Bear rally buyers are in denial. When selling their homes, they consistently price over the market and far higher than bubble era buyers who have capitulated.
Why bother? it's gonna hurt me It's gonna kill when you desert me This happened to me twice before It won't happen to me anymore
Weezer -- Why Bother
Home prices in California are notoriously volatile. Stoked by their realtor's advice and enabled by foolish lenders, buyers get motivated by greed and fear to bid prices up to the stratosphere. When the inevitable crash occurs, everyone is surprised. Many people believe trees really can grow to the sky.
The psychological stages of loss are the same for all bubble buyers. Most people buy because they believe prices are going up. This was particularly true for bubble buyers, but bear rally buyers from 2009 fell victim to the same faulty thinking.
The buyers from 2004-2006 have already gone through denial and fear, and most have capitulated and either let the property go to foreclosure or sold short. Bear rally buyers are still in the initial stages. They believe they bought at the bottom, so the are still in the denial stage we watched most bubble buyers go through in 2007. The most obvious indicator of denial is the initial asking price of a bear rally knife catcher. According to a study by Zillow, buyers from the bear rally consistently overprice their properties.
Imagine two identical houses built in the same year in the same neighborhood. House A was last purchased in 2006 and House B in 2008. House A is listed at its estimated fair market value of $300,000. Although it would be logical to assume that House B would list with a similar asking price, new research shows that it would, in fact, list at $350,000 on average, a $50k premium! Why the 16 percent price difference?
Because bear rally buyers are still in denial. It's the only explanation which is consistent with what we know about human behavior.
An analysis of seller behavior reveals that homeowners who bought after the peak of the national market in June 2006 dramatically over-price their homes relative to its estimated market value. In a separate survey fielded by Zillow, 17 percent of sellers who purchased post-bubble claim that their primary factor in pricing their house is their original purchase price. This compares with 9 percent who bought during the run-up to the bubble and 4 percent who bought before that.
It's human nature to price a property at break even and see what happens. Just like winning the lottery, a wouldbe seller might get lucky and find a foolish buyer who is willing to overpay.
In the chart below, the blue line is showing the difference between the current list price and the estimated market value of the home with the year the house was last sold running along the X axis. The green line represents the difference between the current list price and the prior purchase price. Notice in the green line that current sellers that purchased their home since 2009 have been pricing their house at 10% higher than what they purchased it for just 1-2 years ago. This is in spite of the fact that over the last two years the national real estate market has depreciated by 10 percent. This difference is represented in the blue line which shows that sellers who bought during this period are pricing around 20% above market rate. Not only are these sellers ignoring the losses they have taken since purchase, but they’re trying to claw back all of their closing costs too it seems!
Obviously the idea that your largest asset has been devalued significantly is difficult to accept, however, people who bought in the run-up to the bubble are seemingly more willing to confront this reality than those who purchased after the peak.
The further along the seller is in the process of accepting their loss, the more likely they are to price their property to sell. Selling for whatever one can get is the essence of capitulation.
In fact, relative to sellers who purchased their home before 2002, those who bought while the bubble was expanding rapidly are comparatively underpriced. When first placed on the market, the typical house is priced at roughly 10 percent above its estimated market value, but sellers from 2006 touch as low as 6.4 percent. Looking at sellers who bought on either side of the market peak nationally reveals stark differences between these two groups. Sellers who bought in January 2006 overprice their home by only 8 percent, while those who bought in January 2009 overprice by 22 percent.
Many keystrokes have been devoted to the downward stickiness of prices. Fortunately, the bear rally buyers bought closer to the bottom than to the top, and most of them used conservative conventional financing because it was the only financing available at the time. These people will still be trapped in their homes for years, but they should be able to afford the payments.
Sellers who bought post-bubble seem to think that since their home purchase occurred after the peak of the market, and thus home values were already significantly discounted relative to the peak, the seller escaped the worst of the bubble. The problem is that “The Bubble” didn’t pop so much as steadily deflate for the better part of 5 years now, and current home values now represent what they were worth in 2003.
Said differently, assuming your market followed the national trend, unless you bought your house before 2003, you should be selling it at a loss now. The closer to 2006-2007 you bought, the bigger that loss should be.
