It’s Kind Of A Ponzi Scheme On A Mass Scale
Time Magazine reports on California. “Up to now, the booming housing markets in Los Angeles, San Diego and Orange counties had barely felt the chill that hit Miami and Denver. But this week’s spate of gloomy housing data included ominous reports from the West Coast. Led by an astonishing 799% rise in Los Angeles County, foreclosures in southern California jumped 725% in the second quarter, to a record 9,504, from 1,152 a year ago.”
“‘We thought the upper end of the market was immune,’ says Steve Johnson, of Metrostudy. ‘But this is now like Kudzu in the South, spreading into all product types in the southern California housing market.’”
“‘People began buying houses they couldn’t afford under the theory that the more house you buy, the more wealth you have once it appreciates,’ he says. ‘It’s kind of a Ponzi scheme on a mass scale. But there has to be an end at some point.’”
“Could the Inland Empire’s contagion debilitate L.A. and areas beyond? Even John Karevoll of DataQuick admits that the sub-prime crash has plunged the entire real estate sector into uncharted territory. ‘Will it create a flood of foreclosures that drags down values in the rest of the market? So far it hasn’t but at some point, it might,’ he said.”
The County Sun. “What’s happening in San Bernardino and Riverside counties is more like a tug of war. Sellers won’t budge from prices they think their homes are worth and buyers sit tight in hopes prices will drop, according to economists and real-estate professionals.”
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
“Only half as many homes are selling in the San Bernardino/Riverside area compared with June 2006, and their prices have decreased 3.4 percent. The median price of a home in San Bernardino and Riverside counties at the end of June was $390,230, CAR reported.”
“Pete Gliniak, a Covina-based real-estate professional who specializes in short sales all over the Inland Empire, calls it ‘oversaturation’ and thinks too many people bought expensive homes in the two-county area that they couldn’t afford and “had no business buying them,’ he said.”
“‘People got caught up in the frenzy of 2005 and it spilled into 2006,’ he said of new home builders and buyers.”
“Steve Thomas, co-owner of Rancho Cucamonga-based CIG Property Management and Investment, hopes to capitalize on the housing market’s downturn by buying foreclosed properties in places like Fontana, Rialto and Highland.”
“‘I’m able to find properties easily at $50,000 below market, and sometimes $100,000,’ he said.”
The Desert Dispatch. “Mortgage default notices in San Bernardino County surged 180 percent in the second quarter compared to the same time last year, while the number of homes lost to foreclosure rocketed 987 percent over the same period, a real estate information service reported.”
“San Bernardino County registered 5,141 notices of mortgage default in the second quarter, up from 1,839 a year earlier. Homes lost to foreclosure in the county totaled 1,489 in the second quarter, compared to 137 over the same period last year.”
“The trend toward rising foreclosures will continue to accelerate in the area, said Carolyn McNamara, a broker in Phelan specializing in foreclosures and repossessions. ‘My office alone has received 18 foreclosures in the last two weeks, and I am just one of many agents that specializes in repossessions and foreclosures in the High Desert,’ she said.”
The Daily News. “High prices and tight credit are restricting demand in the housing industry in the Inland Empire, according to a new study by Metrostudy.”
“‘The second quarter was an awakening for the housing industry,’ said Steve Johnson, Metrostudy’s Southern California director. ‘It is clear now that there is not going to be a quick turnaround, and builders should plan accordingly.’”
“The study said that in order to sell product, home builders would be forced to price some homes at or below cost for the remainder of the year.”
The Press Enterprise. “Lenders sent default notices to Inland homeowners at nearly triple the rate of a year ago, as owners continue to fall behind on payments amid a slump in the real estate market. The number of homes that ended in foreclosure saw an even sharper increase, hitting their highest levels in a decade.”
“According to Inland data from Irvine research firm RealtyTrac, the highest total foreclosure filings by ZIP code in the second quarter — including default notices, trustee sale notices and bank repossessions — were seen in Fontana 92336 (461), Murrieta 92563 (441), Hesperia 92345 (416), Rialto 92376 (368) and Victorville 92392 (359).”
“DataQuick said the worst-hit neighborhoods in the Inland area and Central Valley might already be seeing property values eroded somewhat by foreclosures.”
The Orange County Register. “Building permits for single-family homes fell to their lowest level this year in at least two decades, Orange County construction data released Tuesday show.”
“A total of 3,627 residential permits were issued from January through June this year, the smallest number in 14 years, the research board reported. For June alone, residential permits fell to their lowest level for any month so far this year.”
“Betting on a second-half recovery for (Orange County) housing? July started out with the same old story. Fresh DataQuick figures show sales running 26% below last year for the 22 business days ended July 12.”
From Forbes. “Another homebuilder, another big loss. Like other builders that posted earnings this week, Standard Pacific racked up hefty charges as it reduced the value of its real estate holdings on its balance sheet.”
“Standard Pacific said Friday morning that it swung to a second-quarter loss of $165.9 million. The company suffered a $306.0 million charge to revalue its land and home holdings, reflecting the deterioration this year in U.S. housing prices.”
“‘This environment has resulted in significant price competition leading to margin erosion and further impairments of the company’s inventory holdings,’ said Standard Pacific CEO Stephen Scarborough.”
“Standard Pacific is headquartered in Irvine, California. Its business is heavily concentrated in the state, with 42.2% of its homebuilding revenue coming from there in the most recent quarter.”
The Tracy Press. “Foreclosure rates around Tracy are soaring, and abandonded houses are plaguing many neighborhoods. The house at 2901 Lincoln Blvd., is in foreclosure and abandoned. The front yard has chest-high weeds in place of a lawn, the side gate and garage door are wide open, and cigarette butts are strewn across the driveway. It appears to be a sitting duck for vandals and squatters.”
“The Lincoln Avenue property is hardly the only one in such shape. More than 10 percent of homes on the market in Tracy are being taken over by banks in foreclosure proceedings, local real estate agent Brian Barringer said.”
“Real estate professionals are quick to point to the root of the problem; bad loans.”
“Tracy, like the rest of California, is witnessing a generation of homebuyers paying a steep personal price for risky sub-prime loans that gave them buying power just two or three years ago, said Tracy broker Dave Konesky, a director for the Central Valley Association of Realtors.”
“During his 20 years in the industry, Konesky said he’s never seen such a high number of foreclosures in Tracy or elsewhere. The last time the market took a turn like this was 20 years ago, when people first had the option of buying homes with zero money down.”
“‘Like then, people can’t make their mortgages, and the value of the home has gone down considerably,’ he said. ‘When the housing market was really high, we were giving these sub-prime loans out. And after two years of interest-only payments, the payments balloon into unmanageable amounts.’”
“Barringer began his career at the market’s height three years ago. Back then, property owners sold, refinanced or caught up with their payments if they were financially over their heads.”
“Not now. ‘There’s a lot of people walking away from their houses right now because they have no equity,’ Barringer said.”
‘There’s a lot of people walking away from their houses right now because they have no equity,’ Barringer said’
This is why I wasn’t buying the bail-out hype awhile back. My experience in Texas was that when a home is underwater to its loan, the ‘owner’ doesn’t want it.
Ditto. You know I’ve been right there with ya. Bail-outs make the assumption that folks wanted to keep their gators. No way.
And to think that we haven’t even gotten started on the price declines. What happens when 20% down prime borrowers find themselves underwater, too?
no one’s put 20% down since 1998.
You can’t hold a gun to someone’s head and make them take a loan, nor can you force a bank to make one after confidence in the market is lost. There’s a great expression for this in economics:
“pushing on a string”
As I was saying… the bailout was for the lender, not the borrower.
This is from a top Realtor’s blog in Santa Clarita Valley:
Now understand, by my estimation at least half of the foreclosure market is due to low introductory loans now coming due that the owner cannot afford. They can’t make the payment and they can’t sell the property because they owe more than it is worth. We expected this a year ago. What we didn’t expect is the mentality of a large group of people that realize their home didn’t go up the way they expected and now, like a bad stock, they are walking away. It is a huge number of properties and the penalty of bad credit doesn’t seem to be enough of a deterrent.
