‘Back To Ground Zero’ In California
Kelly Bennett writes at the Voiceofsandiego.org. “Julie Haas financed her home with an option adjustable-rate mortgage that allowed her to pay back only the interest on the loan for two years. She watched some of her neighbors’ comparable units skyrocket. But recently she’s watched them depreciate right back to her starting price.”
“‘I’m back to ground zero,’ she said. ‘Ironically, I’m back to my worst-case scenario.’ Her mortgage is due to reset in April. Her monthly payments will double. And Haas fears her condo will have depreciated even more by then. ‘I’m very scared that I’m just going to be stuck here,’ she said.”
“Her parents, real estate agent and mortgage lenders all said, ‘Things will be so much better in three years.’ Now that they’re not, Haas doesn’t think anyone but herself should carry the responsibility of her choice. ‘It’s my job to make the decision, right?’ she said. ‘I don’t make the decision based on what people tell me. That’d be incredibly stupid.’”
“‘I see it coming on like crazy now,’ said Paul Smith at California Home Loans Professionals of the number of borrowers who will have to struggle through loan resets. ‘People don’t live that way anymore. They buy their cars with their equity; they pay their bills with their equity.’”
“Those who can afford only interest-only or negative-amortization payments, and who rely on the ‘promise’ of home appreciation to help them when the reset comes. Those are the people Craig Bramlett, president of Cal Pacific Mortgage and others worry about, and there aren’t just a few of them.”
“‘From what we hear, there’s a lot of people in that boat,’ Bramlett said. ‘They’ve chosen to do those loans, and they can’t afford them. It could be disastrous,’ he said. ‘They’re not getting good financial advice. They’re talking to a lender who’s never been through a downturn’”
“Peter Dennehy, of the Sullivan Group, agreed with Haas that there is greater transience in the current generation of homebuyers. And that contributed a lot to the acceleration of the market, he said. ‘Real estate is age and stage-related,’ he said. ‘And I’m not a big fan of people buying things they can’t afford. That probably pushed the market farther than it should have gone.’”
The Orange County Register. “Auctioneer Kevin Jepsen stepped into a ring of bidders outside the Orange County Courthouse on a recent Friday. Fifteen minutes later, three homes were taken from owners who had fallen behind on their payments.”
“It’s a ritual that’s become more frequent in Orange County as home sales decline and price gains no longer provide enough cushion to bail out financially distressed homeowners. A year ago, business was slow for Bessie Blazejewski, a real estate agent specializing in selling repossessed homes. Now, she said, ‘I’m twice as busy as last year.’”
“That increase translates into greater opportunities for bargain hunters because lenders are cutting prices, she said. ‘We usually try to price it below market value,’ the agent said. ‘We want to get rid of it quick.’”
From the Desert Sun:
‘In the Coachella Valley’s crowded and competitive housing market, what will it take to get buyers into some of those 7,000 unsold new and resale homes? Reacting to sluggish sales, local sellers are now putting into play the kind of home-shopper lures seen in communities around the nation. Unsold inventory is more than twice the level of a year ago, and recent monthly sales counts are down more than 25 percent. Sellers of new and resale homes are increasingly dropping list prices by tens of thousands of dollars.’
The sales drop is even more dramatic if you take the following into consideration.
Sales based on last years inventory down 25%
Inventory this year up 100% over last year
Adjusted sales based on current inventory would be DOWN 50%
“Adjusted sales based on current inventory would be DOWN 50%”
Great way to put it.
You all want to see a bubble explode look no further than Chico Ca.
Last year there were 4 or 5 listings each under the 3 and 4 bdrm categories. And this is just one small agent.
http://chicorealestate.com/chicorealestate/listing.asp
Yep. Chico to Bakersfield. It’s a long way to the bottom.
“Her parents, real estate agent and mortgage lenders all said, ‘Things will be so much better in three years.’ Now that they’re not, Haas doesn’t think anyone but herself should carry the responsibility of her choice.
One word: Schadenfreude.
The funny (as in amusing) thing is she actually does have her parents to blame.
Not that she is totally innocent, but she is less so than someone in their mid-40s who jumped into the game after watching “Flip That House”.
Most newby LO’s attack their family and friends first to start getting business.
Feep — the only person I have actually “saved” from the bubble is a cooking buddy whose mother was hounding her to buy in a bubble area before she was “priced out.” I fed her so many articles and quotes from Ben’s blog that she understood, agreed and retreated to the sidelines. Better one than none, though I’ve tried with others.
I never saved anyone either. Lord knows I tried. Now they are regreting it. Honestly, to buy a house Q4 last year with a neg-am interest only loan thinking houses were going to continue going up 20% a year? Nuts.
I tried, I tried … 4 friends, all of them bought. 2 of them bought condos in dodgy Seattle neighborhoods. The other 2 grossly overpaid for shoebox SFHs.
*Sigh*
Saved my son. He was hot to buy last fall - all his friends had and they were hounding him. Sent him the link to Ben’s blog, and talked and talked and talked…. Now his buds aren’t talking, one is BK and while he doesn’t truly understand the problems he sidestepped (he didn’t buy) he at least can learn what they are from afar. They ain’t pretty.
Schadenfreude, towards the 1 in 1,000 who will say, “It’s my fault, nobody elses”? If she’s under 30, I’d certainly nominate her parents for some karma due - they should have real life experience of markets not always going up. Maybe she truly believed she had to bear the risk and sacrifice, as so many “grayer and wiser” heads were telling her it was the absolute Right Thing to Do.
I’m not suggesting a government bailout for buyers like this one, but considering so many of the FBs with experience in RE and/or hoping to get stinking rich, I have some sympathy for younger, first time buyers who “ignored common sense” in an economy where nothing and nobody has made sense for - I’d say at least 5 years. Especially those who have been eating Mac and Cheese nightly and driving a beater to make the note and not increase their debt - save that special circle of hell for those wringing their hands over maybe not being able to keep the Hummer!
I happen to know her personally (as we are in the same institute) she is not a big spender or driving a hummer or any ridiculous crap like that. My funding already ran out. She didn’t buy in 2005 either, but in 2004; 2005 had the biggest increase in San Diego anyway.
“Her parents put a large down payment into her condo to help keep her payments low. They pushed her to buy the home.”
My parents did too on mine but it was 2000.
Whatever — her parents helped set her up for a fall. With parents like that, I’d rather be an orphan.
brutal!
That’s mean. I’m sure they meant well. Sometimes I think some of you are just too bitter.
I thought it was hilarious!
The most important thing one can do in life is choose their parents.
Isn’t part of being an adult detaching from your parents’ thinking and developing your own values and reasoning?
Ummm, no 2005 did not have the “biggest increase” for San Diego. Prices remained rather flat, if not slight increases here and there. I have paid close attention to SD since 2003, and the YOY median price increases, when released each month in 2005 on DQNews, slowed to the single digits throughout the summer, to around 5% in the fall. YOY increases were double-digits throughout 2003 and 2004. Now, YOY median are negative, and August 2006’s median, when released in September, will be roughly equal to August 2004.
have some sympathy for younger, first time buyers who “ignored common sense” in an economy where nothing and nobody has made sense for - I’d say at least 5 years.
Don’t because these idiots would be the first, with the coaching of their RE broker and mortgage dickhead to file a complaint with their states Appraisal Standards Board, because their “appraisal” came in low” and their attempt to attain the American Dream, subsequently DESTROYED!!!!!!!
Boo f*ckin’ Hoo…
People who bought in this feeding frenzy are getting exactly what they deserve.
I will be EXTREMELY angry if I end up paying for these greedy fools. (Just like the dot-com bubble, when the guv’ment wanted to give AMT tax amnesty to folks who had taxes due on unrealized gains for stock options. I went to a “town hall” meeting with Anna Eshoo and personally yelled at her for proposing such a thing.
Basically, honest non-greedy savers and careful investors are PUNISHED in this country. The only winners are the lucky-duck poor, the super-rich (i.e., people with net worths of 100 million or more), and the tax-cheats.
