The Last Vestige of Respect… Gone

With a little over a week to go in this election, we can finally all come together in agreement on one issue.  Whether you are voting for McCain: the logical vote, or voting for Obama: the emotional vote, or voting third party: the non-viable vote (unfortunately) – one thing has become clear.  The mainstream press has given up all pretense of being unbiased in their coverage.  They are blatantly shilling.  Whether we like the candidate they are whoring for or not, any respect we could have is gone.  The fourth estate has lost all legitimacy.

This final nail in the coffin was delivered by CNN earlier this week.  By all accounts, CNN has been as neutral as possible during the election.  They appear a little left of center by most accounts, yet they have been relatively even in their coverage.  What respect they deserved is now gone too.  On Tuesday night, Drew Griffin interviewed Governor Sarah Palin.  Watch the video at about 1:25 in and listen to the question Mr. Griffin asks of Governor Palin.  She is visibly shaken by it:

Now please read the actual paragraph that Mr. Griffin is quoting from the National Review.  It was written by Byron York (not a difficult fact to find out Mr. Griffin) :

Watching press coverage of the Republican candidate for vice president, it’s sometimes hard to decide whether Sarah Palin is incompetent, stupid, unqualified, corrupt, backward, or — or, well, all of the above. Palin, the governor of Alaska, has faced more criticism than any vice-presidential candidate since 1988… (full article here)

The first and last lines change the meaning a little don’t you think?  To say Mr. Griffin quoted Mr. York to Governor Palin out of context would be an understatement. The National Review article now has an Editor’s Note that reads in part:

Editor’s note: Byron York’s recent article in National Review on Sarah Palin’s time as governor of Alaska became a campaign issue Tuesday when CNN’s Drew Griffin distorted its meaning in a high-profile interview with Palin.

You can, of course, Google all of this and you can read people’s outrage.  You can even see the National Review author himself express dismay that his words were so misconstrued.  But what you won’t read anywhere (at least at the time this is posted) is a retraction or apology from CNN.  Apparently, they are content with their journalistic integrity… and that is the saddest comment of all.

This post was first published here.

Filed under: POLITICAL & ECONOMIC FOLLY, election, The Press

The Press becomes the Vaccine

At the beginning of the year, I predicted here that the newspapers would start printing stories that will actually help us.  Their headlines up to now have been less than kind to the real estate market, the real estate profession and especially the real estate mortgage profession.  One might suggest that their blatant hyperbole and lack of perspective bears some responsibility for the state of affairs as they stand (I know I have suggested it…).  So you can imagine my surprise at seeing the front page of yesterday’s Union Tribune.  I was genuinely excited by what they reported.  So helpful was it (once you read the entire article and work through the same old spin) that I suggest we take a copy to every client we can contact.

First and foremost, we can show them the layout, which so clearly reveals the Tribune’s true intent that there is no longer plausible deniability.  Across the top of the paper in bold, over-sized headline font it reads:

Foreclosures up 353%

in S.D. County in 2007

           

Another article, in the right column, above the fold has a headline in standard font which reads:

Fed slices

key rate

to calm

markets

Now I ask you, based on these headlines, which of these articles does the Union Tribune expect – even demand –you read?  The foreclosure article, of course; yet is that even news?  They have reported on this “story” ad nauseam.  There is nothing new here and very little that could be called news.  Down in that smaller column, however, is a HUGE story.  The Fed dropped their key rate a stunning three quarters of one point; “the biggest one day reduction… on record” according to the article itself.  Not only that, but it was undertaken during an emergency meeting, called at night, on a national holiday!  This is truly historic news, with the potential for massive impact on the economy, yet in our newspaper it plays second fiddle to any story where they get to use the word foreclosure.

Within the headline story there is cause for celebration, but you have to look for it.  I have gone through and done the math and here are the talking points I would raise with my clients:

• The numbers look horrific when posted in big letters across the top of the paper, but in reality we are talking about six-tenths of one percent  (.006) of homeowners in San Diego County that are in foreclosure.  Granted, this is up from the four-tenths of one percent  (.004) previous record and if it is happening to you it is a very large problem, but overall?  Six-tenths of one percent is hardly an economic problem for the community.  It merits mention somewhere in the business section… or possibly as a human interest story in the local section.
• Between 2000 and 2005 the home values have doubled in San Diego County.  From the high two years ago the values have come down 17%.  That translates into a 66% return on your investment, which is an annual return of approximately 8% on your money… and that is only if you bought at the bottom and sold at the bottom!  If you sold previous to this year your return was higher, in some cases substantially.
• The rate of foreclosures in San Diego County was only 62% of that in the state of California.  San Diego is once again leading the way.  If you want to invest your money, this is the place to do it.
• Finally, the rate of default notices, which is a precursor to foreclosure, was up only 128% or roughly 1/3 the rate of actual foreclosure.  This should signal a significant drop in coming foreclosures, even acknowledging the fact that a higher percentage of those receiving a Notice of Default end up in foreclosure.

