November 11, 2007

The Time Is Ripe For A California Crash

The Union Tribune reports from California. “The mortgage market meltdown and the resulting surge in foreclosed homes offered for sale has created welcome home-buying opportunities for San Diego County’s low-and moderate-income households. ‘When was the last time we put thousands of affordable housing units on the market?’ asked Gabe del Rio of Community HousingWorks.’We are talking about homes you bought for $450,000 last year that now are being sold for about $300,000. It makes a big difference.’”

“The jump in foreclosures has affected virtually all county ZIP codes, but the biggest numbers have been in Oceanside, Escondido, certain San Diego neighborhoods and areas in the southern portion of the county, including Chula Vista.”

“The county ZIP code with the most foreclosures was 91977, the Spring Valley area, with 98, representing an increase of 654 percent over the same period last year, DataQuick reported.”

The Voice of San Diego. “Resale home prices as measured by the median-based price metrics fell again last month. Since this series’ peak in September 2005, as the accompanying graph shows, the size-adjusted median price has dropped by 12.7 percent for single family homes, 15.8 percent for condos, and 13.8 percent overall.”

“These countywide price statistics fail to express the degree to which the high-end markets have weathered the downturn better than the more affordable markets. Addressing this shortcoming is a work in progress.”

From ABC 30.com. “New homes that weren’t selling in three different housing developments were auctioned off Saturday, and some got better deals than others.”

“Emotion drove some prices high, especially the first up. A 1,800 square foot Madera home went for $336,000. The same size home in the same complex later sold for $184,000.”

“Marty Martinez, Hanford Bidder, says ‘They were good deals; I just wanted a great deal.’”

“One local builder says these homes were too expensive for the areas and feels this auction reveals the state of the market. Sean Castiglione, Sanger Developer/Builder, says ‘Today told me the out of town buyers still don’t know what the true value is here in the central valley.’”

The Fresno Bee. “A frantic two-hour auction Saturday in downtown Fresno was a sign of the times as bidders snapped up 48 new houses — most for thousands of dollars below the builder’s original list price.”

“‘We’re giving away property, ladies and gentlemen,’ auctioneer Mike Carr of Atlanta told the crowd. Carr kept the bidding going nonstop. Most final bids were between $200,000 and $300,000. Previous list prices on some of the homes had been as much as $498,000.”

“Many bidders seemed to be reluctant to go above a halfway mark between the original list prices and starting low bids. ‘Somebody’s going to be livin’ in your house,’ Carr warned one reluctant bidder.”

“Among the successful bidders was Andrea Freeburg of Fresno. She landed a house for $250,000. It’s a good investment, she said.”

The Orange County Register. “A year and a half ago – ‘the good old days’ in real estate life, John Laing Homes from Newport Beach was sold to Emaar, a real estate giant from Dubai for a billion bucks.”

“So I needed to know: What did Larry Webb and the investor group that owned Laing know? ‘I had no idea that the market would do what it did,’ he says.”

“Well, when he thinks about it, there were clues. For example, he speaks about the tensions within his organization about mortgage making. Many builders became lenders to quicken the pace of sales. Webb, on the advice of his chief financial officer – who still rubs it in to this day – chose to outsource the home loans.”

“That didn’t sit well, apparently, with Laing’s Inland Empire division. Webb recalls them complaining about losing sales to competitors that would lend to people who, among other things, couldn’t prove their income. Webb recalls the name of one lender that Laing’s Inland Empire customers with credit challenges were referred to: ‘Miracle Mortgage.’”

“‘Can you believe it?’ Webb says. ‘Something didn’t feel right.’”

“Since Emaar stock trades publicly, we get tiny peeks into Laing’s operations. Last week, Emaar told investors that Laing’s operating profit margin (before land write-offs) was 7 percent in the first nine months of ‘07 vs. 18 percent in ‘06. Plus, Laing wrote off $104 million worth of its land holdings.”

“I first got to know Webb back in 1993. Considering the vintage of our relationship, I had to ask … ‘Is this 1993 all over again?’”

“‘This is harder,’ Webb says.”

“The challenge, to Webb, is that the industry just can’t wait for the economy to pick up. ‘Even with price reductions, average sales prices are very high,’ he says. ‘What the average person pays here, you can get a custom home in Des Moines on an acre of land.’”

“This is Webb’s third big downturn in his real estate career, so he takes it a bit in stride. ‘They’re always different,’ he says of market reversals, noting one consistency: ‘What’s surprising … is that they’re always a little surprising.’”

“Cures won’t be easy or pretty, as ‘this credit crunch will only get bigger and bigger before it gets better.’”

“He thinks that many major builders will disappear as this downturn progresses either through financial collapse or a sale. The business is now ‘all about cash flow … liquidity is a big deal.’”

“Could it have been just two-plus years since the O.C. median sales price first crossed the $600,000 mark and The Register honored the moment with the new price billboarded across the front page.”

“That day I wrote about Walter Hahn, the long-time market watcher who then was as bullish as possible. His argument: O.C. median would hit $1.4 million by 2014. ‘And that’s conservative,’ Hahn told me at the time.”

“With the median back under $600,000 — and nowhere near $1.4 million — I figured I’d ask Walter to explain to us how he was so wrong. And, much to his credit, he’s taken the high road and explained how he goofed. Us: Where did you go wrong?”

“Walter: Along with almost everyone else, I didn’t recognize that the 2003 thru mid-2006 housing market boom was caused almost exclusively by the introduction (and pushing) of low-teaser-rate loans. Also, the explosion of those loans wouldn’t have happened if the wise guys on Wall Street hadn’t provided the money to fund the loans by packaging the loans to support financial instruments that they sold to bigger suckers.”

“In retrospect this was a house of pure greed built on quicksand bound to collapse when the millions of home loan borrowers couldn’t make their payments when the loans reset and the payments jumped 3 to 5 times.”

“Us: What was it you didn’t foresee? Where did the demand go?”

“Walter: Shame on me! After 40 years of analyzing my way through four economic and housing market booms and busts, I knew that the fuel for every boom also eventually burns it up and causes it to go bust. I had my head in the sand and wasn’t paying attention.If I had been paying attention I would have known that a high percentage of those low-teaser-rate loans would go into foreclosure and bring the whole house of greed tumbling down. But I wasn’t paying attention.”

“Us: How brutal will a recession be on borrowers? Walter: The housing market recession has already been brutal on aggressive borrowers and the unsuspecting borrowers who were conned into low teaser rate loans. That brutality will continue for another 2 to 3 years until all the resets and foreclosures are recycled through the market.”

“Us: What lessons have you learned from this? Walter: I should have had my head out of the sand and been conscious of the fact, which I knew, that every boom has its bust, and I should have analyzed this one to figure out the boom’s cause and when and how it was likely to self-destruct. I just wasn’t paying attention. My bad!”

The Daily Bulletin. “For the past two or three years, people with a lot of initials after their names have been disagreeing on the direction housing prices will be taking. There’s a bubble; prices are bound to fall. There’s no bubble; prices will keep rising.”

“Bruce Norris is a veteran observer of the scene who accurately predicted the boom of the past decade in his book, ‘California Comeback.’ Now, Norris writes, the time is ripe for a ‘California Crash.’ Norris points out that every down cycle in California’s real estate market started when affordability dipped to 17 percent.”

“The CAR changed its method of measuring affordability more than a year ago when the results kept showing that fewer than one in seven families could afford a median-priced house. That’s not the upbeat information people want from their Realtor.”

“It happened in 1980 and it happened again in 1989, but Norris thinks the problem is even greater this time. ‘It’s bad enough that we’ve reached the 17 percent affordability rate,’ he writes. ‘The real problem is how we got there this time.’”

“In 1980, affordability dipped to where it did because mortgage rates climbed to 16 percent. In 1989, mortgages cost 10 percent.”

“This time, interest rates were low enough, about 6 percent, that people were spending nine times their annual income on the price of a house. ‘The payments have reached the breaking point solely on price increases,’ writes Norris. ‘This is going to cause a real problem.’”

“As interest rates climb and as adjustable-rate mortgages reset at higher rates, folks will find they can’t afford their mortgages, he says. ‘Unsold inventory has grown by more than 100 percent in one year,’ Norris writes. ‘Thus far, there has been limited price damage because almost all of the properties for sale have been privately owned.’”

“‘In 2007, that will change. The new inventory for sale will consist of lender-owned properties, builder auctions and short sales. All of these sellers will be selling to a less-motivated, smaller group of less-able-to-qualify buyers,’ he said.”

“That, Norris says, will make a so-called ’soft landing’ much harder to achieve.”




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197 Comments »

Comment by Ben Jones
2007-11-11 12:19:35

The DB ran this on the web today, but I’m pretty sure it is a reworked bit from late 2006/early 2007 article. But I thought it was a nice contrast to the ‘My bad’ guy and that the rest of this post shows almost exactly what Norris was saying at the time:

‘In 2007, that will change. The new inventory for sale will consist of lender-owned properties, builder auctions and short sales. All of these sellers will be selling to a less-motivated, smaller group of less-able-to-qualify buyers,’ he said.’

Comment by SD Renter
2007-11-11 13:13:26

“Walter: Shame on me! After 40 years of analyzing my way through four economic and housing market booms and busts, I knew that the fuel for every boom also eventually burns it up and causes it to go bust. I had my head in the sand …

Gee Wally, you think your cranium was in the SAND or some place that rhymes with bass??

Comment by Darrell_in_PHX
2007-11-11 13:17:14

I’m sure he knew he was spewing lies. He was getting paid to lie!

Success through failure.

Comment by Leighsong
2007-11-11 14:44:21

Ben, Renter and Darrell, (and fellow bloggers):

Dang cat is trying to help me type~(multi-talented she is!)

I’ve been commenting to hubby since 2003, something is seriously wrong.

Driving down Hwy 20, in Niceville FL, everyday (nearly), banks were advertising on BIG billboards, introductory rate of 1.9 %. (Shudder).

I had no like minded individuals to speak intelligently with, so the sense of impending doom was all my own.

I swear, on my Oath of Honor, I do believe many did not know (or turned off their radar), what was leading this crisis–loose lending.

Do I believe a gentleman (ahem), in the business for FORTY years did not see this coming?

The most unfortunate answer, my friends, as I whisper it, yessssssssss.

People truly are stupid, and I do not mean any ill intent.

Few can (as many have commented) loosen themselves from the shackles of greed.

God help us all,
Leigh

P.S. I hope I’m wrong, as I’m often characterized as a hopeless romantic. Sigh. (ya know, the one with rose colored glasses?)

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Comment by RBM
2007-11-11 14:58:23

My ‘81 residence was Niceville FL. while active duty Air Force at Site C-6. Also lived in Ft Walton Beach and Choctaw Beach.

How much has changed/stayed the same ? Is the Sand Shark in Choctaw Beach still standing ?