If this is true, then why save or follow the laws. Why work at all? If this is true and you don’t follow the path of the lucky-duck poor, then you are not smart. Unless this statement isn’t true after all.
Jacob,
Is it moral to be smart? What is smart? Is it smart to be immoral? What do you think?
“Maybe she truly believed she had to bear the risk and sacrifice, as so many “grayer and wiser” heads were telling her it was the absolute Right Thing to Do.”
I could have been sitting in her shoes if I had listened to all the same terrible advice I got and read back in 2003 while trying to make an informed decision. What saved me from buying in SD was the realization that IF I were to get in trouble on the home, there was NO WAY that I could try to rent the place for anywhere near what my mortgage payment would have been. I kept looking for an answer to why this was, and I eventually found patrick.net and Ben’s original housing bubble blog.
Yes, parents pushed me to buy too. I think many were just as irrationally worried as their grown children were about being quickly priced out of the market in SoCal.
My parents don’t completely understand my choice to continue renting, but their ‘wasting money on rent’ remarks have disappeared as the market has cooled. It still bothers them somehow that they have to tell their friends who ask if I’ve bought a place yet that I am still renting.
good grief! What a disservice many parents these days have pushed on their adult children! My own parents warned me the opposite in the previous bubble. In 1990 I did not even know the southern Cal bubble burst. I put out $3,000 for a purchase request and had a few days to decide. My parents told me that. But I stubbornly bought the house I was emotionally exhuberant over. 6 years later I was able to bail out with a 20% loss. What cruelty are parents practicing these days? They should be giving good advice, not bad advice! Was it the 60s influence (what was that they were smoking?)?
Uh, some people aren’t the sharpest knives in the drawer. Becoming parents doesn’t magically turn them into geniuses.
I am in the exact same boat. I was looking at places in Temecula in ‘02 and even then, was in disbelief at Redhawk going for $250K on postage stamp lots. The mania in SD was already in full-swing.
The pressure to buy has been tremendous. Friends, family, co-workers. People on the airplane who inquired where I live. Our family friend who works for a local RE Agent/Broker. Who didn’t talk about RE in SD for the last 5 years? Listening to all the cheerleaders go on and on, questioned over dinners, grilled by my fiance’s father. It gets very old defending what you believe is right in the face of a collective mania. The truth was just there, staring at you in the face when you run the numbers.
Now, on the flipside, it’s amazing to see the change in the last few weeks/months. Everyone is picking up the story and it’s implications. It’s finally nice to have some justification many of us knew was coming all along. The temptation to partake in Shadenfraude is almost irresistable. However, the denial is still rampant but the sheep are getting very nervous. I’ve advised my fiance to stop talking about the implosion. Anger is the next phase and it’s coming very soon.
In the meantime, I’ll still be taking silent pride that our $1,250/month, 1,400sqft apartment with a pool and off-street parking in old-town La Mesa enables us to have a $4K positive cash flow a month.
I couldn’t agree with you more. I live n PB and pay roughly $1300 to live 2 blocks from the beach. My soon to be wife and I save between 3-4k a month a well. Why in the world would I want to buy a house that is looseing value. Currently we’re looking in the Talmadge area and nearly every house in that market has dropped their price 20-25k every 2 months or so. It’s going to be interesting to see what happens this winter.
Having all the extra $$$ is crazy. Last weekend I went up to LA and bought platinum wedding rings. Her’s has diamonds all the way around.
I believe she’s going to give me a new Rolex before the wedding. 
Also, next week we’re heading to Tahiti and several islands for a 2.5 week cruise in the nicest suite the boat has.
I’m not trying to flaunt the things we have. I am trying to show that it’s stupid to buy a house right now. If I had purchased 6 months ago I wouldn’t have all the things I listed above. Considering that the prices are dropping 20-25k every 2 months or so. All the goodies would have gone to some retarded flipper or boomer looking to cash out.
Lots of good comments on this post–yours is one of the best. I love my folks to death, and they are very responsible with money, but they have been pushing homeownership on me to the point of using the industry purr “are you going to invest in a house?” (It led to some sharp words between us when I refused.) After I got married, the first question from many people I know was not when we planned to have children, but when we planned to buy a house.
In a way, failing to buy has been treated like a failure of citizenship.
I feel no sympathy for her at all. For the past three years I was pressured by parents, siblings, and relatives that I was getting married and needed to buy a home for my new wife. About 2005, living in Seattle, I realized that prices just didn’t make sense for what you got, so I just kept putting off the decision. In the summer of 2006 I started watching the internet blogs and was in full belief of a bubble especially when you had all the house flipping shows. I remember an old piece of advice that when a cabby tells you about his next great investment he is going to retire off of(and it’s the popular one) run don’t walk away from that mess. My entire family pressured me endlessly to buy. It made them feel good to see us living a “Leave it to Beaver” lifestyle the day after we were married. It was hard not to but I didn’t. My younger brother fell into the logic and may never fully recover from his flip bought in Jan 2007.
Crazy future sci-fi voodoo if you ask me. I bought 8 flips in 2010. Coincidence? You decide.
I feel no sympathy for her at all. For the past three years I was pressured by parents, siblings, and relatives that I was getting married and needed to buy a home for my new wife. About 2005, living in Seattle, I realized that prices just didn’t make sense for what you got, so I just kept putting off the decision. In the summer of 2006 I started watching the internet blogs and was in full belief of a bubble especially when you had all the house flipping shows. I remember an old piece of advice that when a cabby tells you about his next great investment he is going to retire off of(and it’s the popular one) run don’t walk away from that mess. My entire family pressured me endlessly to buy. It made them feel good to see us living a “Leave it to Beaver” lifestyle the day after we were married. It was hard not to but I didn’t. My younger brother fell into the logic and may never fully recover from his flip bought in Jan 2007.
deja vu
Yes. I was being pushed too. I convinced my wife that we “couldn’t afford” to buy and that we needed to wait until either my salary catches up or when owning makes more sense. Our would-be-down-payment is safer right now in the bank than in a house.
“I have some sympathy for younger, first time buyers who “ignored common sense” in an economy where nothing and nobody has made sense for - I’d say at least 5 years. Especially those who have been eating Mac and Cheese nightly and driving a beater to make the note and not increase their debt - save that special circle of hell for those wringing their hands over maybe not being able to keep the Hummer! ”
Agreed, but…
Funny thing, isn’t it. There’s probably quite a few folks driving a beater and eating ramen and mac n cheese to stay afloat on their mortgage now. What’s interesting though, is these same people that signed a note on a crap ARM or IO loan without due pause–would have NEVER borrowed $40k for a Toyota Corolla, that would be insane to them…but housing is different, get in now, before its too late. No need to read the fine print on the loan…Right.
DOC
evidently her parents must have told those lines so many times that they believed them themselves..well, what comes around, goes around..
Do you think they will have as much sympathy for the those that they put into the FB position as they will ahve for their daughter?
This whole notion of the parental welfare system for adult children is terribly dangerous. It has created an entire generation that knows nothing about budgeting, saving, living within ones means, etc.
I see it everywhere I look.
Wow, you are so right. I continue to be amazed by casual conversations I strike up or overhear where elderly folks explain the economic outpatient care they give their children and grandchildren. This seriously impairs these people, and encourages them to intentionally live beyond their means.
Seriously, who is going to tell mom and dad to shove off when they are giving you the bridge money to move into a more expensive area? Then you have to conform to the local norms, so the kids go to private school, you trade in the Accord for a BMW or a Benz, and before you know it you are living from paycheck to paycheck.
My kids and relatives can have my money after I die, at least the stuff I don’t give to worthy causes.
We intentionally bought a smaller house so our kids would have the opportunity to have quality education instead of the indoctrination the government screwals and NEA dole out.
I am in my late 20s and have friends who have gotten “down payments” from the parents, or “help with the bills.” I keep my mouth shut. I don’t think I’d take a dime from my parents or in-laws unless I needed it to buy food for my family. Moreover, I’d be insulted if my in-laws or parents ever offered to “help me out” (unless it was patently obvious that we had hit dire straights).
