Housing Market Slows as Buyers Get Picky

Editor’s Note: Housing prices will continue to decline until median income starts to flatten out. All signs indicate that we are in for another 10%-20% drop as conventionally measured. Remember that housing prices do NOT take into consideration selling expenses and concessions at closing. All things considered, housing prices should be at least 8% under what is reported.

With that 8% reduction, more homes are underwater than what has been reported. In fact, more homes are underwater than what their owners think they are.

Given another 10%+ reduction, the number of homes underwater will increase substantially as many are considered “near” break-even but are actually substantially underwater. This in turn will increase resistance to selling as well as current resistance to buying, knowing that the market will get worse.

If you are selling a home this means that for every $100,000 you think you are going to get, your net proceeds at closing are likely to be reduced by $10,000-$20,000. The buyers are basically merciless, since many of them are short-sale buyers. They know they have the seller over a barrel and they are taking advantage of every piece of leverage available.
CONCLUSION: The current housing market is untenable. The vast majority of homeowners are underwater in terms of what they will get at the closing table. Typical price concessions are ranging from 5%-6%, before the contract is signed. Thus without a massive program for principal reduction, neither the housing market nor the economy has any chance of a real recovery anytime in the near future. That principal reduction is really not a reduction. It is a correction from the false appraisals that supported a fraudulent scheme for selling crap securities to unwary investors.

A principal reduction is no gift. It is making things right, i.e., justice. And practically speaking it is the ONLY way we can ever make this situation right.
June 16, 2010

Housing Market Slows as Buyers Get Picky


Before the recession, people simply looked for a house to buy. Later they got squeamish just thinking about buying. Now they are on a quest for perfection at the perfect price.

Exacting buyers are upending the battered real estate market, agents and other experts say, leading to last-minute demands for multiple concessions, bruised feelings on all sides and many more collapsed deals than usual.

It is a reversal of roles from the boom, when competing buyers were sometimes reduced to writing heartfelt letters saying how much they loved the house and how they promised to eternally worship the memory of the previous owners. These days, it is the buyers who are coldly seeking the absolute best deal while the sellers are left in emotional turmoil.

“We see buyers who must have learned their moves from the World Wrestling Federation,” said Glenn Kelman, chief executive of the online broker Redfin. “They think the final smack-down occurs at the inspection, where the seller will be reluctant to refuse any demand because the alternative is putting the house back on the market as damaged goods.”

Everyone expected the housing market to suffer at least a temporary hangover after the government’s $8,000 tax credit expired, but not necessarily this much. Preliminary data from around the country indicates that the housing market began swooning last month immediately after the credit was no longer available. In some places, sales dropped more than 20 percent from May 2009, when the worst of the financial crisis had subsided.

Builders have been affected too. Construction of new homes in May dropped 17.2 percent from April, the Commerce Department said Wednesday, significantly lower than forecast. Permits for future construction dropped 10 percent, suggesting a cruel summer.

Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.

Against such a backdrop of misery, buyers are empowered — and are taking full advantage.

John Porter Simons, a Seattle software engineer, thought he had a couple willing to pay $340,000 for his house. But they asked for $24,000 worth of work, most of which involved waterproofing the basement. “It was totally irrational,” said Mr. Simons. “My basement has never flooded. I live on a hill.”

He made a counteroffer to their offer, and the buyers walked. The house is now under contract to a new set of buyers, who got a cut in price and $2,500 in electrical work thrown in.

Buyers, of course, say they are merely being smart.

Chris Dunn, an economic consultant in Chicago, saw a house he liked last month for $539,000. He offered $500,000, but then his inspector told him that he would eventually have to replace the windows. The sellers were persuaded to kick in $10,000 more to pay for the work.

“We didn’t feel we were being that aggressive,” said Mr. Dunn. “We had the position, ‘If the seller is willing to come down enough, we will buy this home.’ If they weren’t willing, we would have just moved on. In this market, you have a lot of options.”

In some cases, agents say, sellers literally cannot afford to make concessions. Another $10,000 will push them underwater, which means they will have to arrange the sale through the bank.

“People cashed in on their houses to get money to go on vacation, for a new roof, to send the kids to college,” said Roberta Baldwin, an agent in Montclair, N.J. “They thought it was always going to be worth more.”

Even when a sale can be worked out, it is not uncommon for everyone to walk away feeling more aggrieved than celebratory.

“Buyers feel they’re not appreciated for simply making an offer,” Ms. Baldwin said. “And sellers feel humiliated and even angry. They expected to do better.”

Information about scuttled deals tends to be anecdotal, but Mike Lyon of Lyon Real Estate in Sacramento estimates that 15 to 17 percent of sales in his area are falling apart at the last minute as sellers prove unable or unwilling to give buyers what they want. In a normal market, he said, the figure is about 5 percent.

