Counter Intelligence: The Real Estate Cafe Weblog

Flames of "irrational exuberance" burning Realtors, too

I've spend the morning deconstructing Realtors are not immune to foreclosure, an amazingly transparent blog post on a leading real estate web site. The author's concluding question -- Why did so many people, including Realtors, buy homes in 2005? -- has been and will continue to be the spring board for innumerable blog posts, talk show interviews, research by economists and parodies on YouTube. But now imagine what the authors of Freakonomics or Saturday Night Live could do with this admission that some real estate agents "helped people buy homes that they could not afford," and then repeated the same mistake themselves.

Personally, I'd love to see investigative reporters dig into the conflicts of interest in the real estate industry and expose how deceptive and manipulative business practices, like dual agency and blind bidding wars, fanned the flames of "irrational exuberance" and, as this highly respected blogger admits, ultimately burned Realtors themselves.

Perhaps industry regulators will create new disclosures to protect consumers and prevent another trillion dollar collapse of the housing market in the future. Were you aware that a Washington think tank estimated a "loss of almost $6 trillion in real housing wealth over the course of the year, an average of $85,000 per homeowner"? Historically, potential home buyers have been advised to ask agents about their sales volume, but now it's wiser to ask prospective buyer agents if any past clients are upside down on their mortgages or involved in foreclosure. What if a such a negative equity or "foreclosure disclosure" were required by law?

Outrageous some might scream, unrealistic others would argue but blogs have already created a decision-making tool for web-savvy home buyers to decide who will best protect their financial interest. Try this experiment, visit two real estate blogs and see what their authors have written about the housing bubble. Look at their posts during 2005 -- was your prospective buyer agent echoing NAR's "anti-bubble" spin or warning homebuyers about the coming meltdown?

In retrospect, this Real Estate Cafe blog post from April 2005 sounds prophetic: Will mobloggers pop the real estate bubble?

My hope is this blogger's admission that Realtors are not immune to foreclosure will expand discussion about systemic flaws and conflicts of interest in the residential brokerage practices, and their cost not just to individual buyers and Realtors but to society. Who could imagine a better time and place for some "straight talk" about the need for real estate reforms than John McCain's speech tonight at the Republican Convention in this blogger's backyard?

Organizing real estate rebels, educating home buyers & sellers

Richard Howe's blog post, "Urban Rebels," provided a timely opportunity to use the 4th of July to update our rallying cry for a consumer revolution in real estate.  Howe is Register of Deeds for the Middlesex North District in Massachusetts, and has written extensively about foreclosures and their impact on neighborhoods and communities. 

Excellent, timely post. With three million households behind on their mortgage payments, and a projected two million headed towards foreclosure, could the time finally be ripe for a consumer revolution in real estate?

Some of use have been talking about that for more than a decade, but as Glaeser writes, industry insiders have had "strong incentives to fight for their regime.”  (See WSJ editorial originally entitled "The Realtor Racket" and download study on "Bringing More Competition to Real Estate Brokerage.")

Collaborating with fellow real estate change agents, we hope to invite home buyers and sellers in Greater Boston to restart conversations begun 15 years ago at the “Consumer Revolution in Real Estate” at our experimental new location: One Broadway, Arlington, MA.

We’ll experiment with seminars, real estate round tables, and web site demos. I’m particularly excited about reviving our Bubble Hours and hosting support groups for FSBOs & households facing foreclosure. Perhaps you can join us at an upcoming real estate unconference, or even present a topic / lead a discussion.

Unlisted properties represent opportunity for proactive home buyers

This graph of active listings versus unlisted properties during the 4th quarter of 2007 reveals two significant trends behind today's lead story in The Boston Globe: 

"Thousands in Mass. foreclosed on in '07:
7,563 homes were seized, nearly 3 times the '06 rate

TREND 1: The Globe reported that "...lenders initiated foreclosure proceedings against 7,467 Massachusetts homeowners" between July and September.  That means that foreclosure petitions during the 3rd quarter of 2007 were nearly equal to the total number of actual foreclosures year round.  Add that trend to the fact that foreclosure petitions topped 3,000 listings during October 2007, and you can see that the problem is growing.  In fact, the number of foreclosure petitions in October approached the number of MLS sales in December 2007 as graphed in a previous blog post.