My stepdaughter recently lost her automobile in an auto accident. My wife and I agreed to purchase another auto, paid for in Cash so she would not have any debt.
She informed us that the auto we selected was unacceptable and she deserived a new auto. We congratulated her on her new found ability to fund her “Wants” as opposed to her “Needs”.
We also congratulated her on now being able to fund her own cell phone, health insurance and gym membership. We have not heard from her in a while, she is in Sacramento, CA living with in-laws who just bought a freshly built custom McMansion 10 months ago in Sacramento.
Best guess, is they will all have a “Come to Jesus” experience during the next year or so. Should be an interesting conversation about managing “Wants” and “Needs” and how to manage a budget.
Chuck….
If you’re going to pay for anything, at least pay for the health insurance. That’s the one thing that could really come back to bite you big time. You can and should turn you adult kids away when they want a shiny new car. But when she needs a bone marrow transplant or something and doesn’t have insurance? Gulp.
Kent,
She is 20, she was going to school full time in Sacramento and my Employer covered her as my dependent so long as she was a full time student.
When she opted for a new car that she felt she “deserved”, she droped out of school, hence she was no longer eligable under my health insurance coverage.
Her in-laws with the new McMansion in Sacramento had some marvelious advice “Don’t get sick”. I was dumbfounded, so goes the twisted minds of McMansion bubble folks.
who is going to tell mom and dad to shove off when they are giving you the bridge money to move into a more expensive area?
Right, especially if you’re used to a certain lifestyle growing up, it can be a difficult adjustment once you leave home. Some parents are all too willing to spoil their kids into adulthood. In a way, I’m glad I had to pay for everything myself: school, cars–and my own business mistakes. I may not be as “comfortable” as my parents were, but I have no debts, and know how to enjoy life by simpler means. That’s worth far more than any “happy money” from my parents.
I believe the parents “help” out because they don’t want to be embarassed with the appearance that their children have achieved less. It’s their way of keeping up with the Joneses.
It’s ok to trade in the Accord for a BMW or Benz if you get it off of Craigslist at a 50% - 75% discount from some flipper who can’t afford the cars anymore and have to make their mortgage payment!
I did it twice this year and have bought 2 beautiful Bimmers!!! Thank you flippers!!! Nicest cars I have ever owned and they are both paid for!
LArenter: That is so good!
Ironically, the current baby boom generation is the most ill-prepared for retirment in history and has also run up massive government deficits allowing the entire country to live beyond its means for years. I think it will be the 20-somethings providing the welfare to their parents in the long run.
Northern VA, you may be right. But I’m not one of them. I have lived well below my means and have a net worth of around $700,000 (and rent, don’t own). I have diversified safely into government securities and precious metals, in addition to stocks. I am hedging on interest rates going one way or another. I do have sisters older than me (I’m 47) who don’t save at all. I’m worried about them and I told them the last 15 years to save, save, save. They agreed it makes sense but never could get that discipline.
I am a boomer and sadly, I must confess that you are correct. In general, I am ashamed of my generation. But I believe that my generation just happened to be the first of the “spoiled brats” because I see the 20 and 30 somethings living high off the hog too. In fact, about half the flippers I have met while looking for a house to rent are 20 and 30 somethings who are looking for a quick buck. It is not just the Boomers…the “rot” in our society is cross generational.
I pay off my credit cards every month, have zero debt, minimal “toys” and “stuff”, drive a Civic, don’t drink or smoke, and have always “kept my nose to the grindstone”.
Until I found this blog I thought that guys like me who “played it conservative and straight” just ended up with flat noses…
I saw people making far less than me driving Mercedes, purchasing McMansions, and generally living larger than I would ever think they could. Since I always see other peoples behavior in terms of my own I could not figure out how this was possible. I told my wife she married a “loser”.
Now I know that it was all an illusion and “fake wealth”.
A lot of people are gonna be “put in their place”…
It is neither good nor bad…it just is.
I sympathize!
I’m much younger than you (probably,) and I’ve done very well. For years, I used to be mystified how people were living the high life. I just assumed that they made more money than me.
But, after a while, I was doing better and better, and that argument stopped making any sense so I decided to dig deeper, and came to the same conclusion.
Even today, I see it with my friends. They jet off to Rome, and Paris without a care in the world.
I probably make many multiples of their income, and am single, no dependants.
Unbelievable!
what did someone post the other day? in a recession, money is returned to its rightful owners.
Pen — that seems to be the curse of the most recent generations. When I was a kid — as in, pre-teen, my daddy let me hunt, shoot and blow things up with significant (not “illegal” at the time) fireworks without an adult present, but after being taught how to handle those things and how to be safe. Do you know any parents who would do that today? Sure, I took some risks that I won’t brag about today, but that is part of being a boy and growing up. Kids today who are denied the opportunity to be responsible for their own behavior will become adults who don’t know how to be responsible for their behavior. Just connect the dots. I’m just happy that I had the opportunity to blow up some bodacious stuff. My children seem to be turning out OK and I’s still on wife #1.
I believe the net negative savings rates of Americans applies across all generations. Sadly, as we rush to condem Gen X and Y, we so easily forget they are a product of an earlier generation.
When I was selling my Townhome more than one Middle aged Boomer told me they wanted a place for their 20 year old child because the child was driving them crazy. So I guess they meant to buy a 400K+ piece of property for this kid? My neighbors also said they had this type of inquiry but different parents/ buyers. I don’t know if these Boomers ever bought but I was rather stuned that somthing I busted my ass to buy back in the 1980’s could be bought as a toy for 20 year old kids. Thats big money or foolish home equity usage.
In the 1980s I told my dad that real estate never goes down. He laughed and told me I didn’t know what the hell I was talking about, he’s old enough to remember the 1930s. Then I saw the 1990s. Fast forward to today, he’s genuinely upset that I’m not buying property. It’s a real strain on our relationship. I chalk it up to the onset of senility, alzheimers, dementia, whatever. The point is, family pressure is ENORMOUS, and I really don’t fault people, especially young people in their 20s, who don’t want to offend mom and pop. (Taking their money is a whole other issue - no respect here for that.) I, on the other hand, have never had a problem with getting on someone else’s bad side… Who’s the better person?
Stick to your guns. You’ll have a nice entry point opportunity coming up.
A very similar thing has happened to my fiance’s sister. In Las Vegas, her parents/soon-to-be in laws encouraged her to buy an apartment conversion, AND SHE CLOSED IN SEPTEMBER 2005. On top of all this, the girl is a schoolteacher, she was engaged but the guy called it off, and my fiance was living with her awhile paying her rent to help her make the payments.
She’s been trying to sell the place because she can’t afford it (and she’s not trying to make any profit) but so far no luck- for obvious reasons. Who the crap would ever buy an apartment conversion right now?
I see no light at the end of the tunnel for my soon to be sister-in-law. But her parents are helping her out, so the parents are sharing the load for the collective stupidity.
Meanwhile I’m sharpening my bankruptcy skills as an attorney
There is light at the end of the tunnel..but it’s just another train…
LOL, that was good
If you liked that one, then you might like this one…
“Do to the uncertainty of the current economic conditions, the light at the end the tunnel has been temporarily turned off to help save money.”
Meanwhile I’m sharpening my bankruptcy skills as an attorney
You need to team up with an honest appraiser who knows WTF he’s doin’ and start a niche biz, suing the rubber stamper, know-nothing, appraisal hacks who have been punchin’ the numbers ticket for all the sleazebucket mortgage hucksters who created this mess. Most have to have E&O insurance in order to practice, so there’s your pay-off.
Fraud, incompetence, and malpractice would not be difficult to prove in this last boom period, as long as you have someone who has a background in the biz to help fill in the blanks.
Better get to the till before these E&O dudes get cleaned out.
It’s gonna be a bloodbath for them.
News today . . . consumer bankruptcy filings at their lowest level in 5 years. The credit card companies got what they wanted.
I will never pay one penny of interest or fees to those vultures.