The “penalty” of bad credit will become a deterrent only when all easy credit has dried up. Until then, why should J6Ps bother with nasty details like taking personal responsibility for their choices and having pride in their actions? That’s all, like, hard work. Yuck.
“… the penalty of bad credit doesn’t seem to be enough of a deterrent.”
Why should it be? Most of these people will just go back to being the renters they should have been all along. You don’t need good credit to rent.
And, if given the choice of bad credit or paying $100K+ more for a house than it is worth, it seems that the bad credit is both much more feasible and an economically sounder decision.
I see a lot of landlords want 20 to 25 dollars for a credit check. This is in Bay Area, CA.
I don’t understand why landlords are so adamant about credit when bank balance is more important.
The minute I ask for $25 and ask them to fill out the application, most of the deadbeat renters with bad credit walk.
The days of credit cards & easy retail financing for everyone will soon be over. Most of them have never lived in such an environment, and will find living on cash a new and frightening experience.
Let’s see - should I take a $200,000 loss on my RE investment or let my credit score drop 200 points?
Hmmmmmmmm
People who knowingly take loans they cannot afford are cavelier and reckless. Assuming that same reckless person would care about hurting a credit rating is hilarious.
True. Only a real fool would continue to pay on a upside down loan with no equity and falling in price every month. Take your loss, rent, and start over as there will be many doing the same thing. Will take time but credit can be restored and learn from a bad experience. Reality teaches us all. Some it takes a little while longer.
“Experience keeps a dear school, but fools will learn in no other.” - Benjamin Franklin
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
hahaha….. there are too many jokes here to just pick one. But Ben sure does find the gold nuggets in these stories!
“‘They don’t understand it. They think prices are too high.’”
BWAH HAH HAH HAH HA HA HA HA HA!
I am in the market for a house to live in. I *know* prices are too high in my area, even with lowballing.
With prices are 8x-14x a yearly wage, yes, I tend to “think prices are too high”. Is John Husing advocating people lie about their wages to qualify for loans on on houses that he obviously thinks are *not* “too high”?
When I saw that statment in the article summary, I knew it would be the topic of the first comment !!
Yeah, they usually jump right out at ya. Two of my recent fav’s…
“I didn’t know nothing about a balloon payment.”
“I’m not going to let no house screw up my family.”
-Rodney “McStoned” McHone
(props to GetStucco for the name)
Yeah, well……..time will soon tell who “understands ” the market, and who doesn’t.
But truly, I want to know… what does it take to call yourself an economist these days? Is it like becoming a Realtor(R), where you just take a couple weeks of classes? Do these people have bachelor’s degrees or better in economics? Is economics now (or has it become) a sell-out profession, where they will say whatever they are paid to say?
FWIW, there is no licensing process to an “Economist” that I know of, so I guess any bozo can call himself one.
Kudlow’s an economist. Need I say more?
He could tell you all about the supply and demand of nose candy.
Right on the money with sell-out profession.
What does it take to call yourself a “foreclosure expert realtor?”
are these really people who stay out of the job when times are good and only crawl out from under their rocks when markets tank?
Or do they go to an 8 hour seminar on how to call themselves “foreclosure experts”?
“foreclosure expert realtor”
A most excellent question. Does it have bona fides, is it legal to use, what qualifications needed etc.
““‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
At some point in mid 2000 many figured out buying at tech company stock with a PE multiple of 250-500x was too expensive. Guess what happened !!!!
Jesus ! and this guy calls himself an economist…
Wonder which RE firm he works for…
he’s a “regional economist”. I think that’s kinda like a “home economist”
look at his region - an armpit
Looks like it could be this guy:
http://www.johnhusing.com/john_husing.htm
“Dr. Husing is an amateur genealogist with his American roots traced back 12 generations to Robert Fuller and his family on the Mayflower.”
Holy Crap! My relatives were traced back to the Mayflower as well, and they were named Fuller. Please tell me I’m not related to this person.
“‘They don’t understand it. They think prices are too high.’”
Buyers ARE the market. By definition, what they think about prices is correct.
Lenders are the market. No loan, no buy. Current buyers are just dumb sheeple, easily manipulated by REIC.
Remember, this was the dude that said the IE was the “center of the universe.” Forget Paris, New York, Hong Kong, and London. Those places are second rate. Riverside/San Bernadino is where it’s at. What an effen idiot. With a quote like that your credibilty is shot!
He must not live here!
He lives here. Redlands I believe.
Inland Empire is ‘Little Mexico Central’.
what the hell? the entire region is hot, dusty, choked with LA’s exhaust, and clogged with traffic from fools who commute 2+ hours each way because there’s no jobs there other than in construction and all the “home improvement” malls. oh wait…
what a shithole. anyone stupid enough to buy any home there deserves what they get. a friend’s sister lives in Temecula and they’re so broke they can’t afford to run the AC so the house gets up to 100F inside and both of em work two shitty jobs to pay their toxic mortgage. but they’re living the American Dream, right?
testify!!!!
I think I just decided this guy is my favorite expert. If you can just bear with me and try to recall all the way back to June 2007 (I know, I have a very hazy recollection too), John “IE’s the Bomb” Husing said: “the Inland housing market is in the midst of an 18-month pause, and will likely see an annual depreciation in the median sales price of 5 percent this year.” See: http://www.pe.com/business/realestate/stories/PE_Biz_D_inlandforum08.3c8a832.html
That is the sign of a true guru. He tells you housing prices will be lower and then b**ch slaps you for believing him. I have a Stockholm sydrome, mancrush on my bubble expert …
Actually it’s statements exactly like this that reinforce how bad the current market is. It’s liken to when People magazine adds Whoopie Goldberg to the 100 most beautiful list.
Yea, that statement made me do a double take…
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
Someone take this poor bastard out back and put him out of his, and everyone elses misery.
Hard to believe that a city like Redlands actually HAS an economist. This loser thinks he is smarter than todays buyers who are waiting.
Actually, Redlands is pretty cool IMHO, my wife’s mom has a house there and we lived there for a year or two after law school. (Of course, my impression comes as one who had enough space around our house not to really notice the neighbors unless I was looking, and this goes a long way.)
There’s a university there, good cafes and restaurants, good medical care (I think maybe a teaching hospital) - all in all, not so bad. Actually, I liked it better than the valley. The people are a lot mellower and small-town than LA, they actually let each other go at stop signs rather than engaging in mortal combat for a parking spot at the mall, but the student population also keeps it interesting and young.
yep, that was the laugh o’ the day!
Why do customers think my $200 pizzas are priced to high? They must not understand the market!
I wouldn’t buy your pizza until you offer me 5% off.
If stupid locals won’t “snap up” your $200 pizzas, then retiring Boomers and rich foreigners will, by golly!
And don’t forget all the Googlers!
They each have to have $200 pizzas.
And immigrants don’t mind splitting one among eight of them!
LOL!
I’ll buy your pizza…if i can get 110% loan and cash back at closing.
One of the best cases of double-speak we’ve seen.
I hear many realtors say that they don’t set the price, the market does.
And yet when the market clearly tells them that prices are too high, the market is wrong.
I heard today that friend of a friend is going to take their house off the market in Danville.
Why?
“They’re not getting the price they want” and because they have not had one (1) offer since it went on the market in February.
Not one.
Not even a lowball.
I could be wrong, but that “pulling it off the market and waiting” strategy is not going to be a winner.
How are you “not getting your price” if there are no offers!?!!
Boy, I’ll bet Bear Stearns is feeling like the village idiot right now. They should have just pulled those hedge funds off the market when they weren’t getting ‘their’ price.
i think you guys are misreading him. it seems to me that he’s saying that a lot of buyers are going to wait until the market makes sense to them. he’s not trying to justify high prices, rather he’s trying to justify the buyers’ hesitancy to jump in at such prices.
Hmm, good point Mike. I see what you’re saying. I guess that’s where sometimes the printed word can be deceiving as we cannot hear the inflection of their tone and hear what they mean like when they speak.
I guess it’s just hard to know here what he really meant.
