By Mike Bodeen · 29 May 2017
This Memorial Day weekend I began sifting and sorting through decades of paper files with the goal of continuing to file everything (important) in the cloud, and recycling everything else. I was amazed at some of the stuff I had hung onto. One thing I found was my original real estate license issued in California in July of 1976. (see this page) That I will continue to hold onto.
As a news junkie, every so often I would file interesting real estate articles including one from February 6th 2005, Arizona Republic which I came across yesterday. The title of Catherine Reagor’s article was, “Gambling on Housing.” Subtitle was “Investors Squeeze real estate Market. According to that article, one out of four Phoenix home sales at that time were being bought by out-of-staters, primarily Californians, who were buying up homes, new and resale, but not moving into them. They either rented them out or held them for resale only.
The main subject in this story was a 23 year old mortgage banker from Las Vegas named Zareh Tahmassebian. He was buying up so many Phoenix homes, that he had lost track of where they were located. He is quoted as saying “leverage is the name of the game. Why buy one house with cash when you can buy ten of them with 10% down?” Voila, in one sentence, Zareh isolated the very worst of that national mortgage/real estate market meltdown.
True to his philosophy, he owned 15 homes in the valley and was planning on selling them within a year to take advantage of the extreme appreciation the valley was providing him. His plan was to then move onto the next hot market (Austin, TX) to do the same thing.
How could he and hundreds of thousands of others could obtain mortgages without needing to qualify for them…? Make no mistake; fraud was happening. Back then, a buyer would qualify for a loan, but the income would not be verified. They were called NINJA loans (no income, no job, no assets).
To perpetuate the national problem, these CDO’s (collateralized debt obligations) were listed as AAA (very low risk) securities and sold into the secondary market. For a brain twisting movie that well explains this fiasco, see “The Big Short.” Warning, have a bunch of Ibuprofen AND Tums ready for the headache and stomachache that’s sure to follow.
For more history in that era, we go back into the Cromford Report archives, and find this report ten years ago (June 2007):
Active Listings Exceed 55,000
The number of active listings made a new record high of 55,026 on June 29. As a consequence, days of inventory based on annual sales also equaled the record high of 303.
Sales Volumes Decline Further
The number of sales has been dropping in May and June to levels lower than 6 years ago. Activity during the first quarter was running below 2003 levels but above volumes for 2001 & 2002. However in April it dropped below 2002 and in May below 2001. The gap in June is still increasing, currently running about 800 sales per month below 2001 levels.
Normally sales volume increases during the second quarter and then falls back during the third quarter. In 2007 we have seen a slow but steady decline in volume during the second quarter, which is highly unusual.
Fortunately for most, those days are in the past, though difficult memories remain. May we be among those who will ‘not forget the past, and therefore will not be doomed to repeat it.’ – George Santayana.
And I add this:
“We’re doomed to repeat the past no matter what. That’s what it is to be alive. It’s pretty dense kids who haven’t figured that out by the time they’re ten…. Most kids can’t afford to go to Harvard and be misinformed.”
– Kurt Vonnegut Jr., Bluebeard
– Mike
Market data referenced in this article comes from The Cromford Report.