 
Comment by hd74man
2007-11-11 16:02:13

I was stationed in Niceville doing some FEMA contracted disaster inspection work after Hurricane Ivan in 2004.

When I left there were a shitload of houses with blue tarps on their roofs and a lot of houses built on stilts out
on the sandbars between Ft. Walton and Pensacola which were no more.

Not a bad little town.

Cedarview was the place which blew my mind.

If you ain’t on the water in the FL panhandle you ain’t nowhere.

 
Comment by REhobbyist
2007-11-11 17:00:14

Seems appropriate that Leigh is from Niceville. She’s very nice.

 
Comment by BottomFisher
2007-11-11 17:15:59

I remember well in 2003 I kept hearing that the world was ‘awash’ with cash to invest (but not Americans, who were spenders big time). So, it appears that Wall Street found a place for the (a fool and his money are soon parted) fools to put their money. So I don’t feel bad at all that the fools are now eating the foreclosures big time. They asked for it and Wall Street gave it to them. They won’t do that again. We just have to clean up the mess it left and lower prices drastically, and fast!

 
 
Comment by ex-nnvmtgbrkr
2007-11-11 14:56:43

“I’m sure he knew he was spewing lies. He was getting paid to lie!”

I’m sure you’re right. No one with as much experience as he says he has, and with half a brain in their head, could not have seen this coming.

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Comment by Leighsong
2007-11-11 20:12:46

Ex,

“I’m sure he knew he was spewing lies. He was getting paid to lie!”

I’m sure you’re right. No one with as much experience as he says he has, and with half a brain in their head, could not have seen this coming.

Forty years! Puuuuuuuuuuuuuulezzz!

Am I retarded? (No ill intent).

Forty years!!

Good night Irene!

God bless my 90 + year old Grams…please Lord, do not let her endure another depression.

Amen.
Leigh

 
 
 
 
 
Comment by AnonyRuss
2007-11-11 12:53:40

“Many bidders seemed to be reluctant. . . ‘Somebody’s going to be livin’ in your house,’ Carr warned one reluctant bidder.”

I understand that the guy’s job is to keep the bids coming, and yet I still want to pop him.

Comment by Dr.Strangelove
2007-11-11 13:18:47

“‘Somebody’s going to be livin’ in your house,’ Carr warned one reluctant bidder.””

Yeah, a methlab squatter.

DOC

 
Comment by joe momma
2007-11-11 13:20:13

I’ll never go to an auction. These people are slime. They have one goal.

Get the price as high as possible.

I’m not playing that game.

Comment by jerry from richardson
2007-11-11 14:15:34

Isn’t that the point of having an auction?

Comment by IllinoisBob
2007-11-11 15:17:24

Oh, no auction house planted shrill bidders? Naaa, not like some of the “auctions” reported earlier on these pages?

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Comment by jerry from richardson
2007-11-11 20:40:16

Of course the fake bids should be illegal and prosecuted

 
 
 
 
 
Comment by Rich
2007-11-11 12:54:58

“Among the successful bidders was Andrea Freeburg of Fresno. She landed a house for $250,000. It’s a good investment, she said.”

In Fresno ? there must have been a open bar there.

Comment by dukes
2007-11-11 13:22:49

It is comments like this: “It’s a good investment, she said.” That need to go! All the Flip the friggin house shows need to go too.

There are still, believe it or not, too many fools out there trying to strike it rich in real estate. The market will have the beat the hell out of them before they realize what a mistake this is.

Comment by ex-nnvmtgbrkr
2007-11-11 15:16:39

“too many fools out there trying to strike it rich in real estate”.

And the nice thing is that auctions like that are going to suck them in and slaughter ‘em for us. You’re watching financial Darwinism at it’s best, so sit back and enjoy the show. Did it get any better than this one:

“Emotion drove some prices high, especially the first up. A 1,800 square foot Madera home went for $336,000. The same size home in the same complex later sold for $184,000.”

The paper forgot to add that the first bidder was seen sulking off into the sunset, dragging the Joshua tree that was firmly wedged in his brown-winker.

Comment by BanteringBear
2007-11-11 20:11:06

“Emotion drove some prices high, especially the first up. A 1,800 square foot Madera home went for $336,000. The same size home in the same complex later sold for $184,000.”

I would assume there is a way for the first buyer to back out, right? After all, unless these are cash sales, who’s going to finance a place which just lost half it’s value?

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Comment by Leighsong
2007-11-11 20:32:02

Ex,

…Joshua tree that was firmly wedged in his brown-winker.

Are you trying to kill me?

Clink,
Leigh

OMG…that there is funny! Ya just can’t make this stuff up!

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Comment by Curt
2007-11-11 13:59:07

‘…..It’s a good investment, she said.”

Oh, I thought she was going to live in it…never mind.

 
Comment by Blackbox
2007-11-11 16:24:54

I am sure rent rates in fresno will save her investments…….
NOT!
Geez, Fresno? A $250K house may be a good investments in some parts of San diego, LA, or orange county, but Fresno?
She must’ve just seen the list price, and said, wow, i have instant equity!
PEOPLE! stop looking at the list price and start researching how much homes. of the type you want to buy for investment , go for in rents!
Forget about trying to get a “deal” from the sticker price’
The sticker prices were pure fantasy with no fundementals what so ever…………….

Comment by travanx
2007-11-11 23:35:57

You need to get rent to make money out of a house?

 
 
 
Comment by Roger H
2007-11-11 12:57:06

‘When was the last time we put thousands of affordable housing units on the market?’ asked Gabe del Rio of Community HousingWorks.’We are talking about homes you bought for $450,000 last year that now are being sold for about $300,000. It makes a big difference.’

I hate to tell you this Gabe but…… $300K is not affordable. For an average, middle class household (say dual income of $90K and two kids) $300K is still way too steep. Sure, it’s better than $450K but it’s still not practical for average people to buy these homes - especially, when you consider car payments, health care costs, the cost of after-school activities like middle school band or ice-hockey.

That’s why people are drowning in debt. They are expected (even by consumer advocates) to pay of a lifestyle that is simply not possible (but probably should be). It’s impossible for the average person in CA to live a normal life and still own a home. Same with many parts of the country like NY, NJ, FL, (insert other states here).

Sorry Gabe, but $300K is no bargain.

Comment by txchick57
2007-11-11 13:00:49

You beat me to the punch on that one. I don’t feel that I should be looking at $300K houses.

Comment by TimeTraveler
2007-11-11 14:08:17

Used to window shop at homes around Spring and Cypress and you’re right, but you have to adjust for Texas, incredibly underpriced. 300K is about 150K in Houston exurbs, 2-story 4-bedroom under 10 years old, and you’d be okay with that, wouldn’t you? My job is portable; I’m in the Chicago exurbs, and I kept thinking what do these Houston people get paid? These places are mansions for what you’d pay for a 60-year-old tract home in Illinois.

Comment by jerry from richardson
2007-11-11 14:18:14

I have no desire to live in Houston. The humidity is unbearable, the beaches are unusable and the roaches are the size of birds - fly like birds too.

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Comment by REhobbyist
2007-11-11 17:05:01

Is Richardson humid? I thought most of Texas was, though I haven’t spent time there in the summer.

 
Comment by jerry from richardson
2007-11-11 20:51:12

We get the dry, hot oven heat in N Texas.

 
Comment by NoVa Sideliner
2007-11-12 12:22:09

He lies! Richardson gets pretty humid. Dewpoints can hang up almost to 70 F most of the summer — that’s nasty if you’re coming from California. Now if you’re coming from New Orleans or Houston, even Richardson (Dallas) seems “dry”.

But for the real dry part of Texas, head west — try Amarillo, Midland, Lubbock, and of course El Paso.

 
 
Comment by vmlinux
2007-11-11 14:35:52

That’s exactly why I keep turning down jobs to move to New York or California. I live in Amarillo TX, and just closed on a 3/2/2 1850 sf home that was fully updated in a great school area for 130k. I put 50K down in cash with a 15 year par mortgage which will run me about 1K a month after taxes and replacement cost insurance. From what I’ve seen I couldn’t get a rickshaw in the ghetto on the coasts for that.

Yes I know that Amarillo TX is a bit of an armpit compared to living on a beach, but how can people in those areas afford it? After putting 15 percent towards retirement, saving for the kids college, putting food on the table there just isn’t a fortune left, and I make 10k more than the median Californian 5 person family!

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Comment by Tom Stone
2007-11-11 18:25:09

VML,you can get a Condo parking space in a decent part of San Francisco for $100k,I am not sure what the HOA fees are,but the taxes would run about 1.5% annually.No I am not kidding.

 
 
Comment by ex-WA
2007-11-11 14:51:37

The relatively low prices (at least, used to be) for houses in Texas are made up for by the absurdly high property taxes.

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Comment by IllinoisBob
2007-11-11 15:27:22

Texas is not the only places in the country to abuse da homeowner. Lake county is ~ 2.5% for a 3/2.5 in the exburbs of Chicago. What % are you seeing in Texas?

 
Comment by vmlinux
2007-11-11 16:25:08

2.1% here in town but we don’t have an income tax in Texas.

 
Comment by az_lender
2007-11-11 20:33:43

“but we don’t have an income tax in Texas”
– a good reason to be a tenant in Texas, not an owner.

 
Comment by jerry from richardson
2007-11-11 20:54:16

State, county and school taxes come up to 3.25% in most areas. The sales taxes come out to 8.25% in most areas. We are one of the few without a state income tax.

 
Comment by greatest fool
2007-11-11 21:12:38

The property tax rate for Tarrant County (Ft. Worth) is appx. 3.2% of the appraised value. I bought a house in Sept. 2006 for $147,000. I just got the first tax bill. It is for $3900.

 
Comment by timmy boy
2007-11-12 07:24:55

Here in CA, property taxes are around 1.1% (varying slightly depending on your county). This low rate is the ONLY saving grace out here.

Could you imagine if CA rates were on par w/ TX or NJ? If they were… you could bet that our prop values wouldn’t be ANYWERE NEAR what they are now.

 
 
Comment by txchick57
2007-11-11 15:35:16

In inner city Dallas, 300K will now buy you a 1300-1400 square foot 60 year old house on a tiny lot that I could have gotten for 100K in 1995 or a cheap crappy townhouse (and not many of them either!)

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Comment by rudekarl
2007-11-12 03:12:01

Yep, no bubble here in Dallas. TXCHIC is right. You drive 10 or 15 miles from downtown and you can pick up some worthless tract home for $130K, but anything close to the inner city is going to run you $300K and up for complete garbage (new or used).

 
 
 
 
Comment by Professor Bear
2007-11-11 13:03:02

The egregious part is that well-intentioned low-income housing programs are encouraging low-income households to drown themselves in debt. I find this utterly repugnant.