Daffy: “that’s disssssssssssspicable”
Bugs: “eh, Daffy, she can’t hear the inflection of your tone”
When will zillow stop aiding the denial process?
As the ponzi scheme unwinds the internet based home valuation has to be part of it.
Zillow is only good for sellers. Read the “About Us” page and you’ll get the idea.
Zillow stopped displaying a “Zillow Price” on some properties I’ve been looking at on the coast in South NJ. Instead, it lists the “Tax Assessor’s Value.” What’s up with that?
In my neck of the woods, zillow numbers are down and sellers still price 300k over. Flipping knob bonnets
as much as zillow’s “values” overstate to the upside now, they will overstate to the downside long after the market has turned back up. It’s the nature of predictive modelling. just wait and see…
Dang I wish I could be alive to see that.
LOL - no kidding. Wouldn’t hold my breath for that day.
I agree that Zillow is a big problem when it comes to seller psychology. Their Zestimates are hopelessly unreliable, and outrageously inflated in many areas. I don’t quite understand their model, but it certainly does not take views, materials, etc. into account. I’d like to call it plain horseshit.
I’d like to call it plain horseshit.
Right on, Bear.
When I sold my 1200 sq/ft beach house for $700 sq/ft to rent in January ‘04, my ‘Zestimate’ leaped over my neighbors similarly sized houses and even 1700-2000 sq/ft properties by up tp $100K, and remains about $50K higher to this day! If you searched this house on Zillow, you would think that it must be totally redone to be ‘worth’ that much more than adjoining properties, but it isn’t. I just sold closer to the top. Did a lot of upgrades, but no granite, new kitchen, etc… same as most of my neighbors. Zillow uses predictive software, much like a PID loop is used in DDC controls. Many sales in ‘04 and ‘05 were so skewed by the pyramid peaking that their algorithm is virtually useless as a value tool.
Zillow should display the disclaimer,
“For Entertainment Purposes Only. Not to be Used with Real Money.”
It doesn’t even take the recent actual sales price into account, as I can vouch from direct experience last year. It’s “mark to model” instead of mark to market, just like the mortgage-back securities fiasco.
Obviously Zillow is going to be very “seller friendly” with its pricing. They want sellers and Sally Specuvestor to want to like their site. If they showed low prices, Sally Specuvestor would find another price estimating site.
Zillow’s just a lagging indicator due to the lack of comps. Once the low prices really hit, Zillow’s formula and price charts will freak out homeowners nationwide.
“‘People began buying houses they couldn’t afford under the theory that the more house you buy, the more wealth you have once it appreciates,’ he says. ‘It’s kind of a Ponzi scheme on a mass scale. But there has to be an end at some point.’”
It was nothing more than a PONZI SCHEME! Can you say vindication?! When the crazy credit boom began, many of us saw this for what it was: a pure ponzi scheme. Now, a lot of would be Trump investors are left holding the bag, and it smells.
Yup.
“It’s kind of a Ponzi scheme on a mass scale”
So…you’re saying the emperor’s delightful summer clothing line is looking a bit sheer for the flash photography of the runway? I’m sure it still looks great under normal lighting.
‘It’s kind of a Ponzi scheme on a mass scale. ‘
That comment really nails it. And I think that comment is a big reason why so many renters have felt screwed in recent years. I talked to lots of renters and they knew it was a ponzi scheme back in 2000-2001. Homeowners couldn’t see it because their new found sense of wealth depended on their not seeing it.
It is a sad commentary on our society that we allowed ourselves to be taken in by a ponzi scheme on a mass scale. The other sad part is all the communities ruined, the loss of stable neighborhoods.
Such a scheme is only possible under a fiat currency system.
‘It’s kind of a Ponzi scheme on a mass scale. ‘
That comment really nails it. And I think that comment is a big reason why so many renters have felt screwed in recent years. I talked to lots of renters and they knew it was a ponzi scheme back in 2000-2001. Homeowners couldn’t see it because their new found sense of wealth depended on their not seeing it.
It is a sad commentary on our society that we allowed ourselves to be taken in by a ponzi scheme on a mass scale. The other sad part is all the communities ruined, the loss of stable neighborhoods.
Such a scheme is only possible under a fiat currency system.
I agree with what you have just said.
These property owners never had any real wealth in their lives before this and it felt good for them to feel rich for the first time in their lives. What a threat this crash is to their sense of financial security.
There was relief thinking they were now rich. They had never bothered to funded a 401k or Roth IRAs and it didn’t matter anymore because, THEY WERE NOW RICH!!!!!!! and had a NEST EGG finally.
Now they are losing their Ponzi nest egg and you know what they say…never place all of your eggs in one basket.
This has been the most delightful week of news and stock market revelations.
Next week is going to be even better!!
Feature key earnings, July Jobs and unemployment reports are coming out.
They didn’t just put all their eggs in one basket - they actually had started counting chickens…
I had to restrain myself not to burst out laughing! Great one!
“I had to restrain myself not to burst out laughing!”
Why? Unrestrained laughter is lifes best buzz. So go ahead and let go, Pete. Besides, you can bust a nut doing that.
Uhhh….you mean GUT?
No, I meant NUT! Yes, most hernias occur through the abdominal wall. But very often the blow-out pushes south, right into the ‘ol nut-sack. Talk about a train wreck!
OK. Where I’m from “bust a nut” means something a bit different than that…
All that is really necessary for speculative bubbles to occur is mass self-delusions. Fiat currency is just an enabler.
It’s the “guns don’t kill people; people kill people” argument …
I agree. The tulip bubble and others existed back when currency was precious metals
“‘People began buying houses they couldn’t afford …..”
In reality, Realtors® encouraged and lenders let people buy homes they couldn’t afford. In addition, apparisers were accomplises and local taxing officials were turning cart-wheels over the increased revenue!
Ponzi Scheme…Are you kidding me?
Just click on Yahoo!/RealEstate and you will see add like this:
Quicken Loans 300K mortgage for $875/mo
Lending Tree 200K mortgage for $644/mo
Limitted time only…yes of course, because these loans are designed to only last a few months before you are sent to foreclosure.
They are still running ads like this to fish in people today!!!
The weird thing is, the lenders don’t like foreclosures, at least not when they’re holding the bag - it’s only when they can easily get rid of the debts on the secondary market that quality doesn’t matter so much. But in today’s market, where resale of the debt is getting more difficult by the day, how can they make these loans in the first place? I’m guessing they really can’t - the programs in those ads have since been discontinued, at least for anyone with less than a 700 FICO or without verifiable and steady six figure income, and the ads continue to play anyway because they were already bought and paid for.
But, I’d be curious to hear if this is not true - is bubble money still available after the last month or two of craziness in the mortgage markets?
And you will see shadowy shapes of young people dancing for those loans. Nevermind that most people in those 22 year old-looking shapes cannot afford a traditional 30 year loan for a $300k mortgage at 6.25%.
No, not Time Magazine! This downturn was just starting, and now they’re calling the bottom with a gloomy story? Well, maybe it has some time to go before they declare homes the worst investment ever. One can hope.
Don’t worry. They are just late to the party. The decline will be over when Time’s cover stories proclaim that RE will never go up again.
You don’t know how much I’m waiting to see the imploding home on Time’s cover. Bwaaa haaaa ha!
The photo will show a really fat family piling into their huge SUV a la the Oakies in the 1930’s.
Is that our signal to buy?
Before then, we need to see a cover on:
“the damage subprime did.”
“The US’s need to create manufacturing jobs.” (or maybe just a cover on the loss of US manufacturing as an industry).
“When will the (stock) markets recover”
and… “The dollar and when will it stop falling.”
I’m highly amused that the big I-banks trying to buy into the stock market… wasn’t enough. It was really interesting listening to bloomberg on today’s market.
Got popcorn?
Neil
‘You don’t know how much I’m waiting to see the imploding home on Time’s cover.”
Unfortunately, that would be a strong signal to buy, so that cover, which will come, is years away. I doubt that I will be alive to see it.
hoz - your posts are always spot on. you can’t leave us!!!
Damn, how old are you, 80?
