That's No Deal

Buying in a Rocky Housing Market

by Aleksandra Todorova
Tuesday, March 4, 2008

Indifferent to the bleak real estate headlines, 26-year-old Michael Klauer and his fiancée recently bought a two-bedroom condo in the desirable Lake View neighborhood in Chicago. They weren't in a rush to buy, but when an opportunity presented itself only a month after they started looking, they jumped on it.

The apartment, listed at $519,000, was theirs for only $480,000 — an initial offer they didn't back down from, even though they knew the seller had bought the place 10 months earlier for $512,000. Factoring in the broker's fee and sales taxes, the seller lost more than $44,000 on that deal, according to the couple's realtor, Jay Michael, owner of the Estate Property Group in Chicago.

WOW! What a steal. $480,000 for a 2 bed room apartment?! Lucky there was no bidding war...

And even though the condo's value may drop further, the couple wasn't concerned since they plan to live in the place for at least three to five years. "It was a good time to buy," he notes. "Prices are on the down low, and it's something I could sit on for a while."

I hope they can because they will not see $480,001 or more five years from now. Are they not aware this bubble was a historic event, none the likes of man has seen before? Chances are no person alive will see price growth of this magnitude in their lives again.

Stay away from foreclosures

Foreclosures are touted as great deals (especially by services that sell foreclosure listings). In some areas, real estate agents have even started taking potential buyers on "foreclosure tours."

In reality, however, buying a foreclosed property — or even one in a neighborhood plagued by foreclosures — is risky. "A heavy concentration of foreclosures indicates that there's some sort of economic problem in the region that will keep your home value from at least remaining stable," says Miller. "Or that there was some speculation and there may still be some air left to come out of that market."

The author should look at ReatyTrac.com's map function. After reviewing the Chicagoland area tell me what neighborhood DOES NOT have forclosures? I'll clue her in: None.

Don't Forget Chicago, Mr, Stein!

Ben Stein How Not to Ruin Your Life

The High and the Low

First, as I see it (and I'm often mistaken), the real estate market still has some serious falling to do. I base this on the fact that real estate in some of the most overpriced markets -- like Manhattan and the west side of Los Angeles -- have yet to fall dramatically.

I, your humble servant, have been looking for a condo here in L.A. for my son, and I've been floored by how high the asking prices are for these dwellings. Yes, they've fallen, but they're still far higher than they were four or even five years ago.

Keeping asking prices high may make sellers feel good, but it won't sell their homes. Consider this: On one hand, brokers tell me that prices haven't fallen much, and that they think that's a good sign. On the other hand, they complain that sales volume is way down.

Both Sides Now

Well, friends, the former has a lot to do with the latter. Volume isn't going to pick up until prices fall to accommodate the fact that we're in the midst of a real estate collapse. And buyers aren't going to step up to the plate in large numbers until it's clear that prices have fallen to reflect the new realities of the real estate market.

This means that if you're a seller, don't count on selling unless you have a price that makes sense in early 2008. Prices that made sense in early 2006 just aren't going to fly.

If you're a buyer, my advice is to still try to buy the house of your dreams, because they come along so rarely. But try to drive the hardest bargain you can; sellers should be very flexible. I would even say that if a seller isn't flexible, wait for a better mood to strike him or her.

Again, the real estate collapse has a long way to run yet, and it'll end when sellers get realistic. That could take four years, and maybe longer. But if you need to sell, there's no shame in asking a sensible price.

Very sensible article. However, LA and NY are not the only expensive cities in the country.

So What Could Possibly Go Wrong?

Wall Street Bank Run

By David Ignatius
Thursday, February 21, 2008; Page A15

It doesn't look like an old-fashioned bank run because it involves the biggest financial institutions trading paper assets so complicated that even top executives don't fully understand the transactions. But that's what it is -- a spreading fear among financial institutions that their brethren can't be trusted to honor their obligations.

...

The public, fortunately, doesn't understand how bad the situation is. If it did, we might have a real panic on our hands. And there would be more pressure for bad policies -- ones that try to freeze the damage, rather than letting prices fall to levels where buyers will return and the markets will clear. Hillary Clinton's proposed moratorium on home foreclosures, in that respect, is one of the truly bad ideas of our time. It would make the situation worse by increasing even more the illiquidity and inflexibility of the housing market.

...