Yep, they sure did. And they have free reign to change the terms and conditions of the card at their own discretion, charge whatever interest they want, administer countless fees and charges, and basically ruin peoples lives by bleeding them dry. Time to vote these crooked lawmakers out of office. We need to take back our government, voting in people who represent the interests of the general public, and not those of corporate america. And then, we can legislate responsibly, getting away from the greed which has allowed a chosen few to live like royalty at the expense of the masses.
Unpatriotic man… simply unpatriotic.
Revolving credit is NOT an installment plan. You’re not making fixed payments on your credit card debt, they are offering you a new loan every month.
I never insinuated that revolving credit IS an installment plan. I believe it is PREDATORY LENDING.
There’s always the jingle mail option.
No one knows what the future will bring, but my guess is that the energy crisis is going to make this a completely different housing cycle. That is, sure, in past cycles, it would take a few years to wash things out, then back to up, up, up. In this case, I think energy (especially gas) will continue to suck a greater and greater proportion of our income, to the exclusion of other things, including housing. Over the next three years, rather than see an improvement in housing, I think the depths of our energy predicament will become clearer and people will realize that many, many of these houses simply aren’t going to work in an energy scarce world and are not going to be seen as desirable places to live on a wholesale basis.
Should the energy situation reach crisis proportions , I’d guess it would strike hardest at RE markets in colder climes as well. If Heat is a necessity and AC is a luxury the maybe Florida is not doomed after all!!!
Nice thought, but we actually use more electricity on AC than on heat. Heat is also available by a lot of alternative energy sources, electricity (heat pumps), gas, oil, wood/coal stoves. Maybe the next bubble will be in woodburning stoves. Places like Hawaii can often get by without heat or AC though.
Thanks for thoughts folks , but I maintain that heat is a necessity and AC is not. That was my , mostly snarky, point.
As far as land to grow things by Bill in Phoenix - Bill - I read about a book from some guy (a tinfoil hat wearer like myslef) in which he argues for the fall of society as we know it and a return to communal farming etc etc. I can’t find where I heard about it or the name of the book , do you have any idea what I’m referring to? Thanks.
Read this concerning LNG investments… I would guess that if this type of investment pans out, then the natural gas markets in the US should stabilize somewhat.
http://money.cnn.com/2006/08/28/news/economy/lng/index.htm
To Huck Finn. I am not sure of the book you are talking about, but from the description, it seems like the author may be Joe Kunstler. There was a recent text of an interview with Kunstler and Matthew Simmons on http://www.theoildrum.com
LNG has a floor of $6-7/MMBTU.
So yeah, prices should stabilize at historically unprecedented high levels.
No. Read http://www.theoildrum.com. Interview with Simmons and Kunstler. They make good statements that the hottest areas (Phoenix, Vegas, Tucson) will suffer in the upcoming energy crunch. They say the northeast and upper midwest will be the best areas to live as long as you have land to grow things. I say 5 acres in rainy areas, not necessarily snowy areas. Northern California would be a good area. Lots ‘o rain to grow things with.
Wrong. It costs a hell of a lot more to cool a house than to heat it. I believe that Phoenix and Las Vegas will become uninhabitable 30 years from now, because the water bill will be $5000 per month and the electric bill more like $20000 per month. In the world after peak oil, using energy to turn an uninhabitable wasteland into a city just won’t be worth it.
If electric bills got to be $20,000 per month, there would be a brand-spanking-new nuclear plant churning out electricity megawatts in the center of every Sun Belt city, environmental objections be damned.
France gets most of its electricity from nuclear. If it came down to a choice between rendering the Southwest uninhabitable and building more nuclear plants — well, that’s not even a choice.
That’s not even counting oil shale, tar sands, biofuels and depolymerization, all of which become viable when the long-term floor under oil prices is seen to have risen into the $60-70 range.
Some how people managed to live in the Southwest before airconditioning. It wasn’t until I graduated college that I could afford to buy a car with a working airconditioner.
I look forward to a return to the days of the afternoon siestas!
Folks got along without AC until 50 years ago.
Huck Finn is saying that AC can go, heat can’t. Unpleasant, but a lot fewer folks would die of heat stroke than would freeze to death in an energy crisis.
Regardless, if energy goes costs in PHX go to $20,000/month there will be a lot fewer of us. The country can’t support 300,000,000 sharecroppers or nomadic herders.
Ahhh, a refreshing voice of reason, thank you.
peak oil? aside from being a bogus concept in and of itself, it has nada to do with electricty prices… I have heard a lot of whacky quasi-environmentalist theories but “peak coal” isn’t one of them and that is where most electricity comes from… and electricity isn’t expensive enough for many of the nuclear companies to build.
water rights are a legitimate concern for phoenix and vegas - why anyone wants to live in a rock garden is beyond me - there is so much better land all over the greater west, why Phoenix?
Actually, because of environment regulations, many power plants burn natural gas, not coal… especially if they were built in the last 20 years.
Jdd,
Please don’t write about a topic you don’t know about. In 1956, Hubbert predicted peak oil for the United States would occur in 1970. He was ridiculed. But he was right. Bogus concept my a**. I don’t consider myself an environmentalist, but I do dislike the wasteful society we have been (for decades). I like clean air too. And I’m in the camp of Austrian economics, which is by no means left wing.
Bill,
Are you saying that we reached Peak Oil in 1970 or that we eventually did, or that we eventually will?
Thanks
bruin, I’m saying (and it’s a fact) we reached peak oil in 1970 in the United States. The Prudhoe Bay peak was reached only 6 years after going on-line. Peak oil does not mean we will never have any more oil. It just means we passed the top of the bell curve and the fields produce smaller amounts. One field in Saudi Arabia, for example, peaked at 800,000 barrels per day output. Now it produces 500,000 barrels per day. No way is it going back up. We’ll never run out of oil. We will run out of inexpensive oil. We will cross the $100 per barrel boundary at some point and never see under $80 per barrel again at that point.
Environmental standards will be relaxed way before such damage to the economy is done. The US has ~600 yrs worth of coal but we don’t have the will to burn it…yet. Likewise on the nukes.
Rickets for everyone!
I’d draw a distinction between this Haas chick and most FBs, in that she accepts responsibility for her own decisions, despite the fact that people she trusted gave her catastophically bad “advice.”
I’m thankful that my father use to say to me ,”just do what you feel comfortable with “.Anyway , that’s what I would do ,and it’s paid off in life . I think my father had a interesting way of shifting decisions back to the party that was going to have the responsibility for the decision .
It’s the same with friends, they mean well ,but they aren’t in your shoes and don’t really know what your needs are .
By the time you are a adult you ought to make decisions for yourself ,and be willing to pay for your mistakes . If you except that you have to pay for your mistakes , than you think things out more .
accept not except ….oh the hell with it I didn’t edit this post .
Good thing they’ve figured out where the “market” is. Apparently no one else has according to all the other stories on this blog.
I think these “bargain hunters” will get cleansed with rest.
Like OC Renter’s Foreclosure Shark in trouble post.
Check it out.
http://bubbletracking.blogspot.com/2006/06/even-foreclosure-sharks-are-hurting.html
We were in San Elijo Hills yesterday. Prices on some of the developments are well below 2005 prices (and some are in line with 2004 prices, especially when considering all the incentives they are willing to throw in). That’s actual price drops by the builders, not including incentives — and you can get even more off than what they advertise, I asked.
Any honest appraiser who know’s WTF he’s doin would go right to that $589k auction price; and stick it as current “fair market value” because of the new condition of the property; current declining market conditions; and marginalized demand supply factors.
This will be the horror as foreclosures become the measure of the market, because they become the predominant motivation for sale.
And any idiot who would buy the house without researching it’s sales history or hires an appraiser who punches the L/O directed number (MF is probably clippin’ 25% of the flip value), deserves to have their clock cleaned.
HD74, you’ve clearly got it out for the appraisers & the LOs!
HD74, you’ve clearly got it out for the appraisers & the LOs!
After having my 22YO practice destroyed by newbie trainee’s workin’ for chump change out of rubber stampin’ bucket shops and the L/O’s who patronized them, so yeah, you might consider me a bit biased.