This fact is why I felt such a sense of urgency to write for the IHB. I started in February of 2007 and tried to warn everyone that the market was on the edge of a major fall. Those who listened to me are not trapped in an underwater home right now. Those who didn't....
We know there are a million numbers to keep in your head when looking at a potential property, and that by no means does every property purchased in 2008-2010 is dramatically overpriced. However, I humbly suggest that when looking at properties, you keep one more very important, and very simple, statistic in mind: Previous Year of Purchase.
Methodology:
Zillow’s analysis was done by taking one million currently for sale homes with prior sale data since 1999 and looking at the difference between the current list price and the previous sale price. We then compared the change in the Zillow Home Value Index of that property’s zip code from when it was previously sold to now. These data were grouped by month and the median value, as well as the median difference between the two metrics, was then calculated. The resulting graph and data as well as the survey information yielded the above conclusions
The takeaway from this article is when negotiating to buy a house as we enter this bottoming phase, be wary of bear rally sellers. They will not be as motivated, so they will be less likely to lower price to make a deal happen. It's the bubble buyers who have capitulated that you should be looking for.
An Irvine bear rally buyer-seller
Portola Springs has become the forgotten village. Built at the peak, all homeowners there have properties worth less than they paid, and the Irvine Company seems in no hurry to build this community out. The seller of today's featured property paid $1,362,500 on 11/14/2008, and now he believes the property has appreciated 15%. Since this property has actually declined in value, this asking price is consistent with the Zillow study referenced above which noted sellers who bought since 2006 tend to overprice their homes by 22%.
------------------------------------------------------------------------------------------------------------------------------------------ This property is available for sale via the MLS. Please contact Shevy Akason, #01836707 949.769.1599 sales@idealhomebrokers.com
Beds: 3 Baths: 4 Sq. Ft.: 3577 $433/SF Property Type: Residential, Single Family Style: Two Level, Tuscan View: Catalina, Coastline Year Built: 2008 Community: Portola Springs County: Orange MLS#: S664038 Source: SoCalMLS On Redfin: 67 days ------------------------------------------------------------------------------ Modern Luxury and Prime Location with Panoramic Views. Irvine's prestigious Portola Springs absolute best lot. Unique 180 degree views to the coast and Catalina. Set up as 3 bedroom but can easily be made 4 or 5 bedroom. 3577 sq ft of feature-laden luxury in this 3 year old extensively upgraded home. Six figures in upgrades put into the house. Knotted wood floor, downstairs resort-like master suite with room-sized closet. Laundry rooms upstairs and down. Huge kitchen/family area, relaxing atrium, security system, cat 5 wiring with 7 outlets. Teen/Bonus room upstairs with 2 bedrooms and bathrooms. Kitchen has large range, built-in fridge and a huge island for entertaining. Energy-efficient lights. Back yard has amazing panoramic views impossible to match in the area. Built in Bar-B-Q, and elec retractable awning for hot summer days. This really is luxury with prime location. Superb Irvine School District. Community Jnr Olympic pool, 18 N'hood parks, Basketball Ct, community cntr. ------------------------------------------------------------------------------------------------------------------------------------------- Proprietary IHB commentary and analysis
Resale Home Price ...... $1,550,000 House Purchase Price … $1,362,500 House Purchase Date .... 11/14/2008
Net Gain (Loss) .......... $94,500 Percent Change .......... 6.9% Annual Appreciation … 4.6%
Cost of Home Ownership ------------------------------------------------- $1,550,000 .......... Asking Price $310,000 .......... 20% Down Conventional 4.19% ............... Mortgage Interest Rate $1,240,000 .......... 30-Year Mortgage $322,135 .......... Income Requirement
-$1354 .......... Tax Savings (% of Interest and Property Tax) -$1727 .......... Equity Hidden in Payment (Amortization) $463 .......... Lost Income to Down Payment (net of taxes) $214 .......... Maintenance and Replacement Reserves ============================================ $5,918 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $15,500 .......... Furnishing and Move In @1% $15,500 .......... Closing Costs @1% $12,400 ............ Interest Points @1% of Loan $310,000 .......... Down Payment ============================================ $353,400 .......... Total Cash Costs $90,700 ............ Emergency Cash Reserves ============================================ $444,100 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
Labor Day Weekend In Vintage Vegas will really be rocking! 3 Different venues on Maryland Parkway. 3 days of non stop music.