Overall, this article, even with its intentionally misleading graphics and promise of depression inducing gloom, delivers some much needed good news.  We just have to know where to look.  Then we need to take responsibility as professionals and show our clients.  I end with this thought:

Within every problem there lies an opportunity; the more difficult the problem, the more rewarding the opportunity.

Filed under: BUYERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, The Press

Happy New Year

adapted from a speech given to Realtors – January 10, 2008 

Happy New Year.

Katie and I sponsor the Mystery House for various reasons.  But I have only two goals each week when I come up her:

1. Be passionate
2. Have every person here leave this room, more fired up for their success than when they came in.

Today… that’s going to require audience participation.  So, repeat after me:

“HAPPY NEW YEAR”!

How many of you are happy to see 2007 in the rear view mirror?

How many of you are looking forward to A Great 2008?  Go ahead and say it, it’s fun: “A Great 2008” again “A Great 2008”!

• Speculators are fully out of the market, allowing prices and volume to stabilize this year – Giving us: “A GREAT 2008”
• Lenders will develop new products to address many of the sidelined buyers in our market this year – Giving us: “A GREAT 2008”
• One or two of the nation’s largest banks may go bankrupt, sending the economy into a recession this year – Giving us: “A GREAT 2008”… just seeing if you were paying attention.
• The press sold papers telling everyone the sky was falling… until it finally did.  More gloom and doom will not sell more papers and the press will begin reporting on the “hidden” deals this year – Giving us: “A GREAT 2008”
• Locally, people will recognize the phenomenal opportunity of low prices, low rates and high rents this year – Giving us: “A GREAT 2008”
• And last but certainly not least… most of the pretend agents – the “I’ll make lots of money in my spare time with no experience, discount service and low commissions” agents – have moved on to the next get-rich-quick scheme; leaving more business for the professionals this year – Giving all of us: “A GREAT 2008”

You know, this year, and this business, are not sprints; they are marathons.  The most important ingredient to success is putting your feet on the floor each morning with a smile and a great attitude.  There are many ways to do that and I am going to leave you with one method; elegant in its simplicity.  I have never met any one with a better demeanor or more even keeled than my father.  When I was around 12 years old I realized this and I went to him.  I said, “Dad, what makes you happy?”  He looked me straight in the eye and answered, “The absence of excruciating pain.”

HAVE A GREAT 2008…

Filed under: LENDERS, LIFE THAT POPs, REALTORS, Economy, The Press

Faulty Headlines and Defaulting Home Loans

Our local newspaper has recently been ringing the bell of fear and apprehension in regard to the housing market here in San Diego County. Has the housing market come to a screeching halt? Have people stopped buying homes? Certainly the local economy is doomed by the “shattering event” of loan defaults and foreclosures. Let’s take a closer look.

On Tuesday we were treated to an article announcing a steep slide in home sales (New Home Sales Slide 3.9% in February – 03/27/07). On Thursday the front page headlines shouted out: Home Loan Defaults Skyrocket in County – 03/29/07 (emphasis mine). As you read further into Thursday’s article you find that “…homeowners throughout San Diego County are defaulting on their loans and losing their properties to foreclosure at an increasingly rapid pace…” The key word here is pace. They are not losing their homes at a record level or even new levels. In fact, we are currently experiencing defaults at about two-thirds the level of our record setting year of 1996. What has increased is the pace of defaults as measured against this same time last year. What is needed is a little perspective: at this time last year we were still experiencing well above average appreciation and home owners were able to sell their way out of any problems. It is not so much that defaults are abnormally high today, but rather that defaults last year (and the preceding 4-5 years as well) were abnormally low. As you read further into the article you discover that the default rate in San Diego County is approximately one-third of one percent (.0033); highly stressful for the homeowners going through it, but not particularly significant to San Diego County as a whole. You must read through 8 paragraphs and reach page 10 (below the fold) before you discover that “… (The) default and foreclosure numbers… pale by comparison to the number of loans issued and homes sold.”

