Tuesday, March 06, 2007

Wells Fargo, real estate does go DOWN!

Trolling Craigslist you can find some properties where the realtor statement "real estate only goes up" does not hold true.

Check out this beauty at 2909 Allenhurst St. This property was purchased on September 30, 2005 for $264,000. However, due to the inability of the borrower to make payments, Wells Fargo foreclosed on these folks on January 29, 2007. Now the property is listed for sale for $225,000:

Loads of potential in this 3bd/1.75ba home. Roomy great room with fireplace, tiled kitchen with breakfast bar, tile flooring, neutral colors, cov’d patio, 2-car garage. Priced below comparable properties in the neighborhood. Great for 1st-timer or investor. MUST SELL! $222,500

Multiply this outcome by the thousands and you can get the picture of how this speculative mania will end. Right now there are 100-150 NOD's filed a week in Kern County; I predict that in a year we will have 200-250 NOD's per week in Kern County. Credit is tightening, inventory is increasing and foreclosures are rising; REIC, the pain is only beginning.


Anonymous said...

What ,these people could only make about 15 payments and it's over .How anyone could pay that price for that junk house to begin with is the joke .
This is a situation where some borrower had to say after the fact ,"What was I thinking ?" Who would even fight to keep that house ,nd the joke is that borrowers had to pay another 100k to get something just a little better than that piece of junk .

Anonymous said...

With all these new listing being offered, where's all the "pent up buyer's"? I thought this was the time of yr for the market to pick up. Maybe lending standards are getting a little tight???? You realtwhores better be looking for work that pays something. I bet those monthly dues, gas money..ect is the 500 pound monkey on your back. I'll pitch a penny in your hat next time I see ya.

Anonymous said...

I almost shot coffee out of my nose when I read this, I like the second paragraph.

'"Bernanke said that unlike fully private firms, the two GSEs face little or no market discipline from their debtholders because of a belief the U.S. government "will back these institutions under almost any circumstances."

Although the debt of the two companies is not explicitly guaranteed by the federal government, many investors believe that because of the companies' public mission, the United States would not allow either company to fail.


Perfect Storm said...

The house is worth 125K at the most. Probably one of those late seventies shacks off Ashe.

Anonymous said...

You've got to love the house! Look at that original shake roof Wow. Not to mention the R rating of zero on this musty smelling POS. Where do I sign!

Anonymous said...

So on Zillow it says the house was just sold on 1/29/07 $204,000.

(while listing that it is worth $280,000)

So that would be a loss of 23% from what you say it was purchased at in 2005. And 27% down from the Zillow estimate.

So far so good, but houses near my parents house in town are still trying to sell for over Zillow estimates..... good luck with that

Bakersfield Bubble said...

"So on Zillow it says the house was just sold on 1/29/07 $204,000."

That was the foreclosure.

Anonymous said...

So Bakersfield Bubble does that mean the lender is just trying to break even on this sale with the realtor costs?

Bakersfield Bubble said...

"trying to break even" - Yes.

Good Luck! I say this home sells for $190k max.

Anonymous said...

OK, I'll bite (be aware I know nothing about the location or construction, I'm not even posting from the US).

While the state of the roof does look a little scary, I don't see from the photographs why the other comments are so contemptuous.

This looks to me like a property that would have been considered a perfectly normal starter home 30-40 years ago. Maybe even a 'dream home' for folks on below-median family income.


Mozo Maz said...

ajh, You're right. This is the quinnessential post war CA ranch home, of which there are tend of thousands, maybe hundreds of thousands.

In the Central Valley and with the pay scales of jobs there, it can't be worth more than $150k and still have rents cover the mortgage and interest.

Mozo Maz said...

Do the math. Assume your buy it for $150k and pay $10k in junk fees and some new paint.

Put 20% down and finance $128,000 at 6.5%

The payment is $809 and the taxes probably around $200 and throw on another $41 a year for insurance.

$1050 monthly nut. I would not be surprised, if rent can't even cover that.

Anonymous said...


You also have to take into account, most first time buyers do not have 20% to put down. That adds about an additional $150,00 monthly, or so in Private Mortgage Insurance. So, with mozo calculations add that too.

Mozo Maz said...

