“The Fading Housing Market” In California
The Tracy Press reports from California. “The dipping housing market has yet to halt the number of building permits issued in Mountain House this year, despite the fact that home sales have slowed to a trickle. Just more than 200 home-building permits have been issued so far this year, according to Rick Coats, San Joaquin County building inspector. That’s 150 more than last year’s first quarter total. But only about four homes a month are sold.”
“‘More than two years ago, there wasn’t a subdivision out there that didn’t have a waiting list,’ Coats said. ‘It’s a lot different now.’”
“The number of homes for resale is also on the rise. This week, 46 existing homes are for sale, which is 18 more homes than three months ago, said Ann Middleton, a real estate agent in Tracy.”
“To entice buyers, the Mountain House median home price has plummeted from $722,500 in February 2006 to $596,000 this March.”
“But Mountain House is hardly the worst-off locale in the regional housing market, said Eric Teed-Bose, spokesman for (a) Mountain House developer. Home sales in Lathrop have decreased from 22 in March 2006 to two this month, and Manteca home sales have dropped from 74 in March 2006 to 27 this month.”
“Middleton said she’s seen developers in San Joaquin County slash prices. She spotted Pulte Homes, a Mountain House developer, drop a house price by $40,000. ‘As long as the developers are offering these huge incentives, people who try to resell their homes will not make their money back,’ she said.”
“Middleton suggests to her clients that they set the sale price just high enough to break even. ‘I think they just need to be realistic about what the price is going to be on the house,’ she said. ‘You’re competing against developers.’”
The Associated Press. “Darren Shimasaki, a teacher from Yorba Linda, bought a $425,000 condo last August with a stated income loan. Shimasaki, who makes about $55,000 a year, would not have been able to get a standard loan based on his income, he said.”
“‘In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,’ he said.”
“Shimasaki ended up getting 100 percent financing through two loans, including one that requires interest-only payments for the first three years before an adjustable rate kicks in. After that, he plans to refinance so he can keep up with payments.”
“‘I’m pretty confident that the housing market won’t bust,’ he said.”
The Fresno Bee. “For Jim and Carrie Lawrence, homeownership turned quickly from a blessing to a curse. The couple bought their first home, a two-bedroom in central Fresno, for about $240,000 in the summer of 2005.”
“After less than two years, financial emergencies and loan problems forced them into foreclosure. Last week, they turned over the keys and moved into a rental house, deeper in debt and with credit ratings even lower than before.”
“‘Everybody told us: ‘Just get in the house, get your foot in the door,’ Jim said. ‘But when you get your foot in the door, you get that golden shackle put on your ankle.’”
“Home prices in the area have been falling an average of 1% a month since November 2005, according to Carole Laval, an appraiser in Fresno, and the homeowners, especially those with spotty credit, couldn’t get a new loan.”
“‘They were buying too big a house, driving too nice a car and when they had to pay the piper, they couldn’t do it. They didn’t have it to begin with,’ said Charles Adkins, loan consultant in Fresno.”
“Fresno bankruptcy attorney Kristine Kelly said she has taken on about 15 foreclosure-related bankruptcies per month this year, compared with a negligible number last year. ‘It’s wreaking havoc on our clients. They don’t even have money to move.’”
Inside Bay Area. ” Some of the sharpest spikes in home mortgage defaults in California have surfaced in the East Bay, a study by the University of California, Los Angeles, Anderson Forecast disclosed.”
“‘The East Bay is definitely the place where the defaults have risen the most in the Bay Area,’ said Ryan Ratcliff, an economist with the Anderson Forecast. ‘It is not quite as bad as the areas surrounding Sacramento, but the defaults are up a great deal.’”
“The unsettling outlook was fresh evidence that the ailments that have afflicted the fading housing market have yet to run their course.”
The Recordnet. “Mortgage default notices are up across the country, and that’s true here in San Joaquin County. About one in 10 homes on the market now is either a bank-owned foreclosure property or a short-sale.”
“‘It is a good time for the buyer as long as you’re smart,’ said Dale Gray, CEO of the Central Valley Association of Realtors.”
The Desert Sun. “Home foreclosures climbed in February across the Coachella Valley, up to 62 from just seven at the same time last year. Mortgage default notices jumped to 282 valleywide in February, up from 104 in February 2006, according to DataQuick.”
“‘Some people were counting on home prices to continue going higher, and they would buy themselves out by refinancing,’ said economist Esmael Adibi, of Chapman University. ‘Of course, that’s not happening.’”
“‘I’m aware of a significant number of loans that were interest-only, 100 percenters, adjustable rates - 3-year, 5-year adjustables - and they’re starting to come due right now,’ said John Sloan, Realtor in Palm Desert.”
“Now, rising inventory levels, nearly 9,000 homes were on the market by mid-February, according to the California Desert Association of Realtors, mean competition is stiffer.”
“Adibi said inventories in the Coachella Valley are rising in part because speculators are trying to sell properties as home prices remain flat or decline, as are homeowners ‘who did not anticipate fully the correction in their interest rates on their mortgages.’”
“‘Those who bought in late 2005, they have barely any equity,’ Adibi said.”
The Orange County Register. “Experts say that these ‘foreclosure rescue scams’ are proliferating and that such frauds are contributing to the subprime loan industry meltdown. With overextended homeowners teetering on the brink of foreclosurebecause of the housing market slowdown, law enforcement expects to see a lot more cases in the future.”
“Since the perpetrators have no intention of repaying the loans, the homes usually end up in foreclosure anyway, and the mortgage companies that issued the loans end up taking the house back and reselling it at a loss.”
“Four Orange County-based subprime lenders were used to refinance 12 of the 19 loans mentioned in the federal indictment against Edward Seung Ok and his associates. Two attorneys specializing in mortgage fraud said as many as half of the ‘early-pay defaults’ are due to fraud, and early-pay defaults have been a major reason behind the recent earnings losses reported by subprime lenders.”
“‘Mortgage fraud is a huge part of (the subprime meltdown),’ said attorney James Brody.”
“‘It’s almost obscene how prevalent it is,’ said Gregory Annigian, an Upland attorney representing a woman who says she was duped into acting as a straw buyer in one of the cases. ‘You have phony notaries. You have phony appraisers. They suck the equity out of (the home), and (the owner’s) in foreclosure.’”
The Bakersfield Californian. “(Broker) Michael Marlowe said affordability is the silver lining behind a recent report by the California Association of Realtors that Bakersfield’s median home price declined by 5.1 percent to $280,000 between February 2006 and February 2007.”
“‘The value in Bakersfield is pretty good,’ Marlowe said. ‘Our home prices won’t drop as much as other areas because of our affordability to begin with — our original affordability.’”
“Local real estate agents have welcomed the index as a nugget of good news amid a series of troubling reports. The number of Kern properties entering some stage of foreclosure in February was 634, almost 31/2 times the total in February 2006, according to RealtyTrac.”
“Local appraiser Gary Crabtree, who makes people in the real estate community wince with his public prediction that Bakersfield’s median home price will decline by as much as 6 percent in 2007, says the forecast would be worse if not for affordability.”
“‘We still have that going for us,’ he said.”
‘What seemed an impending home foreclosure crisis when the California Legislature held hearings in January is now a full-blown meltdown.’
‘The woes are widespread in the state. The metropolitan areas of Merced, Modesto, Stockton-Lodi, Yuba City, Oakland, Vallejo-Fairfield-Napa, San Diego, Riverside-San Bernardino, Santa Barbara-Santa Maria-Lompoc, Yolo, Santa Rosa, Salinas, Bakersfield, San Luis Obispo-Atascadero-Paso Robles also rank among the nation’s highest for rapid increases in delinquencies.’
‘Mortgage default notices and foreclosure activity are likely to continue in the Coachella Valley, Inland Empire and Orange County through the year and possibly into much of 2008, said Esmael Adibi, director of Chapman University’s Anderson Center for Economic Research in Orange. ‘Some people are very hopeful we’ll come out of this very quickly, but I don’t think that’s going to be the case,’ Adibi said.’
‘In January, the state posted 3,592 foreclosures valued at $1.51 billion, part of a trend that Sean O’Toole said is alarming. ‘Of the loans returned in January, 60 percent were originated in 2005; 30 percent were originated in 2006,’ said O’Toole, who is a real estate broker in Discovery Bay.’
From the SacBee opinion piece:
“Legislators must have the courage to stand up to the lending industry, which continues to oppose stronger California laws, and protect consumers from reckless, abusive loans. The home mortgage crisis in California is not going to be self-correcting.”
Wanna Bet?
…and protect consumers from reckless, abusive loans.
One question: Who’s being FORCED into those loans???
Why NOT stop bad lending practices? Why not put a cap on refinancing penalties? For goodness sakes.
Why NOT stop bad lending practices? Why not put a cap on refinancing penalties?
The reason not to cap prepayment penalties is because it would raise the interest rate at the intro period. You see, the prepayment penalties allow a lower rate into period for all the speculators to voluntarily take. If you don’t want a prepayment penalty, don’t accept a loan that has one.
Seeing “Legislators” and “courage” in the same sentence makes me laugh.