ISTR somebody earlier posted a link to some flipper bulletin board where the idiots were talking about how they could make money it they bought at a “20% discount.” No such thing babe. When you buy a house you’re PAYING MORE THAN ANYBODY ELSE THOUGHT IT WAS WORTH. At that moment you are the greatest fool. Theoreticly appraisals are supposed to tell the bank what the next smaller fool would pay.
As economist John Kenneth Galbraith described the situation in his 1954 book The Great Crash - 1929, “The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few as possible escaped the common misfortune.”
Winning an auction is information that you probably overbid. Bad news.
Winning a crowded auction is even worse news.
Call me when the auctioneer gives up after forty-five minutes with 80% of his original inventory.
Winning a crowded auction = finding out what economists mean when they talk about “the winner’s curse”…
“I think these “bargain hunters” will get cleansed with rest.”
They will be, I had a conversation with someone this weekend and tried to explain to him that it wouldn’t be a good idea to buy foreclosures before or after the steps for at least a year. He claimed that he was buying equity in SoCal. I tried to explain to him that the current equity situation is fools gold. He didn’t get it and got quite agitiated. I just laughed at him. It didn’t dawn on him that a broker was actually telling him not to buy. He later told me I was negative and shouldn’t be afraid to partcipate in the market. I started to explain to him my holdings. But decided I didn’t want to let my food get cold conversing with idiots.
I similarly went to a short sale seminar In San Diego looking for ways to improve my BK practice. I asked the guy giving the seminar if I should be there with my STRONG belief that the market will fall at lest by 30-40%. He told me to go home.
Anyone call after the show and complain about having Rich or Ben on? No death threats from the REIC? LOL.
Yes. Had numerous complaints that the show was one-sided and didn’t portray the other side of the argument. Mostly from mtg. brokers and a couple of real estate agents. But overwhelmingly had positive input that Rich & Ben were great! Hopefully they will come back soon!!
Wow, unbelievable… It’s interesting this weekend I realized how out of touch I was with this mania. My properties, repeat and referral business from past clients keeps me busy along with the fact I’m semi-retired and not aggressively looking for clients. Plus I’m not a real social guy to begin with. But I was at this function and couldn’t believe how misinformed or in complete denial some of these folks were… I was amazed. I wasn’t in a room of blue collar people either but highly educated and seemingly intelligent people. I was baffled. There also were about 10 realtors in the room not including myself. Some of the stuff coming out of their mouths was truly incredible. This blog has been educational, brought a whole new awareness. In short I see why people are pissed off. I’m not even going to tell you how many times I was in conversation and had to stop someone with the phrase “that’s not true or that’s not correct” and here’s the thing they weren’t even quoting NAR, CAR or god-forbid Gary Watts. Purely just pulling stuff out of their a$$ like they had never picked up a book or read a paper. I was amazed. It brought an unwanted light and a few could you help me questions, but my days of Tweedle Dee / Tweedle Dum are long over. The blood will not run down the street it will hemmorage violently if that gathering was any indication.
You had me laughing at “I am not a real social guy to begin with.”
I remember some of your early posts. Welcome to the jaw-dropping indignation party.
Mrincomestream-
Wow - I had you pegged all wrong! I apologize for my early treament of you and your posts. I always thought of you as a middle of road poster (a minor bull), and since I am a closed minded BEAR on this bubble I popped off a few too many times in your direction. Excellent post!
MIS,
LOL!! Good post. Now you know what we’ve been talking about all along. This mania mentality is definitely not confined to the uneducated or unintelligent. You know I’ve always given you credit for knowing what you were talking about WRT real estate (as you’re an experienced broker/agent), but didn’t seem to get how bad things were.
Welcome to the bear club!
Welcome aboard MIS :)!
It’s no different than someone buying Lucent @ $50 thinking they got a bargain because it used to be $70.
So, Mrincomestream ….Were any of the people at this party still wanting to purchase real estate in this market ?
Wiz-
If you can believe it… Yes
What are you talking about? Lucent’s at $2.31 today — and it can only go up!
Duh!
“She watched some of her neighbors’ comparable units skyrocket. But recently she’s watched them depreciate right back to her starting price.”
Now this is a story that everyone can understand and relate to. Once these tales become more common, the fear should snowball. Why plunk down hundreds of thousands of dollars for a flat or worse, depreciating, asset?? There’s no way this landing is soft.
So here’s an example of the negative wealth effect in action. Haven’t we had a few permabulls claim that people don’t check the value of their house like the stock market?
I can only imagine the mental stress this is putting on FB’s. Especially now that the “reset” is getting closer.
“So here’s an example of the negative wealth effect in action. Haven’t we had a few permabulls claim that people don’t check the value of their house like the stock market?”
I always respond to that one word: “Zillow”. I think there are a lot of FB’ers out there who check it weekly or even daily. I’d even venture to say a lot of the ones in deep denial won’t really start to worry until the Zillow graphs all trend DOWN in a few months.
Holy crap! I hadn’t even thought about that … people using Zillow’s Mis-Informed Guestimate as if it actually means something. I’m sure that will show up in the ‘History of the 2006 RE Collapse’ book and people will be saying “I can’t believe people were stupid enough to use to guesswork website to value there homes as if it’s an actual stock quote or something.”
It’s fun, but as an appraisal it’s worth what you paid for it. I do believe that when you look at the town or zip-code graph it probably isn’t to horrbile a picture of the market.
It could have been much much worse… she could have bought at the tippy top and watch her equity drain to less than nothing from day 1.
“Her parents, real estate agent and mortgage lenders all said, ‘Things will be so much better in three years.
If you believe home appreciation has been a ponzi/fraudulently manipulated scheme by CAR or NAR you can suggest it to King of Fraud Discovery at
http://www.frauddiscovery.net/
I did.
“Her parents, real estate agent and mortgage lenders all …”
Wait, she has more than two parents?
I don’t think the sentence means that all her parents are loan officers and real estate agents. I think it is saying that all these people=mortgage brokers, RE agents, even her parents were saying….blah blah.
Not only is equity evaporating, but loans are resetting. You can’t refi if your home appraises for less than you owe. This will sap the economy. Think of all the RE and Mortgage professionals? oh wow. The only ones who will make out like bandits will be the lawyers.
“The only ones who will make out like bandits will be the lawyers.”
LOL don’t forget the drug dealers, money launderers, gun runners and companies that build prisons.
But those people don’t “make out like bandits” they *are* bandits. No simile needed
Shucks SIRT, I thought bandits used guns and knives and wore silly masks. I was thinking of the US corporations like the tobacco companies.
Sorry, I respectfully disagree. The attorneys I know and have worked for are honest, hardworking, ethical, and have given *a lot* of free legal services to the middle class, working poor, and homeless. The profession does not need to be broadly accused of criminal conduct.
I am glad you have worked for such people. I wish the lawyer that owes me north of $20K in unpaid fees for professional witness work were such a person. Or perhaps the ones that gleefully destroyed my friend’s company with frivolous lawsuits. I admire your opinion, but mine comes from direct contact with vermin. I am willing to change as soon as a new creed of legal person crosses my path.
I think broadly, attorneys are hard working and ethical, I have had several run ins with corporate and school district lawyers however who were without question the least ethical and unprofessional idiots I have ever dealt with. Lucky for me they were idiots.
Al Capone used to give to charity, too, provided somebody was there to notice his generosity.
sigalarm: If the atty who ripped you off is licensed in California, you can file a complaint against that atty. Call the State Bar in SF or in LA and ask that the complaint forms be sent to you. An atty made the mistake of failing to represent my spouse. I threatened to call the local police/DA (fraud, misrepresentation are crimes) and file a complaint with the State Bar. Result: my spouse got all his money back within 1 hour!
The CA Bar has a client restitution fund to reimburse clients. As an expert witness, you should be compensated because, in fact, the Civil Code REQUIRES that you be paid. This fund will repay you up to 50k. You can also sue the atty in civil court (unlimited civil claim) for malpractice.