Comment by Leighsong
2007-11-11 15:20:33

P’Bear,

I believe you are the one (I am often wrong) who said, “Affordable housing is rent x 120. (Coco, one of my two cats, is trying to help me type)!

Whomever said it~they are nails on right!

How on God’s green earth, can an affordable house equal $300k ish?

The math alone is telling!

Head exploding, need more aspirin~

Best,
Leigh

Comment by Chip
2007-11-11 18:14:18

120x rent generally works out to be very close to the other ratio of your PITI mortgage payment equaling 2.5% of your gross income.

When I was young and married and we had three kids, we successively owned houses that were 2.5x my (i.e. household) gross income and we lived OK - just OK. We could not afford to sod the spacious back yard, nor take vacations where we’d have to pay for hotels, nor eat out at better than pizza and BBQ places except for very special occasions (women always define special occasions and they never relate to sports). We never felt too much in debt nor too much out of debt. It was the right place to be for a growing family with high ambition and a reasonably bright future.

I might as well have had “2.5X” branded on my arm, as it has been and will be my benchmark for housing debt forever and it is what I try to teach my children. I’ve succeeded with two of the three of them and the third is so successful it may not matter.

The fall back to earth for the rest of the sheeple who have borrowed themselves up to their eyeballs will be pretty darned unpleasant, but as necessary as some of those hospitable procedures you don’t talk about in polite company.

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Comment by Chip
2007-11-11 18:15:24

Correction in the first sentence: 2.5X, not 2.5%

 
Comment by Chip
2007-11-11 18:18:42

Oh, man — dig me a hole and let me find room under that. Blech.

Delete “120x rent generally works out to be very close to the other ratio of your PITI mortgage payment equaling 2.5% of your gross income.”

Insert: “120x rent generally works out to be very close to the other ratio of your PITI mortgage amount equaling 2.5% of your gross income.”

Apologies.

 
Comment by technovelist
2007-11-11 19:30:24

I think you mean “25%”, not “2.5%” of gross income.

 
Comment by travanx
2007-11-11 23:42:20

Thats why I am 28 and still live at home make close to $100k in California and can’t figure out how to buy something where I won’t get shot randomly while sleeping. So lately when asked why I still live at home, I have been replying thats why I am about to take a job in another state that might be paying almost the same and a really nice sized house can be had for $200k. hmmmmm

 
 
 
Comment by SDGreg
2007-11-11 15:50:54

“The average buyer that del Rio’s agency works with has an income in the mid-$30,000s, and the average purchase price is $316,000.”

That’s nearly 10x income. No help would be better than this kind of help.

 
 
Comment by sohonyc
2007-11-11 13:05:48

“Sure, it’s better than $450K but it’s still not practical for average people to buy these homes - especially, when you consider car payments, health care costs, the cost of after-school activities like middle school band or ice-hockey.”

Well… I think you may be putting the cart before the horse. The days of health care, after-school activities, band and ice hockey will be coming to a close for the majority of Americans. Those are “rich nation” activities, and we no longer qualify.

Comment by are they crazy
2007-11-11 13:21:48

Sort of hard to have after school and sports involvement when you’re commuting 2 hrs. Added fuel and auto maintenance really screws up the whole suburban dream life. I know people that put their toddlers in the car at 5:30 am with a waffle and at the end of the day don’t see home until 7:30. Not a good way to raise kids. I’m betting they’de be better off in a small apartment closer to work than the faux mcmansion in the boondocks.

Comment by AmazingRuss
2007-11-11 15:32:05

I HATED being stuck in the car as a kid…felt like I could not move. You’ve described a horrible torment.

I feel like I have to go rescue those kids now.

See you on the news…

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Comment by SaladSD
2007-11-11 18:31:39

Check out Trek-ula, I mean Temecula, just north of San Diego county line. Used to be open farmland, now just a CF of tract homes as far as the eye can see. But wait, there’s more….for the price of your 3,000 sq foot McMansion you get a 3-4 hour roundtrip commute to San Diego, along the bee-u-tiful I-15 corrider, home of happy-camped rush hour SUVs.

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Comment by desertdweller
2007-11-11 19:43:34

Amen
grew up there in the 60’s and now NO LOT LINES between 2 story boxes no trees no charm.
‘hey pal open your bathroom window and loan me a roll of TP’..fugly homes fugly traffic jams constantly.

 
Comment by az_lender
2007-11-11 20:40:18

dd, your TP joke makes me think of them also pitching jars of Grey Poupon from one kitchen window to another.

 
 
 
 
Comment by Darrell_in_PHX
2007-11-11 13:15:52

Low to moderate income poeple. To me that means people with incomes below or near the median household income fo $50K. ($50K is median household, NOT median individual income!)

So, all we need to do is get people a 100% wage increase so that the median income household makes the $100K needed to buy a $300K house!

Comment by Roger H
2007-11-11 13:23:47

You’re right on that one.

In Austin, we recently passed a City bond for a program to help people / households that make 70% of median income buy a residence. For a family of four, 70% mdeian is 46K. These people are just living paycheck to paycheck. I feel it’s a huge injustice to saddle these people with the long term debt of home ownership that includes all the repairs and upkeep. It’s much better to upgrade our community colleges and provide better subsidized child care. That way, these people can obtain skills to get a better job (and then buy the house).

Comment by jerry from richardson
2007-11-11 13:58:14

I’m all for imporving oneself, but when all of these people get better jobs(if enough jobs exist), we will need someone else with no skills to do the menial jobs. Then those people will also need assistance to buy a house. The fact is, there will always be a lower class who cannot and should not be buying a house. There will always be people working at WalMart or Starbucks or janitors. Even if you educated every single one of them, there would be a need for people to do those low-paid jobs.

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Comment by mv renter
2007-11-11 15:02:58

This always seemed to me to be the fallacy of the argument that we all need more higher education, that that will solve all our problems. I would say “so we’re all going to be doctors and lawyers? Who’s going to do all the other jobs?”

 
Comment by ex-nnvmtgbrkr
2007-11-11 15:21:10

And there will always be those who shouldn’t be allowed to buy a house, although that idea seems to have been thrown out the window over the last 5 years.

 
Comment by are they crazy
2007-11-11 16:19:14

Ain’t if funny how since they’ve been trying to get everyone to go to college (like vocational education is so low class) and the availability of private student loans has skyrocketed, the costs of college have gone through the roof. Seems like the same sort of ponzi scheme as housing. Now we’ll have a whole generation of kids starting adult life $50K and up in debt. I’m determined to get my kid through college without debt for either one of us. That’s the deal with my kids - I gave up me to provide for them and they want to provide for me in my old age.

 
Comment by SanDiegoRenter
2007-11-11 19:26:49

Community college degrees aren’t going to help people afford houses in San Diego. There’s this (to me bizarre) assumption that anyone who doesn’t make $150,000/yr must be an illiterate day laborer. I have a PhD from Stanford and a good job as a college professor, and I only make $70,000/yr. How exactly should I “better myself” so I can afford one these newly affordable houses? I guess I could make more if I moved to the private sector, but that wouldn’t help my students improve their incomes any.

 
Comment by BanteringBear
2007-11-11 20:23:26

“I have a PhD from Stanford and a good job as a college professor, and I only make $70,000/yr.”

I admire what you do, and you’re not paid enough. This is what is so fundamentally wrong with this country. While you work hard educating the students of this country, countless greedy CEO’s are busy running companies into the ground, then riding off into the sunset with several hundred million dollar golden parachutes. I know that life isn’t fair, but this is an outrage.

 
Comment by az_lender
2007-11-11 20:51:25

Talk about inflation: $70,000 is very close to the total of what I made in my first seven years of full-time college teaching. Yup, all seven years added together. (’73-’80) So, how do I have a 6-fig annual income now that I am no longer working? I’ve never totally figured that out, but believe me, it wasn’t by buying houses! God, I am so tempted to buy one in Morro Bay now. Help me wait,HBB.

 
Comment by SanDiegoRenter
2007-11-11 23:16:27

you’re not paid enough

Thanks, appreciate that! But, I don’t think I’m underpaid, especially (though I wouldn’t say no to a raise). I was reacting more to the suggestion that it might not be so bad that a six-figure salary is a required for a middle class lifestyle here, since that would encourage people to get an education and a decent job. There are plenty of highly educated professionals who are happy with their jobs but don’t make $100,000+/yr. And, unless things change soon, lots of us are going to be enjoying our jobs someplace other than San Diego!

 
Comment by CA renter
2007-11-11 23:23:50

SD Renter,

That makes me feel a lot better. We keep hearing these numbers bantered about ($100s of thousands) as if that’s chicken feed. To me, $100K is a whole lotta money.

Add us to the number who think $300K houses should be pretty fancy spreads — nice homes in nice neighborhoods located close to major job centers (even in So Cal). $500K should buy a mini-estate, IMHO.

 
Comment by tresho
2007-11-12 03:52:26

A million dollar home should come with 10 years of prepaid personal butler, maid, gardener & chauffeur service along with an on-site fire-fighting team, LOL.

 
 
 
Comment by Dr.Strangelove
2007-11-11 13:25:25

“So, all we need to do is get people a 100% wage increase so that the median income household makes the $100K needed to buy a $300K house!”

Many who do make 100k can’t handle their money–and shouldn’t buy a $300k house. (Many coworkers are in this category) They’re too busy buying crap, eating out, taking vacations (on the cc’s).

DOC

 
Comment by Professor Bear
2007-11-11 14:19:43

I agree. BB and the Senate ought to propose a minimum wage of $50/hour (= $100,000 /year based on 2000 hours of work) if they want to make sure that low income households can afford to buy homes priced above $300,000.

Comment by CA renter
2007-11-11 23:25:57

Let’s draft a petition for the new minimum wage law! We’ll say it’s “for the sake of the children” who would otherwise be thrown out of their homes. ;)

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Comment by travanx
2007-11-11 23:50:03

Strangely enough I would vote for that. I am about at the point where I want all this stupid stuff to just fail, so I would definately vote it all in. The fact that the $75bil SIV fund looks like its going to go through makes me just want to laugh. Since this country is about to flush all the stupid people out to debtsville, why not just make it ones step lower. While those who kind of get the stupidity of the general public, will be able to make a comeback when this country gets a grip on itself.

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Comment by jerry from richardson
2007-11-11 13:22:49

After school ice hockey? When I grew up, we played baseball with a stick and tennis ball. As for car payments, people need to stop getting a new car every 3-5 years. I know it’s embarassing not keeping up with the Joneses, but you will be much better off paying off the car and driving it another 5-7 years with no payments. Middle-class people need to learn to live within their means.

My boss, who is nearing 50, has never contributed to his 401k program. He has a household income of $180,000 with a wife and two kids. They have to borrow money from their parents because they can’t live on $180,000!!!