In a few months, I predict this cumbersome sentence can be shortened considerably:
The metropolitan areas of
Merced, Modesto, Stockton-Lodi, Yuba City, Oakland, Vallejo-Fairfield-Napa, San Diego, Riverside-San Bernardino, Santa Barbara-Santa Maria-Lompoc, Yolo, Santa Rosa, Salinas, Bakersfield, San Luis Obispo-Atascadero-Paso Robles alsoCalifornia rank among the nation’s highest for rapid increases in delinquencies.Thanks, because the three areas I’m watching – Chico, Redding and Roseville weren’t on the list.
Fresno was not on that list either. Probably left off by mistake.
Higher than Florida? I doubt it.
Rate or total numbers?
California is very over leveraged. We, like Florida, are seeing middle class flight to affordable areas.
But overall, Florida will take it worse?
Got popcorn?
Neil
They left off Death Valley. Santa Barbara’s going down the tubes but Scotty’s Castle and Dante’s View are going gangbusters. Better buy now because they’re not making anymore parched inferno land.
Thank God for that.
That’s an avg of $420.4k per foreclosure. Nope, still can’t afford that on $100k/yr salary.
Next.
Right on. Prices are still in orbit as far as I am concerned too.
Don’t buy until households earning less than $100K are underwritten out of the market for houses that cost over $400K!
Didn’t that pretty much just happen?
The stories we read about today are tales of woe from FBs that did themselves in last year or earlier.
The stories we’ll read about tomorrow might be indicated by the tax liens, bankruptcies, and preforeclosures I see all over the place, in my area at least. There are a lot of people on the edge around here, and the upcoming loan resets should push them over. From foreclosure.com, by Zip code:
90401 - 38
90402 - 113
90403 - 156
90404 - 153
90405 - 225
“Didn’t that pretty much just happen?”
Barring unforeseen subprime bailouts, I would have to answer with a definitive “Yes.” My optimism that bailout proposals die in the water has increased since the CIC weighed in against them on principle (not that I don’t expect the unprincipled blue state party to keep trying…):
‘The Bush administration has ruled out a blanket program to help homeowners stave off foreclosure, reasoning that it’s “not an appropriate role for the federal government,” White House spokesman Tony Fratto said.’
http://www.courant.com/business/hc-subprime0401.artapr01,0,2650307.story?coll=hc-headlines-business
Well strip my knickers and call me baby! Finally the shrub administration did something I agree with. This is a first for me.
Now if the Gropemeister says no bail outs for CA I’m going to have to consider changing parties.
You can always vote for Dodd, Hilary or Obama. They are calling for bailouts of the FB victims - hence a bailout of Wall Street and big banks with your tax dollars. Any decent self-respecting Democrat should scratch those three losers off their list. As an independent, I will vote against anyone who calls for a bailout.
there was a time when Nixon (after Kennedy beat him and he then lost a bid to be Califronia’s Govenor ) was considered unelectable even as the town dogcatcher.
I wouldn’t be surprised to see Gore nominated and then elected as the 44th President of the United States of America.
Imploder, if this blog had a rating system, you would get a +5(cynical) for that last one. Unfortunately, you may be proved correct in the fullness of time. That’s when I start applying for my papers elsewhere.
I think you misread. I’m completely against any bail out in any form. I was just shocked that the shrub did something right.
Imploder, you and I can hope Gore enters the ring again. I’d vote for him over the O and Hilary any day.
If they were making a movie about the choice for president in 2008, it would be entitled “Field of Nightmares.”
Is there ANYONE, rep or dem, who doesn’t look like something that’s been sitting at the back of the bottom shelf of the ‘fridge for a couple of years?
This is going to be aweful.
On the other hand, what could be worse than the last 6 1/2 years? Divided government such as 1994-2000 seems our best option. Then the two parties can prevent each other from hurting us.
I am a registered, die hard democrat. I will not vote for any candidate that supports a bail out. If Pat Buchanan was running against a pro-bailout democrat, Pat would get my vote.
So in other words 90% of the problems seen by California are early payment defaults–or most likely fraud. A $1.5B problem.
We ain’t seen nothing yet. Bring on the reset waves.
Most recent loans in CA most likely involved fraud in terms of inflated income declarations etc. If they did not, prices would not have gone so high. The big problem is people borrowing far more than they can afford to repay. That is a BIG problem for California.
Foreclosures to date are like the little “Chef’s treat” that is sent out to diners while the menu is being perused. I expect the appetizers to arrive about September of 2007 with the main course arriving about nine months later.
I like to call these Amuse Bouche. These are pre-appetizer snacks. Mmmmmmmmm can’t wait for the main course.
http://en.wikipedia.org/wiki/Amuse_bouche
“Debts and lies are generally mixed together.”
Francois Rabelais
But, we can refi our way out next year because real estate (in California) only goes up. Don’t you think? eh? hehehehehehe
“Most recent loans in CA most likely involved fraud in terms of inflated income declarations etc.”
Yep, all those liar loans. How many of these FB’s are going to step up for a bailout program and admit they knowingly provided false information on their loan application? I’m starting to worry less about the prospects for a bailout. I just think there’s too much fraud wrapped up in this subprime mess to make that any real possibility.
Naw, none of these liars were in the wrong, they were victims. These victims were handed papers full of unreadable legalese by brokers who voiced promises that they could easily re-fi when their loans reset. It’s the broker’s fault. And the lenders. And the regulators.
It’s everyone’s fault but their own. They should be compensated. Their loans should be paid off by the victimizers. If the victimizers can’t pay them then the taxpayers should.
(Yeah, this is sarcasm, for those who can’t tell.)
It is a goot thing no one with a credit score over 700 lied on their applications. I would be worried if this mess was not limited to the sub prime arena
“Early payment default” fraud cares not for loan terms because the criminal parties never intend to pay beyond the first few payments, if at all. Getting the deal funded and money in hand is all these fraudsters care about. Wait ’til we see what goes down in the months ahead as we’ve just uncovered the head of this monster.
Appropriate portrait. This from “Home-a-Loan” on Friday’s Desk Clearing thread:
Isn’t this what is referred to as “crowning” during childbirth?
and then
Nurse! Nurse! Episiotomy knife, pronto! Stat! This baby’s a Big One!
Very funny guy, Home-a-Loan is!
Hey ex-nnv,
Was up your way last month and noticed a “bridge to nowhere” being built near Washoe hill/summit/whatever. What’s that all about??
The freeway that has been in the process of being built forever.
The contractor that was building it decided to stop -winds in the area made it to dangerous to continue. They would continue if the state agreed to pay for the increased risk. Sham.
““Since the perpetrators have no intention of repaying the loans, the homes usually end up in foreclosure anyway, and the mortgage companies that issued the loans end up taking the house back and reselling it at a loss.””
Poor, poor lenders. It breaks my heart to see them take these loses.
NOT!
Don’t feel sorry for the lenders at all. If you drop lending standards to nothing you should be prepared for the consequences. Lending standards of old would not only qualify a borrower, but also shield the investor against fraud. Any one could have seen this coming. You’re supposed to make it hard for the criminals, aren’t you?
Yep, lenders deserve some losses. Maybe the CEOs don’t care much as they got big bonuses and are set for life.
How is Reno doing lately, ex-nnvmtgbrkr?
It’s a complete disaster.
Disaster sounds about right…..no need to elaborate.
The real estate section this weekend promoted a house as easy to live in for two families… its getting bad in NNV.
Perhaps one should substitute the word “Ass” for lender as never, ever, ever in the history of world commerce has a real lender lent money so ignorantly and stupidly as what has collectively been done (and continues to be done) globally as we are seeing today. Wonder what some of these “Asses” would “lend” out on a dozen or so tulips these days?? Think that definitely these Asses deserve to harvest ever seed they have sown.
Have you checked your portfolio recently? You may be one of those “lenders” who is going to suffer the consequences.
Any MBS or CDOs in your bond fund or pension plan?
I’m clean……but that doesn’t mean I/we won’t suffer the consequences somehow, someway.
Here is data from OC Renters blog Bubbletracking on LA County inventory.
Population 2007:
01/01 Listing per population ratio 1:288
01/01: 35,646
01/31: 36,715 (6,805)____01/06: 27,732 (7,309)
02/28: 41,251 (6,300)____02/06: 29,420 (7,089)
03/10: 42,031
03/20: 43,761
03/31: 50,730
This is from zip realty. That looks like some pretty significant jumps. Some ARM rest pain perhaps.
LA Inventory
Population 2007:
01/01 Listing per population ratio 1:288
01/01: 35,646
01/31: 36,715 (6,805)____01/06: 27,732 (7,309)
02/28: 41,251 (6,300)____02/06: 29,420 (7,089)
03/10: 42,031
03/20: 43,761
03/31: 50,730
Some Arm reset pain perhaps.
No, just the usual ramp up to the highly touted spring selling season since spring began March 21.
Did this teacher from Yorba Linda–Darren Shimasaki–just effectively tell the Associated Press he’d committed mortgage fraud!?
Yes, he did. But only on one place. Casey confessed to 8, and he’s still not in an orange jump suit. Apparently, from the article the magic number is 19, for the Feds to care.
Perhaps…but he DID just let everyone know that he is as dumb as a rock (note his continued optimism about the housing market in the face of all contrary evidence…and he is not even an industry shill).
