Moving Toward A New Balance In California
The Union Tribune reports from California. “Economist Edward Leamer, director of the UCLA Anderson Forecast, said the creation of a company that helps borrowers go into foreclosure reflects ‘a collective erosion in borrowers’ commitment to service their loans.’ Households didn’t default on mortgages unless they experienced life-changing events, such as illness, divorce or a death in the family, he said.”
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
“Martin McGuinn, a San Diego attorney who represents lenders and loan servicers in foreclosures, called the trend disturbing. ‘From a lender’s standpoint, the worst thing in the world that could happen is for people to simply walk away from their property,’ McGuinn said.”
“In Spring Valley, an area hit hard by defaults, Eddie Zepeda, 30, has grown weary of trying to pay his adjustable mortgage while the value of his house is slipping.”
“‘I am getting tired of the whole two-job thing,’ Zepeda said. ‘I work at night. My wife works in the morning. I have to pay a baby-sitter. I can’t afford it any more.’”
The LA Times. “Here’s more evidence that California is losing its struggle against recession: The state shed 20,300 jobs in January, more than the other 49 states combined for the month, a government report showed Friday.”
“The slump is taking its toll on people like Gabriele Larmon of Port Hueneme, who was laid off from her administrative university job more than two years ago.”
“‘I’d just like to get my foot in the door for anything,’ said Larmon, who estimates she’s applied for 600 to 700 positions online in the last year.”
“Larmon said she had to move in with her daughter because she could no longer make her mortgage payments and the bank refused to renegotiate the terms. ‘Everything has just fallen apart,’ she said.”
The Press Enterprise. “The crippled housing market sent the Inland region last year into the biggest jobs freefall on record, state figures released Friday show. Riverside and San Bernardino counties lost 7,300 jobs in the past year, the vast majority of losses in home construction-related fields.”
“Redlands-based economist John Husing now expects 2008 will be worse than last year and said the region won’t regain its momentum until 2010. ‘It basically means we have 20 months of real difficulty in front of us.’”
“The Inland area has never lost jobs for a full year since economists started keeping records more than 30 years ago, including when the area was crippled by the closing of Norton and March air bases in the early 1990s.”
The County Sun. “Fontana muffler shop businessman Ralph Maldonado’s already laid off one full-time employee and poured $8,000 into his business to keep it afloat. He’s watched two other muffler shops go belly up in the past few months.”
“‘When the housing crunch came, it took a hell of a hit on us,’ Maldonado said. ‘People just don’t want to spend money.’”
“‘It’s a tough environment for everyone right now,’ said Bob Bartlett, manager of member services for San Diego-based Western Electrical Contractors Association, which has members in San Bernardino and Riverside counties.”
“‘For residential (electrical) contractors, if they’ve only had to reduce their work force by 50percent, you could say they’re in good shape. Some of them have gone down 75 and 80 percent,’ he said.”
“In Corona, Vineyard National Bancorp has struggled to deal with a rising tide of bad construction loans, and reported a loss of $41.3million.”
“‘It’s a true observation that companies with a real-estate orientation, like an escrow company or anything related to real estate, has got to be feeling the slowdown,’ said James G. LeSieur III, chairman of Vineyard.”
“Wally Alkhouri, who owns a smoke shop in a small retail mall in Claremont, says business has dropped off sharply since September. ‘It is bad,’ he said. ‘Everybody’s cutting back on spending, on cigarettes and everything else.’”
“Alkhouri’s cutting back on his spending, and that means fewer restaurant meals. ‘If you have no money, you’re not going to go out,’ he said.”
“At Ralph’s Muffler, Maldonado sees the strain in the faces of people looking for work. ‘I’ve got a lot of guys coming here looking for jobs that got laid off,’ he said. ‘I probably get two or three a day.’”
The Recordnet. “Stockton-based All-Star Maytag, a five-store appliance sales and service dealer, will shut down this weekend, another victim of a slowing economy dragged down by the region’s severe housing woes.”
“‘I just couldn’t hold through the bad economy. There’s been a big slowdown the last two years, and it just amounted to too much,’ said Hicks, who first took note of business slacking off in the spring of 2006.
“‘The winds had changed direction. It was very slight, but we traced the numbers back to February ‘06. By the fall of ‘06, it was very noticeable. It just kept dropping and dropping and dropping,” Hicks said.”
“‘Through the grapevine, you hear various dealers having trouble. Not too many people are excited about the business right now. Even employees from the big-box stores have been coming by looking for work,’ he said.”
Inside Bay Area. “The East Bay is being hammered with a jobs recession that erased 5,100 jobs in January, marking the worst one-month employment setback since Sept. 11, a report released Friday showed.”
“In another ominous disclosure, the job market in the East Bay turned out to be far weaker in 2007 than first thought. An annual revision by the state Employment Development Department showed that by December 2007 the East Bay had 9,200 fewer jobs than their initial estimates.”
“‘The East Bay is probably in a recession or clearly headed in that direction,’ said Jon Haveman, economist with Beacon Economics. ‘California as a whole is in a recession. That does not apply to every region of the state, but it appears to apply to the East Bay.’”
“‘The numbers show the effects from the bursting of the housing bubble,’ Haveman said. ‘We also see the consumer cutting back.’”
“Alameda resident Brad Chamberlain is seeking work in construction management or carpentry. Despite 27 years of experience in project management, Chamberlain has gotten few nibbles since he lost his job last August.”
“‘Two years ago when I was out of work, there were a lot more ads and much more of a response,’ Chamberlain said. ‘Now, there are hardly any ads for people with my experience.’”
The San Francisco Chronicle. “In the last six weeks, the San Francisco office of a staffing firm that specializes in administrative, technical and financial jobs, has seen assignments drop from about 40 a week to about 25. The slowdown is concentrated among administrative and clerical positions, branch manager Stephanie Zeppegno said.”