Any updates from Alhambra/Pasadena?
“Any updates from Alhambra/Pasadena? ”
Things are starting to slow down. DOM is up and number of transactions is down. Asking prices are still unreal however.
Place near mine just fell out of escrow. Just six months ago, that place would have been picked up in one weekend.
Looks this part of town is probably 6-12 months behind the curse on the way down.
LOL, nice Freudian slip.
“that place would have been
pickedsnapped up in one weekend”–there, all fixed!
Update…………..
Jitters back - Dow sinks 150
Investors again get spooked by credit market fears, just a day after Dow posts second biggest point loss this year.
http://money.cnn.com/2007/07/27/markets/markets_1130/index.htm?cnn=yes
Down over 200 now.
Where has goldilocks gone?Time to wheel out cocaine larry to reassure the sheeple.
A bit of a mauling from one of The Three Bears.
Stock market ingnoramous here, but just getting enough money in my 401k to care. Quick question, is a stock that holds lots of a commodity (i.e. an oil company with plenty of proven reserves) a good shelter from the coming storm?
Thanks in advance, Tom
Tom
That works if the storm is an inflationary one. If the problem is deflation, commodities offer no protection.
Where’s Auger-Inn when you need him? That was a perfect setup for him.
Makes sense. Thanks, you da man (or da woman).
IMO the gubment won’t allow deflation ’cause of it’s huge debt (and if it does, my 401k will be small potatoes compared to other problems) so I’ll keep my company stock.
Awesome, peace out….
EastBayTom - make sure you’ve got a decently balanced portfolio in terms of individual stocks - you’re going to be taking on market risk regardless, but there’s no good reason to take on company risk, even if (especially?) if it’s your employer, unless you expect significant appreciation soon.
my prediction was a 10-20% drop. i think we’ll have that soon.
auger - you are in god’s country. that could be my next home!
Augur,
please don’t leave us hanging…please post on Nova Scotia when you a minute. all best,
EastBayTom - Gov’t won’t allow deflation? So, they’re smarter than the Japanese, then? Gov’ts never “allow” deflation, any more than they allow riots. Sometimes, you just can’t stop them.
I did watch Kudlow he didn’t mention Goldi. Damn things change fast in Fantasyland.
This from Merrill Lynch’s economic research this morning - shows just how far the fear and credit crunch have spread:
—————————–
“Meanwhile, the contagion has arrived. High-yield spreads have now widened 150 bps from their nearby lows to 417 bps, the widest since 30 June 2005. BBB-rated bonds have widened more than 30 bps to over 150 bps – widest since March/05. And even A-rated paper has been hit by all the uncertainty – nearly 25 bps wider to 114 bps and this is the widest spread since October/02. Emerging market equities got clocked 2.6%, in the worst session in nine months, while spreads off Treasuries soared 26 bps to 222 bps – widest since June/06… The ABX index for BBB sagged 5% to 37.72, and AAA product also dropped 1.6% to 92.97. And in a sign that the moves we are seeing are not just “financial” but also “economic” look at how the CRB dropped yesterday and rapidly closing in on its 50-day moving average of 316 (ditto for gold – at $660/oz).”
————————–
Of course, this was all before today’s follow through selling. More massacres in riskly lending as junk bonds cratered again and the ABX indicies fell even further. I was especially intrigued by the comments on emerging market debt - until this week, that area had been one of the few credit areas that hadn’t sold off.
You have to go back to 06-1 to find a BBB- ABX trading for above 40 cents on the dollar!
http://www.eurobondonline.com/abx-HE-BBB-06-2.Htm
The AAA’s are really bruised for such a high end instrument.
And the LBO debacle has hundreds of billions of junk coming down through the pipe. Since the pipe is already blocked, we aren’t going to like the back purge. The I-banks cannot afford to do too many more pier loans.
Man will KKR be interesting to watch for the next year. Same with Ceribus.
Got popcorn?
Neil
Don’t speak while stuffing popcorn in your mouth — it’s pronounced “Cerberus”.
Why does AAA or BBB matter when you have inflated asset prices?
Remember the Hunt brothers trying to corner the silver market, they had AAA+ credit rating at the beggining of the cycle.
Has anyone heard from Gary Watson lately?
No, he’s buried in “debt up to his eyeballs”.
Gary Watts, we barely knew thee…
I heard from a realtor that homes in North Tustin with wishing prices of approx. $1MM are getting offers of $100k under the listing price….and are being accepted. Smart sellers.
Me - I’m sitting tight and enjoying the show. We’ll see what mid ‘08 -> ‘09 brings
I don’t expect to be smart or timely enough to catch the exact trough of the market…but you sure as heck won’t see me jump in on the high end.
I’ll remind the blog of my situation. Wife and I rent in Newport in a small aparment a stones throw from the water. 2 beds, 1.5 baths, about 1,100 sq. feet, 2 car garage. Rent - $1,800.
A nearby house sold in January. 1,200 sq feet, 2 beds, 2 bath. Don’t know lot size. Selling price - approx. 1.4MM. Assuming typical OC financing (less than 5% down), the PITI (or perhaps just “ITI”) is, well, not quite competitive with my rent.
Have a great weekend everybody.
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
Buyers get it, sellers don’t. I already own my home and it’s completely paid for, but if I was a buyer in this market there’s no way I’d consider jumping in. What looks like a good deal today, could be upside down tomorrow by hundreds of thousands.
Do buyers really get it, or can they just no longer get financed? I still think the people who post on this blog are an enormous minority. The psychology of the masses in the East Bay still seems bullish.
Walnut Creek just hit the nail on the head.
Those that would buy with subprime are *excited* about the current buying opportunity in real estate. (I know, shocking, but have lunch with a pack of J6P… you’ll be surprised what you hear.)
Those with 20% ready and who would qual for a prime 30 year are in the minority. Not to mention how few people didn’t hit the home ATM.
Got popcorn?
Neil
I strongly concur.
If the ridiculous lending practices were still available en masse, i think a lot more peopIe would be buying these ‘bargains’. I think its going to take longer for the RE lustre to fade for the J6Ps….
“Do buyers really get it, or can they just no longer get financed?”
Bubbles can only happen when there is money available to finance them. Stop the financing and the bubble will deflate.
There will always be bulls in whatever speculative/investment catagory you would like to name. It’s not enough that the bullish psychology be there; the money to back the psychology has to be there as well.
This past RE bull market would still be going strong if the easy and available money was still there to power it. IMO.
Or how about they just can’t afford it! Maybe people/banks/etc. are realizing that spending 90% of your income on a house is not smart or even possible. These guys are thinking like it’s greed, but in reverse. We’re holding out for some great deal. In fact, we’re just being responsible.
“Or how about they just can’t afford it!”
Not being able to afford a house won’t stop people from buying one, as recent history has demonstrated. The only way to stop these people from going off into the financial deep end is to cut off their access to the money. Nothing else seems to work.
In San Francisco everyone is repeating the mantra” it won’t go down here”. This week I am visiting family in NYC and yes, “it’s not going to go down in New York City”.
sigh.
ouch…. at 1200 sq ft, the lot would have to be about 150 acres for me to look at it….
My co-worker in the cube next to me lives in N. Tustin and he says the same thing (850K to 950K). He laughs at the individuals that are buying because he only paid 325K in 2000 and he thought that was a lot. He said he can’t figure out how these people can afford 850K for a glorified townhouse; considering that he had to stretched to buy at his price. I can’t figure it out!
Same here. I live in CDM. Rent $3,500/mos. To buy: $10,500 to $11,000/mos. That’s a $1.6M, 20% down, 30 yr. @7.125. Place was $750,000 in 2001. Timmmmbbberrrrrr.
this country has forgotten what wealthy means.
Million dollar houses are not supposed to be financed…geez
“this country has forgotten what wealthy means.”
No kidding, it got revolting having people look down at me because I said that I wanted to buy a 200,000 dream home in Florida.
I was made to feel “cheap” and poor because I only wanted to spend 200K and then it was suggested to me to go into a neighborhood “that I could afford”. Thats great, that would have given me 1000 square foot home built in 1974 with popcorn ceilings and pink toilets.
