Will Portola Springs Become a Ghost Town?

NEW -> Contingent Buyer Assistance Program
NIR....question, do you take feedback, statements made here, or knowledge gained to help your buyers out? I only ask because if you do that is pretty admirable.
 
<p>mino,</p>

<p>Yes I do. I tell them everything I know, read, and heard. Basically, I disclose everything to both buyers and sellers. My business is based on trust.</p>
 
<p>IIIrvine,</p>

<p>Speaking from my own experience, price is not a bigger factor. You are buying a home to live-in. I am explaining my point below.</p>

<p>Price is the function of interest rate. When rate is up, price is down, and vice-versa, somehow, buyer's monthly payment stay constant. So if the interest rates in the near futures increase (which I just start to see happening when all of the sudden, investors are shyed away from mortgage-backed bonds - we should know why). I am expecting to see a dip in home pricing temporarity assuming there are no new player added to the equation. </p>

<p>I thought rates would have dropped dramatically in last December, then we have the Subprime melt-down and scared the bond investors. If no more bad news, rates should reverse it course of increase. My 2 cent opinion.</p>

<p>We may have a new player. The Euro dollar: US dollar is .8:1. Meaning US real estate is at 20% discount. Remember what happen a few years ago when the Chinese currentcy was in the same situation? I am monitoring the European buyers to see if this becomes reality.</p>

<p>I think the monthly payment is the most important number to consider because that is the number that effects your wallet. When you focus on the monthly payment, it is much simpler to decide which home you should go for. Each home carries different cost structure (HOAs, Mello-roos, maintenance, ..). I found by focusing on the monthly payment, I was able to help people to feel comfortable to commit to home purchase mentally.</p>
 
<em>"I found by focusing on the monthly payment, I was able to help people to feel comfortable to commit to home purchase mentally."</em>





It is easier to commit financial suicide if it doesn't seem that costly. This is exactly why people bid up prices twice as high as they should be. When you can finance twice as much money with the same payment, people here in Southern California will do so even if the terms of the loan will kill them.





The "focus on the monthly payment" mentality is how car dealers rip people off with outrageous prices and loans filled with fees. It is part of the problem, not part of the solution.
 
<p>IR,</p>

<p>It's OK that is how you feel. I see nothing ethically wrong with focusing on monthly payments, neither do my clients who bought homes from me. I am not trying to be argumentative. </p>

<p>Just imagine, if I made 1 wrong move. Do you think my clients will leave me alone? Who need extra stress? My buyer's market is +$1M, mainly not first-time buyer.</p>
 
<em>"Price is a function of the interest rate."</em>





I'd say that price is a function of supply and demand. If interest rates rise, some potential buyers will be excluded from the market, thereby reducing demand. In that sense, you're right, price is ultimately affected by interest rates because demand is reduced. Same with lending standards that require a down payment and a good credit history. More potential buyers are excluded, thereby driving down demand and ultimately prices. That's why the statistic to watch in the next several months is not median price or even interest rates, but decrease in sales. If the number of sales declines on a year-on-year basis, while inventory rises, supply is up, demand is down. Any first year economics student can then tell you that prices will then decrease.


<em>


"We may have a new player....[US real estate is at a 20% discount because of the decline of the dollar v. the Euro.]"


</em>


This means that the price just got a little lower, not that US housing is a good investment for Euro holders. In other words, this affects demand only if Euro holders decide to buy. With all the bad news in the US housing market, we can't necessarily assume that Euro holders will see US housing as a good investment. Also, an investor would face a substantial currency risk with a long position in residential real estate--even if the property does appreciate in 2-3 years and the investor can proftiably sell it, the gains could be wiped out by a weakening Euro. Remember, just a few years ago a US dollar bought 1.15 Euros, not 0.8 Euros as it does today. If the dollar moves back to 115, it would wipe out a 30% gain. Small investors buying individual houses are not in a position to hedge these risks with derivative instruments like swaps that large institutions use to hedge currency risk.
 
<p>Gavrilo,</p>

<p>You said it very well. There are so many factors that move the market. I have no idea what the market will be like in the next 3 months. I can only project the market for the next 30 days base on the available data.</p>

<p>Investors are definitely seeing buying opportunities! These guys are the big risk takers.</p>
 
<p>Hi everyone - </p>

<p>First - Price is a function of supply and demand. While a relationship exists between the price of a home and the cost of money (interest rate) it is not a 1:1 relationship, instead it is a relationship that amplifies the supply and demand curves and impacts price equilibrium - this is where all of the alternative financing markets and the availability of money come into play.</p>

<p>Second - As for "focusing on the monthlies." While this may make an unsophisticated buyer more comfortable, providing comfort is not the primary responsibility of an individual with fiduciary responsibility. The primary responsibility of an individual with a fiduciary responsibility is to ensure that the client is protected from harm and to ensure that the client makes informed decisions. Fulfilling these two responsibilities may or may not result in "comfort," but by primarily focusing on "comfort," there less of a guarantee that a client will be protected from harm and make informed decisions.</p>

<p>In a quick review of the National Association of Realtors "Code of Ethics" we can see:</p>

<p>Article One - "Realtors protect and promote their client's interest while treating all parties honestly." Within Article one, we find: </p>