“Workers ‘are not worried about losing their jobs, but they’re leery about leaving their jobs,’ Zeppegno added.”
“Meanwhile, there’s plenty of competition for job openings. ‘I volunteer time with job seekers in the Bay Area, and nearly every job opening attracts tens of job seekers, often more,’ said former Employment Development Department Director Michael Bernick.”
The Sacramento Bee. “‘It’s been a very cold winter,’ said Jason de Lemos of IM Construction, a building contractor in south Placer County. The firm has cut about 280 jobs since 2006.”
“‘We thought it was meager to begin with,’ said Howard Roth, chief economist at the state Department of Finance. With the revision, ‘it’s certainly more meager than we thought. We’ve slowed down more than we thought, more than we knew.’”
“A year ago, the local head honcho for Beazer Homes figured the housing market had hit bottom and was ready to take off again. He was wrong. Sales ‘went off a cliff’ in March, says Alan Newman.”
“During the Feb. 7-13 sale, prices were marked down as much as 10 percent. For example, houses normally priced at $199,000 were offered for $179,000. Every home sold at a loss, Newman says.”
“But, the company was able to reduce its inventory. And, Newman says, the sales blitz proved that buyers – especially the first-time homeowners that Beazer targets – are willing to get back into the market.”
“‘They’re ready to buy,’ he says of prospective customers, ‘ … at the right price.’”
The Contra Costa. “A Southern California developer has pulled the plug on a planned multiuse project on San Pablo Avenue near the Del Norte BART station in El Cerrito.”
“The Mayfair Block project, brought forth by the Olson Co. in 2005, originally was planned to include about 10,000 square feet of retail space on the ground floor, and 58 condominiums above.”
“‘Everything looked fine, and then the housing slowdown began,’ said Mitch Oshinsky, El Cerrito’s community development director. ‘Olson, like other developers, started slowing down and stepping back from projects. They had stepped back from a number of other projects but kept (the Mayfair Block) project active. Eventually, they came back and had to let that project go as well.’”
The Bakersfield Californian. “Bruce Norris, a Riverside-based real estate investor, doesn’t think the housing market will perk up until 2011. That’s ‘when you’re going to have your first positive price year,’ he said.”
“If you ‘look at sale price of a home, start subtracting everything that costs (developers) money — marketing, holding costs, borrowing money to finance the project, grading — at the very end, there’s a profit, a number that’s left that they can pay for the land itself,’ Norris said. ‘Right now, that number is so negative, it wouldn’t make sense to put a lot anywhere (in) Southern California.’”
“‘I don’t have many applications going in. It’s not like it was,’ said Roger McIntosh, principal (of) a consulting firm that does planning and surveying among other services.”
“Most of McIntosh’s residential clients have put their projects on hold. ‘In a slow market, (there’s) no reason to expend millions of dollars on a subdivision if you can’t sell the houses,’ McIntosh said.”
The Orange County Business Journal. “Mortgage brokers are buzzing over the latest bad news for the local housing market: Wells Fargo has designated all of OC and L.A. as ’severely distressed,’ putting the two counties in the same bottom category with San Diego and the Inland Empire.”
“Wells becomes the first major lender in OC to completely eliminate stated income, stated asset (’liar’) loans, even for highly qualified borrowers.” ‘Jason Grange of Premier Mortgage Lending says other lenders are sure to follow: ‘There are officially no more lenders offering 100% financing in OC … Most borrowers can expect to put down 10% or even 15%.’”
The Signal. “Home and condominium sales in the Santa Clarita Valley hit a record low in January, according to a report from the Southland Regional Association of Realtors released Wednesday. The realtors organization reported that only 99 homes sold in January, which is down 42.4 percent from a year ago.”
“Additionally, the median price of a single-family home sold in January fell below the $500,000 for the first time in three-and-a-half years.”
“Condos are also at a record low as a total of 31 condos closed escrow in the first month of 2008, which is a 57.7 percent decrease from January 2007, making it the lowest total on record for the realtors organization.”
“This was the first time in three-and-a-half years that a condo’s median price went below the $300,000 mark. The record high of $397,000 came two years ago in January 2006.”
“The median price of $460,000 for a single-family home was down 21.8 percent when compared to a year ago, according to the association’s report.”
“‘Buyers are expecting whopping discounts, and sellers are not being realistic with their asking prices,’ Doreen Chastain-Shine, president of the association’s Santa Clarita Valley Division said in a statement. ‘The market is deadlocked, at an impasse, and will remain that way until buyers realize that prices are not plummeting and sellers accept that they no longer have the upper hand.’”
“Chastain-Shine then added, ‘The market is moving toward a new balance, and there is a slight upswing in activity, some of which is due to seasonal factors. But a stable, balanced market will not emerge until both parties get real.’”
“The organization reports that a total of 2,163 active listings were reported at the end of January, up 22.9 percent from a year ago. At the current pace of sales, the number represents a 16.6-month inventory, continuing a buyer’s market.”
‘If you have no money, you’re not going to go out’
And you’re not going to buy a house. This reminds me of the debates with the trolls, who said when housing slows down, the Fed will cut rates and it will bounce back up again. I always pointed out that if the Fed was cutting rates, we are probably going into recession, which is hardly a good time to buy.
And for all the economists in the state, what percentage of you guys insisted that a recession was impossible? The biggest blown call in economic history, IMO.
“‘It is bad,’ he said. ‘Everybody’s cutting back on spending, on cigarettes and everything else.’”
What’s more, if the PTB and all the other braniacs out there think inflating our way out of this mess is the way to go, they are sadly mistaken. Broader demand and production will fall off a cliff and unemployment will increase. There is no easy way out.