Screw them, I am a CASH BUYER.
My dream home is 2000 under air, screened lanai, pool, and a circular driveway with freaken granite countertops!!!!
The only popcorn I will be getting is the stuff Neil and others are eating watching this show.
I get the same crap out here. My sister in law is a realtor and she thinks I’m nuts to think that I should only pay 250 to live in the Riverside or Corona. I guess I am but if I have to pay more than I’m move to a nicer community way the hell away from her!
When you do finally buy your house, make sure it’s bought from one of her closest realtor friends.
I like the way you think, SKB.
I get the same crap here in Maryland, and I am sure I am probably the only person at least among the engineers I know who hasn’t bought an overpriced McMansion or something similar in the past 5 years. I “clearly don’t understand” how housing “is just supposed to be very expensive” in the area. Yeah, apparenty 5 to 7 times one’s salary is “just the way it is” even for those of us making good money. Right! Nevermind that the same houses went for 50% less as little as 3 to 4 years ago - things are “different here!” But since I also drive a low-mileage, modest, year 2000 car instead of renting a new $50K BMW/Mercedes/Whatever every 2 to 3 years, I guess I really don’t get it!
Now, if you’ll excuse me, I am going to go play the lottery and collect some big piles of cash that have fallen out of the pockets of the politicians in DC since I guess that is how things are “different here” and how people think they can afford these housing prices! Right!
“This country has forgotten what wealthy means.”
Agreed.
I haven’t been hungry since age 11 (when Mom finished school and became a teacher), I have good health, and my wife is 8 months pregnant.
That’s enough “wealth” for me.
“Standard Pacific said Friday morning that it swung to a second-quarter loss of $165.9 million. The company suffered a $306.0 million charge to revalue its land and home holdings, reflecting the deterioration this year in U.S. housing prices.”
I haven’t looked at Standard Pacific’s or any other home builder’s balance sheet but I get the feeling we’ll be seeing some bankruptcies in the next few years as the residential market gets even worse. Who are the top home builder candidates for bankruptcy?
name one, and it wont be years…its gonna be in the next 2-3 quarters.
jungle_man,
2-3 quarters is about right, but if it takes 4, I wouldn’t be surprised.
That said… It won’t be one builder going under. As soon as one declares BK, writes off the debt, and reorganizes with all of the land booked at values that can sell in the 2008 market, the others will have no choice but to declare BK and follow. What’s funny is that the company that does BK later and can revalue the land for selling homes in 2010/2011 will become the fast growing builder on the other side of this downturn.
Am I the only one who thinks that at least one builder will enter bankruptcy twice during this downturn? A la “US air” during the 9/11 airline recession?
Got popcorn?
Neil
Sort of the HB version of serial refinancing? Certainly seems plausible.
“Sellers won’t budge from prices they think their homes are worth and buyers sit tight in hopes prices will drop, according to economists and real-estate professionals.”
Sorry, this is no longer a buyers hope that prices will drop. As every day passes you can just feel the apprehention turn to conviction as would-be-buyers are now convinced that it’s time to wait. Game’s up folks.
Sorry….”apprehension”……don’t want a lashing from the spelling nazi.
Good man.
Get the latest version of FireFox, it spell checks as you type stuff into the form. :-))
Sounds pritty good
“Sellers won’t budge from prices they think their homes are worth and buyers sit tight in hopes prices will drop, according to economists and real-estate professionals.”
Sure would like to see a MSM piece on the percentage increase of office visits to psychologists office. What’s that new sleep medication on the market, maybe a good time to invest?
Yes and then do a piece for the sellers too. I wonder if they are sitting tight on stocks cause dangit [they] deserve the DOW back at 14,000!!
Well, they’re not “going to give their stocks away.”
“Sellers won’t budge from prices they think their homes are worth…”
Oh yes they will, if they EVER want to sell. Those fantasy prices are never happening again. What is being overlooked, is that certain properties must sell due to death, divorce, job loss, relocation, etc. These are the properties which will set the new comps, further contributing to the laughing stock who are the stubborn, greedy sellers.
Exactly right BBear.
But you forgot to mention the elephant in the room, the ARM resets and foreclosure MUST sell homes. I don’t care if sellers won’t budge from prices they think their homes are worth. There are plenty of foreclosures to satisfy ALL the demand for the next several years. Oh, and if you miss the ones currently up for sale, no problem. There will be a new, and larger batch to choose from every month for years to come.
This is amazing.
How do people just “walk away” from the homes they’ve “bought”? What are the repercussions for this? Even the basic lease for renting an apartment usually stipulates that the tenant can be held liable for rent until the apartment vacancy is filled should they choose to walk off.
They will not be able to make any big-ticket purchases for quite some time and with over $100,000 in debt will most certainly file for bankruptcy protection. Haven’t you ever played Monopoly?
I just got that game and my 7 yr old daughter wants to play it about 18 hours per day. It really is an educational game in many ways.
It would be great if they re designed monopoly to a new version of housing bubble Burst Monopoly. The game pieces would be Alan Greenspan and David Learah, Casey Siren, and various screwed bag holders.
The object of the game would be reversed, instead of buying properties, you have to try to sell them or rent them out. The winner is the one that gets their shirt back or doesn’t go to jail at the end of the game.
Yer comment brings back similar memories of my own childhood addiction to Monopoly. I used to beat my parents so often they refused to play … my father would gripe & mumble something under breathe I couldnt quite understand … heh heh … oh well.
(Heck, the only thing I did differently from them was to buy & make deals for 3 properties as soon as, and by any means possible, early on in the game. It got to be as soon as I asked my brother ” hey, how bout making a deal … ” he’d say ‘ NOOOOO ‘ right away.)
I realized even at that young age that you can charge people a LOT more for landing on a property with a hotel or a house than just a single raw piece of land.
My father is a Mensa-class genius but some people just never seem to translate academics to reality and all of life’s imperfections….
ahhh, good times.
I guess that the lien holders simply accept that there is no way they will get the money back from people who have no money, so they just write it off.
the problem, is new bankruptcy law says whatever the ‘write-down’ by the lender is treated as taxable income to the debtor. ouch.
I wouldn’t mind seeing investor (non-owner occupied) types get wiped out from buying another place for more than 7 years. How about 15?
i’m thinking the same thing. make them persona non grata for a lot longer. 15 sounds right. no less than 10.
“What are the repercussions for this?”
One thing, imo, is that those people who resisted bubblemania and maintained their good credit ratings will leap-frog up the food chain and have a much better standing in the eyes of lenders.
they will still need a down payment and that is a big hurdle for even those with good credit
As a responsible, sane saver, I say, “Bring it on!” (down payments)
I can’t tell you how many people I ran into in 02-04 that told me that if they couldn’t sell the house in a few years, that they’d just file BK and try to homestead. I’d look at them like they’s sprouted tenticles and eyestalks.
These were usually very young and not well off people in Sacramento. To them it was just a few years free rent while one of the couple took the credit hit and the other was free to secure credit another day.
Gwynster
…. the fact that not only do people game the system but BRAG about it, while people who try to do the right thing feel like a chump …
Yea…thank god these weren’t friends. I had to fight an instinctual urge to apply an aluminum baseball bat to their knees >; (
Just borrow ex-nnv’s Joshua tree!
A little OT for this thread, but was looking very cursorily at the HBs today after reading the NY Times article on the BZH and DHI writeoffs:
http://www.nytimes.com/2007/07/27/business/27homes.html?ex=1271908800&en=2b394b38d2fde7be&ei=5035&partner=MARKETWATCH
Very roughly, it looks like both BZH and DHI wrote off about 5% of their inventory (~10% of their net worth) in the most recent quarter.
The general paradigm for the builders was a draw down of cash into 2003 as they leveraged up their holdings, huge profits and cash flow in 04-05, a sharp slowing in 06, and now a crash in 07. Cash positions for several builders are below the levels of 03, except that now of course they arfe in the much more precarious positions of holding much larger levels of both inventory and debt.