GH: I agree with you re: certain school district attys. Nonetheless, they are representing their client and are required by ethics rules to zealously represent the client. HOWEVER if the District is committing fraud, then that is a crime and a tort - you should pursue justice. If you are in CA and the dispute involves District insurance, then call Harvey Rosenfield’s office in Santa Monica. Insurers are afraid of him and Chant Yedalian (also in SM). (Both are attys.)
Speaking of Gun runners. Whilst shorting all the home builders and lenders , I try to find a few long candidates to keep a little balance in the old portfolio , which ain’t easy given my outlook for the economy. Besides Nestle(swiss neutrality and cheap foodstuffs, plus the added benefit of their Purina division which should go gangbusters when the poor F$cked seniors realize there ain’t no SS and inflation has eaten their savings and they’re forced to turn to a cheap protein source) , along with a couple of debt reclamation/loan collection companies(i don’t want to know how , just how much) , PHO (people still gonna have to drink water in the aftermath I guess) , some liquor stocks (Wasn’t it that sage , Homer Simpson , who toasted ‘Here’s to Alcohol - the cause of , and solution to , all the world’s problems’) - I figure small arms will be pretty hot in the Road Warrior future. Keep a little old fashioned protection in the night table drawer , above my gold bullion safe. So I like the looks of the chart for Smith and Wesson (SWHC). New highs every day.
Don’t forget security companies and “payday loan” outfits! Ought to do well in the coming years!
Thanks for the idea.
Slightly off topic but the top story at Reddit is Price Shock: US Homes (Graph) That’s a very popular web page and that’s a very scary chart.
Excellent, the price shock chart shows the decline in RE (land) values from 1890 to 1940. Per Harry S. Dent, this was due to technological revolutions (telephone, automobile, road system) that meant one no longer had to live very close to work. Currently, where I work half the employees work from home in other states. My employer cannot get people to move to So Cal for a normal salary anymore. However, we have meetings online regularly and are quite productive. I think a technological revolution may be underway.
They buy their cars with their equity; they pay their bills with their equity.
Pay bills with equity ? I know people buying boats and SUVs with the HELOC. But that’s discretionary spending. Bills are necessary living expenses. If there are people (not some negligible %) who depend on home appreciation as a means of funding day to day living expenses, then OMG ! I mean, I don’t even know what else to say, but OMG.
And I thought I knew a lot about the bubble.
There was an article in the NYT or USA Today or some other MSM outlet within the last 6 weeks about 40-50 year old white men who have essentially dropped out of the work force since the dot-bomb days and they and their families have been living off their home equity. So yes, be afraid, be very afraid.
Now that’s what I call a “productivity miracle”
No working, just living in an asset that pays you to do nothing. Now I know why Alan Greensperm was such a genius.
I read some time ago of a guy in valencia who did not get a job for five years (2001) and he did not have to reduce his standard of leaving even a bit!
I know quite a few people who have been living off their home equity. Just imagine, those who have racked up CC debt and use their “equity” to bail themselves out are effectively living off their home equity. Lots of this going on in So Cal, even by “professional, educated” types.
Met someone this weekend who was doing that, currently holding the bag on some piece of property in Florida. Asking me did I know of any hit the number type of appraisers in Florida. He bought this property and can’t get it refinanced can’t sell and won’t walk away because he lives on his credit lines and it would be a severe cramp in his lifestyle so he says if he has to walk away and ruin his credit. But get this after explaining this too me he wants to know what I think of the Phoenix market because he’s considering as he says “getting into the pre-construction game there”. For the first time in my life I was at a loss for words.
Clueless does not even begin to describe it. You almost have to feel sorry for such a schmuck. Phoenix, pre-construction … unbelievable.
I feel contempt, not sympathy. What little I have, I worked for.
I’m glad I wasn’t drinking anything when I read that post.
In fking-credible. Lazy jerks. The problem with these types is that regular , 8 hour a day work is impossible for these lazy ass’s.
“If there are people (not some negligible %) who depend on home appreciation as a means of funding day to day living expenses, then OMG……”!
That ‘negligible percent’ is truly the question …..
There will certainly be many individual factors that drive the market down (slowly I think), But literally paying for heating, food, phone, water & garbage …. that could be a nasty accelerant to handing the keys back earlier. My wonder is, what nationwide number of this type of borrower is really out there? They are much worse than your ‘run-of-the-mill’ FB, because anything less than a constant appreciation and they are done real early in the game of dominoes. This would be interesting to see the reason why they walked away from the house….. some of the first might be for this very reason.
Think of the home as a third income source for the typical two-earner OC or San Diego family which, in many cases, was the primary breadwinner for the past several years.
Follow every Hummer you see on the 15/5/805 to a Foreclosure in the not-to-distant future. You will see RV’s, Boats, Jet Skis and the wife’s silicone for sale in the driveway.
I buy 4 wheelers!
That’s exactly how I’ve been describing it. The **primary** breadwinner is about to lose it’s job — as soon as prices even “plateau”. Rough times ahead, IMHO.
To BA — if the truth comes out, and I have no clue as to how likely that is, you will be shocked at how many people did this — paid current expendables bills with their equity lines. It was, after all, “free” money (overheard in line at the soup kitchen, 2009).
A very good friend of mine has ridden his HELOC’s & subsequent refi’s up the market to the tune of over 400K over the past five years. And I know he paid off maxed credit card bills, taxes and all kinds of day to day living with the money. I pulled him aside and got him to refi one last time at a fixed rate (his resets were killing him each month) and swear to not hit that ATM again - I told him the blog feelings about the markets in general and his market in particular (Nassau County, NY) - and he told me that his house was appraised at “x” over his total loan amt (actually only a couple hundred K over - could be wiped out in a year) - and that it is different because it is on a canal, and that is waterfront, and there is only so much waterfront. I told him that he could believe that if he wanted to, but that every previous bust took down everything across the board and he should be prepared for that and not let himself be so borrowed up that he goes underwater on his LTV. He took my advice - but this friend is a well educated professional who just was drinking up the kool-aid and living beyond his already considerable means - I am afraid there are millions of people out there just like him to one degree or another.
These are truly scary stories ……
Apparently I’ve been living in a responsibility bubble. The “Millions” again is the key….. One Million ……noticeable impact; Five Million …. Crap!
lefantome,
If what I see anecdotally is any indication, that 5 million exists in California alone. Add to that Las Vegas, Phoenix, multiple cities in FL ++++++. You get the idea. This is why so many of us think this will be a VERY nasty downturn which will result in a recession/depression not seen in many decades (possibly worse than any before).
“Responsibility bubble.” I love it!!!
It does feel that way, doesn’t it? My wife and I were ‘living on the edge’ a few years back due to student loan payments and low income coming out of law school (many, if not most, newly-minted lawyers don’t make much $$$). I will NEVER EVER willingly live that way again. There is a hardly better feeling in the world than putting money away in savings.
This is what I argued over the weekend with someone whose answer to the ARM reset problem was “Oh, they’ll just refi into a better loan.” No, they won’t. They might have if things kept appreciating. But at 100% LTV (Julie’s ground zero) or worse, there is no relief. She stuck, period. Now, someone in the industry might chime up here and say “Hey, we do 100% refi’s.” Well, so do I. But we’re talking about saving her ass, not stomping her further into the ground. This gal probably just qualified with a 4% Interest Only ARM with a piggy-back second (HELOC) at about the same rate. Any 100% refi, if she could even qualify, would only put her deeper because the rates are surely double what she was used to paying. There is no relief left for folks like this. You find yourself in this position and you have any equity left, jump ship now!
Another thing….even if this gal had the equity to get some kind of a fixed rate mortgage, she probably wouldn’t qualify or even want to. I’m getting a lot of people know who are hustling in to refi ’cause their ARM is resetting.Even with rates in the low 6% (historically great) they about fall out of there seat when I tell the what their PITI is going to be. They’ve thought they were loving life paying that 3.875% rate on the 3/1 Interest Only Arm they got when they purchased the home and now reality slaps them in the face. Usually after I run the numbers on the fixed rate, they come back and ask “Do you have some kind of ARM with a low rate?” Uh, no. All the ARM’s are at, above or just below the fixed rate right now. Sorry, no relief there either.