Unless something drastic is done, I think it goes far beyond the collapse of the housing market, to a collapse of the US currency (in progress, even as we post) and after that, the economy.
Something drastic will be done - the debt will not be paid - because you can’t pay debt with more debt (’money’ does not exist until it is borrowed into existence - credit).
The ugly part comes when not only the debt but the DEBTORS are liquidated. There are a lot of people (300,000,000 in the US alone) that aren’t needed and can’t support themselves. The phrase ‘Hell on Earth’ comes to mind…
And I thought *I* was a doom and gloomer.
That really does not match demographic realities. The baby boomer generation is already starting out the door. By 2010 there should be a deficit of workers caused by the withdrawl of aging boomers. Even if a large fraction of boomers stay in the labor force as long as they can there will still be problems getting workers soon. Many of those who in the past were simply rejected will be looked at differently and hired for whatever they can be trained for.
yeah - maybe we can finally get the jobs that have been going to h1b visas - making more than $10 an hour
But the population of the US is only 303,000,000. How can there be 300,000,000 in the US who can’t support themselves?
Currency! What currency . The “private” federal reserve prints money, lowers interest rates to “save and protect” its member banks. To hell to the American public! Congress knows the score. The public does not. Only thing the public sees is higher prices but does not know why?
“‘You’ inflate the debt supply whenever you request a commercial bank to create debt out of thin air…
Consumers request (Beg) and the bankers give you what you want…The Bankers are giving you what you want and now you are telling me you don’t want them to do that?
“You” along with billions of other consumers…Beg the bankers to make your dreams come true and they are only giving you what you want when they agree with your request…end of story.
And why you think the Bankers need to keep you on life support once you become worthless to them is beyond me…
You like interest don’t you? Well Interest attached to the medium of exchange is the cause of fractional reserve banking not an effect of it…Now you can live off interest but once the entire population thinks they can it’s game over…
If the owners of the Fed decide to buy something they can but they already own the entire world so I don’t know why they would monetize anything…Just release the death squads and liquidate the depleted units of human capital…
http://hypertiger.blogspot.com/2008/02/worst-is-yet-to-come.html
Cris, you need to get out more. A lot more. Interact with people. Become active in your community. Join a civic or charitable organization or two. Staying behind closed doors and just typing on your computer is unhealthy in more ways than one.
I take it you didn’t major in logic?
Sorry if the post hit too close to home, but it’s not my work.
Interesting reading crisrose. I’ve bookmarked the page.
“Now you can live on interest, but once the entire population thinks they can, it’s game over”
Yes, that is precisely the problem in the US. Too many simultaneously trying to live on interest or speculation or pensions or commissions. I am part of the problem, certainly, but having lived on interest for a long time, I am not going to give it up easily!
I’ll second the interesting.
I’ve been hearing more people complain about their cc rate jumping to 23+% (loan shark rates, honestly) followed by them saying, “I’m just going to have to pay this off”. I never imagined usury as having a positive side effect before, but maybe it finally will.
One thing I think you miss in what I’d call your “Dale” analysis. Is that all systems that are out of balance will try to reach an equilibrium. For example, when the u.s. hourly rate becomes a mere 1.5x the hourly rate in Bengaluru, outsourcing will cease to be wildly profitable. That will be maybe another 3 years from now. There are limits to some of the things you seem to view as limitless influences. They aren’t great endgames, but brakes on change they are.
Also, you mistake high automation for an extinct manufacturing base, and that’s a common oversight.
I have some other nitpicks about oversimplification, but an interesting read.
Problem with ‘hypertigers’ rant/theory is: what happens when the ‘bottom’ stops paying their paper debt to the ‘top’ ? The top winds up with too many flat screen tv’s, suv’s and houses worth less than they ever imagined.
Historically, when the bottom stops paying their debt to the top, the bottom is taken out via war, plagues, famines… No reason to believe this time will be any different.
Good time to quit smoking if you currently smoke.
America is inflating it’s way out of the mess. They will make China and other overseas nations angry at the worthless US dollars.
Yesterday I was looking at a cigarette demand model which was estimated by a well-known economist, using state-level data. The estimated income elasticity of demand was around 1/2, suggesting that a 1 pct decrease in per capita income would result in a 1/2 pct decrease in cigarette consumption. I am wondering now how the home equity wealth effect might enter the cigarette demand equation, as an increased desire to smoke would be countervailed by decreased means to do so (i.e., less home equity ATM money to spend on smokes)…
My sons spent the evening last night at a local gym where they had “Parents Night Out” for $15/child ($45 for us). My oldest son commented afterward on how he had never been to one of these functions before when the place was not filled with kids and the parking lot full of cars. There were all of 3 more kids in attendance besides ours — very consistent with the picture of a cash-strapped local economy.
“And for all the economists in the state, what percentage of you guys insisted that a recession was impossible”
Everyone knows that recessions can cause housing downturns; housing downturns don’t cause recessions.
At least that’s what my textbooks and my stochastic modeling software seemed to tell me…
“And for all the economists in the state, what percentage of you guys insisted that a recession was impossible”
Uh, we knew a recession was inevitable but the cat got our collective tongues. Guess who the cat was.
“Guess who the cat was”
Schrödinger’s?
The best defense against that type of cat is peril sensitive sunglasses.
I have no peril sensitive sunglasses, so I’m going to go with what I normally do when I encounter this stupid cat. I’m going to grab the fancy theoretical box and raise it over my head and shake the merry fook out of it, whilst shouting loudly, ‘Who exists NOW, huh? Huh? Huh? Is it ME? Or is it YOU? (rattle, rattle.)’
It’s all I got. Sorry.
LOL.
muni-market failures are sniffing out insolvent and risky.
Treasury market is sniffing out deflation.
strap in markets gonna be a wild ride.
