Posts filed under “Credit”

Read it here first: Incentives Distorting Home Prices

Since the Housing market peaked in August 2005, we have argued that reported home sale prices dramatically understate the actual price drop of sales. This has been especially true of New Home Sales, thanks to the many builder incentives we have seen. 

Today’s WSJ has an article detailing just how pervasive the practice has been nationwide — and how much of these incentives are not disclosed to the various county  agencies that track home prices — despite the legal requirements they do so. From Department of Duh: How Hidden Incentives Distort Home Prices.


"As the housing market slump deepens,
disguised discounts are making it harder to tell exactly how much
people are paying for homes.

Buyers, sellers and other market participants
typically monitor fluctuating home values through sale records that
legally have to be listed with county clerks. But incentives offered to
buyers — ranging from free cars or furniture to cash rebates — are
making those prices less reliable as a sign of what buyers actually
paid, netting out the giveaways. And that may be misleading lenders and
people shopping for homes, some real-estate lawyers and appraisers warn."

Some examples where the
incentive is not public:

• KB Home, Colorado:   $196,000, according to deed.
Actual price = $168,400

Buyer disclosure form: KB paid $27,600 to
3rd firm, which made a cash payment to the buyer.

Lennar, Florida: $479,000
Actual price = $450,000-459,000

Home buyers received Vouchers to purchase Mustangs, or a $20,000

Bennett Homes, Maryland: $600,000
Actual price =  $469,000

Originally listed in February 2005 for $635,000; Wells Fargo held two mortgages: first for $479,800, second
for up to $120,000. Buyer’s agent said the transaction included a $120,000 "payment by the builder to an organization that collected fees for
finding buyers."

(I always thought those folks were called Real Estate Agents).

Fraud, false reporting to government agencies, misleading documentation. For those of us who believe in disclosure and the rule of law, the current circumstances are a vast absurdity, and scream out for legal enforcement.


Why are there referees in professional sports? Because the competition between athletes leads to the rules of the game eventually getting tested (i.e., cheating). You need refs to prevent the game from spiraling into something that no longer is recognizable to fans of the sport.

In business, the profit incentive leads to behavior from a small but influential swath of participants that pushes the envelope, tap dances close to that line — and then blows past it, deep into what is clearly criminal territory.

That is Human Nature — we are competitive creatures, and we need some legitimate boundaries. If you haven’t noticed, when left to our own devices, too many of us eventually cut corners, eventually leading to the many scandals we have seen over the past decade: Corrupted analysts, accounting scandals, predatory lending, conflicts of interests, option backdating, etc.

That is the risk that excessive deregulation and/or inadequate prosecution brings: With no refs on the field of business, too many of the players eventually become steroid-addled, drug-addicted, quasi-criminals.


UPDATE: DECEMBER 23, 2007 3:06PM

This is now available in the (free) Real Estate Journal


How Hidden Incentives Distort Home Prices
WSJ, December 19, 2007

Category: Credit, Real Estate, Taxes and Policy

Fed to Curb Risky Lending (7 years too late)

Category: Credit, Federal Reserve, Real Estate

NYT: Blaming the Fed for the Sub-Prime Mortgage Crisis

Category: Credit, Federal Reserve, Real Estate, Taxes and Policy

FREDDIE MAC: Spending as if they had a good year

Category: Corporate Management, Credit, Derivatives

Reccession Odds: Greenspan 50%, Merrill 100%

Category: Credit, Economy, Fixed Income/Interest Rates, Media, Real Estate

Uh-Oh . . .

Shorter Fed Statement:

Cut 1/4 point federal funds rate
Cut 1/4 point discount rate
Growth slowing, inflation risks remain

Mr. Market no-likey the no-happy talk . . . Dow off 175 275 as I type this


Complete Fed statement after the jump . . .


Read More

Category: Credit, Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation

No, Pending Home Sales Index Did Not Rise

Category: Credit, Data Analysis, Real Estate

How Big Is It?

Category: Credit, Derivatives, Real Estate

Housing Charts: Genesis of a Crisis

Category: Credit, Derivatives, Finance, Real Estate

SubPrime? So what?

I have long respected and enjoyed Jim Cramer, but jeez, could he have possibly been any more wrong than this?  Its one thing to be wrong about the future, but how about getting the present correct?

So Subprime Blows Up; So What, Says Cramer (Jim gives you the scoop on why the $500 billion market is no threat to
the market, even if it fully collapses. Added: July 16, 2007)

Geez, that makes 6,800 look good.

via ZackAttack (here)

Category: Credit, Derivatives, Video