Comment by Darrell_in_PHX
2007-11-11 14:09:33

3-5 years??? I’ve been told by two different people… I’ll have a new car every 2 years. These comments usually come up when I try to explain what a TRUELY suck deal a lease is.

OH no, they say, a lease is a great deal becuase I’m going to get a new car every two years anyway.

The usual logic is something to do with never wanting to have a car break down.

I’m sorry, but I’ll put up with a car that breaks down once every couple years if it saves me $500 a month on car payment, $500 a year on insurance, and $200 a year on registration.

Do these people ever take the time to figure out how much that new car is actually costing them?

But without these idiots, I wouldn’t be able to buy a 2 year-old car for half price.

Comment by uptown
2007-11-11 15:51:39

But without these idiots, I wouldn’t be able to buy a 2 year-old car for half price.

I’ll second that…I have no intention of buying new ever again.

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Comment by Affluent Bitter Renter
2007-11-11 16:11:59

I bought a new Subaru twelve years ago. It has failed to start precisely twice.

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Comment by Thomas
2007-11-12 20:41:37

“Of course, one of those times was when I was trying to make a quick getaway from the Hell’s Angel’s I’d just insulted, but aside from that…”

 
 
Comment by REhobbyist
2007-11-11 17:14:24

Where can you find a 2-year-old car at half price? I’m amazed at how expensive used cars are in the newspaper, Craigslist, and at the dealers. Please tell me where to look and save me some money! We pay cash for new cars about every 7 years and donate them to charity.

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Comment by BanteringBear
2007-11-11 21:02:38

“Where can you find a 2-year-old car at half price? I’m amazed at how expensive used cars are in the newspaper, Craigslist, and at the dealers.”

You can’t. Darrell is exaggerating to make a point. ALL cars are depreciating assets. Buying new is not always a bad idea. One just needs to do their homework. I buy new at wholesale pricing. You’re right as far as used cars go. They’re even more of a racket than new when purchased from a car lot. And, a good deal from a private party can be equally difficult to locate. They’re not going to “give it away”, you know.

 
Comment by Home_a_Loan
2007-11-11 21:05:27

Well, I don’t know about 2 years old, but all my cars have been 5-6 years old, at 25-33% of the new price. All in excellent shape. But I wouldn’t go anywhere near a used car dealer. The premium for buying from a dealer is 30-40% compared to looking for a good private party deal. I have had my best luck with the Auto Trader.

All the dealers I have ever visited tried to lie to me. Never bought from a dealer, and likely never will. A Prius would be nice, but I have to wait for a healthy used car market in Prius’s beforehand. Those things are like 27 grand!

 
Comment by Ponzi House
2007-11-11 23:50:49

I figure my seven year old Civic is worth at least $35,000. After all, God isn’t making any more used cars.

 
 
Comment by Anon In DC
2007-11-11 20:56:37

I love my 1992 car. CHEAP insurance - just liability. If something happened to the car itself ok. Low, low book value. Then I would get a another - probably used. I’m 45 years old. Hope to retire by about 50. Thrift is a good income.

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Comment by travanx
2007-11-11 23:52:47

That is so funny. My coworker is thinking of buying a car in cash and was telling me how everyone was suggesting she lease a car. I said the first stupid thing is that you are renting a car and have to put a downpayment to lease. I have only read BMW’s can be had cheaper at the end of the lease compared to buying up front. Then I told her, were any of these people suggesting a lease someone who has an ARM, doesnt pay off their credit card every month, has no savings, doesnt put into their retirement???? I was really loud at work and she had to quiet me down haha.

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Comment by talon
2007-11-12 13:08:43

“The usual logic is something to do with never wanting to have a car break down.”

I have a paid-for 8 year old Honda Civic that never breaks down. What’s their problem?

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Comment by Doug in Boone, NC
2007-11-11 15:50:19

Assuming that the Jones’s are the folks living next door, does that mean that I have to live in a single-wide trailer and drive a rusted-out pickup like my next-door neighbors?

 
 
Comment by dukes
2007-11-11 13:25:45

I wrote to Emmet Pierce, the author of this article to tell him what i thought of his piece. He sucks, to put it bluntly. He has a counterpart at the Union Trib Dean Calbreath who does a much better job of painting reality here in SD.

Plus, if you go to the article and read the comments you will see that locals aren’t buying the bullshit either.

 
Comment by hd74man
2007-11-11 16:04:16

Lots of falling knife catching here in Mazzland.

Note the contractor’s comment’s about “civilians”

http://www.boston.com/business/globe/articles/2007/11/11/2000_bid_on_american_dream

 
Comment by Anthony
2007-11-11 16:43:45

“I hate to tell you this Gabe but…… $300K is not affordable. For an average, middle class household (say dual income of $90K and two kids) $300K is still way too steep.”

Especially when $90K is well above average household income, even in California or Orange county, where household median income is only $70K. A combined income of $90K still places a household in the top 20% of all households, which is more “upper-middle” class than middle class.

Comment by Groundhogday
2007-11-11 21:57:48

I almost never bother to respond to this sort of nonsense, but in this case I was pissed off enough to send Gabe an email. Perhaps the guy really is well meaning if stupid and few “What the F*** are you thinking!” emails will get him to reconsider the impact of his work.

 
 
Comment by BottomFisher
2007-11-11 17:29:42

Thats it……..I’m sticking with ‘livin in a van down by the river’ (borrowed from the late great motivational speaker Chris Farley on SNL of course)

 
Comment by AnnScott
2007-11-11 22:46:57

For an average, middle class household (say dual income of $90K and two kids)

$90000 is NOT middle class. It is upper 20% income. Economic middle class ranges from $35/38000 - 60/65000.

 
 
Comment by Professor Bear
2007-11-11 12:58:01

“These countywide price statistics fail to express the degree to which the high-end markets have weathered the downturn better than the more affordable markets. Addressing this shortcoming is a work in progress.”

I have some ideas about how to address this shortcoming. One suggestion is to compare the current median list price for high end zip codes to the most recent median sale price, as the gap is an indication of how far out of line are seller expectations from buyer willingness to pay.

For instance, in Rancho Santa Fe (92067), the median SFR list price for a resale home on ziprealty.com currently stands at $3,950,000 (there are four homes out of 204 currently on the market at that offer price in case anyone is interested), while the most recent period’s (9/07) median sale price for that zip code (according to DataQuick) was $2,542,500 — 36 percent below the current median list price.

I am not sure how much one can infer from the above information, as only six homes sold in 92067 during September 2007. Given 204 homes currently on the market, I guess the average time on the market is about 204 / 6 = 34 months (2 years and 10 mos).

Comment by Professor Bear
2007-11-11 13:00:09

P.S. In case it was not clear from the above post, I personally believe the frequently-asserted claim that the high end of the market has weathered the bursting bubble better than the low end is hogwash.

Comment by Neil
2007-11-11 13:02:22

test

 
Comment by bulwark
2007-11-11 13:10:23

Agreed, this high end immunity is another way of giving insiders more time to head for the exits. Reminds me of the “soft landing” scenario we heard so much about earlier.

 
Comment by Rich
2007-11-11 13:55:14

True about the high end, fact is a million $ POS has much more room to fall than a $400K POS in the ghetto. The cheaper POS finds bottom value as dictated by rents that will carry the mort much faster than the huge McMansions. The carrying cost of a 3,400 sqft home with hefty HOA, higher taxes and MUCH HIGHER maint bring the net rental income to parity with the cheaper stuff very quickly. IE. the big POS eats up $600/mo in increased holding cost and only demands $500/mo higher rents (or less).

Another beef I have is this Median price shit. The Median price home of today is MUCH MUCH nicer than the median home of 2005! In 05′ “fixer” got buyers horny, today “fixer” means don’t bother showing it to me! When you consider that the cost of moving the fixer into the nice catagory can easily run to $50k and beyond the median price metric really loses steam. The fact still remains that all over CA the median income can’t even come close to affording the median priced home. Median income is a realtorspeak twisted data set akin to the Feds inflation measure, pure useless bullshit!

As far as the high end BS goes, those much above median income allready own homes (and have for some time, you don’t just start out making big bucks-it takes years in which you allready bought a home). The folks pullin down good money here in CA would be repulsed at the thought of living in a median priced home, the quality of such abodes would squelch any such notion of selling their current residance and moving!

Here in Stockton I am now seeing the bottom listing in nice areas at $230k. Crappy home, but good area. That same crappy home in good area commanded $450k in 05′. When you take out the BS stats from parties with ulterior motives the stark fact is that in select cases we have allready lost 50% here in Stockton from the top! This is only one instance, but the trend is undeniable!!!

I can easily see nice homes in the above mentioned hood drooping bellow their real value(IMO 190-210k) to settle around the 170’s before bottom is struck.

The above sited area is great for rentals. Easy $1,300ish rents with grateful tennants. At my projected $170k bottom with 20% down (not counting my brokers commmission) thes will yield a safe 7%+ ROE with any upside appreciation in the next bubble as pure gravy!

Comment by auger-inn
2007-11-11 15:08:18

Any chance that rental rates may come down as supply increases to thwart your plans?

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Comment by joeyinCalif
2007-11-11 16:15:42

positive cash flow in the next decade will require a the application of a whole lot more effort than just buying something..

 
 
Comment by Cinch
2007-11-11 17:32:27

$1300 rent and you think you’ll have positive cash flow on a $170K house? 5% vacancy rate? New house with little maintenance for the first 10 years or so?

I’ll find this proposition very challenging!

Cinch

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Comment by Rich
2007-11-11 18:08:30

You’ll flow, B/E or 20 bucks at best, but raising rents $35 on a good home won’t make the renters leave. I’m not talking car payments, but positive flow… I been a landlord a long time here and the properties I am speaking of are nice. The numbers look better in other areas, but the next bubble will not take you as far there.

And I’ll even give you your view, but it is much different than what we have been discussing here. My major point it that this near into the implosion we are only 25% away from the point that rentals make sense.

My fear for my fellow HBB breteren here is that you fear the falling knife sooooo much that you don’t get off your asses and purchase a home. The fact is that when the holding cost in your area approach the rental cost you should BUY.

HAHHAAH, I know im an agent… but this is the truth. If you buy at the point where rents = purchase and prices fall further, but a renat…. or 2 or 3 hopefully 17!!!!!

In the mid 90’s I saw many rental purchases that made $20/month two years after purchase and refinance to pull equity out!!! If you don’t think $20/mo positive cash flow at the bottom of a housing implosian (after your investment) is returned to you really need to find another blog!!!!

 
Comment by Rich
2007-11-11 18:20:26

Ben seriously, you need to examine the ramfications of a REIT based from you blog!!!! You be the CEO and I volunteer for the CEO.. As far as we have come off what anyone can call the normal rent/purchase curve there is a huge upside to anyon willing to dive in when all others thing that “housing is the worst investment ever!!!”…
Years ago I broched you with this, but you were afraid of litigation. HHHAHAHAH, look at the crooked thugs stealing billions on the other side of prudance!!!