Bingo.
You actually argued with someone about this?
I don’t argue about this - I explain the situation and the numbers and if the unfortunate individual denies the INEVITIBILE - living a substantially different/poorer life than they had planned - I further explain that there never has been nor will there ever be a free lunch.
Not for you,not for me, poor proles that we both are.
The fix is in. Tomorrows wage slavery will look eerily similar to our great grandparents.
Inevitable.
What is the wage slavery you describe? Bankruptcy payment plan? Does one really need to declare bankruptcy on a foreclosure if that is the only default?
It’s pump and dump. The smart money is already out. The suckers and FBs are gonna take it on the chin (or maybe take it somewhere else).
I’m wondering if the pump and dumpers might have overdone it this time.
She should quit crying and run out asap and try to get better financing. I’ve noticed that a lot of loan Co. are still giving out money. I really don’t think there’s a shark out there who will loan out to her and sell off her paper to some Chinese investors.
i’m hearing the same thing here in orange county, ca. very little refinancing is going on because most homeowners can’t afford to convert their ARMs into fixed rate loans, even at rates in the low 6s.
it’s pretty sad that interest rates this low are killing the market. what would happen if rates went to 8% or god forbid 9% (still reasonably low on a historical basis).
This is one of the half-truths perpetrated by David Lereah’s powerpoint presentation which was posted here in various comments over the past couple of days. In a slide entitled “Scenarios/Probability of Popping,” he suggests that price declines will only occur in 2007 if the mortgage interest rate jumped up to 7.8%, and in that case, he only predicts a 2.5% decline.
REALITY CHECK: Prices have already fallen by over 2.5% in many parts of the USA where homes are bought and sold, at mortgage rates below his “baseline” of 6.9% (at which level he predicts a 3.8% price increase for 2007).
The jump in interest rate from 4-6% is a 50% hike.
From 6-8 is 33%
From 8-10 is 20%
The direction from sub 4% teaser rates to anything today is a huge jump in interest rate.
When interest rates are low, isn’t that the time to get fixed financing? I feel many people got into this market using adjustable loans. Smart folks who had loans- refinanced and have a lower monthly or less priciple.
I stopped by a open house the other week while riding my bike around town. Realtor said that I might actually save money right now considering rates are going up. This was one week before Feds stop raising the rate. Plus, I heard somewhere that fixed mortgage rates for the last few months actually dropped? Are rates really going up that fast? And when rates go up won’t prices adjust downward? I think prices will start reflecting affordability again when all the specs are out of the market and all those that can’t afford are gone.
Two sisters are in adjustble rate loans - only way they could buy at the time - their words - “real estate always is a good investment and prices always go up - tax breaks - etc.”
O/T, but relates to SD market. We were doing some “trench work” yesterday, visiting open houses and new home developments. Every single Realtor we saw mentioned the slow market and how prices are “very negotiable” right now. One agent said, “you know, this was really unexpected…nobody could possibly have seen what was going to happen,” when talking about the market. Funny thing is, she volunteered that and assumed I knew what she was talking about — I didn’t even ask. People are getting desperate…I’m smelling blood. Still think this will take YEARS to totally sort out, though. We have to see all the exotics flushed out of the market first, before we really know where things will settle, IMHO.
Political soap box warning.
Just like this administration and the Iraq war. This wasn’t unforseeable, people foresaw it. They just weren’t the people that you decided to listen to.
I never understood IO loans in the 1st place! Name one other thing in the country that you can buy WITHOUT being able to pay for under the terms set forth?! If I made $30K a year do you think that a Ferrari dealership would let me buy one of their cars (”Hey guys, but they always appreciate in value, so when I default, you can just have it back!”).
Every person that took out this type of loan, and every lender that granted one, deserves to get their @sses handed back to them - and we can only hope (stupidly) that it won’t be at the expense of the US taxpayer.
Yes, the Ferrari dealership would let you buy the car, as long as someone else was to provide the financing:)
Check out any lease swapping website…after 4, 5, 6, 7 $500 - $800 payments people realize WOW! this payment is a killer….
The best two lines I ever heard about cars were these:
1 - Cars rust.
2 - In a month or so, that fancy new car that you just bought, becomes nothing more than the car you drove yesterday.
..and I am an autophile….
Cars don’t rust in California.
I guess that justifies the $1M+ starter homes in Compton
Is that because they get stolen and driven to Mexico, before they get a chance to rust?:)
Actually, I read an article a couple of years ago that Americans stealing cars in TJ was a big problem now.
That’s El Paso, TX.
most number of cars getting stolen are the old ones, mid 90s or so, basically for parts. they don’t even get to tj at all. chop-chop, i think, is the term. new cars are more difficult to steal and do not have big demand for parts. that means, selling them as is — very risky and more appropriate for for luxury cars.
Chop shop.
The most stolen cars are Japanese imports synonomous with street racing and custom. The top stolen car is an Acura Integra. Honda and Toyota car also factor in the top 20.
They do if you live close enough to the ocean
They definitely rust (badly) at the coast.
There is a reason to use IO…particularly a 7 or 10 year. If you have large bonuses, options in the money vesting, or other types of non-traditional income or plan on selling business or investment assets, IO could make sense. If one pays $50K this year, $30K next year, etc.. in addition to the ITI, then the payment resets lower after each principal pay down, unlike with fixed.
But this isn’t for the average wage earner, that is for sure.
There are lots of great uses for I/O loans. But they are not for everyone, and should be applied with care by a careful planner. They have been made WAY to widely available and improperly used.
Cocaine is a legal drug and can perscribed by a careful physician when appropriate. Now, what do you think would happen if cocaine was an over-the-counter drug?
I/Os are offered OTC. The FBs are addicted. Now the dealer is raising the price. The outcome is predicable.
In 2004 when we sold, we talked to a broker about current loans. We were pushed away from fixed, and toward ARM, and offered I/O. Just reading about the loans gave me the willies. We rent.
“I never understood IO loans in the 1st place!”
It has to do with price inflation and nothing else. In the early ’70s, I convinced a bank to lend me $13K to buy a loaded Porsche 911E. I had analyzed the market and knew that the DMark was rising rapidly against the dollar at such a rate that after one, two or three years I likely would be able to sell the car for the same number of dollars as I paid for it. In those days, as opposed to now, it helped that I had outstanding credit. I ended up driving that car for almost two years for the monthly cost of owning a Pinto and sold it for what I had paid for it.
Price inflation is the SOLE assumption that makes an I/O loan possible. Change the premise to price deflation and that type of loan evaporates overnight.
I disagree! There are great reasons for I/Os. Army No Va has it right, a couple of posts above.
Money from appreciation is the flippers mantra! “We can get cheap money and flip these houses…..We’ll make a fortune!” This is classic speculation and leverage. It comes with a heavy price if you are wrong.
I refinanced to an I/O and it was perfect for my needs: 1. Income that was high but going to be low for a while (I took 15 months off to hang with the kids) 2. We were definitely selling the house within 2 years. 3. LTV
This is going to be so much more common as the months go on. I know of a few different friends in Western PA, hardly a bubble RE market that have found some very friendly Appraisers and Mortgage Brokers help them extend the rope that will hang themselves.
What a lot of people don’t realize is that a lot of the jobs created by this mess have been very, very good paying jobs for those in the game. Many of these young punks selling these fancy new mortgages were making 200k + per year. Not to mention the Contractors, realtors, Bankers and others. This was a very white collar bubble, whether we respect these people or not, a lot were making Doctor money. And losing this many “Doctors” is going to hurt the economy a whole lot worse than losing some Walmart or even high-end manufacturing jobs.
That and the loss of the home ATM, increased interest rates from the ARMs, Gas prices and foreclosures nationwide will have a terrible affect on the economy.
I would say at this point and for the next year or so, cash and bear market funds are the key to a nice return.
Wait a minute, those insensitized to gravity indicators:
Foreclosure auctions in Orange County, California,
land of infinite wealth, youth, happiness and possibilities.