These companies would appear to face the gloomy prospect of being unable to raise outside capital and thus having to choose cash flow over profitability. To survive, house prices must continue to fall, and fall significantly. Unfortunately, large portions of the inventory are land and can’t be easily sold - this is why there may be continued building, as the desperate need for cash flow forces companies to put boxes up to try to cash out land values.
Of the large builders, DHI particularly looks the most vulnerable to running out of cash - it is down to around $200mm. Of the smaller builders, HOV looks like the biggest basket case - high inventory levels and almost no cash. It could go belly up any day.
It’s hard to know the true value of inventory, but taking things at face value, LEN and CTX might be a bit better off than most, with KBH and PHM slightly more vulnerable. But of the ones I looked at DHI looks like the most likely to implode (even though it claims FL and NE - but not CA - are starting to stabilize).
In the case of HOV, add in the fact that they’ve not taken much of the writedown medicine yet. The asset values they are carrying the land and housing inventory at are still way too high.
It’s a little strange, because since inventory exceeds net worth, as inventory is written down and no new land or options are being bought inventory to net worth ratios actually appear to improve - in some ways the companies look less leveraged today than six months ago. Thus an analysis of debt burden, cash and receivables, and cash flow becomes more important going forward.
Correction - If x exceeds y and both x and y are decreased by the same amount, x/y increases, not decreases. So the explanation for the slight improvement in inventory/net worth ratios is net inventory sales.
fagedabowdit,
its ALL about cash flow…..and time is running out.
Interesting comments. My buddy (and his wife) both work for DHI. He says things are swell and he expects to be loaded with work with them for the rest of his life :rolleyes
I’d tell them they may want to “diversify” their careers, but not the advice-giving type when it comes to friend’s finances.
Good choice… Giving financial advice to friends is an excellent way to end friendships.
i’m heading to a family get-together this weekend ..
i will keep my mouth shut. i will keep my mouth shut. i will keep my mouth shut. i will keep my mouth shut. i will keep my mouth shut.
He ought to short his company just to hedge his career.
I can’t wait for the IE to BURN! I live here only to appease my wife who works in San Bernardino until she finishes school. I have lived here on and off for 15 years and I can say with absolute certainty that this place SUCKS! It’s difficult to put into words my dislike for the IE; just can’t find strong enough words. There is no way I am paying 500K, 400K, or even 300K to live with these people. I would have been long gone if my wife would just realize how crappy it is here and if we were tighter with our money she wouldn’t have to work. I read the OC paper everyday and they talk about saving monuments, community events, feel good stories; something that makes you feel proud to leave in a certain community. In the Press Enterprise (lefties), all you here about is gang violence, held by gun point and rapped, food stamp heist, or some other disgusting act that is committed day after day! Ahhhhhhhh! I REALLY hate the traffic too!
Okay, I’ll stop whining like a baby now.
I hear ya brutha. My wife and I were driving back from Laughlin to Irvine and I couldn’t believe all the building going up in the IE…way too much building homes/malls with no infrastructure improvements leading to traffic congestion. Plus, it was sooo hot and smoggy I couldn’t wait to hit the toll road and watch my temperature gauge drop as I headed toward the coast. I’ve said this before, I’d rather live in a condo near the coast than in a mansion in the IE!
In the late 70s, I had a hard time renting out IE apartments. Then, boat people (refugees from vietnam war) started showing up by, well the boat loads and pretty soon there wasn’t enough apartments. Perhaps by late ‘08, we’ll be seeing new faces from Afganistan and Iraq to fill those now-empty homes and malls.
ps Glad I sold those units!
I live in Corona and we have a crap load of vietnamese that attend my church. Some of the nicest people I have ever met and boy to they love to sing in church. I’ll take them any day over the cholos that live in the apartment belwo me.
Oh, I agree. The boat people moved in and the gangstas moved out. Then those folks turned the place into a virtual garden - had the best units on the streets because of it. I’m wondering if Iraqi’s and Afgandi’s are going to be as well liked. Good for landlords with empty units - All are on Section 8 (your tax dollars at work).
ps I’ve noticed that second and third generation “boaters” are joining the gangs and no longer attending church.
“ps I’ve noticed that second and third generation “boaters” are joining the gangs and no longer attending church.”
i think that is a positive. They assimilated. LMAO
Would it be fair to say that no matter how much we think that you think that the IE sucks, that it sucks even more than that?
No more smell! They remove all the cow pastures off the 15 and replace them with beautiful 700K sh*t boxes for everyone to admire! Yeahhhhhhhhhhhhhhhhhhhhhhh!
Nice Dean scream.
ie - can you take a picture of that area with all the new homes - the thousands? i went to palm desert 6 mos ago and could not believe my eyes. i have never seen so many for miles over near the junction w 15. seriously. the rest of this blog has to see it to believe it…
yeah, I’ve been through there recently too and it’s crazy. I was looking at jobs out there recently and could not find anything even close to what I make here in SD. Where do people get the money for this???
paul, i am fairly sure you hit the nail on the head
Does it still smell like cow manure out there? That’s what I recall about it. Plus the endless smoggy haze. I bet it’s ripe on these hot summer days, like in suburbs Phx.
You are not whining. You have a legitimate gripe. If you pay 300K+ for a house your neighbors should not be thugs!
Just saw an ad on TV last night for homes in Fontucky starting in the low $400K. Can’t remember the builder, but it might have been KB Homes. Weird to see a TV ad for new homes in So Cal - can’t recall ever seeing one (we get radio, print and billboards, plus lots of sign twirlers, but not TV ads). Plus, the ad included (both voice over and on-screen) the names of certain subcontractors (e.g., stucco by ABC Co., whirpool tubs installed by XYZ Plumbing) who did work on the homes (while showing pictures of the work done by these various trades). Just bizarre.
Fontucky for 400K! That is insane! My brother moved out of a 2100 sq ft home in 1998, sold for 135K, and moved to Riverside to get away from the gang violence. He lived in one of the nicest areas at the time. I think average income in that area is around 35K. Who the hell could afford 400K!
I was born and raised in San Gabriel Valley. Born in Covina, graduated San Dimas High back in ‘85. I would NOT move back unless it involved a $1 million a year job.
Class of 77 for me. They still called the Saints?
Darrell & Vincent’s most excellent adventure?
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
GET THIS Clown economist…
Both RE agents and their greedy little FB owner friends will come crawling OUT of the IE parched and burnt ON their hands and knees just begging for water, another Fool, the next GF or even a really, really lowball buyer before this is all OVER
I was thinking…..
The median US Household Income is around $47,000. However, I believe there are lot of average dual income family that makes over $47,000. Also, a couple with bachelor’s degree should easily make close to or above $100,000. Thus, if you consider this, I am thinking that there are many more potential buyers out there. For example, a dual income household with $100,000, they should be able to afford a $350,000 ~ $400,000 mortgage in California and elsewhere. Perhaps, this is the entry level pricing in California. Just a thought….
I suppose that if you resampled to only include dual income households that the median would be higher, but not much, as most households are dual income these days.
The key is not dual income, rather dual college degree income. With roughly 50% of the population having a B.A. or better, and many are not married to people with college degrees, maybe 1/3 of households have dual degrees. On top of that, English, Music, Sociology, Psychology, and most humanities B.A. degrees will get you about $30K per year. Also, a good chunk of those couples have kids so one parent doesn’t work or they spend $$$ on daycare.
50% is too high. The recent US census data shows that ~37% have a higher education degree (BA, Masters, PhD, Associates degree, Professional degree). 49% ended with high school or left college after a couple of years. Not sure the dual-income, with college pool should be setting the entry level price anywhere.
350,000 to 400,000 you’ll only be able to buy a small sh#t box in the IE for that amount in SoCal. And to make over 100K you’ll have to commute to OC or LA which is around 60 to 70 miles (I drive 60 one way and my wife drive 40 one way). This will cost you around 900 dollars a month in just gas and tolls (this is me and my wife); we only drive vehicles with 4 cylinders.
350,000 is around 2,800 w/ interest & taxes
400,000 is around 3,200 w/ interest & taxes
That just seems like a lot of cash to live in the IE.