These markets are now so complicated that most of us can't begin to understand the details. So I asked the chief financial officer of a leading concern to walk me through what has been happening. The problem, he said, is that financial institutions are required to "mark to market" their tradable assets (which is a fancy term for setting a value) even when there isn't a functioning market. In many cases dealers can do little more than guess at the value -- and other investors down the line know it.

Read the remainder via the link. It is very good. But he does not go far enough. It almost reads like his editor cut the story half way through. He does not come full circle on the "mark to market" concept. That will have to happen for housing prices also, not just stocks and derivatives.

This About Sums It Up

"What is going on with the market?"

Which market? Housing? Stocks? Bonds? Why are things going south, and why does it seem like nothing is helping? It all seems to be unraveling.

MSNMoney has a good summary:

Why Wall Street rescues are failing

The financial system has become dependent on debt and the transfer of risk via convoluted debt instruments, creating a mess that will require hundreds of billions of dollars and global cooperation to fix.

By Jon Markman

Since the wheels started coming off the stock market last summer, investors have looked to at least seven white knights to end the distress with a bold stroke.

Yet each, including Federal Reserve Chairman Ben Bernanke and U.S. superinvestor Warren Buffett, has failed to lift investors' spirits for more than a couple of weeks, ultimately leaving stocks to tumble ever lower. Why?

The fundamental problem in the world economy is that it grew over the past two decades to be incredibly reliant on optimistic risk takers' willingness to accept increasingly complex IOUs from companies, banks and government institutions as investments instead of real assets. Now we are seeing the same movie play back in reverse, as massive investor losses in debts once believed to be safe have led to falling confidence, rising pessimism and extreme risk avoidance.

...

Where will that money come from? The answer is nowhere, at least not very quickly. And that is why the markets are in danger of asphyxiation. It's also why the economy is threatened: For despite the lower cost of money, it's hard for businesses to get loans for expansion because banks need to keep as many dollars as possible on their balance sheets to meet reserve requirements.

Notice there is not too much housing talk in the article. Alittle lead up with the subprime mess. But he left out the impending Alt-A and other possible problems. Only time will tell.

Can You Believe These People??

City transfer tax may expand to cover incomplete real estate deals

Unfinished real estate deals on city's radar

By Gary Washburn | Tribune reporter

February 19, 2008

The city's real estate transfer tax is a proven cash cow, but the Daley administration -- ever on the lookout for ways to generate revenue -- is considering ways to make Bossy produce more milk.

Revenue Department officials want to increase the number of people who pay the tax and to require others to come up with cash more quickly. The under-the-radar action comes as all Chicago property purchasers brace for a 40 percent increase in the transfer tax the City Council recently approved as part of a Chicago Transit Authority rescue package.

...

Under one proposal now in draft form, City Hall would require the transfer tax to be paid even when the buyer forfeits the down payment, which sometimes happens when a buyer backs out of a deal. Under a second proposal, the requirement to pony up would be triggered immediately when there is an installment agreement--a contract in which the buyer pays the seller over a period of months but does not receive title to the property until the last payment is made.

So.......they want to tax us on a transaction that did not happen?? ARE OUT OF THEIR FREAKIN MINDS?!?!?! Lord help us.

Helllllo???

Home prices in the state of denial

Thursday February 7, 5:58 pm ET

By Chris Isidore, CNNMoney.com senior writer

Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.

The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values.

The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.

"This survey reveals that despite the data to the contrary, people either aren't paying attention to their housing market or are in denial about their own home's value," said Stan Humphries, Zillow.com vice president of data & analytics.

"Maybe your house, but not mine!"

Ok pal.

**MAYOR DALEY ADMITS CHICAGO PRICES ARE B.S.**

Flash! Daley just destroyed Chicago housing market!

Daley proposes overhaul of property tax system

CITY HALL Mayor says assessments skewed by fraud

February 8, 2008
BY FRAN SPIELMAN City Hall Reporter/fspielman@suntimes.com

Three months after pushing through the largest property tax increase in Chicago history, Mayor Daley tried Thursday to get back on the good side of homeowners.

The mayor unveiled a five-part plan to reform a property tax assessment system that, he has long complained, is so unfair and unpredictable, it needs to be “blown up.”

...

“If you look at the whole mortgage foreclosure crisis, much of it is fraudulent appraisals. You’ve loaned money. It was worth $200,000. Now, the home is worth $500,000 and the banks can get their money back. … Fraud is skewing the comparables” used to make assessments, Daley said.

HOLY F-! This crazy wack just said that houses that claim to be worth $500,000 are really only worth $200,000!! That is it. Game Over.