That YL district “supposedly” has the best schools in Orange County. So one would have assumed that it also attracts the “best” teachers.
If this guy is the representative of the “best”…America is doomed
and what lender(or lenders) would give him 100% financing??
the lender was Ohio Savings & Loan based on public records. 80% 1st TD and 20% 2nd TD. if he pays a normal payment based on 6% interest, his PITI+Association Fee is approx. $3,248 per month, which based on the income stated in the article is 70% of his gross pay. even if the payment is based on 5% interest the payment is still around $3,000 per month
the lenders deserve their losses as do the homeowners (especially those who have college degrees and are supposedly educated).
unbelievable how a lender could make this type of a loan
lender per public records is actually ohio savings bank, not ohio savings & loan
Yes, but according to Shimasaki “‘I’m pretty confident that the housing market won’t bust,’ he said.”
He will not face market reality until August of 2009, when his rate resets. That is exaclty why the market is sticky on the way down. By September of 2009, Shimasaki will be unable to make his first reset mortgage payment (forget refinancing!) and he will toss the keys on the roof. Until then: continued denial.
Consider in the 1990s that the market peaked in June, 1990. Maximum foreclosures did not occur until mid 1995, even though prices bottomed out in mid 1994. It will take 5 years, until June, 2010 for us to get to maximum foreclosures. The prices will be stabilized at the bottom, but many, many people will drain their bank accounts, 401(k)s, kids college funds, parents resources, etc. before they realize buying at the top of a bubble, at prices they could not afford, was an error they for which they will pay the rest of their lives to some degree. They will do with less, they will have less with which to retire and they will work an extra 5-10 years.
I like that kind of talk. Especially the part where they drain their other assets and have to work and extra 10-15 years.
What other assets? First, a lot of people cashed out whatever they had to get into the house in the first place, in anticipation of future appreciation. Second, any other investments are probably going to take a hit as the economy worsens. It is quite possible that that $100,000 IRA could easily be $2o,ooo by the time they try to cash out (and pay penalties, taxes, and such for “early withdrawal”).
IAT
Yes, the FB’s certainly have it coming to them.
However, I, for one, hope they realize the futility of their situation, and bail before depleting their non-recourse assets.
Why throw good money after bad.
Paul
“He will not face market reality until August of 2009, when his rate resets. That is exaclty why the market is sticky on the way down. By September of 2009, Shimasaki will be unable to make his first reset mortgage payment (forget refinancing!) and he will toss the keys on the roof.”
Actually buy using credit cards, personal loans from parents and friends, etc…people can continue past this date for a couple of years. It’s only after exhausting and tapping everything, including their 401k, that they go BK and through in the towel.
I saw this personally in the 90’s downturn. A couple I know made it all the way until 1997 by tapping everything, and I know several that made it until about 1993 or so by cashing in their savings.
“Yes, but according to Shimasaki “‘I’m pretty confident that the housing market won’t bust,’ he said.”
This man is backing into buzz saw while wearing smiley face mask…
Why tap the 401(k) or IRAs if you’re in the process of going down in flames … Those assets can’t be touched in bankruptcy. Better to max out on 401(k)/IRA contributions while tapping every last bit of credit available to you until you file BK. Then at least when you come out of BK, you have your retirement accounts. Sounds like gaming the system, but if I were in that desperate situation, that’s what I would do.
How due you determine loans of public record? I am working on foreclosures and short sales in Las Vegas and just don’t know how to find the loans of record. Canb someone advise me on where to search?
Where I live, I just go online to the borough (equivalent of county) recorders office. Probably have the same thing in LV.
This might be the place for LV:
http://www.co.clark.nv.us/recorder/OR_SRCH.htm
“That YL district “supposedly” has the best schools in Orange County. So one would have assumed that it also attracts the “best” teachers.”
Yorba Linda is a pretty decent middle-class district of Northwest OC, similar to Anaheim Hills and the S OC. I once went to the Richard Nixen Library there(did not take the tour however). There was some new multi-housing townhome/condo tracts going up here and there along Imperial hwy: maybe our friend purchased one of those units. There was one area of YL up in the hills which featured expansive ‘million$ ranch spreads and new construction/teartowns/rebuilds by specu-investors/ignorant FB’s of more new ranch spreads.
YL is a nice outer classic rural/urban exurban community tucked away in the far Northwest corner of the OC but in the larger overall state of the current Cal/national RE market YL RE will decline, and it’s rate of decline will mirror that of S OC’s better areas.
YL is best school district in OC. Give me a break please.
And what does that have to with the price of tea in China. YL is mostly made up of newer FB’s who greatly overpaid and a small percentage of older homeowners who actually raised their families there and have equity. But overall, the area will implode. There are illegals in the surrounding areas and when unemployment spikes, it will get ugly.
Yorba Linda is Corona adjacent in the far northeast corner of OC.
Hot as hell in the summertime.
10 minute bike ride if you know the secret path.
10 minute bike ride if you know the secret path.
I’ve got a hunch this is one secret that’s easy to keep…
Must be the Santa Ana River bikepath. Just a guess. Pretty fast clip. Top speed for world class cyclist is 35 mph, so YL to Corona must be 35/6= 5.83 miles. Haven’t Cycled in a while but have done quite a bit of recreational cycling all over LA/OC counties in the past.
I stopped in the nixon library souvenir store, just to pick up a elvis-nixon t-shirt…
I knew his sordid story already, didn’t need to go in his library and reconfirm it.
A bit of history:
http://en.wikipedia.org/wiki/Elvis_Meets_Nixon
“‘In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,’ he said.”
Oh my gosh, indeed.
And if this is what we have teaching the kids of today, well………
When they see their teacher living in a cardboard box, that’ll be instructive, don’t you think?
Not to worry. He’ll be there in a few years when he refinances.
I Googled Darren. He’s into RPG’s and studied at Cal State Fullerton. If I didn’t know he was going to be homeless in a few years, I’d think he sounded kinda’ hot!
Eeeeeewwww.
I continue to marvel at the resilience of the SF area market in particular. The YOY number were basically flat, to slightly up in ’06. I would have thought we would be plummeting given the prevalence of IO and Neg ARM loans (supposedly over 70% of all mortgages in SF over the last 3 years), not to mention stratospheric pricing for properties to start with.
Some of the market price appreciation/depreciation numbers are basically fake, given that they are based on MLS listed prices versus eventual sales price. People are allowed to relist homes at cheaper prices when they don’t sell on the first price listing, and the sales number that get reported into the final stats is relative to the second (sometimes 3rd) MLS listing. (I personally think this should be illegal, as it distorts the market view). Regardless, things still seem to be holding sky high in SF.
Does anyone have any observations of what’s happening in SF proper?
> I continue to marvel at the resilience of the SF area market in particular.
The draining is only starting to begin. The key is turning off the appreciation spigot.
Late 2005 was the end of the “manic” phase, 2006 was momentum, 2007 is last gasp for the boom, it will be 2008 before ugly reversion to the mean causes real, real pain.
Most all of the problems seen now are related to fraud or people getting shoehorned into homes they blatantly could not afford. These are the early payment defaults. We are seeing relatively few resets, yet. Literally starting this month begins the big uptick in the number of problems associated with this. There is a great graphic that shows the number of resets coming down the pipeline in the next 2-3 years.
Smithers! Release the hounds!
http://www.smugmug.com/photos/136440158-O.png
I was not in SF during the early 1990’s but many of my friends lived there. I can tell you the downturn for SF will not be as severe as the bubble areas like Sacramento, the valley towns and San Diego. San Francisco has a deep pent up demand. In 1992-95 I did home loans and refinanced many of my friends in the bay area into lower rates. This was a time when values were cratering in many zip codes and underwriters flagged loans in declining areas, demanding higher credit, more equity, lower LTV and greater cash reserves. The SF penninsula and Marin County did not have any underwriter’s flags. I am not saying properties did not drop a bit in value, but you did not see the 40% declines like Sacramento experienced. Patient buyers could get better deals, as pricing was down slightly and flat for years, but you had to buy in 1996-97, after letting inflation do most of work for you. (Stagnent price but higher earnings)
This did not hold true in the East Bay, or other areas where the builders drove the market down.
I just mention this to you so you will have realistic expectations. That being said, I do believe this bubble is much more manic today than the early 90’s and if it leads to a general econimic downturn, even SF penninsula values could drop somewhat.
If someone more familiar with the area during the early 90’s has a differnt experince to share, I welcome you to comment.
> even SF penninsula values could drop somewhat.
The thing is that on the penninsula, much of the buildable land is locked off in “open space”. In comparison to the 90s, there is that much less space. The only reasonable way to get modern construction is to do a teardown of one of the older tier houses. With Prop 13, meaning expenses are low for existing homeowners, existing inventory only comes on the market when owners are forced by exogenous events or when the price is right.
For instance, it seems to me that there is still very much price premium for areas such as the San Mateo Highlands. The right location goes quick and price is at or above listing.
SF Peninsula prices have dropped somewhat - as much as 10% as far as I can tell. But they seem to be flattening now. I’ve lived here off and on since 1957, and IIRC (I came here at age 11) it’s been relatively expensive at least since then.