“‘The market is deadlocked, at an impasse, and will remain that way until buyers realize that prices are not plummeting and sellers accept that they no longer have the upper hand.’”
What buyers “realize” has little to do with anything. With prices still way above what the local market will bear (based on too-low incomes and too-tight lending standards), the market won’t clear. Simple as that. Too many expensive houses and too few buyers with the means to buy them, regardless of what their mental state.
I’ve noticed that particular UHS association makes really arrogant statements toward buyers.
I posted this on that article:
“”…until buyers realize that prices are not plummeting.”
Um…the median price has fallen more than 20% in a matter of months. What would count as a “plummet”? 50%?
I’m truly starting to believe that a part of the California real estate licensing process is a frontal lobotomy.”
Oh, but they are, they are. Look at what just happened to the muni market. They got taken behind the woodshed and got shot.
Same thing is coming to the MBS market. Wells Fargo and Wachovia tightening standards. 25% down?
It’s all over except for the guillotine.
I toured open houses today in the $950k to $1.3M range (what I think we can afford, once the dust settles and a market clearing price is achieved-no, I’m not paying $1M for a house.).
We heard why the $2.5 to $6.5M is dropping fast but not the ~$1M market…
Why the sub $600k market but not the ~$1M market isn’t dropping…
I had fun telling them about the reorganization my company announced on Friday. We’re doing purely voluntary relocations to several lower cost markets (I won’t list them all, for then everyone could guess my employer. Those that know… sssssshhhhh!).
But what matters is that we’re moving thousands out of the worst bubble markets due to employee frustration at being ‘priced out forever.’ (Attrition is bad in LA and DC.) We just had a flood of transfer applications to CO and TX.
The fact we’re *finally* going back to sensible down payments, full doc, income and savings verification… isn’t good for the housing market.
Inventory where I want to buy normally hits the annual bottom about the end of the first week of March (March 5th through 11th is when the inventory bottom typically hits…)
Holy cow were there a lot of open houses of interest! Funny how every single one was the ‘best priced comp’ around.
At least they know they’re competing. Every Realtor ™ practically begged us to let them ’show us around.’ At the three homes we toured, that we toured before under different owners 12 to 18 months ago, we really had to bite out tongues! The one that was obviously flipped in six months, nice job FYI, was stagged funny… (Great new cabinets… with the old countertops!).
A small pool of well informed buyers isn’t going to turn this market around…
Got Popcorn?
Neil
what kind of work do you do that you can be on here all the time and easily afford a million dollar home - that has to be some salary????
Any… the more one makes, the less they have to actually work. It’s the suckers at the bottom that bust their butt all day for little pay. All the people that sit around on welfare seem to be the only ones that get it. The high ups all hang around the golf course all day, or pass the work down the chain.
He must be a CEO.
I actually work a lot. I’m just hyperactive and a speed reader.
Also note I’m very on and off again when I post… No CEO and as I noted, I am not buying a $1M home. I’m buying a reasonably priced home that *used* to be priced $1M… circa 2010 or 2011, market dependent. Big difference…
Got Popcorn?
Neil
ps
One home listed at $950k, was sold a year ago at $1.2M.
You should read Brownstoner or Curbed in NYC, mocking renters and crowing about how much they made on their 2004 purchases — even now. Not saying “you’re wrong.” Saying “you are a loser who should go back to Ohio.” I’m not sure where these jerks are from, but I wish we could SEND THEM to Ohio.
This is the state of business today, it has become the fashion to crap on customers. It’s the arrogant corporate mentality.
It goes all the way down the line. I had my car worked on while in SoCal and the cocky comments that came out of the mechanics mouths just made me hope that they also feel the pinch of lost business in this downturn. It was like dejavu with the contractors that thought they were gods because of the amount of business.
Comment by palmetto
2008-03-01 13:33:50
I suspect that they know that the game is up! We are maxed out. We are no longer worth the effort. Its time to move out to the rest of the world’s consumers who have money to be tapped. Who these are, anyone’s guess?
Curbed LA is very similar, though there are a few rational bears there…
“that particular UHS association”
It’s from the boom times, when they could get away with it: “I’m sorry, I won’t even show you that house unless you agree to call me ‘princess’…I’ve got a billion other suckers, err, I mean ‘buyers’ just like you, all waiting to make a bid on one of these houses. After all, everyone wants to live here. Be prepared to sign a contract that requires you to feed the squirrels”.
Arroygrande, yesterday we went to the open houses at the Rancho Pacifica.( brand new houses). Oh ghosh.. it ’s listing between 1.8M - 2.5M . I think only a GF would buy those boxes. All is see they just put all new up to date fixture .. but spaces . around 2100 sqfts
Folks also need to redefine what a “starter home” is. It’s not a 2400 sf house, it’s not even a 1600 sf house. It’s the first house you can afford, with real money. There’s tons of older housing stock that first time buyers sniff at due to visions of grandeur, which they’re going to need to reconsider. Yes, you can life well without all the HGTV glam. SHudder to think that a first time buyer may have to forego the pool/spa/and home theatre.
Exactly. My starter home is a 840 sf cottage in a dodgy Southern California neighborhood. One bathroom. No granite countertops. It was what I could afford my first time out and I own comfortably for $900 a month that is easily affordable. I had one of the few honest realtors who refused to even show me homes that were beyond my financial means.
“Exactly. My starter home is a 840 sf cottage in a dodgy Southern California neighborhood. One bathroom. No granite countertops. It was what I could afford my first time out and I own comfortably for $900 a month that is easily affordable. I had one of the few honest realtors who refused to even show me homes that were beyond my financial means. ”
My starter home is a 1150 sq. ft. townhouse. My monthly payment which in includes taxes, insurance and HOA comes to under $860 per month which is about what a one bedroom apartment in a decent neighborhood goes for in my area, and we have a pool and lawn service.