We here of your humble(MEGA) blog could ealily surpass most of the residential REITS on the exchange with high leverage at the TRUE bottom ot this cycle. HAHAHAH, no get rich quick scheme here!!! It would be much more fun to get slow rich!!!!!!!!!!!!1

 
Comment by Rich
2007-11-11 18:21:27

hahah CFO!!! Janitor, whatever!!!

 
Comment by Rich
2007-11-11 18:23:12

HAHHAH, CFO or janitor… whatever!

 
Comment by joeyinCalif
2007-11-11 19:22:11

My fear for my fellow HBB breteren here is that you fear the falling knife sooooo much that you don’t get off your asses and purchase a home.

The market will be flat on it’s back for years and years, so what’s the rush? Pop some popcorn, put your feet up and enjoy the show.

 
Comment by jack
2007-11-11 23:30:15

What I don’t understand is how you think that the average homebuyer can afford $1,350 per month plus utilites, say about $1,500 gross, times 12=$18,000 times 3 = $54,000 gross income with no outside debt.

That is about $25 per hour and there are few in the middle class that make $25 an hour or $200 a day.
But you may be right in your area.

 
 
 
Comment by IllinoisBob
2007-11-11 15:46:07

PB: The high end in the northern suburbs of Chicago is slowing down. In the village I am watching (Northbrook), there are 110 900K+ homes on the market out of 460 listed on Realtor.com. Only 6 900K+ homes sold in September, which is an 18 month inventory! The majority of these homes are teardowns, with a typical 3-4 year start to new McMansion sale. The teardown candidates in ‘05 that I personally witnessed was “sold” before we listed it. Now a place right across the street has been sitting 6 months without a sale.

 
Comment by Professor Bear
2007-11-11 17:34:31

Just got back from a tour of fire-ravaged Rancho Santa Fe. The Witch Creek Fire burned a wide swath straight into the heart of the community, but most of the houses (at least where I was driving) are intact — a testament to the monumentally heroic efforts of San Diego firefighters to keep a massive uncontrolled wild fire out of residential areas.

Realtors have not skipped a beat — there were open house signs all along the way through one of the priciest communities in the entire U.S.A.

Comment by CA renter
2007-11-11 23:36:48

PB,

I heard downtown RSF almost burned down, too. The firefighters really did an amazing job with those fires. Also amazing is that there is anything left of Del Dios. It’s such a beautiful place, but very dangerous fire zone.

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Comment by Ouro Verde
2007-11-12 09:17:50

“Also amazing is that there is anything left of Del Dios”

My friend, his dad and Ruby & Redhots lost their place in this past fire.
I am scared to drive to check it out. Same friend lost a ranch and home in Questhaven/ San Marcos in the 90’s.

 
 
 
Comment by sohonyc
2007-11-11 18:33:10

Exactly.

It’s just the next fallback position in a long list of fallback positions. First housing always went up. Then it was at a stable plateau. Then there was a bubble in some areas. Then there was a national bubble. And now the “top end is fine”.

No. It’s not.

 
 
 
Comment by Neil
2007-11-11 12:58:40

“Emotion drove some prices high, especially the first up. A 1,800 square foot Madera home went for $336,000. The same size home in the same complex later sold for $184,000.”

“Marty Martinez, Hanford Bidder, says ‘They were good deals; I just wanted a great deal.’”

We see a consistent trend here. Don’t bid on the first house; period. The difference of $150k is huge. Actually, the difference is what these homes should sell for. $150k. That’s it. The $184k buyer isn’t too screwed. They’ll be underwater their down payment. All in all, that’s not to bad. And 1,800 ft^2 is a good size home. A little smaller than I desire, but not bad. Location… different matter. ;)

Later, we’ll see another trend. If all the homes in an auction are selling, never bid on the last house either.

And as Ben already noted, we have a smaller pool of buyers who are ‘less motivated’ than those of prior years. That means wait for deals. :) Every knife catcher thins out the herd.

Got popcorn?
Neil

Comment by Joe Renter
2007-11-11 14:14:11

I know Madera and it’s only 1800sq ft. and nothing in it. People bus their kids to Fresno.

You could say, wow that so over priced for where you live, or you could wow, you bought a whole town for what you paid.

 
Comment by ex-nnvmtgbrkr
2007-11-11 15:01:36

“Emotion drove some prices high, especially the first up. A 1,800 square foot Madera home went for $336,000. The same size home in the same complex later sold for $184,000.”

ROTF! I wish I could’ve been there to give that dude his complimetary Joshua tree. That’s just beautiful!

Comment by Aqius
2007-11-11 16:44:42

Maybe the early high bidder was an auction shill to set the prices high?Interesting to see if the same bidder was at the cashier table later to settle up the paperwork . . . or mysteriously vanished.

And the other lower bidders get followup sales calls later.

 
 
 
Comment by sohonyc
2007-11-11 13:03:41

The time for a crash actually *isn’t* ripe yet. There’s still (although it’s hard to believe) some faith in a few upcoming datapoints.

The first is Xmas. The number of businesses that rely on Xmas for the lion’s share of their annual revenue is huge. When Xmas fails to come this year (consumer spending will be paltry) that will be the next nail in the coffin.

I’m guessing we have a major market stumble in January or February after people realize Xmas was a washout.

Then we’ll see the greatest flood of homes in history hit the market in anticipation of the Spring selling season.

And that’s when the sh*t truly hits the fan.

Comment by joe momma
2007-11-11 13:43:31

Sounds about right. But the real pain comes after the 2008 Spring selling season washes out too. I would expect 2009 to be the first honest buyer’s market. But prices will probably continue to fall after that too.

30+ years of bubble boomer money needs to be cleansed.

 
Comment by Michael Emmel
2007-11-11 14:00:15

You will see a flood this spring but the real price reduction won’t be till later in the fall. Also we are headed for a recession it prudent to wait and see how you will come out of that. No job is recession proof. So reasonable pricing won’t happen till 2009. A good time to buy is off into winter of 2010. If your concerned about the market and global economy etc then 2011 with the flood from the baby boomers is even better. The good news is that after 2009 your looking at losing say 50k if you catch the falling knive vs 100’s so you can start looking at housing as having a reasonable loss. The real bottom seems to be about 2:1 house price to income at least from looking at Detroit. And I think this is where most of America is headed for a lot of reasons.

Comment by az_lender
2007-11-11 21:07:30

I like your comment about how much is to be lost. For me, that is the main question. I am too old and tired to await “the bottom,” and I won’t mind too much if I overpay by $20K or even $50K — just not $200K thank you. Guess I will know by watching price/rent ratios.

 
 
Comment by Cliss
2007-11-11 15:37:20

I agree.
I think it’s absolutely amazing how predictable this whole thing is. If you just pay attention, ignore the lies and the hype, you can kinda tell which way this thing is going to go.

Predicting the Future.
People talk about how awesome it would be if they could foretell what was going to happen in the future. Like winning at the dog races, figuring out which football team is going to win.
This is one that we can predict, without even using the Tarot Cards.
The market is going to crash. In fact, it is crashing as we speak. The only question: how far will it crash?
I think you’re right: the Xmas season will be a big indicator, and it’s going to be a lot of bad news.

Comment by Housing Wizard
2007-11-11 19:31:08

Right on Cliss .All I had to know was what kind of loans they were making and how many speculators were buying and you could predit how this would unfold .

The one thing that happened that surprised me however was BB lowering the interest rates .The other event that came as a little shock to me is how the powers want to raise the loan limit to 1 million on government backed loans . I get sick of the spin that this is a credit crunch and a attempt to safe FB’s when it’s really the crashing of real estate mania and a attempt to save lenders and Wall Street funders of bad loans .

Comment by Big V
2007-11-11 21:12:57

Yes, Housing Wizard, I too am continually surprised by the overt stupidity and seeming corruption of our Congress and Federal Reserve. I really had more faith than that.

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Comment by Rich
2007-11-12 09:07:44

“seeming corruption”!!!!! Hahahah, you must be the last optimist!

How nice to be your and so full of hope.

 
 
Comment by Groundhogday
2007-11-11 22:10:47

I was upset about raising the loan limit at first. Then I realized that without changing the lendings standards for conforming loans it won’t make any difference. If people can’t take on PITI greater than 28% of gross monthly income (total debt load of 35% which might present an even greater hurdle), who can afford a $1 mill home? Or even a $300k home for that matter?

And when Fannie and Freddie start reporting $billions of losses each quarter, even with an implicit Federal guarantee, that will have to hurt their ability to securitize mortgage debt. Even the most optimistic of investors would have concerns about the willingness and ability of taxpayers to make good on 100% of bad GSE debt.

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Comment by Big V
2007-11-11 23:14:37

Yeah, but they’re also proposing allowing the F-word GSEs to take on some loans with Alt-A characterisics. I hope it doesn’t pass and, if it does, I hope it doesn’t work the way they’re planning it.

 
Comment by CA renter
2007-11-11 23:44:16

That’s the thing, the higher loan limits might just be the first phase. Once that’s done, it’s much easier to fiddle with the lending standards behind closed doors. They’re likely to say 40% DTI ratios are the “new norm” (certainly what they’ve been saying the past few years) & make F&F make loans with high ratios and less restrictive requirements.

That’s why we need to stop it before it even gets there. We need the million-HBB march someone mentioned the other week.

 
Comment by Housing Wizard
2007-11-12 00:39:54

Your are so right Ca renter .

 
Comment by Housing Wizard
2007-11-12 01:11:01

The government doesn’t need to get into theJumbo loan market . Wall Street can come up with “insured loans” in the Jumbo market if they want to get more investor money with prudent underwriting and down payments ,(and those loans will be at a higher cost I’m sure ).

The lenders and the REIC keep trying to go back to the type of lending that got us into this mess . I guess they realize that real estate will crash without the easy money lending that made it all possible . You don’t solve faulty lending by more faulty lending or just a new version of the same old easy money . Going back to prudent underwriting ,down payments and qualifying is going to bring the price of real estate down in alot of areas ,no question .

I just wonder what they are going to do with this big over supply of homes with limited qualified buyers and demand . It’s such a shame that all those homes are going to waste currently ,while all the people that were priced out of the market could not buy at a fair price .
Do you hear the Senators or realtors talk about lack of affordable housing ,no ,they all talk about the inflated prices making a come-back .

In order to correct the abuse and corruption in lending ,some painful changes are needed .I still think that the parties that got us into this mess should not be the parties trying to get us out of this mess . I think we need a emergency panel of think tank types to come up with the proper course to solve the bad loan problems, rather than government employees that are in bed with Wall Street .

 
Comment by joeyinCalif
2007-11-12 02:21:32

I see only two ways to look at the GSE thing.