Those who call it a socialist city-state have a point, but I would add that it’s a rich one. Many of the rich and merely affluent residents support public services such as schools, libraries, and hospitals with voluntary contributions of money and time. More controversially, such contributions also go to land trusts, which buy undeveloped land and give it local open-space districts. As a tree-hugging trail runner, I’m all for that, but I must admit it tends to keep RE prices high. And since it is a Peninsula, surrounded on three sides by water, it is literally true here that there is no more buildable land.
Another aspect of the Peninsula which is absent in much of California is its long history. Housing development clustered around the railroad, as it did on Philadelphia’s Mainline; there are real cities with revitalized downtowns and families who have lived here for generations. Flippers and unwise FTBs are present here, but not in huge numbers. Especially on the west side, most people are long-term owners, many of whom intend to die here. At least half of the minuscule inventory which has been listed recently in my neighborhood has become available due to the death of the owner/occupant.
This not to say that prices cannot decline further - how much I don’t know. But my neighbors and I aren’t worried about it.
Giorgau, I didn’t see your post before finishing mine - we’re on the same page. I live in the San Mateo Highlands, having bought here when it was still unknown and reasonably priced. There are only two homes on the market in the Highlands right now; they had their first open houses today, with great attendance. They should sell in a week or two, for asking price or more.
Cover story of the SJ Mercury News reported NW Santa Clara County housing market is red hot. Prices are up, not down. The cities are: Palo Alto, MTV, Sunnyvale & Cupertino.
There are a number of USGS studies that show remaining open space to be only a small fraction of the total land which would be quickly used up if development trends were to continue. The bay side of the peninsula is considered nearly at full utilization, yet low density and often cruddy development is the rule. Simply allowing four to six stories along most of El Camino Real would inject a huge amount of units where they are most demanded. There are many factors that combine to make San Francisco Peninsula prices as high as they are, but then open space really can’t be blamed. Predominantly low density zoning is a factor, but even that does not explain the whole mess.
Hey, Gladwyn, is that you?
Agree totally. People forget that up is buildable. I happen to live on the 6th floor of an 11 story apartment in San Mateo near downtown and I love it. Except for wanting some land so I can plant some trees and grow vegetables, living in the air is ever so much better than being on the ground.
> Those who call it a socialist city-state have a point,
It is, and it gags me.
The whole area is in slow lockdown mode so as to exclude all but the most loaded outsiders. Simple example: the southbound exit lane off 280 at Bunker Hill Road used to be 2 lanes. It got reduced to 1 - for what reason? Surely not safety. When traffic on Rte 1 along the coast to Half Moon Bay was closed due to Devil’s Slide in the spring, I would regulary see traffic backed up onto 280 southbound because the exit lanes had been compressed - a highly dangerous situation in the rain.
I’ve only been around here for a few years - renting - but remain Gaijin. The city council is like a Japanese corporate meeting, all decisions announced in public have been decided privately beforehand.
Buying here would truly be a lifetime committment - there is nothing decent for less than a million.
However, I have seen some properties with the not so perfect locations sit for a while. Example: nice one on the corner of Parrott and DeAnza been sitting for months, while those higher up go fast and expensive.
But other than that, it’s a beautiful area.
” I continue to marvel at the resilience of the SF area market in particular.”
Once it’s clear flat prices are not some short term “fluke”, fewer & fewer buyers will be willing to shell out insane amounts of money with no prospects of increased value anytime soon. Everyone knows buying is more expensive than renting, but as long as there was appreciation, the premium was “worth it.” Now it’s not.
Lisa - You hit the nail on the head… SF will continue treading water until it sinks in with people there that prices may stagnate or (gasp) decline for a while … Because the RE boom has gone on longer in SF than most other places (due largely to the dot-com boom in the late 90s), it is so engrained in people’s minds out there that RE only goes up in double-digits in SF. What could really cause downward accelleration in SF is the prevalence of Tenancies-in-Common (TICs), where a 3-, 4- or even 6-unit building is owned collectively by multiple owners, all of whom are on the SAME mortgage. Imagine whenever one wants to sell and move, everyone else has to get a new mortgage!! Now imagine what happens in a declining RE market (even declining a little), with mortage interest rates increasing, where refinancing might be difficult, and all the owners are collectively on the hook for the whole mortgage. Sounds like a real recipe for a panic if a TIC unit does not sell quickly and the seller of that unit gets desperate … There would be a huge spillover effect because one desperate seller could mean 4 or 5 other TIC owners in the same building begin to panic because they all share a mortgage. And this is not uncommon in SF … In recent years a very large percentage of annual home sales in the city have been TICs.
The SF Bay Area market is still relatively strong. I too thought it there would be more of a price correction by now. At most, 5 to 10% in some areas and usually in the suburbs. Would expect in 2008 to have prices drop more when the resets and REO’s increase much more.
goddurn LL raised my rent 11% for next year’s lease in Sunnyvale.
If condo prices hold steady then I might be forced to buy.
Considering counter-offering 5%, but they know avoiding the hassle of moving is worth 10% to me.
Still, at least 2 of the 12 units in this building are empty, so me moving out will hurt them more than it hurts me.
That is a big increase considering 2 units are empty. Just wait another 2 years if you can as prices will be lower and more reasonable.
Silicon Valley real estate prices did go down during 2001-2002. In my hood, they were 30-40% down. Now they are back in the 2000 time frame. So basically flat since 2000 time frame. But the salaries up there are high enough to keep the prices the same.
OC is another story. It has gone up nearly 100% since the fall of 2003, however the salaries are not that high down here. So I think prices in OC will have to go down. No question about it.
Agreed. OC is mostly people who are living way beyond their means. Don’t get me wrong, I know plenty of people in OC that have actual wealth (went to school with quite a few), but overall, most of the people are working class and have overspent trying to prove that they still have a better pot to piss in than everyone else in SoCal. That belief in consumerism will come back to bite most of them in the *ss. When it all comes down to it, unless you have a very good education or a very good trade, and are at least 45 to 55, with kids out of college already, you have no business driving anything costing more than $25,000 or so. That’s reality. And you should also not be paying more than 28% of your gross on housing with a fixed rate loan. We all know this. That’s why we all know that everywhere there are people that dont understand basic personal finance - they are toast. Whether its the Bay Area or L.A. or the OC. I thought that it would be after Christmas that the stuff hits the fan, but I am more inclined to believe that retailers have broken ranks and are just trying to move whatever they can in anticipation of the worst economic downtown in decades…and it is just around the corner. It will be a trying holiday season for retailers.
Speaking of OC, does anyone watch that awful “Real Wives of Orange County” show? I guess if the saying “perception is reality” rings true, I’m a vapid bimbo. I do, however, find it ironic that there is little, if anything, real about those women. Especially Lori. She’s got so much botox shot into her face that she is virtually expressionless. And I wonder how the realtor chick is fairing. Aside from the fact that the market is about to take a dive, she has terrible children and an absentee husband. Oh well, at least she’s got four houses and a dozen or so cars to keep her feeling warm and fuzzy.
Sunnyvale, MTV, Cupertino and Palo Alto homes are in demand and there is overbidding for homes. This is probably giving the LL confidence he can raise rents and find renters.
“Shimasaki ended up getting 100 percent financing through two loans, including one that requires interest-only payments for the first three years before an adjustable rate kicks in. After that, he plans to refinance so he can keep up with payments.”
“‘I’m pretty confident that the housing market won’t bust,’ he said.”
—
I’m pretty confident Shimasaki will be bust down the road.
It’s almost like people are incapable of seeing anything but bright sunny skies ahead. When this thing really unravels and we’re in a deep recession, people are going to receive a wake up call. Basically anyone under 35 or 40 has little or no memory of a bad recession.
It’s weird, because that’s what we need to wring all the excess out, but nobody wants to believe it is possible.
I am within that age group, and I have very good memories of both the 1982-83 and 1991-93 recessions. For the first one, my family was living in Pittsburgh, where the steel industry vanished and reported unemployment hit 15% (plenty of people either moved away or gave up looking and weren’t counted). During the second I was graduating from college and looking for work, and NOBODY was hiring. Don’t tell me I don’t remember recessions.
For anyone under 30 I’ll buy your argument.
I agree as well! I certainly remember the recession in the early ’80’s and ’90’s being in NE Ohio and my dad being out of work for 3 years. I am 36 years old and the pain from these experiences is what has helped us to keep our financial sanity (unlike most people in So. Cal who don’t have a clue!).
I’m also 36 and was in LA during the 90s downturn. Unfortunately I was paying off my student loan (early) and couldn’t afford to save for the downpayment when the market was at its nadir in the mid-90s. That and oh yeah, an ex-girlfriend ran up $15,000 in expenses on my credit cards behind my back.
I guess I should thank you for all the cool things she bought me.
That’s pretty funny.
Ouch! (But yeah, that’s good.) It’s OK, I’m happily married now and quite over the very very bad ex.
When this thing really unravels and we’re in a deep recession, people are going to receive a wake up call.
When this thing turns into “The Greater Depression” a great number of HBB posters are going to receive a wake up call, too. It’s not just a housing bubble.
The irritating thing is, how many Darrens are out there that have just slipped in under the new lending radar, and will be enjoying their abode for the next 3-5 years at half price? Regardless of his long term ability to hold onto the place, it will be 2010-2011 before we notice Darren is in trouble.