I truly don’t get the whole ‘must have granite, stainless steel, travertine tile, full bath for every family member including the dog, master bath with separate sinks - wouldn’t want to spit your toothpaste in the same sink as your spouse, walk-in shower the size of my upstairs bathroom and jacuzzi mentality.
I moved here from a tiny apartment that I’d lived in for 12 years prior and felt like I was living like a king.
A few months ago, someone posted that stainless steel is to this decade what harvest gold and avocado green were to the 1970’s. Was it this board?
But, yeah, when I see pictures of homes with stainless appliances and granite countertops I actually get the heebie-jeebies. The way I would if I was looking at a crime scene photo. I’m not even sure why it affects me that way.
hmmm.. stainless steel .. the dentist’s office? and then add granite .. what’s that make me think of .. a morgue?
Yes, it was this board. Several of us have been saying it for years. Why anyone would want their fridge to stick out like a vast illuminated machine, or a giagantic restaurant range complete with circus tent hood is beyond me.
‘…would want their fridge to stick out like a vast illuminated machine, or a giagantic restaurant range complete with circus tent hood is beyond me.’
You make it sound like these things are bad. Look, there’s a time and place for everything.
So true. If you cook a lot (as I do) a professional 6-burner range with two ovens and a big hood for sucking the smells out of your kitchen is great. I had a Viking for 6 years and loved it. Am now cooking on a mid-century Chambers and that is fine, too.
But I think granite countertops are definitely over.
“You make it sound like these things are bad. Look, there’s a time and place for everything.”
We’re hoping to build our own house exactly the way we like it…Formica countertops, linoleum floors in kitchen & baths and standard beige carpeting throughout the house!
A starter home is what ever you can afford. If you can only afford 800sqft then thats a starter home. If you can afford 2500sqft then thats your starter home. It’s all about affordability not the size. I do howere understand your point that averyone wanted the 2500 sqft home but could barely afford to rent the 800sqft home.
Our starter home was an apartment. The next one was an apartment. The one after that was an apartment. It wasn’t until I was 35 that we had saved up enough of a down payment (20%) to *buy* a house without depleting our emergency funds.
Sounds like me except I bought my first house at 45. I’m obsessed with liquidity.
My first, and still my house I live in, in 1986, a condo with combined PITI, HOA and lawn services at $800. Purchased with GI Bill at 38 yrs of age. Don’t plan to sell. Picked out a spot in the small backyard to place my ashes.
O’ by the way, two master bedroom with 1100 sqft.with a tiny yard, big enough for a Victory garden.
“Folks also need to redefine what a ’starter home’ is.”
I think the “redefining” is about to be done for many of these folks — by the lenders. If, on your typical data entry clerk’s salary, you can no longer obtain the loan for the 3000 sq. ft. house with the infinity pool and the gilded lava rock sauna, you won’t be buying that house and necessary accoutrements (such as the Escalade with the spinning rims), no matter how “entitled” you feel.
As many on this blog have pointed out, the availability of EZ Credit in recent years has enabled those lacking financial discipline to emulate those with some modicum of actual wealth. That is, debt has been used as a surrogate for income. Expect that trend to be an early casualty of the housing bust.
On the other hand, first-time buyers who have waited patiently for the bubble to burst and have lots of cash on hand may be able to skip the “starter home” phase altogether.
With regards to your last paragraph, first time buyers need to be especially careful right now. Shrewd agents are likely to play off the very idea you cited - that first timers can get more house for their dollar - in an attempt to entice them to catch falling knives. From the main post it looks like the REIC is targeting first time buyers pretty agressively as they are likely most susceptible to “buy now before prices zoom back up” ploys. If a first time buyer has been paitent this long - what’s waiting a little longer going to hurt - just to be safe.
Good point, EJ. I probably should have said “first time buyers who ARE (currently) waiting patiently…” Although there likely will be knife-catchers the whole way down, how many of them there are may depend on how successful the REIC is in promoting the meme “houses have fallen x% now, so the hot deals are here…” We all need to rail against this nonsense.
Great thread… our starter home is a 750 sq ft cottage… that’s 450 on the main floor and 300 finished sq ft in the basement. And it houses three of us (two adults and a baby).
The various comments on “first-time” buyers have given me a rationale for the relative success of my lending business, i.e., the absence of defaulters. Viz., I don’t deal with first-time buyers, mostly with Last-Time buyers. Median age certainly over 60, median home price under $100K.
Heh, prices aren’t plummeting… I just found this house in the neighborhood that we’re looking to move to (in 1-3 years), and it’s a poster child for where this particular market (Berkeley) is headed:
http://redfin.com/stingray/do/printable-listing?listing-id=1520695
Short sale for 450K. Note the “zestimate,” and the recent sale prices of nearby houses.
Note also “List Date: Friday, April 2, 2010.”
That’s a nasty trick.
Where ill be relocating, starter houses are around $25k, nice middle class houses are around $50k to $75k and upper class houses are $200k plus.
And you have 4 nice seasons! Maybe even 6, if you get picky. Are you going to get a carriage, I wonder? How about a barn? How about a straw hat?
Yes but both of the upper class homes already have someone living in them
Very strange you fixation with NW PA. It is pretty though.
That listing is an excellent example. It is well located up in the hills near Marin and Euclid, but not next to either and wedged between Cragmont Park and Remillard Park. This area is quite leafy. At the peak of the bubble the current short sale asking price would probably been considered lot value.
I couldn’t agree more
It is still all about fundamentals! As long as the average price of a home is still 6 to 7 times household income, as is the case here in SD (actually more like 8 times) houses will NOT sell. . .espeically now that banks are demanding 10 to15% down. In real terms, the “average household” here makes about 68K, and “average” house is still about 450K - that means at least 45K to 65K downpayment!. . .how many people earning 68K have 45K for a downpayment??? To get back to “normal” when houses should be about 2 to 3 times annual income, we would need average house to sell for about 200K. . .we have a LONG LONG way to go. . .BTW - Case-Shiller had a 3.4% one month drop in SD prices. . .doesn’t take more than 6 months to get another 20% at that rate.
