CHESSNOID

The contracting economy is going into a deeper recession.  The dominoes are starting to fall on each other at a faster pace.  Gas prices are steadily going up and nearing $4.00 a gallon in California, prices of groceries is racing up, sales at retail stores are lower, sales of houses and cars are down, airlines are shutting down, layoffs are imminent in different areas of the financial field, and foreclosures are still piling up.  Many people would probably think this is negative, but it really just depends where you are sitting and how you have set yourself up.  I see great opportunities available for those who saved for a rainy day.

I had a feeling awhile back from all my reading of other blogs that something was up.  When prices of housing skyrocketed without wages keeping up, it had to mean time was running up and that prices had to adjust.  There are many cities who think they are insulated from this recession, but I think it is just a matter of time until the recession domino hits them.  My mother just bought a mid rise condo that was once selling for over $350,000 less than a year ago for only $150,000 this month. ;)  Wow! It is a brand new condo and never lived in, comes full of brand new appliances, washer and dryer and many clubhouse amenities.  She definitely got a slamming deal!  They still have a few condos that are still unsold and are trying to unload them.  The area she now lives in is surrounded by $700,000 houses that just a year ago were all selling for more than a $1,000,000.  Those houses are not moving either and the inventory of houses for sale in that area is getting larger, which leads me to believe prices will still continue to go down.

Even though the federal reserve has lowered interest rates to amazingly low rates again, they are not having the same effect as they did 6 years ago. I believe it is because of the billion dollar losses the banks and mortgage companies have posted the last 6 months in a row and will probably continue to do so for the next 6 months or more, have made them very skeptical about loaning any money out except to the perfect customer.  The perfect customer right now is not just the person with a high FICO score of 700 or more.  I think the customer has to have that with a 20% down payment, little or no credit card debt, a smaller car payment (preferably just 1 car note or none at all) which is difficult in do in my commuter state, and a long term job or steady documented income of 5 years or more.

I helped my mother with the financing and I think the loan officer was happy she got a slam dunk deal with her. We were able to get her financing done without incident because she basically fit those requirements I described above.  One thing the loan officer mentioned that a few other loan officers I spoke with also revealed to me is that California is what they call a “declining values” state and that Fannie Mae will not buy the loans from most counties in our state because they expect values to continue to decline.  I thought this was weird even though I know it is true.  When I shopped for a loan for her, it was actually a little bit more challenging than I expected because many lenders depended on selling their loans to Fannie Mae.  Two of the loan officers I spoke with from Colorado and Texas said don’t waste your time shopping with online lenders because we are in California, the loans we have will not be bought.  This means their lender can not package these “California” loans in the portfolio for resale on the secondary market.  This goes back to those billions of losses that investment bankers were posting.  Very interesting I thought.

I belong to 3 credit unions, and when I spoke to my favorite one, the loan officer initially got the loan approved in a day.  When they submitted it to the “loan committee” for funding viability, it was rejected because it was in one of the many counties in California that was not re-sellable.   Apparently, they resold their loans to Fannie Mae, too.  I was under the impression credit unions only loaned money from their deposits from other credit union members.  Wrong!

Anyways,  I have had my eye on some condos here in southern California and in Seattle, WA.  The prices have dramatically come down here in California and the ones in Seattle are now starting to shift toward a downward trend.  Not as big drops yet like the ones I see here locally.  My wife and I have had our eye on a few condos.  In the middle of last year, the condo was at $240,000.  It was foreclosed on in September 2007 on a loan balance of $229,000.  The bank put the condo back on the market for $213,000 in January, then lowered the price in $204,000 in late February, followed by another  $20,000 price cut in late March to $184,000. Less than 2 weeks later, which brings us to early April, the bank has reduced it down to $179,000.  They still have no offers.  I am aware of another condo in this same complex that was at $350,000 that has also been cut down to $295,000 in one month.  There are other foreclosures in the complex, which I suspect the previous owners just walked away from because they had those option arm loans where the payments were low initially and re-adjusted to double their current payments.  Could you imagine your house or rent payment going from $1800 and ballooning to $3600 in a month. Ouch!  That is what their loans probably were on top of a declining asset makes it their only logical choice financially.  On public records, there are either 2 or 3 other condos in pre-foreclosure so I am waiting to see how much the banks relists those on the current market in the coming months.  I expect to see pressure on the other banks to price their REO condos even more competitively.  I am hopeful that I can get a very nice condo in the  $150,000 range that my wife and I will be able to fix up in the next 6 months.    I am certain if I make an offer to the bank next month for $150,000 they will accept the offer.  The other condos might be nicer.  It is even possible that the prices may fall even lower than that once those condos hit the market.  It is almost like playing poker with the housing market.  I am just not ready to show my hand yet as the housing market seems to show tell tale signs they have a weak hand.  Each month is like raising the stake, and the bank seems to be sweating more profusely. I know, I know, that is a lame analogy.

I also want to keep my options open in case Seattle prices start coming back down to normal to reflect the wages earned in the local economy.  They have a bunch of beautiful downtown high rise condos that I love to look at in Redfin.com.  I signed up for a newsletter that shows me daily prices of the areas I love.  The newsletter shows condos that are newly listed as well as any price reductions on the current listings.  I see current reductions on different locations everyday, so I am very hopeful.  I also read a lot of  Seattle housing blogs which seem to have a better understanding of the current housing conditions than the many financial analysts and economists who still refuse to acknowledge the signs of our current recession. It’s kind of like reality vs theory.