When the loan resets to 9% and similar condo units are selling for 275k, then we’ll see how foolish Darren is…… does he stay or walk away.
and when his loan does reset, Darren will be whining like alot of the other borrowers that he was mislead and didn’t understand his loan terms.
My prediction- in a year or so house prices will have slid 40%, and the FB will all know how deep underwater they are, and will walk en mass. They won’t be around for the resets. It will be the lenders that get the shaft.
“giantaxe” - I so love your username! LOL
Predicted the BKLaw increase way back last year on this Blog.
New prediction: Family Law. Dissos; going to go up. People are going to look around for someone to blame & they’re going to turn on each other. Foreclosures are moving too fast for the government/courts to help subprimers.
~Misstrial
Yes, you know the divorce lawyers will be making bank soon.
Oh that’ll be a kick in the arse, a reset payment on an upside down McMansion, credit card balances run up behind your back AND alimony payments to the spouse who ran up the cards, cheated on you with the snake of a lender who sold you the toxic refi and threw you out of the house. Can you say, “I’m outta here” fast enough? Just remember, the road to the chapeau blanc is closed after you turn 40.
“Shimasaki ended up getting 100 percent financing through two loans, including one that requires interest-only payments for the first three years before an adjustable rate kicks in. After that, he plans to refinance so he can keep up with payments.”
WTF? This school of thought is downright scary. How do these people rationalize this?
“Darren Shimasaki, a teacher from Yorba Linda, bought a $425,000 condo last August with a stated income loan. Shimasaki, who makes about $55,000 a year, would not have been able to get a standard loan based on his income, he said.”
This guy MUST be teaching “RE Math for Dummies”
I think he’s a participant in the new TV show, “Are you smarter than a 5th grader”?
And apparently, he isn’t.
New game show: Are You Smarter Than A Renter?
actually, that’s not teevee, that’s life
“‘Everybody told us: ‘Just get in the house, get your foot in the door,’ Jim said. ‘But when you get your foot in the door, you get that golden shackle put on your ankle.’”
Golden shackle? What a poetic way to sugarcoat the fact they that are financially wrecked for years to come. And all for homeownership in Fresno?? Give me a break.
“golden shackle”
Homeowners = debt slaves. This brings to mind a movie that I highly recommend for anyone who is disturbed by human slavery:
http://www.apple.com/trailers/independent/amazinggrace/
Oh god, you are right Lisa. A home in Fresno is more like a stucco coffin than a golden shackle.
Or a rusty bear trap.
Jim and Carrie “got their foot in” something alright and it isn’t “the door”.
They each got something else stuck in the door.
They defaulted on a 240K loan without refinancing or cashing out equity or the like?
Hmm.
Contra Costa and Alameda Counties are destined to be among the “ground zero” zones for the subprime collapse. Lots of unqualified low income buyers in Richmond, San Pablo and Oakland are among the recent victims of a nationwide push to turn traditional renter households into New Age homeowner households through the lure of subprime liar loans and suicide loans.
“Despite the hopeful signs, the housing woes seem particularly acute in the East Bay. The Anderson researchers compared mortgage delinquencies in the fourth quarter of 2006 with the fourth quarter of 2005. The economists found that over the one-year period, Alameda and Contra Costa counties were much harder hit by home-loan defaults than most of the California markets they surveyed:
-Defaults in Alameda County rose 157 percent.
-Defaults in Contra Costa County were up 179 percent.”
Posted on Sun, Apr. 01, 2007
Homeowners on the brink: Subprime borrowers face foreclosure, ruin
By Eve Mitchell
MEDIANEWS STAFF
Last year, James and Barbara Morgan refinanced their mortgage into a subprime loan in hopes of lowering their house payments. Now the couple worry that the high-risk loan could force them to sell the East Oakland home they have lived in for more than 30 years.
First-time homeowner Carmen Rodriguez likes everything about the three-bedroom house in San Pablo she bought in September and shares with her brother. Except for the loan.
Rodriguez, speaking through a Spanish translator, said the payments on her loan, which has an interest rate that changes every month, have increased by a third, rising $500 to $2,000 a month.
“I am very frustrated. I am very upset,” said Rodriguez, a 44-year-old candy packer whose monthly take-home pay is about $1,700. “I have not been able to pay other bills.”
The Morgans and Rodriguez are caught in a financial bind that more and more Bay Area homeowners are finding themselves in: the confusing world of subprime loans. Last year, almost one of four loans taken out in California was subprime.
http://www.contracostatimes.com/mld/cctimes/news/17010266.htm
“Now, rising inventory levels, nearly 9,000 homes were on the market by mid-February, according to the California Desert Association of Realtors, mean competition is stiffer.”
uh oh, it’s the dreaded rising inventory stiffy…
Yep……….that elephant under the rug is getting bigger
…or are you just happy to see me?
I think it’s a gun in his pocket.
…and it’s been taking ExtenZe.
One things for sure, when you have “imploder” start with a comment and “implosion” finish it……..it’s always going to be a million laughs
“Middleton suggests to her clients that they set the sale price just high enough to break even.”
Break even has nothing to do with it. This is classic “loss aversion” that Tversky and others pioneered. Loss aversion leads to irrational pricing. The market doesn’t care whether you paid $1M or $100k or if you got the property from an inheritance. Price the home to sell. If that price won’t pay off the mortgage talk to the bank. If the bank says no to a short sale then stop throwing away your money on mortgage payments.
We’ve been seeing this phenomenon a lot already. Last sale is at $X, so FB prices house at X + 6%. Then everyone tries to do this, so a few people go down to X + 3%, then X + 1%, then we’re at X… you can take it from here.
Too many FBs have no understanding of how ruthless markets can be. They can be ruthless on the way up as people got “priced out”; they can be just as unforgiving on the way down.
Amazing how loss aversion works when it’s your money.
well yeah, you’re the one trying to avert the loss
ptb, did a puddin’head minor in risk analysis/decision making. Read a few books in that area - a very interesting subject.
It’s interesting to hear these stories about what people are really doing when faced with real decisions, not artificial decision games.
Behavioral finance stuff also interesting as some throne room reading.
Reminds me of the Puerto Rican realtor/flipper lady on “Property Ladder”. They called it “La Familia DIY Drama” I believe. She burned her husband and dad out doing a flip in Central Florida (Casselberry) and they were discussing how they were going to have to raise their asking price to make up for some of their flipping follies.
Hahahahaaaa! Mistakes - no problema - just raise the asking price!
Needless to say, they didn’t sell within 1 month at their *very* inflated asking price of $360k (the “realtors” were saying she should ask about $275k) so they made a very bold decision:
“We’re going to rent it.”
BWAHAHAHAHAHA
All that money spent on flipping, making nice floors, etc., and, well, that’s fine they’re just going to rent it, in the middle of nowhere in Florida! Their debt cost must be around $1500/month, and storm insurance is probably around $1000/mo, and taxes are probably around $500-$1000/month. And in their location probably nobody’s going to rent that thing for more than say $1200 or $1300 per month. What jokers!
And they missed the whole point of flipping. Fix up the property and make it look real nice so that someone comes in and buys it for a bundle and makes you a tidy profit. NOT TO LET IT GET TRASHED BY RENTERS - GIVE ME A BREAK!
The realtor/flipper’s name is “Nancy”, and here’s her website:
http://www.nymoves2orlando.com/
Look what she says:
“I refinanced, paid all my bills and put an extra $40,000 in my pocket. In addition, I still have $50,000 in equity in the house. So I did not set myself up to fail and succeeded in getting the house valued for far more than even I had originally hoped.”
BWAHAHAHAHAHA
Tragic comedy indeed!
The local tax collector doesn’t agree with her $350k value. He’s think more along the lines of $135k. Of course, he doesn’t know about the new coat of paint on the walls. That’s gotta add a couple hundred thou in value.
http://www.seminoletax.org/dev/result.asp?txtAccountID=082130514QB00012020062006
Rick
That is disgusting. Is that how it works in central Florida? You get to put lots of money into a flip and you only get taxed on the pre-flip value? On the show, they claimed she paid $158k for the property before flipping. The link says she doesn’t get any exemptions.
How does all this work? It seems very fishy to me that she gets an assessment of $135k while selling it to the bank (via refi) for $350k.
Is this actually legal?
“‘More than two years ago, there wasn’t a subdivision out there that didn’t have a waiting list,’ Coats said. ‘It’s a lot different now.’”
That’s because the waiting lists consisted almost entirely of speculators. Not only will they not be buying any more, they will be competing as sellers.
She’s tricking them. She knows nothing goes for asking, everything is negotiated down.
that was a response to mad_tiger on post up, sorry.
Sorry, the MLS is full. There’s a waiting list to get on. Here, take a number… you number is 23489756084732.
Oh look, a spot opened up. Number 12, congratulations, you get to put your house on the market now.
7000 point rise in the inventory level in March, and a lower yoy sales level, [to be announced] and the subprime lenders in melt-down phase!
Yes, I definatly think we have reached a new permanent price plateau in LA real-estate pricing. Ha-ha-ha-ha!
Buy now real-estate prices never go down! They arn’t making any more land!