In Pasadena, a typical 2 bedroom rental costs about $2,000. The Condos here are between $390,000 to $425,000. Yes, it costs more to own than rent. However, if the Condos come down to about $350,000 than it is equivalent to a rental property. (Assuming you put a 20% down, when you purchase).
Thus, perhaps in Pasadena, a low $300,000 to $350,000 may be the lower ceiling.
Really? With how much down payment? How many first time home buyers can bring even $35,000-$40,000 to the table? Seems like most young people these days are burdened with student debt from getting that wonderful bachelor’s degree you mentioned, and are thus unable to save even a modest downpayment.
Also, what non-bullsh** jobs enable couples to earn $100,000 and what are the prospects for that field/industry in the face of $100-$200 per barrel oil?
“Really? With how much down payment? How many first time home buyers can bring even $35,000-$40,000 to the table? Seems like most young people these days are burdened with student debt from getting that wonderful bachelor’s degree you mentioned, and are thus unable to save even a modest downpayment.”
Student debt, yes, but also new cars, eating out, furniture from Pottery Barn, vacations every year, etc.
A lot of people I know don’t save because they don’t want to, not because they can’t.
I would love to buy a house for $400,000 house in the Bay Area. But a decent size house (3/2 1500sf) costs around $800,000+. This gives you an idea how far off the prices are in the BA. Imagine areas in the states where the medium income is much lower. I can’t understand it either.
“I would love to buy a house for $400,000 house in the Bay Area.”
I wouldn’t LOVE to pay $400K for any house. I’d rather have two $200K houses to enjoy at different locals. Better yet how about a $200K house here in the US and a leased property in Baja for the beaches and seafood and fishing.
Doesn’t Household Income already take into account the income from all earners in the household (in this case, both spouses)? While per capita income would look at an individual’s income? I could be wrong, but I thought that was how these figures were calculated.
I agree that the median HHI might not be the best measure of affordability for housing based on median house prices, since the lowest tiers of HHI will not own (or should not own - I know those $15,000/year strawberry pickers with a $700K house). So, maybe moving up to the 60% or 70% percentile of HHI would be a better gauge of affordability relative to median house prices, but I don’t think that you need to be doubling the HHI on the assumption of dual income families.
hh takes into consideration a spouse. per capita is per person
That BA or BS degree depends on type and where you are.
Case in point, a good friend and co-worker of mine was a researcher at UCD doing statistical analysis on a large NIH study. She had her MS from U of K. Yearly salary? 36k. Her husband received his MS in vitocology from UCD. He worked for the USDA here. Yearly salary 41k.
He is now a groundskeeper for the Presidio and she’s a stay at home mom. They get free housing in one of the best places in SF.
Both my husband and I have a masters and we don’t come near 100k even if we both maxxed out our classification.
Gliniak calls it “oversaturation” and thinks too many people bought expensive homes in the two-county area that they couldn’t afford and “had no business buying them,” he said.
I know one to many families who bought houses but had no business buying them at those prices. Now, one by one they are starting to default; But they really had no business buying them!
My uncle, who I’m sure is a millionaire (not including *home equity* but would never talk about it), even bought into the ponzi scheme of housing. He purchased a McMansion in suburban Atlanta, convinced that it would appreciate at a high rate than houses closer to the city. Now they live in a house they strongly dislike and drive at least 1 hr each way to work in gridlock. He might be proven right, but it’s going to be at a pretty high cost.
“…convinced that it would appreciate at a high rate than houses closer to the city.”
I have a friend in Seattle who did the opposite. His rationale? Bought closer to the city since 20% appreciation on a higher priced home means that much more profit.
Speculation by any other name…………….
Oh. my. god. I guess he’s in marietta or alpharetta? The commute into Atlanta is utter misery. Complete and total frustration. Inside the perimeter, if you are creative there are good surface streets, but 285/85/75 are all an utter nightmare. That city is proof that adding more lanes to highways only makes traffic worse (by inviting even more people to come live even further from work).
Back in the day, my dorm room at Georgia Tech overlooked the bulging artery of 75/85 downtown– I counted 16 lanes across directly outside my window. In the morning the sun would glint off the windshields of that car sea, and it looked like the reflection of endlessly churning water. Very beautiful. Chaotic. And hell outside.
Yes but my 5th grade teacher told us by the year 2000 we will all be piloting flying cars so it really doesn’t matter. Hang in there :p
“Steve Thomas, …hopes to capitalize on the housing market’s downturn by buying foreclosed properties in places like Fontana, Rialto and Highland.”
Have fun catching the falling knife. Fontana and Rialto always has been and always will be a gang infested, low income dive.
Have fun catching the falling knife.
Literally!!!
The Real Morons of Orange County
Here’s what an article from the Slate Web site entiltled “The Real Morons of Orange County” says, among other things …
http://tinyurl.com/2twpkq
I guess I’m going to wait for the “Real Morons of the Alt-A Bay Area” story.
That should be equally as interesting.
Home stores react to homes not selling
http://tinyurl.com/2jymwq
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
This guy is a f***ing moron. Is it really the case that economists are so much dumber than the rest of us? Who could not have foreseen this situation? If they are not just stupider than everyone else, then what would motivate them to lie and misrepresent reality, much like the realtors do? It is obvious why the realtors would lie — they do all the time since they have a vested interest in moving real estate.
You’ve already seen asinine comments like these posted here:
“Northwest Montana Realtor Association president Ted Dykstra Jr. said he was surprised in March when the number of local homes in foreclosure increased from the typical 12-20 to as high as 80.”
Same dumbass says this:
“[...] we might be down for a little while, but it will probably turn around again by the end of the year.”
And another:
Dale Pyne, president of Selkirk Association of Realtors
“This is a soft landing versus a market crash or a bubble burst. It’s just an economic adjustment.”
We had our own introduction to the opportunistic type character of the real estate agent when we were looking at houses recently. It was incredible to me how low these people are willing to stoop to sell houses.
We learned that even though they supposedly represent you, the buyer, they DO NOT and WILL NOT look out for your interests. They are out for themselves. There is an inherent conflict of interest here. One example of this is that the more you pay for a house, the more money they make.
I could go into the details of our little adventure, but suffice to say that our opinion of this type of ‘professional’ could not be much lower.
The County Sun. “What’s happening in San Bernardino and Riverside counties is more like a tug of war. Sellers won’t budge from prices they think their homes are worth and buyers sit tight in hopes prices will drop, according to economists and real-estate professionals.”
“‘They don’t get the market,’ Redlands-based regional economist John Husing said about buyers. ‘They don’t understand it. They think prices are too high.’”
Sorry John, YOU don’t get it. They don’t think that prices are too high - they know it.
You’ll like this:
http://www.thestreet.com/s/housing-data-crush-the-pollyannas/newsanalysis/realestate/10370579.html?puc=_tscana
Good read….the media is starting to question the “experts”. About darn time!
“Housing Data Crush the Pollyannas”
I’m crushed! I’m crushed!
I keep hearing the “experts” say that as long as unemployment remains low, we don’t have much more to worry about in the housing market. Here’s my thought, the housing market is already bad and getting worse. As for unemployment, we are already at “full” employment so what direction can unemployment only go? UP! Then, where does that leave housing? Even worse than what the “experts” are predicting. This is going to end badly.
I guess there is one caveat. Unemployment can remain level for several years and we can ride out the housing slump. I don’t see this happening because as housing gets worse, people are going to spend less and that will drag the economy down leading to higher unemployment.
Sheesh, why do you hate America? Didn’t you see the 4 Horsemen today?
who cares if unemployment is low, if houses are 10x what most people make, we may as well have 0% umemployment and houses will continue to drop till it falls in line with incomes.
as housing gets worse, people are going to spend less and that will drag the economy down leading to higher unemployment.
Yes, but for a different reason. The current housing slowdown is being caused by a credit contraction. The same contraction in liquidity will also affect new investment by businesses - thus directly impacting employment. Of course, as you pointed out, the consumer-spending driven slowdown will no doubt make matters worse.