“This is the fallout from all the foreclosures: Buyers think that anyone who is selling must be desperate,” said Mr. Lyon, who employs about a thousand agents. “They walk in with the bravado of, ‘The world’s coming to an end, and I want a perfect place.’ ”

The tax credit, for all its flaws, may have helped avert financial Armageddon, but the final effect is still being tallied. In Indianapolis, the number of contracts signed in May was down 32 percent compared with May 2009. They dropped nearly 25 percent in Minneapolis/St. Paul, 20 percent in Seattle, 10 percent in Sacramento and 42 percent in Hartford. (A few areas, including Miami, showed improvements instead of declines.)

Pending contracts, if they are not canceled at the last minute, become official in six to eight weeks. Many deals done in April, when the credit was in effect, are still being completed and will be counted in May or June sales reports. So the severity and extent of the current slump will not become clear until fall.

The optimists, and real estate remains full of them, say the trough is temporary. The stimulus might have stolen sales from May but by July, they argue, people will need to buy again.

Indeed, the Mortgage Bankers Association’s purchase application index ticked up slightly this week after five weeks of decline, although the association declined to say the index had bottomed out.

John P. Johnson of Des Moines will continue to hope, as he has for more than two years now, for a market that is healthy enough to supply him with a buyer. His house, built in 1981, is too recent to be charming and too old to be new.

“When we upgraded the kitchen, we put in Corian countertops, which were fashionable at the time, but now they all want granite,” he said.

He had one offer in the fall, which fell apart when the buyer made too many demands (a shaved sales price plus paying the closing costs and all their other fees). Despite another price cut to $204,000, only one couple showed up at the last open house. His agent tells him the market is dead. The number of contracts signed in Des Moines in May was down 47 percent from last year.

“Keeping this house ready to sell is a full-time job,” said Mr. Johnson. “I never thought I’d be spending my retirement doing this.”

6 Responses

  1. Alina,
    What I was saying is courts only have equitable jurisdiction to modify the procedures if the consumer is in bankruptcy. So basically if you’re in foreclosure but haven’t filed bk then the judge cannot makeup whatever procedures he deems fit and must apply the scheme set out in 1635b. 1635i reaffirms this

  2. Dying Truth,

    Regulation Z is the implementing portion of TILA and judges should read 1635 along with 226. I believe that CFR 226.23(d) applies to all rescissions. It is not limited to bankruptcy, see below:

    (d) Effects of rescission. (1) When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.

    (2) Within 20 calendar days after receipt of a notice of rescission, the creditor shall return any money or property that has been given to anyone in connection with the transaction and shall take any action necessary to reflect the termination of the security interest.

    (3) If the creditor has delivered any money or property, the consumer may retain possession until the creditor has met its obligation under paragraph (d)(2) of this section. When the creditor has complied with that paragraph, the consumer shall tender the money or property to the creditor or, where the latter would be impracticable or inequitable, tender its reasonable value. At the consumer’s option, tender of property may be made at the location of the property or at the consumer’s residence. Tender of money must be made at the creditor’s designated place of business. If the creditor does not take possession of the money or property within 20 calendar days after the consumer’s tender, the consumer may keep it without further obligation.

    (4) The procedures outlined in paragraphs (d)(2) and (3) of this section may be modified by court order.

  3. One thing NOBODY Has pointed out is that foreclosures have reached such a large scale of interstate and international commerce as to make it almost impossible for any foreclosure either judicial or non-judicial subject to TILA rescission not to be pre-empted by 15 U.S.C. § 1635(i) for being subject to Congress’ plenary power for regulating commerce as long as you haven’t filed for bankruptcy because if you did then federal courts have exclusive jurisdiction. Remember 12 C.F.R. 226.23(d)(4) gave some definition as to when a court can modify the procedures of rescission “when a consumer is in bankruptcy proceedings” or “[w]here the consumer’s right to rescind is contested by the creditor, a court would normally determine whether the consumer has a right to rescind and determine the amounts owed before establishing the procedures for the parties to tender any money or property.” So no longer can courts refuse to enforce rescission based on a judge’s presumption that the consumer may not be able to tender when his or her turn comes up.

  4. It’s all the asian immigrants, I by no means intend any offense to the asian americans already living here because they’re getting screwed just as bad as the rest of americans.

  5. One day, when the banks can’t foreclose on anything because courts have stopped them (like with BofA and ReconTrust in Utah), they will be forced to start offering principal reductions or they will collapse.

  6. CAN YOU SAY….. HERE COMES ANOTHER GOVERNMENT REBATE! The “Gubbermit” is really out of ammo and all they can do is mimic the banks and kick this problem down the road. What a mess !

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