The areas most impacted by homeowner defaults are “…houses carrying subprime loans…newly built South County communities… and among condo conversions.” It is no surprise that sub-prime borrowers are seeing a higher incidence of default rate, especially given the “creative” financing that lenders were pushing toward the end of the boom cycle we just witnessed. If you take a borrower already in debt, give them a loan for 100% of the purchase price, throw in the closing costs and base it all on “stated” income and “stated” assets, you are going to see some foreclosures. Also, specific areas are being hit harder; South Bay is an example here in San Diego. I suggest that this has more to do with the high percentage of new construction in these areas. People were purchasing new construction homes from builders of entire neighborhoods – with literally hundreds of homes to sell. Combine the potential for home price inbreeding with builder’s in-house financing and you have a recipe for inflated values and upside down borrowers.

New construction homes also help us to understand the drop in new home sales reported earlier. As we predicted in late 2006, the condo conversion glut that was dampening new home median prices would not sell out until the end of the first quarter/beginning of the second quarter of 2007. Now we are witnessing the very depletion of this condo conversion and new home gluttony and what do we see? Why, a drop in new home sales of course. You have to read much further into the article before it is reported that “…sales of existing homes rose in February (2007)”.

Am I suggesting that we do not have any problems in the local housing market? Of course not; we are likely to see defaults continue to rise. Not to mention the “neg-am” or “option arm” iceberg that is only now coming into view on the horizon. Will the housing market safely navigate that debacle or sail USS Titanic-like straight into it? Too early to say; I am only suggesting that the current situation is not nearly so dire as the headlines would have us believe. We should read these reports with an analytical eye and remember that newspapers, like any living organism, have a survival instinct. Good news does not contribute to sales and survival in the fourth estate.

To Your Success

Sean

Filed under: BUYERS, INVESTORS, LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, foreclosures, option arms, San Diego, The Press

Lies, Damn Lies and Affordability Indexes

My apologies to Mark Twain. There has been a lot of comment recently on the dreadful numbers that come out with each affordability index report and I would like to take the opportunity to play devil’s advocate. Sometimes, when I look at a new report or statistical anylysis, I run the report’s conclusion through my “common sense meter” before I even begin to read the data. The same way they used to teach us in math class: guestimate the answer so you can readily see if your calculations are severly flawed when you are finished. In the case of housing affordability here in Southern California, the reality seems to differ from the reports. As a matter of fact, the reality is we can’t build enough homes to satisfy the demand. The CAR leadership council recently released these projections: by 2008-2010 California is expected to be 15,000,000 homes short of demand! Yes, that is 15 MILLION homes. The US Census bureau projects massive influxes of people to the sun belt and California will remain the most populous state by a landslide. It is difficult to see how this continues to happen when only 1% – 24% (depending on the report you read) can afford to live here.

What would make sense is that the reports themselves are flawed. Most of these studies use very outdated lender paradigms (e.g. money spent on housing can not exceed 28% of gross income) which will certainly skew the results as well as the free market. After all, if a buyer is willing to pass up a new car or eating out in order to pay 50% of their gross income to live in San Diego, should we be judging that? Many people would make sacrifices to live someplace they find especially appealing, whether it be the weather of San Diego or the historic roots of Boston. How about the amazing arts & culture of New York City? Many people give up their cars altogether to live in Manhattan – another area with a terrible affordability index.

I am not, by the way, advocating blanket acceptance of the many exotic loans out there that allow people on wieners and beans income to buy champange and caviar homes. I have never in over twenty years put a client into a “neg-am” for ethical reasons alone. And I am not discounting the fact that an affordability gap exists in many major cities as a whole; I am only discounting the severity of the problem. A fluid and open market place will hurt some of the people some of the time. But in the end it provides the most good to the most people by virtue of its self-correcting mechanism. If specific areas were truly unaffordable, people would stop buying homes there and prices would stablize or come down. On the other hand, if the demand far outstrips the supply… you may incur many problems, but a lack of affordability, by definition, is not one of them.

Filed under: BUYERS, INVESTORS, LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS, SELLERS, affordability, San Diego, statistics, The Press