SP
Please look at this, very informative
http://bigpicture.typepad.com/comments/files/RMBS.gif
Very nice find! That is a nice breakdown. Subprime/ARM definitely has a large share.
“Could the Inland Empire’s contagion debilitate L.A. and areas beyond? Even John Karevoll of DataQuick admits that the sub-prime crash has plunged the entire real estate sector into uncharted territory. ‘Will it create a flood of foreclosures that drags down values in the rest of the market? So far it hasn’t but at some point, it might,’ he said.”
It might…why wont it happen? I mean it “might” happen, try all indicators show that the OC and LAC housing markets are on life support right now, and the priest is saying prayers bed side….butt he family is praying for a miracle. A miracle MIGHT happen but 99% sure that it is a gonner…so maybe we should start preparing for the funeral and the arrangements after this is all over with - rather than praying on miracles? It has little to do with IE prices, it has more to do with garbage loans gone and the median income vs the RE median price…which is there is not enough people to buy homes! Keep it simple stupid!
At least one analysts says there’s no need to panic: “This is one of those cases where fear is worse than reality.”
OT, but a story of a hedge fund manager who’s selling his yacht and Aspen home. Cash flow problems?
http://www.thestreet.com/s/how-many-yachts-can-john-devaney-waterski-behind/newsanalysis/wallstreet/10370759.html?puc=_tscfoc
Love it!
Wait until this dude sees a few lowball offers! How about I start the bidding on the Aspen manse at 200K?
you are too kind. start at 100.
Great one! I like how his yacht is named “Positive Carry”. I hope someone offers him 142 yen for it.
“But a few months ago he bet wrongly that the ABX index — used to hedge securities bets in the mortgage market — would shake off jitters and see a pop. Instead it collapsed, leaving Devaney trying to bail out his funds.
After freezing redemptions in June, Devaney is still struggling to keep his investment vehicle afloat, as his investors are running for the exit. United Capital has assets under management of $620 million — a good chunk of which has been frozen. ”
And the poor smuck is trying to unload a $16.5K second house and a $23.5K yacht. Sounds like Crisp’s mentor. It doesn’t get much better than this.
Not one of the 3% of brilliant fund managers out there. The dilemma of dollar cost averaging in a falling market. Throwing good money after bad. In fact, I wonder if he managed to figure out a scam to abscond with his investors funds.
Off Topic. Need help!
Wife (of 2 weeks) has $50K in 401(k). All in bond fund: Fidelity Managed Income Portfolio II. I’ve checked thier site, and the net, but can’t get details on what type of bonds they are in. Supposidly the fund hasn’ booked losses, so it looks like she can get out with 0 loss at this point. I’m thinking she should move to treasureis for a bit, like I have.
Any info on this bond fund appreciated. Thoughts on what to do with the 401(k) funds appreciated.
See if there is a money market fund she can get into.
Money market seems darn risky too with the swings in exchange rates lately.
Yeah, there’s no gaurantees with money market’s either. Becareful of rising interest rates later. That’s definitely where the trend was before this credit crisis.
Money market seems darn risky too with the swings in exchange rates lately.
Never mind. She gave me her fidelity user id and password, and I went into her account. Her bond fund had MBS, CDO, corp bonds, etc. I pulled her out and put it in a govt securities fund. Join the flight to quality for a bit.
I did this back in April. Sure I got out too soon but at least I got out.
Hmmm … I was in the same mode today, except that I, er, bought IN to that Fidelity fund, cashing out of a couple of stock funds (Fidelity Dividend Growth & Legg Mason Special Investment Trust, both of which were up about 25% till June 1, when they started heading south) Only other options were stox and a Pimco Total Return bond fund. D’oh, maybe I should’ve gone that way. Or wend my way through “brokerage link” feature to something possibly more solid.
Put other half in a Fidelity Diversified International … hoping that might be OK till the fall, at least. Kind of sick watching my 401K go down by about 4% the last two days!
Call Fidelity. They are there 24/7. Usually, participation in a 401k limits your choices re investment vehicles.
I have money in corporate and government bonds. If this is a high-grade corp bond fund, I personally would not worry.
If the fund is home loan based, that is another matter (Fannie Mae/Freddies).
Don’t panic.
~Misstrial
Sorry if this has been posted already–from the Washington Post today:
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/25/AR2007072502436.html?hpid=topnews
Easy Money, Lifeblood Of Economy, Is Drying Up
By Tomoeh Murakami Tse and Dina ElBoghdady
Washington Post Staff Writers
Thursday, July 26, 2007; Page A01
NEW YORK, July 25 — In just a few days, shares of Internet travel company Expedia lost 12 percent of their value, one of the highest-flying executives on Wall Street watched his fortune shrink and the nation’s largest mortgage lender said many Americans with good credit were in danger of losing their homes.
At the root of those seemingly unrelated events is a single new reality, one that could portend trouble for the broader U.S. economy: The era of cheap money appears to be ending.
…
“When people get scared, they tighten up all over,” said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. “This kills consumer spending,” he said of the credit crunch. “We think we’ll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world.”
“When people get scared, they tighten up all over,”
Especially in the sphincter department.
Looks like we were thinking along the same lines, GS.
“When people get scared, they tighten up all over,”
Lots of butts are puckering on Wall St. these days.
Latest mantra is that global economy will be unaffected by any downturn in U.S. Shilling is right that this will not be the case. While fast-growing economies are unlikely to go into recession, drop in GDP growth may be greater than U.S. Also, most of these economies have had bubbly stock markets and so their equity markets will fall more than U.S. Brazil is tanking; expect Eastern Europe and Asia to roll over badly Monday.
I would not bet on that. Which would you rather own Amazon PE 146 retail sales earnings up 25% or CDIB in China Pe 42 Bank earnings up 45%?
Not advising to trade that way, but the IMF projects world growth at 5.2% (take out the US and it is projected at 6.5%).
We are not invited to the party.
My comment is clearly directed toward the very short term, i.e. next week. Would be happy to wager S&P outperforms basket of foreign equity markets next week.
“At the root of those seemingly unrelated events is a single new reality, one that could portend trouble for the broader U.S. economy: The era of cheap money appears to be ending.”
********
Many thanks to Alan Greenspan and the “Do Nothing” Fed!
“‘We thought the upper end of the market was immune,’ says Steve Johnson, of Metrostudy. ‘But this is now like Kudzu in the South, spreading into all product types in the southern California housing market.’”
“‘People began buying houses they couldn’t afford under the theory that the more house you buy, the more wealth you have once it appreciates,’ he says. ‘It’s kind of a Ponzi scheme on a mass scale. But there has to be an end at some point.’”
Indeed — there has to be an end at some point. But not until prices have reverted back into line with incomes and rents. Anyone who buys before then is begging to catch themselves a falling knife.
It’s not like a Ponzi scheme in that there’s no single mastermind behind this scheme promising huge returns. However, it is, in effect, like a Ponzi scheme in that the Real Estate “professionals” act like an organized, single entity to tout huge returns. So, it’s kind of a hybrid Ponzi.
Point is that it required an ever rising number of people entering the system, with ever larger amounts of money, so that those in before could make money. As soon as people quit entering with larger amounts of money, it collapses, and those left in take the losses.
or…those left in try to defer/blame/stick their losses to someone else. I have a feeling John Q. Taxpayer is going to be picking up some of those losses, and that thought alone pisses me off to high heaven.
or…those left in try to defer/blame/stick their losses to someone else. I have a feeling John Q. Taxpayer is going to be picking up some of those losses, and that thought alone pisses me off to high heaven.
Wow, never thought San Diego could considered an ARMpit. Thats usually reserved for places like Gilroy, CA but thats only because their cash crop stinks.
I wish that article would specify WHERE in LA County all these foreclosures are happening, as it covers a lot of area. Are we mostly talking Palmcaster here? South Central? I’m wondering, because I was in Studio City/Sherman Oaks today and saw very few for sale signs.
I moved out of the IE last year, dropped the price on my house by 20k, sold within a month. I had a good realtor that flat told me if you want to sell price it right. She probably already has saved me at least 30k.
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