TREND 2:  The inventory of unlisted properties or homes for "potentially for sale" across Massachusetts is also growing.  It's difficult to identify how many expired and canceled listings have been already been relisted in the MLS, and we can only guess at how many homeowners facing foreclosure would be willing to sell.  Still, the inventory of homes "potentially for sale" may be approaching the number of active listings during this slow time of the year, as shown in the graph above. 

Should you wait for more homes to come onto the market or be more proactive?  The Real Estate Cafe is exploring ways to help home buyers search expired and canceled listings, and to approach homeowners with "unlisted" properties - particularly those who have received foreclosure petitions - with unsolicited offers.  If you're a homeowner willing to consider an unsolicited offer, or rent your unlisted property until you put it back on the market later this year, please contact us.  Our qualified buyers are looking for ways to negotiate sales outside the MLS, and recognize that savings can be shared by doing so.  (PS.  Our menu of hourly and flat fees are modest by industry standards; and depending on negotiations, may be paid by our buyer clients so sellers retain more of their home equity.)

Expired & canceled listings soar in MA as Petitions to Foreclose approach MLS sales

SURVEY: NOW, what do YOU think will happen to housing prices in 2008 & beyond?

NPR Talkshow Alert: The Subprime Mop-up

OnPointRadio.org, a nationally syndicated talkshow on NPR, is hosting a program NOW entitled, "The Subprime Mop-Up." If you live in Greater Boston, you can listen to 90.9FM from 9-10am this morning, Thursday, September 6, 2007, or the rebroadcast tonight from 7-8pm. Beyond Boston, you can also listen to the program LIVE online now or access the audio anytime later at your convenience:
   
Aired: Thursday, September 06, 2007 10-11AM ET

Program description:  The Subprime Mop-up

If you thought the subprime mortgage mess was behind us, think again. In the next year, another two million adjustable-rate mortgages are scheduled to reset from low "teaser" rates to household budget-busting new highs.

Foreclosure rates are already soaring. In some regions, whole neighborhoods risk going under. A credit crunch backlash has markets around the world in turmoil.

Now Washington is girding to weigh in.  But who, if anyone, should be bailed out?  Who punished?  Who reined in?

This hour On Point:  homes, high-rollers, and moral hazards in the subprime mop-up.

-----

Housing economist Karl Case just ducked a question on the implications of the subprime crisis on housing prices nationwide and Congressman Barney Frank just finished speaking.  The complete line-up of guests include:

• Rep. Barney Frank, Democrat from Massachusetts, chairman of the House Financial Services Committee
• Karl Case, professor of economics at Wellesley College and co-author, with Yale's Robert Shiller, of the Case-Shiller Index, the leading database of U.S. housing sales
• Michael Mussa, former chief economist at the International Monetary Fund and former member of President Ronald Reagan's Council of Economic Advisers
• Michael G. Ciaravino, Mayor of Maple Heights, Ohio, a city hit hard by foreclosures

Will social networking make "negative cycle" more vicious?

Economy.com's Mark Zandi is no zealot, so if he is using terms like this "negative cycle" homebuyers ought to take note:

"There is a substantial risk that the mortgage market will devolve into a self-reinforcing negative cycle," Zandi said in a release this morning. "Mounting credit problems could beget more restrictive underwriting standards, which would weigh heavily on the fragile housing market as potential borrowers become unable to obtain credit, and existing borrowers facing large payment resets are unable to refinance. Foreclosures would mount, leading to weaker house prices, falling homeowners' equity and even more substantial credit problems. The cycle repeats with more intensity and the mortgage market corrections unravel into a crash."

Thanks to the Boston.com's new real estate blog for posting the quote above.  We discussed the same worse-case scenario yesterday with NECN, but used the word -- "vicious cycle" -- an economic term some might substitute for the "negative cycle" above. 