Heh. I said $41 a year for insurance instead of $41 a month. Not that it matters. :-) Prices are too far from rationality no matter how you slice it.

Anonymous said...

How anyone could pay that price for that junk house to begin with is the joke

This thread pretty much reveals why prices were so out of touch with reality (and *still* are): people bought houses as commodities, thinking as speculators, assuming that the wealth effect of ever-rising equity would make buying a shit-can like this as a "you can't lose" proposition.


To make matters worse, those who bought homes in the hyper-inflated environment of the last few years generally had NO interest in becoming landlords to rent the place out (which is apparent: these buyers overlook financial basics, such as calculating whether the price they paid could be justified based on prevailing rents in the neighborhood. As this thread shows, these prices are not a good 'return on investment' for anyone, except perhaps the seller who bails out before the equity evaporates!).

If these were stocks, it's like no one understands how to evaluate the quality of the investment (as in price-to-earnings (P/E) ratio).

No, these buyers were only trying to "get rich quick" on the increase in equity based on seeing rising prices in the past...

So if anyone's NOT aware, the worm has turned, and the days of dramatic increases in year-to-year property values are clearly over. The market run-up is done, so put a fork in it: only a complete idiot would deny the existance of a real estate bubble in the past few years (and even the mainstream media gurus like Robert Kiyosaki have long since pulled out of residential real estate, knowing a bubble when they see one).

In hindsight, we now clearly see the "real estate boom" was largely fueled and prolonged by an underlying 'credit bubble', where anyone with a pulse could get a loan regardless of their income, credit, whether or not they were employed, etc. The rules governing sound lending were completely thrown out the window, which was fine as the lending banks were making bucketloads of $$$ on interest-only payments where everyone's boat was floating. Consumers felt rich when they saw their home equity rising, and nothing gets consumers confidence up (and gets them to spend) more than watching their equity grow. Of course, the major problem is equity isn't REAL money until you sell! You have to extract it and convert it to CASH in order to realize any equity gain (and NO, a home equity loan does NOT extract that equity value, it's only getting you in deeper doo-doo).

As it turns out, the lenders don't really care about your credit rating (or ability to repay) when they can make bucketloads of $$$ on interest-only payments, and when everyone is getting rich off their phantom equity.

I know someone who worked in the loan dept for Wells Fargo a few years ago who was expected to forge loan documents pretaining to buyers' ability to repay, and she refused to play the game (she is a Christian). They fired her, calling her "untrainable". That's how corrupt the game had become, where appraisers, loan officers, real estate agents, and most importantly the banks themselves, benefitted immensely by fueling the housing "boom".

It was an elaborate arrangement, where the house WAS the lender, and they couldn't lose. They figured that even when the market turns and catches "come to the party late" buyers in the idiot trap, they can always just foreclose and sell the property in a foreclosure sale to cover their interests. Let's see that bankrupt owner walk off with the house, eh?

So suddenly the banks are see more defaults, a sure sign that the real estate market boom is largely over (where yes, a typical borrower's ability to repay IS the ceiling for how high the market can do; Americans don't have as much sense of family to commit their grand-children to loans like they had in Japan in the early 1990's, with their 100-year loans). So the lenders realize it's time to return to more sound business practices with such odd concepts like income verification, checking credit ratings, etc. Heck, it was easier to buy a house in 2004 than it was to buy a car in 1994.... Those days are over.

So the lenders know that now that the easy money was made, maybe it's a good idea to clean up house and punish the most flagrant violators of the past boom (note how they WAIT until the boom is over to clean house). That's where we are currently.

So in summary, we had an artifical shortage of available properties when investors gobbled up property primarily as speculation (and remember that "there's a fundamental shortage of available housing in California" claim that people were floating a few years ago? Sure, if you realize that many homes were off the market because people were using homes as investment devices, holding them to sit unoccupied or as vacation homes until they could sell at their desired price). Anyone else notice all the "for rent" and "for sale" signs popping up? Expect alot more.... By all indications, this is just starting.

So this episode was partly fueled by many would-be Carlton Sheets types (Casey Serin, who saw this as a way to make some 'easy money'. Here's his current status, although he owned something like 5 homes at his peak:


Rule of thumb: when you see someone selling their "get rich" method on some T.V. informercial, it's a red flag that stupid $ is now chasing smart $.