The time to buy is when sellers need to sell like they need air to breathe.
“7000 point rise in the inventory level in March, and a lower yoy sales level, [to be announced] and the subprime lenders in melt-down phase”
And meanwhile, like that song by Police about something creeping out of the bottom of a dark scottish Lock, the foreclosures and NOD’s are indeed creeping up rather rapidly in LA County, thou they are for now under the radar of the LA Times amd local pundits. The reason for this is that the areas which are experiencing the foreclosure outbreaks are in less-well known and forlorn corners of LA as Sylmar, San fernando, Northridge, North Hollywood, Compton, SCentral, N Long Beach, Panorama city, Pomona, La puente, ect.
Sychronicity II was the song, I believe.
“Loch”
California needs to lighten up and relax a little IN knowing that the good folks on Wall Street OWN a good portion of their Suicide Loans.
We All know the Goodness and Mercy that these guys always extend when Push comes to Shove over a Dollar
ha ha ha
“Darren Shimasaki, a teacher from Yorba Linda, bought a $425,000 condo last August with a stated income loan.
Shimasaki, who makes about $55,000 a year, would not have been able to get a standard loan based on his income, he said.
“In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,” he said.
Shimasaki ended up getting 100 percent financing through two loans, including one that requires interest-only payments for the first three years before an adjustable rate kicks in.
After that, he plans to refinance so he can keep up with payments.
“I’m pretty confident that the housing market won’t bust,” he said. ”
Refinance, huh? You sure that’s a viable option with your negative equity, bubs? Well, he’s a teacher so he should be able to spell “foreclosure.”
I’m not so sure about his spelling capabilities: familier!
http://games.groups.yahoo.com/group/SOCAL_RPG/message/25
“After that, he plans to refinance so he can keep up with payments.”
You fell for the sales pitch buddy.
Also, sorry to tell you, but condos fall the furthest during a “correction”.
. “Darren Shimasaki, a teacher from Yorba Linda, bought a $425,000 condo last August with a stated income loan. Shimasaki, who makes about $55,000 a year, would not have been able to get a standard loan based on his income, he said.”
“‘In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,’ he said.”
This guy is a friggen DOPE!
If you can’t afford it dope then bid less…putz.
This dope as well as the lender need to lose their @$$@# to correct this irresponsible behavior.
Alternatively, you could pick up cans off the freeway and save enough money in a couple of weeks to rent one.
http://classified.ocregister.com/Classified/resultsWrapperRERent.jsp?JSESSIONID=B54259AAFE22CDD29198B8FA1EDBA0BE.tomcat1&rid=614452&bathrooms=&zip=&bedrooms=&price=&keyword=&radius=5&searchPage=%2FClassified%2FsearchRERent.jsp&ads.word7=YORBA+LINDA&ads.class=RE+For+Rent+Online&maxPerPage=20&template=resultsWrapperRERent.jsp&Submit=Search+Ads&ads.word2=Condos&groupkey=word1%2Cword7
I wonder if it’s finally occurring to the FB’s that the suicide loans made the houses more expensive and less affordable, and not the other way around which they wrongly assumed.
Obviously Darren doesn’t teach math! I was earning about $ 60 k back in 1990 and could barely afford a $ 220 k house. It wasn’t too long ago here in the OC that $ 425 k bought you a pretty damn nice house (forget condo!).
big difference between now and 1990 is that interest rates back then were quite a bit higher, although i don’t remember what they were exactly. being self employed, i do remember all the paperwork, tax returns, bank statements, etc. that i had to submit to get the loan. and if i remember right, the lender wanted my first born child as additional security.
IIRC a 30 year conventional loan was 8-9% back then
From today’s Daily Reckoning-
Foreclosure shopping….pick carefully.
FLOTSAM AND JETSAM: What does the global oil situation have to do with the
meltdown in real estate in mortgage lending? More than you would think -
James Howard Kunstler explains…
In the Zone
by James Howard Kunstler
The fiasco in real estate and mortgage lending seems finally to be
breaking through the reality shield of the mainstream media. Last week,
for example, NPR’s nightly Marketplace show actually ran a segment saying
that the production homebuilders were choking on unsold houses and that
(as if NPR had just discovered this) the mortgage industry was rife with
irregularities in lending standards! And that this seems to have led to a
lot of mischief! And that it may actually have repercussions throughout
the financial sector and maybe even the economy in general! Golly!
It’s been a long slog for the dullards at NPR, and elsewhere in the
mainstream media.
Meanwhile, also last week, the General Accounting Office came out with a
report that acknowledges some problems ahead on the world energy scene -
oil in particular - with possible adverse implications for the United
States. It’s the first time that any responsible party in the executive
branch has acknowledged the situation, but the tenor of the report was -
how shall I say - unbelievably stupid and craven - insofar as it suggested
global oil could top out somewhere around the year 2030 (possibly
sooner!). The poor grinds in the GAO didn’t want to stick their necks out
too far on that one.
Independent researchers studying the global oil situation - including
retired geologists for major oil companies - have established a pretty
firm consensus that we are already in the zone of the global oil
production peak - meaning that whether we are just past, passing now, or
passing imminently, the effects are already thundering through the complex
systems we depend on to maintain advanced industrial societies. For
instance, the crashing of Mexico’s Cantarell oil field (60 percent of
Mexico’s production) means that inside of five years the United States
will receive no more imports from what has been its third leading source.
Being “in the zone” means that the world’s oil exporters in the aggregate
will see their exports drop seven to eight percent this year - because
nations like Saudi Arabia, Iran, Venezuela, and even Norway are using more
of their own oil and have less to send out. Being in the zone means that
new pricing arrangements will be made, taking the power away from the spot
futures markets in New York and London, and shifting that power to
long-term deals made by nationalized producers like Russia and Iran, who
may decide to embargo consuming nations who don’t dance to their tune.
Being in the zone means that people in poorer nations will starve because
so much of the corn grown in North America will go to ethanol distilleries
instead of the dirt-floor kitchens in the Third World.
The more interesting point in all this, for the moment, is that the media
has still not put together the collapse of the housing bubble and the
permanent oil crisis. These events will be happening simultaneously. The
housing industry, so-called, will never recover because the oil crisis
spells the end of the suburban build out. The cycle is over. The big
production homebuilders will go down and never come back. We won’t need
any more retail, either. We won’t be building anymore Wal-Marts and Target
stores, and the thousands now running will die off just as the giant
Baluchitherium of the Asian steppes crapped out in the early Miocene
epoch.
The end of the suburban build-out will be a stupendous trauma for the
United States because, unfortunately, we have made it the basis of our
economy for a generation, as well as our living arrangement. Not only will
incomes and livelihoods be lost on the grand scale, and never come back,
but, as the global oil predicament deepens, the existing fabric of our
vast suburbs will become increasingly useless and worthless. The people
stuck in them will lose whatever wealth they have accumulated and our
arrangements for daily life will become increasingly nightmarish.
This is the part of the story that the mainstream media still can’t put
together. Peak oil and the housing bust are a mutually-reinforcing fiasco.
Editor’s Note: Get Ready for the Worst Property-Led Recession of the Last
76 Years. Nobody’s money is safe. The “Second Wave” housing tsunami of
2007-2011 is about to hit, and smart investors are already battening down
the hatches. Read on to learn about three very simple, solid ways to
“hedge” your retirement and property savings against this coming
mega-bust…
I’ve been meaning to ask anyone who really knows, if they think the Daily Reckoning is a good source of investment ideas…
I get their emails, and some of it looks compelling, but I need some opinions.
I would say he makes some good points, but I have a saying, “Never underestimate the chase for a dollar.” As long as you have smart individuals who are engineers, you will continue to progress. Remember, it was only a little 100 years ago, mankind first attained powered flight.
The American gov’t needs to get out of the subsidized ethanol business. This would show true market value for corn, which would give farmers an idea if it was profitable or not.
The US gov’t should force GM, Ford, and Chrysler to increase their MPG of vehicles. Yeah, it may lead to a little job loss, but at least it would force these companies to do what the market will demand in the future….and allow the remaining workers to keep their jobs.
Look into coal gasification, railroads, and technologies along that line for near-term (next 50 years) ways to replace the loss of oil production.
“The American gov’t needs to get out of the subsidized ethanol business. This would show true market value for corn, which would give farmers an idea if it was profitable or not.”
Subsidized ethanol? How about subsidized corn? How does it make sense to subsidize production of a program crop (corn) which sucks in lots of oil inputs in the production process (petrol-powered farm implements for planting and harvest + fertilizer and pesticides which use oil products as production inputs) then divert the oil-intensive food crop back into energy (ethanol) production (which doubtless consumes still more oil to produce). Wouldn’t it be less expensive in terms of both pollution outputs and pecuniary costs (including subsidies) to just use the oil to run cars and trucks, rather than first diverting it into food production?
Actually, getting corn to its ‘true market value’ isn’t going to be easy- it has been gov’t policy for a long time to encourage overproduction of corn via agricultural supports, which has tended to force the prices down. That is why most of the world is pi$$ed at us for unfair trade practices. Also, it is why lots of Mexican farmers went broke and migrated to Northern Mexico to work in industries, which then folded under competition with China, so they moved - guess where. Blowback is a beeotch.
