning that year, further driving up prices.
I guess I don’t share the same sentiments as some of your readers regarding home sellers. I don’t have any charity towards the flippers and I see them as losers who happened to discover a way to make a quick buck with little risk. These are not real business men who have a lot at stake. I think the majority of them will, or would have, just walked away from any losses regardless of what promises they made. On the other hand I don’t rejoice in another’s misfortune even when they bring it on themselves, much like the speeding motorist getting ticketed on the roadside..unless his behavior is reckless to others.
While I am shocked that people will not educate themselves at all when it comes to the biggest investment they will ever make, and instead just listen to that NAR propaganda, I still feel sorry for them..maybe because they are stupid?
The main reason for writing you today is to point out 2 very different types of sellers. I know both of these people, they live on the same street in Woodbridge.
The first bought in 1997 and has his house listed at a 2005 price. The house is in great shape, but still it sits. Unless there is a HELOC he wont get hurt.
The other one is a guy ( with family) that moved to Irvine in 2003 for the schools. They sold their house (elsewhere) and rented in Irvine, he asked my advice back then and I told him to keep renting. He would periodically ask me the same question and I gave him the same answer..rent. One year after we moved they must have bought into the belief that trees grow to the sky and bought with no down payment..something I would have never imagined for someone who is (smart) and very conservative. I guess he found out that the $5.5k/mo payment is too much and listed it last month with an out of area agent for $60k more than he paid. Not a knife catcher, this poor guy just keeps taking bad advice from realtors and it will eventually cost him everything.
Do I offer any advice now? Heck no! Been stabbed in the back already. What would I tell them? #1 needs to drop his price $100k, dump the agent who is not spending any money on marketing, list it on the MLS, Craigslist, YouTube, WWW, and offer a 5% commission to the buyers agent. And the $100k is only if he would have done it 2 months ago. Next spring it will be >$150k.
#2…uh well. I am torn since I feel bankruptcy is a license to steal. He will take a $200-$250k hit on this place due in part to condition. The first thing he needs to do is to contact the 2nd mortgage holder and tell them he will be bringing them some short sale offers, then do all of the above with at $225k price reduction….then pray! Alternatively he can just mail in the keys.
I feel really bad for #2 and I think I could help #1, These are both good friends. What would you advise?
Once again I enjoy keeping tabs on the market down there and I really get a kick out of the wit you and your readers often post. Most of all I like the feeling of vindication I get from your blog.
Thanks
(anonymous)
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I replied:
Thank you for writing. It is comments and emails like yours that keep me going. If you didn’t see it, I think you might enjoy The Reservoir of Schadenfreude, you are not alone in your frustration with advising people who refuse to see the obvious.
I think the course of action you advised these would be sellers is right on. Perhaps the only thing I might add is to tell them to come read the analysis posts on our blog to help them feel comfortable with what you are telling them. Sometimes when people read something from a disinterested third party, it carries more weight, and some people just need a bit more convincing that the market is going to crash.
Beyond that, I would just offer up your advice when asked, and avoid the topic otherwise. You can only lead a horse to water…