Huntridge Circle Park To Host The Friday and Saturday evening events of the Maryland Parkway Music Festival
We’re especially pleased that the newly re-opened HUNTRIDGE CIRCLE PARK will have it’s first major event in the last six years. Having served on the original re-design committee 10 years ago, and as a leading proponent of getting Circle Park re-opened during the last 5 years, I’m happy to see it used for a major event.
For 60 plus years, Circle Park was a meeting place for all the now Historic Neighborhoods that surround the park. Hopefully this will generate renewed interest and lots of future events and programs.
The Sam Ash Music parking lot at Karen and Maryland Parkway will host the Saturday afternoon line-up.
UNLV will host the Sunday line-up from Noon to 9 PM, at Harmon Avenue and Maryland Parkway.
The California Association of realtors has cherry-picked a few positive stories about working with realtors and assembled them in a new advertising campaign.
You know I look into the mirror see myself and then I always often say... "Hot damn I'm great"
Poor Righteous Teachers -- Hot Damn I'm Great
Anyone who has ever done any self promotion knows how difficult it can be. The little voices of doubt inside work to keep you down. "You're not that good." "You don't know what you're doing." "You can't succeed." When those voices become a paralyzing distraction, you need to go look in the mirror and say, "Hot damn, I'm great."
California realtors have launched a new promotional campaign. To judge by the videos they produce, you would think they are great. And some are, but many are not. I always enjoy a little parody to remind us of the dark side.
by Tanya Irwin, Thursday, August 25, 2011, 5:04 PM
The California Association of Realtors is launching an integrated campaign that features testimonials from satisfied consumers.
The effort, from Philadelphia-based Red Tettemer + Partners, marks a change in strategy for the association with creative that is much more "consumer inclusive and conversational." Spending is under $2 million.
Titled "Champions of Home," the campaign was created in direct response to the economically challenged real estate market, to show consumers they can rely on their realtor.
realtors can be relied on to make self-serving statements they hope will generate a commission. Otherwise known as "bullshit," the art of telling prospects whatever they want to hear is openly encouraged by realtor associations and taught at realtor sponsored seminars.
The multiplatform manipulative campaign features homeowners in California, telling their individual stories of buying and selling homes and how their realtors helped conquer the process.
We have seen exactly how realtors help their clients conquer the process. realtors voyeuristically listen in on private conversations and manipulate their client's emotions to cajole prospects into buying properties many of them can't afford. Remember Suzanne?
The stories focus on everything from short sales to epic tales of paperwork and highlight realtors as experienced professionals guiding them toward closing. The campaign targets first-time homebuyers and sellers in California.
Media includes cable TV heavy in major California markets including Los Angeles, San Francisco and San Diego, and will include HGTV, AEN and Bravo Networks within "House Hunters," "Sell this House," "Design Star," "Property Virgins" and "Million Dollar Listing."
Traffic radio will air across 17 markets and more than 145 stations. Online display will blanket the state of California. There will also be a number of social media efforts, primarily focused on Facebook and Twitter. All areas will drive to a microsite, Champions of Home.
With the high page rank of IHB on Google, after this post gets indexed, whenever someone searches for Champions of Home, this post will likely be at the top of the list -- even above the CAr site. ~~ giggles to self ~~
The Facebook and Twitter elements will roll out throughout September at facebook.com/CAREALTORS, twitter.com/#!/CAREALTORS and ChampionsofHome.com.
The association launched its first consumer advertising initiative in 1997 to raise awareness in terms of differentiating association members from non-member real estate agents.
CAr should be pleased. I am helping them differentiate realtors from people like myself who are non-member real estate agents.
That first campaign was specifically focused on brand differentiation, says Anne Framroze, vice president, California Association of Realtors. "We then moved to new campaign creative in 2007, when we partnered with Campbell-Ewald," she says. "This campaign focused primarily on the value of homeownership, and the value of working with a realtor." That effort aired from 2007 until last year, on TV, radio, and online.
The latest effort represents an entirely new direction given its focus on featuring real consumers speaking directly and from the heart -- without the aid of scripts -- about the home-buying and home-selling process, she says.