Good point. I would add: Simply restripe streets to make wide bikes lanes that are continuous.
Back in the 70’s during the oil crisis, 10% of people rode bikes instead of driving. Since 50% of all trips are less than 2 miles , it would be easy to make gas usage more “efficient” by getting more people to ride bikes when it is convenient instead of driving. There are many people who would ride but are afraid to because the cars don’t make room for them. Redesigning streets to attract bicyclists is far cheaper and can be done immediately without the need to develop new technology. All it takes is a little less selfishness on the part of car drivers.
Daily reckoning is part of “Agora” stable of newsletters. I’ve previously bought some but after a while, it says the same old thing. Gold, commodities, economy and dollar is going down the pan, Von Misses institute says this, blah blah.
I’ve had some very poor trades from their advice. I now trade alone under my own guidance.
The downside of Agora newsletters is that they sell on their mailing lists. You will get lots of junk mail for other hacks trying to sell you their thoughts of armegadon and how to profit from it.
If you want some stock opinions. Take a look under “public charts” under http://www.stockcharts.com
the chicken little sites like kitco that have parroted the same spiel forever on the precious metals theme:
“it’s a great time to buy”
just click on the order form
Yeah, PMs have been such a loser investment.
Yeah, PMs have been such a loser investment.
————————————————–
TJ, even a stopped clock is right twice a day. If you had held PMs for the last 25 years you would be seriously under water on them.
Sure, pick a timeframe that suits your argument. Let’s see how that works going forward, shall we?
25 years is a lifetime of investing for most investors, but how about all time frames? Metals don’t move up a lot without significant inflation. The last time they moved up a lot we had double digit inflation. The attachment to metals has more to do with psychology than than it does with economics.
Dr. Siegel is the Professor of Finance at the Wharton School of the
University of Pennsylvania and the author of two investment
classics, “Stocks for the Long Run” and “The Future for Investors.” He provided updated information on the total real returns
(adjusted for inflation) of various asset classes for the period 1802-
2006. According to his research, for each dollar invested, this is
what it would have grown to with dividends reinvested and adjusted
for inflation:
Stocks $754,511
Bonds $1,243
Bills $300
Gold $1.95
Dollar $.06
I worked for various mining companies in the late 70s, very early 80s. There was a lot of speculation in metals, especially silver. I saw people get really burned- silver rose to about $35 an ounce, in some perverse combination of a bubble and an attempt to corner the market, but then fell to $7 in a year or so. People who bought ingots/coins at $35 + premium really got grilled on both sides…
The Daily Reckoning is on my list of regular sites visited, and they have a lot of contributors that write entertaining and thought-provoking material. Read a number of their books, too. Good macro stuff, IMO.
The main writer is an acerbic, pompous, yet clever writer, who makes a lot of quasi intellectual quotations, etc. but, always hedges his bets. He doesn’t real say anything.
A better writer than prognosticator. But what do I know, I never bought his book.
I couldn’t agree more. I think the best “investment” people can make is in developing sustainable lifestyles, growing food, etc. And flexibility, ability to say good bye to preconceived notions about the world we live in. Suburbia was a helluva party, but it’s over. If someone has the good fortune to survive the next 5-10 years and remain solvent, the good news is that houses will probably be cheaper (in gold ounces) than at any time since Depression.
“I think the best “investment” people can make is in developing sustainable lifestyles, growing food, etc.”
I agree. The problem is, unless you already own the land, good luck at todays prices.
I’m thinking my half acre of asparagus could be one of the better investments I’ve made.
But then you goota be willing to defend it against all comers. That’s where it starts to get sticky, if things really hit the fan.
“It’s been a long slog for the dullards at NPR, and elsewhere in the
mainstream media.”
LOL! I regularly listen to NPR, and I find it very amusing that they just recently awakened to subprime lending issues that have long been discussed on this blog. Most Americans are just now hearing about this for the first time! The implications are quite ominous going forward: Burgeoning for sale inventories, shutdown of the home equity cashout ATM, softening prices, tightening lending standards and broad awareness of the subprime meltdown have created perfect storm conditions for a real estate bust to last through the next several years.
NPR doesn’t do much newsgathering, they mostly just do human interest interviews. Occasionally I’ll listen to the morning NPR news in the car after having read the newspaper over coffee, and it’s like having the front page read back to you in brief. Deja vu all over again
Being a very green organization, most NPR news is recycled rather than extracted from primary sources. This is doubly true for their business reporting as for the rest of their stueck.
Absolutely correct. I listen to NPR all the time, but not the news. It’s the other shows (This American Life, On Point, etc.) that keep me coming back.
“The housing industry, so-called, will never recover because the oil crisis
spells the end of the suburban build out. The cycle is over.”
Good thing so many folks bought supersized houses and cars, just to make sure that we waste available oil products as rapidly as possible, just as two Asian nations with 2b+ combined population are both striving to increase their oil consumption as rapidly as possible…
hd74man: I thought James Howard Kunstler was persona non grata on this blog. I’m afraid he is right - the housing bubble is bursting at the same time energy prices go steeply up. I just saw “The Pursuit of Happyness” with Will Smith - it shows the human side of poverty - although the young man (Chris Gardner) made a reckless bet by accepting an internship with a brokerage firm - the internship paid no money.
God bless America!
Can someone please tell me what makes Coachella such a hot spot? I haven’t been out that way for decades but remember the area as being ugly even by desert standards. ie Southern Utah Desert and Joshua Tree being 10s on the desert beauty scale and Trona and Blythe being tied for coyote ugly 1s.
“Can someone please tell me what makes Coachella such a hot spot?”
The Sun.
Your comic talents are much appreciated.
I was going to come in with “High Temperatures,” but I guess there’s no point now
Paul
It’s a retirement spot. The scenery is OK; most of the desert cities are up against the mountains and there are some alright views. But the natural scenery is pretty much irrelevant. The reality is a new environment is made with golf courses, swimming pools, and shopping malls.
Lots of snow birds come down for the winter and abandon the place in the summer.
If you have never been to the Miss Trona beauty pagent, you are missing nothing. They put the babes in ore cars with most of their skin showing ala Anna Nicol.
“Can someone please tell me what makes Coachella such a hot spot? I haven’t been out that way for decades but remember the area as being ugly even by desert standards. ie Southern Utah Desert and Joshua Tree being 10s on the desert beauty scale and Trona and Blythe being tied for coyote ugly 1s”
Put Mohave(the town,not the desert) on the list of Coyote Ugly’s. Barstow/guillermo/baker are extremely ugly spots along the 15 rtw to Vegas. Joshua Tree NP is fantastic, at least in winter/early spring. I don’t know about Trona but nearby Death valley has some fantastic scenery.
IMO, the most starkly beautiful Cal desert sites are the East side Sierra nevada/Owens valley region around Lone pine. However, Utah/Arizona rimrock country beats Cal deserts anytime.
And if the bank says “maybe” to a short sale, be very, very certain that your counteroffers and all paperwork are carefully and legally contingent on getting that short sale. (Your household’s economic picture is your home business, businesses don’t shed tears or suffer much shame I can see over having to stiff their creditors and re-org.)
I’m thinking: 1st wave - people who have nothing and can’t pay, even pre-reset (as mentioned in this thread).
2nd wave - people who have nothing but can pay now - still, are going to be SOL under the terms of their loan soon enough.
3rd wave - people who have something, but don’t want to donate it in the form of say 2.5 mill in payments over 30 years flushed to a 700K loan on a 400K house. I bet that war starts in time for the ‘08 elections. I wonder if it could even dominate the ‘08 elections.
Memphis, dead-on with that wave theory. That 2nd wave is the Alt-A crew. Lots of fraud went into that 20%. It starts with investors who are currently pissed that they can’t get cash flow but are still optimistic. That’ll turn to panic in a hurry when all 10 option-ARMs reset one month.
Subprime hoisted the guillotine by inducing the credit crunch so suddenly. Now there’s really no way out for the fraudsters. It’s just a matter of time.
It’s just a matter of time.
Yep… and once the wave breaks… its going to be a doozy.
Its only a question of how much time? How many banks will fail? Whom will get laid off. Much sadness, but also a healthy redistribution of investment. (Man… the Austrian school of economics will have to schedule extra seminars on “Mal-investment.”)
Got popcorn?
Neil
Damn, Neil, you’re getting more bearish by the moment!
p.s.: Check out “Financial Armageddon”. Good fast read.
TJ,
I’m quite bearish. But I’m still bad recession (national) rather than depression.
That doesn’t mean I cannot see how ugly this downturn will be.
Got popcorn?
Neil
” I bet that war starts in time for the ‘08 elections. I wonder if it could even dominate the ‘08 elections.”
Memphis, I bet anything you’re right. Domestic disasters trump international failures.
“‘The value in Bakersfield is pretty good,’ Marlowe said. ‘Our home prices won’t drop as much as other areas because of our affordability to begin with — our original affordability.’”
My area is special, it won’t go down … down as much … crash as bad. My area is special, the housing neutron bomb won’t irradiate as many FBs due to localized outcroppings of lead shielding denial.
Yes, there is something irrational about saying “We have great affordability because no one wants to live here, thus our prices will not go down as much as areas where people actually want to live!”