Frank:
It should read: OC land of infinite debt, many wealthy plastic surgeons, ignorance/denial and many possibilities for 5 years of debt repayment.
I’m headed out to live in San Diego in the late fall, maybe after Jan 1., 07, OC looks a little too weird, even for me.
It is a little weird but I am lifer in OC.
They are rare, most people come here to party it up a bit, sometimes on debt sometimes on wages, but they always move on and leave OC worse for the wear.
click here
$625000 Take over payments!! Two story home in rodeo
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Looks like its going to be worse than the last round(1990’s).Most back than had 7yrs.fixed that turned into ballon payments that came due.Most couldn’t refi because the values had turned upside down.They just walked away.
But, often those 7/30 or 5/30 loans in the 90’s just converted to an adjustable at a decent rate (rates had fallen, a lot) and the borrower could just keep the loan. Not so this time around.
” … not so this time around.”
don’t bet on that, widespread deflation may occur and rates could fall.
I just imagine how any could convince themselves that an I/O, ARM, neg. AMORT, etc. could be a good way to go when rates were (and still are) at 40 year lows and why would any believe or convince themselves that appreciation was guaranteed. If it was that simple, then we could all just leverage ourselves to the max and retire in no time at all…..
Please insert “can’t” as the third word in the above post.
The public is too dumb. They appreciation of housing has dwarfed interest rates…they didn’t have to worry their prett little heads about it. What’s a percentage point here or there when your house apperciates a minimum of 20% a year and possible 100% a year if you live on the coast in which a thousand people move in every half second.
The funny thing is she’s a “scientist”. I think this is the second time in a month we hear about a San Diego scientist being not very smart in her condo investment. Is it the same girl?
OT..Massachusetts inventory…single family, multi family, condos/townhomes…53,605 listings…land/lots…3,973 listings…MA is not a very big state
‘Real estate is age and stage-related,’ he said. ‘And I’m not a big fan of people buying things they can’t afford.
Famous last words.
Like I’m sure this guy was offering wise counsel to buyers during the big run up.
2-faced RE sales schmucks make ya want to puke.
Not sure where to stick this:
TOTAL PRICE DERECIATION FROM 1Q 1990 - 1Q 1997
LA County - 22%
SD County - 12%
Orange County - 18%
These numbers are printed as a reference nad are not to be construed as an indicator of the current bubbles price declines. I see these rates mistated WAY too many times on this blog.
Source = “The Bible” : http://tinyurl.com/rffzb
Those are averages; some areas saw little or no price declines, while others saw much larger ones, than those numbers suggest.
GS - I was into the 90s bubble-bust like people are into this one. Not a day went by that i wasn’t looking at the MLS from say 88-97.
Those who are thinking about buying in 2-3 years MUST CHECK OUT THE ABOVE LINK. RE bublIes are slow to unwind. I finally decided to buy in 1997 and with a lot of luck hit the bottom.
Geststucco - Of course, location,location,location always come into play…but there was not a SFH in So. Cal that did not drop at least 5% from 90-97. Those ‘averages’ are VERY accurate…verified in-depth by myself.
Those drops are in real dollars, right? I assume they do not take into effect the drop in value over the decade due to inflation?
i believe the posted numbers are nominal declines, hence the real declines were far worse.
The inflation adjusted, or “real” declines for LA in that period were 37%, IIRC. Source was the NY Times podcast.
More detailed is the Cagan Fire Burn study from First American, see here.
http://www.firstamres.com/pdf/Cagan_FireBurn_1104.pdf
PDF file!
using median prices. median homes differ from year to year in terms of size/feature/etc.
Yep. My parents’ home (nice home, nice lot in a good ‘hood in the SFV) declined by almost 40% (NOMINAL decline, BTW). The medians definitely underestimate what happened to specific homes, IMHO.
The internet was not in play during last downturn, neither was 24 hour news. The speed of information will drop this market quicker than the dot.com bubble. The houses in foreclosure were hard to find in last bubble. This time they are available to everyone. Brutal massacre on the way.
“That increase translates into greater opportunities for bargain hunters because lenders are cutting prices, she said. ‘We usually try to price it below market value,’ the agent said. ‘We want to get rid of it quick.’”
That tendency of lenders to cut and run does not sound like it will do much to help Gary “In-the-bag” Watt’s rosy price forecast turn out very well…
“‘I’m back to ground zero,’ she said. ‘Ironically, I’m back to my worst-case scenario.’”
A worse worst-case scenario: Prices have barely begun to correct to the downside after years of excess in speculation and lending to unqualified buyers, and ground zero will soon turn into a gaping crater.
Ironically, I’m back to my worst-case scenario
And tragically, she seems to confuse irony and tragedy.
If she’s in a San Diego condo, she’sat ground zero, that’s for sure.
OT but “real estate” is the second most popular search term at the NYTimes. It’s often on the list, usually near the bottom, creeped up to 5 last week, now only one away from the top spot!
http://www.nytimes.com/gst/mostsearched.html
1. china»
2. real estate»
3. college»
4. immigration»
5. iraq»
6. iran»
Ozarkian — thanks. Pls. tell us when real estate hits #1. It will be cool to note that, rather loudly, at the steak house.
Anyone have stats on how popular the search term “housing market” or “housing bubble” is?
search trends on google for “housing bubble”
http://google.com/trends?q=housing+bubble&ctab=0&geo=US&date=all
Seems the American housing bubble has become a matter of world wide interest……….
http://business.timesonline.co.uk/article/0,,8210-2332487,00.html
Most of the news about the American housing bubble has been world wide interest for about 9 months or more. Most of the news I have read has been from overseas. What are they seeing that we are not? I would say the truth!
Even today, we get a lot of pressure from my wife’s folks to buy. Oh don’t count on proces falling, etc… I’m like yeah right… If my software engineering salary doubles really soon!
What they meant to say is “We don’t count on prices falling, or our retirement plans are bust and we’re moving in with you, so go ahead and buy now and get that extra bedroom”.
You can share the bathroom.
Two very good articles. The Option-ARM, 100% financing, and stated-income loans have set up this market to be the riskiest I have seen in the last 30 years.
Regarding the drop in prices in So Calif in the 90s, it was 35% from 1990 to 1996. Some areas and price ranges dropped more, some less than this. Condos in some areas dropped as much as 50%. I know this because in the early 90s I drove around with big lists of foreclosed properties of the bank I was with then. And we did not have the insane lending back then that we have seen in the last few years.
I have seen people recently with Option ARMs with obscene margins, pre-payment penalties, with negative amortization over a thousand a month, paying rates 1.5% above a fixed rate…..and they can’t afford to refinance because they can only afford the artificially low minimum payment. Some loan brokers are getting rich on these loans. It is such a huge percentage of loans still being done it would stun you. It makes me sick seeing the situation some people are in. (My bank does not do Option-ARMs or 100% financing, which is why business is down to nothing lately.)
What bank is this? I might move my money there.
“Regarding the drop in prices in So Calif in the 90s, it was 35% from 1990 to 1996.”
It was only 35% reduction in terms of real (inflation-adjusted) prices, not numerical.
No. See my comment above. Some areas dropped 40%+ in **nominal** terms.
Actual , nominal price drops of 35% were common in coastal Southern California.
A man (or woman) has to sleep at night and look themselves in the mirror in the morning. Don;t know how some peddle that bullscat but good for you for staying the hell out of it.
I like whoever coined the term ” jingle mail”. I think thats what we will be seeing alot of in the coming months and years. With Borrowers in over their head with payments and the asset depreciating below the loan balance, many will just walk away.
Whats interesting to ponder is the chain reaction that ensues, loans go bad,securities markets face possible crisis or two, dollar comes under pressure, ………U.S standard of living begins to decline
Forgot to add to the chain reaction:Poor Benny loses the rest of what little hair he’s got.
my ex-babysitter just got her college degree this summer, she told me that she owns a Las Vegas property. No wonder, her mom is a realtor and bought RE for her and her sister. She finally find a front desk job and quit the nanny job. I wonder if she makes enough money to pay off her mortgage.
Past experience, if not forgotten, is a guide for the future