"We realize that in today's socially networked environment, focusing less on what we want to promote and more on what the public has to say is the best way to connect with consumers who have the capacity to access a variety of information via a multitude of channels," Framroze tells Marketing Daily. "We want to be as authentic as possible, and we anticipate that this type of campaign strategy will continue to build virally and organically, and ultimately will resonate best across a broad spectrum of home buyers and sellers who might see themselves in similar situations."
Actually their strategy is a good one. The problem is with the product.
Since Google will pick up this post, and many people will find it by accident, today would be a good day for anyone wanting to share their realtor horror stories in the astute observations. I look forward to reading them.
Thanks for the $268,000
Today's featured property is dull by Irvine standards. The Ponzis who owned this house only escaped with their $143,000 down payment plus $125,000 of the bank's money, a small take by Irvine standards. Of course, this is more than a full year wages for most people, but it seems like pocket change compared to the really bad cases I have profiled here.
The property was purchased on 5/23/2003 for $715,000. The owners used a $572,000 first mortgage and a $143,000 down payment.
They opened a HELOC for $100,000 on 7/16/2004.
On 6/21/2005 they obtained a $185,000 stand-alone second.
On 3/13/2007 they refinanced with a $840,000 first mortgage. Apparently, they couldn't afford the payments.
Foreclosure Record Recording Date: 02/28/2011 Document Type: Notice of Sale
Foreclosure Record Recording Date: 08/16/2010 Document Type: Notice of Sale
Foreclosure Record Recording Date: 05/05/2010 Document Type: Notice of Default
The property was taken back by the bank on 4/5/2011 after at least 14 months of squatting. The bank paid $751,500 at auction, and they believe they can get $836,000. With no Mello Roos and low interest rates, the cost of ownership for an owner-occupant us just under $3,000 per month. Despite the high price, that's probably not far from rental parity.
This property is a test case for lenders. This is the highest priced REO in Irvine. Lenders have many more properties more expensive than this one they are holding vacant until they believe a market exists to sell into. Right now they don't believe there is much of a high end market. They are right.
------------------------------------------------------------------------------------------------------------------------------------------- This property is available for sale via the MLS. Please contact Shevy Akason, #01836707 949.769.1599 sales@idealhomebrokers.com
Beds: 4 Baths: 2 Sq. Ft.: 2944 $284/SF Property Type: Residential, Single Family Style: Two Level, Contemporary Year Built: 1998 Community: Walnut County: Orange MLS#: S664624 Source: SoCalMLS Status: Active On Redfin: 58 days ------------------------------------------------------------------------------ BANK OWNED beautiful home in the gated community of Harvard Square. 4 bedrooms all with walk in closets, all bedrooms are up, Huge Master with massive walk-in closet, dressing area in master bath, Hardwood floors in entry, living, dining, kitchen, family room. New carpet upstairs in all bedrooms. and Beautiful wide open Kitchen with huge walk in pantry. Custom landscaping in oversized backyard with custom patio dining area. Fireplace in family room and living room. Just Freshly painted and brand new carpet. ------------------------------------------------------------------------------------------------------------------------------------------- Proprietary IHB commentary and analysis
Resale Home Price ...... $836,900 House Purchase Price … $715,000 House Purchase Date .... 5/23/2003
Net Gain (Loss) .......... $71,686 Percent Change .......... 10.0% Annual Appreciation … 1.9%
Cost of Home Ownership ------------------------------------------------- $836,900 .......... Asking Price $167,380 .......... 20% Down Conventional 4.19% ............... Mortgage Interest Rate $669,520 .......... 30-Year Mortgage $166,135 .......... Income Requirement
-$766 .......... Tax Savings (% of Interest and Property Tax) -$932 .......... Equity Hidden in Payment (Amortization) $250 .......... Lost Income to Down Payment (net of taxes) $125 .......... Maintenance and Replacement Reserves ============================================ $2,968 .......... Monthly Cost of Ownership
Cash Acquisition Demands ------------------------------------------------------------------------------ $8,369 .......... Furnishing and Move In @1% $8,369 .......... Closing Costs @1% $6,695 ............ Interest Points @1% of Loan $167,380 .......... Down Payment ============================================ $190,813 .......... Total Cash Costs $45,500 ............ Emergency Cash Reserves ============================================ $236,313 .......... Total Savings Needed -------------------------------------------------------------------------------------------------------------------------------------------------------
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