One is that the govt wants to help the economy recover.
The other is the govt wants to destroy the economy.

There is no in-between where some entities will benefit and some won’t.

If prices paid are above and beyond affordability, regardless of loan terms or loan amounts, you end up with foreclosures and bankruptcies in a very short time.
That is what got us into this mess and it’s where we are at right now.. the act of lending more than can be repaid was the root cause/effect.

Who is benefiting from this current rash of foreclosures? Is Govt, through increased tax revenues? No.. just the opposite.
Are banks, through the ability to lend more at higher rates? No. Are investors making money on securities? No.. It’s the opposite.
Are other countries happy about it? no.. Is business of any sort booming in the bubble collapse? none that matter..

Everyone is in a world of hurt. Nobody is now benefiting. So, who will benefit from another round of artificial govt. support for even larger amounts of failing, toxic debt?
Is there anyone alive that believes the bubble can be reinflated without the one, most critical component, i.e. widespread, irrational mania?
Will the faint illusion of bubble-reinflation fool anyone?

But lets assume the worst, the banks and GSEs go lending-nuts, and the entire debt load falls on the taxpayers.. How much are we talking.. many $trillions? Forclosures will continue to put people in the streets as loans default..businesses crash, jobs are lost.. and nobody notices the reason for Round #2 is not that the govt is guaranteeing loans, but they are guaranteeing failure by, in effect, lending a million bucks to a burger flipper?
Could such a thing as this be swept under the rug when the FB had to sell the rug to buy food?

Aside from the fact an election season approaches and the fat is already in the fire as far as a recessionary atmosphere, the entire scenario just doesn’t make sense to me.
I don’t think anyone involved has the slightest inkling of reinflating the bubble. It’s about moving the stagnant secondary market.. about getting the bad paper marked to market and bad debt realized and offloaded. Its about lancing the infection and letting it drain..
It’ no secret that without that happening, we’ll soon be doing the “japan”.

 
 
 
 
 
Comment by Mike G
2007-11-11 13:06:29

“I wasn’t paying attention”

I’ll give Walter a tiny smidge of credit for owning up to his egregious mistake, a standard that most forecasters don’t even reach.

This guy supposedly has analyzed markets for decades and he didn’t see coming what was plain as day to many of us ‘amateurs’?

But WTF? “My bad”? “I had my head in the sand”? How flippant, like he took the wrong freeway exit and lost a few minutes’ time.

Methinks he got caught up in the bubble fever and wanted to be popular by making a feel-good fantasy forecast. Sorry, dude, your credibility just took a one-way ticket to oblivion.

 
Comment by Jas Jain
2007-11-11 13:10:45


“That, Norris says, will make a so-called ’soft landing’ much harder to achieve.”

Hard landing on a soft ground goes a long way. Down, of course. My minimum target for CA is 80%.

Jas

Comment by targetdrone
2007-11-11 13:37:00

Do you mean 80 % of the peak 2006 price ?

What is your maximum target ?

Comment by Remain Calm. All is Well
2007-11-11 13:47:44

I think he means an 80% reduction from peak price, down to 20% of the peak price.

Comment by Jas Jain
2007-11-11 14:41:18


Correct. Maximum is close to 90%. If we split the band, we are looking at 85% downer from the peak. Some areas more and some less. There will be one or two price increase cycles, 2-3 years in duration, before the final low.

Jas

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Comment by targetdrone
2007-11-11 15:31:48

Thanks for clarifying - your ideas are appreciated.

 
Comment by CA renter
2007-11-11 23:46:43

Though I’m not quite as bearish as you, Jas, under certain circumstances, your prediction could be right on.

 
 
Comment by LILLL
2007-11-11 14:43:47

I’m bidding on an REO in socal today. I know it’s soon but it’s 70% price of comps (my bid) in the area (lowest price in SFV–so far) and there is a utility value of NOT having a landlady who thinks she’s Leona Helmsly because she owns a run down 2 bdrm shack in Studio City.

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Comment by REhobbyist
2007-11-11 17:22:20

More information, please LILL, so we can give unsolicited advice.

 
Comment by LILLL
2007-11-11 20:46:42

Well, I’ve been tracking REOs in the San Fernando Valley for about a year. Regular sellers are holding onto their prices, while banks are having steep reductions. Now, these are houses not condos and most of them are POS…but I’m prequalled at a very low price(think3XXK)
for Hellay. Anyway, I sold my POS for over a million in Aug ‘05….boy did I luck out. Anywho…been renting for the past 2 years and a few months and I’m ready to pay about a third of what I sold for. Mind you it’s a smaller house on a smaller lot in a less desirable area…but I like to build and redesign. Sweat equtity is what I believe in…not instant equity That’s like saying ‘under market value’ the biggest line of crap I’ve ever heard. As if fair market value has nothing to do with the willingness of both parties to agree upon a price. Sheesh!
I made my offer through the realtor selling the property so he’d have incentive for me to get it. (double commission) I’ve been around the block before and all would be well if this realtwhore wasn’t such a dumbf@ck!

 
 
 
 
Comment by Joe Renter
2007-11-11 14:23:31

hows does that saying go?

“Any landing is a good landing”

Brace for impact.

 
Comment by Joe Renter
2007-11-11 14:24:35

Any landing you can walk away from is a good landing.

Any House you can walk away from is a ?????

 
Comment by David
2007-11-11 15:46:22

is that 80% inflation adjusted $, or nominal $.
We have allready had about 15% nominal decline, plus about 30% decilne in us$ (depends how you measure it). making about a 42% decine allready.
When i tell my realtor friend she should be concerned about falling dollar, she replies with the gem, “what do i care, everything i buy is in US$”

 
Comment by formerlahomeowner
2007-11-11 15:56:19

80% off peak prices! Back up your prediction Jas. Although how I wish that would be true, claims like this is just like Realtors saying “it is the right time to buy.”

In Valencia, CA - prices peaked at around $580,000 in 2006. That means houses will go down to $116,000. That is well below the prices in 1997.

Comment by desertdweller
2007-11-11 19:45:09

Does anyone know about ‘wholesaling houses’?
Friend just promoted that idea to me..
Sounds suspicious.

 
Comment by az_lender
2007-11-11 21:14:17

formerHO, I agree with you that an 80% decline seems extreme. If rents were to remain stable, an 80% decline in prices would make ownership less than half as expensive as renting. Of course, rents may fall, as they are already doing in Palm Beach County, but my guess is, the fall of nominal rents in urban centers will be small if any.

 
Comment by tj & the bear
2007-11-11 23:32:12

Jas’ prediction isn’t extreme; you’re just conditioned to expect extremely overpriced housing. Look up “anchoring bias”.

I could make the case for a return to pre-1997 prices back in 2003. Since the boom ran to 2005, we’ve dug a hole that’ll take us back decades earlier pricing.

Comment by formerlahomeowner
2007-11-12 01:48:27

I am not a builder but an 80% will not even cover costs. It’s not anchoring bias, it’s reality. I guess if you have to dream, might as well dream big. Here’s my prediction: houses in California will deflate to 1960’s nominal prices.

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Comment by jerry from richardson
2007-11-11 13:15:26

The time was ripe for a crash back in 2005. Right now, it’s a wilted, shriveled up old fruit barely hanging on a vine.

 
Comment by oxide
2007-11-11 13:23:20

Us: What was it you didn’t foresee? Where did the demand go?”

The demand didn’t “go” anywhere. It was consumed. There IS no “pent-up”demand, not at the desired prices, unless you count really late specu-knife catchers (who can’t afford a down payment now anyway.) You simply ran out of people who could afford a house. It first happened in mid-2003 when everybody who could refinance already had, and there were no more first-time buyers who could afford the lending standards.

Then they spiked it in 2003 with the NINJA no-doc teaser nonsense, which attracted a new layer of buyers (subprime and Alt-A’s who way overpaid) and specs, especially condos. They ran out of THOSE buyers and refinancers in early spring 2006 or so…remember that really long period when sellers refused to “give it away” and nobody was buying, except for the a few knife catchers? That’s when we ran out of real buyers. A year later, you still have no buyers. Now, your sellers have nobody to sell to, right when those 3-year I/O’s and two-month neg am teasers all adjusted at once. And the forclosures and credit crunch came 3-6 months later.

This is exactly the timeline we HBB’s foresaw in late 2005(?). Nobody can call a bottom until all those ARM’s up to 2006 are worked through.

Comment by jerry from richardson
2007-11-11 14:25:49

They just did what the majority American taxpayers love to do - rob from the future. Just as we push our mountains of debt on the backs of future generations, the REIC cannibalized future sales in order to satisfy their urge for immediate gratification.

 
Comment by Housing Wizard
2007-11-11 17:15:01

I agree with your analysis oxide . They just used up all the potential buyers .The builders built as if the demand at peak 2005 would continue for another 5 years or so .2005 was a banner sales year that was the result of easy unerwriting ,low down ,no doc loans and teaser rates , and 40% speculator demand in the so called hot areas .

You are so right when you say in essense that all the junk loans that were made between 2003-late 2006 have to be delt with in the form of foreclosure ,or a rewrite on the loan ,or a sale .Until that plays out ,nobody can call a bottom . Also ,a bottom cannot be reached until we see what kind of unemployment will take place during this business contraction .

Comment by CA renter
2007-11-11 23:53:09

Hate to “burst your bubble” guys, but the toxic loans were available as early as 2002, some in 2001. I say this because it was in 2001/2002 when our favorite 20-year old waitress (local steak joint) and her 22-year-old BOYFRIEND who worked at the same place were buying a $400K house. Not trust fund kids, no big down payment, just a fancy mortgage.

We have a loooong way to go.

 
 
 
Comment by txchick57
2007-11-11 13:32:26

There was a “Miracle Mortgage” in Dallas too. Real sleazy outfit. I think they’re gone now.

http://www.insiderpages.com/b/3722340714

 
Comment by Jas Jain
2007-11-11 13:33:54

“Also, the explosion of those loans wouldn’t have happened if the wise guys on Wall Street hadn’t provided the money to fund the loans by packaging the loans to support financial instruments that they sold to bigger suckers.”

Yes, how can we forget “the wise guys on Wall Street.” And even wiser guys at the Fed. It is a financial economy, alright.

Jas

Comment by housing hanky panky
2007-11-11 14:00:33

“the wise guys on Wall Street.” = Wall Street WANKERS.

 
Comment by Carlsbad Renter
2007-11-11 18:36:06

The wise guys on Wall Street got their money from somewhere (you know they didn’t hold onto much of this crap..what is a billion here and and a billion there anway?). Going to be interesting to see who folds on this (hedge funds, pension funds, endowments, foreign banks, etc.)