My question is whether social networking and unfiltered consumer access to real estate data make the downcycle more vicious?"  Not through lack of civility, but data transparency that allows home buyers to make more informed decisions, putting further downward pressure on prices.  To see what I mean, visit our new MLS access which allows users to easily compare asking prices to price trends and more on Zillow.com.

Here's what we wrote two years ago about the coming negative cycle before Economy.com issued it's warning today:  From froth to foreclosures:  You ain't seen nothing yet!"

When the market really cools, things will get worse, potentially much worse.  A recent New York Times article called the magnitude of interest-only and adjustable rate mortgages "The Trillion-Dollar Bet" because "$1 trillion of the nation's mortgage debt - or about 12 percent of it - [will] switch to adjustable payments in 2007."  Will foreclosures spike then?

An upcoming article in the July / August 2005 issue of The Atlantic Monthly, entitled "Countdown to a Meltdown, speculates that the situation could become so bad that "repossession riots" will occur in some areas.  Do you think that fictitious forecast is irresponsible fear mongering, or foreshadowing a falling market that will make current home buyers look foolish; or worse, candidates for foreclosure in the future?

Cross-posted in the forum of The Real Estate Cafe's social networking site.  Please join the discussion with other home buyers and sellers there.

Double Bubble: How counterfeit buyer agents inflated the housing bubble

Yesterday we blogged about the "Mortgage Meltdown" and record number of foreclosures, challenging the media and regulators to investigate how counterfeit buyer agents (a.k.a. double agents) helped inflate the housing bubble.  If they do, here's the kind of "glaring" case study they may find:

My so-called buyer's agent (who promptly switched roles at contract signing without explanation), initially advised me to bid $750,000 for my house of choice, which was listed at $699,900. When I told her that such an offer was beyond my price range, she was quite adamant that I not offer anything under the list price. When I finally backed out the deal because of her bait and switch scam, I later heard that the house in question sold shortly afterwards for $682,000--in other words, nearly $70,000 less than the bid suggested by my so-called buyer agent.

This type of price inflation (caused by seller's agents masquerading as buyer's representatives) must have a very distorting impact on housing costs.  The economic fallout is enormous: ordinary citizens are forced to move out farther in search of decent, affordable places to live, which  leads to a host of problems connected with traffic congrestion, suburban sprawl, etc.

As I perceive it, the real estate cartel's use of dual agency [a.k.a. "designated agency"], which works to the detriment of the average consumer while enriching dishonest agents through the practice of double-dipping, contributes significantly to the manifold problems we see in the residential housing market and therefore should be fully exposed.

The homebuyer above concluded, "Isn't there any investigative team or media personage with the courage and tenacity to shed light on this problem?"  We'd like to ask how homebuyer and sellers who have been victims of dual agency, designated agency, or faulty agency disclosure can use social networking tools, like blogs, wikis, and interactive mapping, to expose the problem and prevent other consumers from being harmed?  Does anyone know if such an organizing effort is already underway, or have ideas about how to get one started?

Ides of March: Beware mortgage meltdown & counterfeit buyer agents

Tuesday's announcement that "lenders began foreclosure against more than one of every 200 U.S. mortgage borrowers in the fourth quarter," has the media tracking the "Mortgage Meltdown" and record number of foreclosures, and industry pundits predicting widespread ripple effects from the "Subprime Panic."

Steven Pearlstein of the Washington Post estimates that "...1.5 million Americans may lose their homes to foreclosure and ...hundreds of thousands of homes could be dumped on an already glutted market."  Pearlstein concludes, "What we have here is a failure of common sense. ...It's not a whole lot more complicated than that." 

But some real estate consumer advocates say the story is more complex. They're calling for the media and regulators to investigate the role dual agents (a.k.a. designated agents) played in creating the real estate bubble and the growing foreclosure problem.  During the housing boom, little attention was paid to the conflicts of interest which occur when large real estate agencies try to represent both home buyers and sellers in the same transaction. But one leading consumer advocate predicts homebuyers will take legal action when they realize they have been betrayed by counterfeit buyer agents:

As some home owners get "upside down" on their equity, or lose their homes by foreclosure, you may start to see a rash of litigation against the real estate "agents" who sold them their homes.  Probably the vast majority of real estate agents acted as "buyer's agents" in the transactions, so there is likely the possibility some of these "buyer's agents" didn't really perform up to their expectation of "protecting" the interests of their "buyer clients." 