“…how many people earning 68K have 45K for a downpayment???”
Not many, I suspect, though I can think of many SD hhs which lost amounts on that order of magnitude (or larger) on the values of their homes over the last year…
“As long as the average price of a home is still 6 to 7 times household income, as is the case here in SD (actually more like 8 times) houses will NOT sell. . .espeically now that banks are demanding 10 to15% down…”
What’s funny about these numbers is the DP requirement now is about equivalent to one year’s median gross salary. It’s a short number of people that have saved 100% of their annual gross.
bank failures ???????
NEW YORK (MarketWatch) — The Federal Deposit Insurance Corp. is trying to rehire 25 former employees specializing in bank insolvency, but the agency that insures bank deposits said it does not expect a surge of failures in the industry.
Federal Reserve Chairman Ben Bernanke raised some eyebrows this week when he suggested during congressional testimony that the U.S. will likely see some banks fail in upcoming months due to the ongoing credit crunch and a weakening housing market.
“There will probably be some bank failures,” Bernanke told Congress Thursday. “There are some small and in many cases de novo [new] banks that have heavily invested in real estate in locales where prices have fallen. Among the largest banks, the capital ratios remain good and I don’t expect any serious problems among the larger banks.”
“Our problem bank list has 76 institutions, low by historical standards,” Andrew Gray, a representative for the FDIC, told MarketWatch. “In 1990, there were close to 1,500 on the list. Typically, the number of failures for a given year does not approach the number of banks on the list.”
In contrast, more than 800 banks failed between 1990 and 1992 after a severe recession brought on by the savings and loan crisis proved to be too much for many overleveraged smaller banks.
Analysts also cried foul on Bernanke’s suggestion, with Punk Ziegel analyst Dick Bove pointing out Friday that even when three small banks failed during the fourth quarter of 2008, the market barely registered the change.
All three of those were regional banks: Douglass National Bank in Kansas City, Mo., Miami Valley Bank of Lakeview, Ohio, and NetBank in Alpharetta, Ga.
“Virtually no one was even aware that this happened because it was akin to the proverbial tree falling in the forest,” Bove said Friday, adding he isn’t worried about the 76 banks currently on the FDIC’s radar.
“Virtually no one was even aware that this happened because it was akin to the proverbial tree falling in the forest,”
Reporter: Mr President, did you hear that gas is going to $4.00 that some banks are going to fail?
GWB: say what?
Premium is already $4.10/gal around here. I’m pulling money out the local lending banks as fast as I can find places to invest it. Big problem finding good investments of any sort right now, though.
Try cash in a coffee can in the yard or under the mattress!
“Try cash in a coffee can in the yard or under the mattress!”
Ah yes, The bank of Sealy.
The cash may be depreciated through inflation, but I am not smart enough to take a risk in trying to meet or beat the inflation rate in any financial instrument. Principal is more important than interest on the principal!
Me too. I have a lot of cash I don’t know what to do with. No good, safe investments anymore. I’m hunkered down, just hoping to keep my principal.
“There will probably be some bank failures,” Bernanke told Congress Thursday. “There are some small and in many cases de novo [new] banks that have heavily invested in real estate in locales where prices have fallen. Among the largest banks, the capital ratios remain good and I don’t expect any serious problems among the larger banks.”
Well there you have it. Bank failures are contained. Glad we dodged THAT bullet..
‘a collective erosion in borrowers’ commitment to service their loans.’
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
I don’t thinks there’s been an erosion in commitment or that models have changed. It’s just that the numbers have changed and it’s no longer in a lot of people’s best interests to keep paying on upside-down mortgages.
Only a fool would continue to pay on a upside down mortgage for the rest of his life or even for added few more years. For what? Move on, start over and knowledge becomes wisdom for the future slave who now knows the value of money/reality.
The erosion was in lending standards. When people had downpayments of 20% they didn’t get upside down very often.
The sad thing is that we would all be better off, especially the banks, if most of these foreclosures could be avoided by the banks just rewriting the loans down to the current value of the home, taking the loss, and giving the borrower a loan they could live with.
Unfortunately, the way that ownership of the mortgages are so fragmentented there isn’t anyone with the authority to renegotiate the majority of these loans. Foreclosure becomes the only option.
Not only should he top Honcho resign, but there should be a housekeeping of at least the top three tiers (could be greater) of upper management. In that way, we are not replacing one set of idiots with their equals.
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
That must be a very old model! I know 2 people who walked in the 1990’s in CA because it was a bad investment. They went on to buy much nicer homes easy as pie. Stupid Banks they knew what would happen and just sold the loan with the lie Americans don’t walk away from their homes.
Households didn’t default on mortgages unless they experienced life-changing events, such as illness, divorce or a death in the family, he said.”
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
Dear GF & FB’s,
Suzanne research THIS too..She JUST DIDN’T TELL YOU
““‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’””
Well, yeah. Even if the average FB raids his/her 401k and gets a second job they won’t be able to pay the jumbo mortgage and it looks as if they’ve figured that out.
In the past, once the crisis, job loss, illness, etc. was over, the owner could expect to recover and resume normal life. Now the mortgage amounts are so huge, it’s impossible. Why are the great financial geniuses just now realizing this?
Some of them learned this too late after their 401k and savings became depleted. Others realize it’s dumb to throw good money after bad money and realize house prices are going down, why keep paying?
“‘In a slow market, (there’s) no reason to expend millions of dollars on a subdivision if you can’t sell the houses,’ McIntosh said.”