<p>Standard of Practice 1-3. REALTORS<sup>®</sup>, in attempting to secure a listing, <strong><em>shall not deliberately mislead the owner as to market value</em></strong>. </p>

<p>Article Two - "Realtors refrain from exaggeration, misrepresentation, or concealment of pertinent facts related to property or transactions." Within Article Two we find:</p>

<p>Standard of Practice 2-1. REALTORS<sup>®</sup> shall only be obligated to discover and <strong><em>disclose adverse factors</em></strong> reasonably apparent to someone with expertise in those areas required by their real estate licensing authority. Article 2 does not impose upon the REALTOR<sup>®</sup> the obligation of expertise in other professional or technical disciplines. (Amended 1/96)


</p>

<p>I'm not sure what to take away from this. I am not a realtor, but I am someone very familiar with fiduciary obligations. I really would have to side with IrvineRenter on this one. This is why being a salesman with a fiduciary responsibility is so dicey - which is what a real estate agent or realtor really is at the end of the day. Their income is driven by a completed deal. I'd be very curious to know whether real estate agents and realtors that "lurk" on this blog have been confident enough with their clients to point them to this blog as a source of information to consider.</p>

<p> </p>
 
<p>irvine_native - You don't have to be financially intelligent to buy a $1mil+ home because of the payment or a $50k Chevy Tahoe for because the salesperson got them a $400 a month payment. But there are many that do.</p>

<p>If interest rates influence home buying demand then why were sales in March 2007 25% lower than March 2006 but rates were .15%-.25% lower in March 2007? Simply supply and demand. That and the equalibrium of wages and prices are so far off they have a long way to go before prices and wages equalize with demand. </p>

<p>As much as every Realtor wishes that the Fed will lower rates even if he did it would not spur home sales. First they were hoping for a rate drop at the end of 2006, then spring 2007, then summer and now they are hoping for Fall. NIR I am not picking on you as I have had this discussion with realtordave when he was hoping for a rate drop before the Spring on Lansner's blog and I told him he was holding onto a pipe dream. The Fed's primary concern is inflation and the secondary is economic growth. We have inflation and do not expect it to improve because the fuel costs will start to add to it. Look at oil today and expect it to be closer to $70 a barrel again sometime in the summer. We have economic growth albeit weaker than the Fed would like but we are still growing. So the chances for a rate drop are well just not going to happen until inflation ebbs, wages slow and energy prices slow. The Fed will not lower rates to help the housing market and they have said this numerous times.</p>

<p>Foreign investment in the US housing market remains about the same for the last 20 years as the US continues to issue about the same amount of visas year after year. It may seem more apparent now that it has been pointed out. Kind of like when a friend gets a car you never really noticed and all of a sudden as you are on the freeway and now that same car is now everywhere.</p>
 
"The "focus on the monthly payment" mentality is how car dealers rip people off with outrageous prices and loans filled with fees."





You're right on. All the players in this market want buyers to focus on the monthly payments, not prices: banks can charge higher loan fees, realtors make more commission, mortgage brokers' wallets fattened up with the demand for subprime loans, title and escrow companies reap a huge windfall as well for transaction costs, even the government benefited through higher property taxes. We do need to get back to the basics, and for me, this starts with prices. I cannot rely on exotic mortgages or 40-, then 50-year mortgages to make homeownership affordable.





"When rate is up, price is down, and vice-versa, somehow, buyer's monthly payment stay constant."





This is a correct statement. So basically, it is a wash, and a disincentive for buying. We have already seen how NAR's mantra "interest rate is at historical low" is not sustainable long term, that buying a home for the purpose of living in it will require prudent calculations.






 
A little information regarding the purchase and financing of $1+ mil homes; the interest on that portion of a mortgage above $1 mil is not deductible as mortgage interest expense on the borrower's tax return. And many, if not most, who have the income to make payments on a $1+ mil mortgage also are subject to AMT which decreases the amount they can deduct. I wonder if re agents and mortgage brokers are required to disclose this when they speak of the benefits of mortgage interest deductibility.
 
<p>awgee,</p>

<p>I am glad you brought up the $1M mortgage interest limit and the AMT. Brokers are not allow to advise on tax; however, we can share tax knowledge with disclaimer and refer people to CPAs.</p>
 
<p>nirvinerealtor - No, I mean the fact that there are limits as to how much one can legally deduct as mortgage interest expense on their tax return. My experience is that brokers / agents are very quick to point out the possible reduction in tax expense due to the mortgage interest deduction, but I am wondering how many brokers / agents ever point out that there are limitations to that deduction. It would seem that information would be in the clients best interest before borrowing more than $1mil. or before obligating themselves to any mortgage which may be subject to AMT limitations.</p>
 
<p>awgee,</p>

<p>Rarely my buyers do not have a CPA already. Everyone seems to be familiar with AMT. I keep up with with IRS rules; however, I still let the pro advise me on tax. I found pros to come up with all kind of legal ideas under the sun to mimimize tax liability (through structuring). I insist my clients to see a CPA for tax information before I feel comfortable to move forward as their agent. I learned to clear the road before proceed; otherwise, I would be wasting everyone's time. </p>
 
nirvinerealtor - Do you mention the mortgage interest deduction to your clients? Do you mention the limitations of that deduction?
 
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