In coming days, we'll expose the conflicts of interest designated agents would prefer to paper over and the heartbreaking failure of the real estate regulatory system to protect ordinary homebuyers and sellers.  If you've been a victim of dual agency, designated agency, or other deceptive real estate practice, or know someone who is writing about the same subjects, please let us know.  If you are in the housing market now, BEWARE designated agents; and demand a real buyer agent, like The Real Estate Cafe, who can help you save tens of thousands of dollars.

NPR Talk Show Alert: Subprime Panic

Ides of March NPR Talk Show Alert:  Subprime Panic.

If you live in Greater Boston, you can listen to the live talkshow on Thursday, March 15, 2007 from 10-11am on 90.9FM, WBUR or the rebroadcast from 7-8pm.  Elsewhere, you can also listen to the live broadcast online at OnPointRadio.org or download the podcast at your convenience.

See related post:  Ides of March:  Beware mortgage meltdown & counterfeit buyer agents and email us if you would like to participate in an upcoming "Bubble Hour" to discuss this program or other news  documenting housing price trends.  Please let us know if you'd prefer to chat online or in-person.

Homebuyers: Help map falling prices to protect yourself from overpaying in "overvalued" markets

The map may take a couple seconds to load.

UPDATE: Added wiki-version of national RealEstateBubbleMap.com. Contributors welcome.

A year after The Real Estate Cafe speculated about whether bloggers would help pop the real estate bubble, househunters turned citizen journalists now have the opportunity to use online maps to move past theories and debates, to document price reductions, pre-foreclosure notices, and properties selling for below their assessed value.  This map, for example, shows some of the largest recent savings in Greater Boston.  Interested in using Platial to create real estate bubble maps in "overpriced" housing markets across the nation? Here are three options: 

1.  Register to use Platial so you can add "Places" to the Boston regional map above.  It's easy to add a new property, post comments on an existing one, and upload photos to any Place whether it is yours or not.  Videos and audio clips can be embedded in the descriptions of the Places you add.  To republish this map on your website, click here and simply cut and paste the html. The map can be re-sized to fit any page layout.  Contributions from fellow bubble bloggers and their readers, particularly those in 71 cities called "extremely overvalued" by USA Today are welcome.  Want to correspond with each other and become bubble buddies?  Start by adding your comments to the Boston bubble map or this national map / wiki of overvalued housing markets.

2.  If you want us to do the work, send comments, corrections, or references to other properties asking or selling for (1) below their assessed value or (2) well below their original asking price to [email protected].  Links, photos, videos, and audio clips are welcome, but addresses or intersections are required to map locations.

3.  Create your own local or regional map on Platial, and add or "grab" Places from other maps. Then let others add to or republish your map to create an informal, grassroots network of housing bubble maps.  Sound cool?  That's what others say about Platial: read Wired's article, or listen to a story about the site from NPR's All Things Considered.  Check out the repeated references to Platial and social networking with maps (watch video clip) at the Where 2.0 Conference News site this week. 

What's in it for you?  Post enough new places to your own map, and Platial will share advertising revenue.  Or simply use information others post to stay informed, protect yourself from overpaying for property, or negotiate a lower price by linking your offer to recent sales, price reductions, etc.  Maybe we can even get foundation money to create an initiative to help inform and protect homebuyers like you. 

Meanwhile, if you need a buyer agent in Greater Boston, The Real Estate Cafe would be delighted to serve you and rebate some or all our commission. If you are househunting outside Boston, we'd be delighted to refer you to an exclusive buyer agent -- perhaps one contributing to this map -- and rebate one-third of our referral fee (where allowed by law), and donate another third to the proposed Million Dollar March to help save lives or provide shelter subsidies for AIDS orphans.  With more than 15 million AIDS orphans worldwide, let's use today, Father's Day, to begin brainstorming about how to build a voluntary, nationwide campaign.