 
 
Comment by SoBay
2007-11-11 13:43:09

“That didn’t sit well, apparently, with Laing’s Inland Empire division. Webb recalls them complaining about losing sales to competitors that would lend to people who, among other things, couldn’t prove their income. Webb recalls the name of one lender that Laing’s Inland Empire customers with credit challenges were referred to: ‘Miracle Mortgage.’”

- He forgot to say, ‘They couldn’t speak English’.

 
Comment by Daddy Dog
2007-11-11 14:03:20

I’ve been watching the entry level here in Maui North Shore for about 6 months. I read this blog a couple of times a day. It’s got me investing in SRS and has helped me resist the temptation to get into the Maui real estate market at least for awhile. Does anyone have an opinon on what willl happen if the fed keeps lowering interest rates into the lows that we saw 4 years ago? My new mantra is that my wife could only afford $417K at 7% in the neighborhood of $3200 monthly payment. Of course this changes a bit if if the intersest rates were to go down to 4%. Then the 100 X rental ration, comes close. We own a condo in San Jose, and it’s amazing to me how well the 100 x works. My thinking is that there are many like me who might be tempted back into the real esate market if we see very low interest rates again. During an election year anything could happen. What is the scenario where hyper inflation kicks in? How come we didn’t see hyper inflation 4 years ago. Is that how this is all going to work it’s way out? Howing prices won’d drop by the run up we’ve seen but we’ll be inflated right into making them rightsized. Fixed income people and retirees will be the ones hurt.

Comment by ex-nnvmtgbrkr
2007-11-11 15:38:26

The Fed will keep cutting the rate, but you’re not going to see it reflected in mortgages. Many folks do not understand the connect here. The last 2 rate cuts have done nothing for fixed rate mortgages, and if inflation really takes off like many are predicting, you could see the long-bond yeilds shoot through the roof causing interest rates to blow-up (go read up Schiff). Another thing is that it really doesn’t matter what the rates will do if you don’t have loose lending standards along with it. It wasn’t the low rates that kept the bubble growing over between ‘03 and ‘06, it was the minimum to no-down stated-income, no-doc suicide loans that kept the party going. Those are not coming back anytime soon, if ever.

Bottom line - There is nothing any entity can do to impede this crash.

Comment by sohonyc
2007-11-11 18:37:14

The Bushies will try.

Because the strategy at work here is to sweep the nation’s financial problems under the carpet until the Democrats take the White House. Then they’ll shine a big spotlight on them and say “Look what the Dems have done!”

Just watch. It’ll almost be funny.

 
 
 
Comment by are they crazy
2007-11-11 14:04:29

The best part of the housing crash will be getting rid of these. http://www.tiny.cc/FsUAg

Comment by desertdweller
2007-11-11 15:04:35

LOL

Comment by phillygal
2007-11-11 15:33:55

This episode centers around the death of Tammy’s ex-husband, a man that was clawing his was back to success via mortgage loans, a new energy drink and a company that makes water “out of thin air” by capturing the condensation from giant air conditioners.

The man then dumped the real housewife of OC, married a Thai mail order bride, and proceeded to drop dead. The Thai lady had already kicked husband’s daughters out the house so POOF there went the inheritance.

Tragic. Where to get $$ for boob job?

 
Comment by are they crazy
2007-11-11 15:42:53

So many of them moved out here and brought their world of plastic with them. My daughter teaches at Palm Valley and says she can smell the desperation.

 
 
 
Comment by Melvin Frumph Hoppe
2007-11-11 14:21:31

‘it can’t happen here’ -frankly it hasn’t (I wish it would!) check this out from today’s chronicle

“From the mortgage crisis to the plunge in home sales, dark clouds continue to threaten San Francisco’s seemingly endless real estate summer. And yet remarkably, local Realtors I know seem as cheery as ever.

“It doesn’t look slow to me,” says Bonnie Spindler of Zephyr Real Estate. “I keep telling people it’s not a buyer’s market, but they don’t believe me until they get into the trenches.” She says she’d heard that the softest sector of the market was entry level properties, but a recent open house of a six-unit Tenancy in Common building with units ranging from $500,000 to $590,000 challenged even that generalization: “I had 100 people go through the house and seven or eight requests for disclosure packages. Many of the buyers were already pre-approved with loans.”

http://tinyurl.com/9n24a

 
Comment by Melvin Frumph Hoppe
2007-11-11 14:23:37

another article from today’s chronicle

“Therapists see surge in patients stressing over their home values”

http://tinyurl.com/2afrx3

Comment by are they crazy
2007-11-11 15:46:54

Even without a lot of savings, one can have peace of mind with low overhead. How pathetic that people’s sense of self worth is so tied to money.

Comment by reuven
2007-11-11 18:37:14

I’m glad the MSM finally recognizes the obvious point that falling house prices are GOOD! And we get the affordable homes everyone talks about.

The banks’ idea of “affordability products” (Option-ARMS, etc) are really “unaffordability products”

 
 
 
Comment by aladinsane
2007-11-11 15:56:19

“A frantic two-hour auction Saturday in downtown Fresno was a sign of the times as bidders snapped up 48 new houses — most for thousands of dollars below the builder’s original list price.”

“‘We’re giving away property, ladies and gentlemen,’ auctioneer Mike Carr of Atlanta told the crowd. Carr kept the bidding going nonstop. Most final bids were between $200,000 and $300,000. Previous list prices on some of the homes had been as much as $498,000.”

“Many bidders seemed to be reluctant to go above a halfway mark between the original list prices and starting low bids. ‘Somebody’s going to be livin’ in your house,’ Carr warned one reluctant bidder.”

Do or die threats from a shrill auctioneer wowed them in Fresno, to the tune of 48 “sold” houses…

And Fresno being Fresno, they were happy with discounts, in the thousands.

 
Comment by txchick57
2007-11-11 15:57:30

Another missive from the Ivory Tower of obscene wealth (Sam Zell) who doesn’t think the housing fallout will be that bad so long as the unemployment rate stays under 5.5%. These people are just so removed from the real world, it’s hard to comprehend why the media thinks their viewpoint on the subject is worthy:

Highlight:

You own a residential REIT–Equity Residential–and thus have an interest in how housing plays out. We’re already starting to see investors renting instead of selling homes they bought, because they can’t unload them. And a glut of new rental housing could impact rents in buildings like yours. Where is housing headed?

The key to housing is the employment rate. As long as the employment stays basically full–say, under 5.5%–I see no major crisis in the housing market. Yes, we have a subprime issue. Yes, we have a lot of investors who got hung out, but I don’t see the crisis the way the media portray it. And consequently, as long as employment stays strong, I don’t see any issue as far as rental housing is concerned. Our apartment company continues to rent at 95%. We continue to see same-store-sales increases from one year to the next. I don’t think that the unsold inventory of houses will have any dramatic effect on the apartment-rental business. The cost of owning is helping the rental-housing business today, and it will continue to do so. I don’t expect any significant competition from unsold houses.

You say you don’t see a crisis. Yet we’re hearing about a growing number of defaults, and credit has become tighter even for conventional mortgages–not just subprime ones.

But we’re also building a lot less houses now. For many years, we averaged about 1.6 million houses a year. And then in the last four years, we went to 2.1 million. We’re regressing to the mean. So there will be a period of indigestion but no crisis. No meltdown in the housing market. That’s ridiculous.

What about all the individual investors who jumped into the housing boom to flip homes and were left with hundreds of homes to sell when the music stopped?

All of those people were all about greed. And where is it written that thou art entitled to flip a profit? Not anywhere I know of. So I’m not very sympathetic. And the fact that all of these investors allowed their greed to overcome their fear–that’s the way the world works.

http://www.time.com/time/magazine/article/0,9171,1682257,00.html

 
Comment by are they crazy
2007-11-11 16:07:29

Another housing casualty and some interesting comments about RE downturn. http://www.tiny.cc/pwNFx

 
Comment by aladinsane
2007-11-11 16:07:48

low-taser rate loans…

Electro$hock Weapon$

 
Comment by housing hanky panky
2007-11-11 16:28:42

Daniel Weintraub: Proposal to write-down loans could wreak havoc.

From the article…………..

But consumers who simply gambled that the market would continue to soar and that, after a time, they could refinance their unaffordable loans at a fixed rate, are not victims. They are adults who made a bad decision. And they should not be rewarded at the expense of renters who restrained themselves amid the frenzy and are waiting for interest rates and home prices to come back within a range they can afford.

http://www.sacbee.com/110/story/482021.html

 
Comment by boston
2007-11-11 16:38:21

Classic, there is one born everyday…

“The properties for sale are mostly remainders. The first attempt to sell a foreclosed property is immediate. Before the lender takes possession, it offers the house to anyone who agrees to cover the borrower’s unpaid debt. If that doesn’t work, lenders generally behave like any other sellers: They hire a real estate agent to market the property.

For many of the properties auctioned yesterday, that also didn’t work.

“They don’t tend to be in the best condition,” said Terryanne St. Pierre, an associate broker with Taché Real Estate in Salem. She said her company had listed several of the houses being auctioned. “They’ve been abused more often than not,” St. Pierre said.

Moldy basements, missing windows, burst pipes, and buckled floors are fairly common, the Globe found in touring some of the houses last weekend. The need for new paint is pervasive.

But the 2,000 or so people who attended yesterday’s auction were undeterred. Registration was free, although each bidder was required to bring a cashier’s check for $5,000. After each property was introduced, men in tuxedos rushed around encouraging people to spend money.

“Hey, that guy is about to buy your home!” one auctioneer told a hesitant couple. “What’s another $10,000?”

Properties sold in a few minutes. Winners were escorted to a roped-off area to make a 5 percent down payment, for example, on a $300,000 house - the cashier’s check plus a personal check for $10,000. They were then escorted to an area behind curtains to qualify for a mortgage loan from Countrywide Home Loans.”

http://www.boston.com/business/globe/articles/2007/11/11/2000_bid_on_american_dream/

 
Comment by housing hanky panky
2007-11-11 17:30:26

“Aftershocks make the credit crisis rumble on.”

This is a very good read.

http://www.ft.com/cms/s/0/03a22496-9072-11dc-a6f2-0000779fd2ac.html?nclick_check=1

Comment by Professor Bear
2007-11-11 17:36:27

This Wolfgang dude does not believe in pulling his punches.

Aftershocks make the credit crisis rumble on
By Wolfgang Munchau
Published: November 11 2007 17:51 | Last updated: November 11 2007 17:51

After the housing crisis and the credit crisis, now comes the US consumer confidence crisis. It is time to admit that the US economy is headed for a serious economic downturn – much bigger than suggested by the central bankers’ euphemism when they talk about “downside risks to growth”.

The world economy can now look forward to confronting four ugly and partly interrelated shocks at the same time: a US economy heading for the rocks, a rise in global inflation, a collapse in the dollar’s exchange rate and a credit market crisis.