Does anyone remember the big Japanese conglomerate that bought a whole bunch of land in California right after the peak?
One of the new faces of the New Economics in Southern Cali:
http://tinyurl.com/2pbcab
Priced to Sell!
Borders an upscale neighborhood. Conveniently close to freeway. Huge garden area. Tree-lined pathways.. a steal at $369,000
http://tinyurl.com/242tnb
LOL!
Wow. That dude’s 27 years old. I’d hate to see what he looks like at 37.
That’s what Meth will do for you…
Youwalkaway.com are the new Robin Hoods IMHO. And I think this is the future of our civic institutions and businesses as well.
Two days ago, New York State’s Governor signed a bill that will allow NYC teachers to retire at 55 instead of 62. Thousands can walk out the door tomorrow with guarantteed pay and health care for nothing. Based on some, shall we say, Enron like assumptions, the politicians and the teacher’s union claimed that the added benefit for those losing would be paid for entirely by lower take home pay for those being hired as teachers from now on. This follows 35 years of similar “screw the newbie, flee to Florida” deals.
We will not have public schools. I just got a look at the MTA Capital Plan. We will not have a transit system. We will not get Social Security. We will not get Medicare. We will not have parks, libraries, anything.
So why pay taxes to pay for financial assets held by the executives who screwed us with the help of Republicans and pensions for the unions that screwed us with the help of Democrats? youwalkaway.com. Our generation, and our children, will eat Ramen Noodles. Let’s make them to do the same.
Testify!
No you MORONS…You hired the dumbest chicky-poos as “loan officers” so the borrower would not feel threatened.
Then all the way up the chain of command you hired utterly stupid clueless people instead of me, who would have said NO WAY is that moron going to borrow money from us!
—————————————————-
creation of a company that helps borrowers go into foreclosure reflects “a collective erosion in borrowers’ commitment to service their loans.
Meanwhile, Fannie is scheming to get measures passed to punish the walkers. Let the lenders eat the consequences of abandoned underwriting standards, and crazy loans need never happen again in our lifetimes.
no they are loan officers that did a ton of option arms until they could not fund loans.. now they are getting paid on the other side of this bubble.. give them credit for the idea but sleeping at night is something these fraudsters must have trouble with..
WT,
The governor has lost his mind on this one. Public pensions are already massively underfunded in NY state. There is only one answer to this one…walking away. I rent, and if these costs move from property taxes to income taxes, I will be gone from here.
No spike:
I think the trade off is the people who sign up for this will have to contribute the difference out of their own paychecks every week for 25 years……Spitzer’s no dummy
Is You Walk Away franchising?
U.S. banking sector headed for meltdown, official says
Banks face massive loan losses because of defaults on debts and housing-price slide
http://www.globalresearch.ca/index.php?context=va&aid=8226
“headed for”
I reiterate: The most accurate predictions are those which report what has already occurred to those who are unaware of what has occurred already.
Hey, how are ya GS
C at $16 a share?
..gimme some of that…
When Citigroup gets to $16 it would be silly to buy it, picking bottoms is rarely profitable. Look at all the bottom pickers from $58 to $25 in the last year (if they hold it for 20 years they may be right). There are better bank stocks to buy right now, banks that actually have profits and have money to pay a dividend.
Credit insolvency issues take an average of 5 years to work through the system. This has just completed 7 months and each month has gotten worse. IMHO the bottom in the insolvency crisis is more than 2 years away.
At $25 i am not selling (or buying more) although i will almost surely lose 50% of what i have.
My prediction is a bottom of $10 or $12, but i can stomach additional losses anywhere from $16 downward.
And a 5 year wait is acceptable to my timeline..
That is why it is called a market.
Thought for the day.
What do you call a ‘rogue trader‘ who makes money?
Vice-President?
Secretary of the Treasury?
‘Sweetie-pie?’
a new printer.
“Phibro, Citigroup’s “secretive trading group” generated nearly 10% of the bank’s income trading commodities. (WSJ.com, Market Movers)”
Citigroups average daily market trading loss last year assuming 270 days of trading activity -$150M/day . A nice loss, no wonder traders want to be on the other side of Citigroup’s market.
what’s 40 billion when you’ve got 2,300 billion..
I am treating your comment as it deserves. Try reading a friggin Q or K report don’t make stupid comments about a bank. Your knowledge can be painlessly etched in block letters on your forehead. Citigroup is doing whatever it can to stave off forced liquidation. Its been liquidating assets, it does not meet minimum standards for reserves and many of its assets are now suspect, including but not limited to its Municipal Bond holdings, CDO holdings, CLO holdings, stock portfolio and commercial loans. The question is how Citigroup dissolves, not if it dissolves. If it was worth 2.3 T then you should buy it now for $30/share and liquidate in fact you should buy it for $300 and liquidate. It is trading above its book value which has been said above is over inflated.
While your out buying Citigroup stock you should also buy a house in San Diego, the appraisals say you are getting a steal. Ignore the fact that you can go onto the Merc and buy a Nov 2012 contract to buy the house for 25% less than todays price.
As my daddy used to say: You can lead a horse to water, but a bullet ought to be lead.
‘As my daddy used to say: You can lead a horse to water, but a bullet ought to be lead.’
That’s the first time that has ever made sense. Your daddy sounds like a smart guy, and one who can interpret an aphorism correctly. Since he’s such a smarty, ask him about the ‘blood from a stone’ thing, because that one has always confused me. I never can manage those cliches or proverbs things.
Hoz thanks for the info on Citi. I keep telling people Citi is in trouble but no one listens. Everybody but the old time bankers I know forget/don’t know/don’t care that Citi was close to bk back in the mid 90s but was bailed out by the tax payers. Again, history repeats itself.
Also, thank for the Yen info back in 07′. The Yen has been very nice to me lately.