Fresno will have just as many foreclosures (if not more) and have an equally high percentage drop in prices as many areas. They just have less distance to travel to get there.
Proof is in the pudding:
Despite the hopeful signs, the housing woes seem particularly acute in the East Bay. The Anderson researchers compared mortgage delinquencies in the fourth quarter of 2006 with the fourth quarter of 2005. The economists found that over the one-year period, Alameda and Contra Costa counties were much harder hit by home-loan defaults than most of the California markets they surveyed:
-Defaults in Alameda County rose 157 percent.
-Defaults in Contra Costa County were up 179 percent.
-Defaults in Santa Clara County were up about 75 percent.
-Defaults in San Mateo County jumped around 95 percent.
And the pudding is rising.
Neil got baking soda
ROTFL
A good cleaning coming? The thing is, once people en mass accept walking away is ok even normal… Don’t block the door.
The theater is on fire. When will they notice that the fire behind the Singing Vikings wasn’t planned? Forget about the fat lady. She’ll be singing in an asbestos suit.
Got popcorn?
Neil
We need HP a pool.
Which State or major city (pop. 100,000 or greater) will threaten Bankruptcy First due to the Housing Market Disaster or it’s ramifications?
San Diego is already on the brink of bankruptcy, so this may give it the little push it needs… However, I am thinking we will be looking at a Florida city since taxes will head down a lot faster. (not prepared to name one yet)
“San Diego is already on the brink of bankruptcy”
I have thought the same since moving here in 2005, but MSM denial of the situation is so pervasive that I am questioning my own earlier beliefs. It seems like much economic policy these days is heavily reliant on media manipulation of public perceptions; as long as we collectively believe there are no problems, I guess there are no problems…
Whatever happended to the poster, Enron-by-the-Sea, who lived in San Diego?
His handle summed it up pretty well.
Our press in SD publishes only what they are told to by the government. So much for free press.
It might be a county that goes BK first - they are generally more dependant on property taxes than cities are, and at least in California, the county governments are less accountable and less well managed than many cities, if that’s even possible.
Ahhh, but San Diego is both a city and a county! Gives us a double shot at the HB Pool.
“‘In order to get into a decent-priced condo, I needed to make, oh my gosh, something like $90,000 a year, and I’m not anywhere near that yet,’ he said.”
Sen. Dodd, tell me again why this a**hole deserves a bailout.
So this loser makes more than me and I’m supposed to bail him and Countrywide out of this mess?
And you are against stupdity, greed and fraud? Why do you hate your country? This is the new, multi-cultural America, where dishonesty, contempt for the law, cronyism, and blat out buying politicans is the new paradigm. Please get with the program.
“Sen. Dodd, tell me again why this a**hole deserves a bailout.”
Well you see son it’s..a…like this. I vote to tax..a…your money and…a give it to the A$$hole. He a gives it to the lendar who..a…gives it to the investment banker…. then the investment banke “contributes” a little bit of it back to a “Me” and..a..”I” geet “elected” again…
Does he? Did Dodd say that this kind of borrower needs a bail out or is this hysterics? And what is a “bail out” I’m not up on that technical term.
I support capping or eliminating refinance penalties. Is that a bail out?
Indirectly, yes. It increases interest rates for the rest of us, because the lenders must make up thier margin elsewhere.
Although its not as bad an idea as directly giving them money or a “timeout” on thier forclosure.
If there is a bail out, I believe that any individual that can show that no fraud was committed should have to work 20-40 of community service for each $1,000 of benefit. Those that are with fraud gets turned over to IRS / “bubba”
For those in northern California and southern Oregon: do you see anywhere near the depreciation in prices that the Central Valley is posting?
I know Visalia is getting hit really hard, and the 1% drop in prices per month in Fresno seems about right based on observations from friends who still live down there. However, in Eureka, prices still continue to dance around near their highs from summer of 2005, and MLS inventory is hovering around 530…the same as in November, 2005.
The lady flipper next door still has the home listed at $619K. When I was out washing my car, she was outside and mentioned she has had an offer fall through, but several others were “serious.” Whether that is true or not is another story, but I am shocked by the number of people coming by looking at the property. I can’t imagine that prices will stay high here while the rest of the state is sinking fast. I’ve posted comments on this on the local newspaper’s blog, and most responses I get are:
1. Prices in Humboldt county won’t go down because it is such a desirable place for retirees.
2. The cultivation of marijuana provides income that will bolster the housing market even if other areas go down.
Of course, if either were the case, homes would have always traded at a premium to other areas; before 2002, that simply wasn’t the case. I really am hoping this thing picks up steam with higher gas prices ($3.40 for lowest grade here in Eureka) and foreclosures.
Anthony,
at one time, we had considered moving to Yreka. My bil and his wife raise horses there and we liked the area. But the prices were way out of wack, as were the prices up in places like Ashland, OR; etc. So its good to hear that prices may start moving back down to reality there.
“‘Everybody told us: ‘Just get in the house, get your foot in the door,’ Jim said.
So maybe this bleating fool should pass the hat to those “everybodys” he blames for his own stupidity.
We got the same line from everyone too. I just pointed out what the monthly payment would be on a $500K starter along with a tyrant about bubbles etc and they got the point. No one forced Jim to buy a house he could not afford however. he was stupid for overpaying and spending more than he could afford.
“Shimasaki”, hey? We made it through the day without one Polish joke!! Congrats Ben. Good thing he wasn’t named “Shimartinez”
“Shimasaki” sounds Japanese.
Shimasaki is a Japanese family name. Shimaski would be polish.
“Words have no power to impress the mind without the exquisite horror of their reality.”
Edgar Allan Poe
good thought.
Heard about the Ancient Roman version of New Orleans?
http://en.wikipedia.org/wiki/Ostia_Antica_(archaeological_site)#Modern_site
A thriving port @ one time…
Now quite far away from the water.
Things Change.
Here is proof that the high end of hte LA market is different: Nemo’s friend Dory is a high-end real estate flipper who is certain to make an $8.25m profit on home she bought a short six months back! I am sure that the famous comedienne will have no trouble getting a 50%+ markup (April Fools!).
————————————————————————————-
PUBLIC EYE’S WEEK IN REVIEW
To live and buy in L.A.
April 1, 2007
Who says the SoCal housing market is in a slump?
Talk show host Ellen DeGeneres has put her four-acre California estate on the market for $24 million – a tidy $8.25 million more than the $15.75 million she paid for it six months ago, according to the Wall Street Journal.
The 1926 Mediterranean-style manse in Montecito (which got a face lift in 2004) contains four bedrooms, a wine cellar, billiards room, library, office and a 1,300-square-foot master suite with its own balcony and art studio (cuz you never know when art is going to happen). Of course there are guest cottages (two), a tennis court, a pool and spa, as well as formal gardens.
DeGeneres, who also owns a home in Los Angeles, declined to comment to the Journal on the price boost on her property. It’s just this kind of rarefied real estate inflation that Victoria and David Beckham are contending with in their quest for a California home. The Brit power couple have yet to find a new nest because they refuse to overpay for a house whose price has been raised simply because the famous pair is interested. Maybe Beckham will play Dory’s greater fool?
“It’s pretty hard to keep identities secret when you are interested in multimillion-dollar mansions,” an anonymous source told People magazine. “Once sellers find out who’s interested in buying, the prices skyrocket. It’s ridiculous.”
http://www.signonsandiego.com/uniontrib/20070401/news_lz1n1pubeye.html
What you have in some of these areas is an incestuous market. The only people who can afford to buy are those who just sold a bubble house themselves. So you have the bubble house owners shuffling around getting comfortable, but no new blood.
How long can this go on?
You just described SD for the past several months at least.
“‘It is a good time for the buyer as long as you’re smart,’ said Dale Gray, CEO of the Central Valley Association of Realtors.”
Oxymoron Alert: What makes them smart is precisely the fact that they AREN’T buying now..
“‘They were buying too big a house, driving too nice a car and when they had to pay the piper, they couldn’t do it. They didn’t have it to begin with,’ said Charles Adkins, loan consultant in Fresno.”
Brought to mind a Proverb:
12:9 “Better to be a nobody and yet have a servant than pretend to be somebody and have no food.”
Google trends: where the highest per capita Google seraches are for “Housing Bubble”:
1. Arlington, VA, USA
2. Sunnyvale, CA, USA
3. Pleasanton, CA, USA
4. Rancho Santa Margarita, CA, USA
5. Santa Clara, CA, USA
6. Pasadena, CA, USA
7. San Francisco, CA, USA
8. San Diego, CA, USA
9. Irvine, CA, USA
10. Reston, VA, USA
http://www.google.com/trends?q=%22housing+bubble%22
Interesting no where in Florida on this list?
It’s different in Florida.
they don’t know about the interwebs
That’s because the small tubes that make up the interwebs get clogged up wih Hurricane debris…..;-)
The google trends is a little flawed — I’ve tried to use it to check out some other non-HB-related search terms, and found some of these same places listed — reston and sunnyvale, for example. I think some of it has to do as where servers or other internet hubs are located. Try a few other non-HB terms, and you’ll get some of the same suspects, I think.
Arlington Va. Hmm, I wonder how many of those are my searches?