 
 
Comment by Professor Bear
2007-11-11 18:16:50

Super-SIV clear to sign more banks
By David Wighton in New York
Published: November 11 2007 22:03 | Last updated: November 12 2007 00:11

The three US banks behind the planned $75bn superfund for distressed mortgage assets have revised the proposal in a move that should allow them to start signing up other banks within the next 10 days.

http://www.ft.com/cms/s/0/b5c914f2-9097-11dc-a6f2-0000779fd2ac.html

 
Comment by Fred
2007-11-11 18:29:11

Either lower interest rates or a much larger budget deficit will be necessary. I’m predicting the lower interest rates to prevent deflation, then a much bigget deficit, at which time the interest rates will go back up to keep inflation under control. Let’s trace the process.

Lower interest rates bail out the banking system because of the enormous profits in the short-long carry trade when there is a steep yield curve. Borrow at 2 years @ 1%, lend at 10 years at 5% and pocket the 4% differential. Lower interest rates also cause the dollar to drop, which promotes exports (and thus keep unemployment from spreading) but causes higher prices for American consumers. These higher prices are unlikely to cause higher wages, and hence no wage-price inflationary spiral, since the collapse of the credit bubble is highly deflationary. The lower interest rates will cause stocks and commoditities to stay high or even go higher, and gold to skyrocket. A lower dollar effectively exports an American recession to the rest of the world.

After Congress increases the budget deficit, which will take at least another year or two, interest rates will have to go back up to prevent inflation. By this time, the rest of the world will be hurting and there will already be a tendency towards flight to safety, meaning dollars, and the higher US interest rates will sharpen this tendency. So the dollar will shoot back up, hurting imports and lowering prices. But we won’t have deflation because of the bigger budget deficits. Banks will go through a second phase of big losses as the yield curve inverts. Higher interest rates will cause stocks, gold and commodities to plummet.

In other words, by lowering interest rates first, then later increasing the budget deficit and raising interest rates, the recession is made milder but longer. And we might even have a rolling series of ups and downs with interest rates as the deficit gets bigger and bigger, and also a mild recession which drags on for many years. This will be terrible for housing, but not too bad for unemployment.

As for investing: be very careful about shorting stocks or gold or commodities. Stock, commodities and gold will fall eventually, but they may go up a lot more before they start falling. Ditto for currency speculation. The dollar will continue falling for a while, but will eventually recover. It will be extremely difficult to time these events, especially because you will be competing against very sophisticated hedge funds. Hyper-inflation is not going to happen, and neither is deflation. Rather we will get 3% or so price inflation, same as ever, and 1% wage inflation. American has been overconsuming and there needs to be a correction and this 2% differential between prices and wages is how the correction will be made.

Comment by technovelist
2007-11-11 19:45:09

Hyper-inflation is not going to happen, and neither is deflation. Rather we will get 3% or so price inflation, same as ever, and 1% wage inflation.

ROTFL!

 
Comment by Darrell_in_PHX
2007-11-11 20:21:58

“Rather we will get 3% or so price inflation, same as ever, and 1% wage inflation. American has been overconsuming and there needs to be a correction and this 2% differential between prices and wages is how the correction will be made.”

Sorry, but the correction has already been made. Consumers have been consuming by generating debt. For close to a decade we’ve had your 3% (core) price inflation (really more like 5% with food and energy included. Maybe close to 10% removing the hydonic adjustment) and 1% wage inflation. It has left the consumer spending 10% a month more than he is paid.

We don’t need further differential between wages and inflation to reduce the American consumers consuming. We simply need to remove crazy easy access to ever increasing debt.

Comment by Big V
2007-11-11 21:57:17

Which is done. Presto. Instant recession. I think BB knows this. He says no more decreases. Clearest speech he ever made. He’s actually speaking in English now. He also warns people that inflation is going to happen. Period. Get ready for it.

 
 
Comment by sohonyc
2007-11-11 20:39:41

“American has been overconsuming and there needs to be a correction and this 2% differential between prices and wages is how the correction will be made.”

How is that 2% even a correction at all? At that rate the “correction” you speak of would be a mild decline in the economy over the course of decades. You’re in for a rude awakening, my friend.

There’s only two ways out of this hole: 1) hyperinflation, 2) a collapse of the banking system.

Pick one.

 
Comment by tj & the bear
2007-11-11 23:47:37

After Congress increases the budget deficit, which will take at least another year or two, interest rates will have to go back up to prevent inflation.

C’mon, Fred, who are you kidding?

We’re already importing $2B/day just to fund the current deficit, and that’s before domestic tax revenues tank. It’s damned unlikely foreigners will want to sink any more money into the US, especially when there’s far less exported dollars to recycle. That leaves monetization — hello hyperinflation.

Secondly, there’s no way in hell the government will run over-extend its credit card just to raise rates on its debt service. Might as well be buying rope with which to hang itself.

 
 
Comment by reuven
2007-11-11 18:34:50


The mortgage market meltdown and the resulting surge in foreclosed homes offered for sale has created welcome home-buying opportunities for San Diego County’s low-and moderate-income households. ‘When was the last time we put thousands of affordable housing units on the market?’ asked Gabe del Rio of Community HousingWorks.’We are talking about homes you bought for $450,000 last year that now are being sold for about $300,000. It makes a big difference.’”

I’m glad the MSM finally recognizes the obvious point that falling house prices are GOOD! And we get the affordable homes everyone talks about.

The banks’ idea of “affordability products” (Option-ARMS, etc) are really “unaffordability products”

Comment by Mole Man
2007-11-11 20:14:47

italics off

 
 
Comment by need 2 leave ca
2007-11-11 18:42:01

As for cars, mine are older. I am fine with that as they are paid for. I found an honest, competent, and reliable mechanic. I have him change my oil. At that time, he checks the car to see if anything needs fixing. That greatly reduces the odds of something breaking while driving. His rates are reasonable. Knowing one person who knows what he is doing to regularly fix my cars makes me feel secure that I can drive them till they are truly used up. Much cheaper than payments, increased insurance, increased registration, worry about dings/dents, etc. And, a couple of times, I have been hit. I pocketed the insurance money. Used cars much better than payments. And, if it does break down, I have a roadside assistance through the cell phone. So someone will come and tow car to repair shop. If need to go a long way, I will rent a car.

 
Comment by need 2 leave ca
2007-11-11 18:43:33

Hey $250K lady in Fresno, I remember a few years ago (before the bubble) new homes there were around $100K. Guess where the homes are going back to. One must remember, it is Fresno.

 
Comment by housing hanky panky
2007-11-11 19:30:08

Japanese stocks tumble on exporters, financials.

HONG KONG (MarketWatch) — Japanese stocks fell sharply Monday as the yen’s brisk appreciation hurt exporters such as Canon Inc. and Honda Motor Co., while financials such as Mizuho Financial Group continued to decline on concerns about the health of global financial markets.
The Nikkei 225 average fell 2.6% to 15,173.42, while the broader Topix index lost 2.4% at 1,457.91.
Other markets also declined in the wake of a continued sell-off on Wall Street Friday, with Australia’s S&P/ASX 200 dropping 0.5% at 6,516.50, New Zealand’s NZX 50 index losing 0.9% at 4,096.90, South Korea’s Kospi sinking 3.1% at 1,929.65, Singapore’s Straits Times Index falling 2.1% to 3,523.53 and Taiwan’s Weighted index tumbling 2.7% to 8,729.51.
China’s Shanghai Composite lost 2.5% at 5,181.17 after the country’s central bank raised banks’ reserve ratio - the percent of total assets that banks must keep ready in reserve - by a half-percentage point on Saturday, marking its ninth such increase this year.

http://www.marketwatch.com/news/story/japans-nikkei-225-index-hits/story.aspx?guid=%7BE759B09A%2D9EEE%2D434A%2D9505%2D2DA97A1191E8%7D&siteid=bnb

 
Comment by Renterfornow
2007-11-11 19:43:52

are talking about homes you bought for $450,000 last year that now are being sold for about $300,000. It makes a big difference

No $200,00 sounds better

Comment by Renterfornow
2007-11-11 19:49:15

Comment by joeyinCalif
2007-11-11 19:22:11
My fear for my fellow HBB breteren here is that you fear the falling knife sooooo much that you don’t get off your asses and purchase a home.

The market will be flat on it’s back

Joey go ahead buy a second third and forth for u.

Sucker

Comment by joeyinCalif
2007-11-11 20:34:25

wtf .. renterfor, would you please be careful?

My fear for my fellow HBB breteren.. was italicised and is a copy of the statement made by “Rich” (the real estate broker) in his previous post.

I do not enjoy embarrassing people..

 
 
 
Comment by GH
2007-11-11 19:51:07

‘When was the last time we put thousands of affordable housing units on the market?’

That would be 2001 here in San Diego. I wonder how long it will be till the next time we see thousands of affordable housing units on the market? Still going to need a 40% haircut!

 
Comment by blofeld42
2007-11-11 20:39:39

A couple real estate adverts for the CA central coast: 2005 record of sale $680K, now $440K. 2005 price $650K, now $445K. Both bank-owned.

Comment by CA renter
2007-11-12 00:13:58

An REO in our old n’hood was just listed for about $295K. Peak price was around $475K (maybe more). :)

Comment by Dasheetze
2007-11-12 02:37:57

55,000 houses for sale in Phoenix.
20,000 + are vacant.
Now the squatters move in.

 
 
 
Comment by Chip
2007-11-11 20:56:14

“Homeownership in California is only 56 percent, and the rest of the nation is 69 percent,” Rivinius said. “So the homeownership rate is lower than (that of) the rest of the country, and if we don’t raise the limit, things will never improve.”

So F***ing What!!!

 
Comment by Housing Wizard
2007-11-11 21:21:53

Why is it that the Fed Chairman and his gang are only coming up with one idea on how to solve the bad debt problem ?

What about the concept of making Federal sub-prime loans to viable lenders ,at a punishment interest rate ,to cover their losses ,to be paid back at a adjustable rate ,based on the governments needs ,on a 30 years note ,due in 10 years . It would be better than making bad loans that will default, than stick the taxpayers with the bill . Maybe we taxpayers should go for making a hefty profit off the folly of Wall Street Bankers and Lenders . Maybe I’m going mad

 
Comment by Housing Wizard
2007-11-11 21:40:55

Now that I think about it ,a long time ago on this blog I predicted that the only way they would be able to get loan money is by having loans insured ,(at least until they got over the credit crunch ). Look at what they are doing , they want the government backed loans to carry insurance . But, when I made that prediction that loans would have to be insured ,I wasn’t speaking about government backed loans that taxpayers end up footing the bill for bad paper in the long run . I also wasn’t talking about buying bad loans that have already been made ,but I was talking about new money in the future . My idea was that insured loans would open up the credit crunch problem on new money ,but bad loans already made ,that a done deal .

 
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