What’s that I see across your forehead Hoz?
f-a-l-l .. no.. f-o-l-l-o-w .. follow.. t-h-e.. herd? Follow the herd?
hmm.. well.. er.. thanks for the free advice.
I just got back from the small market/gas station at the base of the peninsula I live on here in Thurston Co. WA, where I chatted with the cashier at length about folks and business, and the new higher prices on produce and milk, which are up noticeably in just the last few weeks. It’s a small community, everybody knows each other, and I’m an inquisitive chatterbox anyhow. None of the stuff I heard was good. Then I get back home and look at these articles Ben has selected.
I’m feeling a sort of new sensation somewhere in my midriff, around the belly-button area. Like eating too many pop-rocks combined with beer? But no, I think I’m feeling…just a touch of fear. Yes, that’s it. I’m not accustomed to the sensation is why I didn’t recognize it at first. Not big- giant- scream- wildly- in- the- forest fear, but still, you know, I think I’m going to skip buying books with my ’stimulus’ check and maybe load up on a few more cases of canned soup.
Your gut is telling you we have been in a recession for several months now. Add stagflation to the mix.
“A Southern California developer has pulled the plug on a planned multiuse project on San Pablo Avenue near the Del Norte BART station in El Cerrito.”
I used to catch the BART there every day when we lived in the Bay Area. There was already tons of commercial development in every direction away from the station, including a Big Box Mart (actually Target) right across the street, so I am having a hard time picturing what additional value-enhancing development prospects these guys had in mind?
when i was going to school in the city early 90s i also caught the bart there. i did a mad dash from work to the bart station and did homework on the bart on the way to the city. i arrived back at 10pm and seriously wondered if i could make it to my car before i got mugged.
“…My main hunting grounds are the mean streets of BART, which I am forced to endure twice a day for half an hour at a time. Many people from other places tell me that BART is great or some similar shit, but anyone who rides it daily like me knows that it sucks. To pay $10 a day for the right to park and ride to and from work is excruciating, especially on the way home when I think about paying to stand on a packed train with a bunch of self absorbed aholes. But I must give BART some credit, for they launched my career as the most lethal vigilante in history.
Here is a list of some of the victims and the methods with which they were punished:
Mr. Read the newspaper to his wife on speaker phone guy: You are on the top of the list for one reason and one reason only; you are without a doubt the biggest asshole in history. Who sits there and yells on speaker phone and reads stories about an axe murderer to his wife during rush hour (in the elderly and handicapped seat no less)? You do. I fought for almost two minutes, desperately pumping the volume up button on my iPod trying to block out your transgressions. My career as a fartist started then, my ignorant self absorbed friend, and you were treated to turkey chili con queso. Oooooh it was hot and wet when I crop dusted you, how did it smell? Call your wife and tell her about it. …”
Best of Craigslist
Confessions of a BART Fartist
http://tinyurl.com/2rbmlg
I read that on Craigslist. Found it quite humorous.
“Meanwhile, there’s plenty of competition for job openings. ‘I volunteer time with job seekers in the Bay Area, and nearly every job opening attracts tens of job seekers, often more,’ said former Employment Development Department Director Michael Bernick.”
I too volunteer at Job Corps here in Marina del Rey. I help out 3 days a week, one hr each day. Mainly I help people put together their resumes.
The coordinator there told me my schedule is booked through March where as I was working an avg of 1 hr per week back in late 2007. I’ve also noticed traffic in the office (they have computers, a job board, etc for job seekers) has really picked up in 2008.
Big troubles ahead for Cali based on what I see at my job (commercial banking) and other anecdotal experiences.
A comment on the job loss and business is down articles - based on my recollection of the 80’s recession in Houston, rolling along the bottom occurs when daily headlines are tallies of jobs lost and layoffs, and all the government and university job openings are frozen, nobody is hiring. That’s what I see next.
Nitpick, the housing market bottoms about 9 months after when you mentioned. Not that buying then, if you negotiate well, isn’t a smart decision. Ugh… I just did my taxes… Darn AMT.
Got Popcorn?
Neil
“Martin McGuinn, a San Diego attorney who represents lenders and loan servicers in foreclosures, called the trend disturbing. ‘From a lender’s standpoint, the worst thing in the world that could happen is for people to simply walk away from their property,’ McGuinn said.”
From a borrowers standpoint, the worst thing that could happen is for lenders to think they are immune to losing money no matter what happens. At that point they are no longer working toward the same goal.
Now this is literally “the sh*t hitting the air circulation device
http://www.al.com/news/birminghamnews/index.ssf?/base/news/1204362972233590.xml&coll=2
Three times the size of the Orange county default?!!! Birmingham, AL?!!!
This is definitely going to leave a mark.
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
Another shocker for the MSM to wrap their heads around. If you sell a lot of FB’s overpriced houses on the premise RE only goes up, then no one should be surprised people don’t want their bloated mortgage if it’s nothing but a financial sink hole.
Houses are a place to live, and I think it makes sense to have a paid-off house as part of a retirement strategy. Road to riches? If you get lucky with your timing, yes. But otherwise, just a place to call your own.
putting [OC and LA] in the same bottom category with San Diego and the Inland Empire
That’s gotta hurt…
Another shocker for the MSM to wrap their heads around:
Stop throwing away money on a Mortgage……..hmmmmmmm haven’t i heard something like that before?
“‘That old model is behind us,’ Leamer said. ‘People are walking away just because it was a bad investment.’”
—————————
Another piece of evidence that enabling people to “buy” homes isn’t going to magically turn them into responsible neighbors and citizens.
The reason homeowners had a better reputation than renters was because homeowners had to **prove** they were responsible BEFORE they were allowed to get a mortgage.
“Homeownership”, in and of itself, never turned frogs into princes.